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G.R. No.

L-19495

February 2, 1924

HONORIO LASAM, ET AL., plaintiffs-appellants,


vs.
FRANK SMITH, JR., defendant-appellant.
Palma and Leuterio for plaintiffs-appellants.
Mariano Alisangco for defendant-appellant.
OSTRAND, J.:
The plaintiff are husband and wife and this action is brought to recover damages in the sum of
P20,000 for physical injuries sustained by them in an automobile accident. The trial court rendered a
judgment in their favor for the sum of P1,254.10, with legal interest from the date of the judgment.
Both the plaintiffs and the defendant appeal, the former maintaining that the damages awarded are
insufficient while the latter denies all liability for any damages whatever.
It appears from the evidence that on February 27, 1918, the defendant was the owner of a public
garage in the town of San Fernando, La Union, and engaged in the business of carrying passengers
for hire from the one point to another in the Province of La Union and the surrounding provinces. On
the date mentioned, he undertook to convey the plaintiffs from San Fernando to Currimao, Ilocos
Norte, in a Ford automobile. On leaving San Fernando, the automobile was operated by a licensed
chauffeur, but after having reached the town of San Juan, the chauffeur allowed his assistant,
Remigio Bueno, to drive the car. Bueno held no driver's license, but had some experience in driving,
and with the exception of some slight engine trouble while passing through the town of Luna, the car
functioned well until after the crossing of the Abra River in Tagudin, when, according to the testimony
of the witnesses for the plaintiffs, defects developed in the steering gear so as to make accurate
steering impossible, and after zigzagging for a distance of about half a kilometer, the car left the road
and went down a steep embankment.
The defendant, in his testimony, maintains that there was no defect in the steering gear, neither
before nor after the accident, and expresses the opinion that the swaying or zigzagging of the car
must have been due to its having been driven at an excessive rate of speed. This may possibly be
true, but it is, from our point of view, immaterial whether the accident was caused by negligence on
the part of the defendant's employees, or whether it was due to defects in the automobile; the result
would be practically the same in either event.
In going over the bank of the road, the automobile was overturned and the plaintiffs pinned down
under it. Mr. Lasam escaped with a few contusions and a "dislocated" rib , but his wife, Joaquina
Sanchez, received serious injuries, among which was a compound fracture of one of the bones in
her left wrist. She also appears to have suffered a nervous breakdown from which she had not fully
recovered at the time of the trial.
The complaint in the case was filed about a year and a half after the occurrence above related. It
alleges, among other things, that the accident was due to defects in the automobile as well as to the
incompetence and negligence of the chauffeur, and the case appears to have been tried largely
upon the theory that it sounds in tort and that the liability of the defendant is governed by article 1903
of the Civil Code. The trial court held, however, that the cause of action rests on the defendant's
breach of the contract of carriage and that, consequently, articles 1101-1107 of the Civil Code, and
not article 1903, are applicable. The court further found that the breach of the contract was not due
to fortuitous events and that, therefore, the defendant was liable in damages.

In our opinion, the conclusions of the court below are entirely correct. That upon the facts stated the
defendant's liability, if any, is contractual, is well settled by previous decisions of the court, beginning
with the case of Rakes vs. Atlantic, Gulf & Pacific Co. (7 Phil., 359), and the distinction between
extra-contractual liability and contractual liability has been so ably and exhaustively discussed in
various other cases, that nothing further need here be said upon that subject. (See Cangco vs.
Manila Railroad Co., 38 Phil., 768; Manila Railroad Co. vs. Compania Trasatlantica and Atlantic, Gulf
& Pacific Co., 38 Phil., 875; De Guia vs. Manila Electric Railroad & Light Co., 40 Phil., 706.) It is
sufficient to reiterate that the source of the defendant's legal liability is the contract of carriage; that
by entering into that contract he bound himself to carry the plaintiffs safely and securely to their
destination; and that having failed to do so he is liable in damages unless he shows that the failure
to fulfill his obligation was due to causes mentioned in article 1105 of the Civil Code, which reads as
follows:
No one shall be liable for events which could not be foreseen or which, even if foreseen,
were inevitable, with the exception of the cases in which the law expressly provides
otherwise and those in which the obligation itself imposes such liability.
This brings us to the principal question in the case:
What is meant by "events which cannot be foreseen and which, having been foreseen, are
inevitable?" The Spanish authorities regard the language employed as an effort to define the
term caso fortuito and hold that the two expressions are synonymous. (Manresa, Comentarios al
Codigo Civil Espaol, vol. 8, pp. 88 et seq.; Scvola, Codigo Civil, vol. 19, pp. 526 et seq.)
The antecedent to article 1105 is found in Law 11, Title 33, Partida 7, which defines caso fortuito as
"occasion que a case por aventura de que non se puede ante ver. E son estos, derrivamientos de
casas e fuego que se enciende a so ora, e quebrantamiento de navio, fuerca de ladrones. . . . (An
event that takes place by accident and could not have been foreseen. Examples of this are
destruction of houses, unexpected fire, shipwreck, violence of robbers. . . .)"
Escriche defines caso fortuito as "an unexpected event or act of God which could either be foreseen
nor resisted, such as floods, torrents, shipwrecks, conflagrations, lightning, compulsion,
insurrections, destructions, destruction of buildings by unforseen accidents and other occurrences of
a similar nature."
In discussing and analyzing the term caso fortuito the Enciclopedia Juridica Espaola says: "In a
legal sense and, consequently, also in relation to contracts, a caso fortuito presents the following
essential characteristics: (1) The cause of the unforeseen and unexpected occurrence, or of the
failure of the debtor to comply with his obligation, must be independent of the human will. (2) It must
be impossible to foresee the event which constitutes 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 a normal manner. And (4) the obligor (debtor) must be free from any
participation in the aggravation of the injury resulting to the creditor." (5 Enciclopedia Juridica
Espaola, 309.)
As will be seen, these authorities agree that some extraordinary circumstance independent of the
will of the obligor, or of his employees, is an essential element of a caso fortuito. Turning to the
present case, it is at once apparent that this element is lacking. It is not suggested that the accident
in question was due to an act of God or to adverse road conditions which could not have been
foreseen. As far as the records shows, the accident was caused either by defects in the automobile
or else through the negligence of its driver. That is not a caso fortuito.

We agree with counsel that neither under the American nor Spanish law is a carrier of passengers
an absolute insurer against the risks of travel from which the passenger may protect himself by
exercising ordinary care and diligence. The case of Alba vs. Sociedad Anonima de
Tranvias, Jurisprudencia Civil, vol. 102, p. 928, cited by the defendant in support of his contentions,
affords a good illustration of the application of this principle. In that case Alba, a passenger on a
street car, was standing on the platform of the car while it was in motion. The car rounded a curve
causing Alba to lose his balance and fall off the platform, sustaining severe injuries. In an action
brought by him to recover damages, the supreme court of Spain held that inasmuch as the car at the
time of the accident was travelling at a moderate rate of speed and there was no infraction of the
regulations, and the plaintiff was exposed to no greater danger than that inherent in that particular
mode of travel, the plaintiff could not recover, especially so since he should have been on his guard
against a contingency as natural as that of losing his balance to a greater or less extent when the
car rounded the curve.
But such is not the present case; here the passengers had no means of avoiding the danger or
escaping the injury.
The plaintiffs maintain that the evidence clearly establishes that they are entitled to damages in the
sum of P7,832.80 instead of P1,254.10 as found by the trial court, and their assignments of error
relate to this point only.
There can be no doubt that the expenses incurred by the plaintiffs as a result of the accident greatly
exceeded the amount of the damages awarded. But bearing in mind that in determining the extent of
the liability for losses or damages resulting from negligence in the fulfillment of a contractual
obligation, the courts have "a discretionary power to moderate the liability according to the
circumstances" (De Guia vs. Manila Electric Railroad & Light Co., 40 Phil., 706; art. 1103, Civil
Code), we do not think that the evidence is such as to justify us in interfering with the discretion of
the court below in this respect. As pointed out by that court in its well-reasoned and well-considered
decision, by far the greater part of the damages claimed by the plaintiffs resulted from the fracture of
a bone in the left wrist of Joaquina Sanchez and from her objections to having a decaying splinter of
the bone removed by a surgical operation. As a consequence of her refusal to submit such an
operation, a series of infections ensued and which required constant and expensive medical
treatment for several years. We agree with the court below that the defendant should not be charged
with these expenses.
For the reasons stated, the judgment appealed from is affirmed, without costs in this instance. So
ordered.
Araullo, C.J., Street, Malcolm, Johns and Romualdez, JJ., concur.

G.R. No. L-6092

March 8, 1912

TAN CHIONG SIAN, plaintiff-appellee,


vs.
INCHAUSTI AND CO., defendant-appellant.
Haussermann, Cohn and Fisher for appellant.
O'Brien and DeWitt for appellee.

TORRES, J.:
This is an appeal through bill of exceptions, by counsel for the firm of Inchausti & Co., from a
judgment rendered by the Honorable A.S. Crossfield, judge.
On January 11, 1909, the Chinaman, Tan Chiong Sian or Tan Chinto, filed a written complaint, which
was amended on the 28th of the same month and again amended on October 27 of the same year,
against the said firm, wherein he alleged, among other things, as a cause of action: That, on or
about November 25, 1908, the plaintiff delivered to the defendant 205 bundles or cases of general
merchandise belonging to him, which Inchausti & Co., upon receiving, bound themselves to deliver
in the pueblo of Catarman, Province of Samar, to the Chinaman, Ong Bieng Sip, and in
consideration of the obligations contracted by the defendant party, the plaintiff obligated himself to
pay to the latter the sum of P250 Philippine currency, which payment should be made upon the
delivery of the said merchandise in the said pueblo Catarman; but that the defendant company
neither carried nor delivered the aforementioned merchandise to the said Ong Bieng Sip, in
Catarman, but unjustly and negligently failed to do so, with the result that the said merchandise was
almost totally lost; that, had the defendant party complied well and faithfully with its obligation,
according to the agreement made, the merchandise concerned would have a value of P20,000 in the
said pueblo of Catarman on the date when it should have been delivered there, wherefore the
defendant party owed the plaintiff the said sum of P20,000, which it had not paid him, or any part
thereof, notwithstanding the many demands of the plaintiff; therefore the latter prayed for judgment
against the defendant for the said sum, together with legal interest thereon from November 25, 1908,
and the costs of the suit.
Counsel for the defendant company, in his answer, set forth, that he admitted the allegations of
paragraphs 1 and 2 of the complaint, amended for the second time, and denied those paragraphs 3,
4, 5, 6 and 7 of the same. As his first special defense, he alleged that on or about November 28,
1908, his client, the said firm, received in Manila from Ong Bieng Sip 205 bundles, bales, or cases of
merchandise to be placed on board the steamer Sorsogon, belonging to the defendant, for shipment
to the port of Gubat, Province of Sorsogon, to be in the said port transshipped into another of the
defendant's vessels for transportation to the port of Catarman, Samar, and delivered to the aforesaid
Chinaman, Ong Bieng Sip; that the defendant company, upon receiving the said merchandise from
the latter, Ong Bieng Sip, and on its entering into a contract of maritime transportation with him did
not know and was not notified that the plaintiff, Tan Chiong Sian, had any interest whatever in the
said merchandise and had made with the plaintiff no contract relative to the transportation of such
goods, for, on receiving the latter from the said Ong Bieng Sip, for transportation, there were made
out and delivered to him three bills of lading, Nos. 38, 39 and 76, which contained a list of the goods
received and, printed on the back thereof were the terms of the maritime transportation contract
entered into by and between the plaintiff and the defendant company, copies of which bills of lading
and contract, marked as Exhibits A, B, and C, are of record, attached to and made an integral part of
the said answer; that Ong Bieng Sip accepted the said bills of lading and the contract extended on
the backs thereof; that the merchandise mentioned was put on board the steamer Sorsogon and
carried to the port of Gubat, Province of Sorsogon, where this vessel arrived on November 28, 1908,
on which date the lorcha Pilar, into which the said merchandise was to be transshipped for carriage
to Catarman, was not at Gubat, and therefore the goods had to be unloaded and stored in the
defendant company's warehouses at Gubat; that, on the 4th of December of the same year,
the lorcha Pilar arrived at Gubat and, after the termination of certain necessary work, the goods
received from Chinaman, Ong Bieng Sip, were taken aboard the same, together with other
merchandise belonging to the defendant party, for the purpose of transportation to the port of
Catarman; that, before the said lorcha could leave for its destination, a strong wind arose which in
the course of the day increased in force until, early in the morning of the following day,
the lorcha was dragged and driven, by the force of the storm, upon the shore, despite the means
employed by the crew to avoid the accident, and notwithstanding the five anchors that held the craft,

which was thus wrecked and completely destroyed and the merchandise with which it was laden,
including the 205 bundles or packages taken aboard for the said Chinaman, was scattered on the
shore; that, on the occasion, the lorcha Pilar was in good condition, provided with all the proper and
necessary equipment and accessories and carried a crew of sufficient number in command of a
skillful patron or master, wherefore the wreck of the said craft was solely due to the irresistible force
of the elements and of the storm which drove it upon the shore; that the defendant company, with
the greatest possible diligence, gathered up the said shipwrecked goods that had been shipped by
the Chinaman, Ong Bieng Sip, but, owing to the damage they had suffered, it was impossible to
preserve them, so, after having offered to deliver them to him, the defendant proceeded, in the
presence of a notary, to sell them at public auction and realized from the sale thereof P1,693.67, the
reasonable value of the same in the condition in which they were after they had been gathered up
and salved from the wreck of the lorcha Pilar; that the expenses occasioned by such salvage and
sale of the said goods amounted to P151.35, which were paid by the defendant party; that the latter
offered to the Chinese shipper, the plaintiff, the amount realized from the sale of the said
merchandise, less P151.35, the amount of the expenses, and the sum of P250, the amount of the
freight stipulated, and is still willing to pay such products of the said sale to the aforementioned Ong
Bieng Sip or to any other person who should establish his subrogation to the rights of the Chinaman,
Ong Bieng Sip, with respect to the said amount; that, as his client's second special defense, the
defendant company alleged that one of the conditions of the shipping contract executed between it
and the Chinaman, Ong Bieng Sip, relative to the transportation of the said merchandise, was that
the said firm should not be held liable for more than P25 for any bundle or package, unless the value
of its contents should be stated in the bill of lading, and that the shipper, Chinaman, Ong Bieng Sip,
did not state in the bill of lading the value of any of the bundles or packages in which the goods
shipped by him were packed. Counsel for the defendant company, therefore, prayed the court to
absolve his client from the complaint, with costs against the plaintiff.
After the hearing of the case and the introduction of testimony by the parties, judgment was
rendered, on March 18, 1910, in favor of the plaintiff, Tan Chiong Sian or Tan Chinto, against the
defendant Inchausti and Co., for the sum of P14,642.63, with interest at the rate of 6 per cent per
annum from January 11, 1909, and for the costs of the trial. The defendant party appealed from this
judgment.
This suit was brought for the purpose of collecting a certain sum which it is alleged the defendant
firm owes the plaintiff for losses and damages suffered by the latter as a result of the former's
noncompliance with the terms of an agreement or contract to transport certain merchandise by sea
from this city to the pueblo of Catarman, Island of Samar, for the sum of P250.
The principal question to be determined is whether the defendant is liable for the loss of the
merchandise and for failure to deliver the same at the place of destination, or whether he is relieved
from responsibility on the ground offorce majeure.
Article 1601 of the Civil Code prescribes:
Carriers of goods by land or by water shall be subject with regard to the keeping and
preservation of the things entrusted to them, to the same obligations as determined for
innkeepers by articles 1783 and 1784.
The provisions of this article shall be understood without prejudice to what is prescribed by
the Code of Commerce with regard to transportation by sea and land.
Article 1602 reads:

Carriers are also liable for the loss of and damage to the things which they receive, unless
they prove that the loss or damage arose from a fortuitous event or force majeure.
The articles aforecited are as follows:
ART. 1783. The depositum of goods made by travelers in inns or hostelries shall also be
considered a necessary one. The keepers of inns and hostelries are liable for them as such
bailees, provided that notice thereof may have been given to them or to their employees, and
that the travelers on their part take the precautions which said innkeepers or their substitutes
may have advised them concerning the care and vigilance of said goods.
ART. 1784. The liability referred to in the preceding article shall include damages to the
goods of the travelers caused the servants or employees of the keepers for inns or hostelries
as well as by strangers, but not those arising from robbery or which may be caused by any
other case of force majeure.
Article 361 of the Code of Commerce provides:
Merchandise shall be transported at the risk and venture of the shipper, unless the contrary
was expressly stipulated.
Therefore, all damages and impairment suffered by the goods in transportation, by reason of
accident, force majeure, or by virtue of the nature or defect of the articles, shall be for the
account and risk of the shipper.
The proof of these accidents in incumbent on the carrier.
ART. 362. The carrier, however, shall be liable for the losses and damages arising from the
causes mentioned in the foregoing article if it is proved that they occurred on account of his
negligence or because he did not take the precautions usually adopted by careful persons,
unless the shipper committed fraud in the bill of lading, stating that the goods were of a class
or quality different from what they really were.
If, notwithstanding the precaution referred to in this article, the goods transported run the risk
of being lost on account of the nature or by reason of an unavoidable accident, without there
being time for the owners of the same to dispose thereof, the carrier shall proceed to their
sale, placing them for this purpose at the disposal of the judicial authority or of the officials
determined by special provisions.
ART. 363. With the exception of the cases prescribed in the second paragraph of article 361,
the carrier shall be obliged to deliver the goods transported in the same condition in which,
according to the bill of lading, they were at the time of their receipt, without any detriment or
impairment, and should he not do so, he shall be obliged to pay the value of the goods not
delivered at the point where they should have been and at the time the delivery should have
taken place.
If part of the goods transported should be delivered the consignee may refuse to receive
them, when he proves that he can not make use thereof without the others.
On November 25, 1908, Inchausti & Co. received in Manila from the Chinaman, Ong Bieng Sip, 205
bundles, bales or cases of goods to be conveyed by the steamer Sorsogon to the port of Gubat,

Province of Sorsogon, where they were to be transshipped to another vessel belonging to the
defendant company and by the latter transported to the pueblo of Catarman, Island of Samar, there
to be delivered to the Chinese shipper with whom the defendant party made the shipping contract.
To this end three bills of lading were executed, Nos. 38, 39, and 76, copies of which, marked as
Exhibits A, B, and C, are found on pages 13, 14, and 15 of the record.
The steamer Sorsogon, which carried the goods, arrived at the port of Gubat on the 28th of that
month and as thelorcha Pilar, to which the merchandise was to be transshipped for its transportation
to Catarman, was not yet there, the cargo was unloaded and stored in the defendant company's
warehouses at that port.
Several days later, the lorcha just mentioned arrived at Gubat and, after the cargo it carried had
been unloaded, the merchandise belonging to the Chinaman, Ong Bieng Sip, together with other
goods owned by the defendant Inchausti & Co., was taken aboard to be transported to Catarman;
but on December 5, 1908, before the Pilar could leave for its destination, towed by the launch Texas,
there arose and, as a result of the strong wind and heavy sea, the lorcha was driven upon the shore
and wrecked, and its cargo, including the Chinese shipper's 205 packages of goods, scattered on
the beach. Laborers or workmen of the defendant company, by its order, then proceeded to gather
up the plaintiff's merchandise and, as it was impossible to preserve it after it was salved from the
wreck of thelorcha, it was sold at public auction before a notary for the sum of P1,693.67.
The contract entered into between the Chinese shipper, Ong Bieng Sip, and the firm of Inchausti &
Co., provided that transportation should be furnished from Manila to Catarman, although the
merchandise taken aboard the steamer Sorsogon was to be transshipped at Gubat to another vessel
which was to convey it from that port to Catarman; it was not stipulated in the said contract that
the Sorsogon should convey the goods to their final destination, nor that the vessel into which they
were to be transshipped, should be a steamer. The shipper, Ong Bieng Sip, therefore assented to
these arrangements and made no protest when his 205 packages of merchandise were unloaded
from the ship and, on account of the absence of the lorcha Pilar, stored in the warehouses at Gubat
nor did he offer any objection to the lading of his merchandise on to this lorcha as soon as it arrived
and was prepared to receive cargo; moreover, he knew that to reach the port of Catarman with
promptness and dispatch, thelorcha had to be towed by some vessel like the launch Texas, which
the defendant company had been steadily using for similar operations in those waters.
Hence the shipper, Ong Bieng Sip, made no protest or objection to the methods adopted by the
agents of the defendant for the transportation of his gods to the port of their destination, and the
record does not show that in Gubat the defendant possessed any other means for the conveyance
and transportation of merchandise, at least for Catarman, than the lorcha Pilar, towed by said launch
and exposed during its passage to all sorts of accidents and perils from the nature and seafaring
qualities of a lorcha, from the circumstances then present and the winds prevailing on the Pacific
Ocean during the months of November and December.
It is to be noted that a lorcha is not easily managed or steered when the traveling, for, out at sea, it
can only be moved by wind and sails; and along the coast near the shore and in the estuaries where
it customarily travels, it can only move by poling. For this reason, in order to arrive at the pueblo of
Catarman with promptness and dispatch, thelorcha was usually towed by the launch Texas.
The record does not show that, from the afternoon of the 4th of December, 1908, until the morning of
the following day, the 5th, the patron or master of the lorcha which was anchored in the cove of
Gubat, received any notice from the captain of the steamer Ton Yek, also anchored near by, of the
near approach of a storm. The said captain, Juan Domingo Alberdi, makes no reference in his sworn
testimony of having given any such notice to the patron of thelorcha, nor did the latter, Mariano

Gadvilao, testify that he received such notice from the captain of the Ton Yek or from the person in
charge of the Government observatory. Gadvilao, the patron, testified that only between 10 and 11
o'clock of Saturday morning, the 5th of December, was he informed by Inchausti & Co.'s agent in
Gubat that abaguio was approaching; that thereupon, on account of the condition of the sea, he
dropped the four anchors that the lorcha had on board and immediately went ashore to get another
anchor and a new cable in order more securely to hold the boat in view of the predicted storm. This
testimony was corroborated by the said representative, Melchor Muoz. So the lorcha, when the
storm broke upon it, was held fast by five anchors and was, as testified by the defendant without
contradiction or evidence to the contrary, well found and provided with all proper and necessary
equipment and had a sufficient crew for its management and preservation.
The patron of the lorcha testified specifically that at Gubat or in its immediate vicinity there is no port
whatever adequate for the shelter and refuge of vessels in cases of danger, and that, even though
there were, on being advised between 10 and 11 o'clock of the morning of the 5th, of the approach
of a storm from the eastern Pacific, it would have been impossible to spread any sails or weigh
anchor on the lorcha without being dragged or driven against the reefs by the force of the wind. As
the craft was not provided with steam or other motive power, it would not have been possible for it to
change its anchorage, nor move from the place where it lay, even several hours before the notice
was received by its patron. A lorcha can not be compared with a steamer which does not need the
help or assistance of any other vessel in its movements.
Due importance must be given to the testimony of the weather observer, Antonio Rocha, that the
notice received from the Manila Observatory on the afternoon of December 4, with regard to a storm
travelling from the east of the Pelew Islands toward the northwest, was not made known to the
people of Gubat and that he merely left a memorandum notice on the desk of the station, intending
to give explanations thereof to any person who should request them of him. So the notice of the
storm sent by the Manila Observatory was only known to the said observer, and he did not apprise
the public of the approach of the storm until he received another notice from Manila at 20 minutes
past 8 o'clock on Saturday morning, December 5. Then he made a public announcement and
advised the authorities of the storm that was coming.
The patron of the lorcha Pilar is charged with gross negligence for not having endeavored to remove
his craft to a safe place in the Sabang River, about half a mile from where it was anchored.
In order to find out whether there was or was not such negligence on the part of the patron, it
becomes necessary to determine, first, whether the lorcha, on the morning of December 5, could be
moved by its own power and without being towed by any steamboat, since it had no steam engine of
its own; second, whether the lorcha, on account of its draft and the shallowness of the mouth of the
said river, could have entered the latter before the storm broke.
The patron, Mariano Gadvilao, stated under oath that the weather during the night of December 4
was not threatening and he did not believe there would be a storm; that he knew the Sabang River;
and that the lorcha Pilar, when loaded, could not enter as there was not sufficient water in its
channel; that, according to an official chart of the port of Gubat, the bar of the Sabang River was
covered by only a foot and a half of water at ordinary low tide and the lorcha Pilar, when loaded,
drew 6 feet and a half; that aside from the fact that the condition of the sea would not have permitted
the lorcha to take shelter in the said river, even could it have relied upon the assistance of a towboat,
at half past 8 o'clock in the morning the tide was still low; there was but little water in the river and
still less over the bar.
It was proven by the said official chart of the port of Gubat, that the depth of water over the bar or
entrance of the Sabang River is only one foot and a half at ordinary low tide; that the rise and fall of

the tide is about 4__ feet, the highest tide being at 2 o'clock in the afternoon of every day; and at
that hour, on the 5th of December, the hurricane had already made its appearance and the wind was
blowing with all its fury and raising great waves.
The lorcha Pilar, loaded as it had been from the afternoon of December 4, even though it could have
been moved by means of poles, without being towed, evidently could not have entered the Sabang
River on the morning of the 5th, when the wind began to increase and the sea to become rough, on
account of the low tide, the shallowness of the channel, and the boat's draft.
The facts stated in the foregoing paragraph were proved by the said chart which was exhibited in
evidence and not rejected or assailed by the plaintiff. They were also supported by the sworn
testimony of the patron of the lorcha, unrebutted by any oral evidence on the part of the plaintiff such
as might disprove the certainty of the facts related, and, according to section 275 of the Code of Civil
Procedure, the natural phenomenon of the tides, mentioned in the official hydrographic map, Exhibit
7, which is prima facie evidence on the subject, of the hours of its occurrence and of the conditions
and circumstances of the port of Gubat, shall be judicially recognized without the introduction of
proof, unless the facts to the contrary be proven, which was not done by the plaintiff, nor was it
proven that between the hours of 10 and 11 o'clock of the morning of December 5, 1908, there did
not prevail a state of low tide in the port of Gubat.
The oral evidence adduced by the plaintiff with respect to the depth of the Sabang River, was unable
to overcome that introduced by the defendant, especially the said chart. According to section 320 of
the Code of Civil Procedure, such a chart is prima facie evidence of particulars of general notoriety
and interest, such as the existence of shoals of varying depths in the bar and mouth of the Sabang
River and which obstruct the entrance into the same; the distance, length, and number of the said
shoals, with other details apparently well known to the patron of the lorcha Pilar, to judge from his
testimony.
Vessels of considerable draft, larger than the said lorcha, might have entered the Sabang River
some seven or nine years before, according to the testimony of the Chinaman, Antonio B. Yap
Cunco, though he did not state whether they did so at high tide; but, since 1901, or previous years,
until 1908, changes may have taken place in the bed of the river, its mouth and its bar. More shoals
may have formed or those in existence may have increased in extent by the constant action of the
sea. This is the reason why the patron, Gadvilao, who was acquainted with the conditions of the port
and cove of Gubat, positively declared that the lorcha Pilar could not, on account of her draft, enter
the Sabang River, on account of low water.
The patron of the lorcha, after stating (p.58) that at Gubat or in its vicinity there is no port that affords
shelter, affirmed that it was impossible to hoist the sails or weigh the anchors on the morning of the
5th of December, owing to the force of the wind and because the boat would immediately have been
dragged or driven upon the shoals; that furthermore the lorcha was anchored in a channel some
300 brazas wide, but, notwithstanding this width, the Pilar was, for want of motive power, unable to
move without being exposed to be dashed against the coast by the strong wind and the heavy sea
then prevailing. The testimony of this witness was neither impugned nor offset by any evidence
whatever; he was a patron of long years of service and of much practice in seafaring, especially in
the port of Gubat and its vicinity, who had commanded or been intrusted with the command of other
crafts similar to thelorcha Pilar and his testimony was absolutely uncontradicted.
The patron Gadvilao, being cognizant of the duties imposed upon him by rules 14 and 15 of article
612, and others, of the Code of Commerce, remained with sailors, during the time the hurricane was
raging, on board the lorcha from the morning of December 5 until early the following morning, the
6th, without abandoning the boat, notwithstanding the imminent peril to which he was exposed, and

kept to his post until after the wreck and the lorcha had been dashed against the rocks. Then he
solicited help from the captain of the steamer Ton Yek, and, thanks to the relief afforded by a small
boat sent by the latter officer, Gadvilao with his crew succeeded in reaching land and immediately
reported the occurrence to the representative of Inchausti & Co. and to the public official from whom
he obtained the document of protest, Exhibit 1. By such procedure, he showed that, as
a patron skilled in the exercise of his vocation, he performed the duties imposed by law in cases of
shipwreck brought about by force majeure.
Treating of shipwrecks, article 840 of the Code of Commerce prescribes:
The losses and damages suffered by a vessel and her cargo by reason of shipwreck or
standing shall be individually for the account of the owners, the part of the wreck which may
be saved belonging to them in the same proportion.
And Article 841 of the same code reads:
If the wreck or stranding should arise through the malice, negligence, or lack of skill of the
captain, or because the vessel put to sea insufficiently repaired and supplied, the owner or
the freighters may demand indemnity of the captain for the damages caused to the vessel or
cargo by the accident, in accordance with the provisions contained in articles 610, 612, 614,
and 621.
The general rule established in the first of the foregoing articles is that the loss of the vessel and of
its cargo, as the result of shipwreck, shall fall upon the respective owners thereof, save for the
exceptions specified in the second of the said articles.
These legal provisions are in harmony with those of articles 361 and 362 of the Code of Commerce,
and are applicable whenever it is proved that the loss of, or damage to, the goods was the result of a
fortuitous event or offorce majeure; but the carrier shall be liable for the loss or the damage arising
from the causes aforementioned, if it shall have been proven that they occurred through his own
fault or negligence or by his failure to take the same precautions usually adopted by diligent and
careful persons.
In the contract made and entered into by and between the owner of the goods and the defendant, no
term was fixed within which the said merchandise should be delivered to the former at Catarman,
nor was it proved that there was any delay in loading the goods and transporting them to their
destination. From the 28th of November, when the steamer Sorsogon arrived at Gubat and landed
the said goods belonging to Ong Bieng Sip to await the lorcha Pilarwhich was to convey them to
Catarman, as agreed upon, no vessel carrying merchandise made the voyage from Gubat to the
said pueblo of the Island of Samar, and with Ong Bieng Sip's merchandise there were also to be
shipped goods belonging to the defendant company, which goods were actually taken on board the
said lorcha and suffered the same damage as those belonging to the Chinaman. So that there was
no negligence, abandonment, or delay in the shipment of Ong Bieng Sip's merchandise, and all that
was done by the carrier, Inchausti & Co., was what it regularly and usually did in the transportation
by sea from Manila to Catarman of all classes of merchandise. No attempt has been made to prove
that any course other than the foregoing was pursued by that firm on this occasion; therefore the
defendant party is not liable for the damage occasioned as a result of the wreck or stranding of
the lorcha Pilar because of the hurricane that overtook this craft while it was anchored in the port of
Gubat, on December 5, 1908, ready to be conveyed to that of Catarman.
It is a fact not disputed, and admitted by the plaintiff, that the lorcha Pilar was stranded and wrecked
on the coast of Gubat during the night of the 5th or early in the morning of the 6th of December,

1908, as a result of a violent storm that came from the Pacific Ocean, and, consequently, it is a
proven fact that the loss or damage of the goods shipped on the said lorcha was due to the force
majeure which caused the wreck of the said craft.
According to the aforecited article 361 of the Code of Commerce, merchandise shall be transported
at the risk and venture of the shipper, unless the contrary be expressly stipulated. No such
stipulation appears of record, therefore, all damages and impairment suffered by the goods in
transportation, by reason of accident, force majeure, or by virtue of the nature or defect of the
articles, are for the account and risk of the shipper.
A final clause of this same article adds that the burden of proof of these accidents is upon the carrier;
the trial record fully discloses that the loss and damage of the goods shipped by the Chinaman, Ong
Bieng Sip, was due to the stranding and wreck of the lorcha Pilar in the heavy storm or hurricane
aforementioned; this the plaintiff did not deny, and admitted that it took place between the afternoon
of the 5th and early in the morning of the 6th of December, 1908, so it is evident that the defendant
is exempt from the obligation imposed by the law to prove the occurrence of the said storm,
hurricane, or cyclone in the port of Gubat, and, therefore, if said goods were lost or damaged and
could not be delivered in Catarman, it was due to a fortuitous event and a superior, irresistible
natural force, or force majeure, which completely disabled the lorcha intended for their transportation
to the said port of the Island of Samar.
The record bears no proof that the said loss or damage caused by the stranding or wreck of
the lorcha Pilar as a result of the storm mentioned, occurred through carelessness or negligence on
the part of the defendant company, its agents or the patron of the said lorcha, or because they did
not take the precautions usually adopted by careful and diligent persons, as required by article 362
of the Code of Commerce; the defendant company, as well as its agents and the patron of
the lorcha, had a natural interest in preserving the craft and its own goods laden therein an
interest equal to that of the Chinese shipper in preserving his own which were on board the
ship lorcha and, in fact, the defendant, his agents and the patron did take the measures which
they deemed necessary and proper in order to save the lorcha and its cargo from the impending
danger; accordingly, the patron, as soon as he was informed that a storm was approaching,
proceeded to clear the boat of all gear which might offer resistance to the wind, dropped the four
anchors he had, and even procured an extra anchor from the land, together with a new cable, and
cast it into the water, thereby adding, in so far as possible, to the stability and security of the craft, in
anticipation of what might occur, as presaged by the violence of the wind and the heavy sea; and
Inchausti & Company's agent furnished the articles requested by the patron of the lorcha for the
purpose of preventing the loss of the boat; thus did they all display all the diligence and care such as
might have been employed by anyone in similar circumstances, especially the patron who was
responsible for the lorcha under his charge; nor is it possible to believe that the latter failed to adopt
all the measures that were necessary to save his own life and those of the crew and to free himself
from the imminent peril of shipwreck.
In view of the fact that the lorcha Pilar had no means of changing its anchorage, even supposing that
there was a better one, and was unable to accept help from any steamer that might have towed it to
another point, as wherever it might have anchored, it would continually have been exposed to the
lashing of the waves and to the fury of the hurricane, for the port of Gubat is a cove or open
roadstead with no shelter whatever from the winds that sweep over it from the Pacific Ocean, and in
view of the circumstances that it was impossible for the said lorcha, loaded as it then was, to have
entered the Sabang River, even though there had been a steamer to tow it, not only because of an
insufficient depth of water in its channel, but also on account of the very high bar at the entrance of
the said river, it is incontrovertible that the stranding and wreck of the lorcha Pilar was due to a
fortuitous event or to force majeureand not to the fault and negligence of the defendant company

and its agents or of the patron, Mariano Gadvilao, inasmuch as the record discloses it to have been
duly proved that the latter, in difficult situation in which unfortunately the boat under his charge was
placed, took all the precautions that any diligent man should have taken whose duty it was to save
the boat and its cargo, and, by the instinct of self-preservation, his own life and those of the crew of
the lorcha; therefore, considering the conduct of the patron of the lorcha and that of the defendant's
agent in Gubat, during the time of the occurrence of the disaster, the defendant company has not
incurred any liability whatever for the loss of the goods, the value of which is demanded by the
plaintiff; it must, besides, be taken into account that the defendant itself also lost goods of its own
and the lorcha too.
From the moment that it is held that the loss of the said lorcha was due to force majeure, a fortuitous
event, with no conclusive proof or negligence or of the failure to take the precautions such as diligent
and careful persons usually adopt to avoid the loss of the boat and its cargo, it is neither just nor
proper to attribute the loss or damage of the goods in question to any fault, carelessness, or
negligence on the part of the defendant company and its agents and, especially, the patron of
the lorcha Pilar.
Moreover, it is to be noted that, subsequent to the wreck, the defendant company's agent took all the
requisite measures for the salvage of such of the goods as could be recovered after the accident,
which he did with the knowledge of the shipper, Ong Bieng Sip, and, in effecting their sale, he
endeavored to secure all possible advantage to the Chinese shipper; in all these proceedings, as
shown by the record, he acted in obedience to the law.
From all the foregoing it is concluded that the defendant is not liable for the loss and damage of the
goods shipped on the lorcha Pilar by the Chinaman, Ong Bieng Sip, inasmuch as such loss and
damage were the result of a fortuitous event or force majeure, and there was no negligence or lack
of care and diligence on the part of the defendant company or its agents.
Therefore, we hold it proper to reverse the judgment appealed from, and to absolve, as we hereby
do, the defendant, Inchausti & Co., without special findings as to costs.
Arellano, C.J., Mapa and Johnson, JJ., concur.
Carson and Trent, JJ., dissent.

EN BANC
[G.R. No. 13972. July 28, 1919.]
G. MARTINI, LTD., Plaintif-Appellee, vs. MACONDRAY & CO.
(INC.), Defendant-Appellant.
DECISION
STREET, J.:
In September of the year 1916, the Plaintif G. Martini, Ltd., arranged with
the Defendantcompany, as agents of the Eastern and Australian Steamship
Company, for the shipment of two hundred and nineteen cases or packages of
chemical products from Manila, Philippine Islands, to Kobe, Japan. The goods were
embarked at Manila on the steamship Eastern, and were carried to Kobe on the deck
of that ship. Upon arrival at the port of destination it was found that the chemicals

comprised in the shipment had suffered damage from the effects of both fresh and
salt water; and the present action was instituted by the Plaintif to recover the
amount of the damage thereby occasioned. In the Court of First Instance judgment
was rendered in favor of the Plaintifsfor the sum of P34,997.56, with interest from
March 24, 1917, and costs of the proceeding. From this judgment
the Defendant appealed.
That the damage was caused by water, either falling in the form of rain or splashing
aboard by the action of wind and waves, is unquestionable; and the contention of
the Plaintif is that it was the duty of the ships company to stow this cargo in the
hold and not to place it in an exposed position on the open deck. The defense is that
by the contract of affreightment the cargo in question was to be carried on deck at
the shippers risk; and attention is directed to the fact that on the face of each bill of
lading is clearly stamped with a rubber stencil in conspicuous letters the words on
deck at shippers risk. In this connection the Defendant relies upon paragraph 19 of
the several bills of lading issued for transportation of this cargo, which reads as
follows:
19.
Goods signed for on this bill of lading as carried on deck are entirely at
shippers risk, whether carried on deck or under hatches, and the steamer is not
liable for any loss or damage from any cause whatever.
The Plaintif insists that the agreement was that the cargo in question should be
carried in the ordinary manner, that is, in the ships hold, and that the Plaintif never
gave its consent for the goods to be carried on deck. The material facts bearing on
this controverted point appear to be these: On September 15, 1916,
the Plaintif applied to the Defendant for necessary space on the steamship Eastern,
and received a shipping order, which constituted authority for the ships officers to
receive the cargo aboard. One part of this document contained a form which, when
signed by the mate, would constitute the mates receipt, showing that the cargo
had been taken on.
Ordinarily the shipper is supposed to produce the mates receipt to the agents of
the ships company, who thereupon issue the bill of lading to the shipper. When,
however, the shipper, as not infrequently happens, desires to procure the bill of
lading before he obtains the mates receipt, it is customary for him to enter into a
written obligation, binding himself, among other things, to abide by the terms of the
mates receipt. In the present instance the mates receipt did not come to
the Plaintifs hand until Monday night, but as the Plaintif was desirous of obtaining
the bills of lading on the Saturday morning preceding in order that he might
negotiate them at the bank, a request was made for the delivery of the bills of
lading on that day To effectuate this, the Plaintif was required to enter into the
written obligation, calling itself a letter of guarantee, which was introduced in
evidence as Exhibit D-C. This document is of the date of September 16, 1916, and
of the following tenor:
In consideration of your signing us clean B/L for the undermentioned cargo per
above steamer to be shipped on or under deck at ships option, for Kobe without
production of the mates receipt, we hereby guarantee to hold you free from any
responsibility by your doing so, and for any expense should the whole or part of the
cargo be shut out, or otherwise, and to hand you said mates receipt as soon as it
reaches us and to abide by all clauses and notations on the same.

In conformity with the purpose of this document the bills of lading were issued, and
the negotiable copies were, upon the same day, negotiated at the bank by
the Plaintif for 90 per cent of the invoice value of the goods. As already stated
these bills of lading contained on their face, conspicuously stenciled, the words on
deck at shippers risks. The mates receipt, received by the Plaintif two days later
also bore the notation on deck at shippers risk, written with pencil, and evidently
by the officer who took the cargo on board and signed the receipt.
The Plaintif insists that it had at no time agreed for the cargo to be carried on deck;
and G. Martini, manager of Martini & Company, says that the first intimation he had
of this was when, at about 4 p.m. on that Saturday afternoon, he examined the
nonnegotiable copies of the bills of lading, which had been retained by the house,
and discovered the words on deck at shippers risk stamped thereon. Martini says
that upon seeing this, he at once called the attention of S. Codina thereto, the latter
being an employee of the house whose duty it was to attend to all shipments of
merchandise and who in fact had entire control of all matters relating to the
shipping of this cargo. Codina pretends that up to the time when Martini directed his
attention to the fact, he himself was unaware that the cargo was being stowed on
deck; and upon the discovery of this fact the two gentlemen mentioned expressed
mutual surprise and dissatisfaction. Martini says that he told Codina to protest at
once to Macondray & Company over the telephone, while Martini himself proceeded
to endite a letter, which appears in evidence as Exhibit D-T of the Defendant and is
in its material part as follows:
MANILA, September 16, 1916.
MESSRS. MACONDRAY & Co.,
Manila,
DEAR SIRS: In re our shipment per steamship Eastern, we are very much surprised
to see that the remark on deck at shippers risk has been stamped on the bills of
lading Nos. 8 to 23. . . . and although not believing that the same have actually
been shipped on deck we must hold you responsible for any consequence, loss, or
damage deriving from your action should they have been shipped as stated.
Yours faithfully,
G. MARTINI, LTD.
By S. CODINA.
This letter was followed by another of the same date and of substantially the same
tenor but containing the following additional statement:
It is the prevailing practice that, whenever a cargo is being carried on deck,
shipowners or agents give advice of it to shippers previous to shipment taking
place, and obtain their consent to it. If we had been advised of it, shipment would
not have been effected by us. We regret very much this occurrence, but you will
understand that in view of your having acted in this case on your own responsibility,
we shall have to hold you amenable for any consequences that may be caused from
your action.
The first of these letters was forthwith dispatched by messenger, and upon
receiving it, Macondray & Company called Codina by telephone at about 4.30 p.m.
and, referring to the communication just received, told him that Macondray &

Company could not accept the cargo for transportation otherwise than on deck and
that if Martini & Company were dissatisfied, the cargo could be discharged from the
ship.
There is substantial conformity in the testimony of the two parties with respect to
the time of the conversation by telephone and the nature of the message which
Macondray & Company intended to convey, though the witnesses differ as to some
details and in respect to what occurred immediately thereafter. Basa, who was in
charge of the shipping department of Macondray & Company and who conducted
the conversation on the part of the latter, says that he told Codina that if Martini &
Company was unwilling for the cargo to be carried on deck that they could
discharge it and further advised him that Macondray & Companys empty boats
were still at the ships side ready to receive the cargo. In reply Codina stated that
Martini, the manager, was then out and that he would answer in a few minutes,
after communication with Martini. Within the course of half an hour Codina called
Basa up and said that as the cargo was already stowed on deck, Martini & Company
were willing for it to be carried in this way, and that their protest was a mere
formality. Codina admits that he was informed by Basa that the cargo could not be
carried under the hatches, and that if Martini & Company were dissatisfied to have
it carried on deck, they could discharge it. He denies being told that it could be
taken off in Macondray & Companys boats. Codina further states that when the
conversation was broken off for the purpose of enabling him to communicate with
Martini, he consulted with the latter, and was directed to say that Martini &
Company did not consent for the cargo to be carried on deck and that it must be
discharged. Upon returning to the telephone, he found that the connection had been
broken, and he says that he was thereafter unable to get Macondray & Company by
telephone during that afternoon, although he attempted to do so more than once.
In the light of all the evidence the conclusion seems clear enough that, although
Martini & Company would have greatly preferred for the cargo to be carried under
the hatches, they nevertheless consented for it to go on deck. Codina, if attentive to
the interests of his house, must have known from the tenor of the guaranty to which
his signature is affixed that theDefendant had reserved the right to carry it on deck,
and when the bills of lading were delivered to the Plaintif they plainly showed that
the cargo would be so carried.
It must therefore be considered that the Plaintif was duly affected with notice as to
the manner in which the cargo was shipped. No complaint, however, was made until
after the bills of lading had been negotiated at the bank. When the manager of
Martini & Company first had his attention drawn to the fact that the cargo was being
carried on deck, he called Codina to account, and the latter found it to his interest
to feign surprise and pretend that he had been deceived by Macondray & Company.
Even then there was time to stop the shipment, but Martini & Company failed to
give the necessary instructions, thereby manifesting acquiescence in the
accomplished fact.
In a later letter of October 25, 1916, addressed to Macondray & Company, Martini,
referring to the incident says: If previous to the mailing of the documents, you had
actually notified us by phone or otherwise that you could not accept our cargo in
any other way but on deck, we should have promptly given you instructions to leave
it on the lighters and at our disposal.

From this it is inferable that one reason why the Plaintif allowed the cargo to be
carried away without being discharged, was that the bills had been discounted and
to stop the shipment would have entailed the necessity of refunding the money
which the bank had advanced, with the inconveniences incident thereto. Another
reason apparently was that Martini discerned, or thought he discerned the
possibility of shifting the risk so as to make it fall upon the ships company.
With reference to the practicability of discharging the cargo in the late afternoon or
evening of Saturday, September 16, before the ship departed, as it did at 8 p.m.
some evidence was introduced tending to show that in order to get the cargo off
certain formalities were necessary which could not be accomplished, as for
instance, the return of the mates receipt (which had not yet come to the Plaintifs
hands), the securing of a permit from the customs authorities, and the securing of
an order of discharge from the steamship company. In view of the fact that
thePlaintif did nothing whatever looking towards the discharge of the cargo, not
even so much as to notify Macondray & Company that the cargo must come off, the
proof relative to the practicability of discharge is inconclusive. If the Plaintif had
promptly informed Macondray & Company of their resolve to have the cargo
discharged, and the latter had nevertheless permitted the ship to sail without
discharging it, there would have been some ground for Plaintifs contention that its
consent had not been given for the goods to be carried on deck. Needless to say we
attach no weight to the statement of Codina that he was unable to get Macondray &
Company by telephone in order to communicate directions for the discharge of the
cargo.
The evidence submitted in behalf of the Defendant shows that there was no space
in the hold to take the cargo; and it was therefore unnecessary to consider whether
the chemicals to be shipped were of an explosive or inflammable character, such as
to require stowage on deck. By reason of the fact that the cargo had to be carried
on deck at all events, if carried at all, the guaranty Exhibit D-C was so drawn as to
permit stowage either on or under deck at the ships option; and the attention of
Codina must have been drawn to this provision because Macondray & Company
refused to issue the bills of lading upon a guaranty signed by Codina upon another
form (Exhibit R), which contained no such provision. The messenger between the
two establishments who was sent for the bills of lading accordingly had to make a
second trip and go back for a letter of guaranty signed upon the desired form. The
pretense of Codina that he was deceived into signing a document different from
that which he supposed himself to be signing is wholly unsustained.
The result of the discussion is that Martini & Company must be held to have
assented to the shipment of the cargo on deck and that they are bound by the bills
of lading in the form in which they were issued. The trial court in our opinion erred
in holding otherwise, and in particular by ignoring, or failing to give sufficient weight
to the contract of guaranty.
Having determined that the Plaintif consented to the shipment of the cargo on
deck, we proceed to consider whether the Defendant can be held liable for the
damage which befell the cargo in question. It of course goes without saying that if a
clean bill of lading had been issued and thePlaintif had not consented for the cargo
to go on deck, the ships company would have been liable for all damage which
resulted from the carriage on deck. In the case of The Paragon (1 Ware, 326; 18 Fed.
Cas. No. 10708), decided in 1836 in one of the district courts of the United States, it

appeared that cargo was shipped from Boston, Massachusetts, to Portland, Maine,
upon what is called a clean bill of lading, that is, one in the common form without
any memorandum in the margin or on its face showing that the goods are to be
carried on deck. It was proved that the shipper had not given his consent for
carriage on deck. Nevertheless, the master stowed the goods on deck; and a storm
having arisen, it became necessary to jettison them. None of the cargo in the hold
was lost. It was thus evident that although the cargo in question was lost by peril of
the sea, it would not have been lost except for the fact that it was being carried on
deck. It was held that the ship was liable. In the course of the opinion the following
language was used:
It is contended that the goods, in this case, having been lost by the dangers of the
seas, both the master and the vessel are exempted from responsibility within the
common exemption in bills of lading; and the goods having been thrown overboard
from necessity, and for the safety of the vessel and cargo, as well as the lives of the
crew, that it presents a case for a general average or contribution, upon the
common principle that when a sacrifice is made for the benefit of all, that the loss
shall be shared by all. . . . In every contract of affreightment, losses by the dangers
of the seas are excepted from the risks which the master takes upon himself,
whether the exception is expressed in the contract or not. The exception is made by
the law, and falls within the general principle that no one is responsible for
fortuitous events and accidents of major force. Casus fortuitous nemo praestat. But
then the general law is subject to an exception, that when the inevitable accident is
preceded by a fault of the debtor or person bound without which it would not have
happened, then he becomes responsible for it. (Pothier, des Obligations, No. 542;
Pret. a Usage, No. 57; Story, Bailm., c. 4, No. 241; In Majorious casibus si culpa ejus
interveniat tenetur; Dig. 44, 7, 1, s. 4.)
The master is responsible for the safe and proper stowage of the cargo, and there
is no doubt that by the general maritime law he is bound to secure the cargo safely
under deck. . . . If the master carries goods on deck without the consent of the
shipper . . . he does it at his own risk. If they are damaged or lost in consequence of
their being thus exposed, he cannot protect himself from responsibility by showing
that they were damaged or lost by the dangers of the seas. . . . When the shipper
consents to his goods being carried on deck, he takes the risk upon himself of these
peculiar perils. . . . This is the doctrine of all the authorities, ancient and modern.
Van Horn vs. Taylor (2 La. Ann., 587; 46 Am. Dec., 558), was a case where goods
stowed on deck were lost in a collision. The court found that the ship carrying these
goods was not at fault, and that the shipper had notice of the fact that the cargo
was being carried on deck. It was held that the ship was not liable. Said the court:
It is said that the Plaintifs goods were improperly stowed on deck; that the deck
load only was thrown overboard by the collision, the cargo in the hold not being
injured. The goods were thus laden with the knowledge and implied approbation of
the Plaintif. He was a passenger on board the steamer, and does not appear to
have made any objection to the goods being thus carried, though the collision
occurred several days after the steamer commenced her voyage.
In the case of The Thomas P. Thorn (8 Ben., 3; 23 Fed., Cas. No. 13927), decided in
the District Court in the State of New York, it appeared that tobacco was received
upon a canal boat, with the understanding that it was to be carried on deck,
covered with tarpaulins. Upon arrival at its destination it was found damaged by

water, for the most part on the top, and evidently as a consequence of rains. At the
same time a quantity of malt stowed below deck on the same voyage was
uninjured. In discussing the question whether upon a contract to carry on deck, the
vessel was liable for the wetting of the tobacco, the court said:
It is manifest that the injury to the tobacco arose simply from the fact that it was
carried on deck. The malt, carried below, although an article easily injured, received
no damage, and the voyage was performed with usual care, and without disaster.
Indeed, there is evidence of a statement by the libelant, that tobacco must of
necessity be injured by being carried on deck. But, under a contract to carry upon
deck, the risk of any damage resulting from the place of carriage rests upon the
shipper, and, without proof of negligence causing the damage, there can be no
recovery. Here the evidence shows that all reasonable care was taken of the
tobacco during its transportation; that the manner of stowing and covering it was
known to and assented to by the shipper; and the inference is warranted that the
injury arose, without fault of the carrier, from rain, to which merchandise
transported on deck must necessarily be in some degree exposed. Any loss arising
from damaged thus occasioned is to be borne by the shipper.
Lawrence vs. Minturn (17 How [U.S,], 100; 15 L ed., 58), was a case where goods
stowed on deck with the consent of the shipper were jettisoned during a storm at
sea. In discussing whether this cargo was entitled to general average, the Supreme
Court of the United States said:
The maritime codes and writers have recognized the distinction between cargo
placed on deck, with the consent of the shipper, and cargo under deck.
There is not one of them which gives a recourse against the master, the vessel, or
the owners, if the property lost had been placed on deck with the consent of its
owner, and they afford very high evidence of the general and appropriate usages, in
this particular, of merchants and shipowners.
So the courts of this country and England, and the writers on this subject, have
treated the owner of goods on deck, with his consent, as not having a claim on the
master or owner of the ship in case of jettison. The received law, on the point, is
expressed by Chancellor Kent, with his usual precision, in 3 Com., 240: Nor is the
carrier in that case (Jettison of deck load) responsible to the owner, unless the
goods were stowed on deck without the consent of the owner, or a general custom
binding him, and then he would be chargeable with the loss.
In Gould vs. Oliver (4 Bing., N. C., 132), decided in the English Court of Common
Pleas in 1837, Tindal, C.J., said:
Where the loading on deck has taken place with the consent of the merchant, it is
obvious that no remedy against the shipowner or master for a wrongful loading of
the goods on deck can exist. The foreign authorities are indeed express; on that
point. And the general rule of the English law, that no one can maintain an action
for a wrong, where he has consented or contributed to the act which occasioned his
loss, leads to the same conclusion.
The foregoing authorities fully sustain the proposition that where the shipper
consents to have his goods carried on deck he takes the risks of any damage or loss
sustained as a consequence of their being so carried. In the present case it is
indisputable that the goods were injured during the voyage and solely as a

consequence of their being on deck, instead of in the ships hold. The loss must
therefore fall on the owner. And this would be true, under the authorities, even
though paragraph 19 of the bills of lading, quoted near the beginning of this
opinion, had not been made a term of the contract.
It is undoubtedly true that, upon general principle, and momentarily ignoring
paragraph 19 of these bills of lading, the ships owner might be held liable for any
damage directly resulting from a negligent failure to exercise the care properly
incident to the carriage of the merchandise on deck. For instance, if it had been
improperly placed or secured, and had been swept overboard as a proximate result
of such lack of care, the ship would be liable, to the same extent as if the cargo had
been deliberately thrown over without justification. So, if it had been shown that,
notwithstanding the stowage of these goods on deck, the damage could have been
prevented, by the exercise of proper skill and diligence in the discharge of the
duties incumbent on the ship, the owner might still be held.
To put the point concretely, let it be supposed that a custom had been proved
among mariners to protect deck cargo from the elements by putting a tarpaulin
over it; or approaching still more to imaginable conditions in the present case, let it
be supposed that the persons charged with the duty of transporting this cargo,
being cognizant of the probability of damage by water, had negligently and without
good reason failed to exercise reasonable care to protect it by covering it with
tarpaulins. In such case it could hardly be denied that the ships company should be
held liable for such damage as might have been avoided by the use of such
precaution.
But it should be borne in mind in this connection that it is incumbent on the Plaintif,
if his cause of action is founded on negligence of this character, to allege and prove
that the damage suffered was due to failure of the persons in charge of the cargo to
use the diligence properly incident to carriage under these conditions.
In Clark vs. Barnwell (12 How. [U.S.], 272; 13 L. ed., 985), the Supreme Court
distinguishes with great precision between the situation where the burden of proof
is upon the shipowner to prove that the loss resulted from an excepted peril and
that where the burden of proof is upon the owner of the cargo to prove that the loss
was caused by negligence on the part of the persons employed in the conveyance
of the goods. The first two syllabi in Clark vs. Barnwell read as follows:
Where goods are shipped and the usual bill of lading given, promising to deliver
them in good order, the dangers of the seas excepted, and they are found to be
damaged the onus probandi is upon the owners of the vessel, to show that the
injury was occasioned by one of the excepted causes.
But, although the injury may have been occasioned by one of the excepted causes,
yet still the owners of the vessel are responsible if the injury might have been
avoided, by the exercise of reasonable skill and attention on the part of the persons
employed in the conveyance of the goods. But the onus probandi then becomes
shifted upon the shipper, to show the negligence.
The case just referred to was one where cotton thread, put up in boxes, had
deteriorated during a lengthy voyage in a warm climate, owing to dampness and
humidity. In discussing the question of the responsibility of the ships owner, the
court said:

Notwithstanding, therefore, the proof was clear that the damage was occasioned
by the effect of the humidity and dampness of the vessel, which is one of the
dangers of navigation, it was competent for the libelants to show that
the Respondents might have prevented it by proper skill and diligence in the
discharge of their duties; but no such evidence is found in the record. For caught
that appears every precaution was taken that is usual or customary, or known to
shipmasters, to avoid the damage in question. And hence we are obliged to
conclude that it is to be attributed exclusively to the dampness of the atmosphere
of the vessel, without negligence or fault on the part of the master or owners.
Exactly the same words might be used as applicable to the facts of the present
case; and as it is apparent that the damage here was caused by rain and sea water
the risk of which is inherently incident to carriage on deck
the Defendant cannot be held liable. It is not permissible for the court, in the
absence of any allegation or proof of negligence, to attribute negligence to the
ships employees in the matter of protecting the goods from rains and storms. The
complaint on the contrary clearly indicates that the damage done was due to the
mere fact of carriage on deck, no other fault or delinquency on the part of anybody
being alleged.
It will be observed that by the terms of paragraph 19 of the bills of lading, the ship
is not to be held liable, in the case of goods signed for as carried on deck, for any
loss or damage from any cause whatever. We are not to be understood as holding
that this provision would have protected the ship from liability for the consequences
of negligent acts, if negligence had been alleged and proved. From the discussion in
Manila Railroad Co. vs. Compania Transatlantica and Atlantic, Gulf & Pacific Co. (38
Phil. Rep., 875), it may be collected that the carrier would be held liable in such
case, notwithstanding the exemption contained in paragraph 19. But however that
may be damages certainly cannot be recovered on the ground of negligence, even
from a carrier, where negligence is neither alleged nor proved.
The judgment appealed from is reversed and the Defendant is absolved from the
complaint. No express pronouncement will be made as to the costs of either
instance. SO ORDERED.
Arellano, C.J., Torres, Johnson, Araullo, Malcolm, Avancea and Moir, JJ.,
concur.
G.R. No. L-69044 May 29, 1987
EASTERN SHIPPING LINES, INC., petitioner,
vs.
INTERMEDIATE APPELLATE COURT and DEVELOPMENT INSURANCE & SURETY
CORPORATION,respondents.
No. 71478 May 29, 1987
EASTERN SHIPPING LINES, INC., petitioner,
vs.
THE NISSHIN FIRE AND MARINE INSURANCE CO., and DOWA FIRE & MARINE INSURANCE
CO., LTD.,respondents.

MELENCIO-HERRERA, J.:
These two cases, both for the recovery of the value of cargo insurance, arose from the same
incident, the sinking of the M/S ASIATICA when it caught fire, resulting in the total loss of ship and
cargo.
The basic facts are not in controversy:
In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel operated by
petitioner Eastern Shipping Lines, Inc., (referred to hereinafter as Petitioner Carrier) loaded at Kobe,
Japan for transportation to Manila, 5,000 pieces of calorized lance pipes in 28 packages valued at
P256,039.00 consigned to Philippine Blooming Mills Co., Inc., and 7 cases of spare parts valued at
P92,361.75, consigned to Central Textile Mills, Inc. Both sets of goods were insured against marine
risk for their stated value with respondent Development Insurance and Surety Corporation.
In G.R. No. 71478, during the same period, the same vessel took on board 128 cartons of garment
fabrics and accessories, in two (2) containers, consigned to Mariveles Apparel Corporation, and two
cases of surveying instruments consigned to Aman Enterprises and General Merchandise. The 128
cartons were insured for their stated value by respondent Nisshin Fire & Marine Insurance Co., for
US $46,583.00, and the 2 cases by respondent Dowa Fire & Marine Insurance Co., Ltd., for US
$11,385.00.
Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total loss of ship
and cargo. The respective respondent Insurers paid the corresponding marine insurance values to
the consignees concerned and were thus subrogated unto the rights of the latter as the insured.
G.R. NO. 69044
On May 11, 1978, respondent Development Insurance & Surety Corporation (Development
Insurance, for short), having been subrogated unto the rights of the two insured companies, filed suit
against petitioner Carrier for the recovery of the amounts it had paid to the insured before the then
Court of First instance of Manila, Branch XXX (Civil Case No. 6087).
Petitioner-Carrier denied liability mainly on the ground that the loss was due to an extraordinary
fortuitous event, hence, it is not liable under the law.
On August 31, 1979, the Trial Court rendered judgment in favor of Development Insurance in the
amounts of P256,039.00 and P92,361.75, respectively, with legal interest, plus P35,000.00 as
attorney's fees and costs. Petitioner Carrier took an appeal to the then Court of Appeals which, on
August 14, 1984, affirmed.
Petitioner Carrier is now before us on a Petition for Review on Certiorari.
G.R. NO. 71478
On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN for short), and Dowa
Fire & Marine Insurance Co., Ltd. (DOWA, for brevity), as subrogees of the insured, filed suit against
Petitioner Carrier for the recovery of the insured value of the cargo lost with the then Court of First
Instance of Manila, Branch 11 (Civil Case No. 116151), imputing unseaworthiness of the ship and
non-observance of extraordinary diligence by petitioner Carrier.

Petitioner Carrier denied liability on the principal grounds that the fire which caused the sinking of the
ship is an exempting circumstance under Section 4(2) (b) of the Carriage of Goods by Sea Act
(COGSA); and that when the loss of fire is established, the burden of proving negligence of the
vessel is shifted to the cargo shipper.
On September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN and DOWA in the
amounts of US $46,583.00 and US $11,385.00, respectively, with legal interest, plus attorney's fees
of P5,000.00 and costs. On appeal by petitioner, the then Court of Appeals on September 10, 1984,
affirmed with modification the Trial Court's judgment by decreasing the amount recoverable by
DOWA to US $1,000.00 because of $500 per package limitation of liability under the COGSA.
Hence, this Petition for Review on certiorari by Petitioner Carrier.
Both Petitions were initially denied for lack of merit. G.R. No. 69044 on January 16, 1985 by the First
Division, and G. R. No. 71478 on September 25, 1985 by the Second Division. Upon Petitioner
Carrier's Motion for Reconsideration, however, G.R. No. 69044 was given due course on March 25,
1985, and the parties were required to submit their respective Memoranda, which they have done.
On the other hand, in G.R. No. 71478, Petitioner Carrier sought reconsideration of the Resolution
denying the Petition for Review and moved for its consolidation with G.R. No. 69044, the lowernumbered case, which was then pending resolution with the First Division. The same was granted;
the Resolution of the Second Division of September 25, 1985 was set aside and the Petition was
given due course.
At the outset, we reject Petitioner Carrier's claim that it is not the operator of the M/S Asiatica but
merely a charterer thereof. We note that in G.R. No. 69044, Petitioner Carrier stated in its Petition:
There are about 22 cases of the "ASIATICA" pending in various courts where various
plaintiffs are represented by various counsel representing various consignees or
insurance companies. The common defendant in these cases is petitioner herein,
being the operator of said vessel. ... 1
Petitioner Carrier should be held bound to said admission. As a general rule, the facts alleged in a
party's pleading are deemed admissions of that party and binding upon it. 2 And an admission in one
pleading in one action may be received in evidence against the pleader or his successor-in-interest on the
trial of another action to which he is a party, in favor of a party to the latter action. 3
The threshold issues in both cases are: (1) which law should govern the Civil Code provisions on
Common carriers or the Carriage of Goods by Sea Act? and (2) who has the burden of proof to show
negligence of the carrier?
On the Law Applicable
The law of the country to which the goods are to be transported governs the liability of the common
carrier in case of their loss, destruction or deterioration. 4 As the cargoes in question were transported
from Japan to the Philippines, the liability of Petitioner Carrier is governed primarily by the Civil
Code. 5 However, in all matters not regulated by said Code, the rights and obligations of common carrier
shall be governed by the Code of Commerce and by special laws. 6 Thus, the Carriage of Goods by Sea
Act, a special law, is suppletory to the provisions of the Civil Code. 7
On the Burden of Proof

Under the Civil Code, common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in the vigilance over goods, according to all the
circumstances of each case. 8Common carriers are responsible for the loss, destruction, or deterioration
of the goods unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;
xxx xxx xxx 9
Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability under the phrase
"natural disaster or calamity. " However, we are of the opinion that fire may not be considered a
natural disaster or calamity. This must be so as it arises almost invariably from some act of man or
by human means. 10 It does not fall within the category of an act of God unless caused by lightning 11 or by other natural disaster or
calamity. 12 It may even be caused by the actual fault or privity of the carrier. 13

Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to
leases of rural lands where a reduction of the rent is allowed when more than one-half of the fruits
have been lost due to such event, considering that the law adopts a protection policy towards
agriculture. 14
As the peril of the fire is not comprehended within the exception in Article 1734, supra, Article 1735
of the Civil Code provides that all cases than those mention in Article 1734, the common carrier shall
be presumed to have been at fault or to have acted negligently, unless it proves that it has observed
the extraordinary deligence required by law.
In this case, the respective Insurers. as subrogees of the cargo shippers, have proven that the
transported goods have been lost. Petitioner Carrier has also proved that the loss was caused by
fire. The burden then is upon Petitioner Carrier to proved that it has exercised the extraordinary
diligence required by law. In this regard, the Trial Court, concurred in by the Appellate Court, made
the following Finding of fact:
The cargoes in question were, according to the witnesses defendant placed in
hatches No, 2 and 3 cf the vessel, Boatswain Ernesto Pastrana noticed that smoke
was coming out from hatch No. 2 and hatch No. 3; that where the smoke was
noticed, the fire was already big; that the fire must have started twenty-four 24) our
the same was noticed; that carbon dioxide was ordered released and the crew was
ordered to open the hatch covers of No, 2 tor commencement of fire fighting by sea
water: that all of these effort were not enough to control the fire.
Pursuant to Article 1733, common carriers are bound to extraordinary diligence in the
vigilance over the goods. The evidence of the defendant did not show that
extraordinary vigilance was observed by the vessel to prevent the occurrence of fire
at hatches numbers 2 and 3. Defendant's evidence did not likewise show he amount
of diligence made by the crew, on orders, in the care of the cargoes. What appears is
that after the cargoes were stored in the hatches, no regular inspection was made as
to their condition during the voyage. Consequently, the crew could not have even
explain what could have caused the fire. The defendant, in the Court's mind, failed to
satisfactorily show that extraordinary vigilance and care had been made by the crew
to prevent the occurrence of the fire. The defendant, as a common carrier, is liable to
the consignees for said lack of deligence required of it under Article 1733 of the Civil
Code. 15

Having failed to discharge the burden of proving that it had exercised the extraordinary diligence
required by law, Petitioner Carrier cannot escape liability for the loss of the cargo.
And even if fire were to be considered a "natural disaster" within the meaning of Article 1734 of the
Civil Code, it is required under Article 1739 of the same Code that the "natural disaster" must have
been the "proximate and only cause of the loss," and that the carrier has "exercised due diligence to
prevent or minimize the loss before, during or after the occurrence of the disaster. " This Petitioner
Carrier has also failed to establish satisfactorily.
Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods by Sea Act, It is
provided therein that:
Sec. 4(2). Neither the carrier nor the ship shall be responsible for loss or damage
arising or resulting from
(b) Fire, unless caused by the actual fault or privity of the carrier.
xxx xxx xxx
In this case, both the Trial Court and the Appellate Court, in effect, found, as a fact, that there was
"actual fault" of the carrier shown by "lack of diligence" in that "when the smoke was noticed, the fire
was already big; that the fire must have started twenty-four (24) hours before the same was noticed;
" and that "after the cargoes were stored in the hatches, no regular inspection was made as to their
condition during the voyage." The foregoing suffices to show that the circumstances under which the
fire originated and spread are such as to show that Petitioner Carrier or its servants were negligent
in connection therewith. Consequently, the complete defense afforded by the COGSA when loss
results from fire is unavailing to Petitioner Carrier.
On the US $500 Per Package Limitation:
Petitioner Carrier avers that its liability if any, should not exceed US $500 per package as provided in
section 4(5) of the COGSA, which reads:
(5) Neither the carrier nor the ship shall in any event be or become liable for any loss
or damage to or in connection with the transportation of goods in an amount
exceeding $500 per package lawful money of the United States, or in case of goods
not shipped in packages, per customary freight unit, or the equivalent of that sum in
other currency, unless the nature and value of such goods have been declared by
the shipper before shipment and inserted in bill of lading. This declaration if
embodied in the bill of lading shall be prima facie evidence, but all be conclusive on
the carrier.
By agreement between the carrier, master or agent of the carrier, and the shipper
another maximum amount than that mentioned in this paragraph may be fixed:
Provided, That such maximum shall not be less than the figure above named. In no
event shall the carrier be Liable for more than the amount of damage actually
sustained.
xxx xxx xxx
Article 1749 of the New Civil Code also allows the limitations of liability in this wise:

Art. 1749. A stipulation that the common carrier's liability as limited to the value of the
goods appearing in the bill of lading, unless the shipper or owner declares a greater
value, is binding.
It is to be noted that the Civil Code does not of itself limit the liability of the common carrier to a fixed
amount per package although the Code expressly permits a stipulation limiting such liability. Thus,
the COGSA which is suppletory to the provisions of the Civil Code, steps in and supplements the
Code by establishing a statutory provision limiting the carrier's liability in the absence of a declaration
of a higher value of the goods by the shipper in the bill of lading. The provisions of the Carriage of
Goods by.Sea Act on limited liability are as much a part of a bill of lading as though physically in it
and as much a part thereof as though placed therein by agreement of the parties. 16
In G.R. No. 69044, there is no stipulation in the respective Bills of Lading (Exhibits "C-2" and "I-3") 1
7 limiting the carrier's liability for the loss or destruction of the goods. Nor is there a declaration of a
higher value of the goods. Hence, Petitioner Carrier's liability should not exceed US $500 per
package, or its peso equivalent, at the time of payment of the value of the goods lost, but in no case
"more than the amount of damage actually sustained."
The actual total loss for the 5,000 pieces of calorized lance pipes was P256,039 (Exhibit "C"), which
was exactly the amount of the insurance coverage by Development Insurance (Exhibit "A"), and the
amount affirmed to be paid by respondent Court. The goods were shipped in 28 packages (Exhibit
"C-2") Multiplying 28 packages by $500 would result in a product of $14,000 which, at the current
exchange rate of P20.44 to US $1, would be P286,160, or "more than the amount of damage
actually sustained." Consequently, the aforestated amount of P256,039 should be upheld.
With respect to the seven (7) cases of spare parts (Exhibit "I-3"), their actual value was P92,361.75
(Exhibit "I"), which is likewise the insured value of the cargo (Exhibit "H") and amount was affirmed to
be paid by respondent Court. however, multiplying seven (7) cases by $500 per package at the
present prevailing rate of P20.44 to US $1 (US $3,500 x P20.44) would yield P71,540 only, which is
the amount that should be paid by Petitioner Carrier for those spare parts, and not P92,361.75.
In G.R. No. 71478, in so far as the two (2) cases of surveying instruments are concerned, the
amount awarded to DOWA which was already reduced to $1,000 by the Appellate Court following
the statutory $500 liability per package, is in order.
In respect of the shipment of 128 cartons of garment fabrics in two (2) containers and insured with
NISSHIN, the Appellate Court also limited Petitioner Carrier's liability to $500 per package and
affirmed the award of $46,583 to NISSHIN. it multiplied 128 cartons (considered as COGSA
packages) by $500 to arrive at the figure of $64,000, and explained that "since this amount is more
than the insured value of the goods, that is $46,583, the Trial Court was correct in awarding said
amount only for the 128 cartons, which amount is less than the maximum limitation of the carrier's
liability."
We find no reversible error. The 128 cartons and not the two (2) containers should be considered as
the shipping unit.
In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the consignees of tin
ingots and the shipper of floor covering brought action against the vessel owner and operator to
recover for loss of ingots and floor covering, which had been shipped in vessel supplied
containers. The U.S. District Court for the Southern District of New York rendered judgment for the
plaintiffs, and the defendant appealed. The United States Court of Appeals, Second Division,
modified and affirmed holding that:

When what would ordinarily be considered packages are shipped in a container


supplied by the carrier and the number of such units is disclosed in the shipping
documents, each of those units and not the container constitutes the "package"
referred to in liability limitation provision of Carriage of Goods by Sea Act. Carriage of
Goods by Sea Act, 4(5), 46 U.S.C.A.& 1304(5).
Even if language and purposes of Carriage of Goods by Sea Act left doubt as to
whether carrier-furnished containers whose contents are disclosed should be treated
as packages, the interest in securing international uniformity would suggest that they
should not be so treated. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A. 1304(5).
... After quoting the statement in Leather's Best, supra, 451 F 2d at 815, that treating
a container as a package is inconsistent with the congressional purpose of
establishing a reasonable minimum level of liability, Judge Beeks wrote, 414 F. Supp.
at 907 (footnotes omitted):
Although this approach has not completely escaped criticism, there
is, nonetheless, much to commend it. It gives needed recognition to
the responsibility of the courts to construe and apply the statute as
enacted, however great might be the temptation to "modernize" or
reconstitute it by artful judicial gloss. If COGSA's package limitation
scheme suffers from internal illness, Congress alone must undertake
the surgery. There is, in this regard, obvious wisdom in the Ninth
Circuit's conclusion in Hartford that technological advancements,
whether or not forseeable by the COGSA promulgators, do not
warrant a distortion or artificial construction of the statutory term
"package." A ruling that these large reusable metal pieces of transport
equipment qualify as COGSA packages at least where, as here,
they were carrier owned and supplied would amount to just such a
distortion.
Certainly, if the individual crates or cartons prepared by the shipper
and containing his goods can rightly be considered "packages"
standing by themselves, they do not suddenly lose that character
upon being stowed in a carrier's container. I would liken these
containers to detachable stowage compartments of the ship. They
simply serve to divide the ship's overall cargo stowage space into
smaller, more serviceable loci. Shippers' packages are quite literally
"stowed" in the containers utilizing stevedoring practices and
materials analogous to those employed in traditional on board
stowage.
In Yeramex International v. S.S. Tando,, 1977 A.M.C. 1807 (E.D. Va.) rev'd on other
grounds, 595 F 2nd 943 (4 Cir. 1979), another district with many maritime cases
followed Judge Beeks' reasoning in Matsushita and similarly rejected the functional
economics test. Judge Kellam held that when rolls of polyester goods are packed
into cardboard cartons which are then placed in containers, the cartons and not the
containers are the packages.
xxx xxx xxx
The case of Smithgreyhound v. M/V Eurygenes, 18 followed the Mitsui test:

Eurygenes concerned a shipment of stereo equipment packaged by the shipper into


cartons which were then placed by the shipper into a carrier- furnished
container. The number of cartons was disclosed to the carrier in the bill of lading.
Eurygenes followed the Mitsui test and treated the cartons, not the container, as the
COGSA packages. However, Eurygenes indicated that a carrier could limit its liability
to $500 per container if the bill of lading failed to disclose the number of cartons or
units within the container, or if the parties indicated, in clear and unambiguous
language, an agreement to treat the container as the package.
(Admiralty Litigation in Perpetuum: The Continuing Saga of Package
Limitations and Third World Delivery Problems by Chester D. Hooper
& Keith L. Flicker, published in Fordham International Law Journal,
Vol. 6, 1982-83, Number 1) (Emphasis supplied)
In this case, the Bill of Lading (Exhibit "A") disclosed the following data:
2 Containers
(128) Cartons)
Men's Garments Fabrics and Accessories Freight Prepaid
Say: Two (2) Containers Only.
Considering, therefore, that the Bill of Lading clearly disclosed the contents of the containers, the
number of cartons or units, as well as the nature of the goods, and applying the ruling in
the Mitsui and Eurygenes cases it is clear that the 128 cartons, not the two (2) containers should be
considered as the shipping unit subject to the $500 limitation of liability.
True, the evidence does not disclose whether the containers involved herein were carrier-furnished
or not. Usually, however, containers are provided by the carrier. 19 In this case, the probability is that they were so
furnished for Petitioner Carrier was at liberty to pack and carry the goods in containers if they were not so packed. Thus, at the dorsal side of
the Bill of Lading (Exhibit "A") appears the following stipulation in fine print:

11. (Use of Container) Where the goods receipt of which is acknowledged on the
face of this Bill of Lading are not already packed into container(s) at the time of
receipt, the Carrier shall be at liberty to pack and carry them in any type of
container(s).
The foregoing would explain the use of the estimate "Say: Two (2) Containers Only" in the Bill of
Lading, meaning that the goods could probably fit in two (2) containers only. It cannot mean that the
shipper had furnished the containers for if so, "Two (2) Containers" appearing as the first entry would
have sufficed. and if there is any ambiguity in the Bill of Lading, it is a cardinal principle in the
construction of contracts that the interpretation of obscure words or stipulations in a contract shall
not favor the party who caused the obscurity. 20 This applies with even greater force in a contract of
adhesion where a contract is already prepared and the other party merely adheres to it, like the Bill of
Lading in this case, which is draw. up by the carrier. 21
On Alleged Denial of Opportunity to Present Deposition of Its Witnesses: (in G.R. No. 69044 only)
Petitioner Carrier claims that the Trial Court did not give it sufficient time to take the depositions of its
witnesses in Japan by written interrogatories.

We do not agree. petitioner Carrier was given- full opportunity to present its evidence but it failed to
do so. On this point, the Trial Court found:
xxx xxx xxx
Indeed, since after November 6, 1978, to August 27, 1979, not to mention the time
from June 27, 1978, when its answer was prepared and filed in Court, until
September 26, 1978, when the pre-trial conference was conducted for the last time,
the defendant had more than nine months to prepare its evidence. Its belated notice
to take deposition on written interrogatories of its witnesses in Japan, served upon
the plaintiff on August 25th, just two days before the hearing set for August 27th,
knowing fully well that it was its undertaking on July 11 the that the deposition of the
witnesses would be dispensed with if by next time it had not yet been obtained, only
proves the lack of merit of the defendant's motion for postponement, for which
reason it deserves no sympathy from the Court in that regard. The defendant has
told the Court since February 16, 1979, that it was going to take the deposition of its
witnesses in Japan. Why did it take until August 25, 1979, or more than six months,
to prepare its written interrogatories. Only the defendant itself is to blame for its
failure to adduce evidence in support of its defenses.
xxx xxx xxx 22
Petitioner Carrier was afforded ample time to present its side of the case. 23 It cannot complain now
that it was denied due process when the Trial Court rendered its Decision on the basis of the evidence
adduced. What due process abhors is absolute lack of opportunity to be heard. 24
On the Award of Attorney's Fees:
Petitioner Carrier questions the award of attorney's fees. In both cases, respondent Court affirmed
the award by the Trial Court of attorney's fees of P35,000.00 in favor of Development Insurance in
G.R. No. 69044, and P5,000.00 in favor of NISSHIN and DOWA in G.R. No. 71478.
Courts being vested with discretion in fixing the amount of attorney's fees, it is believed that the
amount of P5,000.00 would be more reasonable in G.R. No. 69044. The award of P5,000.00 in G.R.
No. 71478 is affirmed.
WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in that petitioner Eastern Shipping
Lines shall pay the Development Insurance and Surety Corporation the amount of P256,039 for the
twenty-eight (28) packages of calorized lance pipes, and P71,540 for the seven (7) cases of spare
parts, with interest at the legal rate from the date of the filing of the complaint on June 13, 1978, plus
P5,000 as attorney's fees, and the costs.
2) In G.R.No.71478,the judgment is hereby affirmed.
SO ORDERED.

THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY,


INC., petitioner, vs. COURT OF APPEALS and FELMAN
SHIPPING LINES,respondents.

DECISION
BELLOSILLO, J.:

This case deals with the liability, if any, of a shipowner for loss of cargo
due to its failure to observe the extraordinary diligence required by Art. 1733
of the Civil Code as well as the right of the insurer to be subrogated to the
rights of the insured upon payment of the insurance claim.
On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on board MV
Asilda, a vessel owned and operated by respondent Felman Shipping Lines
(FELMAN for brevity), 7,500 cases of 1-liter Coca-Cola softdrink bottles to be
transported from Zamboanga City to
Cebu City for consignee CocaCola Bottlers Philippines, Inc., Cebu. The shipment was insured with
petitioner Philippine American General Insurance Co., Inc. (PHILAMGEN for
brevity), under Marine Open Policy No. 100367-PAG.
[1]

MV Asilda left the port of Zamboanga in fine weather at eight oclock in the
evening of the same day. At around eight forty-five the following morning, 7
July 1983, the vessel sank in the waters of Zamboanga del Norte bringing
down her entire cargo with her including the subject 7,500 cases of 1-liter
Coca-Cola softdrink bottles.
On 15 July 1983 the consignee Coca-Cola Bottlers Philippines, Inc., Cebu
plant, filed a claim with respondent FELMAN for recovery of damages it
sustained as a result of the loss of its softdrink bottles that sank with MV
Asilda. Respondent denied the claim thus prompting the consignee to file an
insurance claim with PHILAMGEN which paid its claim of P755,250.00.
Claiming its right of subrogation PHILAMGEN sought recourse against
respondent FELMAN which disclaimed any liability for the loss. Consequently,
on 29 November 1983 PHILAMGEN sued the shipowner for sum of money
and damages.
In its complaint PHILAMGEN alleged that the sinking and total loss of MV
Asilda and its cargo were due to the vessels unseaworthiness as she was put
to
sea
in
an
unstable
condition. It
further
alleged
that the vessel was improperly manned and that its officers were grossly
negligent in failing to take appropriate measures to proceed to a nearby port
or beach after the vessel started to list.

On 15 February 1985 FELMAN filed a motion to dismiss based on the


affirmative defense that no right of subrogation in favor of PHILAMGEN was
transmitted by the shipper, and that, in any event, FELMAN had abandoned
all its rights, interests and ownership over MV Asilda together with her freight
and appurtenances for the purpose of limiting and extinguishing its liability
under Art. 587 of the Code of Commerce.
[2]

On 17 February 1986 the trial court dismissed the complaint of


PHILAMGEN. On appeal the Court of Appeals set aside the dismissal and
remanded the case to the lower court for trial on the merits. FELMAN filed a
petition for certiorari with this Court but it was subsequently denied on 13
February 1989.
On 28 February 1992 the trial court rendered judgment in favor of
FELMAN. It ruled that MV Asilda was seaworthy when it left the port of
Zamboanga as confirmed by certificates issued by the Philippine Coast Guard
and the shipowners surveyor attesting to its seaworthiness. Thus the loss of
the vessel and its entire shipment could only be attributed to either a fortuitous
event, in which case, no liability should attach unless there was a stipulation
to the contrary, or to the negligence of the captain and his crew, in which case,
Art. 587 of the Code of Commerce should apply.
[3]

The lower court further ruled that assuming MV Asilda was unseaworthy,
still PHILAMGEN could not recover from FELMAN since the assured (CocaCola Bottlers Philippines, Inc.) had breached its implied warranty on the
vessels seaworthiness. Resultantly, the payment made by PHILAMGEN to the
assured was an undue, wrong and mistaken payment. Since it was not legally
owing, it did not give PHILAMGEN the right of subrogation so as to permit it to
bring an action in court as a subrogee.
On 18 March 1992 PHILAMGEN appealed the decision to the Court of
Appeals. On 29 August 1994 respondent appellate court rendered judgment
finding MV Asildaunseaworthy for being top- heavy as 2,500 cases of CocaCola softdrink bottles were improperly stowed on deck. In other words, while
the vessel possessed the necessary Coast Guard certification indicating its
seaworthiness with respect to the structure of the ship itself, it was not
seaworthy with respect to the cargo. Nonetheless, the appellate court denied
the claim of PHILAMGEN on the ground that the assureds implied warranty of
seaworthiness was not complied with. Perfunctorily, PHILAMGEN was not
properly subrogated to the rights and interests of the shipper. Furthermore,
respondent court held that the filing of notice of abandonment had absolved
the shipowner/agent from liability under the limited liability rule.

The issues for resolution in this petition are: (a) whether MV Asilda was
seaworthy when it left the port of Zamboanga; (b) whether the limited liability
under Art. 587 of theCode of Commerce should apply; and, (c) whether
PHILAMGEN was properly subrogated to the rights and legal actions which
the shipper had against FELMAN, the shipowner.
MV Asilda was unseaworthy when it left the port of Zamboanga. In a joint
statement, the captain as well as the chief mate of the vessel confirmed that
the weather was fine when they left the port of Zamboanga. According to
them, the vessel was carrying 7,500 cases of 1-liter Coca-Cola softdrink
bottles, 300 sacks of seaweeds, 200 empty CO2 cylinders and an
undetermined quantity of empty boxes for fresh eggs. They loaded the empty
boxes for eggs and about 500 cases of Coca-Cola bottles on deck. The ship
captain stated that around four oclock in the morning of 7 July 1983 he was
awakened by the officer on duty to inform him that the vessel had hit a floating
log. At that time he noticed that the weather had deteriorated with strong
southeast winds inducing big waves. After thirty minutes he observed that the
vessel was listing slightly to starboard and would not correct itself despite the
heavy rolling and pitching. He then ordered his crew to shift the cargo from
starboard to portside until the vessel was balanced. At about seven oclock in
the morning, the master of the vessel stopped the engine because the vessel
was listing dangerously to portside. He ordered his crew to shift the cargo
back to starboard. The shifting of cargo took about an hour afterwhich he rang
the engine room to resume full speed.
[4]

At around eight forty-five, the vessel suddenly listed to portside and before
the captain could decide on his next move, some of the
cargo on deck were thrown overboardand seawater entered the engine room
and cargo holds of the vessel. At that instance, the master of the vessel
ordered his crew to abandon ship. Shortly thereafter, MV Asilda capsized and
sank. He ascribed the sinking to the entry of seawater through a hole in the
hull caused by the vessels collision with a partially submerged log.
[5]

The Elite Adjusters, Inc., submitted a report regarding the sinking of MV


Asilda. The report, which was adopted by the Court of Appeals, reads Wefoundinthecourseofourinvestigationthatareasonableexplanationforthe
seriesoflistsexperiencedbythevesselthateventuallyledtohercapsizingand
sinking,wasthatthevesselwastopheavywhichistosaythatwhilethevesselmay
nothavebeenoverloaded,yetthedistributionorstowageofthecargoonboardwas
doneinsuchamannerthatthevesselwasintopheavyconditionatthetimeofher

departureandwhichconditionrenderedherunstableandunseaworthyforthat
particularvoyage.
Inthisconnection,wewishtocallattentiontothefactthatthisvesselwasdesignedas
afishingvesselxxxxanditwasnotdesignedtocarryasubstantialamountor
quantityofcargoondeck.Therefore,webelievestronglythathadhercargobeen
confinedtothosethatcouldhavebeenaccommodatedunderdeck,herstabilitywould
nothavebeenaffectedandthevesselwouldnothavebeeninanydangerofcapsizing,
evengiventheprevailingweatherconditionsatthattimeofsinking.
Butfromthemomentthatthevesselwasutilizedtoloadheavycargoonitsdeck,the
vesselwasrenderedunseaworthyforthepurposeofcarryingthetypeofcargo
becausetheweightofthedeckcargosodecreasedthevesselsmetacentricheightasto
causeittobecomeunstable.
Finally,withregardtotheallegationthatthevesselencounteredbigwaves,itmustbe
pointedoutthatshipsarepreciselydesignedtobeabletonavigatesafelyevenduring
heavyweatherandfrequentlywehearofshipssafelyandsuccessfullyweathering
encounterswithtyphoonsandalthoughtheymaysustainsomeamountofdamage,the
sinkingofshipduringheavyweatherisnotafrequentoccurrenceandisnotlikelyto
occurunlesstheyareinherentlyunstableandunseaworthyxxxx
Webelieve,therefore,andsoholdthattheproximatecauseofthesinkingof
theM/VAsildawasherconditionofunseaworthinessarisingfromherhaving
beentopheavywhenshedepartedfromthePortofZamboanga.Herhavingcapsized
andeventuallysunkwasboundtohappenandwasthereforeinthecategoryofan
inevitableoccurrence(underscoringsupplied).
[6]

We subscribe to the findings of the Elite Adjusters, Inc., and the Court of
Appeals that the proximate cause of the sinking of MV Asilda was its being
top-heavy. Contrary to the ship captains allegations, evidence shows that
approximately 2,500 cases of softdrink bottles were stowed on deck. Several
days after MV Asilda sank, an estimated 2,500 empty Coca-Cola plastic cases
were recovered near the vicinity of the sinking. Considering that the ships
hatches were properly secured, the empty Coca-Cola cases recovered could
have come only from the vessels deck cargo. It is settled that carrying a deck
cargo raises the presumption of unseaworthiness unless it can be shown that
the deck cargo will not interfere with the proper management of the
ship. However, in this case it was established that MV Asilda was not
designed to carry substantial amount of cargo on deck. The inordinate loading
of cargo deck resulted in the decrease of the vessels metacentric height thus
[7]

making it unstable. The strong winds and waves encountered by the vessel
are but the ordinary vicissitudes of a sea voyage and as such merely
contributed to its already unstable and unseaworthy condition.
On the second issue, Art. 587 of the Code of Commerce is not applicable
to the case at bar. Simply put, the ship agent is liable for the negligent acts of
the captain in the care of goods loaded on the vessel. This liability however
can be limited through abandonment of the vessel, its equipment and
freightage as provided in Art. 587.Nonetheless, there are exceptional
circumstances wherein the ship agent could still be held answerable despite
the abandonment, as where the loss or injury was due to the fault of the
shipowner and the captain. The international rule is to the effect that the right
of abandonment of vessels, as a legal limitation of a shipowners liability, does
not apply to cases where the injury or average was occasioned by the
shipowners own fault. It must be stressed at this point that Art. 587 speaks
only of situations where the fault or negligence is committed solely by the
captain. Where the shipowner is likewise to be blamed, Art. 587 will not apply,
and such situation will be covered by the provisions of the Civil Code on
common carrier.
[8]

[9]

[10]

[11]

It was already established at the outset that the sinking of MV Asilda was
due to its unseaworthiness even at the time of its departure from the port of
Zamboanga. It was top-heavy as an excessive amount of cargo was loaded
on deck. Closer supervision on the part of the shipowner could have
prevented this fatal miscalculation. As such,FELMAN was equally negligent. It
cannot therefore escape liability through the expedient of filing a notice of
abandonment of the vessel by virtue of Art. 587 of the Code of Commerce.
Under Art 1733 of the Civil Code, (c)ommon carriers, from the nature of
their business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances of each
case x x x x" In the event of loss of goods, common carriers are presumed to
have acted negligently. FELMAN, the shipowner, was not able to rebut this
presumption.
In relation to the question of subrogation, respondent appellate court
found MV Asilda unseaworthy with reference to the cargo and therefore ruled
that there was breach of warranty of seaworthiness that rendered the assured
not entitled to the payment of is claim under the policy. Hence, when
PHILAMGEN paid the claim of the bottling firm there was in effect a voluntary

payment and no right of subrogation accrued in its favor. In other words, when
PHILAMGEN paid it did so at its own risk.
It is generally held that in every marine insurance policy the assured
impliedly warrants to the assurer that the vessel is seaworthy and such
warranty is as much a term of the contract as if expressly written on the face
of the policy. Thus Sec. 113 of the Insurance Code provides that (i)n every
marine insurance upon a ship or freight, or freightage, or upon anything which
is the subject of marine insurance, a warranty is implied that the ship is
seaworthy. Under Sec. 114, a ship is seaworthy when reasonably fit to
perform
the
service,
and
to
encounter the ordinary perils of the voyage, contemplated by the parties to the
policy. Thus it becomes the obligation of the cargo owner to look for a reliable
common carrier which keeps its vessels in seaworthy condition. He may have
no control over the vessel but he has full control in the selection of the
common carrier that will transport his goods. He also has full discretion in the
choice of assurer that will underwrite a particular venture.
[12]

We need not belabor the alleged breach of warranty of seaworthiness by


the assured as painstakingly pointed out by FELMAN to stress that
subrogation will not work in this case. In policies where the law will generally
imply a warranty of seaworthiness, it can only be excluded by terms in writing
in the policy in the clearest language. And where the policy stipulates that
the seaworthiness of the vessel as between the assured and the assurer is
admitted, the question of seaworthiness cannot be raised by the assurer
without showing concealment or misrepresentation by the assured.
[13]

[14]

The marine policy issued by PHILAMGEN to the Coca-Cola bottling firm in


at least two (2) instances has dispensed with the usual warranty of
worthiness. Paragraph 15 of the Marine Open Policy No. 100367-PAG reads
(t)he liberties as per Contract of Affreightment the presence of the Negligence
Clause and/or Latent Defect Clause in the Bill of Lading and/or Charter Party
and/or Contract of Affreightment as between the Assured and
the Company shall not prejudice the insurance. The seaworthiness of the
vessel as between the Assured and the Assurers is hereby admitted.
[15]

The same clause is present in par. 8 of the Institute Cargo Clauses (F.P.A.)
of the policy which states (t)he seaworthiness of the vessel as between the
Assured and Underwriters in hereby admitted x x x x"
[16]

The result of the admission of seaworthiness by the assurer PHILAMGEN


may mean one or two things: (a) that the warranty of the seaworthiness is to

be taken as fulfilled; or, (b) that the risk of unseaworthiness is assumed by the
insurance company. The insertion of such waiver clauses in cargo policies is
in recognition of the realistic fact that cargo owners cannot control the state of
the vessel. Thus it can be said that with such categorical waiver, PHILAMGEN
has accepted the risk of unseaworthiness so that if the ship should sink by
unseaworthiness, as what occurred in this case, PHILAMGEN is liable.
[17]

Having disposed of this matter, we move on to the legal basis for


subrogation. PHILAMGENs action against FELMAN is squarely sanctioned by
Art. 2207 of the Civil Code which provides:
Art.2207.Iftheplaintiffspropertyhasbeeninsured,andhehasreceivedindemnity
fromtheinsurancecompanyfortheinjuryorlossarisingoutofthewrongorbreach
ofcontractcomplainedof,theinsurancecompanyshallbesubrogatedtotherightsof
theinsuredagainstthewrongdoerorthepersonwhohasviolatedthecontract.Ifthe
amountpaidbytheinsurancecompanydoesnotfullycovertheinjuryorloss,the
aggrievedpartyshallbeentitledtorecoverthedeficiencyfromthepersoncausingthe
lossorinjury.
In Pan Malayan Insurance Corporation v. Court of Appeals, we said that
payment by the assurer to the assured operates as an equitable assignment
to the assurer of all the remedies which the assured may have against the
third party whose negligence or wrongful act caused the loss. The right of
subrogation is not dependent upon, nor does it grow out of any privity of
contract or upon payment by the insurance company of the insurance claim. It
accrues simply upon payment by the insurance company of the insurance
claim.
[18]

The doctrine of subrogation has its roots in equity. It is designed to


promote and to accomplish justice and is the mode which equity adopts to
compel the ultimate payment of a debt by one who in justice, equity and good
conscience ought to pay. Therefore, the payment made by PHILAMGEN to
Coca-Cola Bottlers Philippines, Inc., gave the former the right to bring an
action as subrogee against FELMAN. Having failed to rebut the presumption
of fault, the liability of FELMAN for the loss of the 7,500 cases of 1-liter CocaCola softdrink bottles is inevitable.
[19]

WHEREFORE, the petition is GRANTED. Respondent FELMAN


SHIPPING
LINES
is
ordered
to
pay
petitioner
PHILIPPINE
AMERICAN GENERAL INSURANCE CO., INC., Seven Hundred Fifty-five
Thousand Two Hundred and Fifty Pesos (P755,250.00) plus legal interest

thereon counted from 29 November 1983, the date of judicial demand,


pursuant to Arts. 2212 and 2213 of the Civil Code.
[20]

SO ORDERED.

DSR-SENATOR LINES AND C.F. SHARP AND COMPANY,


INC., petitioners, vs. FEDERAL PHOENIX ASSURANCE CO.,
INC., respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:

Before us is a petition for review on certiorari assailing the


Decision dated June 5, 1998 of the Court of Appeals in CA-G.R. CV No.
50833 which affirmed the Decision of the Regional Trial Court (RTC), Manila
City, Branch 16, in Civil Case No. 94-69699, Federal Phoenix Assurance
Company, Inc. vs. DSR-Senator Lines and C.F. Sharp & Co., Inc., for
damages arising from the loss of cargo while in transit.
[1]

[2]

Berde Plants, Inc. (Berde Plants) delivered 632 units of artificial trees to
C.F. Sharp and Company, Inc. (C.F. Sharp), the General Ship Agent of DSRSenator Lines, a foreign shipping corporation, for transportation and delivery
to the consignee, Al-Mohr International Group, in Riyadh, Saudi Arabia. C.F.
Sharp issued International Bill of Lading No. SENU MNL-26548 for the cargo
with an invoice value of $34,579.60. Under the Bill of Lading, the port of
discharge for the cargo was at the Khor Fakkan port and the port of delivery
was Riyadh, Saudi Arabia, via Port Dammam. The cargo was loaded in M/S
Arabian Senator.
[3]

Federal Phoenix Assurance Company, Inc. (Federal Phoenix Assurance)


insured the cargo against all risks in the amount of P941,429.61.
[4]

On June 7, 1993, M/S Arabian Senator left the Manila South Harbor for
Saudi Arabia with the cargo on board. When the vessel arrived in Khor
Fakkan Port, the cargo was reloaded on board DSR-Senator Lines feeder
vessel, M/V Kapitan Sakharov, bound for Port Dammam, Saudi
Arabia. However, while in transit, the vessel and all its cargo caught fire.
On July 5, 1993, DSR-Senator Lines informed Berde Plants that M/V
Kapitan Sakharov with its cargo was gutted by fire and sank on or about July
4, 1993. On December 16, 1993, C.F. Sharp issued a certification to that
effect.

Consequently, Federal Phoenix Assurance paid Berde Plants P941,429.61


corresponding to the amount of insurance for the cargo. In turn Berde Plants
executed in its favor a Subrogation Receipt dated January 17, 1994.
[5]

On February 8, 1994, Federal Phoenix Assurance sent a letter to C.F.


Sharp demanding payment of P941,429.61 on the basis of the Subrogation
Receipt. C.F. Sharp denied any liability on the ground that such liability was
extinguished when the vessel carrying the cargo was gutted by fire.
Thus, on March 11, 1994, Federal Phoenix Assurance filed with the RTC,
Branch 16, Manila a complaint for damages against DSR-Senator Lines and
C.F. Sharp, praying that the latter be ordered to pay actual damages
of P941,429.61, compensatory damages of P100,000.00 and costs.
On August 22, 1995, the RTC rendered a Decision in favor of Federal
Phoenix Assurance, the dispositive portion of which reads:
WHEREFORE,premisesconsidered,judgmentisherebyrenderedinfavorofplaintiff
andagainstthedefendantswhoareherebyorderedjointlyandseverallytopay
plaintiff:
I. The amount of P941,439.61 (should be P941,429.61[6]) with legal interest of 6% per
annum from the date of the letter of demand of February 8, 1993 (EXH. L) and 12%
per annum from the date the judgment becomes final and executory until its
satisfaction (Eastern Shipping Lines vs. Court of Appeals, G.R. No. 97412, July 12,
1994);
II. The amount of P15,000.00 by way of reasonable attorneys fees; and
III. To pay costs.

ThecounterclaimofdefendantsisDISMISSED.
SOORDERED.

[7]

On appeal, the Court of Appeals rendered a Decision dated June 5, 1998,


affirming the RTC Decision, thus:
Inthepresentrecourse,theappellantcarrierwaspresumedtohaveactednegligently
forthefirethatguttedthefeedervesselandtheconsequentlossordestructionofthe
cargo.Hence,theappellantcarrierisliableforappelleesclaimundertheNewCivil
CodeofthePhilippines.
ContrarytoC.F.SharpandCo.,Inc.spose,itsliabilityasshipagentcontinuedand
remaineduntilthecargowasdeliveredtotheconsignee.Thestatusoftheappellantas

shipagentsubsistedanditsliabilityasashipagentwascoterminouswithand
subsistedaslongasthecargowasnotdeliveredtotheconsigneeunderthetermsof
theBillofLading.
INLIGHTOFALLTHEFOREGOING,theappealoftheappellantsis
DISMISSED.TheDecisionappealedfromisaffirmed.Withcostsagainstthe
appellants.
SOORDERED.

[8]

On September 7, 1998, the Court of Appeals denied the motion for


reconsideration of DSR-Senator Lines and C.F. Sharp, prompting them to file
with this Court the instant petition.
We find the petition bereft of merit.
Article 1734 of the Civil Code provides:
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,orothernaturaldisasterorcalamity;
(2)Actofthepublicenemyinwar,whetherinternationalorcivil;
(3)Actoromissionoftheshipperorownerofthegoods;
(4)Thecharacterofthegoodsordefectsinthepackingorinthecontainers;
(5)Orderoractofcompetentpublicauthority.
Fire is not one of those enumerated under the above provision which
exempts a carrier from liability for loss or destruction of the cargo.
In Eastern Shipping Lines, Inc. vs. Intermediate Appellate Court, we ruled
that since the peril of fire is not comprehended within the exceptions in Article
1734, then the common carrier shall be presumed to have been at fault or to
have acted negligently, unless it proves that it has observed the extraordinary
diligence required by law.
[9]

Even if fire were to be considered a natural disaster within the purview of


Article 1734, it is required under Article 1739 of the same Code that the
natural disaster must have been the proximate and only cause of the loss, and
[10]

that the carrier has exercised due diligence to prevent or minimize the
loss before, during or after the occurrence of the disaster.
We have held that a common carriers duty to observe the requisite
diligence in the shipment of goods lasts from the time the articles are
surrendered to or unconditionally placed in the possession of, and received
by, the carrier for transportation until delivered to or until the lapse of a
reasonable time for their acceptance by the person entitled to receive
them. When the goods shipped 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.
[11]

Common carriers are obliged to observe extraordinary diligence in the


vigilance over the goods transported by them. Accordingly, they are presumed
to have been at fault or to have acted negligently if the goods are lost,
destroyed or deteriorated. There are very few instances when the
presumption of negligence does not attach and these instances are
enumerated in Article 1734. In those cases where the presumption is applied,
the common carrier must prove that it exercised extraordinary diligence in
order to overcome the presumption.
[12]

Respondent Federal Phoenix Assurance raised the presumption of


negligence against petitioners. However, they failed to overcome it by
sufficient proof of extraordinary diligence.
WHEREFORE, the instant petition is DENIED. The assailed Decision of
the Court of Appeals dated June 5, 1998, in CA-G.R. CV No. 50833 is
hereby AFFIRMED.
SO ORDERED.

FGU INSURANCE CORPORATION, petitioner, 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 Decision [1] 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, DefendantsAppellants, ThirdParty Plaintiffs versus FGU Insurance Corporation, ThirdParty Defendant-Appellant, which affirmed in toto the decision[2] of the
Regional Trial Court of Cebu City, Branch 22. The dispositive portion of the
Court of Appeals decision reads:
WHEREFORE,foralltheforegoing,judgmentisherebyrenderedasfollows:
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.

FortheThirdPartyComplaint:
1)OrderingthirdpartydefendantFGUInsuranceCompanytopayandreimburse
defendantstheamountofP632,700.00.[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.
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:
BillofLadingNo.ShipmentDestination

125,000casesPalePilsenEstancia,Iloilo
350casesCervezaNegraEstancia,Iloilo
215,000casesPalePilsenSanJose,Antique
200casesCervezaNegraSanJose,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 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.
Third-Party defendant FGU prayed for the dismissal of the Third-Party
Complaint and asked for actual, moral, and exemplary damages and
attorneys fees.[1]
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:
...EvidenceistotheeffectthattheD/BLucio,onwhichthecargoinsured,run
agroundandwasbrokenandthebeercargoesonthesaidbargeweresweptaway.Itis
thesenseofthisCourtthattheriskinsuredagainstwasthecauseoftheloss.

...
Sincethetotalcargowas40,550caseswhichhadatotalamountofP1,833,905.00and
theamountofthepolicywasonlyforP858,500.00,defendantsasassured,therefore,
wereconsideredcoinsurersofthirdpartydefendantFGUInsuranceCorporationto
theextentof975,405.00valueofthecargo.Consequently,inasmuchastherewas
partiallossofonlyP1,346,197.00,theassuredshallbear53%oftheloss [4][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.

It is ANCOs contention that the decision in Civil Case No. R-19341,


which was decided in its favor, constitutes res judicata with respect to the
issues raised in the case at bar.
[5]

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. R19341. 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 shipper vis--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 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 is res 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:
Atthatprecisemoment,sinceitisthedutyofthedefendanttoexerciseandobserve
extraordinarydiligenceinthevigilanceoverthecargooftheplaintiff,thepatronor
captainofM/TANCO,representingthedefendantcouldhaveplacedD/BLucioina
verysafelocationbeforetheyleftknowingorsensingatthattimethecomingofa
typhoon.Thepresenceofbigwavesanddarkcloudscouldhavewarnedthepatronor

captainofM/TANCOtoinsurethesafetyofD/BLucioincludingitscargo.D/B
Luciobeingabarge,withoutitsengine,asthepatronorcaptainofM/TANCOknew,
couldnotpossiblymaneuverbyitself.HadthepatronorcaptainofM/TANCO,the
representativeofthedefendantsobservedextraordinarydiligenceinplacingtheD/B
Lucioinasafeplace,thelosstothecargooftheplaintiffcouldnothaveoccurred.In
short,therefore,defendantsthroughtheirrepresentatives,failedtoobservethedegree
ofdiligencerequiredofthemundertheprovisionofArt.1733oftheCivilCodeofthe
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.Commoncarriers,fromthenatureoftheirbusinessandforreasonsof
publicpolicyareboundtoobserveextraordinarydiligenceinthevigilanceoverthe
goodsandforthesafetyofthepassengerstransportedbythem,accordingtoallthe
circumstancesofeachcase.
Suchextraordinarydiligenceinvigilanceoverthegoodsisfurtherexpressedin
Articles1734,1735,and1745Nos.5,6,and7...

Art.1734.Commoncarriersareresponsiblefortheloss,destruction,ordeterioration
ofthegoods,unlessthesameisduetoanyofthefollowingcausesonly:
(1)Flood,storm,earthquake,lightning,orothernaturaldisasterorcalamity;
...
Art.1739.Inorderthatthecommoncarriermaybeexemptedfromresponsibility,
thenaturaldisastermusthavebeentheproximateandonlycauseoftheloss.
However,thecommoncarriermustexerciseduediligencetopreventorminimizeloss
before,duringandaftertheoccurrenceofflood,storm,orothernaturaldisasterin
orderthatthecommoncarriermaybeexemptedfromliabilityfortheloss,
destruction,ordeteriorationofthegoods...(Emphasissupplied)
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
ofLimpangco Sons v. Yangco Steamship Co.:[21]

...TobeexemptfromliabilitybecauseofanactofGod,thetugmustbefreefrom
anypreviousnegligenceormisconductbywhichthatlossordamagemayhavebeen
occasioned.For,althoughtheimmediateorproximatecauseofthelossinanygiven
instancemayhavebeenwhatistermedanactofGod,yet,ifthetugunnecessarily
exposedthetwotosuchaccidentbyanyculpableactoromissionofitsown,itisnot
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.
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:
Theordinarynegligenceoftheinsuredandhisagentshaslongbeenheldasapartof
theriskwhichtheinsurertakesuponhimself,andtheexistenceofwhich,whereitis

theproximatecauseoftheloss,doesnotabsolvetheinsurerfromliability.Butwillful
exposure,grossnegligence,negligenceamountingtomisconduct,etc.,haveoften
beenheldtoreleasetheinsurerfromsuchliability.[25][Emphasisours]
...
InthecaseofWilliamsv.NewEnglandInsuranceCo.,3Cliff.244,Fed.Cas.No.
17,731,theownersofaninsuredvesselattemptedtoputheracrossthebaratHatteras
Inlet.Shestruckonthebarandwaswrecked.Themasterknewthatthedepthofwater
onthebarwassuchastomaketheattemptedpassagedangerous.JudgeCliffordheld
that,underthecircumstances,thelosswasnotwithintheprotectionofthepolicy,
saying:
Authoritiestoprovethatpersonsinsuredcannotrecoverforalossoccasionedbytheir
ownwrongfulactsarehardlynecessary,asthepropositioninvolvesanelementary
principleofuniversalapplication.Lossesmayberecoveredbytheinsured,though
remotelyoccasionedbythenegligenceormisconductofthemasterorcrew,if
proximatelycausedbytheperilsinsuredagainst,becausesuchmistakesand
negligenceareincidenttonavigationandconstituteapartoftheperilswhichthose
whoengageinsuchadventuresareobligedtoincur;butitwasneversupposedthat
theinsuredcouldrecoverindemnityforalossoccasionedbyhisownwrongfulactor
bythatofanyagentforwhoseconducthewasresponsible.[26][Emphasisours]
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:
Therewasblatantnegligenceonthepartoftheemployeesofdefendantsappellants
whenthepatron(operator)ofthetugboatimmediatelyleftthebargeattheSanJose,
Antiquewharfdespitetheloomingbadweather.Negligencewaslikewiseexhibited
bythedefendantsappellantsrepresentativewhodidnotheedMacabuagsrequestthat

thebargebemovedtoamoresecureplace.Theprudentthingtodo,aswasdoneby
theotherseavesselsatSanJose,Antiqueduringthetimeinquestion,wastotransfer
thevesseltoasaferwharf.Thenegligenceofthedefendantsappellantsisprovedby
thefactthaton01October1979,theonlysimplevesselleftatthewharfinSanJose
wastheD/BLucio.[27][Emphasisours]
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.
G.R. No. 150751

September 20, 2004

CENTRAL SHIPPING COMPANY, INC., petitioner,


vs.
INSURANCE COMPANY OF NORTH AMERICA, respondent.
DECISION
PANGANIBAN, J.:
A common carrier is presumed to be at fault or negligent. It shall be liable for the loss, destruction or
deterioration of its cargo, unless it can prove that the sole and proximate cause of such event is one
of the causes enumerated in Article 1734 of the Civil Code, or that it exercised extraordinary
diligence to prevent or minimize the loss. In the present case, the weather condition encountered by
petitioners vessel was not a "storm" or a natural disaster comprehended in the law. Given the known
weather condition prevailing during the voyage, the manner of stowage employed by the carrier was
insufficient to secure the cargo from the rolling action of the sea. The carrier took a calculated risk in
improperly securing the cargo. Having lost that risk, it cannot now disclaim any liability for the loss.
The Case

Before the Court is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to reverse
and set aside the March 23, 2001 Decision2 of the Court of Appeals (CA) in CA-GR CV No. 48915.
The assailed Decision disposed as follows:
"WHEREFORE, the decision of the Regional Trial Court of Makati City, Branch 148 dated
August 4, 1994 is hereby MODIFIED in so far as the award of attorneys fees is DELETED.
The decision is AFFIRMED in all other respects."3
The CA denied petitioners Motion for Reconsideration in its November 7, 2001 Resolution. 4
The Facts
The factual antecedents, summarized by the trial court and adopted by the appellate court, are as
follows:
"On July 25, 1990 at Puerto Princesa, Palawan, the [petitioner] received on board its vessel,
the M/V Central Bohol, 376 pieces [of] Philippine Apitong Round Logs and undertook to
transport said shipment to Manila for delivery to Alaska Lumber Co., Inc.
"The cargo was insured for P3,000,000.00 against total loss under [respondents] Marine
Cargo Policy No. MCPB-00170.
"On July 25, 1990, upon completion of loading of the cargo, the vessel left Palawan and
commenced the voyage to Manila.
"At about 0125 hours on July 26, 1990, while enroute to Manila, the vessel listed about 10
degrees starboardside, due to the shifting of logs in the hold.
"At about 0128 hours, after the listing of the vessel had increased to 15 degrees, the ship
captain ordered his men to abandon ship and at about 0130 hours of the same day the
vessel completely sank. Due to the sinking of the vessel, the cargo was totally lost.
"[Respondent] alleged that the total loss of the shipment was caused by the fault and
negligence of the [petitioner] and its captain and as direct consequence thereof the
consignee suffered damage in the sum ofP3,000,000.00.
"The consignee, Alaska Lumber Co. Inc., presented a claim for the value of the shipment to
the [petitioner] but the latter failed and refused to settle the claim, hence [respondent], being
the insurer, paid said claim and now seeks to be subrogated to all the rights and actions of
the consignee as against the [petitioner].
"[Petitioner], while admitting the sinking of the vessel, interposed the defense that the vessel
was fully manned, fully equipped and in all respects seaworthy; that all the logs were
properly loaded and secured; that the vessels master exercised due diligence to prevent or
minimize the loss before, during and after the occurrence of the storm.
"It raised as its main defense that the proximate and only cause of the sinking of its vessel
and the loss of its cargo was a natural disaster, a tropical storm which neither [petitioner] nor
the captain of its vessel could have foreseen."5

The RTC was unconvinced that the sinking of M/V Central Bohol had been caused by the weather or
any other caso fortuito. It noted that monsoons, which were common occurrences during the months
of July to December, could have been foreseen and provided for by an ocean-going vessel. Applying
the rule of presumptive fault or negligence against the carrier, the trial court held petitioner liable for
the loss of the cargo. Thus, the RTC deducted the salvage value of the logs in the amount
of P200,000 from the principal claim of respondent and found that the latter was entitled to be
subrogated to the rights of the insured. The court a quo disposed as follows:
"WHEREFORE, premises considered, judgment is hereby rendered in favor of the
[respondent] and against the [petitioner] ordering the latter to pay the following:
1) the amount of P2,800,000.00 with legal interest thereof from the filing of this
complaint up to and until the same is fully paid;
2) P80,000.00 as and for attorneys fees;
3) Plus costs of suit."6
Ruling of the Court of Appeals
The CA affirmed the trial courts finding that the southwestern monsoon encountered by the vessel
was not unforeseeable. Given the season of rains and monsoons, the ship captain and his crew
should have anticipated the perils of the sea. The appellate court further held that the weather
disturbance was not the sole and proximate cause of the sinking of the vessel, which was also due
to the concurrent shifting of the logs in the hold that could have resulted only from improper stowage.
Thus, the carrier was held responsible for the consequent loss of or damage to the cargo, because
its own negligence had contributed thereto.
The CA found no merit in petitioners assertion of the vessels seaworthiness. It held that the
Certificates of Inspection and Drydocking were not conclusive proofs thereof. In order to consider a
vessel to be seaworthy, it must be fit to meet the perils of the sea.
Found untenable was petitioners insistence that the trial court should have given greater weight to
the factual findings of the Board of Marine Inquiry (BMI) in the investigation of the Marine Protest
filed by the ship captain, Enriquito Cahatol. The CA further observed that what petitioner had
presented to the court a quo were mere excerpts of the testimony of Captain Cahatol given during
the course of the proceedings before the BMI, not the actual findings and conclusions of the agency.
Citing Arada v. CA,7 it said that findings of the BMI were limited to the administrative liability of the
owner/operator, officers and crew of the vessel. However, the determination of whether the carrier
observed extraordinary diligence in protecting the cargo it was transporting was a function of the
courts, not of the BMI.
The CA concluded that the doctrine of limited liability was not applicable, in view of petitioners
negligence -- particularly its improper stowage of the logs.
Hence, this Petition.8
Issues
In its Memorandum, petitioner submits the following issues for our consideration:

"(i) Whether or not the weather disturbance which caused the sinking of the vessel M/V
Central Bohol was a fortuitous event.
"(ii) Whether or not the investigation report prepared by Claimsmen Adjustment Corporation
is hearsay evidence under Section 36, Rule 130 of the Rules of Court.
"(iii) Whether or not the finding of the Court of Appeals that the logs in the hold shifted and
such shifting could only be due to improper stowage has a valid and factual basis.
"(iv) Whether or not M/V Central Bohol is seaworthy.
"(v) Whether or not the Court of Appeals erred in not giving credence to the factual finding of
the Board of Marine Inquiry (BMI), an independent government agency tasked to conduct
inquiries on maritime accidents.
"(vi) Whether or not the Doctrine of Limited Liability is applicable to the case at bar." 9
The issues boil down to two: (1) whether the carrier is liable for the loss of the cargo; and (2)
whether the doctrine of limited liability is applicable. These issues involve a determination of factual
questions of whether the loss of the cargo was due to the occurrence of a natural disaster; and if so,
whether its sole and proximate cause was such natural disaster or whether petitioner was partly to
blame for failing to exercise due diligence in the prevention of that loss.
The Courts Ruling
The Petition is devoid of merit.
First Issue:
Liability for Lost Cargo
From the nature of their business and for reasons of public policy, common carriers are bound to
observe extraordinary diligence over the goods they transport, according to all the circumstances of
each case.10 In the event of loss, destruction or deterioration of the insured goods, common carriers
are responsible; that is, unless they can prove that such loss, destruction or deterioration was
brought about -- among others -- by "flood, storm, earthquake, lightning or other natural disaster or
calamity."11 In all other cases not specified under Article 1734 of the Civil Code, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence.12
In the present case, petitioner disclaims responsibility for the loss of the cargo by claiming the
occurrence of a "storm" under Article 1734(1). It attributes the sinking of its vessel solely to the
weather condition between 10:00 p.m. on July 25, 1990 and 1:25 a.m. on July 26, 1990.
At the outset, it must be stressed that only questions of law13 may be raised in a petition for review
on certiorari under Rule 45 of the Rules of Court. Questions of fact are not proper subjects in this
mode of appeal,14 for "[t]he Supreme Court is not a trier of facts."15 Factual findings of the CA may be
reviewed on appeal16 only under exceptional circumstances such as, among others, when the
inference is manifestly mistaken,17 the judgment is based on a misapprehension of facts, 18 or the CA
manifestly overlooked certain relevant and undisputed facts that, if properly considered, would justify
a different conclusion.19

In the present case, petitioner has not given the Court sufficient cogent reasons to disturb the
conclusion of the CA that the weather encountered by the vessel was not a "storm" as contemplated
by Article 1734(1). Established is the fact that between 10:00 p.m. on July 25, 1990 and 1:25 a.m. on
July 26, 1990, M/V Central Bohol encountered a southwestern monsoon in the course of its voyage.
The Note of Marine Protest,20 which the captain of the vessel issued under oath, stated that he and
his crew encountered a southwestern monsoon about 2200 hours on July 25, 1990, and another
monsoon about 2400 hours on July 26, 1990. Even petitioner admitted in its Answer that the sinking
of M/V Central Bohol had been caused by the strong southwest monsoon. 21 Having made such
factual representation, it cannot now be allowed to retreat and claim that the southwestern monsoon
was a "storm."
The pieces of evidence with respect to the weather conditions encountered by the vessel showed
that there was a southwestern monsoon at the time. Normally expected on sea voyages, however,
were such monsoons, during which strong winds were not unusual. Rosa S. Barba, weather
specialist of the Philippine Atmospheric Geophysical and Astronomical Services Administration
(PAGASA), testified that a thunderstorm might occur in the midst of a southwest monsoon. According
to her, one did occur between 8:00 p.m. on July 25, 1990, and 2 a.m. on July 26, 1990, as recorded
by the PAGASA Weather Bureau.22
Nonetheless, to our mind it would not be sufficient to categorize the weather condition at the time as
a "storm" within the absolutory causes enumerated in the law. Significantly, no typhoon was
observed within the Philippine area of responsibility during that period. 23
According to PAGASA, a storm has a wind force of 48 to 55 knots,24 equivalent to 55 to 63 miles per
hour or 10 to 11 in the Beaufort Scale. The second mate of the vessel stated that the wind was
blowing around force 7 to 8 on the Beaufort Scale. 25 Consequently, the strong winds accompanying
the southwestern monsoon could not be classified as a "storm." Such winds are the ordinary
vicissitudes of a sea voyage.26
Even if the weather encountered by the ship is to be deemed a natural disaster under Article 1739 of
the Civil Code, petitioner failed to show that such natural disaster or calamity was the proximate and
only cause of the loss. Human agency must be entirely excluded from the cause of injury or loss. In
other words, the damaging effects blamed on the event or phenomenon must not have been caused,
contributed to, or worsened by the presence of human participation. 27 The defense of fortuitous event
or natural disaster cannot be successfully made when the injury could have been avoided by human
precaution.28
Hence, if a common carrier fails to exercise due diligence -- or that ordinary care that the
circumstances of the particular case demand -- to prevent or minimize the loss before, during and
after the occurrence of the natural disaster, the carrier shall be deemed to have been negligent. The
loss or injury is not, in a legal sense, due to a natural disaster under Article 1734(1). 29
We also find no reason to disturb the CAs finding that the loss of the vessel was caused not only by
the southwestern monsoon, but also by the shifting of the logs in the hold. Such shifting could been
due only to improper stowage. The assailed Decision stated:
"Notably, in Master Cahatols account, the vessel encountered the first southwestern
monsoon at about 1[0]:00 in the evening. The monsoon was coupled with heavy rains and
rough seas yet the vessel withstood the onslaught. The second monsoon attack occurred at
about 12:00 midnight. During this occasion, the master felt that the logs in the hold shifted,
prompting him to order second mate Percival Dayanan to look at the bodega. Complying

with the captains order, 2nd mate Percival Dayanan found that there was seawater in the
bodega. 2nd mate Dayanans account was:
14.T Kung inyo pong natatandaan ang mga pangyayari, maari mo bang isalaysay
ang naganap na paglubog sa barkong M/V Central Bohol?
S Opo, noong ika-26 ng Julio 1990 humigit kumulang alas 1:20 ng umaga (dst)
habang kami ay nagnanabegar patungong Maynila sa tapat ng Cadlao Island at
Cauayan Island sakop ng El Nido, Palawan, inutusan ako ni Captain Enriquito
Cahatol na tingnan ko ang bodega; nang ako ay nasa bodega, nakita ko ang loob
nang bodega na maraming tubig at naririnig ko ang malakas na agos ng tubig-dagat
na pumapasok sa loob ng bodega ng barko; agad bumalik ako kay Captain Enriquito
Cahatol at sinabi ko ang malakas na pagpasok ng tubig-dagat sa loob nang bodega
ng barko na ito ay naka-tagilid humigit kumulang sa 020 degrees, nag-order si
Captain Cahatol na standby engine at tinawag ang lahat ng mga officials at mga
crew nang maipon kaming lahat ang barko ay naka-tagilid at ito ay tuloy-tuloy ang
pagtatagilid na ang ilan sa mga officials ay naka-hawak na sa barandilla ng barko at
di-nagtagal sumigaw nang ABANDO[N] SHIP si Captain Cahatol at kami ay
nagkanya-kanya nang talunan at languyan sa dagat na malakas ang alon at nang
ako ay lumingon sa barko ito ay di ko na nakita.
"Additionally, [petitioners] own witnesses, boatswain Eduardo Vias Castro and oiler
Frederick Perena, are one in saying that the vessel encountered two weather disturbances,
one at around 10 oclock to 11 oclock in the evening and the other at around 12 oclock
midnight. Both disturbances were coupled with waves and heavy rains, yet, the vessel
endured the first and not the second. Why? The reason is plain. The vessel felt the strain
during the second onslaught because the logs in the bodega shifted and there were already
seawater that seeped inside."30
The above conclusion is supported by the fact that the vessel proceeded through the first
southwestern monsoon without any mishap, and that it began to list only during the second monsoon
immediately after the logs had shifted and seawater had entered the hold. In the hold, the sloshing of
tons of water back and forth had created pressures that eventually caused the ship to sink. Had the
logs not shifted, the ship could have survived and reached at least the port of El Nido. In fact, there
was another motor launch that had been buffeted by the same weather condition within the same
area, yet it was able to arrive safely at El Nido.31
In its Answer, petitioner categorically admitted the allegation of respondent in paragraph 5 of the
latters Complaint "[t]hat at about 0125 hours on 26 July 1990, while enroute to Manila, the M/V
Central Bohol listed about 10 degrees starboardside, due to the shifting of logs in the hold." Further,
petitioner averred that "[t]he vessel, while navigating through this second southwestern monsoon,
was under extreme stress. At about 0125 hours, 26 July 1990, a thud was heard in the cargo hold
and the logs therein were felt to have shifted. The vessel thereafter immediately listed by ten (10)
degrees starboardside."32
Yet, petitioner now claims that the CAs conclusion was grounded on mere speculations and
conjectures. It alleges that it was impossible for the logs to have shifted, because they had fitted
exactly in the hold from the port to the starboard side.
After carefully studying the records, we are inclined to believe that the logs did indeed shift, and that
they had been improperly loaded.

According to the boatswains testimony, the logs were piled properly, and the entire shipment was
lashed to the vessel by cable wire.33 The ship captain testified that out of the 376 pieces of round
logs, around 360 had been loaded in the lower hold of the vessel and 16 on deck. The logs stored in
the lower hold were not secured by cable wire, because they fitted exactly from floor to ceiling.
However, while they were placed side by side, there were unavoidable clearances between them
owing to their round shape. Those loaded on deck were lashed together several times across by
cable wire, which had a diameter of 60 millimeters, and were secured from starboard to port. 34
It is obvious, as a matter of common sense, that the manner of stowage in the lower hold was not
sufficient to secure the logs in the event the ship should roll in heavy weather. Notably, they were of
different lengths ranging from 3.7 to 12.7 meters.35 Being clearly prone to shifting, the round logs
should not have been stowed with nothing to hold them securely in place. Each pile of logs should
have been lashed together by cable wire, and the wire fastened to the side of the hold. Considering
the strong force of the wind and the roll of the waves, the loose arrangement of the logs did not rule
out the possibility of their shifting. By force of gravity, those on top of the pile would naturally roll
towards the bottom of the ship.
The adjusters Report, which was heavily relied upon by petitioner to strengthen its claim that the
logs had not shifted, stated that "the logs were still properly lashed by steel chains on deck."
Parenthetically, this statement referred only to those loaded on deck and did not mention anything
about the condition of those placed in the lower hold. Thus, the finding of the surveyor that the logs
were still intact clearly pertained only to those lashed on deck.
The evidence indicated that strong southwest monsoons were common occurrences during the
month of July. Thus, the officers and crew of M/V Central Bohol should have reasonably anticipated
heavy rains, strong winds and rough seas. They should then have taken extra precaution in stowing
the logs in the hold, in consonance with their duty of observing extraordinary diligence in
safeguarding the goods. But the carrier took a calculated risk in improperly securing the cargo.
Having lost that risk, it cannot now escape responsibility for the loss.
Second Issue:
Doctrine of Limited Liability
The doctrine of limited liability under Article 587 of the Code of Commerce36 is not applicable to the
present case. This rule does not apply to situations in which the loss or the injury is due to the
concurrent negligence of the shipowner and the captain.37 It has already been established that the
sinking of M/V Central Bohol had been caused by the fault or negligence of the ship captain and the
crew, as shown by the improper stowage of the cargo of logs. "Closer supervision on the part of the
shipowner could have prevented this fatal miscalculation."38 As such, the shipowner was equally
negligent. It cannot escape liability by virtue of the limited liability rule.
WHEREFORE, the Petition is DENIED, and the assailed Decision and Resolution AFFIRMED. Costs
against petitioner.
SO ORDERED.

G.R. No. L-31379 August 29, 1988

COMPAIA MARITIMA, petitioner,


vs.
COURT OF APPEALS and VICENTE CONCEPCION, respondents.
Rafael Dinglasan for petitioner.
Benjamin J. Molina for private respondent.

FERNAN, C.J.:
Petitioner Compaia Maritima seeks to set aside through this petition for review on certiorari the
decision 1 of the Court of Appeals dated December 5, 1965, adjudging petitioner liable to private
respondent Vicente E. Concepcion for damages in the amount of P24,652.97 with legal interest from the
date said decision shall have become final, for petitioner's failure to deliver safely private respondent's
payloader, and for costs of suit. The payloader was declared abandoned in favor of petitioner.
The facts of the case are as follows:
Private respondent Vicente E. Concepcion, a civil engineer doing business under the name and style
of Consolidated Construction with office address at Room 412, Don Santiago Bldg., Taft Avenue,
Manila, had a contract with the Civil Aeronautics Administration (CAA) sometime in 1964 for the
construction of the airport in Cagayan de Oro City Misamis Oriental.
Being a Manila based contractor, Vicente E. Concepcion had to ship his construction equipment
to Cagayan de Oro City. Having shipped some of his equipment through petitioner and having
settled the balance of P2,628.77 with respect to said shipment, Concepcion negotiated anew with
petitioner, thru its collector, Pacifico Fernandez, on August 28, 1964 for the shipment to Cagayan de
Oro City of one (1) unit payloader, four (4) units 6x6 Reo trucks and two (2) pieces of water tanks.
He was issued Bill of Lading 113 on the same date upon delivery of the equipment at the Manila
North Harbor. 2
These equipment were loaded aboard the MV Cebu in its Voyage No. 316, which left Manila on
August 30, 1964 and arrived at Cagayan de Oro City in the afternoon of September 1, 1964. The
Reo trucks and water tanks were safely unloaded within a few hours after arrival, but while the
payloader was about two (2) meters above the pier in the course of unloading, the swivel pin of the
heel block of the port block of Hatch No. 2 gave way, causing the payloader to fall. 3 The payloader
was damaged and was thereafter taken to petitioner's compound in Cagayan de Oro City.
On September 7, 1964, Consolidated Construction, thru Vicente E. Concepcion, wrote Compaia
Maritima to demand a replacement of the payloader which it was considering as a complete loss
because of the extent of damage. 4 Consolidated Construction likewise notified petitioner of its claim for
damages. Unable to elicit response, the demand was repeated in a letter dated October 2, 1964. 5
Meanwhile, petitioner shipped the payloader to Manila where it was weighed at the San Miguel
Corporation. Finding that the payloader weighed 7.5 tons and not 2.5 tons as declared in the B-111
of Lading, petitioner denied the claim for damages of Consolidated Construction in its letter dated
October 7, 1964, contending that had Vicente E. Concepcion declared the actual weight of the
payloader, damage to their ship as well as to his payloader could have been prevented. 6

To replace the damaged payloader, Consolidated Construction in the meantime bought a new one at
P45,000.00 from Bormaheco Inc. on December 3, 1964, and on July 6, 1965., Vicente E.
Concepcion filed an action for damages against petitioner with the then Court of First Instance of
Manila, Branch VII, docketed as Civil Case No. 61551, seeking to recover damages in the amount of
P41,225.00 allegedly suffered for the period of 97 days that he was not able to employ a payloader
in the construction job at the rate of P450.00 a day; P34,000.00 representing the cost of the
damaged payloader; Pl 1, 000. 00 representing the difference between the cost of the damaged
payloader and that of the new payloader; P20,000.00 representing the losses suffered by him due to
the diversion of funds to enable him to buy a new payloader; P10,000.00 as attorney's fees;
P5,000.00 as exemplary damages; and cost of the suit. 7
After trial, the then Court of First Instance of Manila, Branch VII, dismissed on April 24, 1968 the
complaint with costs against therein plaintiff, herein private respondent Vicente E. Concepcion,
stating that the proximate cause of the fall of the payloader was Vicente E. Concepcion's act or
omission in having misrepresented the weight of the payloader as 2.5 tons instead of its true weight
of 7.5 tons, which underdeclaration was intended to defraud Compaia Maritima of the payment of
the freight charges and which likewise led the Chief Officer of the vessel to use the heel block of
hatch No. 2 in unloading the payloader. 8
From the adverse decision against him, Vicente E. Concepcion appealed to the Court of Appeals
which, on December 5, 1965 rendered a decision, the dispositive portion of which reads:
IN VIEW WHEREOF, judgment must have to be as it is hereby reversed; defendant
is condemned to pay unto plaintiff the sum in damages of P24,652.07 with legal
interest from the date the present decision shall have become final; the payloader is
declared abandoned to defendant; costs against the latter. 9
Hence, the instant petition.
The principal issue in the instant case is whether or not the act of private respondent Vicente E.
Concepcion in furnishing petitioner Compaia Maritima with an inaccurate weight of 2.5 tons instead
of the payloader's actual weight of 7.5 tons was the proximate and only cause of the damage on the
Oliver Payloader OC-12 when it fell while being unloaded by petitioner's crew, as would absolutely
exempt petitioner from liability for damages under paragraph 3 of Article 1734 of the Civil Code,
which provides:
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:
xxx xxx xxx
(3) Act or omission of the shipper or owner of the goods.
Petitioner claims absolute exemption under this provision upon the reasoning that private
respondent's act of furnishing it with an inaccurate weight of the payloader constitutes
misrepresentation within the meaning of "act or omission of the shipper or owner of the goods" under
the above- quoted article. It likewise faults the respondent Court of Appeals for reversing the
decision of the trial court notwithstanding that said appellate court also found that by representing
the weight of the payloader to be only 2.5 tons, private respondent had led petitioner's officer to
believe that the same was within the 5 tons capacity of the heel block of Hatch No. 2. Petitioner
would thus insist that the proximate and only cause of the damage to the payloader was private

respondent's alleged misrepresentation of the weight of the machinery in question; hence, any
resultant damage to it must be borne by private respondent Vicente E. Concepcion.
The general rule under Articles 1735 and 1752 of the Civil Code is that 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 the loss,
destruction or deterioration of the goods under Article 1735, the common carriers must prove that
they observed extraordinary diligence as required in Article 1733 of the Civil Code. The responsibility
of observing extraordinary diligence in the vigilance over the goods is further expressed in Article
1734 of the same Code, the article invoked by petitioner to avoid liability for damages.
Corollary is the rule that mere proof of delivery of the goods in good order to a common carrier, and
of their arrival at the place of destination in bad order, makes out prima facie case against the
common carrier, so that if no explanation is given as to how the loss, deterioration or destruction of
the goods occurred, the common carrier must be held responsible. 10 Otherwise stated, it is incumbent
upon the common carrier to prove that the loss, deterioration or destruction was due to accident or some
other circumstances inconsistent with its liability.
In the instant case, We are not persuaded by the proferred explanation of petitioner alleged to be the
proximate cause of the fall of the payloader while it was being unloaded at the Cagayan de Oro City
pier. Petitioner seems to have overlooked the extraordinary diligence required of common carriers in
the vigilance over the goods transported by them by virtue of the nature of their business, which is
impressed with a special public duty.
Thus, Article 1733 of the Civil Code provides:
Art. 1733. Common carriers, from the nature of their business and for reason 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 1745, Nos. 5, 6 and 7, ...
The extraordinary diligence in the vigilance over the goods tendered for shipment requires the
common carrier to know and to follow the required precaution for avoiding damage to, or destruction
of the goods entrusted to it for safe carriage and delivery. It requires common carriers to render
service with the greatest skill and foresight and "to use all reasonable means to ascertain the nature
and characteristic of goods tendered for shipment, and to exercise due care in the handling and
stowage including such methods as their nature requires." 11 Under Article 1736 of the Civil Code, the
responsibility to observe extraordinary diligence commences and 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 them without prejudice to the provisions of Article 1738.
Where, as in the instant case, petitioner, upon the testimonies of its own crew, failed to take the
necessary and adequate precautions for avoiding damage to, or destruction of, the payloader
entrusted to it for safe carriage and delivery to Cagayan de Oro City, it cannot be reasonably
concluded that the damage caused to the payloader was due to the alleged misrepresentation of
private respondent Concepcion as to the correct and accurate weight of the payloader. As found by
the respondent Court of Appeals, the fact is that petitioner used a 5-ton capacity lifting apparatus to
lift and unload a visibly heavy cargo like a payloader. Private respondent has, likewise, sufficiently

established the laxity and carelessness of petitioner's crew in their methods of ascertaining the
weight of heavy cargoes offered for shipment before loading and unloading them, as is customary
among careful persons.
It must be noted that the weight submitted by private respondent Concepcion appearing at the lefthand portion of Exhibit 8 12 as an addendum to the original enumeration of equipment to be shipped was
entered into the bill of lading by petitioner, thru Pacifico Fernandez, a company collector, without seeing
the equipment to be shipped. 13 Mr. Mariano Gupana, assistant traffic manager of petitioner, confirmed in
his testimony that the company never checked the information entered in the bill of lading. 14 Worse, the
weight of the payloader as entered in the bill of lading was assumed to be correct by Mr. Felix Pisang,
Chief Officer of MV Cebu. 15
The weights stated in a bill of lading are prima facie evidence of the amount received and the fact
that the weighing was done by another will not relieve the common carrier where it accepted such
weight and entered it on the bill of lading. 16 Besides, common carriers can protect themselves against
mistakes in the bill of lading as to weight by exercising diligence before issuing the same. 17
While petitioner has proven that private respondent Concepcion did furnish it with an inaccurate
weight of the payloader, petitioner is nonetheless liable, for the damage caused to the machinery
could have been avoided by the exercise of reasonable skill and attention on its part in overseeing
the unloading of such a heavy equipment. And circumstances clearly show that the fall of the
payloader could have been avoided by petitioner's crew. Evidence on record sufficiently show that
the crew of petitioner had been negligent in the performance of its obligation by reason of their
having failed to take the necessary precaution under the circumstances which usage has
established among careful persons, more particularly its Chief Officer, Mr. Felix Pisang, who is
tasked with the over-all supervision of loading and unloading heavy cargoes and upon whom rests
the burden of deciding as to what particular winch the unloading of the payloader should be
undertaken. 18 While it was his duty to determine the weight of heavy cargoes before accepting them. Mr.
Felix Pisang took the bill of lading on its face value and presumed the same to be correct by merely
"seeing" it. 19 Acknowledging that there was a "jumbo" in the MV Cebu which has the capacity of lifting 20
to 25 ton cargoes, Mr. Felix Pisang chose not to use it, because according to him, since the ordinary
boom has a capacity of 5 tons while the payloader was only 2.5 tons, he did not bother to use the "jumbo"
anymore. 20
In that sense, therefore, private respondent's act of furnishing petitioner with an inaccurate weight of
the payloader upon being asked by petitioner's collector, cannot be used by said petitioner as an
excuse to avoid liability for the damage caused, as the same could have been avoided had petitioner
utilized the "jumbo" lifting apparatus which has a capacity of lifting 20 to 25 tons of heavy cargoes. It
is a fact known to the Chief Officer of MV Cebu that the payloader was loaded aboard the MV Cebu
at the Manila North Harbor on August 28, 1964 by means of a terminal crane. 21 Even if petitioner
chose not to take the necessary precaution to avoid damage by checking the correct weight of the
payloader, extraordinary care and diligence compel the use of the "jumbo" lifting apparatus as the most
prudent course for petitioner.
While the act of private respondent in furnishing petitioner with an inaccurate weight of the payloader
cannot successfully be used as an excuse by petitioner to avoid liability to the damage thus caused,
said act constitutes a contributory circumstance to the damage caused on the payloader, which
mitigates the liability for damages of petitioner in accordance with Article 1741 of the Civil Code, to
wit:
Art. 1741. If the shipper or owner merely contributed to the loss, destruction or
deterioration of the goods, the proximate cause thereof being the negligence of the

common carrier, the latter shall be liable in damages, which however, shall be
equitably reduced.
We find equitable the conclusion of the Court of Appeals reducing the recoverable amount of
damages by 20% or 1/5 of the value of the payloader, which at the time the instant case arose, was
valued at P34,000. 00, thereby reducing the recoverable amount at 80% or 4/5 of P34,000.00 or the
sum of P27,200.00. Considering that the freight charges for the entire cargoes shipped by private
respondent amounting to P2,318.40 remained unpaid.. the same would be deducted from the
P27,000.00 plus an additional deduction of P228.63 representing the freight charges for the
undeclared weight of 5 tons (difference between 7.5 and 2.5 tons) leaving, therefore, a final
recoverable amount of damages of P24,652.97 due to private respondent Concepcion.
Notwithstanding the favorable judgment in his favor, private respondent assailed the Court of
Appeals' decision insofar as it limited the damages due him to only P24,652.97 and the cost of the
suit. Invoking the provisions on damages under the Civil Code, more particularly Articles 2200 and
2208, private respondent further seeks additional damages allegedly because the construction
project was delayed and that in spite of his demands, petitioner failed to take any steps to settle his
valid, just and demandable claim for damages.
We find private respondent's submission erroneous. It is well- settled that an appellee, who is not an
appellant, may assign errors in his brief where his purpose is to maintain the judgment on other
grounds, but he may not do so if his purpose is to have the judgment modified or reversed, for, in
such case, he must appeal. 22 Since private respondent did not appeal from the judgment insofar as it
limited the award of damages due him, the reduction of 20% or 1/5 of the value of the payloader stands.
WHEREFORE, in view of the foregoing, the petition is DENIED. The decision of the Court of Appeals
is hereby AFFIRMED in all respects with costs against petitioner. In view of the length of time this
case has been pending, this decision is immediately executory.
G.R. No. 14191

September 29, 1919

THE GOVERNMENT OF THE PHILIPPINE ISLANDS, plaintiff-appellant,


vs.
YNCHAUSTI & COMPANY, defendant-appellee.
Attorney-General Paredes for the appellant.
Charles C. Cohn for the appellee.
JOHNSON, J.:
The purpose of this action was to recover the sum of P200 as damages to certain cargo of roofing
tiles shipped by the plaintiff from Manila to Iloilo on a vessel belonging to the defendant. The tiles
were delivered by the defendant to the consignee of the plaintiff at Iloilo. Upon delivery it was found
that some of the tiles had been damaged; that the damage amounted to about P200. Upon a
submission of that question to the lower court a judgment was rendered against the plaintiff in favor
of the defendant, absolving the latter from all liability under the complaint.
There seems to be no dispute about the facts, except whether or not the tiles were broken by the
negligence of the defendant. The defendant denied that the tiles were broken by reason of its
negligence. The defendant proved, and the plaintiff did not attempt to dispute, that the roofing tiles in
question were of a brittle and fragile nature; that they were delivered by the plaintiff to the defendant

in bundles of ten each, tied with bejuco [rattan], without any packing or protective covering. The
plaintiff did not even attempt to prove any negligence on the part of the defendant. On the hand, the
defendant offered proof to show that there was no negligence on its part, by showing that the tiles
were loaded, stowed, and discharged by handlabor, and not be mechanical devices which might
have caused the breakage in question.
It appears from the record that the tiles in question were received by the defendant from the plaintiff,
as representative on a Government bill of lading known as "General Form No. 9-A," which was made
out and submitted by a representative of the Bureau of Supply to the defendant. (Exhibit A.) At the
head of Exhibit A is found the following:
You are hereby authorized to receive, carry, and deliver the following described merchandise
to treasurer of Iloilo at Iloilo in accordance with the authorized and prescribed rates and
classifications, and according to the laws of common carriers in force on the date hereof,
settlement and payment of charges to be made by Bureau of Supply. (Sgd.) T. R.
SCHOON, Chief Division of Supplies, Bureau of Supply.
On the said bill of lading we find the following, which was attempted thereon by the defendant:
The goods have been accepted for transportation subject to the conditions prescribed by the
Insular Collector of Customs in Philippine Marine Regulations, page 16, under the heading
"Bill of Lading Conditions."
The lower court, in discussing the said bill of lading with the two conditions found thereon, reached
the conclusion that the plaintiff was bound by the terms of the bill of lading as issued by the
defendant and not by the terms which the plaintiff attempted to impose, that is to say, that such
merchandise was to be carried at owner's risk only; that there was no presumption of negligence on
the part of the defendant from the fact that the tiles were broken when received by the consignee;
and that since the plaintiff did not prove negligence on the part of the defendant, the former was not
entitled to recover damages from the latter. The lower court rendered judgment absolving the
defendant from all liability under the complaint.
The important questions presented by the appeal are: (a) Where the terms and conditions stamped
by the defendant upon the Government's bill of lading binding upon the plaintiff? (b) Was there a
presumption of negligence on the part of the defendant?
The record shows that ever since the Government began to use the bill of lading, General Form No.
9-A, the shipowners had always used the "stamp" in question; that in the present case the defendant
placed said stamp upon the bill of lading before the plaintiff shipped the tiles in question; that having
shipped the goods under the said bill of lading, with the terms and conditions of the carriage
stamped thereon, the appellant must be deemed to have assented to the said terms and conditions
thereon stamped.
The appellant contends also that it was not bound by the terms and conditions inserted by the
appellee, because (a) the reference made by the appellee to the "Philippine Marine Regulations"
prescribed by the Collector of Customs was vague; that the appellee should have expressed the
conditions fully and clearly on the face of the bill of lading; and (b) that the Insular Collector of
Customs had no authority to issue such regulations.
As to the first contention, it seems that the appellant fully knew the import and significance of the
reference made in said regulations. The appellant attempted to show that prior to the transaction in

question the Government notified the defendant and other shipowners that it would not be bound by
the "stamp" that was placed by the shipowners on the Government's bill of lading.
With reference to the contention of the appellant that the Collector of Customs had no authority to
make such regulations, it may be said in the present case that the binding effect of the conditions
stamped on the bill of lading did not proceed from the authority of the Collector of Customs but from
the actual contract which the parties made in the present case. Each bill of lading is a contract and
the parties thereto are bound by its terms.
Findings as we do that the tiles in question were shipped at the owner's risk, under the law in this
jurisdiction, the carrier is only liable where the evidence shows that he was guilty of some negligence
and that the damages claimed were the result of such negligence. As was said above, the plaintiff
offered no proof whatever to show negligence on the part of the defendant.
The plaintiff cites some American authorities to support its contention that the carrier is an absolute
insurer of merchandise shipped and that the proof of breakage or damage to goods shipped in the
hands of the carrier makes out a prima facie case of negligence against him, and that the burden of
proof is thrown on him to show due care and diligence.
The law upon that question in this jurisdiction is found in articles 361 and 362 of the Commercial
Code. Article 361 provides:
ART. 361. Merchandise shall be transported at the risk and venture of the shipper, if the
contrary be not expressly stipulated.
Therefore, all damages and impairment, suffered by the goods in transportation by reason of
accident, force majeure, or by virtue of the nature or defect of the articles, shall be for the
account and risk of the shipper.
The proof of these accidents is incumbent upon the carrier.
Article 362 provides:
ART. 362. The carrier, however, shall be liable for the losses and damages arising from the
causes mentioned in the foregoing article, if it be proved against him that they occurred on
account of his negligence or because he did not take the precautions usually adopted by
careful persons, unless the shipper committed fraud in the bill of lading stating that the goods
were of a class or quality different from what they really were. . . .
Under the provisions of article 361 the defendant, in order to free itself from liability, was only obliged
to prove that the damages suffered by the goods were "by virtue of the nature or defect of the
articles." Under the provisions of article 362 the plaintiff, in order to hold the defendant liable, was
obliged to prove that the damages to the goods by virtue of their nature, occurred on account of its
negligence or because the defendant did not take the precaution usually adopted by careful persons.
The defendant herein proved, and the plaintiff did not attempt to dispute, that the tiles in question
were of a brittle and fragile nature and that they were delivered by the plaintiff to the defendant
without any packing or protective covering. The defendant also offered proof to show that there was
no negligence on its part, by showing that the tiles were loaded, stowed, and discharged in a careful
and diligent manner.

In this jurisdiction there is no presumption of negligence on the part of the carriers in case like the
present. The plaintiff, not having proved negligence on the part of the defendant, is not entitled to
recover damages.
For the foregoing reasons, the judgment of the lower court is hereby affirmed, with costs. So
ordered.
Arellano, C.J., Araullo, Street, Malcolm and Avancea, JJ., concur.

G.R. No. L-16629

January 31, 1962

SOUTHERN LINES, INC., petitioner,


vs.
COURT OF APPEALS and CITY OF ILOILO, respondents.
Jose Ma. Lopez Vito, Jr. for petitioner.
The City Fiscal for respondents.
DE LEON, J.:
This is a petition to review on certiorari the decision of the Court of Appeals in CA-G.R. No. 15579-R
affirming that of the Court of First Instance of Iloilo which sentenced petitioner Southern Lines, Inc. to
pay respondent City of Iloilo the amount of P4,931.41.
Sometime in 1948, the City of Iloilo requisitioned for rice from the National Rice and Corn
Corporation (hereafter referred to as NARIC) in Manila. On August 24 of the same year, NARIC,
pursuant to the order, shipped 1,726 sacks of rice consigned to the City of Iloilo on board the SS
"General Wright" belonging to the Southern Lines, Inc. Each sack of rice weighed 75 kilos and the
entire shipment as indicated in the bill of lading had a total weight of 129,450 kilos. According to the
bill of lading, the cost of the shipment was P63,115.50 itemized and computed as follows: .
Unit Price per bag P36.25

P62,567.50

Handling at P0.13 per bag

224.38

Trucking at P2.50 per bag

323.62

On February 14, 1951 the City of Iloilo filed a complaint in the Court of First
Instance of Iloilo against NARIC and the Southern Lines, Inc. for the recovery of the
amount of P6,486.35 representing the value of the shortage of the shipment of rice.
After trial, the lower court absolved NARIC from the complaint, but sentenced the
Southern Lines, Inc. to pay the amount of P4,931.41 which is the difference
between the sum of P6,486.35 and P1,554.94 representing the latter's counterclaim
for handling and freight.
The Southern Lines, Inc. appealed to the Court of Appeals which affirmed the
judgment of the trial court. Hence, this petition for review.

The only question to be determined in this petition is whether or not the defendantcarrier, the herein petitioner, is liable for the loss or shortage of the rice shipped.
Article 361 of the Code of Commerce provides: .
ART. 361. The merchandise shall be transported at the risk and venture
of the shipper, if the contrary has not been expressly stipulated.
As a consequence, all the losses and deteriorations which the goods may
suffer during the transportation by reason of fortuitous event, force majeure,
or the inherent nature and defect of the goods, shall be for the account and
risk of the shipper.
1wph1.t

Proof of these accidents is incumbent upon the carrier.


Article 362 of the same Code provides: .
ART. 362. Nevertheless, the carrier shall be liable for the losses and
damages resulting from the causes mentioned in the preceding article 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 his establisbed
among careful persons, unless the shipper has committed fraud in the bill of
lading, representing the goods to be of a kind or quality different from what
they really were.
If, notwithstanding the precautions referred to in this article, the goods
transported run the risk of being lost, on account of their nature or by
reason of unavoidable accident, there being no time for their owners to
dispose of them, the carrier may proceed to sell them, placing them for this
purpose at the disposal of the judicial authority or of the officials designated
by special provisions.
Under the provisions of Article 361, the defendant-carrier in order to free itself from
liability, was only obliged to prove that the damages suffered by the goods were "by
virtue of the nature or defect of the articles." Under the provisions of Article 362, the
plaintiff, in order to hold the defendant liable, was obliged to prove that the
damages to the goods by virtue of their nature, occurred on account of its
negligence or because the defendant did not take the precaution adopted by
careful persons. (Government v. Ynchausti & Co., 40 Phil. 219, 223).
Petitioner claims exemption from liability by contending that the shortage in the
shipment of rice was due to such factors as the shrinkage, leakage or spillage of
the rice on account of the bad condition of the sacks at the time it received the
same and the negligence of the agents of respondent City of Iloilo in receiving the
shipment. The contention is untenable, for, if the fact of improper packing is known
to the carrier or his servants, or apparent upon ordinary observation, but it accepts
the goods notwithstanding such condition, it is not relieved of liability for loss or
injury resulting thereform. (9 Am Jur. 869.) Furthermore, according to the Court of
Appeals, "appellant (petitioner) itself frankly admitted that the strings that tied the
bags of rice were broken; some bags were with holes and plenty of rice were

spilled inside the hull of the boat, and that the personnel of the boat collected no
less than 26 sacks of rice which they had distributed among themselves." This
finding, which is binding upon this Court, shows that the shortage resulted from the
negligence of petitioner.
Invoking the provisions of Article 366 of the Code of Commerce and those of the bill
of lading, petitioner further contends that respondent is precluded from filing an
action for damages on account of its failure to present a claim within 24 hours from
receipt of the shipment. It also cites the cases of Government v. Ynchausti &
Co., 24 Phil. 315 and Triton Insurance Co. v. Jose, 33 Phil. 194, ruling to the effect
that the requirement that the claim for damages must be made within 24 hours from
delivery is a condition precedent to the accrual of the right of action to recover
damages. These two cases above-cited are not applicable to the case at bar. In the
first cited case, the plaintiff never presented any claim at all before filing the action.
In the second case, there was payment of the transportation charges which
precludes the presentation of any claim against the carrier. (See Article 366, Code
of Commerce.) It is significant to note that in the American case of Hoye v.
Pennsylvania Railroad Co., 13 Ann. Case. 414, it has been said: .
... "It has been held that a stipulation in the contract of shipment requiring
the owner of the goods to present a notice of his claim to the carrier within a
specified time after the goods have arrived at their destination is in the
nature of a condition precedent to the owner's right to enforce a recovery,
that he must show in the first instance that be has complied with the
condition, or that the circumstances were such that to have complied with it
would have required him to do an unreasonable thing. The weight of
authority, however, sustains the view that such a stipulation is more in the
nature of a limitation upon the owner's right to recovery, and that the burden
of proof is accordingly on the carrier to show that the limitation was
reasonable and in proper form or within the time stated." (Hutchinson on
Carrier, 3d ed., par. 44) Emphasis supplied.
In the case at bar, the record shows that petitioner failed to plead this defense in its
answer to respondent's complaint and, therefore, the same is deemed waived
(Section 10, Rule 9, Rules of Court), and cannot be raised for the first time at the
trial or on appeal. (Maxilom v. Tabotabo, 9 Phil. 390.) Moreover, as the Court of
Appeals has said: .
... the records reveal that the appellee (respondent) filed the present action,
within a reasonable time after the short delivery in the shipment of the rice
was made. It should be recalled that the present action is one for the refund
of the amount paid in excess, and not for damages or the recovery of the
shortage; for admittedly the appellee (respondent) had paid the entire value
of the 1726 sacks of rice, subject to subsequent adjustment, as to
shortages or losses. The bill of lading does not at all limit the time for filing
an action for the refund of money paid in excess.
WHEREFORE, the decision of the Court of Appeals is hereby affirmed in all
respects and the petition for certioraridenied.

With costs against the petitioner.


Padilla, Labrador, Concepcion, Reyes, J.B.L., Barrera, and Dizon, JJ., concur.
Bengzon, C.J., Bautista Angelo and Paredes, JJ., took no part.

IRON

BULK SHIPPING PHILIPPINES, CO.,


vs. REMINGTON
INDUSTRIAL
CORPORATION, respondent.

LTD., petitioner,
SALES

DECISION
AUSTRIA-MARTINEZ, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules


of Court assailing the August 28, 1998 Decision and the December 24, 1998
Resolution of the Court of Appeals in CA-G.R. CV No. 49725,
affirming in toto the decision of the Regional Trial Court of Manila (Branch 9).
[1]

[2]

The factual background of the case is summarized by the appellate court,


thus:
Sometimeinthelatterpartof1991,plaintiffRemingtonIndustrialSalesCorporation
(hereafterRemingtonforshort)orderedfromdefendantWangsCompany,Inc.
(hereafterWangsforshort)194packagesofhotrolledsteelsheets,weighing686.565
metrictons,withatotalvalueof$219,380.00,thenequivalent
toP6,469,759.17.Wangsforwardedtheordertoitssupplier,Burwill(Agencies)Ltd.,
inHongkong.OnoraboutNovember26,1991,the194packageswereloadedon
boardthevesselMVIndianRelianceatthePortofGdynia,Poland,fortransportation
tothePhilippines,underBillofLadingNo.27(Exh.C).Thevesselsowner/charterer
isrepresentedinthePhilippinesbydefendantIronBulkShippingPhils.,Inc.
(hereafterIronBulkforshort).
RemingtonhadthecargoinsuredforP6,469,759.17duringthevoyagebyMarine
InsurancePolicyNo.7741issuedbydefendantPioneerAsiaInsuranceCorporation
(hereafterPioneerforshort).
OnoraboutJanuary3,1992,theMVIndianReliancearrivedinthePortofManila,
andthe194packagesofhotrolledsteelsheetsweredischargedfromthevessel.The

cargowasinspectedtwicebySGSFarEastLtd.andfoundtobewet(withslighttrace
ofsalt)andrusty,extendingfrom50%to80%ofeachplate.Plaintifffiledformal
claimsforlossamountingtoP544,875.17withPioneer,IronBulk,ManilaPort
Services,Inc.(MPS)andESEBrokerageCorporation(ESE).Noonehonoredsuch
claims.
Thus,plaintifffiledanactionforcollection,plusattorneysfees,againstWangs,
PioneerandIronBulk....
[3]

and affirmed in toto the following findings of the trial court, on February 1,
1995, to wit:
Theevidenceonrecordshowsthatthedirectandimmediatecauseoftherustingof
thegoodsimportedbytheplaintiffwasthewaterfoundinsidethecargoholdofM/V
IndianReliancewhereinthosegoodswerestoredduringthevoyage,particularlythe
waterfoundonthesurfaceofthemerchandiseandonthefloorofthevessel
hatch.AndevenatthetimethecargoeswerebeingunloadedbycraneatthePierof
Manila,IronBulkswitnessesnoticedthatwaterwasdrippingfromthecargoes.(TSN
datedJuly20,1993,pp.1314;TSNdatedMay30,1994,pp.89,14,2425;TSN
datedJune3,1994,pp.3132;TSNdatedJuly14,1994,pp.1011).
SGSFarEastLimited,aninspectionagencyhiredbydefendantWangs,issued
CertificateofInspectionandAnalysisNo6401/35071statingthefollowingfindings:
Resultsoftestsindicatedthataveryslighttraceofsaltwaspresentinthesampleas
confirmedbythetestofSodium.Theresultshoweverdoesnotnecessarilyindicate
thattherustyconditionofthematerialwascausedbyseawater.
TanGatueAdjustmentCo.,Inc.,aclaimsadjustmentfirmhiredbydefendantPioneer,
submittedaReport(Exh.10Pioneer)datedFebruary20,1992toPioneerwhich
pertinentlyreadsasfollows:
Alltheabove3,971sheetswereheavilyrustyatsides/ends/edges/surfaces.Piecesof
cottonwererubbedbyusondifferentrustysteelsheetsandsubmittedtoPrecision
AnalyticalServices,Inc.todeterminethecauseofwetting.Resultthereofasper
LaboratoryReportNo.07792ofthisfirmshowedthat:Thesamplewas
wetted/contaminatedbyfreshwater.
Afterconsideringtheforegoingtestresultsandtheotherevidenceonrecord,the
Courtfoundnoclearandsufficientproofshowingthatthewaterwhichstayedinthe

cargoholdofthevesselandwhichcontaminatedthemerchandisewasseawater.The
Court,however,isconvincedthatthesubjectgoodswereexposedtosaltconditionsas
evidencedbythepresenceofabout17%SodiumontherustsampletestedbySGS.
Astothesourceofthewaterfoundinthecargohold,thereisalsonoconcreteand
competentevidenceonrecordestablishingthatsuchwaterleakedfromthepipe
installedinHatchNo.1ofM/VIndianReliance,asclaimedbyplaintiff.Indeed,the
plaintiffbasedsuchclaimonlyfrominformationitallegedlyreceivedfromits
supplier,asstatedinitslettertodefendantIronBulkdatedMarch28,1992(Exh.K
3).Andnoonetookthewitnessstandtoconfirmorestablishtheallegedleakage.
Nevertheless,sinceIronBulksownevidenceshowsthattherewaswaterinsidethe
cargoholdofthevesselandthatthegoodsstoredthereinwerewetandfullofrust,
withoutsufficientexplanationonitspartastowhenandhowwaterfounditswayinto
thevesselholds,theCourtfindsandsoholdsthatIronBulkfailedtoexercisethe
extraordinarydiligencerequiredbylawinthehandlingandtransportingofthegoods.
.....
IronBulkdidnotevenexerciseduediligencebecauseadmittedly,waterwasdripping
fromthecargoesatthetimetheywerebeingdischargedfromthevessel.HadIron
Bulkdoneso,itcouldhavediscoveredbyordinaryinspectionthatthecargoholdsand
thecargoesthemselveswereaffectedbywateranditcouldhaveprovidedsome
remedialmeasurestopreventorminimizethedamagetothecargoes.Butitdidnot,
showingitslackofcareanddiligenceoverthegoods.
Besides,sincethegoodswereundoubtedlydamaged,andasIronBulkfailedto
establishbyanyclearandconvincingevidenceanyoftheexemptingcausesprovided
forinArticle1734oftheCivilCode,itispresumedtohavebeenatfaultortohave
actednegligently.
.....
WHEREFORE,theCourtfindingpreponderanceofevidencefortheplaintiffhereby
rendersjudgmentinfavorofitandagainstallthedefendantshereinasfollows:
1.OrderingdefendantPioneerAsiaInsuranceCorporationtopayplaintiffthe
followingamounts:

a)P544,875.17representingthelossallowanceforthegoodsinsured,plusinterestat
thelegalrate(6%p.a.)reckonedfromthetimeoffilingofthiscaseuntilfullpayment
ismade;
b)P50,000.00forandasattorneysfees;and
c)thecostofsuit.
2.OrderingdefendantIronBulkShippingCo.Inc.immediatelyuponpaymentby
defendantPioneeroftheforegoingawardtotheplaintiff,toreimbursedefendant
Pioneerthetotalamountitpaidtotheplaintiff,inrespecttoitsrightofsubrogation.
3.Denyingthecounterclaimsofallthedefendantsandthecrossclaimofdefendant
WangsCompany,IncorporatedandIronBulkShippingCo.,Inc.forlackofmerit.
4.GrantingthecrossclaimofdefendantPioneerAsiaInsuranceCorporationagainst
defendantIronBulkbyvirtueofitsrightofsubrogation.
5.DismissingthecaseagainstdefendantWangsCompany,Inc.
SOORDERED.

[4]

Only Iron Bulk filed the present petition raising the following Assignment of
Errors:
FIRSTLY,theCourtofAppealserredinitsinsistentrelianceontheproformaBillsof
Ladingtoestablishtheconditionofthecargouponloading;
SECONDLY,theCourtofAppealserredinnotexculpatingpetitionersincethecargo
wasnotcontaminatedduringthetimethesamewasinpossessionofthevessel,as
evidencedbytheexpressfindingofthelowercourtthatthecontaminationandrusting
waschemicallyestablishedtohavebeencausedbyfreshwater;
THRIDLY,theCourtofAppealserredinmakingasweepingfindingthatthe
petitionerascarrierfailedtoexercisetherequisitediligenceunderthelaw,whichis
contrarytowhatisdemonstratedbytheevidenceadduced;and
FINALLY,theCourtofAppealserredinaffirmingtheamountofdamages
adjudicatedbytheCourtbelow,whichisatbestspeculativeandnotsupportedby
damages.
[5]

The general rule is that only questions of law are entertained in petitions
for review by certiorari under Rule 45 of the Rules of Court. The trial courts
findings of fact, which the Court of Appeals affirmed, are generally binding and
conclusive upon this court. There are recognized exceptions to this rule,
among which are: (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 facts are conflicting; (6) there is
no citation of specific evidence on which the factual findings are based; (7) the
finding of absence of facts is contradicted by the presence of evidence on
record; (8) the findings of the CA are contrary to the findings of the trial court;
(9) the CA manifestly overlooked certain relevant and undisputed facts that, if
properly considered, would justify a different conclusion; (10) the findings of
the CA are beyond the issues of the case; and (11) such findings are contrary
to the admissions of both parties. Petitioner failed to demonstrate that its
petition falls under any one of the above exceptions, except as to damages
which will be discussed forthwith.
[6]

[7]

Anent the first assigned error: That the Court of Appeals erred in relying on
the pro forma Bills of Lading to establish the condition of the cargo upon
landing.
There is no merit to petitioners contention that the Bill of Lading covering
the subject cargo cannot be relied upon to indicate the condition of the cargo
upon loading. It is settled that a bill of lading has a two-fold character.
In Phoenix Assurance Co., Ltd. vs. United States Lines, we held that:
[A]billofladingoperatesbothasareceiptandasacontract.Itisareceiptforthe
goodsshippedandacontracttotransportanddeliverthesameastherein
stipulated.Asareceipt,itrecitesthedateandplaceofshipment,describesthegoods
astoquantity,weight,dimensions,identificationmarksandcondition,qualityand
value.Asacontract,itnamesthecontractingparties,whichincludetheconsignee,
fixestheroute,destination,andfreightrateorcharges,andstipulatestherightsand
obligationsassumedbytheparties.
[8]

We find no error in the findings of the appellate court that the questioned bill of
lading is a clean bill of lading, i.e., it does not indicate any defect in the goods
covered by it, as shown by the notation, CLEAN ON BOARD and Shipped at
the Port of Loading in apparent good condition on board the vessel for
carriage to Port of Discharge.
[9]

[10]

Petitioner presented evidence to prove that, contrary to the recitals


contained in the subject bill of lading, the cargo therein described as clean on
board is actually wet and covered with rust. Indeed, having the nature of a
receipt, or an acknowledgement of the quantity and condition of the goods
delivered, the bill of lading, like any other receipts, may be explained, varied
or even contradicted. However, we agree with the Court of Appeals that far
from contradicting the recitals contained in the said bill, petitioners own
evidence shows that the cargo covered by the subject bill of lading, although it
was partially wet and covered with rust was, nevertheless, found to be in a
fair, usually accepted condition when it was accepted for shipment.
[11]

[12]

The fact that the issued bill of lading is pro forma is of no moment. If the
bill of lading is not truly reflective of the true condition of the cargo at the time
of loading to the effect that the said cargo was indeed in a damaged state, the
carrier could have refused to accept it, or at the least, made a marginal note in
the bill of lading indicating the true condition of the merchandise. But it did
not. On the contrary, it accepted the subject cargo and even agreed to the
issuance of a clean bill of lading without taking any exceptions with respect to
the recitals contained therein. Since the carrier failed to annotate in the bill of
lading the alleged damaged condition of the cargo when it was loaded, said
carrier and the petitioner, as its representative, are bound by the description
appearing therein and they are now estopped from denying the contents of
the said bill.
Petitioner presented in evidence the Mates Receipts and a Survey
Report to prove the damaged condition of the cargo. However, contrary to
the asseveration of petitioner, the Mates Receipts and the Survey Report
which were both dated November 6, 1991, are unreliable evidence of the true
condition of the shipment at the time of loading since said receipts and report
were issued twenty days prior to loading and before the issuance of the clean
bill of lading covering the subject cargo on November 26, 1991. Moreover,
while the surveyor, commissioned by the carrier to inspect the subject cargo,
found the inspected steel goods to be contaminated with rust he, nonetheless,
estimated the merchandise to be in a fair and usually accepted condition.
[13]

[14]

Anent the second and third assigned errors: That the Court of Appeals
erred in not finding that the contamination and rusting was chemically to have
been caused by fresh water; and that the appellate court erred in finding that
petitioner failed to exercise the requisite diligence under the law.
Petitioners arguments in support of the assigned errors are not
plausible. Even granting, for the sake of argument, that the subject cargo was

already in a damaged condition at the time it was accepted for transportation,


the carrier is not relieved from its responsibility to exercise due care in
handling the merchandise and in employing the necessary precautions to
prevent the cargo from further deteriorating. It is settled that the extraordinary
diligence in the vigilance over the goods tendered for shipment requires the
common carrier to know and to follow the required precaution for avoiding
damage to, or destruction of the goods entrusted to it for safe carriage and
delivery. It requires common carriers to render service with the greatest skill
and foresight and to use all reasonable means to ascertain the nature and
characteristic of goods tendered for shipment, and to exercise due care in the
handling and stowage, including such methods as their nature requires.
Under Article 1742 of the Civil Code, even if the loss, destruction, or
deterioration of the goods should be caused, among others, by the character
of the goods, the common carrier must exercise due diligence to forestall or
lessen the loss. This 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 a right to receive them. In
the instant case, if the carrier indeed found the steel sheets to have been
covered by rust at the time that it accepted the same for transportation, such
finding should have prompted it to apply additional safety measures to make
sure that the cargo is protected from corrosion. This, the carrier failed to do.
[15]

[16]

[17]

Article 1734 of the Civil Code states that:


Commoncarriersareresponsiblefortheloss,destructionordeteriorationofthe
goods,unlessthesameisduetoanyofthefollowingcausesonly:
(1)Flood,storm,earthquake,lightning,orothernaturaldisasterorcalamity;
(2)Actofthepublicenemyinwar,whetherinternationalorcivil;
(3)Actoromissionoftheshipperorownerofthegoods;
(4)Thecharacterofthegoodsordefectsinthepackingorinthecontainers;
(5)Orderoractofcompetentpublicauthority.
Except in the cases mentioned under Article 1734, 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 under the law. The Court of Appeals did
[18]

not err in finding that no competent evidence was presented to prove that the
deterioration of the subject cargo was brought about by any of the causes
enumerated under the aforequoted Article 1734 of the said Code.We likewise
agree with appellate courts finding that the carrier failed to present proof that it
exercised extraordinary diligence in its vigilance over the goods. The
presumption that the carrier was at fault or that it acted negligently was not
overcome by any countervailing evidence.
Anent the last assigned error: That the Court of Appeals erred in affirming
the amount of damages awarded by the trial court.
We agree with the contention of the petitioner in its last assigned error that
the amount of damages adjudicated by the trial court and affirmed by the
appellate court is not in consonance with the evidence presented by the
parties. The judgments of both lower courts are based on misapprehension of
facts as we find no competent evidence to prove the actual damages
sustained by respondent.
Based on the Packing List issued by Burwill (Agencies) Limited, the
supplier of the steel sheets, the cargo consigned to Remington consisted of
hot rolled steel sheets with lengths of eight feet and twenty feet. The eight-foot
length steel sheets contained in 142 packages had a weight of 491.54 metric
tons while the twenty-foot steel sheets which were contained in 52 packages
weighed 194.25 metric tons. The goods were valued at $320.00 per metric
ton.
[19]

[20]

It is not disputed that at the time of inspection of the subject merchandise


conducted by SGS Far East Limited on January 21-24, 1992 and January 2728, 1992, only 30% of said goods originally consigned to Remington was
available for examination at Remingtons warehouse in Manila and that
Remington had already disposed of the remaining 70%. In the Certificate of
Inspection issued by SGS, dated February 18, 1992, it was reported that the
surface of the steel sheets with length of twenty feet were found to be rusty
extending from 60% to 80% per plate. However, there was no proof to show
how many metric tons of twenty-foot and eight-foot length steel sheets,
respectively, comprise the remaining 30% of the cargo. No competent
evidence was presented to prove the weight of the remaining twenty-foot
length steel sheets, on the basis of which the amount of actual damages could
have been ascertained.
[21]

Remington claims that 70% of the twenty-foot length steel sheets were
damaged. Remingtons general manager, Rowina Tan Saban, testified that the

70% figure was based on the reports submitted by SGS and Tan-Gatue and
Remingtons independent survey to confirm these reports. Saban further
testified that on the basis of these reports, Remington came up with a
summary of the amount of damages sustained by the subject cargo, to wit:
[22]

Plates8ftlengths491.540MTUS$157,292.80
QuantityDamaged25%
LossAllowance13%
TotalPlates8ftlengthsUS$15,211.56
Plates20ftlengths194.025MTUS$62,088.00
QuantityDamaged70%
LossAllowance35%
TotalPlates20ftlengthsP544,875.71
with the following detailed computation:
Platesunder8ftlengths491.540MT@$320./MT
US$157,292.80
Multiplyby25%Qty.damaged$39,323.20
13%Lossallowance$5,112.02
Platesunder20ft.lengths194.025MT@$320./MT
US$62,088.00
Multiple70%Qty.damagedUS$43,461.60
35%Lossallowance$15,211.56
TotalclaimUS$5,112.02
$15,211.56

US$20,323.58@$26.81=P544,875.17
and which the trial court based the actual damages awarded in favor of
Remington.
However, after a careful examination of the reports submitted by SGS and
Tan-Gatue, we find nothing in the said reports and computation to justify the
claim of Remington that 70% of the twenty-foot length steel sheets were
damaged. Neither does the alleged survey conducted by Remington
consisting only of photographs, prove the quantity of the damaged cargo.
[23]

As to the eight-foot length steel sheets, SGS reported that they were found
oiled all over which makes it hard to determine the rust condition on its
surface. On the other hand, the report issued by Tan-Gatue did not specify
the extent of damage done to the said merchandise. There is also no proof
of the weight of the remaining eight-foot length steel sheets. From the
foregoing, it is evident that the extent of actual damage to the subject cargo is
likewise not satisfactorily proven.
[24]

[25]

It is settled that actual or compensatory damages are not presumed and


should
be
proven
before
they
are
awarded. In Spouses Quisumbing vs. Meralco , we held that
[26]

Actualdamagesarecompensationforaninjurythatwillputtheinjuredpartyinthe
positionwhereitwasbeforeitwasinjured.Theypertaintosuchinjuriesorlossesthat
areactuallysustainedandsusceptibleofmeasurement.Exceptasprovidedbylawor
stipulation,apartyisentitledtoanadequatecompensationonlyforsuchpecuniary
lossasithasdulyproven.
Hence, for failure of Remington to present sufficient evidence which is
susceptible of measurement, it is not entitled to actual damages.
Nonetheless, since it was established that the subject steel sheets
sustained damage by reason of the negligence of the carrier, albeit no
competent proof was presented to justify the award of actual damages, we
find that Remington is entitled to temperate damages in accordance with
Articles 2216, 2224 and 2225 of the Civil Code, to wit:
Art.2216.Noproofofpecuniarylossisnecessaryinorderthatmoral,nominal,
temperate,liquidatedorexemplarydamagesmaybeadjudicated.Theassessmentof

suchdamages,exceptliquidatedones,islefttothediscretionofthecourt,according
tothecircumstancesofeachcase.
Art.2224.Temperateormoderatedamages,whicharemorethannominalbutless
thancompensatorydamages,mayberecoveredwhenthecourtfindsthatsome
pecuniarylosshasbeensufferedbutitsamountcannot,fromthenatureofthecase,be
provedwithcertainty.
Art.2225.Temperatedamagesmustbereasonableunderthecircumstances.
Thirty percent of the alleged cost of damages, i.e., P544, 875.17
or P165,000.00 is reasonable enough for temperate damages.
We likewise agree with petitioners claim that it should not be held liable for
the payment of attorneys fees because it was always willing to settle its
liability by offering to pay 30% of Remingtons claim and that it is only
Remingtons unwarranted refusal to accept such offer that led to the filing of
the instant case. As found earlier, there is no evidence that the 70% of the 20foot length steel sheets which had been disposed of had been
damaged. Neither is there competent evidence proving the actual extent of
damage sustained by the eight-foot length steel sheets. Petitioner was
therefore justified in refusing to satisfy the full amount of Remingtons claims.
WHEREFORE, the assailed Decision of the Court of Appeals
dated August 28, 1998 and the Resolution dated December 24, 1998, in CAG.R. CV No. 49725 are MODIFIED as follows: The award of actual damages
and attorneys fees are deleted. Respondent is awarded temperate damages
in the amount of P165,000.00. In all other respects, the appealed decision and
resolution are affirmed.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 93252 August 5, 1991
RODOLFO T. GANZON, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and LUIS T. SANTOS, respondents.
G.R. No. 93746 August 5,1991

MARY ANN RIVERA ARTIEDA, petitioner,


vs.
HON. LUIS SANTOS, in his capacity as Secretary of the Department of Local Government,
NICANOR M. PATRICIO, in his capacity as Chief, Legal Service of the Department of Local
Government and SALVADOR CABALUNA JR., respondents.
G.R. No. 95245 August 5,1991
RODOLFO T. GANZON, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and LUIS T. SANTOS, in his capacity as the
Secretary of the Department of Local Government, respondents.
Nicolas P. Sonalan for petitioner in 93252.
Romeo A. Gerochi for petitioner in 93746.
Eugenio Original for petitioner in 95245.

SARMIENTO, J.:p
The petitioners take common issue on the power of the President (acting through the Secretary of
Local Government), to suspend and/or remove local officials.
The petitioners are the Mayor of Iloilo City (G.R. Nos. 93252 and 95245) and a member of the
Sangguniang Panglunsod thereof (G.R. No. 93746), respectively.
The petitions of Mayor Ganzon originated from a series of administrative complaints, ten in number,
filed against him by various city officials sometime in 1988, on various charges, among them, abuse
of authority, oppression, grave misconduct, disgraceful and immoral conduct, intimidation, culpable
violation of the Constitution, and arbitrary detention. 1 The personalities involved are Joceleehn
Cabaluna, a clerk at the city health office; Salvador Cabaluna, her husband; Dr. Felicidad Ortigoza,
Assistant City Health Officer; Mansueto Malabor, Vice-Mayor; Rolando Dabao, Dan Dalido, German
Gonzales, Larry Ong, and Eduardo Pefia Redondo members of the Sangguniang Panglunsod; and
Pancho Erbite, a barangay tanod. The complaints against the Mayor are set forth in the opinion of the
respondent Court of Appeals. 2 We quote:
xxx xxx xxx
In her verified complaint (Annex A), Mrs. Cabaluna, a clerk assigned to the City
Health, Office of Iloilo City charged that due to political reasons, having supported
the rival candidate, Mrs. Rosa 0. Caram, the petitioner City Mayor, using as an
excuse the exigency of the service and the interest of the public, pulled her out from
rightful office where her qualifications are best suited and assigned her to a work that
should be the function of a non-career service employee. To make matters worse, a
utility worker in the office of the Public Services, whose duties are alien to the
complainant's duties and functions, has been detailed to take her place. The
petitioner's act are pure harassments aimed at luring her away from her permanent
position or force her to resign.

In the case of Dra. Felicidad Ortigoza, she claims that the petitioner handpicked her
to perform task not befitting her position as Assistant City Health Officer of Iloilo City;
that her office was padlocked without any explanation or justification; that her salary
was withheld without cause since April 1, 1988; that when she filed her vacation
leave, she was given the run-around treatment in the approval of her leave in
connivance with Dr. Rodolfo Villegas and that she was the object of a wellengineered trumped-up charge in an administrative complaint filed by Dr. Rodolfo
Villegas (Annex B).
On the other hand, Mansuelo Malabor is the duly elected Vice-Mayor of Iloilo City
and complainants Rolando Dabao, Dan Dalido, German Gonzales, Larry Ong and
Eduardo Pefia Pedondo are members of the Sangguniang Panglunsod of the City of
Iloilo. Their complaint arose out from the case where Councilor Larry Ong, whose
key to his office was unceremoniously and without previous notice, taken by
petitioner. Without an office, Councilor Ong had to hold office at Plaza Libertad, The
Vice-Mayor and the other complainants sympathized with him and decided to do the
same. However, the petitioner, together with its fully-armed security men, forcefully
drove them away from Plaza Libertad. Councilor Ong denounced the petitioner's
actuations the following day in the radio station and decided to hold office at the
Freedom Grandstand at Iloilo City and there were so many people who gathered to
witness the incident. However, before the group could reach the area, the petitioner,
together with his security men, led the firemen using a firetruck in dozing water to the
people and the bystanders.
Another administrative case was filed by Pancho Erbite, a barangay tanod, appointed
by former mayor Rosa O. Caram. On March 13, 1988, without the benefit of charges
filed against him and no warrant of arrest was issued, Erbite was arrested and
detained at the City Jail of Iloilo City upon orders of petitioner. In jail, he was
allegedly mauled by other detainees thereby causing injuries He was released only
the following day. 3
The Mayor thereafter answered 4 and the cases were shortly set for hearing. The opinion of the Court of
Appeals also set forth the succeeding events:
xxx xxx xxx
The initial hearing in the Cabaluna and Ortigoza cases were set for hearing on June
20-21, 1988 at the Regional Office of the Department of Local Government in Iloilo
City. Notices, through telegrams, were sent to the parties (Annex L) and the parties
received them, including the petitioner. The petitioner asked for a postponement
before the scheduled date of hearing and was represented by counsel, Atty. Samuel
Castro. The hearing officers, Atty. Salvador Quebral and Atty. Marino Bermudez had
to come all the way from Manila for the two-day hearings but was actually held only
on June 20,1988 in view of the inability and unpreparedness of petitioner's counsel.
The next hearings were re-set to July 25, 26, 27,1988 in the same venue-Iloilo City.
Again, the petitioner attempted to delay the proceedings and moved for a
postponement under the excuse that he had just hired his counsel. Nonetheless, the
hearing officers denied the motion to postpone, in view of the fact that the parties
were notified by telegrams of the scheduled hearings (Annex M).

In the said hearings, petitioner's counsel cross-examined the complainants and their
witnesses.
Finding probable grounds and reasons, the respondent issued a preventive
suspension order on August 11, 1988 to last until October 11,1988 for a period of
sixty (60) days.
Then the next investigation was set on September 21, 1988 and the petitioner again
asked for a postponement to September 26,1988. On September 26, 1988, the
complainants and petitioner were present, together with their respective counsel. The
petitioner sought for a postponement which was denied. In these hearings which
were held in Mala the petitioner testified in Adm. Case No. C-10298 and 10299.
The investigation was continued regarding the Malabor case and the complainants
testified including their witnesses.
On October 10, 1988, petitioner's counsel, Atty. Original moved for a postponement
of the October 24, 1988 hearing to November 7 to 11, 1988 which was granted.
However, the motion for change of venue as denied due to lack of funds. At the
hearing on November 7, 1988, the parties and counsel were present. Petitioner
reiterated his motion to change venue and moved for postponement anew. The
counsel discussed a proposal to take the deposition of witnesses in Iloilo City so the
hearing was indefinitely postponed. However, the parties failed to come to terms and
after the parties were notified of the hearing, the investigation was set to December
13 to 15, 1988.
The petitioner sought for another postponement on the ground that his witnesses
were sick or cannot attend the investigation due to lack of transportation. The motion
was denied and the petitioner was given up to December 14, 1988 to present his
evidence.
On December 14,1988, petitioner's counsel insisted on his motion for postponement
and the hearing officers gave petitioner up to December 15, 1988 to present his
evidence. On December 15, 1988, the petitioner failed to present evidence and the
cases were considered submitted for resolution.
In the meantime, a prima facie evidence was found to exist in the arbitrary detention
case filed by Pancho Erbite so the respondent ordered the petitioner's second
preventive suspension dated October 11, 1988 for another sixty (60) days. The
petitioner was able to obtain a restraining order and a writ of preliminary injunction in
the Regional Trial Court, Branch 33 of Iloilo City. The second preventive suspension
was not enforced. 5
Amidst the two successive suspensions, Mayor Ganzon instituted an action for prohibition against
the respondent Secretary of Local Government (now, Interior) in the Regional Trial Court, Iloilo City,
where he succeeded in obtaining a writ of preliminary injunction. Presently, he instituted CA-G.R. SP
No. 16417, an action for prohibition, in the respondent Court of Appeals.
Meanwhile, on May 3, 1990, the respondent Secretary issued another order, preventively
suspending Mayor Ganzon for another sixty days, the third time in twenty months, and designating
meantime Vice-Mayor Mansueto Malabor as acting mayor. Undaunted, Mayor Ganzon commenced

CA-G.R. SP No. 20736 of the Court of Appeals, a petition for prohibition, 6 (Malabor it is to be noted, is
one of the complainants, and hence, he is interested in seeing Mayor Ganzon ousted.)
On September 7, 1989, the Court of Appeals rendered judgment, dismissing CA-G.R. SP No. 16417.
On July 5, 1990, it likewise promulgated a decision, dismissing CA-G.R. SP No. 20736. In a
Resolution dated January 24, 1990, it issued a Resolution certifying the petition of Mary Ann Artieda,
who had been similary charged by the respondent Secretary, to this Court.
On June 26,1990, we issued a Temporary Restraining Order, barring the respondent Secretary from
implementing the suspension orders, and restraining the enforcement of the Court of Appeals' two
decisions.
In our Resolution of November 29, 1990, we consolidated all three cases. In our Resolutions of
January 15, 1991, we gave due course thereto.
Mayor Ganzon claims as a preliminary (GR No. 93252), that the Department of Local Government in
hearing the ten cases against him, had denied him due process of law and that the respondent
Secretary had been "biased, prejudicial and hostile" towards him 7 arising from his (Mayor Ganzon's)
alleged refusal to join the Laban ng Demokratikong Pilipino party 8 and the running political rivalry they
maintained in the last congressional and local elections; 9and his alleged refusal to operate a lottery in
Iloilo City. 10 He also alleges that he requested the Secretary to lift his suspension since it had come ninety
days prior to an election (the barangay elections of November 14, 1988), 11notwithstanding which, the
latter proceeded with the hearing and meted out two more suspension orders of the aforementioned
cases. 12 He likewise contends that he sought to bring the cases to Iloilo City (they were held in Manila) in
order to reduce the costs of proceeding, but the Secretary rejected his request. 13 He states that he asked
for postponement on "valid and justifiable" 14 grounds, among them, that he was suffering from a heart
ailment which required confinement; that his "vital" 15 witness was also hospitalized 16 but that the latter
unduly denied his request. 17
Mayor Ganzon's primary argument (G.R. Nos. 93252 and 95245) is that the Secretary of Local
Government is devoid, in any event, of any authority to suspend and remove local officials, an
argument reiterated by the petitioner Mary Ann Rivera Artieda (G.R. No. 93746).
As to Mayor Ganzon's charges of denial of due process, the records do not show very clearly in what
manner the Mayor might have been deprived of his rights by the respondent Secretary. His claims
that he and Secretary Luis-Santos were (are) political rivals and that his "persecution" was politically
motivated are pure speculation and although the latter does not appear to have denied these
contentions (as he, Mayor Ganzon, claims), we can not take his word for it the way we would have
under less political circumstances, considering furthermore that "political feud" has often been a
good excuse in contesting complaints.
The Mayor has failed furthermore to substantiate his say-so's that Secretary Santos had attempted
to seduce him to join the administration party and to operate a lottery in Iloilo City. Again, although
the Secretary failed to rebut his allegations, we can not accept them, at face value, much more, as
judicial admissions as he would have us accept them 18 for the same reasons above-stated and
furthermore, because his say so's were never corroborated by independent testimonies. As a responsible
public official, Secretary Santos, in pursuing an official function, is presumed to be performing his duties
regularly and in the absence of contrary evidence, no ill motive can be ascribed to him.
As to Mayor Ganzon's contention that he had requested the respondent Secretary to defer the
hearing on account of the ninety-day ban prescribed by Section 62 of Batas Blg. 337, the Court finds

the question to be moot and academic since we have in fact restrained the Secretary from further
hearing the complaints against the petitioners.19
As to his request, finally, for postponements, the Court is afraid that he has not given any compelling
reason why we should overturn the Court of Appeals, which found no convincing reason to overrule
Secretary Santos in denying his requests. Besides, postponements are a matter of discretion on the
part of the hearing officer, and based on Mayor Ganzon's above story, we are not convinced that the
Secretary has been guilty of a grave abuse of discretion.
The Court can not say, under these circumstances, that Secretary Santos' actuations deprived
Mayor Ganzon of due process of law.
We come to the core question: Whether or not the Secretary of Local Government, as the
President's alter ego, can suspend and/or remove local officials.
It is the petitioners' argument that the 1987 Constitution 20 no longer allows the President, as the 1935
and 1973 Constitutions did, to exercise the power of suspension and/or removal over local officials.
According to both petitioners, the Constitution is meant, first, to strengthen self-rule by local government
units and second, by deleting the phrase 21 as may be provided by law to strip the President of the power
of control over local governments. It is a view, so they contend, that finds support in the debates of the
Constitutional Commission. The provision in question reads as follows:
Sec. 4. The President of the Philippines shall exercise general supervision over local
governments. Provinces with respect to component cities and municipalities, and
cities and municipalities with respect to component barangays shall ensure that the
acts of their component units are within the scope of their prescribed powers and
functions. 22
It modifies a counterpart provision appearing in the 1935 Constitution, which we quote:
Sec. 10. The President shall have control of all the executive departments, bureaus,
or offices, exercise general supervision over all Local governments as may be
provided by law, and take care that the laws be faithfully executed. 23
The petitioners submit that the deletion (of "as may be provided by law") is significant, as their
argument goes, since: (1) the power of the President is "provided by law" and (2) hence, no law may
provide for it any longer.
It is to be noted that in meting out the suspensions under question, the Secretary of Local
Government acted in consonance with the specific legal provisions of Batas Blg. 337, the Local
Government Code, we quote:
Sec. 62. Notice of Hearing. Within seven days after the complaint is filed, the
Minister of local Government, or the sanggunian concerned, as the case may be,
shall require the respondent to submit his verified answer within seven days from
receipt of said complaint, and commence the hearing and investigation of the case
within ten days after receipt of such answer of the respondent. No investigation shall
be held within ninety days immediately prior to an election, and no preventive
suspension shall be imposed with the said period. If preventive suspension has been
imposed prior to the aforesaid period, the preventive suspension shall be lifted. 24

Sec. 63. Preventive Suspension. (1) Preventive suspension may be imposed by


the Minister of Local Government if the respondent is a provincial or city official, by
the provincial governor if the respondent is an elective municipal official, or by the
city or municipal mayor if the respondent is an elective barangay official.
(2) Preventive suspension may be imposed at any time after the issues are joined,
when there is reasonable ground to believe that the respondent has committed the
act or acts complained of, when the evidence of culpability is strong, when the gravity
of the offense so warrants, or when the continuance in office of the respondent could
influence the witnesses or pose a threat to the safety and integrity of the records and
other evidence. In all cases, preventive suspension shall not extend beyond sixty
days after the start of said suspension.
(3) At the expiration of sixty days, the suspended official shall be deemed reinstated
in office without prejudice to the continuation of the proceedings against him until its
termination. However ' if the delay in the proceedings of the case is due to his fault,
neglect or request, the time of the delay shall not be counted in computing the time of
suspension. 25
The issue, as the Court understands it, consists of three questions: (1) Did the 1987 Constitution, in
deleting the phrase "as may be provided by law" intend to divest the President of the power to
investigate, suspend, discipline, and/or remove local officials? (2) Has the Constitution repealed
Sections 62 and 63 of the Local Government Code? (3) What is the significance of the change in the
constitutional language?
It is the considered opinion of the Court that notwithstanding the change in the constitutional
language, the charter did not intend to divest the legislature of its right or the President of her
prerogative as conferred by existing legislation to provide administrative sanctions against local
officials. It is our opinion that the omission (of "as may be provided by law") signifies nothing more
than to underscore local governments' autonomy from congress and to break Congress' "control"
over local government affairs. The Constitution did not, however, intend, for the sake of local
autonomy, to deprive the legislature of all authority over municipal corporations, in particular,
concerning discipline.
Autonomy does not, after all, contemplate making mini-states out of local government units, as in the
federal governments of the United States of America (or Brazil or Germany), although Jefferson is
said to have compared municipal corporations euphemistically to "small republics." 26 Autonomy, in
the constitutional sense, is subject to the guiding star, though not control, of the legislature, albeit the
legislative responsibility under the Constitution and as the "supervision clause" itself suggest-is to wean
local government units from over-dependence on the central government.
It is noteworthy that under the Charter, "local autonomy" is not instantly self-executing, but subject
to, among other things, the passage of a local government code, 27 a local tax law, 28 income
distribution legislation, 29 and a national representation law, 30 and measures 31 designed to realize
autonomy at the local level. It is also noteworthy that in spite of autonomy, the Constitution places the
local government under the general supervision of the Executive. It is noteworthy finally, that the Charter
allows Congress to include in the local government code provisions for removal of local officials, which
suggest that Congress may exercise removal powers, and as the existing Local Government Code has
done, delegate its exercise to the President. Thus:
Sec. 3. The Congress shall enact a local government code which shall provide for a
more responsive and accountable local government structure instituted through a

system of decentralization with effective mechanisms of recall, initiative, and


referendum, allocate among the different local government units their powers,
responsibilities and resources, and provide for the qualifications, election,
appointment and removal, term, salaries, powers and functions and duties of local
officials, and all other matters relating to the organization and operation of the local
units. 32
As hereinabove indicated, the deletion of "as may be provided by law" was meant to stress, sub
silencio, the objective of the framers to strengthen local autonomy by severing congressional control
of its affairs, as observed by the Court of Appeals, like the power of local legislation. 33 The
Constitution did nothing more, however, and insofar as existing legislation authorizes the President
(through the Secretary of Local Government) to proceed against local officials administratively, the
Constitution contains no prohibition.
The petitioners are under the impression that the Constitution has left the President mere
supervisory powers, which supposedly excludes the power of investigation, and denied her control,
which allegedly embraces disciplinary authority. It is a mistaken impression because legally,
"supervision" is not incompatible with disciplinary authority as this Court has held, 34 thus:
xxx xxx xxx
It is true that in the case of Mondano vs. Silvosa, 51 Off. Gaz., No. 6 p. 2884, this
Court had occasion to discuss the scope and extent of the power of supervision by
the President over local government officials in contrast to the power of control given
to him over executive officials of our government wherein it was emphasized that the
two terms, control and supervision, are two different things which differ one from the
other in meaning and extent. Thus in that case the Court has made the following
digression: "In administration law supervision means overseeing or the power or
authority of an officer to see that subordinate officers perform their duties. If the latter
fail or neglect to fulfill them the former may take such action or step as prescribed by
law to make them perform their duties. Control, on the other hand, means the power
of an officer to alter or modify or nullify of set aside what a subordinate officer had
done in the performance of his duties and to substitute the judgment of the former for
that of the latter." But from this pronouncement it cannot be reasonably inferred that
the power of supervision of the President over local government officials does not
include the power of investigation when in his opinion the good of the public service
so requires, as postulated in Section 64(c) of the Revised Administrative Code. ... 35
xxx xxx xxx

"Control" has been defined as "the power of an officer to alter or modify or nullify or set aside what a
subordinate officer had done in the performance of his duties and to substitute the judgment of the
former for test of the latter."36 "Supervision" on the other hand means "overseeing or the power or
authority of an officer to see that subordinate officers perform their duties. 37 As we held, 38 however,
"investigating" is not inconsistent with "overseeing", although it is a lesser power than "altering". The
impression is apparently exacerbated by the Court's pronouncements in at least three cases,Lacson v.
Roque, 39 Hebron v. Reyes, 40 and Mondano v. Silvosa, 41 and possibly, a fourth one, Pelaez v. Auditor
General.42 In Lacson, this Court said that the President enjoyed no control powers but only supervision
"as may be provided by law,"43 a rule we reiterated in Hebron, and Mondano. In Pelaez, we stated that the
President "may not . . . suspend an elective official of a regular municipality or take any disciplinary action
against him, except on appeal from a decision of the corresponding provincial board." 44 However,
neither Lacson nor Hebron nor Mondano categorically banned the Chief Executive from exercising acts of

disciplinary authority because she did not exercise control powers, but because no law allowed her to
exercise disciplinary authority. Thus, according to Lacson:

The contention that the President has inherent power to remove or suspend
municipal officers is without doubt not well taken. Removal and suspension of public
officers are always controlled by the particular law applicable and its proper
construction subject to constitutional limitations. 45
In Hebron we stated:
Accordingly, when the procedure for the suspension of an officer is specified by law,
the same must be deemed mandatory and adhered to strictly, in the absence of
express or clear provision to the contrary-which does not et with respect to municipal
officers ... 46
In Mondano, the Court held:
... The Congress has expressly and specifically lodged the provincial supervision
over municipal officials in the provincial governor who is authorized to "receive and
investigate complaints made under oath against municipal officers for neglect of duty,
oppression, corruption or other form of maladministration of office, and conviction by
final judgment of any crime involving moral turpitude." And if the charges are serious,
"he shall submit written charges touching the matter to the provincial board,
furnishing a copy of such charges to the accused either personally or by registered
mail, and he may in such case suspend the officer (not being the municipal treasurer)
pending action by the board, if in his opinion the charge by one affecting the official
integrity of the officer in question." Section 86 of the Revised Administration Code
adds nothing to the power of supervision to be exercised by the Department Head
over the administration of ... municipalities ... . If it be construed that it does and such
additional power is the same authority as that vested in the Department Head by
section 79(c) of the Revised Administrative Code, then such additional power must
be deemed to have been abrogated by Section 110(l), Article VII of the
Constitution. 47
xxx xxx xxx
In Pelaez, we stated that the President can not impose disciplinary measures on local officials
except on appeal from the provincial board pursuant to the Administrative Code. 48
Thus, in those case that this Court denied the President the power (to suspend/remove) it was not
because we did not think that the President can not exercise it on account of his limited power, but
because the law lodged the power elsewhere. But in those cases ii which the law gave him the
power, the Court, as in Ganzon v. Kayanan, found little difficulty in sustaining him. 49
The Court does not believe that the petitioners can rightfully point to the debates of the
Constitutional Commission to defeat the President's powers. The Court believes that the
deliberations are by themselves inconclusive, because although Commissioner Jose Nolledo would
exclude the power of removal from the President, 50 Commissioner Blas Ople would not. 51
The Court is consequently reluctant to say that the new Constitution has repealed the Local
Government Code, Batas Blg. 37. As we said, "supervision" and "removal" are not incompatible
terms and one may stand with the other notwithstanding the stronger expression of local autonomy

under the new Charter. We have indeed held that in spite of the approval of the Charter, Batas Blg.
337 is still in force and effect. 52
As the Constitution itself declares, local autonomy means "a more responsive and accountable local
government structure instituted through a system of decentralization." 53 The Constitution as we
observed, does nothing more than to break up the monopoly of the national government over the affairs
of local governments and as put by political adherents, to "liberate the local governments from the
imperialism of Manila." Autonomy, however, is not meant to end the relation of partnership and interdependence between the central administration and local government units, or otherwise, to user in a
regime of federalism. The Charter has not taken such a radical step. Local governments, under the
Constitution, are subject to regulation, however limited, and for no other purpose than precisely, albeit
paradoxically, to enhance self- government.
As we observed in one case, 54 decentralization means devolution of national administration but not
power to the local levels. Thus:
Now, autonomy is either decentralization of administration or decentralization of
power. There is decentralization of administration when the central government
delegates administrative powers to political subdivisions in order to broaden the base
of government power and in the process to make local governments "more
responsive and accountable," and "ensure their fullest development as self-reliant
communities and make them more effective partners in the pursuit of national
development and social progress." At the same time, it relieves the central
government of the burden of managing local affairs and enables it to concentrate on
national concerns. The President exercises "general supervision" over them, but only
to "ensure that local affairs are administered according to law." He has no control
over their acts in the sense that he can substitute their judgments with his own.
Decentralization of power, on the other hand, involves an abdication of political
power in the favor of local governments units declared to be autonomous, In that
case, the autonomous government is free to chart its own destiny and shape its
future with minimum intervention from central authorities. According to a
constitutional author, decentralization of power amounts to "self-immolation," since in
that event, the autonomous government becomes accountable not to the central
authorities but to its constituency. 55
The successive sixty-day suspensions imposed on Mayor Rodolfo Ganzon is albeit another matter.
What bothers the Court, and what indeed looms very large, is the fact that since the Mayor is facing
ten administrative charges, the Mayor is in fact facing the possibility of 600 days of suspension, in
the event that all ten cases yield prima faciefindings. The Court is not of course tolerating
misfeasance in public office (assuming that Mayor Ganzon is guilty of misfeasance) but it is certainly
another question to make him serve 600 days of suspension, which is effectively, to suspend him out
of office. As we held: 56
2. Petitioner is a duly elected municipal mayor of Lianga, Surigao del Sur. His term of
office does not expire until 1986. Were it not for this information and the suspension
decreed by the Sandiganbayan according to the Anti-Graft and Corrupt Practices Act,
he would have been all this while in the full discharge of his functions as such
municipal mayor. He was elected precisely to do so. As of October 26, 1983, he has
been unable to. it is a basic assumption of the electoral process implicit in the right of
suffrage that the people are entitled to the services of elective officials of their choice.
For misfeasance or malfeasance, any of them could, of course, be proceeded
against administratively or, as in this instance, criminally. In either case, Ms

culpability must be established. Moreover, if there be a criminal action, he is entitled


to the constitutional presumption of innocence. A preventive suspension may be
justified. Its continuance, however, for an unreasonable length of time raises a due
process question. For even if thereafter he were acquitted, in the meanwhile his right
to hold office had been nullified. Clearly, there would be in such a case an injustice
suffered by him. Nor is he the only victim. There is injustice inflicted likewise on the
people of Lianga They were deprived of the services of the man they had elected to
serve as mayor. In that sense, to paraphrase Justice Cardozo, the protracted
continuance of this preventive suspension had outrun the bounds of reason and
resulted in sheer oppression. A denial of due process is thus quite manifest. It is to
avoid such an unconstitutional application that the order of suspension should be
lifted. 57
The plain truth is that this Court has been ill at ease with suspensions, for the above reasons, 58 and
so also, because it is out of the ordinary to have a vacancy in local government. The sole objective of a
suspension, as we have held,59 is simply "to prevent the accused from hampering the normal cause of the
investigation with his influence and authority over possible witnesses" 60 or to keep him off "the records
and other evidence. 61
It is a means, and no more, to assist prosecutors in firming up a case, if any, against an erring local
official. Under the Local Government Code, it can not exceed sixty days, 62 which is to say that it need
not be exactly sixty days long if a shorter period is otherwise sufficient, and which is also to say that it
ought to be lifted if prosecutors have achieved their purpose in a shorter span.
Suspension is not a penalty and is not unlike preventive imprisonment in which the accused is held
to insure his presence at the trial. In both cases, the accused (the respondent) enjoys a presumption
of innocence unless and until found guilty.
Suspension finally is temporary and as the Local Government Code provides, it may be imposed for
no more than sixty days. As we held, 63 a longer suspension is unjust and unreasonable, and we might
add, nothing less than tyranny.
As we observed earlier, imposing 600 days of suspension which is not a remote possibility Mayor
Ganzon is to all intents and purposes, to make him spend the rest of his term in inactivity. It is also to
make, to all intents and purposes, his suspension permanent.
It is also, in fact, to mete out punishment in spite of the fact that the Mayor's guilt has not been
proven. Worse, any absolution will be for naught because needless to say, the length of his
suspension would have, by the time he is reinstated, wiped out his tenure considerably.
The Court is not to be mistaken for obstructing the efforts of the respondent Secretary to see that
justice is done in Iloilo City, yet it is hardly any argument to inflict on Mayor Ganzon successive
suspensions when apparently, the respondent Secretary has had sufficient time to gather the
necessary evidence to build a case against the Mayor without suspending him a day longer. What is
intriguing is that the respondent Secretary has been cracking down, so to speak, on the Mayor
piecemeal apparently, to pin him down ten times the pain, when he, the respondent Secretary, could
have pursued a consolidated effort.
We reiterate that we are not precluding the President, through the Secretary of Interior from
exercising a legal power, yet we are of the opinion that the Secretary of Interior is exercising that
power oppressively, and needless to say, with a grave abuse of discretion.

The Court is aware that only the third suspension is under questions, and that any talk of future
suspensions is in fact premature. The fact remains, however, that Mayor Ganzon has been made to
serve a total of 120 days of suspension and the possibility of sixty days more is arguably around the
corner (which amounts to a violation of the Local Government Code which brings to light a pattern of
suspensions intended to suspend the Mayor the rest of his natural tenure. The Court is simply
foreclosing what appears to us as a concerted effort of the State to perpetuate an arbitrary act.
As we said, we can not tolerate such a state of affairs.
We are therefore allowing Mayor Rodolfo Ganzon to suffer the duration of his third suspension and
lifting, for the purpose, the Temporary Restraining Order earlier issued. Insofar as the seven
remaining charges are concerned, we are urging the Department of Local Government, upon the
finality of this Decision, to undertake steps to expedite the same, subject to Mayor Ganzon's usual
remedies of appeal, judicial or administrative, or certiorari, if warranted, and meanwhile, we are
precluding the Secretary from meting out further suspensions based on those remaining complaints,
notwithstanding findings of prima facie evidence.
In resume the Court is laying down the following rules:
1. Local autonomy, under the Constitution, involves a mere decentralization of administration, not of
power, in which local officials remain accountable to the central government in the manner the law
may provide;
2. The new Constitution does not prescribe federalism;
3. The change in constitutional language (with respect to the supervision clause) was meant but to
deny legislative control over local governments; it did not exempt the latter from legislative
regulations provided regulation is consistent with the fundamental premise of autonomy;
4. Since local governments remain accountable to the national authority, the latter may, by law, and
in the manner set forth therein, impose disciplinary action against local officials;
5. "Supervision" and "investigation" are not inconsistent terms; "investigation" does not signify
"control" (which the President does not have);
6. The petitioner, Mayor Rodolfo Ganzon. may serve the suspension so far ordered, but may no
longer be suspended for the offenses he was charged originally; provided:
a) that delays in the investigation of those charges "due to his fault,
neglect or request, (the time of the delay) shall not be counted in
computing the time of suspension. [Supra, sec. 63(3)]
b) that if during, or after the expiration of, his preventive suspension,
the petitioner commits another or other crimes and abuses for which
proper charges are filed against him by the aggrieved party or
parties, his previous suspension shall not be a bar to his being
preventively suspended again, if warranted under subpar. (2), Section
63 of the Local Government Code.
WHEREFORE, premises considered, the petitions are DISMISSED. The Temporary Restraining
Order issued is LIFTED. The suspensions of the petitioners are AFFIRMED, provided that the

petitioner, Mayor Rodolfo Ganzon, may not be made to serve future suspensions on account of any
of the remaining administrative charges pending against him for acts committed prior to August 11,
1988. The Secretary of Interior is ORDERED to consolidate all such administrative cases pending
against Mayor Ganzon.
The sixty-day suspension against the petitioner, Mary Ann Rivera Artieda, is AFFIRMED. No costs.
SO ORDERED.
G.R. No. 75118 August 31, 1987
SEA-LAND SERVICE, INC., petitioner,
vs.
INTERMEDIATE APPELLATE COURT and PAULINO CUE, doing business under the name and
style of "SEN HIAP HING," respondents.

NARVASA, J.:
The main issue here is whether or not the consignee of seaborne freight is bound by stipulations in
the covering bill of lading limiting to a fixed amount the liability of the carrier for loss or damage to the
cargo where its value is not declared in the bill.
The factual antecedents, for the most part, are not in dispute.
On or about January 8, 1981, Sea-Land Service, Inc. (Sea-Land for brevity), a foreign shipping and
forwarding company licensed to do business in the Philippines, received from Seaborne Trading
Company in Oakland, California a shipment consigned to Sen Hiap Hing the business name used by
Paulino Cue in the wholesale and retail trade which he operated out of an establishment located on
Borromeo and Plaridel Streets, Cebu City.
The shipper not having declared the value of the shipment, no value was indicated in the bill of
lading. The bill described the shipment only as "8 CTNS on 2 SKIDS-FILES. 1 Based on volume
measurements Sea-land charged the shipper the total amount of US$209.28 2 for freight age and other charges. The
shipment was loaded on board the MS Patriot, a vessel owned and operated by Sea-Land, for discharge
at the Port Of Cebu.
The shipment arrived in Manila on February 12, 1981, and there discharged in Container No.
310996 into the custody of the arrastre contractor and the customs and port authorities. 3 Sometime
between February 13 and 16, 1981, after the shipment had been transferred, along with other cargoes to
Container No. 40158 near Warehouse 3 at Pier 3 in South Harbor, Manila, awaiting trans-shipment to
Cebu, it was stolen by pilferers and has never been recovered. 4
On March 10, 1981, Paulino Cue, the consignee, made formal claim upon Sea-Land for the value of
the lost shipment allegedly amounting to P179,643.48. 5 Sea-Land offered to settle for US$4,000.00, or
its then Philippine peso equivalent of P30,600.00. asserting that said amount represented its maximum
liability for the loss of the shipment under the package limitation clause in the covering bill of lading. 6 Cue
rejected the offer and thereafter brought suit for damages against Sea-Land in the then Court of First
Instance of Cebu, Branch X. 7 Said Court, after trial, rendered judgment in favor of Cue, sentencing SeaLand to pay him P186,048.00 representing the Philippine currency value of the lost cargo, P55,814.00 for

unrealized profit with one (1%) percent monthly interest from the filing of the complaint until fully paid,
P25,000.00 for attorney's fees and P2,000.00 as litigation expenses. 8

Sea-Land appealed to the Intermediate Appellate Court. 9 That Court however affirmed the decision of
the Trial Court xxx in all its parts ... . 10 Sea-Land thereupon filed the present petition for review which, as already stated, poses
the question of whether, upon the facts above set forth, it can be held liable for the loss of the shipment in any amount beyond the limit of
US$600.00 per package stipulated in the bill of lading.

To begin with, there is no question of the right, in principle, of a consignee in a bill of lading to
recover from the carrier or shipper for loss of, or damage to, goods being transported under said
bill ,although that document may have been as in practice it oftentimes is drawn up only by
the consignor and the carrier without the intervention of the consignee. In Mendoza vs. Philippine Air
Lines, Inc. 11 the Court delved at some length into the reasons behind this when, upon a claim made by the consignee of a motion
picture film shipped by air that he was never a party to the contract of transportation and was a complete stranger thereto, it said:

But appellant now contends that he is not suing on a breach of contract but on a tort
as provided for in Art. 1902 of the Civil Code. We are a little perplexed as to this new
theory of the appellant. First, he insists that the articles of the Code of Commerce
should be applied: that he invokes the provisions of aid Code governing the
obligations of a common carrier to make prompt delivery of goods given to it under a
contract of transportation. Later, as already said, he says that he was never a party
to the contract of transportation and was a complete stranger to it, and that he is now
suing on a tort or a violation of his rights as a stranger (culpa aquiliana) If he does
not invoke the contract of carriage entered into with the defendant company, then he
would hardly have any leg to stand on. His right to prompt delivery of the can of film
at the Phil. Air Port stems and is derived from the contract of carriage under which
contract, the PAL undertook to carry the can of film safely and to deliver it to him
promptly. Take away or ignore that contract and the obligation to carry and to deliver
and right to prompt delivery disappear. Common carriers are not obligated by law to
carry and to deliver merchandise, and persons are not vested with the right to prompt
delivery, unless such common carriers previously assume the obligation. Said rights
and obligations are created by a specific contract entered into by the parties. In the
present case, the findings of the trial court which as already stated, are accepted by
the parties and which we must accept are to the effect that the LVN Pictures Inc. and
Jose Mendoza on one side, and the defendant company on the other, entered into a
contract of transportation (p. 29, Rec. on Appeal). One interpretation of said finding is
that the LVN Pictures Inc. through previous agreement with Mendoza acted as the
latter's agent. When he negotiated with the LVN Pictures Inc. to rent the film "Himala
ng Birhen" and show it during the Naga town fiesta, he most probably authorized and
enjoined the Picture Company to ship the film for him on the PAL on September 17th.
Another interpretation is that even if the LVN Pictures Inc. as consignor of its own
initiative, and acting independently of Mendoza for the time being, made Mendoza as
consignee, a stranger to the contract if that is possible, nevertheless when he,
Mendoza appeared at the Phil Air Port armed with the copy of the Air Way Bill (Exh.
1) demanding the delivery of the shipment to him, he thereby made himself a party to
the contract of transportation. The very citation made by appellant in his
memorandum supports this view. Speaking of the possibility of a conflict between the
order of the shipper on the one hand and the order of the consignee on the other, as
when the shipper orders the shipping company to return or retain the goods shipped
while the consignee demands their delivery, Malagarriga in his book Codigo de
Comercio Comentado, Vol. 1, p. 400, citing a decision of the Argentina Court of
Appeals on commercial matters, cited by Tolentino in Vol. II of his book entitled
"Commentaries and Jurisprudence on the Commercial Laws of the Philippines" p.
209, says that the right of the shipper to countermand the shipment terminates when

the consignee or legitimate holder of the bill of lading appears with such big of lading
before the carrier and makes himself a party to the contract. Prior to that time he is a
stranger to the contract.
Still another view of this phase of the case is that contemplated in Art. 1257,
paragraph 2, of the old Civil Code (now Art, 1311, second paragraph) which reads
thus:
Should the contract contain any stipulation in favor of a third person,
he may demand its fulfillment provided he has given notice of his
acceptance to the person bound before the stipulation has been
revoked.
Here, the contract of carriage between the LVN Pictures Inc. and the defendant
carrier contains the stipulations of delivery to Mendoza as consignee. His demand for
the delivery of the can of film to him at the Phil Air Port may be regarded as a notice
of his acceptance of the stipulation of the delivery in his favor contained in the
contract of carriage and delivery. In this case he also made himself a party to the
contract, or at least has come to court to enforce it. His cause of action must
necessarily be founded on its breach.
Since the liability of a common carrier for loss of or damage to goods transported by it under a
contract of carriage is governed by the laws of the country of destination 12 and the goods in question were
shipped from the United States to the Philippines, the liability of petitioner Sea-Land to the respondent consignee is governed primarily by
the Civil Code, and as ordained by the said Code, suppletorily, in all matters not determined thereby, by the Code of Commerce and special
laws. 13 One of these suppletory special laws is the Carriage of Goods by Sea Act, U.S. Public Act No. 521 which was made applicable to all
contracts for the carriage of goods by sea to and from Philippine ports in foreign trade by Commonwealth Act No. 65, approved on October
22, 1936. Sec. 4(5) of said Act in part reads:

(5) Neither the carrier nor the ship shall in any event be or become liable for any loss
or damage to or in connection with the transportation of goods in an amount
exceeding $500 per package lawful money of the United States, or in case of goods
not shipped in packages, per customary freight unit, or the equivalent of that sum in
other currency, unless the nature and value of such goods have been declared by
the shipper before shipment and inserted in the bill of lading. This declaration, if
embodied in the bill of lading, shall be prima facie evidence, but shall not be
conclusive on the carrier.
By agreement between the carrier, master, or agent of the carrier, and the shipper
another maximum amount than that mentioned in this paragraph may be fixed:
Provided, That such maximum shall not be less than the figure above named. In no
event shall the carrier be liable for more than the amount of damage actually
sustained.
xxx xxx xxx
Clause 22, first paragraph, of the long form bill of lading customarily issued by Sea-Land to its
shipping clients 14 is a virtual copy of the first paragraph of the foregoing provision. It says:
22. VALUATION. In the event of any loss, damage or delay to or in connection with
goods exceeding in actual value $500 per package, lawful money of the United
States, or in case of goods not shipped in packages, per customary freight unit, the
value of the goods shall be deemed to be $500 per package or per customary freight

unit, as the case may be, and the carrier's liability, if any, shall be determined on the
basis of a value of $500 per package or customary freight unit, unless the nature and
a higher value shall be declared by the shipper in writing before shipment and
inserted in this Bill of Lading.
And in its second paragraph, the bill states:
If a value higher than $500 shag have been declared in writing by the shipper upon
delivery to the carrier and inserted in this bill of lading and extra freight paid, if
required and in such case if the actual value of the goods per package or per
customary freight unit shall exceed such declared value, the value shall nevertheless
be deemed to be declared value and the carrier's liability, if any, shall not exceed the
declared value and any partial loss or damage shall be adjusted pro rata on the basis
of such declared value.
Since, as already pointed out, Article 1766 of the Civil Code expressly subjects the rights and
obligations of common carriers to the provisions of the Code of Commerce and of special laws in
matters not regulated by said (Civil) Code, the Court fails to fathom the reason or justification for the
Appellate Court's pronouncement in its appealed Decision that the Carriage of Goods by Sea Act " ...
has no application whatsoever in this case. 15 Not only is there nothing in the Civil Code which absolutely prohibits
agreements between shipper and carrier limiting the latter's liability for loss of or damage to cargo shipped under contracts of carriage; it is
also quite clear that said Code in fact has agreements of such character in contemplation in providing, in its Articles 1749 and 1750, that:

ART. 1749 A stipulation that the common carrier's liability is limited to the value of the
goods appearing in the bill of lading, unless the shipper or owner declares a greater
value, is binding.
ART. 1750. A contract fixing the sum that may be recovered by the owner or shipper
for the loss, destruction, or deterioration of the goods is valid, if it is reasonable and
just under the circumstances, and has been fairly and freely agreed upon.
Nothing contained in section 4(5) of the Carriage of Goods by Sea Act already quoted is repugnant
to or inconsistent with any of the just-cited provisions of the Civil Code. Said section merely gives
more flesh and greater specificity to the rather general terms of Article 1749 (without doing any
violence to the plain intent thereof) and of Article 1750, to give effect to just agreements limiting
carriers' liability for loss or damage which are freely and fairly entered into.
It seems clear that even if said section 4(5) of the Carriage of Goods by Sea Act did not exist, the
validity and binding effect of the liability limitation clause in the bill of lading here are nevertheless
fully sustainable on the basis alone of the cited Civil Code provisions. That said stipulation is just and
reasonable is arguable from the fact that it echoes Art. 1750 itself in providing a limit to liability only if
a greater value is not declared for the shipment in the bill of lading. To hold otherwise would amount
to questioning the justice and fairness of that law itself, and this the private respondent does not
pretend to do. But over and above that consideration, the lust and reasonable character of such
stipulation is implicit in it giving the shipper or owner the option of avoiding acrrual of liability
limitation by the simple and surely far from onerous expedient of declaring the nature and value of
the shipment in the bill of lading. And since the shipper here has not been heard to complaint of
having been "rushed," imposed upon or deceived in any significant way into agreeing to ship the
cargo under a bill of lading carrying such a stipulation in fact, it does not appear that said party
has been heard from at all insofar as this dispute is concerned there is simply no ground for
assuming that its agreement thereto was not as the law would require, freely and fairly sought and
given.

The private respondent had no direct part or intervention in the execution of the contract of carriage
between the shipper and the carrier as set forth in the bill of lading in question. As pointed out
in Mendoza vs. PAL, supra, the right of a party in the same situation as respondent here, to recover
for loss of a shipment consigned to him under a bill of lading drawn up only by and between the
shipper and the carrier, springs from either a relation of agency that may exist between him and the
shipper or consignor, or his status as a stranger in whose favor some stipulation is made in said
contract, and who becomes a party thereto when he demands fulfillment of that stipulation, in this
case the delivery of the goods or cargo shipped. In neither capacity can he assert personally, in bar
to any provision of the bill of lading, the alleged circumstance that fair and free agreement to such
provision was vitiated by its being in such fine print as to be hardly readable. Parenthetically, it may
be observed that in one comparatively recent case 16where this Court found that a similar package limitation clause was
"(printed in the smallest type on the back of the bill of lading, it nonetheless ruled that the consignee was bound thereby on the strength of
authority holding that such provisions on liability limitation are as much a part of a bill of lading as though physically in it and as though
placed therein by agreement of the parties.

There can, therefore, be no doubt or equivocation about the validity and enforceability of freelyagreed-upon stipulations in a contract of carriage or bill of lading limiting the liability of the carrier to
an agreed valuation unless the shipper declares a higher value and inserts it into said contract or bill.
This pro position, moreover, rests upon an almost uniform weight of authority. 17
The issue of alleged deviation is also settled by Clause 13 of the bill of lading which expressly
authorizes trans-shipment of the goods at any point in the voyage in these terms:
13. THROUGH CARGO AND TRANSSHIPMENT. The carrier or master, in the
exercise of its or his discretion and although transshipment or forwarding of the
goods may not have been contemplated or provided for herein, may at port of
discharge or any other place whatsoever transship or forward the goods or any part
thereof by any means at the risk and expense of the goods and at any time, whether
before or after loading on the ship named herein and by any route, whether within or
outside the scope of the voyage or beyond the port of discharge or destination of the
goods and without notice to the shipper or consignee. The carrier or master may
delay such transshipping or forwarding for any reason, including but not limited to
awaiting a vessel or other means of transportation whether by the carrier or others.
Said provision obviates the necessity to offer any other justification for offloading the shipment in
question in Manila for transshipment to Cebu City, the port of destination stipulated in the bill of
lading. Nonetheless, the Court takes note of Sea-Land's explanation that it only directly serves the
Port of Manila from abroad in the usual course of voyage of its carriers, hence its maintenance of
arrangements with a local forwarder. Aboitiz and Company, for delivery of its imported cargo to the
agreed final point of destination within the Philippines, such arrangements not being prohibited, but
in fact recognized, by law. 18
Furthermore, this Court has also ruled 19 that the Carriage of Goods by Sea Act is applicable up to the final port of
destination and that the fact that transshipment was made on an interisland vessel did not remove the contract of carriage of goods from the
operation of said Act.

Private respondent also contends that the aforecited Clauses 22 and 13 of the bill of lading relied
upon by petitioner Sea Land form no part of the short-form bill of lading attached to his complaint
before the Trial Court and appear only in the long form of that document which, he claims. SeaLand
offered (as its Exhibit 2) as an unused blank form with no entries or signatures therein. He, however,
admitted in the Trial Court that several times in the past shipments had been delivered to him
through Sea-Land, 20 from which the assumption may fairly follow that by the time of the consignment
now in question, he was already reasonably apprised of the usual terms covering contracts of carriage
with said petitioner.

At any rate, as observed earlier, it has already been held that the provisions of the Carriage of
Goods by Sea Act on package limitation [sec 4(5) of the Act hereinabove referred to] are as much a
part of a bill of lading as though actually placed therein by agreement of the parties. 21
Private respondent, by making claim for loss on the basis of the bill of lading, to all intents and
purposes accepted said bill. Having done so, he
... becomes bound by all stipulations contained therein whether on the front or the
back thereof. Respondent cannot elude its provisions simply because they prejudice
him and take advantage of those that are beneficial. Secondly, the fact that
respondent shipped his goods on board the ship of petitioner and paid the
corresponding freight thereon shows that he impliedly accepted the bill of lading
which was issued in connection with the shipment in question, and so it may be said
that the same is finding upon him as if it had been actually signed by him or by any
other person in his behalf. ... 22.
There is one final consideration. The private respondent admits 23 that as early as on April 22, 1981,
Sea-Land had offered to settle his claim for US$4,000.00, the limit of said carrier's liability for loss of the
shipment under the bill of lading. This Court having reached the conclusion that said sum is all that is
justly due said respondent, it does not appear just or equitable that Sea-Land, which offered that amount
in good faith as early as six years ago, should, by being made to pay at the current conversion rate of the
dollar to the peso, bear for its own account all of the increase in said rate since the time of the offer of
settlement. The decision of the Regional Trial Court awarding the private respondent P186,048.00 as the
peso value of the lost shipment is clearly based on a conversion rate of P8.00 to US$1.00, said
respondent having claimed a dollar value of $23,256.00 for said shipment. 24 All circumstances
considered, it is just and fair that Sea-Land's dollar obligation be convertible at the same rate.
WHEREFORE, the Decision of the Intermediate Appellate Court complained of is reversed and set
aside. The stipulation in the questioned bill of lading limiting Sea-Land's liability for loss of or damage
to the shipment covered by said bill to US$500.00 per package is held valid and binding on private
respondent. There being no question of the fact that said shipment consisted of eight (8) cartons or
packages, for the loss of which Sea-Land is therefore liable in the aggregate amount of
US$4,000.00, it is the judgment of the Court that said petitioner discharge that obligation by paying
private respondent the sum of P32,000.00, the equivalent in Philippine currency of US$4,000.00 at
the conversion rate of P8.00 to $1.00. Costs against private respondent.
SO ORDERED.
G.R. No. 88092

April 25, 1990

CITADEL LINES, INC., petitioner,


vs.
COURT OF APPEALS and MANILA WINE MERCHANTS, INC., respondents.
*

Del Rosario & Del Rosario Law Offices for petitioner.


Limqueco and Macaraeg Law Office for private respondent.

REGALADO, J.:

Through this petition, we are asked to review the decision of the Court of Appeals dated December
20, 1988, in CA-G.R. No. CV-10070, which affirmed the August 30, 1985 decision of the Regional
Trial Court of Manila, Branch 27, in Civil Case No. 126415, entitled Manila Wine Merchants, Inc. vs.
Citadel Lines, Inc. and E. Razon, Inc., with a modification by deleting the award of attorney's fees
and costs of suit.
1

The following recital of the factual background of this case is culled from the findings in the decision
of the court a quo and adopted by respondent court based on the evidence of record.
Petitioner Citadel Lines, Inc. (hereafter referred to as the CARRIER) is the general agent of the
vessel "Cardigan Bay/Strait Enterprise," while respondent Manila Wine Merchants, Inc. (hereafter,
the CONSIGNEE) is the importer of the subject shipment of Dunhill cigarettes from England.
On or about March 17, 1979, the vessel "Cardigan Bay/Strait Enterprise" loaded on board at
Southampton, England, for carriage to Manila, 180 Filbrite cartons of mixed British manufactured
cigarettes called "Dunhill International Filter" and "Dunhill International Menthol," as evidenced by Bill
of Lading No. 70621374 and Bill of Lading No. 70608680 of the Ben Line Containers Ltd. The
shipment arrived at the Port of Manila Pier 13, on April 18, 1979 in container van No. BENU 2048509. The said container was received by E. Razon, Inc. (later known as Metro Port Service, Inc. and
referred to herein as the ARRASTRE) under Cargo Receipt No. 71923 dated April 18, 1979.
2

On April 30, 1979, the container van, which contained two shipments was stripped. One shipment
was delivered and the other shipment consisting of the imported British manufactured cigarettes was
palletized. Due to lack of space at the Special Cargo Coral, the aforesaid cigarettes were placed in
two containers with two pallets in container No. BENU 204850-9, the original container, and four
pallets in container No. BENU 201009-9, with both containers duly padlocked and sealed by the
representative of the CARRIER.
In the morning of May 1, 1979, the CARRIER'S headchecker discovered that container van No.
BENU 201009-9 had a different padlock and the seal was tampered with. The matter was reported to
Jose G. Sibucao, Pier Superintendent, Pier 13, and upon verification, it was found that 90 cases of
imported British manufactured cigarettes were missing. This was confirmed in the report of said
Superintendent Sibucao to Ricardo Cosme, Assistant Operations Manager, dated May 1, 1979 and
the Official Report/Notice of Claim of Citadel Lines, Inc. to E. Razon, Inc. dated May 8, 1979. Per
investigation conducted by the ARRASTRE, it was revealed that the cargo in question was not
formally turned over to it by the CARRIER but was kept inside container van No. BENU 201009-9
which was padlocked and sealed by the representatives of the CARRIER without any participation of
the ARRASTRE.
5

When the CONSIGNEE learned that 90 cases were missing, it filed a formal claim dated May 21,
1979, with the CARRIER, demanding the payment of P315,000.00 representing the market value of
the missing cargoes. The CARRIER, in its reply letter dated May 23, 1979, admitted the loss but
alleged that the same occurred at Pier 13, an area absolutely under the control of the ARRASTRE.
In view thereof, the CONSIGNEE filed a formal claim, dated June 4, 1979, with the ARRASTRE,
demanding payment of the value of the goods but said claim was denied.
7

After trial, the lower court rendered a decision on August 30, 1985, exonerating the ARRASTRE of
any liability on the ground that the subject container van was not formally turned over to its custody,
and adjudging the CARRIER liable for the principal amount of P312,480.00 representing the market
value of the lost shipment, and the sum of P30,000.00 as and for attorney's fees and the costs of
suit.

As earlier stated, the court of Appeals affirmed the decision of the court a quo but deleted the award
of attorney's fees and costs of suit.
The two main issues for resolution are:
1. Whether the loss occurred while the cargo in question was in the custody of E. Razon, Inc. or of
Citadel Lines, Inc; and
2. Whether the stipulation limiting the liability of the carrier contained in the bill of lading is binding on
the consignee.
The first issue is factual in nature. The Court of Appeals declared in no uncertain terms that, on the
basis of the evidence presented, the subject cargo which was placed in a container van, padlocked
and sealed by the representative of the CARRIER was still in its possession and control when the
loss occurred, there having been no formal turnover of the cargo to the ARRASTRE. Besides, there
is the categorical admission made by two witnesses, namely, Atty. Lope M. Velasco and Ruben
Ignacio, Claims Manager and Head Checker, respectively, of the CARRIER, that for lack of space
the containers were not turned over to and as the responsibility of E. Razon Inc. The CARRIER is
now estopped from claiming otherwise.
10

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. 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 extra ordinary diligence as required in Article 1733
of the Civil Code. The duty of the consignee is to prove merely that the goods were lost. Thereafter,
the burden is shifted to the carrier to prove that it has exercised the extraordinary diligence required
by law. And, its 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 them.
11

12

13

Considering, therefore, that the subject shipment was lost while it was still in the custody of herein
petitioner CARRIER, and considering further that it failed to prove that the loss was occasioned by
an excepted cause, the inescapable conclusion is that the CARRIER was negligent and should be
held liable therefor.
The cases cited by petitioner in support of its allegations to the contrary do not find proper
application in the case at bar simply because those cases involve a situation wherein the shipment
was turned over to the custody and possession of the arrastre operator.
We, however, find the award of damages in the amount of P312,800.00 for the value of the goods
lost, based on the alleged market value thereof, to be erroneous. It is clearly and expressly provided
under Clause 6 of the aforementioned bills of lading issued by the CARRIER that its liability is limited
to $2.00 per kilo. Basic is the rule, long since enshrined as a statutory provision, that a stipulation
limiting the liability of the carrier to the value of the goods appearing in the bill of lading, unless the
shipper or owner declares a greater value, is binding. Further, a contract fixing the sum that may be
recovered by the owner or shipper for the loss, destruction or deterioration of the goods is valid, if it
is reasonable and just under the circumstances, and has been fairly and freely agreed upon.
14

15

The CONSIGNEE itself admits in its memorandum that the value of the goods shipped does not
appear in the bills of lading. Hence, the stipulation on the carrier's limited liability applies. There is
16

no question that the stipulation is just and reasonable under the circumstances and have been fairly
and freely agreed upon. In Sea-land Service, Inc.vs. Intermediate Appellate Court, et al. we there
explained what is a just and reasonable, and a fair and free, stipulation, in this wise:
17

. . . That said stipulation is just and reasonable arguable from the fact that it echoes Art. 1750
itself in providing a limit to liability only if a greater value is not declared for the shipment in
the bill of lading. To hold otherwise would amount to questioning the justice and fairness of
that law itself, and this the private respondent does not pretend to do. But over and above
that consideration the just and reasonable character of such stipulation is implicit in it giving
the shipper or owner the option of avoiding accrual of liability limitation by the simple and
surely far from onerous expedient of declaring the nature and value of the shipment in the bill
of lading. And since the shipper here has not been heard to complain of having been
"rushed," imposed upon or deceived in any significant way into agreeing to ship the cargo
under a bill of lading carrying such a stipulation in fact, it does not appear, that said party
has been heard from at all insofar as this dispute is concerned there is simply no ground
for assuming that its agreement thereto was not as the law would require, freely and fairly
sought and well.
The bill of lading shows that 120 cartons weigh 2,978 kilos or 24.82 kilos per carton. Since 90
cartons were lost and the weight of said cartons is 2,233.80 kilos, at $2.00 per kilo the CARRIER's
liability amounts to only US$4,467.60.
WHEREFORE, the judgment of respondent court is hereby MODIFIED and petitioner Citadel Lines,
Inc. is ordered to pay private respondent Manila Wine Merchants, Inc. the sum of US$4,465.60. or
its equivalent in Philippine currency at the exchange rate obtaining at the time of payment thereof. In
all other respects, said judgment of respondent Court is AFFIRMED.
SO ORDERED.

EVERETT STEAMSHIP CORPORATION, petitioner, vs. COURT


APPEALS and HERNANDEZ TRADING CO. INC., respondents.

OF

DECISION
MARTINEZ, J.:

Petitioner Everett Steamship Corporation, through this petition for review, seeks
the reversal of the decision[1] of the Court of Appeals, dated June 14, 1995, in CA-G.R.
No. 428093, which affirmed the decision of the Regional Trial Court of Kalookan
City, Branch 126, in Civil Case No. C-15532, finding petitioner liable to private
respondent Hernandez Trading Co., Inc. for the value of the lost cargo.
Private respondent imported three crates of bus spare parts marked as
MARCO C/No. 12, MARCO C/No. 13 and MARCO C/No. 14, from its supplier,
Maruman Trading Company, Ltd. (Maruman Trading), a foreign corporation based in
Inazawa, Aichi, Japan. The crates were shipped from Nagoya, Japan to Manila on

board ADELFAEVERETTE, a vessel owned by petitioners principal, Everett Orient


Lines. The said crates were covered by Bill of Lading No. NGO53MN.
Upon arrival at the port of Manila, it was discovered that the crate marked
MARCO C/No. 14 was missing. This was confirmed and admitted by petitioner in its
letter of January 13, 1992 addressed to private respondent, which thereafter made a
formal claim upon petitioner for the value of the lost cargo amounting to One Million
Five Hundred Fifty Two Thousand Five Hundred (Y1,552,500.00) Yen, the amount
shown in an Invoice No. MTM-941, dated November 14, 1991. However, petitioner
offered to pay only One Hundred Thousand (Y100,000.00) Yen, the maximum amount
stipulated under Clause 18 of the covering bill of lading which limits the liability of
petitioner.
Private respondent rejected the offer and thereafter instituted a suit for collection
docketed as Civil Case No. C-15532, against petitioner before the Regional Trial
Court of Caloocan City, Branch 126.
At the pre-trial conference, both parties manifested that they have no testimonial
evidence to offer and agreed instead to file their respective memoranda.
On July 16, 1993, the trial court rendered judgment [2] in favor of private
respondent, ordering petitioner to pay: (a) Y1,552,500.00; (b) Y20,000.00 or its peso
equivalent representing the actual value of the lost cargo and the material and
packaging cost; (c) 10% of the total amount as an award for and as contingent
attorneys fees; and (d) to pay the cost of the suit. The trial court ruled:
Consideringdefendantscategoricaladmissionoflossanditsfailureto
overcomethepresumptionofnegligenceandfault,theCourtconclusively
findsdefendantliabletotheplaintiff.ThenextpointofinquirytheCourtwants
toresolveistheextentoftheliabilityofthedefendant.Asstatedearlier,
plaintiffcontendsthatdefendantshouldbeheldliableforthewholevaluefor
thelossofthegoodsintheamountofY1,552,500.00becausetheterms
appearingatthebackofthebillofladingwassowritteninfineprintsandthat
thesamewasnotsignedbyplaintifforshipperthus,theyarenotboundbythe
clausestatedinparagraph18ofthebilloflading.Ontheotherhand,
defendantmerelyadmittedthatitlosttheshipmentbutshallbeliableonlyup
totheamountofY100,000.00.
TheCourtsubscribestotheprovisionsofArticle1750oftheNewCivilCode

Art.1750.Acontractfixingthesumthatmayberecoveredbythe
ownerorshipperfortheloss,destructionordeteriorationofthegoods
isvalid,ifitisreasonableandjustunderthecircumstances,andhas
beenfairlyandfreelyagreedupon.
Itisrequired,however,thatthecontractmustbereasonableandjustunderthe
circumstancesandhasbeenfairlyandfreelyagreedupon.Therequirements
providedinArt.1750oftheNewCivilCodemustbecompliedwithbeforea
commoncarriercanclaimalimitationofitspecuniaryliabilityincaseofloss,
destructionordeteriorationofthegoodsithasundertakentotransport.
Inthecaseatbar,theCourtisoftheviewthattherequirementsofsaidarticle
havenotbeenmet.Thefactthatthoseconditionsareprintedatthebackofthe
billofladinginletterssosmallthattheyarehardtoreadwouldnotwarrant
thepresumptionthattheplaintifforitssupplierwasawareoftheseconditions
suchthathehadfairlyandfreelyagreedtotheseconditions.Itcannotbesaid
thattheplaintiffhadactuallyenteredintoacontractwiththedefendant,
embodyingtheconditionsasprintedatthebackofthebillofladingthatwas
issuedbythedefendanttoplaintiff.
On appeal, the Court of Appeals deleted the award of attorneys fees but affirmed
the trial courts findings with the additional observation that private respondent can not
be bound by the terms and conditions of the bill of lading because it was not privy to
the contract of carriage. It said:
Astotheamountofliability,noevidenceappearsonrecordtoshowthatthe
appellee(HernandezTradingCo.)consentedtothetermsoftheBillof
Lading.TheshippernamedintheBillofLadingisMarumanTradingCo.,
Ltd.whomtheappellant(EverettSteamshipCorp.)contractedwithforthe
transportationofthelostgoods.
EvenassumingarguendothattheshipperMarumanTradingCo.,Ltd.accepted
thetermsofthebillofladingwhenitdeliveredthecargototheappellant,still
itdoesnotnecessarilyfollowthatappelleeHernandezTradingCompanyas
consigneeisboundtherebyconsideringthatthelatterwasneverprivytothe
shippingcontract.
xxxxxxxxx

Neverhavingenteredintoacontractwiththeappellant,appelleeshould
thereforenotbeboundbyanyofthetermsandconditionsinthebilloflading.
Hence,itfollowsthattheappelleemayrecoverthefullvalueoftheshipment
lost,thebasisofwhichisnotthebreachofcontractasappelleewasnevera
privytotheanycontractwiththeappellant,butisbasedonArticle1735ofthe
NewCivilCode,therebeingnoevidencetoprovesatisfactorilythatthe
appellanthasovercomethepresumptionofnegligenceprovidedforinthelaw.
Petitioner now comes to us arguing that the Court of Appeals erred (1) in ruling
that the consent of the consignee to the terms and conditions of the bill of lading is
necessary to make such stipulations binding upon it; (2) in holding that the carriers
limited package liability as stipulated in the bill of lading does not apply in the instant
case; and (3) in allowing private respondent to fully recover the full alleged value of
its lost cargo.
We shall first resolve the validity of the limited liability clause in the bill of
lading.
A stipulation in the bill of lading limiting the common carriers liability for loss or
destruction of a cargo to a certain sum, unless the shipper or owner declares a greater
value, is sanctioned by law, particularly Articles 1749 and 1750 of the Civil Code
which provide:
ART.1749.Astipulationthatthecommoncarriersliabilityislimitedtothe
valueofthegoodsappearinginthebilloflading,unlesstheshipperorowner
declaresagreatervalue,isbinding.
ART.1750.Acontractfixingthesumthatmayberecoveredbytheowneror
shipperfortheloss,destruction,ordeteriorationofthegoodsisvalid,ifitis
reasonableandjustunderthecircumstances,andhasbeenfreelyandfairly
agreedupon.
Such limited-liability clause has also been consistently upheld by this Court in a
number of cases.[3] Thus, in Sea Land Service, Inc. vs Intermediate Appellate Court [4],
we ruled:
Itseemsclearthatevenifsaidsection4(5)oftheCarriageofGoodsbySeaActdid
notexist,thevalidityandbindingeffectoftheliabilitylimitationclauseinthebillof
ladinghereareneverthelessfullysustainableonthebasisaloneofthecitedCivil
CodeProvisions.Thatsaidstipulationisjustandreasonableisarguablefromthefact

thatitechoesArt.1750itselfinprovidingalimittoliabilityonlyifagreatervalueis
notdeclaredfortheshipmentinthebilloflading.Toholdotherwisewouldamountto
questioningthejustnessandfairnessofthelawitself,andthistheprivaterespondent
doesnotpretendtodo.Butoverandabovethatconsideration,thejustandreasonable
characterofsuchstipulationisimplicitinitgivingtheshipperorownertheoptionof
avoidingaccrualofliabilitylimitationbythesimpleandsurelyfarfromonerous
expedientofdeclaringthenatureandvalueoftheshipmentinthebilloflading..
Pursuant to the afore-quoted provisions of law, it is required that the stipulation
limiting the common carriers liability for loss must be reasonable and just under the
circumstances, and has been freely and fairly agreed upon.
The bill of lading subject of the present controversy specifically provides, among
others:
18.Allclaimsforwhichthecarriermaybeliableshallbeadjustedandsettled
onthebasisoftheshippersnetinvoicecostplusfreightandinsurance
premiums,ifpaid,andinnoeventshallthecarrierbeliableforanylossof
possibleprofitsoranyconsequentialloss.
Thecarriershallnotbeliableforanylossoforanydamagetoorinany
connectionwith,goodsinanamountexceedingOneHundredThousandYen
inJapaneseCurrency(Y100,000.00)oritsequivalentinanyothercurrency
perpackageorcustomaryfreightunit(whicheverisleast)unlessthevalueof
thegoodshigherthanthisamountisdeclaredinwritingbytheshipperbefore
receiptofthegoodsbythecarrierandinsertedintheBillofLadingandextra
freightispaidasrequired.(Emphasissupplied)
The above stipulations are, to our mind, reasonable and just. In the bill of lading,
the carrier made it clear that its liability would only be up to One Hundred Thousand
(Y100,000.00) Yen.However, the shipper, Maruman Trading, had the option to
declare a higher valuation if the value of its cargo was higher than the limited
liability of the carrier. Considering that the shipper did not declare a higher
valuation, it had itself to blame for not complying with the stipulations.
The trial courts ratiocination that private respondent could not have fairly and
freely agreed to the limited liability clause in the bill of lading because the said
conditions were printed in small letters does not make the bill of lading invalid.
We ruled in PAL, Inc. vs. Court of Appeals [5] that the jurisprudence on the matter
reveals the consistent holding of the court that contracts of adhesion are not

invalid per se and that it has on numerous occasions upheld the binding effect
thereof. Also, in Philippine American General Insurance Co., Inc. vs. Sweet Lines ,
Inc.[6] this Court , speaking through the learned Justice Florenz D. Regalado, held:
xxxOngYiuvs.CourtofAppeals,et.al.,instructsusthatcontractsof
adhesionwhereinonepartyimposesareadymadeformofcontractonthe
otherxxxarecontractsnotentirelyprohibited.Theonewhoadherestothe
contractisinrealityfreetorejectitentirely;ifheadhereshegiveshis
consent.Inthepresentcase,notevenanallegationofignoranceofaparty
excusesnoncompliancewiththecontractualstipulationssincethe
responsibilityforensuringfullcomprehensionoftheprovisionsofacontract
ofcarriagedevolvesnotonthecarrierbutontheowner,shipper,orconsignee
asthecasemaybe.(Emphasissupplied)
It was further explained in Ong Yiu vs Court of Appeals [7] that stipulations in
contracts of adhesion are valid and binding.
Whileitmaybetruethatpetitionerhadnotsignedtheplaneticketxx,heis
neverthelessboundbytheprovisionsthereof.Suchprovisionshavebeenheld
tobeapartofthecontractofcarriage,andvalidandbindinguponthe
passengerregardlessofthelatterslackofknowledgeorassenttothe
regulation.Itiswhatisknownasacontractofadhesion,inregardswhichit
hasbeensaidthatcontractsofadhesionwhereinonepartyimposesaready
madeformofcontractontheother,astheplaneticketinthecaseatbar,are
contractsnotentirelyprohibited.Theonewhoadherestothecontractisin
realityfreetorejectitentirely;ifheadheres,hegiveshisconsent.xxx,a
contractlimitingliabilityuponanagreedvaluationdoesnotoffendagainstthe
policyofthelawforbiddingonefromcontractingagainsthisownnegligence.
(Emphasissupplied)
Greater vigilance, however, is required of the courts when dealing with contracts
of adhesion in that the said contracts must be carefully scrutinized in order to shield
the unwary (or weaker party) from deceptive schemes contained in ready-made
covenants,[8] such as the bill of lading in question. The stringent requirement which the
courts are enjoined to observe is in recognition of Article 24 of the Civil Code which
mandates that (i)n all contractual, property or other relations, when one of the parties
is at a disadvantage on account of his moral dependence, ignorance, indigence,
mental weakness, tender age or other handicap, the courts must be vigilant for his
protection.

The shipper, Maruman Trading, we assume, has been extensively engaged in the
trading business. It can not be said to be ignorant of the business transactions it
entered into involving the shipment of its goods to its customers. The shipper could
not have known, or should know the stipulations in the bill of lading and there it
should have declared a higher valuation of the goods shipped. Moreover, Maruman
Trading has not been heard to complain that it has been deceived or rushed into
agreeing to ship the cargo in petitioners vessel. In fact, it was not even impleaded in
this case.
The next issue to be resolved is whether or not private respondent, as consignee,
who is not a signatory to the bill of lading is bound by the stipulations thereof.
Again,
in Sea-Land
Service,
Inc.
vs.
Intermediate
Appellate
Court (supra), we held that even if the consignee was not a signatory to the contract
of carriage between the shipper and the carrier, the consignee can still be bound by the
contract. Speaking through Mr. Chief Justice Narvasa, we ruled:
Tobeginwith,thereisnoquestionoftheright,inprinciple,ofaconsigneein
abillofladingtorecoverfromthecarrierorshipperforlossof,ordamageto
goodsbeingtransportedundersaidbill,althoughthatdocumentmayhave
beenasinpracticeitoftentimesisdrawnuponlybytheconsignorand
thecarrierwithouttheinterventionoftheconsignee.xxx.
xxxtherightofapartyinthesamesituationasrespondenthere,to
recoverforlossofashipmentconsignedtohimunderabilloflading
drawnuponlybyandbetweentheshipperandthecarrier,springsfrom
eitherarelationofagencythatmayexistbetweenhimandtheshipperor
consignor,orhisstatusasstrangerinwhosefavorsomestipulationis
madeinsaidcontract,andwhobecomesapartytheretowhenhe
demandsfulfillmentofthatstipulation,inthiscasethedeliveryofthe
goodsorcargoshipped.Inneithercapacitycanheassertpersonally,in
bartoanyprovisionofthebilloflading,theallegedcircumstancethat
fairandfreeagreementtosuchprovisionwasvitiatedbyitsbeinginsuch
fineprintastobehardlyreadable.Parenthetically,itmaybeobservedthat
inonecomparativelyrecentcase(PhoenixAssuranceCompanyvs.
Macondray&Co.,Inc.,64SCRA15)wherethisCourtfoundthatasimilar
packagelimitationclausewasprintedinthesmallesttypeonthebackof
thebilloflading,itnonethelessruledthattheconsigneewasbound
therebyonthestrengthofauthorityholdingthatsuchprovisionson

liabilitylimitationareasmuchapartofabillofladingasthough
physicallyinitandasthoughplacedthereinbyagreementoftheparties.
Therecan,therefore,benodoubtorequivocationaboutthevalidityand
enforceabilityoffreelyagreeduponstipulationsinacontractofcarriageor
billofladinglimitingtheliabilityofthecarriertoanagreedvaluationunless
theshipperdeclaresahighervalueandinsertsitintosaidcontractor
bill.Thisproposition,moreover,restsuponanalmostuniformweightof
authority.(Underscoringsupplied)
When private respondent formally claimed reimbursement for the missing goods
from petitioner and subsequently filed a case against the latter based on the very same
bill of lading, it(private respondent) accepted the provisions of the contract and
thereby made itself a party thereto, or at least has come to court to enforce it. [9] Thus,
private respondent cannot now reject or disregard the carriers limited liability
stipulation in the bill of lading. In other words, private respondent is bound by the
whole stipulations in the bill of lading and must respect the same.
Private respondent, however, insists that the carrier should be liable for the full
value of the lost cargo in the amount of Y1,552,500.00, considering that the shipper,
Maruman Trading, had "fully declared the shipment x x x, the contents of each crate,
the dimensions, weight and value of the contents,"[10] as shown in the commercial
Invoice No. MTM-941.
This claim was denied by petitioner, contending that it did not know of the
contents, quantity and value of "the shipment which consisted of three pre-packed
crates described in Bill of Lading No. NGO-53MN merely as 3 CASES SPARE
PARTS.[11]
The bill of lading in question confirms petitioners contention. To defeat the
carriers limited liability, the aforecited Clause 18 of the bill of lading requires that the
shipper should havedeclared in writing a higher valuation of its goods before
receipt thereof by the carrier and insert the said declaration in the bill of lading,
with the extra freight paid. These requirements in the bill of lading were never
complied with by the shipper, hence, the liability of the carrier under the limited
liability clause stands. The commercial Invoice No. MTM-941 does not in itself
sufficiently and convincingly show that petitioner has knowledge of the value of the
cargo as contended by private respondent. No other evidence was proffered by private
respondent to support is contention. Thus, we are convinced that petitioner should be
liable for the full value of the lost cargo.

In fine, the liability of petitioner for the loss of the cargo is limited to One
Hundred Thousand (Y100,000.00) Yen, pursuant to Clause 18 of the bill of lading.
WHEREFORE, the decision of the Court of Appeals dated June 14, 1995 in
C.A.-G.R. CV No. 42803 is hereby REVERSED and SET ASIDE.
SO ORDERED.

EDGAR COKALIONG SHIPPING LINES, INC., petitioner, vs. UCPB


GENERAL INSURANCE COMPANY, INC., respondent.
DECISION
PANGANIBAN, J.:

The liability of a common carrier for the loss of goods may, by stipulation in
the bill of lading, be limited to the value declared by the shipper. On the other
hand, the liability of the insurer is determined by the actual value covered by
the insurance policy and the insurance premiums paid therefor, and not
necessarily by the value declared in the bill of lading.
The Case
Before the Court is a Petition for Review under Rule 45 of the Rules of
Court, seeking to set aside the August 31, 2000 Decision and the November
17, 2000 Resolution of the Court of Appeals (CA) in CA-GR SP No.
62751. The dispositive part of the Decision reads:
[1]

[2]

[3]

[4]

INTHELIGHTOFTHEFOREGOING,theappealisGRANTED.TheDecision
appealedfromisREVERSED.[Petitioner]isherebycondemnedtopayto
[respondent]thetotalamountofP148,500.00,withinterestthereon,attherateof6%
perannum,fromdateofthisDecisionoftheCourt.[Respondents]claimforattorneys
fees[is]DISMISSED.[Petitioners]counterclaimsareDISMISSED.
[5]

The assailed Resolution denied petitioners Motion for Reconsideration.


On the other hand, the disposition of the Regional Trial Courts Decision,
which was later reversed by the CA, states:
[6]

[7]

WHEREFORE,premisesconsidered,thecaseisherebyDISMISSEDforlackof
merit.

Nocost.

[8]

The Facts
The facts of the case are summarized by the appellate court in this wise:
SometimeonDecember11,1991,NestorAngeliadeliveredtotheEdgarCokaliong
ShippingLines,Inc.(nowCokaliongShippingLines),[petitioner]forbrevity,cargo
consistingofone(1)cartonofChristmasdcorandtwo(2)sacksofplastictoys,tobe
transportedonboardtheM/VTandagonitsVoyageNo.T189scheduledtodepart
fromCebuCity,onDecember12,1991,forTandag,SurigaodelSur.[Petitioner]
issuedBillofLadingNo.58,freightprepaid,coveringthecargo.NestorAngeliawas
boththeshipperandconsigneeofthecargovalued,onthefacethereof,intheamount
ofP6,500.00.ZosimoMercadolikewisedeliveredcargoto[petitioner],consistingof
two(2)cartonsofplastictoysandChristmasdecor,one(1)rolloffloormatandone
(1)bundleofvariousorassortedgoodsfortransportationthereoffromCebuCityto
Tandag,SurigaodelSur,onboardthesaidvessel,andsaidvoyage.[Petitioner]
issuedBillofLadingNo.59coveringthecargowhich,onthefacethereof,was
valuedintheamountofP14,000.00.UndertheBillofLading,ZosimoMercadowas
boththeshipperandconsigneeofthecargo.
OnDecember12,1991,FelicianaLegaspiinsuredthecargo,coveredbyBillof
LadingNo.59,withtheUCPBGeneralInsuranceCo.,Inc.,[respondent]for
brevity,fortheamountofP100,000.00againstallrisksunderOpenPolicyNo.
002/91/254forwhichshewasissued,by[respondent],MarineRiskNoteNo.
18409onsaiddate.ShealsoinsuredthecargocoveredbyBillofLadingNo.58,with
[respondent],fortheamountofP50,000.00,underOpenPolicyNo.002/91/254

on
thebasisofwhich[respondent]issuedMarineRiskNoteNo.18410onsaiddate.
Whenthevesselleftport,ithadthirtyfour(34)passengersandassortedcargoon
board,includingthegoodsofLegaspi.AfterthevesselhadpassedbytheMandaue
MactanBridge,fireensuedintheengineroom,and,despiteearnesteffortsofthe
officersandcrewofthevessel,thefireengulfedanddestroyedtheentirevessel
resultinginthelossofthevesselandthecargoestherein.TheCaptainfiledthe
requiredMarineProtest.
Shortlythereafter,FelicianaLegaspifiledaclaim,with[respondent],forthevalueof
thecargoinsuredunderMarineRiskNoteNo.18409andcoveredbyBillofLading
No.59.Shesubmitted,insupportofherclaim,aReceipt,datedDecember11,1991,

purportedlysignedbyZosimoMercado,andOrderSlipspurportedlysignedbyhim
forthegoodshereceivedfromFelicianaLegaspivaluedintheamount
ofP110,056.00.[Respondent]approvedtheclaimofFelicianaLegaspianddrewand
issuedUCPBCheckNo.612939,datedMarch9,1992,inthenetamount
ofP99,000.00,insettlementofherclaimafterwhichsheexecutedaSubrogation
Receipt/Deed,forsaidamount,infavorof[respondent].Shealsofiledaclaimforthe
valueofthecargocoveredbyBillofLadingNo.58.Shesubmittedto[respondent]
aReceipt,datedDecember11,1991andOrderSlips,purportedlysignedbyNestor
AngeliaforthegoodshereceivedfromFelicianaLegaspivalued
atP60,338.00.[Respondent]approvedherclaimandremittedtoFelicianaLegaspithe
netamountofP49,500.00,afterwhichshesignedaSubrogationReceipt/Deed,dated
March9,1992,infavorof[respondent].
OnJuly14,1992,[respondent],assubrogeeofFelicianaLegaspi,filedacomplaint
anchoredontortsagainst[petitioner],withtheRegionalTrialCourtofMakatiCity,
forthecollectionofthetotalprincipalamountofP148,500.00,whichitpaidto
FelicianaLegaspiforthelossofthecargo,prayingthatjudgmentberenderedinits
favorandagainstthe[petitioner]asfollows:
WHEREFORE,itisrespectfullyprayedofthisHonorableCourtthatafterdue
hearing,judgmentberenderedordering[petitioner]topay[respondent]thefollowing.
1.ActualdamagesintheamountofP148,500.00plusinterestthereonatthelegalrate
fromthetimeoffilingofthiscomplaintuntilfullypaid;
2.AttorneysfeesintheamountofP10,000.00;and
3.Costofsuit.
[Respondent]furtherpraysforsuchotherreliefsandremediesasthisHonorableCourt
maydeemjustandequitableunderthepremises.
[Respondent]alleged,interalia,initscomplaint,thatthecargosubjectofits
complaintwasdeliveredto,andreceivedby,[petitioner]fortransportationtoTandag,
SurigaodelSurunderBillofLadings,AnnexesAandBofthecomplaint;thatthe
lossofthecargowasduetothenegligenceofthe[petitioner];andthatFeliciana
LegaspihadexecutedSubrogationReceipts/Deedsinfavorof[respondent]after
payingtoherthevalueofthecargoonaccountoftheMarineRiskNotesitissuedin
herfavorcoveringthecargo.

InitsAnswertothecomplaint,[petitioner]allegedthat:(a)[petitioner]wasclearedbytheBoard
ofMarineInquiryofanynegligenceintheburningofthevessel;(b)thecomplaintstatedno
causeofactionagainst[petitioner];and(c)theshippers/consigneehadalreadybeenpaidthe
valueofthegoodsasstatedintheBillofLadingand,hence,[petitioner]cannotbeheldliable
forthelossofthecargobeyondthevaluethereofdeclaredintheBillofLading.
After[respondent]resteditscase,[petitioner]prayedforandwasallowed,bytheCourtaquo,to
takethedepositionsofChesterCokaliong,theVicePresidentandChiefOperatingOfficerof
[petitioner],andaresidentofCebuCity,andofNoelTanyu,anofficeroftheEquitableBanking
Corporation,inCebuCity,andaresidentofCebuCity,tobegivenbeforethePresidingJudgeof
Branch106oftheRegionalTrialCourtofCebuCity.ChesterCokaliongandNoelTanyudid
testify,bywayofdeposition,beforetheCourtanddeclaredinteralia,that:[petitioner]isa
familycorporationliketheChesterMarketing,Inc.;NestorAngeliahadbeendoingbusiness
with[petitioner]andChesterMarketing,Inc.,foryears,andincurredanaccountwithChester
Marketing,Inc.forhispurchasesfromsaidcorporation;[petitioner]didissueBillsofLading
Nos.58and59forthecargodescribedthereinwithZosimoMercadoandNestorAngeliaas
shippers/consignees,respectively;theengineroomoftheM/VTandagcaughtfireafteritpassed
theMandaue/MactanBridgeresultinginthetotallossofthevesselanditscargo;an
investigationwasconductedbytheBoardofMarineInquiryofthePhilippineCoastGuard
whichrenderedaReport,datedFebruary13,1992absolving[petitioner]ofanyresponsibilityon
accountofthefire,whichReportoftheBoardwasapprovedbytheDistrictCommanderofthe
PhilippineCoastGuard;afewdaysafterthesinkingofthevessel,arepresentativeoftheLegaspi
MarketingfiledclaimsforthevaluesofthegoodsunderBillsofLadingNos.58and59in
behalfoftheshippers/consignees,NestorAngeliaandZosimoMercado;[petitioner]wasableto
ascertain,fromtheshippers/consigneesandtherepresentativeoftheLegaspiMarketingthatthe
cargocoveredbyBillofLadingNo.59wasownedbyLegaspiMarketingandconsignedto
ZosimoMercadowhilethatcoveredbyBillofLadingNo.58waspurchasedbyNestorAngelia
fromtheLegaspiMarketing;that[petitioner]approvedtheclaimofLegaspiMarketingforthe
valueofthecargounderBillofLadingNo.59andremittedtoLegaspiMarketingthesaid
amountunderEquitableBankingCorporationCheckNo.20230486datedAugust12,1992,in
theamountofP14,000.00forwhichtherepresentativeoftheLegaspiMarketingsignedVoucher
No.4379,datedAugust12,1992,forthesaidamountofP14,000.00infullpaymentofclaims
underBillofLadingNo.59;that[petitioner]approvedtheclaimofNestorAngeliainthe
amountofP6,500.00butthatsincethelatterowedChesterMarketing,Inc.,forsomepurchases,
[petitioner]merelysetofftheamountduetoNestorAngeliaunderBillofLadingNo.58against
hisaccountwithChesterMarketing,Inc.;[petitioner]lost/[misplaced]theoriginalofthecheck
afteritwasreceivedbyLegaspiMarketing,hence,theproductionofthemicrofilmcopybyNoel
TanyuoftheEquitableBankingCorporation;[petitioner]neverknew,beforesettlingwith
LegaspiMarketingandNestorAngeliathatthecargounderbothBillsofLadingwereinsured
with[respondent],orthatFelicianaLegaspifiledclaimsforthevalueofthecargowith
[respondent]andthatthelatterapprovedtheclaimsofFelicianaLegaspiandpaidthetotal
amountofP148,500.00toher;[petitioner]cametoknow,forthefirsttime,ofthepaymentsby
[respondent]oftheclaimsofFelicianaLegaspiwhenitwasservedwiththesummonsand

complaint,onOctober8,1992;aftersettlinghisclaim,NestorAngeliaxxxexecuted
theReleaseandQuitclaim,datedJuly2,1993,andAffidavit,datedJuly2,1993infavorof
[respondent];hence,[petitioner]wasabsolvedofanyliabilityforthelossofthecargocovered
byBillsofLadingNos.58and59;andevenifitwas,itsliabilityshouldnotexceedthevalueof
thecargoasstatedintheBillsofLading.
[Petitioner]didnotanymorepresentanyotherwitnessesonitsevidenceinchief.xx
x (Citationsomitted)
[9]

Ruling of the Court of Appeals


The CA held that petitioner had failed to prove that the fire which
consumed the vessel and its cargo was caused by something other than its
negligence in the upkeep, maintenance and operation of the vessel.
[10]

Petitioner had paid P14,000 to Legaspi Marketing for the cargo covered by
Bill of Lading No. 59. The CA, however, held that the payment did not
extinguish petitioners obligation to respondent, because there was no
evidence that Feliciana Legaspi (the insured) was the owner/proprietor of
Legaspi Marketing. The CA also pointed out the impropriety of treating the
claim under Bill of Lading No. 58 -- covering cargo valued therein at P6,500 -as a setoff against Nestor Angelias account with Chester Enterprises, Inc.
Finally, it ruled that respondent is not bound by the valuation of the cargo
under the Bills of Lading, x x x nor is the value of the cargo under said Bills of
Lading conclusive on the [respondent]. This is so because, in the first place,
the goods were insured with the [respondent] for the total amount
of P150,000.00, which amount may be considered as the face value of the
goods.
[11]

Hence this Petition.

[12]

Issues
Petitioner raises for our consideration the following alleged errors of the
CA:
I

TheHonorableCourtofAppealserred,grantingarguendothatpetitionerisliable,in
holdingthatpetitionersliabilityshouldbebasedontheactualinsuredvalueofthe

goodsandnotfromactualvaluationdeclaredbytheshipper/consigneeinthebillof
lading.
II

TheCourtofAppealserredinnotaffirmingthefindingsofthePhilippineCoast
Guard,assustainedbythetrialcourtaquo,holdingthatthecauseoflossofthe
aforesaidcargoesunderBillofLadingNos.58and59wasduetoforcemajeureand
duediligencewas[exercised]bypetitionerpriorto,duringandimmediatelyafterthe
fireon[petitioners]vessel.
III

TheCourtofAppealserredinnotholdingthatrespondentUCPBGeneralInsurance
hasnocauseofactionagainstthepetitioner.
[13]

In sum, the issues are: (1) Is petitioner liable for the loss of the goods? (2)
If it is liable, what is the extent of its liability?
This Courts Ruling
The Petition is partly meritorious.
First Issue:
Liability for Loss
Petitioner argues that the cause of the loss of the goods, subject of this
case, was force majeure. It adds that its exercise of due diligence was
adequately proven by the findings of the Philippine Coast Guard.
We are not convinced. The uncontroverted findings of the Philippine Coast
Guard show that the M/V Tandag sank due to a fire, which resulted from a
crack in the auxiliary engine fuel oil service tank. Fuel spurted out of the crack
and dripped to the heating exhaust manifold, causing the ship to burst into
flames. The crack was located on the side of the fuel oil tank, which had a
mere two-inch gap from the engine room walling, thus precluding constant
inspection and care by the crew.
Having originated from an unchecked crack in the fuel oil service tank, the
fire could not have been caused by force majeure. Broadly speaking, force
majeure generally applies to a natural accident, such as that caused by a

lightning, an earthquake, a tempest or a public enemy. Hence, fire is not


considered a natural disaster or calamity. InEastern Shipping Lines, Inc. v.
Intermediate Appellate Court, we explained:
[14]

[15]

xxx.Thismustbesoasitarisesalmostinvariablyfromsomeactofmanorby
humanmeans.ItdoesnotfallwithinthecategoryofanactofGodunlesscausedby
lightingorbyothernaturaldisasterorcalamity.Itmayevenbecausedbytheactual
faultorprivityofthecarrier.
Article1680oftheCivilCode,whichconsidersfireasanextraordinaryfortuitous
eventreferstoleasesorrurallandswhereareductionoftherentisallowedwhen
morethanonehalfofthefruitshavebeenlostduetosuchevent,consideringthatthe
lawadoptsaprotectivepolicytowardsagriculture.
AstheperiloffireisnotcomprehendedwithintheexceptionsinArticle1734,supra,
Article1735oftheCivilCodeprovidesthatinallcasesotherthanthosementionedin
Article1734,thecommoncarriershallbepresumedtohavebeenatfaultortohave
actednegligently,unlessitprovesthatithasobservedtheextraordinarydiligence
requiredbylaw.
Where loss of cargo results from the failure of the officers of a vessel to
inspect their ship frequently so as to discover the existence of cracked parts,
that loss cannot be attributed to force majeure, but to the negligence of those
officials.
[16]

The law provides that a common carrier is presumed to have been


negligent if it fails to prove that it exercised extraordinary vigilance over the
goods it transported.Ensuring the seaworthiness of the vessel is the first step
in exercising the required vigilance. Petitioner did not present sufficient
evidence showing what measures or acts it had undertaken to ensure the
seaworthiness of the vessel. It failed to show when the last inspection and
care of the auxiliary engine fuel oil service tank was made, what the normal
practice was for its maintenance, or some other evidence to establish that it
had exercised extraordinary diligence. It merely stated that constant
inspection and care were not possible, and that the last time the vessel was
dry-docked was in November 1990. Necessarily, in accordance with Article
1735 of the Civil Code, we hold petitioner responsible for the loss of the
goods covered by Bills of Lading Nos. 58 and 59.
[17]

Second Issue:

Extent of Liability
Respondent contends that petitioners liability should be based on the
actual insured value of the goods, subject of this case. On the other hand,
petitioner claims that its liability should be limited to the value declared by the
shipper/consignee in the Bill of Lading.
The records show that the Bills of Lading covering the lost goods contain
the stipulation that in case of claim for loss or for damage to the shipped
merchandise or property, [t]he liability of the common carrier x x x shall not
exceed the value of the goods as appearing in the bill of lading. The attempt
by respondent to make light of this stipulation is unconvincing. As it had the
consignees copies of the Bills of Lading, it could have easily produced those
copies, instead of relying on mere allegations and suppositions. However, it
presented mere photocopies thereof to disprove petitioners evidence showing
the existence of the above stipulation.
[18]

[19]

[20]

A stipulation that limits liability is valid as long as it is not against public


policy. In Everett Steamship Corporation v. Court of Appeals, the Court
stated:
[21]

[22]

Astipulationinthebillofladinglimitingthecommoncarriersliabilityforlossor
destructionofacargotoacertainsum,unlesstheshipperorownerdeclaresagreater
value,issanctionedbylaw,particularlyArticles1749and1750oftheCivilCode
whichprovides:
Art.1749.Astipulationthatthecommoncarriersliabilityislimitedtothevalueofthe
goodsappearinginthebilloflading,unlesstheshipperorownerdeclaresagreater
value,isbinding.
Art.1750.Acontractfixingthesumthatmayberecoveredbytheownerorshipper
fortheloss,destruction,ordeteriorationofthegoodsisvalid,ifitisreasonableand
justunderthecircumstances,andhasbeenfreelyandfairlyagreedupon.
SuchlimitedliabilityclausehasalsobeenconsistentlyupheldbythisCourtina
numberofcases.Thus,inSeaLandService,Inc.vs.IntermediateAppellateCourt,we
ruled:
Itseemsclearthatevenifsaidsection4(5)oftheCarriageofGoodsbySeaActdid
notexist,thevalidityandbindingeffectoftheliabilitylimitationclauseinthebillof
ladinghereareneverthelessfullysustainableonthebasisaloneofthecitedCivil

CodeProvisions.Thatsaidstipulationisjustandreasonableisarguablefromthefact
thatitechoesArt.1750itselfinprovidingalimittoliabilityonlyifagreatervalueis
notdeclaredfortheshipmentinthebilloflading.Toholdotherwisewouldamountto
questioningthejustnessandfairnessofthelawitself,andthistheprivaterespondent
doesnotpretendtodo.Butoverandabovethatconsideration,thejustandreasonable
characterofsuchstipulationisimplicitinitgivingtheshipperorownertheoptionof
avoidingaccrualofliabilitylimitationbythesimpleandsurelyfarfromonerous
expedientofdeclaringthenatureandvalueoftheshipmentinthebilloflading.
Pursuanttotheaforequotedprovisionsoflaw,itisrequiredthatthestipulation
limitingthecommoncarriersliabilityforlossmustbereasonableandjustunderthe
circumstances,andhasbeenfreelyandfairlyagreedupon.
Thebillofladingsubjectofthepresentcontroversyspecificallyprovides,among
others:
18.Allclaimsforwhichthecarriermaybeliableshallbeadjustedandsettledonthe
basisoftheshippersnetinvoicecostplusfreightandinsurancepremiums,ifpaid,and
innoeventshallthecarrierbeliableforanylossofpossibleprofitsorany
consequentialloss.
Thecarriershallnotbeliableforanylossoforanydamagetoorinanyconnection
with,goodsinanamountexceedingOneHundredThousandYeninJapanese
Currency(100,000.00)oritsequivalentinanyothercurrencyperpackageor
customaryfreightunit(whicheverisleast)unlessthevalueofthegoodshigherthan
thisamountisdeclaredinwritingbytheshipperbeforereceiptofthegoodsbythe
carrierandinsertedintheBillofLadingandextrafreightispaidasrequired.
Theabovestipulationsare,toourmind,reasonableandjust.Inthebilloflading,the
carriermadeitclearthatitsliabilitywouldonlybeuptoOneHundredThousand
(Y100,000.00)Yen.However,theshipper,MarumanTrading,hadtheoptionto
declareahighervaluationifthevalueofitscargowashigherthanthelimited
liabilityofthecarrier.Consideringthattheshipperdidnotdeclareahigher
valuation,ithaditselftoblamefornotcomplyingwiththestipulations.(Italics
supplied)
In the present case, the stipulation limiting petitioners liability is not
contrary to public policy. In fact, its just and reasonable character is
evident. The shippers/consignees may recover the full value of the goods by
the simple expedient of declaring the true value of the shipment in the Bill of

Lading. Other than the payment of a higher freight, there was nothing to stop
them from placing the actual value of the goods therein. In fact, they
committed fraud against the common carrier by deliberately undervaluing the
goods in their Bill of Lading, thus depriving the carrier of its proper and just
transport fare.
Concededly, the purpose of the limiting stipulation in the Bill of Lading is to
protect the common carrier. Such stipulation obliges the shipper/consignee to
notify the common carrier of the amount that the latter may be liable for in
case of loss of the goods. The common carrier can then take appropriate
measures -- getting insurance, if needed, to cover or protect itself. This
precaution on the part of the carrier is reasonable and prudent. Hence, a
shipper/consignee that undervalues the real worth of the goods it seeks to
transport does not only violate a valid contractual stipulation, but commits a
fraudulent act when it seeks to make the common carrier liable for more than
the amount it declared in the bill of lading.
Indeed, Zosimo Mercado and Nestor Angelia misled petitioner by
undervaluing the goods in their respective Bills of Lading. Hence, petitioner
was exposed to a risk that was deliberately hidden from it, and from which it
could not protect itself.
It is well to point out that, for assuming a higher risk (the alleged actual
value of the goods) the insurance company was paid the correct higher
premium by Feliciana Legaspi; while petitioner was paid a fee lower than what
it was entitled to for transporting the goods that had been deliberately
undervalued by the shippers in the Bill of Lading. Between the two of them,
the insurer should bear the loss in excess of the value declared in the Bills of
Lading. This is the just and equitable solution.
In Aboitiz Shipping Corporation v. Court of Appeals, the description of the
nature and the value of the goods shipped were declared and reflected in the
bill of lading, like in the present case. The Court therein considered this
declaration as the basis of the carriers liability and ordered payment based on
such amount. Following this ruling, petitioner should not be held liable for
more than what was declared by the shippers/consignees as the value of the
goods in the bills of lading.
[23]

We find no cogent reason to disturb the CAs finding that Feliciana Legaspi
was the owner of the goods covered by Bills of Lading Nos. 58 and
59. Undoubtedly, the goods were merely consigned to Nestor Angelia and
Zosimo Mercado, respectively; thus, Feliciana Legaspi or her subrogee

(respondent) was entitled to the goods or, in case of loss, to compensation


therefor. There is no evidence showing that petitioner paid her for the loss of
those goods. It does not even claim to have paid her.
On the other hand, Legaspi Marketing filed with petitioner a claim for the
lost goods under Bill of Lading No. 59, for which the latter subsequently
paid P14,000. But nothing in the records convincingly shows that the former
was the owner of the goods. Respondent was, however, able to prove that it
was Feliciana Legaspi who owned those goods, and who was thus entitled to
payment for their loss. Hence, the claim for the goods under Bill of Lading No.
59 cannot be deemed to have been extinguished, because payment was
made to a person who was not entitled thereto.
With regard to the claim for the goods that were covered by Bill of Lading
No. 58 and valued at P6,500, the parties have not convinced us to disturb the
findings of the CA that compensation could not validly take place. Thus, we
uphold the appellate courts ruling on this point.
WHEREFORE, the Petition is hereby PARTIALLY GRANTED. The
assailed
Decision
is MODIFIED in
the
sense
that
petitioner
is ORDERED to pay respondent the sums of P14,000 and P6,500, which
represent the value of the goods stated in Bills of Lading Nos. 59 and 58,
respectively. No costs.
SO ORDERED.
G.R. No. L-47822 December 22, 1988
PEDRO DE GUZMAN, petitioner,
vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.
Vicente D. Millora for petitioner.
Jacinto Callanta for private respondent.

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 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 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's principaloccupation 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) holduppers 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.

LOADSTAR SHIPPING CO., INC., petitioner, vs. COURT OF APPEALS and


THE MANILA INSURANCE CO., INC., respondents.
DECISION
DAVIDE, JR., C.J.:

Petitioner Loadstar Shipping Co., Inc. (hereafter LOADSTAR), in this petition for review
on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, seeks to reverse and set aside
the following: (a) the 30 January 1997 decision[1] of the Court of Appeals in CA-G.R. CV No.
36401, which affirmed the decision of 4 October 1991 [2] of the Regional Trial Court of Manila,
Branch 16, in Civil Case No. 85-29110, ordering LOADSTAR to pay private respondent Manila
Insurance Co. (hereafter MIC) the amount of P6,067,178, with legal interest from the filing of
the complaint until fully paid, P8,000 as attorneys fees, and the costs of the suit; and (b) its
resolution of 19 November 1997,[3] denying LOADSTARs motion for reconsideration of said
decision.
The facts are undisputed.
On 19 November 1984, LOADSTAR received on board its M/V Cherokee (hereafter, the
vessel) the following goods for shipment:
a) 705 bales of lawanit hardwood;
b) 27 boxes and crates of tilewood assemblies and others; and
c) 49 bundles of mouldings R & W (3) Apitong Bolidenized.

The goods, amounting to P6,067,178, were insured for the same amount with MIC against
various risks including TOTAL LOSS BY TOTAL LOSS OF THE VESSEL. The vessel, in turn,
was insured by Prudential Guarantee & Assurance, Inc. (hereafter PGAI) for P4 million. On 20
November 1984, on its way to Manila from the port of Nasipit, Agusan del Norte, the vessel,
along with its cargo, sank off Limasawa Island. As a result of the total loss of its shipment, the
consignee made a claim with LOADSTAR which, however, ignored the same. As the insurer,
MIC paid P6,075,000 to the insured in full settlement of its claim, and the latter executed a
subrogation receipt therefor.
On 4 February 1985, MIC filed a complaint against LOADSTAR and PGAI, alleging that
the sinking of the vessel was due to the fault and negligence of LOADSTAR and its employees.It

also prayed that PGAI be ordered to pay the insurance proceeds from the loss of the vessel
directly to MIC, said amount to be deducted from MICs claim from LOADSTAR.
In its answer, LOADSTAR denied any liability for the loss of the shippers goods and
claimed that the sinking of its vessel was due to force majeure. PGAI, on the other hand, averred
that MIC had no cause of action against it, LOADSTAR being the party insured. In any event,
PGAI was later dropped as a party defendant after it paid the insurance proceeds to LOADSTAR.
As stated at the outset, the court a quo rendered judgment in favor of MIC, prompting
LOADSTAR to elevate the matter to the Court of Appeals, which, however, agreed with the trial
court and affirmed its decision in toto.
In dismissing LOADSTARs appeal, the appellate court made the following observations:
1) LOADSTAR cannot be considered a private carrier on the sole ground that there was a single
shipper on that fateful voyage. The court noted that the charter of the vessel was limited to
the ship, but LOADSTAR retained control over its crew.[4]
2) As a common carrier, it is the Code of Commerce, not the Civil Code, which should be
applied in determining the rights and liabilities of the parties.
3) The vessel was not seaworthy because it was undermanned on the day of the voyage. If it had
been seaworthy, it could have withstood the natural and inevitable action of the sea on 20
November 1984, when the condition of the sea was moderate. The vessel sank, not because
of force majeure, but because it was not seaworthy. LOADSTARS allegation that the sinking
was probably due to the convergence of the winds, as stated by a PAGASA expert, was not
duly proven at the trial. The limited liability rule, therefore, is not applicable considering
that, in this case, there was an actual finding of negligence on the part of the carrier.[5]
4) Between MIC and LOADSTAR, the provisions of the Bill of Lading do not apply because
said provisions bind only the shipper/consignee and the carrier. When MIC paid the shipper
for the goods insured, it was subrogated to the latters rights as against the carrier,
LOADSTAR.[6]
5) There was a clear breach of the contract of carriage when the shippers goods never reached
their destination. LOADSTARs defense of diligence of a good father of a family in the
training and selection of its crew is unavailing because this is not a proper or complete
defense in culpa contractual.
6) Art. 361 (of the Code of Commerce) has been judicially construed to mean that when goods
are delivered on board a ship in good order and condition, and the shipowner delivers them
to the shipper in bad order and condition, it then devolves upon the shipowner to both allege
and prove that the goods were damaged by reason of some fact which legally exempts him
from liability.Transportation of the merchandise at the risk and venture of the shipper means
that the latter bears the risk of loss or deterioration of his goods arising from fortuitous
events, force majeure, or the inherent nature and defects of the goods, but not those caused
by the presumed negligence or fault of the carrier, unless otherwise proved .[7]

The errors assigned by LOADSTAR boil down to a determination of the following issues:

(1) Is the M/V Cherokee a private or a common carrier?


(2) Did LOADSTAR observe due and/or ordinary diligence in these premises?

Regarding the first issue, LOADSTAR submits that the vessel was a private carrier because
it was not issued a certificate of public convenience, it did not have a regular trip or schedule nor
a fixed route, and there was only one shipper, one consignee for a special cargo.
In refutation, MIC argues that the issue as to the classification of the M/V Cherokee was not
timely raised below; hence, it is barred by estoppel. While it is true that the vessel had on board
only the cargo of wood products for delivery to one consignee, it was also carrying passengers as
part of its regular business. Moreover, the bills of lading in this case made no mention of any
charter party but only a statement that the vessel was a general cargo carrier. Neither was there
any special arrangement between LOADSTAR and the shipper regarding the shipment of the
cargo. The singular fact that the vessel was carrying a particular type of cargo for one shipper is
not sufficient to convert the vessel into a private carrier.
As regards the second error, LOADSTAR argues that as a private carrier, it cannot be
presumed to have been negligent, and the burden of proving otherwise devolved upon MIC.[8]
LOADSTAR also maintains that the vessel was seaworthy. Before the fateful voyage on 19
November 1984, the vessel was allegedly dry docked at Keppel Philippines Shipyard and was
duly inspected by the maritime safety engineers of the Philippine Coast Guard, who certified that
the ship was fit to undertake a voyage. Its crew at the time was experienced, licensed and
unquestionably competent. With all these precautions, there could be no other conclusion except
that LOADSTAR exercised the diligence of a good father of a family in ensuring the vessels
seaworthiness.
LOADSTAR further claims that it was not responsible for the loss of the cargo, such loss
being due to force majeure. It points out that when the vessel left Nasipit, Agusan del Norte, on
19 November 1984, the weather was fine until the next day when the vessel sank due to strong
waves. MICs witness, Gracelia Tapel, fully established the existence of two typhoons,
WELFRING and YOLING, inside the Philippine area of responsibility. In fact, on 20 November
1984, signal no. 1 was declared over Eastern Visayas, which includes Limasawa Island. Tapel
also testified that the convergence of winds brought about by these two typhoons strengthened
wind velocity in the area, naturally producing strong waves and winds, in turn, causing the vessel
to list and eventually sink.
LOADSTAR goes on to argue that, being a private carrier, any agreement limiting its
liability, such as what transpired in this case, is valid. Since the cargo was being shipped at
owners risk, LOADSTAR was not liable for any loss or damage to the same. Therefore, the
Court of Appeals erred in holding that the provisions of the bills of lading apply only to the
shipper and the carrier, and not to the insurer of the goods, which conclusion runs counter to the
Supreme Courts ruling in the case of St. Paul Fire & Marine Insurance Co. v. Macondray & Co.,
Inc.,[9] and National Union Fire Insurance Company of Pittsburg v. Stolt-Nielsen Phils., Inc.[10]

Finally, LOADSTAR avers that MICs claim had already prescribed, the case having been
instituted beyond the period stated in the bills of lading for instituting the same suits based upon
claims arising from shortage, damage, or non-delivery of shipment shall be instituted within
sixty days from the accrual of the right of action. The vessel sank on 20 November 1984; yet, the
case for recovery was filed only on 4 February 1985.
MIC, on the other hand, claims that LOADSTAR was liable, notwithstanding that the loss of
the cargo was due to force majeure, because the same concurred with LOADSTARs fault or
negligence.
Secondly, LOADSTAR did not raise the issue of prescription in the court below; hence, the
same must be deemed waived.
Thirdly, the limited liability theory is not applicable in the case at bar because LOADSTAR
was at fault or negligent, and because it failed to maintain a seaworthy vessel. Authorizing the
voyage notwithstanding its knowledge of a typhoon is tantamount to negligence.
We find no merit in this petition.
Anent the first assigned error, we hold that LOADSTAR is a common carrier. It is not
necessary that the carrier be issued a certificate of public convenience, and this public character
is not altered by the fact that the carriage of the goods in question was periodic, occasional,
episodic or unscheduled.
In support of its position, LOADSTAR relied on the 1968 case of Home Insurance Co. v.
American Steamship Agencies, Inc.,[11] where this Court held that a common carrier transporting
special cargo or chartering the vessel to a special person becomes a private carrier that is not
subject to the provisions of the Civil Code. Any stipulation in the charter party absolving the
owner from liability for loss due to the negligence of its agent is void only if the strict policy
governing common carriers is upheld. Such policy has no force where the public at large is not
involved, as in the case of a ship totally chartered for the use of a single party. LOADSTAR also
cited Valenzuela Hardwood and Industrial Supply, Inc. v. Court of Appeals [12] and National Steel
Corp. v. Court of Appeals,[13] both of which upheld the Home Insurance doctrine.
These cases invoked by LOADSTAR are not applicable in the case at bar for simple reason
that the factual settings are different. The records do not disclose that the M/V Cherokee, on the
date in question, undertook to carry a special cargo or was chartered to a special person
only. There was no charter party. The bills of lading failed to show any special arrangement, but
only a general provision to the effect that the M/V Cherokee was a general cargo carrier.
[14]
Further, the bare fact that the vessel was carrying a particular type of cargo for one shipper,
which appears to be purely coincidental, is not reason enough to convert the vessel from a
common to a private carrier, especially where, as in this case, it was shown that the vessel was
also carrying passengers.
Under the facts and circumstances obtaining in this case, LOADSTAR fits the definition of a
common carrier under Article 1732 of the Civil Code. In the case of De Guzman v. Court of

Appeals,[15] the Court juxtaposed the statutory definition of common carriers with the peculiar
circumstances of that case, viz.:

TheCivilCodedefinescommoncarriersinthefollowingterms:
Article1732.Commoncarriersarepersons,corporations,firmsorassociations
engagedinthebusinessofcarryingortransportingpassengersorgoodsorboth,by
land,water,orairforcompensation,offeringtheirservicestothepublic.
Theabovearticlemakesnodistinctionbetweenonewhoseprincipalbusinessactivity
isthecarryingofpersonsorgoodsorboth,andonewhodoessuchcarryingonlyas
anancillaryactivity(inlocalidiom,asasideline.Article1732alsocarefullyavoids
makinganydistinctionbetweenapersonorenterpriseofferingtransportationservice
onaregularorscheduledbasisandoneofferingsuchserviceonanoccasional,
episodicorunscheduledbasis.NeitherdoesArticle1732distinguishbetweenacarrier
offeringitsservicestothegeneralpublic,i.e.,thegeneralcommunityorpopulation,
andonewhooffersservicesorsolicitsbusinessonlyfromanarrowsegmentofthe
generalpopulation.WethinkthatArticle1733deliberatelyrefrainedfrommaking
suchdistinctions.
xxx

ItappearstotheCourtthatprivaterespondentisproperlycharacterizedasacommon
carriereventhoughhemerelybackhauledgoodsforothermerchantsfromManilato
Pangasinan,althoughsuchbackhaulingwasdoneonaperiodicoroccasionalrather
thanregularorscheduledmanner,andeventhoughprivate
respondentsprincipaloccupationwasnotthecarriageofgoodsforothers.Thereisno
disputethatprivaterespondentchargedhiscustomersafeeforhaulingtheirgoods;
thatthatfeefrequentlyfellbelowcommercialfreightratesisnotrelevanthere.
TheCourtofAppealsreferredtothefactthatprivaterespondentheldnocertificateof
publicconvenience,andconcludedhewasnotacommoncarrier.Thisispalpable
error.Acertificateofpublicconvenienceisnotarequisitefortheincurringofliability
undertheCivilCodeprovisionsgoverningcommoncarriers.Thatliabilityarisesthe
momentapersonorfirmactsasacommoncarrier,withoutregardtowhetherornot
suchcarrierhasalsocompliedwiththerequirementsoftheapplicableregulatory
statuteandimplementingregulationsandhasbeengrantedacertificateofpublic
convenienceorotherfranchise.Toexemptprivaterespondentfromtheliabilitiesofa
commoncarrierbecausehehasnotsecuredthenecessarycertificateofpublic
convenience,wouldbeoffensivetosoundpublicpolicy;thatwouldbetoreward
privaterespondentpreciselyforfailingtocomplywithapplicablestatutory

requirements.Thebusinessofacommoncarrierimpingesdirectlyandintimately
uponthesafetyandwellbeingandpropertyofthosemembersofthegeneral
communitywhohappentodealwithsuchcarrier.Thelawimposesdutiesand
liabilitiesuponcommoncarriersforthesafetyandprotectionofthosewhoutilize
theirservicesandthelawcannotallowacommoncarriertorendersuchdutiesand
liabilitiesmerelyfacultativebysimplyfailingtoobtainthenecessarypermitsand
authorizations.
Moving on to the second assigned error, we find that the M/V Cherokee was not seaworthy
when it embarked on its voyage on 19 November 1984. The vessel was not even sufficiently
manned at the time. 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 its vessel involved in a contract of carriage is a clear
breach of its duty prescribed in Article 1755 of the Civil Code.[16]
Neither do we agree with LOADSTARs argument that the limited liability theory should be
applied in this case. The doctrine of limited liability does not apply where there was negligence
on the part of the vessel owner or agent. [17] LOADSTAR was at fault or negligent in not
maintaining a seaworthy vessel and in having allowed its vessel to sail despite knowledge of an
approaching typhoon. In any event, it did not sink because of any storm that may be deemed
as force majeure, inasmuch as the wind condition in the area where it sank was determined to be
moderate. Since it was remiss in the performance of its duties, LOADSTAR cannot hide behind
the limited liability doctrine to escape responsibility for the loss of the vessel and its cargo.
LOADSTAR also claims that the Court of Appeals erred in holding it liable for the loss of
the goods, in utter disregard of this Courts pronouncements in St. Paul Fire & Marine Ins. Co. v.
Macondray & Co., Inc.,[18] and National Union Fire Insurance v. Stolt-Nielsen Phils., Inc. [19] It
was ruled in these two cases that after paying the claim of the insured for damages under the
insurance policy, the insurer is subrogated merely to the rights of the assured, that is, it can
recover only the amount that may, in turn, be recovered by the latter. Since the right of the
assured in case of loss or damage to the goods is limited or restricted by the provisions in the
bills of lading, a suit by the insurer as subrogee is necessarily subject to the same limitations and
restrictions. We do not agree. In the first place, the cases relied on by LOADSTAR involved a
limitation on the carriers liability to an amount fixed in the bill of lading which the parties may
enter into, provided that the same was freely and fairly agreed upon (Articles 1749-1750). On the
other hand, the stipulation in the case at bar effectively reduces the common carriers liability for
the loss or destruction of the goods to a degree less than extraordinary (Articles 1744 and 1745),
that is, the carrier is not liable for any loss or damage to shipments made at owners risk.Such
stipulation is obviously null and void for being contrary to public policy.[20] It has been said:

Threekindsofstipulationshaveoftenbeenmadeinabilloflading.Thefirstisone
exemptingthecarrierfromanyandallliabilityforlossordamageoccasionedbyits
ownnegligence.Thesecondisoneprovidingforanunqualifiedlimitationofsuch
liabilitytoanagreedvaluation.Andthethirdisonelimitingtheliabilityofthecarrier

toanagreedvaluationunlesstheshipperdeclaresahighervalueandpaysahigher
rateoffreight.Accordingtoanalmostuniformweightofauthority,thefirstand
secondkindsofstipulationsareinvalidasbeingcontrarytopublicpolicy,butthe
thirdisvalidandenforceable.[21]
Since the stipulation in question is null and void, it follows that when MIC paid the shipper, it
was subrogated to all the rights which the latter has against the common carrier, LOADSTAR.
Neither is there merit to the contention that the claim in this case was barred by
prescription. MICs cause of action had not yet prescribed at the time it was concerned. Inasmuch
as 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. This one-year prescriptive period also applies to the insurer of the
good.[22] In this case, the period for filing the action for recovery has not yet elapsed. Moreover, a
stipulation reducing the one-year period is null and void;[23] it must, accordingly, be struck down.
WHEREFORE, the instant petition is DENIED and the challenged decision of 30 January
1997 of the Court of Appeals in CA-G.R. CV No. 36401 is AFFIRMED. Costs against petitioner.
SO ORDERED.