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Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 149019 August 15, 2006

DELSAN TRANSPORT LINES, INC., Petitioner,


vs.
AMERICAN HOME ASSURANCE CORPORATION, Respondent.

DECISION

GARCIA, J.:

By this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Delsan
Transport Lines, Inc. (Delsan hereafter) assails and seeks to set aside the Decision, 1 dated July 16,
2001, of the Court of Appeals (CA) in CA-G.R. CV No. 40951 affirming an earlier decision of the
Regional Trial Court (RTC) of Manila, Branch IX, in two separate complaints for damages docketed
as Civil Case No. 85-29357 and Civil Case No. 85-30559.

The facts:

Delsan is a domestic corporation which owns and operates the vessel MT Larusan. On the other
hand, respondent American Home Assurance Corporation (AHAC for brevity) is a foreign insurance
company duly licensed to do business in the Philippines through its agent, the American-
International Underwriters, Inc. (Phils.). It is engaged, among others, in insuring cargoes for
transportation within the Philippines.

On August 5, 1984, Delsan received on board MT Larusan a shipment consisting of 1,986.627 k/l
Automotive Diesel Oil (diesel oil) at the Bataan Refinery Corporation for transportation and delivery
to the bulk depot in Bacolod City of Caltex Phils., Inc. (Caltex), pursuant to a Contract of
Afreightment. The shipment was insured by respondent AHAC against all risks under Inland Floater
Policy No. AH-IF64-1011549P and Marine Risk Note No. 34-5093-6.

On August 7, 1984, the shipment arrived in Bacolod City. Immediately thereafter, unloading
operations commenced. The discharging of the diesel oil started at about 1:30 PM of the same day.
However, at about 10:30 PM, the discharging had to be stopped on account of the discovery that the
port bow mooring of the vessel was intentionally cut or stolen by unknown persons. Because there
was nothing holding it, the vessel drifted westward, dragged and stretched the flexible rubber hose
attached to the riser, broke the elbow into pieces, severed completely the rubber hose connected to
the tanker from the main delivery line at sea bed level and ultimately caused the diesel oil to spill into
the sea. To avoid further spillage, the vessels crew tried water flushing to clear the line of the diesel
oil but to no avail. In the meantime, the shore tender, who was waiting for the completion of the
water flushing, was surprised when the tanker signaled a "red light" which meant stop pumping.
Unaware of what happened, the shore tender, thinking that the vessel would, at any time, resume
pumping, did not shut the storage tank gate valve. As all the gate valves remained open, the diesel
oil that was earlier discharged from the vessel into the shore tank backflowed. Due to non-availability
of a pump boat, the vessel could not send somebody ashore to inform the people at the depot about
what happened. After almost an hour, a gauger and an assistant surveyor from the Caltexs Bulk
Depot Office boarded the vessel. It was only then that they found out what had happened.

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Thereafter, the duo immediately went ashore to see to it that the shore tank gate valve was closed.
The loss of diesel oil due to spillage was placed at 113.788 k/l while some 435,081 k/l thereof
backflowed from the shore tank.

As a result of spillage and backflow of diesel oil, Caltex sought recovery of the loss from Delsan, but
the latter refused to pay. As insurer, AHAC paid Caltex the sum of P479,262.57 for spillage,
pursuant to Marine Risk Note No. 34-5093-6, and P1,939,575.37 for backflow of the diesel oil
pursuant to Inland Floater Policy No. AH-1F64-1011549P.

On February 19, 1985, AHAC, as Caltexs subrogee, instituted Civil Case No. 85-29357 against
Delsan before the Manila RTC, Branch 9, for loss caused by the spillage. It likewise prayed that it be
indemnified for damages suffered in the amount of P652,432.57 plus legal interest thereon.

Also, on May 5, 1985, in the Manila RTC, Branch 31, AHAC instituted Civil Case No. 85-30559
against Delsan for the loss caused by the backflow. It likewise prayed that it be awarded the amount
of P1,939,575.37 for damages and reasonable attorneys fees. As counterclaim in both cases,
AHAC prayed for attorneys fees in the amount ofP200,000.00 and P500.00 for every court
appearance.

Since the cause of action in both cases arose out of the same incident and involved the same
issues, the two were consolidated and assigned to Branch 9 of the court.

On August 31, 1989, the trial court rendered its decision 2 in favor of AHAC holding Delsan liable for
the loss of the cargo for its negligence in its duty as a common carrier. Dispositively, the decision
reads:

WHEREFORE, judgment is hereby rendered:

A). In Civil Case No. 85-30559:

(1) Ordering the defendant (petitioner Delsan) to pay plaintiff (respondent AHAC) the sum
of P1,939,575.37 with interest thereon at the legal rate from November 21, 1984 until fully paid and
satisfied; and

(2) Ordering defendant to pay plaintiff the sum of P10,000.00 as and for attorneys fees.

For lack of merit, the counterclaim is hereby dismissed.

B). In Civil Case No. 85-29357:

(1) Ordering defendant to pay plaintiff the sum of P479,262.57 with interest thereon at the legal rate
from February 6, 1985 until fully paid and satisfied;

(2) Ordering defendant to pay plaintiff the sum of P5,000.00 as and for attorneys fees.

For lack of merit, the counterclaim is hereby dismissed.

Costs against the defendant.

SO ORDERED.

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In time, Delsan appealed to the CA whereat its recourse was docketed as CA-G.R. CV No. 40951.

In the herein challenged decision, 3 the CA affirmed the findings of the trial court. In so ruling, the CA
declared that Delsan failed to exercise the extraordinary diligence of a good father of a family in the
handling of its cargo. Applying Article 1736 4 of the Civil Code, the CA ruled that since the
discharging of the diesel oil into Caltex bulk depot had not been completed at the time the losses
occurred, there was no reason to imply that there was actual delivery of the cargo to Caltex, the
consignee. We quote the fallo of the CA decision:

WHEREFORE, premises considered, the appealed Decision of the Regional Trial Court of Manila,
Branch 09 in Civil Case Nos. 85-29357 and 85-30559 is hereby AFFIRMED with a modification that
attorneys fees awarded in Civil Case Nos. 85-29357 and 85-30559 are hereby DELETED.

SO ORDERED.

Delsan is now before the Court raising substantially the same issues proffered before the CA.

Principally, Delsan insists that the CA committed reversible error in ruling that Article 1734 of the
Civil Code cannot exculpate it from liability for the loss of the subject cargo and in not applying the
rule on contributory negligence against Caltex, the shipper-owner of the cargo, and in not taking into
consideration the fact that the loss due to backflow occurred when the diesel oil was already
completely delivered to Caltex.

We are not persuaded.

In resolving this appeal, the Court reiterates the oft-stated doctrine that factual findings of the CA,
affirmatory of those of the trial court, are binding on the Court unless there is a clear showing that
such findings are tainted with arbitrariness, capriciousness or palpable error. 5

Delsan would have the Court absolve it from liability for the loss of its cargo on two grounds. First,
the loss through spillage was partly due to the contributory negligence of Caltex; and Second, the
loss through backflow should not be borne by Delsan because it was already delivered to Caltexs
shore tank.

Common carriers are bound to observe extraordinary diligence in the vigilance over the goods
transported by them. They are presumed to have been at fault or to have acted negligently if the
goods are lost, destroyed or deteriorated. 6 To overcome the presumption of negligence in case of
loss, destruction or deterioration of the goods, the common carrier must prove that it exercised
extraordinary diligence. There are, however, exceptions to this rule. Article 1734 of the Civil Code
enumerates the instances when the presumption of negligence does not attach:

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

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

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

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

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

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5) Order or act of competent public authority.

Both the trial court and the CA uniformly ruled that Delsan failed to prove its claim that there was a
contributory negligence on the part of the owner of the goods Caltex. We see no reason to depart
therefrom. As aptly pointed out by the CA, it had been established that the proximate cause of the
spillage and backflow of the diesel oil was due to the severance of the port bow mooring line of the
vessel and the failure of the shore tender to close the storage tank gate valve even as a check on
the drain cock showed that there was still a product on the pipeline. To the two courts below, the
actuation of the gauger and the escort surveyor, both personnel from the Caltex Bulk Depot, negates
the allegation that Caltex was remiss in its duties. As we see it, the crew of the vessel should have
promptly informed the shore tender that the port mooring line was cut off. However, Delsan did not
do so on the lame excuse that there was no available banca. As it is, Delsans personnel signaled a
"red light" which was not a sufficient warning because such signal only meant that the pumping of
diesel oil had been finished. Neither did the blowing of whistle suffice considering the distance of
more than 2 kilometers between the vessel and the Caltex Bulk Depot, aside from the fact that it was
not the agreed signal. Had the gauger and the escort surveyor from Caltex Bulk Depot not gone
aboard the vessel to make inquiries, the shore tender would have not known what really happened.
The crew of the vessel should have exerted utmost effort to immediately inform the shore tender that
the port bow mooring line was severed.

To be sure, Delsan, as the owner of the vessel, was obliged to prove that the loss was caused by
one of the excepted causes if it were to seek exemption from responsibility. 7 Unfortunately, it
miserably failed to discharge this burden by the required quantum of proof.

Delsans argument that it should not be held liable for the loss of diesel oil due to backflow because
the same had already been actually and legally delivered to Caltex at the time it entered the shore
tank holds no water. It had been settled that the subject cargo was still in the custody of Delsan
because the discharging thereof has not yet been finished when the backflow occurred. Since the
discharging of the cargo into the depot has not yet been completed at the time of the spillage when
the backflow occurred, there is no reason to imply that there was actual delivery of the cargo to the
consignee. Delsan is straining the issue by insisting that when the diesel oil entered into the tank of
Caltex on shore, there was legally, at that moment, a complete delivery thereof to Caltex. To be
sure, the extraordinary responsibility of common carrier lasts from the time the goods are
unconditionally placed in the possession of, and received by, the carrier for transportation until the
same are delivered, actually or constructively, by the carrier to the consignee, or to a person who
has the right to receive them. 8 The discharging of oil products to Caltex Bulk Depot has not yet been
finished, Delsan still has the duty to guard and to preserve the cargo. The carrier still has in it the
responsibility to guard and preserve the goods, a duty incident to its having the goods transported.

To recapitulate, common carriers, from the nature of their business and for reasons of public policy,
are bound to observe extraordinary diligence in vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances of each case. 9 The mere proof
of delivery of goods in good order to the carrier, and their arrival in the place of destination in bad
order, make out a prima facie case against the carrier, so that if no explanation is given as to how
the injury occurred, the carrier must be held responsible. It is incumbent upon the carrier to prove
that the loss was due to accident or some other circumstances inconsistent with its liability. 10

All told, Delsan, being a common carrier, should have exercised extraordinary diligence in the
performance of its duties. Consequently, it is obliged to prove that the damage to its cargo was
caused by one of the excepted causes if it were to seek exemption from responsibility. 11 Having
failed to do so, Delsan must bear the consequences.

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WHEREFORE, petition is DENIED and the assailed decision of the CA is AFFIRMED in toto.

Cost against petitioner.

SO ORDERED.

CANCIO C. GARCIA
Associate Justice

WE CONCUR:

REYNATO S. PUNO
Associate Justice
Chairperson

ANGELINA SANDOVAL-GUTIERREZ RENATO C. CORONA


Associate Justice Associate Justice

ADOLFO S. AZCUNA
Associate Justice

ATTESTATION

I attest that the conclusions in the above decision were reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairperson's Attestation, it
is hereby certified that the conclusions in the above decision were reached in consultation before the
case was assigned to the writer of the opinion of the Court.

ARTEMIO V. PANGANIBAN
Chief Justice

Footnotes

1Penned by Associate Justice Bienvenido L. Reyes with Associate Justices Eubulo G.


Verzola and Marina L. Buzon, concurring; Rollo, pp. 51-66.

2 Rollo, pp. 103-107.

3 Supra note 1.

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4 Art. 1736. The extraordinary responsibility of the common carrier lasts from the time the
goods are unconditionally placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or constructively, by the carrier to the
consignee, or to the person who has a right to receive them, without prejudice to the
provisions of Article 1738.

5Maximino Fuentes v. The Hon. Court of Appeals, Thirteenth Division, and Virgilio Uy,
Brigido

Saguindang, Leoncio Caligang, et al., G.R. No. 109849, February 26, 1997, 268 SCRA 703.

6Asia Lighterage and Shipping, Inc. v. Court of Appeals and Prudential Guarantee And
Assurance, Inc., G.R. No. 147246, August 19, 2003, 403 SCRA 340.

7 Martini Limited v. Macondray and Co., 39 Phil. 934 (1919).

8 Article 1736, Civil Code.

9 Article 1733, Civil Code.

10 Ynchausti Steamship v. Dexter & Unson, 41 Phil. 289 (1920).

11 Supra note 6.

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THIRD DIVISION

[G.R. No. 108897. October 2, 1997]

SARKIES TOURS PHILIPPINES, INC. petitioner vs. HONORABLE


COURT OF APPEALS (TENTH DIVISION), DR. ELINO G.
FORTADES, MARISOL A. FORTADES and FATIMA A.
FORTADES., respondent.

DECISION
ROMERO, J.:

This petition for review is seeking the reversal of the decision of the Court of
Appeals in CA-G.R. CV No. 18979 promulgated on January 13, 1993, as well as its
resolution of February 19, 1993, denying petitioners motion for reconsideration for being
a mere rehash of the arguments raised in the appellants brief.
The case arose from a damage suit filed by private respondents Elino, Marisol, and
Fatima Minerva, all surnamed Fortades, against petitioner for breach of contract of
carriage allegedly attended by bad faith.
On August 31, 1984, Fatima boarded petitioners De Luxe Bus No. 5 in Manila on
her way to Legazpi City. Her brother Raul helped her load three pieces of luggage
containing all of her optometry review books, materials and equipment, trial lenses, trial
contact lenses, passport and visa, as well as her mother Marisols U.S. immigration
(green) card, among other important documents and personal belongings. Her
belongings was kept in the baggage compartment of the bus, but during a stopover at
Daet, it was discovered that all but one bag remained in the open compartment. The
others, including Fatimas things, were missing and could have dropped along the
way.Some of the passengers suggested retracing the route to try to recover the lost
items, but the driver ignored them and proceeded to Legazpi City.
Fatima immediately reported the loss to her mother who, in turn, went to petitioners
office in Legazpi City and later at its head office in Manila. The latter, however, merely
offered her P1,000.00 for each piece of luggage lost, which she turned down. After
returning to Bicol disappointed but not defeated, they asked assistance from the radio
stations and even from Philtranco bus drivers who plied the same route on August
31st. The effort paid off when one of Fatimas bags was recovered. Marisol also reported
the incident to the National Bureau of Investigations field office in Legazpi City, and to
the local police.
On September 20, 1984, respondents, through counsel, formally demanded
satisfaction of their complaint from petitioner. In a letter dated October 1, 1984, the latter

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apologized for the delay and said that (a) team has been sent out to Bicol for the
purpose of recovering or at least getting the full detail[1] of the incident.
After more than nine months of fruitless waiting, respondents decided to file the
case below to recover the value of the remaining lost items, as well as moral and
exemplary damages, attorneys fees and expenses of litigation. They claimed that the
loss was due to petitioners failure to observe extraordinary diligence in the care of
Fatimas luggage and that petitioner dealt with them in bad faith from the
start. Petitioner, on the other hand, disowned any liability for the loss on the ground that
Fatima allegedly did not declare any excess baggage upon boarding its bus.
On June 15, 1988, after trial on the merits, the court a quo adjudged the case in
favor of herein respondents, viz:

PREMISES CONSIDERED, judgment is hereby rendered in favor of the plaintiffs


(herein respondents) and against the herein defendant Sarkies Tours Philippines, Inc.,
ordering the latter to pay to the former the following sums of money, to wit:

1. The sum of P30,000.00 equivalent to the value of the personal belongings of


plaintiff Fatima Minerva Fortades, etc. less the value of one luggage recovered;

2. The sum of P90,000.00 for the transportation expenses, as well as moral damages;

3. The sum of P10,000.00 by way of exemplary damages;

4. The sum of P5,000.00 as attorneys fees; and

5. The sum of P5,000.00 as litigation expenses or a total of One Hundred Forty


Thousand (P140,000.00) Pesos.

to be paid by herein defendant Sarkies Tours Philippines, Inc. to the herein plaintiffs
within 30 days from receipt of this Decision.

SO ORDERED.

On appeal, the appellate court affirmed the trial courts judgment, but deleted the
award of moral and exemplary damages. Thus,

WHEREFORE, premises considered, except as above modified, fixing the award for
transportation expenses at P30,000.00 and the deletion of the award for moral and
exemplary damages, the decision appealed from is AFFIRMED, with costs against
defendant-appellant.

SO ORDERED."

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Its motion for reconsideration having was likewise rejected by the Court of Appeals,
so petitioner elevated its case to this Court for a review.
After a careful scrutiny of the records of this case, we are convinced that the trial
and appellate courts resolved the issues judiciously based on the evidence at hand.
Petitioner claims that Fatima did not bring any piece of luggage with her, and even if
she did, none was declared at the start of the trip. The documentary and testimonial
evidence presented at the trial, however, established that Fatima indeed boarded
petitioners De Luxe Bus No. 5 in the evening of August 31, 1984, and she brought three
pieces of luggage with her, as testified by her brother Raul,[2] who helped her pack her
things and load them on said bus. One of the bags was even recovered with the help of
a Philtranco bus driver. In its letter dated October 1, 1984, petitioner tacitly admitted its
liability by apologizing to respondents and assuring them that efforts were being made
to recover the lost items.
The records also reveal that respondents went to great lengths just to salvage their
loss. The incident was reported to the police, the NBI, and the regional and head offices
of petitioner. Marisol even sought the assistance of Philtranco bus drivers and the radio
stations. To expedite the replacement of her mothers lost U.S. immigration documents,
Fatima also had to execute an affidavit of loss.[3] Clearly, they would not have gone
through all that trouble in pursuit of a fancied loss.
Fatima was not the only one who lost her luggage. Other passengers suffered a
similar fate: Dr. Lita Samarista testified that petitioner offered her P1,000.00 for her lost
baggage and she accepted it;[4] Carleen Carullo-Magno also lost her chemical
engineering review materials, while her brother lost abaca products he was transporting
to Bicol.[5]
Petitioners receipt of Fatimas personal luggage having been thus established, it
must now be determined if, as a common carrier, it is responsible for their loss. Under
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 x x x transported by them,[6] and this liability 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 for
transportation until the same are delivered, actually or constructively, by the carrier
to x x x the person who has a right to receive them,[7] unless the loss is due to any of the
excepted causes under Article 1734 thereof.[8]
The cause of the loss in the case at bar was petitioners negligence in not ensuring
that the doors of the baggage compartment of its bus were securely fastened. As a
result of this lack of care, almost all of the luggage was lost, to the prejudice of the
paying passengers. As the Court of Appeals correctly observed:

x x x. Where the common carrier accepted its passengers baggage for transportation
and even had it placed in the vehicle by its own employee, its failure to collect the
freight charge is the common carriers own lookout. It is responsible for the
consequent loss of the baggage. In the instant case, defendant appellants employee

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even helped Fatima Minerva Fortades and her brother load the luggages/baggages in
the bus baggage compartment, without asking that they be weighed, declared,
receipted or paid for (TSN, August 4, 1986, pp. 29, 34, 54, 57, 70; December 23,
1987, p. 35). Neither was this required of the other passengers (TSN, August 4, 1986,
p. 104; February 5, 1988, p. 13).

Finally, petitioner questions the award of actual damages to respondents. On this


point, we likewise agree with the trial and appellate courts conclusions. There is no
dispute that of the three pieces of luggage of Fatima, only one was recovered. The
other two contained optometry books, materials, equipment, as well as vital documents
and personal belongings. Respondents had to shuttle between Bicol and Manila in their
efforts to be compensated for the loss. During the trial, Fatima and Marisol had to travel
from the United States just to be able to testify. Expenses were also incurred in
reconstituting their lost documents. Under these circumstances, the Court agrees with
the Court of Appeals in awarding P30,000.00 for the lost items and P30,000.00 for the
transportation expenses, but disagrees with the deletion of the award of moral and
exemplary damages which, in view of the foregoing proven facts, with negligence and
bad faith on the fault of petitioner having been duly established, should be granted to
respondents in the amount of P20,000.00 and P5,000.00, respectively.
WHEREFORE, the assailed decision of the Court of Appeals dated January 13,
1993, and its resolution dated February 19, 1993, are hereby AFFIRMED with the
MODIFICATION that petitioner is ordered to pay respondent an additional P20,000.00
as moral damages and P5,000.00 as exemplary damages. Costs against petitioner.
SO ORDERED.
Narvasa, C.J., (Chairman), Melo, Francisco, and Panganiban, JJ., concur.

[1]
Rollo, p. 63.
[2]
TSN, August 4, 1986, pp. 29, 34, 40-41, 54, 57, 70.
[3]
Exhibit E.
[4]
TSN, August 4, 1986, p. 83.
[5]
TSN, February 5, 1988, pp. 8, 14-16.
[6]
Article 1733.
[7]
Article 1736.
[8]
Such as (1) Flood, storm, earthquake, lightning, or other natural disaster or calamity; (2) Act of the
public enemy in war, whether international or civil; (3) Act or omission of the shipper or owner of
the goods; (4) The character of the goods or defects in the packing or in the containers; (5) Order
or act of competent public authority.

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FIRST DIVISION

[G.R. No. 119197. May 16, 1997]

TABACALERA INSURANCE CO., PRUDENTIAL GUARANTEE &


ASSURANCE, INC., and NEW ZEALAND INSURANCE CO.,
LTD.,petitioners, vs. NORTH FRONT SHIPPING SERVICES, INC.,
and COURT OF APPEALS, respondents.

DECISION
BELLOSILLO, J.:

TABACALERA INSURANCE CO., Prudential Guarantee & Assurance, Inc., and


New Zealand Insurance Co., Ltd., in this petition for review on certiorari, assail the 22
December 1994 decision of the Court of Appeals and its Resolution of 16 February
1995 which affirmed the 1 June 1993 decision of the Regional Trial Court dismissing
their complaint for damages against North Front Shipping Services, Inc.
On 2 August 1990, 20,234 sacks of corn grains valued at P3,500,640.00 were
shipped on board North Front 777, a vessel owned by North Front
Shipping Services,Inc. The cargo was consigned to Republic Flour Mills Corporation in
Manila under Bill of Lading No. 001[1] and insured with the herein mentioned insurance
companies.The vessel was inspected prior to actual loading by representatives of the
shipper and was found fit to carry the merchandise. The cargo was covered with
tarpaulins and wooden boards. The hatches were sealed and could only be opened by
representatives of Republic Flour Mills Corporation.
The vessel left Cagayan de Oro City on 2 August 1990 and arrived Manila on 16
August 1990. Republic Flour Mills Corporation was advised of its arrival but it did not
immediately commence the unloading operations. There were days when unloading had
to be stopped due to variable weather conditions and sometimes for no apparent reason
at all. When the cargo was eventually unloaded there was a shortage of 26.333 metric
tons. The remaining merchandise was already moldy, rancid and deteriorating. The
unloading operations were completed on 5 September 1990 or twenty (20) days after
the arrival of the barge at the wharf of Republic Flour Mills Corporation in Pasig City.
Precision Analytical Services, Inc., was hired to examine the corn grains and
determine the cause of deterioration. A Certificate of Analysis was issued indicating that
the corn grains had 18.56% moisture content and the wetting was due to contact with
salt water. The mold growth was only incipient and not sufficient to make the corn grains
toxic and unfit for consumption. In fact the mold growth could still be arrested by drying.
Republic Flour Mills Corporation rejected the entire cargo and formally demanded
from North Front Shipping Services, Inc., payment for the damages suffered by it.The

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demands however were unheeded. The insurance companies were perforce obliged to
pay Republic Flour Mills Corporation P2,189,433.40.
By virtue of the payment made by the insurance companies they were subrogated
to the rights of Republic Flour Mills Corporation. Thusly, they lodged a complaint for
damages against North Front Shipping Services, Inc., claiming that the loss was
exclusively attributable to the fault and negligence of the carrier. The Marine Cargo
Adjusters hired by the insurance companies conducted a survey and found cracks in the
bodega of the barge and heavy concentration of molds on the tarpaulins and wooden
boards. They did not notice any seals in the hatches. The tarpaulins were not brand
new as there were patches on them, contrary to the claim of North Front Shipping
Services, Inc., thus making it possible for water to seep in. They also discovered that
the bulkhead of the barge was rusty.
North Front Shipping Services, Inc., averred in refutation that it could not be made
culpable for the loss and deterioration of the cargo as it was never negligent.Captain
Solomon Villanueva, master of the vessel, reiterated that the barge was inspected prior
to the actual loading and was found adequate and seaworthy. In addition, they were
issued a permit to sail by the Coast Guard. The tarpaulins were doubled and brand new
and the hatches were properly sealed. They did not encounter big waves hence it was
not possible for water to seep in. He further averred that the corn grains were farm wet
and not properly dried when loaded.
The court below dismissed the complaint and ruled that the contract entered into
between North Front Shipping Services, Inc., and Republic Flour Mills Corporation was
a charter-party agreement. As such, only ordinary diligence in the care of goods was
required of North Front Shipping Services, Inc. The inspection of the barge by the
shipper and the representatives of the shipping company before actual loading, coupled
with the Permit to Sail issued by the Coast Guard, sufficed to meet the degree of
diligence required of the carrier.
On the other hand, the Court of Appeals ruled that as a common carrier required to
observe a higher degree of diligence North Front 777 satisfactorily complied with all the
requirements hence was issued a Permit to Sail after proper inspection. Consequently,
the complaint was dismissed and the motion for reconsideration rejected.
The charter-party agreement between North Front Shipping Services, Inc., and
Republic Flour Mills Corporation did not in any way convert the common carrier into a
private carrier. We have already resolved this issue with finality in Planters Products,
Inc. v. Court of Appeals[2] thus -

A 'charter-party' is defined as a contract by which an entire ship, or some principal


part thereof, is let by the owner to another person for a specified time or use; a
contract of affreightment by which the owner of a ship or other vessel lets the whole
or a part of her to a merchant or other person for the conveyance of goods, on a
particular voyage, in consideration of the payment of freight x x x x Contract of
affreightment may either be time charter, wherein the vessel is leased to the charterer
for a fixed period of time, or voyage charter, wherein the ship is leased for a single

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

Upon the other hand, the term 'common or public carrier' is defined in Art. 1732 of the
Civil Code. The definition extends to carriers either by land, air or water which
hold themselves out as ready to engage in carrying goods or transporting passengers
or both for compensation as a public employment and not as a casual occupation x x x
x

It is therefore imperative that a public carrier shall remain as such, notwithstanding


the charter of the whole or portion of a vessel by one or more persons, provided the
charter is limited to the ship only, as in the case of a time-charter or voyage-
charter (underscoring supplied).

North Front Shipping Services, Inc., is a corporation engaged in the business of


transporting cargo and offers its services indiscriminately to the public. It is without
doubt a common carrier. As such it is required to observe extraordinary diligence in its
vigilance over the goods it transports.[3]. When goods placed in its care are lost or
damaged, the carrier is presumed to have been at fault or to have acted
negligently.[4] North Front Shipping Services, Inc., therefore has the burden of proving
that it observed extraordinary diligence in order to avoid responsibility for the lost cargo.
North Front Shipping Services, Inc., proved that the vessel was inspected prior to
actual loading by representatives of the shipper and was found fit to take a load of corn
grains. They were also issued Permit to Sail by the Coast
Guard. The master of the vessel testified that the corn grains were farm wet when
loaded. However, thistestimony was disproved by the clean bill of lading issued by
North Front Shipping Services, Inc., which did not contain a notation that the corn grains
were wet and improperly dried. Having been in the service since 1968, the master of the
vessel would have known at the outset that corn grains that were farm wet and not
properly dried would eventually deteriorate when stored in sealed and hot
compartments as in hatches of a ship. Equipped with this knowledge, the master of the
vessel and his crew should have undertaken precautionary measures to avoid or lessen
the cargo's possible deterioration as they were presumed knowledgeable about the
nature of such cargo. But none of such measures was taken.
In Compania Maritima v. Court of Appeals[5] we ruled -

x x x x 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. Otherwise stated, it is incumbent upon the common carrier to prove that

CMMS| 13
the loss, deterioration or destruction was due to accident or some other circumstances
inconsistent with its liability x x x x

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

In fine, we find that the carrier failed to observe the required extraordinary
diligence in the vigilance over the goods placed in its
care. The proofs presented by NorthFront Shipping Services, Inc., were insufficient to
rebut the prima facie presumption of private respondent's negligence, more so if we
consider the evidence adduced by petitioners.
It is not denied by the insurance companies that the vessel was indeed inspected
before actual loading and that North Front 777 was issued a Permit to Sail. They proved
the fact of shipment and its consequent loss or damage while in the actual possession
of the carrier. Notably, the carrier failed to volunteer any explanation why there was
spoilage and how it occurred. On the other hand, it was shown during the trial that the
vessel had rusty bulkheads and the wooden boards and tarpaulins bore heavy
concentration of molds. The tarpaulins used were not new, contrary to the claim of
North Front Shipping Services, Inc., as there were already several patches on them,
hence, making it highly probable for water to enter.
Laboratory analysis revealed that the corn grains were contaminated with salt
water. North Front Shipping Services, Inc., failed to rebut all these arguments. It did not
even endeavor to establish that the loss, destruction or deterioration of the goods
was due to the following: (a) flood, storm, earthquake, lightning, or other natural disaster
or calamity; (b) act of the public enemy in war, whether international or civil; (c) act or
omission of the shipper or owner of the goods; (d) the character of the goods or defects
in the packing or in the containers; (e) order or act of competent public authority. [6] This
is a closed list. If the cause of destruction, loss or deterioration is other than the
enumerated circumstances, then the carrier is rightly liable therefor.
However, we cannot attribute the destruction, loss or deterioration of the cargo
solely to the carrier. We find the consignee Republic Flour Mills Corporation guilty of
contributory negligence. It was seasonably notified of the arrival of the barge but did not
immediately start the unloading operations. No explanation was proffered by the
consignee as to why there was a delay of six (6) days. Had the unloading been
commenced immediately the loss could have been completely avoided or at least
minimized. As testified to by the chemist who analyzed the corn samples, the mold
growth was only at its incipient stage and could still be arrested by drying. The corn
grains were not yet toxic or unfit for consumption. For its contributory negligence,
Republic Flour Mills Corporation should share at least 40% of the loss.[7]

CMMS| 14
WHEREFORE, the Decision of the Court of Appeals of 22 December 1994 and its
Resolution of 16 February 1995 are REVERSED and SET ASIDE. Respondent North
Front Shipping Services, Inc., is ordered to pay petitioners Tabacalera Insurance Co.,
Prudential Guarantee & Assurance, Inc., and New Zealand Insurance Co.
Ltd.,P1,313,660.00 which is 60% of the amount paid by the insurance companies to
Republic Flour Mills Corporation, plus interest at the rate of 12% per annum from the
time this judgment becomes final until full payment.
SO ORDERED.
Vitug, Kapunan, and Hermosisima, Jr., JJ., concur.
Padilla, J., (Chairman), on leave.

[1]
Annex "A," Original Records, p. 6.
[2]
G.R. No. 101503, 15 September 1993, 226 SCRA 476, 483-484, 486.
[3]
Art. 1733. Common carriers, from the nature of their business and for reasons of public policy, are
bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances of each case.
Such extraordinary diligence in the vigilance over the goods is further expressed in articles 1734,
1735 and 1745, Nos. 5, 6 and 7 while extraordinary diligence for the safety of the passengers is further
set forth in articles 1755 and 1756
[4]
Art. 1735. In all cases other than those mentioned in Nos. 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.
[5]
No. L-31379, 29 August 1988, 164 SCRA 685, 691-692.
[6]
Art. 1734, New Civil Code.
[7]
See Food Terminal, Inc., v. Court of Appeals and Tao Development, Inc., G.R. No. 120097, 23
September 1996.

CMMS| 15
SECOND DIVISION

[G.R. No. 125524. August 25, 1999]

BENITO MACAM doing business under the name and style BEN-MAC ENTERPRISES, petitioner,
vs. COURT OF APPEALS, CHINA OCEAN SHIPPING CO., and/or WALLEM PHILIPPINES
SHIPPING, INC., respondents.

DECISION

BELLOSILLO, J.:

On 4 April 1989 petitioner Benito Macam, doing business under the name and style Ben-Mac
Enterprises, shipped on board the vessel Nen Jiang, owned and operated by respondent China
Ocean Shipping Co., through local agent respondent Wallem Philippines Shipping, Inc. (hereinafter
WALLEM), 3,500 boxes of watermelons valued at US$5,950.00 covered by Bill of Lading No. HKG
99012 and exported through Letter of Credit No. HK 1031/30 issued by National Bank of Pakistan,
Hongkong (hereinafter PAKISTAN BANK) and 1,611 boxes of fresh mangoes with a value of
US$14,273.46 covered by Bill of Lading No. HKG 99013 and exported through Letter of Credit No.
HK 1032/30 also issued by PAKISTAN BANK. The Bills of Lading contained the following pertinent
provision: "One of the Bills of Lading must be surrendered duly endorsed in exchange for the goods
or delivery order."[1] The shipment was bound for Hongkong with PAKISTAN BANK as consignee
and Great Prospect Company of Kowloon, Hongkong (hereinafter GPC) as notify party.

On 6 April 1989, per letter of credit requirement, copies of the bills of lading and commercial invoices
were submitted to petitioner's depository bank, Consolidated Banking Corporation (hereinafter
SOLIDBANK), which paid petitioner in advance the total value of the shipment of US$20,223.46.

Upon arrival in Hongkong, the shipment was delivered by respondent WALLEM directly to GPC, not
to PAKISTAN BANK, and without the required bill of lading having been surrendered. Subsequently,
GPC failed to pay PAKISTAN BANK such that the latter, still in possession of the original bills of
lading, refused to pay petitioner through SOLIDBANK. Since SOLIDBANK already pre-paid
petitioner the value of the shipment, it demanded payment from respondent WALLEM through five
(5) letters but was refused. Petitioner was thus allegedly constrained to return the amount involved
to SOLIDBANK, then demanded payment from respondent WALLEM in writing but to no avail.

On 25 September 1991 petitioner sought collection of the value of the shipment of US$20,223.46 or
its equivalent of P546,033.42 from respondents before the Regional Trial Court of Manila, based on
delivery of the shipment to GPC without presentation of the bills of lading and bank guarantee.

CMMS| 16
Respondents contended that the shipment was delivered to GPC without presentation of the bills of
lading and bank guarantee per request of petitioner himself because the shipment consisted of
perishable goods. The telex dated 5 April 1989 conveying such request read -

AS PER SHPRS REQUEST KINDLY ARRANGE DELIVERY OF A/M SHIPT TO RESPECTIVE


CNEES WITHOUT PRESENTATION OF OB/L[2] and bank guarantee since for prepaid shipt ofrt
charges already fully paid our end x x x x[3]

Respondents explained that it is a standard maritime practice, when immediate delivery is of the
essence, for the shipper to request or instruct the carrier to deliver the goods to the buyer upon
arrival at the port of destination without requiring presentation of the bill of lading as that usually
takes time. As proof thereof, respondents apprised the trial court that for the duration of their two-
year business relationship with petitioner concerning similar shipments to GPC deliveries were
effected without presentation of the bills of lading.[4] Respondents advanced next that the refusal of
PAKISTAN BANK to pay the letters of credit to SOLIDBANK was due to the latter's failure to submit
a Certificate of Quantity and Quality. Respondents counterclaimed for attorneys fees and costs of
suit.

On 14 May 1993 the trial court ordered respondents to pay, jointly and severally, the following
amounts: (1) P546,033.42 plus legal interest from 6 April 1989 until full payment; (2) P10,000.00 as
attorney's fees; and, (3) the costs. The counterclaims were dismissed for lack of merit.[5] The trial
court opined that respondents breached the provision in the bill of lading requiring that "one of the
Bills of Lading must be surrendered duly endorsed in exchange for the goods or delivery order,"
when they released the shipment to GPC without presentation of the bills of lading and the bank
guarantee that should have been issued by PAKISTAN BANK in lieu of the bills of lading. The trial
court added that the shipment should not have been released to GPC at all since the instruction
contained in the telex was to arrange delivery to the respective consignees and not to any party. The
trial court observed that the only role of GPC in the transaction as notify party was precisely to be
notified of the arrival of the cargoes in Hongkong so it could in turn duly advise the consignee.

Respondent Court of Appeals appreciated the evidence in a different manner. According to it, as
established by previous similar transactions between the parties, shipped cargoes were sometimes
actually delivered not to the consignee but to notify party GPC without need of the bills of lading or
bank guarantee.[6] Moreover, the bills of lading were viewed by respondent court to have been
properly superseded by the telex instruction and to implement the instruction, the delivery of the
shipment must be to GPC, the real importer/buyer of the goods as shown by the export invoices,[7]
and not to PAKISTAN BANK since the latter could very well present the bills of lading in its
possession; likewise, if it were the PAKISTAN BANK to which the cargoes were to be strictly
delivered it would no longer be proper to require a bank guarantee. Respondent court noted that
besides, GPC was listed as a consignee in the telex. It observed further that the demand letter of
petitioner to respondents never complained of misdelivery of goods. Lastly, respondent court found
that petitioners claim of having reimbursed the amount involved to SOLIDBANK was
unsubstantiated. Thus, on 13 March 1996 respondent court set aside the decision of the trial court

CMMS| 17
and dismissed the complaint together with the counterclaims.[8] On 5 July 1996 reconsideration was
denied.[9]

Petitioner submits that the fact that the shipment was not delivered to the consignee as stated in the
bill of lading or to a party designated or named by the consignee constitutes a misdelivery thereof.
Moreover, petitioner argues that from the text of the telex, assuming there was such an instruction,
the delivery of the shipment without the required bill of lading or bank guarantee should be made
only to the designated consignee, referring to PAKISTAN BANK.

We are not persuaded. The submission of petitioner that the fact that the shipment was not delivered
to the consignee as stated in the Bill of Lading or to a party designated or named by the consignee
constitutes a misdelivery thereof is a deviation from his cause of action before the trial court. It is
clear from the allegation in his complaint that it does not deal with misdelivery of the cargoes but of
delivery to GPC without the required bills of lading and bank guarantee -

6. The goods arrived in Hongkong and were released by the defendant Wallem directly to the
buyer/notify party, Great Prospect Company and not to the consignee, the National Bank of
Pakistan, Hongkong, without the required bills of lading and bank guarantee for the release of the
shipment issued by the consignee of the goods x x x x[10]

Even going back to an event that transpired prior to the filing of the present case or when petitioner
wrote respondent WALLEM demanding payment of the value of the cargoes, misdelivery of the
cargoes did not come into the picture -

We are writing you on behalf of our client, Ben-Mac Enterprises who informed us that Bills of Lading
No. 99012 and 99013 with a total value of US$20,223.46 were released to Great Prospect,
Hongkong without the necessary bank guarantee. We were further informed that the consignee of
the goods, National Bank of Pakistan, Hongkong, did not release or endorse the original bills of
lading. As a result thereof, neither the consignee, National Bank of Pakistan, Hongkong, nor the
importer, Great Prospect Company, Hongkong, paid our client for the goods x x x x[11]

At any rate, we shall dwell on petitioners submission only as a prelude to our discussion on the
imputed liability of respondents concerning the shipped goods. Article 1736 of the Civil Code
provides -

Art. 1736. The extraordinary responsibility of the common carriers lasts from the time the goods are
unconditionally placed in the possession of, and received by the carrier for transportation until the

CMMS| 18
same are delivered, actually or constructively, by the carrier to the consignee, or to the person who
has a right to receive them, without prejudice to the provisions of article 1738.[12]

We emphasize that the extraordinary responsibility of the common carriers lasts until actual or
constructive delivery of the cargoes to the consignee or to the person who has a right to receive
them. PAKISTAN BANK was indicated in the bills of lading as consignee whereas GPC was the
notify party. However, in the export invoices GPC was clearly named as buyer/importer. Petitioner
also referred to GPC as such in his demand letter to respondent WALLEM and in his complaint
before the trial court. This premise draws us to conclude that the delivery of the cargoes to GPC as
buyer/importer which, conformably with Art. 1736 had, other than the consignee, the right to receive
them[13] was proper.

The real issue is whether respondents are liable to petitioner for releasing the goods to GPC without
the bills of lading or bank guarantee.

Respondents submitted in evidence a telex dated 5 April 1989 as basis for delivering the cargoes to
GPC without the bills of lading and bank guarantee. The telex instructed delivery of various
shipments to the respective consignees without need of presenting the bill of lading and bank
guarantee per the respective shippers request since for prepaid shipt ofrt charges already fully paid.
Petitioner was named therein as shipper and GPC as consignee with respect to Bill of Lading Nos.
HKG 99012 and HKG 99013. Petitioner disputes the existence of such instruction and claims that
this evidence is self-serving.

From the testimony of petitioner, we gather that he has been transacting with GPC as buyer/importer
for around two (2) or three (3) years already. When mangoes and watermelons are in season, his
shipment to GPC using the facilities of respondents is twice or thrice a week. The goods are
released to GPC. It has been the practice of petitioner to request the shipping lines to immediately
release perishable cargoes such as watermelons and fresh mangoes through telephone calls by
himself or his people. In transactions covered by a letter of credit, bank guarantee is normally
required by the shipping lines prior to releasing the goods. But for buyers using telegraphic transfers,
petitioner dispenses with the bank guarantee because the goods are already fully paid. In his several
years of business relationship with GPC and respondents, there was not a single instance when the
bill of lading was first presented before the release of the cargoes. He admitted the existence of the
telex of 3 July 1989 containing his request to deliver the shipment to the consignee without
presentation of the bill of lading[14] but not the telex of 5 April 1989 because he could not remember
having made such request.

Consider pertinent portions of petitioners testimony -

CMMS| 19
Q: Are you aware of any document which would indicate or show that your request to the defendant
Wallem for the immediate release of your fresh fruits, perishable goods, to Great Prospect without
the presentation of the original Bill of Lading?

A: Yes, by telegraphic transfer, which means that it is fully paid. And I requested the immediate
release of the cargo because there was immediate payment.

Q And you are referring, therefore, to this copy Telex release that you mentioned where your
Companys name appears Ben-Mac?

Atty. Hernandez: Just for the record, Your Honor, the witness is showing a Bill of Lading referring to
SKG (sic) 93023 and 93026 with Great Prospect Company.

Atty. Ventura:

Q: Is that the telegraphic transfer?

A: Yes, actually, all the shippers partially request for the immediate release of the goods when they
are perishable. I thought Wallem Shipping Lines is not neophyte in the business. As far as LC is
concerned, Bank guarantee is needed for the immediate release of the goods x x x x[15]

Q: Mr. Witness, you testified that it is the practice of the shipper of the perishable goods to ask the
shipping lines to release immediately the shipment. Is that correct?

A: Yes, sir.

Q: Now, it is also the practice of the shipper to allow the shipping lines to release the perishable
goods to the importer of goods without a Bill of Lading or Bank guarantee?

A: No, it cannot be without the Bank Guarantee.

Atty. Hernandez:

Q: Can you tell us an instance when you will allow the release of the perishable goods by the
shipping lines to the importer without the Bank guarantee and without the Bill of Lading?

A: As far as telegraphic transfer is concerned.

Q: Can you explain (to) this Honorable Court what telegraphic transfer is?

A: Telegraphic transfer, it means advance payment that I am already fully paid x x x x

Q: Mr. Macam, with regard to Wallem and to Great Prospect, would you know and can you recall
that any of your shipment was released to Great Prospect by Wallem through telegraphic transfer?

CMMS| 20
A: I could not recall but there were so many instances sir.

Q: Mr. Witness, do you confirm before this Court that in previous shipments of your goods through
Wallem, you requested Wallem to release immediately your perishable goods to the buyer?

A: Yes, that is the request of the shippers of the perishable goods x x x x[16]

Q: Now, Mr. Macam, if you request the Shipping Lines for the release of your goods immediately
even without the presentation of OBL, how do you course it?

A: Usually, I call up the Shipping Lines, sir x x x x[17]

Q: You also testified you made this request through phone calls. Who of you talked whenever you
made such phone call?

A: Mostly I let my people to call, sir. (sic)

Q: So everytime you made a shipment on perishable goods you let your people to call? (sic)

A: Not everytime, sir.

Q: You did not make this request in writing?

A: No, sir. I think I have no written request with Wallem x x x x[18]

Against petitioners claim of not remembering having made a request for delivery of subject cargoes
to GPC without presentation of the bills of lading and bank guarantee as reflected in the telex of 5
April 1989 are damaging disclosures in his testimony. He declared that it was his practice to ask the
shipping lines to immediately release shipment of perishable goods through telephone calls by
himself or his people. He no longer required presentation of a bill of lading nor of a bank guarantee
as a condition to releasing the goods in case he was already fully paid. Thus, taking into account
that subject shipment consisted of perishable goods and SOLIDBANK pre-paid the full amount of the
value thereof, it is not hard to believe the claim of respondent WALLEM that petitioner indeed
requested the release of the goods to GPC without presentation of the bills of lading and bank
guarantee.

The instruction in the telex of 5 April 1989 was to deliver the shipment to respective consignees. And
so petitioner argues that, assuming there was such an instruction, the consignee referred to was
PAKISTAN BANK. We find the argument too simplistic. Respondent court analyzed the telex in its
entirety and correctly arrived at the conclusion that the consignee referred to was not PAKISTAN
BANK but GPC -

There is no mistake that the originals of the two (2) subject Bills of Lading are still in the possession
of the Pakistani Bank. The appealed decision affirms this fact. Conformably, to implement the said
telex instruction, the delivery of the shipment must be to GPC, the notify party or real importer/buyer

CMMS| 21
of the goods and not the Pakistani Bank since the latter can very well present the original Bills of
Lading in its possession. Likewise, if it were the Pakistani Bank to whom the cargoes were to be
strictly delivered, it will no longer be proper to require a bank guarantee as a substitute for the Bill of
Lading. To construe otherwise will render meaningless the telex instruction. After all, the cargoes
consist of perishable fresh fruits and immediate delivery thereof to the buyer/importer is essentially a
factor to reckon with. Besides, GPC is listed as one among the several consignees in the telex
(Exhibit 5-B) and the instruction in the telex was to arrange delivery of A/M shipment (not any party)
to respective consignees without presentation of OB/L and bank guarantee x x x x[19]

Apart from the foregoing obstacles to the success of petitioners cause, petitioner failed to
substantiate his claim that he returned to SOLIDBANK the full amount of the value of the cargoes. It
is not far-fetched to entertain the notion, as did respondent court, that he merely accommodated
SOLIDBANK in order to recover the cost of the shipped cargoes from respondents. We note that it
was SOLIDBANK which initially demanded payment from respondents through five (5) letters.
SOLIDBANK must have realized the absence of privity of contract between itself and respondents.
That is why petitioner conveniently took the cudgels for the bank.

In view of petitioners utter failure to establish the liability of respondents over the cargoes, no
reversible error was committed by respondent court in ruling against him.

WHEREFORE, the petition is DENIED. The decision of respondent Court of Appeals of 13 March
1996 dismissing the complaint of petitioner Benito Macam and the counterclaims of respondents
China Ocean Shipping Co. and/or Wallem Philippines Shipping, Inc., as well as its resolution of 5
July 1996 denying reconsideration, is AFFIRMED.

SO ORDERED.

Mendoza, Quisumbing, and Buena, JJ., concur.

[1] Exhs. A and B; Records, pp. 84-85.

[2] Original Bill of Lading.

[3]3 Exh. 5-A; Records, p. 146.

[4] Exh. 6; id., p. 147.

CMMS| 22
[5] Decision penned by Judge Napoleon R. Flojo, RTC-Br. 2, Manila; Rollo, p. 61.

[6] See Note 3.

[7] Exhs. N-2 and O-2; Records, pp. 108 and 111.

[8] Decision penned by Justice Conrado M. Vasquez Jr. with the concurrence of Justices Gloria C.
Paras and Angelina Sandoval Gutierrez; Rollo, p. 45.

[9] Rollo, p. 48.

[10] Records, p. 3.

[11] Exh. K; Records, p. 100.

[12] Art. 1738. The extraordinary liability of the common carrier continues to be operative even
during the time the goods are stored in a warehouse of the carrier at the place of destination, until
the consignee has been advised of the arrival of the goods and has had reasonable opportunity
thereafter to remove them or otherwise dispose of them.

[13] Eastern Shipping Lines, Inc. v. Court of Appeals, G. R. No. 80936, 17 October 1990, 190 SCRA
512; Samar Mining Company, Inc. v. Nordeutscher Lloyd, No. L-28673, 23 October 1984, 132 SCRA
529.

[14] See Note 3.

[15] TSN, 6 November 1992, pp. 24-25.

[16] Id., pp. 27-28.

[17] Id., p. 31.

[18] TSN, 18 November 1992, pp. 8-9.

[19] Rollo, pp. 42-43.

CMMS| 23
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-28673 October 23, 1984

SAMAR MINING COMPANY, INC., plaintiff-appellee,


vs.
NORDEUTSCHER LLOYD and C.F. SHARP & COMPANY, INC., defendants-appellants.

CUEVAS, J.: +. wph!1

This is an appeal taken directly to Us on certiorari from the decision of the defunct Court of First
Instance of Manila, finding defendants carrier and agent, liable for the value of goods never
delivered to plaintiff consignee. The issue raised is a pure question of law, which is, the liability of the
defendants, now appellants, under the bill of lading covering the subject shipment.

The case arose from an importation made by plaintiff, now appellee, SAMAR MINING COMPANY,
INC., of one (1) crate Optima welded wedge wire sieves through the M/S SCHWABENSTEIN a
vessel owned by defendant-appellant NORDEUTSCHER LLOYD, (represented in the Philippines by
its agent, C.F. SHARP & CO., INC.), which shipment is covered by Bill of Lading No. 18 duly issued
to consignee SAMAR MINING COMPANY, INC. Upon arrival of the aforesaid vessel at the port of
Manila, the aforementioned importation was unloaded and delivered in good order and condition to
the bonded warehouse of AMCYL. 1 The goods were however never delivered to, nor received by, the consignee at the port of
destination Davao.

When the letters of complaint sent to defendants failed to elicit the desired response, consignee
herein appellee, filed a formal claim for P1,691.93, the equivalent of $424.00 at the prevailing rate of
exchange at that time, against the former, but neither paid. Hence, the filing of the instant suit to
enforce payment. Defendants-appellants brought in AMCYL as third party defendant.

The trial court rendered judgment in favor of plaintiff, ordering defendants to pay the amount of
P1,691.93 plus attorney's fees and costs. However, the Court stated that defendants may recoup
whatever they may pay plaintiff by enforcing the judgment against third party defendant AMCYL
which had earlier been declared in default. Only the defendants appealed from said decision.

The issue at hand demands a close scrutiny of Bill of Lading No. 18 and its various clauses and
stipulations which should be examined in the light of pertinent legal provisions and settled
jurisprudence. This undertaking is not only proper but necessary as well because of the nature of the
bill of lading which operates both as a receipt for the goods; and more importantly, as a contract to
transport and deliver the same as stipulated therein. 2 Being a contract, it is the law between the
parties thereto 3 who are bound by its terms and conditions 4 provided that these are not contrary to law,
morals, good customs, public order and public policy. 5

Bill of Lading No. 18 sets forth in page 2 thereof 6 that one (1) crate of Optima welded wedge wire
sieves was received by the carrier NORDEUTSCHER LLOYD at the "port of loading" which is Bremen,
Germany, while the freight had been prepaid up to the port of destination or the "port of discharge of
goods in this case, Davao, the carrier undertook to transport the goods in its vessel, M/S

CMMS| 24
SCHWABENSTEIN only up to the "port of discharge from ship-Manila. Thereafter, the goods were to be
transshipped by the carrier to the port of destination or "port of discharge of goods The stipulation is
plainly indicated on the face of the bill which contains the following phrase printed below the space
provided for the port of discharge from ship", thus: t.hqw

if goods are to be transshipped at port of discharge, show destination under the


column for "description of contents" 7

As instructed above, the following words appeared typewritten under the column for "description of
contents": t.hqw

PORT OF DISCHARGE OF GOODS: DAVAO


FREIGHT PREPAID 8

It is clear, then, that in discharging the goods from the ship at the port of Manila, and delivering the
same into the custody of AMCYL, the bonded warehouse, appellants were acting in full accord with
the contractual stipulations contained in Bill of Lading No. 18. The delivery of the goods to AMCYL
was part of appellants' duty to transship the goods from Manila to their port of destination-Davao.
The word "transship" means: t.hqw

to transfer for further transportation from one ship or conveyance to another 9

The extent of appellant carrier's responsibility and/or liability in the transshipment of the goods in
question are spelled out and delineated under Section 1, paragraph 3 of Bill of Lading No. 18, to
wit:t.hqw

The carrier shall not be liable in any capacity whatsoever for any delay, loss or
damage occurring before the goods enter ship's tackle to be loaded or after the
goods leave ship's tackle to be discharged, transshipped or forwarded ... (Emphasis
supplied)

and in Section 11 of the same Bill, which provides: t.hqw

Whenever the carrier or m aster may deem it advisable or in any case where the
goods are placed at carrier's disposal at or consigned to a point where the ship does
not expect to load or discharge, the carrier or master may, without notice, forward the
whole or any part of the goods before or after loading at the original port of shipment,
... This carrier, in making arrangements for any transshipping or forwarding vessels
or means of transportation not operated by this carrier shall be considered solely the
forwarding agent of the shipper and without any other responsibility whatsoever even
though the freight for the whole transport has been collected by him. ... Pending or
during forwarding or transshipping the carrier may store the goods ashore or afloat
solely as agent of the shipper and at risk and expense of the goods and the carrier
shall not be liable for detention nor responsible for the acts, neglect, delay or failure
to act of anyone to whom the goods are entrusted or delivered for storage, handling
or any service incidental thereto (Emphasis supplied) 10

Defendants-appellants now shirk liability for the loss of the subject goods by claiming that they have
discharged the same in full and good condition unto the custody of AMCYL at the port of discharge
from ship Manila, and therefore, pursuant to the aforequoted stipulation (Sec. 11) in the bill of
lading, their responsibility for the cargo had ceased. 11

CMMS| 25
We find merit in appellants' stand. The validity of stipulations in bills of lading exempting the carrier
from liability for loss or damage to the goods when the same are not in its actual custody has been
upheld by Us in PHOENIX ASSURANCE CO., LTD. vs. UNITED STATES LINES, 22 SCRA 674
(1968). Said case matches the present controversy not only as to the material facts but more
importantly, as to the stipulations contained in the bill of lading concerned. As if to underline their
awesome likeness, the goods in question in both cases were destined for Davao, but were
discharged from ship in Manila, in accordance with their respective bills of lading.

The stipulations in the bill of lading in the PHOENIX case which are substantially the same as the
subject stipulations before Us, provides: t.hqw

The carrier shall not be liable in any capacity whatsoever for any loss or damage to
the goods while the goods are not in its actual custody. (Par. 2, last subpar.)

xxx xxx xxx

The carrier or master, in making arrangements with any person for or in connection
with all transshipping or forwarding of the goods or the use of any means of
transportation or forwarding of goods not used or operated by the carrier, shall be
considered solely the agent of the shipper and consignee and without any other
responsibility whatsoever or for the cost thereof ... (Par. 16). 12

Finding the above stipulations not contrary to law, morals, good customs, public order or public
policy, We sustained their validity 13 Applying said stipulations as the law between the parties in the aforecited case, the Court
concluded that: t.hqw

... The short form Bill of Lading ( ) states in no uncertain terms that the port of
discharge of the cargo is Manila, but that the same was to be transshipped beyond
the port of discharge to Davao City. Pursuant to the terms of the long form Bill of
Lading ( ), appellee's responsibility as a common carrier ceased the moment the
goods were unloaded in Manila and in the matter of transshipment, appellee acted
merely as an agent of the shipper and consignee. ... (Emphasis supplied) 14

Coming now to the case before Us, We hold, that by the authority of the above pronouncements,
and in conformity with the pertinent provisions of the New Civil Code, Section 11 of Bill of Lading No.
18 and the third paragraph of Section 1 thereof are valid stipulations between the parties insofar as
they exempt the carrier from liability for loss or damage to the goods while the same are not in the
latter's actual custody.

The liability of the common carrier for the loss, destruction or deterioration of goods transported from
a foreign country to the Philippines is governed primarily by the New Civil Code. 15 In all matters not
regulated by said Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and by special
laws. 16 A careful perusal of the provisions of the New Civil Code on common carriers (Section 4, Title VIII, Book IV) directs our attention to
Article 1736 thereof, which reads: t.hqw

Article 1736. The extraordinary responsibility of the common carrier lasts from the
time the goods are unconditionally placed in the possession of, and received by the
carrier for transportation until the same are delivered, actually or constructively, by
the carrier to the consignee, or to the person who has a right to receive them, without
prejudice to the provisions of article 1738.

Article 1738 referred to in the foregoing provision runs thus: t.hqw

CMMS| 26
Article 1738. The extraordinary liability of the common carrier continues to be
operative even during the time the goods are stored in a warehouse of the carrier at
the place of destination, until the consignee has been advised of the arrival of the
goods and has had reasonable opportunity thereafter to remove them or otherwise
dispose of them.

There is no doubt that Art. 1738 finds no applicability to the instant case. The said article
contemplates a situation where the goods had already reached their place of destination and are
stored in the warehouse of the carrier. The subject goods were still awaiting transshipment to their
port of destination, and were stored in the warehouse of a third party when last seen and/or heard of.
However, Article 1736 is applicable to the instant suit. Under said article, the carrier may be relieved
of the responsibility for loss or damage to the goods upon actual or constructive delivery of the same
by the carrier to the consignee, or to the person who has a right to receive them. In sales, actual
delivery has been defined as the ceding of corporeal possession by the seller, and the actual
apprehension of corporeal possession by the buyer or by some person authorized by him to receive
the goods as his representative for the purpose of custody or disposal. 17 By the same token, there is actual
delivery in contracts for the transport of goods when possession has been turned over to the consignee or to his duly authorized agent and a
reasonable time is given him to remove the goods. 18 The court a quo found that there was actual delivery to the consignee through its duly
authorized agent, the carrier.

It becomes necessary at this point to dissect the complex relationship that had developed between
appellant and appellee in the course of the transactions that gave birth to the present suit. Two
undertakings appeared embodied and/or provided for in the Bill of Lading 19 in question. The first is FOR THE
TRANSPORT OF GOODS from Bremen, Germany to Manila. The second, THE TRANSSHIPMENT OF THE SAME GOODS from Manila to
Davao, with appellant acting as agent of the consignee. 20 At the hiatus between these two undertakings of appellant
which is the moment when the subject goods are discharged in Manila, its personality changes from that
of carrier to that of agent of the consignee. Thus, the character of appellant's possession also changes,
from possession in its own name as carrier, into possession in the name of consignee as the latter's
agent. Such being the case, there was, in effect, actual delivery of the goods from appellant as carrier to
the same appellant as agent of the consignee. Upon such delivery, the appellant, as erstwhile carrier,
ceases to be responsible for any loss or damage that may befall the goods from that point onwards. This
is the full import of Article 1736, as applied to the case before Us.

But even as agent of the consignee, the appellant cannot be made answerable for the value of the
missing goods, It is true that the transshipment of the goods, which was the object of the agency,
was not fully performed. However, appellant had commenced said performance, the completion of
which was aborted by circumstances beyond its control. An agent who carries out the orders and
instructions of the principal without being guilty of negligence, deceit or fraud, cannot be held
responsible for the failure of the principal to accomplish the object of the agency, 21 This can be
gleaned from the following provisions of the New Civil Code on the obligations of the agent: t.hqw

Article 1884. The agent is bound by his acceptance to carry out the agency, and is
liable for the damages which, through his non-performance, the principal may suffer.

xxx xxx xxx

Article 1889. The agent shall be liable for damages if, there being a conflict between
his interests and those of the principal, he should prefer his own.

Article 1892. The agent may appoint a substitute if the principal has not prohibited
him from doing so; but he shall be responsible for the acts of the substitute:

(1) When he was not given the power to appoint one;

CMMS| 27
(2) When he was given such power but without designating the person and the
person appointed was notoriously incompetent or insolvent.

xxx xxx xxx

Article 1909. The agent is responsible not only for fraud, but also for negligence
which shall be judged with more or less rigor by the courts, according to whether the
agency was or was not for a compensation.

The records fail to reveal proof of negligence, deceit or fraud committed by appellant or by its
representative in the Philippines. Neither is there any showing of notorious incompetence or
insolvency on the part of AMCYT, which acted as appellant's substitute in storing the goods awaiting
transshipment.

The actions of appellant carrier and of its representative in the Philippines being in full faith with the
lawful stipulations of Bill of Lading No. 18 and in conformity with the provisions of the New Civil Code
on common carriers, agency and contracts, they incur no liability for the loss of the goods in
question.

WHEREFORE, the appealed decision is hereby REVERSED. Plaintiff-appellee's complaint is hereby


DISMISSED.

No costs.

SO ORDERED. 1w ph1.t

Makasiar (Chairman), Guerrero, Abad Santos and Escolin, concur.

Aquino, J., concurs in the result.

Concepcion Jr., J., took no part.

Footnotes t.hqw

1 Transcript of Stenographic Notes, August 3, 1967, pp. 1-2.

2 12 Am Ju 2d p. 782; Phoenix Ass. Co., Ltd. vs. United States Lines, 22 SCRA 674,
678.

3 Article 1159, New Civil Code.

4 Article 1308, New Civil Code.

5 Article 1306, New Civil Code.

6 Exhibit "A".

7 Ibid,

CMMS| 28
8 Ibid.

9 Webster's Third International Dictionary, (unabridged).

10 Op cit.

11 Appellants' Brief page 5

12 Phoenix Assurance Co., Ltd. vs. United States Lines, 22 SCRA 674, 679-680.

13 Ibid., page 682.

14 Ibid., page 681.

15 Articles 1732, 1753 and 1766, New Civil Code.

16 Article 1766, New Civil Code.

17 Moreno, Philippine Law Dictionary, citing Andrada vs. Argel, 65 O.G. 1054.

18 Words and Phrases 676, citing Yazoo & MVR Company vs. Altman, 187 SW 656,
657.

19 Bill of Lading No. 18, page 2.

20 Bill of Lading No. 18, Section 11.

21 Gutierrez Hermanos vs. Oria Hermanos, 30 Phil. 491.

CMMS| 29
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-36481-2 October 23, 1982

AMPARO C. SERVANDO, CLARA UY BICO, plaintiffs-appellees,


vs.
PHILIPPINE STEAM NAVIGATION CO., defendant-appellant.

Zoilo de la Cruz, Jr. & Associate for plaintiff-appellee Amparo Servando.

Benedicto, Sumbingco & Associate for appellee Clara Uy Bico.

Ross, Salcedo, del Rosario, Bito & Misa for defendant-appellant.

ESCOLIN, J.:

This appeal, originally brought to the Court of Appeals, seeks to set aside the decision of the Court
of First Instance of Negros Occidental in Civil Cases Nos. 7354 and 7428, declaring appellant
Philippine Steam Navigation liable for damages for the loss of the appellees' cargoes as a result of a
fire which gutted the Bureau of Customs' warehouse in Pulupandan, Negros Occidental.

The Court of Appeals certified the case to Us because only pure questions of law are raised therein.

The facts culled from the pleadings and the stipulations submitted by the parties are as follows:

On November 6, 1963, appellees Clara Uy Bico and Amparo Servando loaded on board the
appellant's vessel, FS-176, for carriage from Manila to Pulupandan, Negros Occidental, the following
cargoes, to wit:

Clara Uy Bico

1,528 cavans of rice valued

at P40,907.50;

Amparo Servando

44 cartons of colored paper,

toys and general merchandise valued at P1,070.50;

as evidenced by the corresponding bills of lading issued by the appellant. 1

CMMS| 30
Upon arrival of the vessel at Pulupandan, in the morning of November 18, 1963, the cargoes were
discharged, complete and in good order, unto the warehouse of the Bureau of Customs. At about
2:00 in the afternoon of the same day, said warehouse was razed by a fire of unknown origin,
destroying appellees' cargoes. Before the fire, however, appellee Uy Bico was able to take delivery
of 907 cavans of rice 2 Appellees' claims for the value of said goods were rejected by the appellant.

On the bases of the foregoing facts, the lower court rendered a decision, the decretal portion of
which reads as follows:

WHEREFORE, judgment is rendered as follows:

1. In case No. 7354, the defendant is hereby ordered to pay the plaintiff Amparo C.
Servando the aggregate sum of P1,070.50 with legal interest thereon from the date
of the filing of the complaint until fully paid, and to pay the costs.

2. In case No. 7428, the defendant is hereby ordered to pay to plaintiff Clara Uy Bico
the aggregate sum of P16,625.00 with legal interest thereon from the date of the
filing of the complaint until fully paid, and to pay the costs.

Article 1736 of the Civil Code imposes upon common carriers the duty to observe extraordinary
diligence from the moment the goods are unconditionally placed in their possession "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, without prejudice to the provisions of Article 1738. "

The court a quo held that the delivery of the shipment in question to the warehouse of the Bureau of
Customs is not the delivery contemplated by Article 1736; and since the burning of the warehouse
occurred before actual or constructive delivery of the goods to the appellees, the loss is chargeable
against the appellant.

It should be pointed out, however, that in the bills of lading issued for the cargoes in question, the
parties agreed to limit the responsibility of the carrier for the loss or damage that may be caused to
the shipment by inserting therein the following stipulation:

Clause 14. Carrier shall not be responsible for loss or damage to shipments billed
'owner's risk' unless such loss or damage is due to negligence of carrier. Nor shall
carrier be responsible for loss or damage caused by force majeure, dangers or
accidents of the sea or other waters; war; public enemies; . . . fire . ...

We sustain the validity of the above stipulation; there is nothing therein that is contrary to law, morals
or public policy.

Appellees would contend that the above stipulation does not bind them because it was printed in fine
letters on the back-of the bills of lading; and that they did not sign the same. This argument
overlooks the pronouncement of this Court in Ong Yiu vs. Court of Appeals, promulgated June 29,
1979, 3 where the same issue was resolved in this wise:

While it may be true that petitioner had not signed the plane ticket (Exh. '12'), he is
nevertheless bound by the provisions thereof. 'Such provisions have been held to be
a part of the contract of carriage, and valid and binding upon the passenger
regardless of the latter's lack of knowledge or assent to the regulation'. It is what is
known as a contract of 'adhesion', in regards which it has been said that contracts of

CMMS| 31
adhesion wherein one party imposes a ready made form of contract on the other, as
the plane ticket in the case at bar, are contracts not entirely prohibited. The one who
adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his
consent." (Tolentino, Civil Code, Vol. IV, 1962 Ed., p. 462, citing Mr. Justice J.B.L.
Reyes, Lawyer's Journal, Jan. 31, 1951, p. 49).

Besides, the agreement contained in the above quoted Clause 14 is a mere iteration of the basic
principle of law written in Article 1 1 7 4 of the Civil Code:

Article 1174. Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the assumption
of risk, no person shall be responsible for those events which could not be foreseen,
or which, though foreseen, were inevitable.

Thus, where fortuitous event or force majeure is the immediate and proximate cause of the loss, the
obligor is exempt from liability for non-performance. The Partidas, 4 the antecedent of Article 1174 of
the Civil Code, defines 'caso fortuito' as '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.'

In its dissertation of the phrase 'caso fortuito' the Enciclopedia Juridicada Espanola 5 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 must be free from any participation in the aggravation of the injury resulting to
the creditor." In the case at bar, the burning of the customs warehouse was an extraordinary event which
happened independently of the will of the appellant. The latter could not have foreseen the event.

There is nothing in the record to show that appellant carrier ,incurred in delay in the performance of
its obligation. It appears that appellant had not only notified appellees of the arrival of their shipment,
but had demanded that the same be withdrawn. In fact, pursuant to such demand, appellee Uy Bico
had taken delivery of 907 cavans of rice before the burning of the warehouse.

Nor can the appellant or its employees be charged with negligence. The storage of the goods in the
Customs warehouse pending withdrawal thereof by the appellees was undoubtedly made with their
knowledge and consent. Since the warehouse belonged to and was maintained by the government,
it would be unfair to impute negligence to the appellant, the latter having no control whatsoever over
the same.

The lower court in its decision relied on the ruling laid down in Yu Biao Sontua vs. Ossorio 6, where
this Court held the defendant liable for damages arising from a fire caused by the negligence of the
defendant's employees while loading cases of gasoline and petroleon products. But unlike in the said
case, there is not a shred of proof in the present case that the cause of the fire that broke out in the
Custom's warehouse was in any way attributable to the negligence of the appellant or its employees.
Under the circumstances, the appellant is plainly not responsible.

WHEREFORE, the judgment appealed from is hereby set aside. No costs.

SO ORDERED.

Makasiar (Chairman), Concepcion, Jr., Guerrero, Abad Santos and De Castro, JJ., concur.

CMMS| 32
Separate Opinions

AQUINO, J., concurring:

I concur. Under article 1738 of the Civil Code "the extraordinary liability of the common carrier
continues to be operative even during the time the goods are stored in the warehouse of the carrier
at the place of destination, until the consignee has been advised of the arrival of the goods and has
had reasonable opportunity thereafter to remove them or otherwise dispose of them".

From the time the goods in question were deposited in the Bureau of Customs' warehouse in the
morning of their arrival up to two o' clock in the afternoon of the same day, when the warehouse was
burned, Amparo C. Servando and Clara Uy Bico, the consignees, had reasonable opportunity to
remove the goods. Clara had removed more than one-half of the rice consigned to her.

Moreover, the shipping company had no more control and responsibility over the goods after they
were deposited in the customs warehouse by the arrastre and stevedoring operator.

No amount of extraordinary diligence on the part of the carrier could have prevented the loss of the
goods by fire which was of accidental origin.

Under those circumstances, it would not be legal and just to hold the carrier liable to the consignees
for the loss of the goods. The consignees should bear the loss which was due to a fortuitous event.

Separate Opinions

AQUINO, J., concurring:

I concur. Under article 1738 of the Civil Code "the extraordinary liability of the common carrier
continues to be operative even during the time the goods are stored in the warehouse of the carrier
at the place of destination, until the consignee has been advised of the arrival of the goods and has
had reasonable opportunity thereafter to remove them or otherwise dispose of them".

From the time the goods in question were deposited in the Bureau of Customs' warehouse in the
morning of their arrival up to two o' clock in the afternoon of the same day, when the warehouse was
burned, Amparo C. Servando and Clara Uy Bico, the consignees, had reasonable opportunity to
remove the goods. Clara had removed more than one-half of the rice consigned to her.

Moreover, the shipping company had no more control and responsibility over the goods after they
were deposited in the customs warehouse by the arrastre and stevedoring operator.

No amount of extraordinary diligence on the part of the carrier could have prevented the loss of the
goods by fire which was of accidental origin.

Under those circumstances, it would not be legal and just to hold the carrier liable to the consignees
for the loss of the goods. The consignees should bear the loss which was due to a fortuitous event.

CMMS| 33
Footnotes

1 Exhibits A, B, C, D, E, F, G and H.

2 Par. IV, Complaint; p. 23, Record on Appeal.

Page 836

3 91 SCRA 224.

4 Law 11, Title 33, Partida 7.

5 Enciclopedia Juridicada Espanola.

6 43 Phil. 511.

CMMS| 34
THIRD DIVISION

[G.R. No. 146018. June 25, 2003]

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[1] under Rule 45 of the Rules of Court,
seeking to set aside the August 31, 2000 Decision[2] and the November 17, 2000
Resolution[3] of the Court of Appeals[4] (CA) in CA-GR SP No. 62751. The dispositive part
of the Decision reads:

IN THE LIGHT OF THE FOREGOING, the appeal is GRANTED. The Decision


appealed from is REVERSED. [Petitioner] is hereby condemned to pay to
[respondent] the total amount of P148,500.00, with interest thereon, at the rate of 6%
per annum, from date of this Decision of the Court. [Respondents] claim for attorneys
fees [is] DISMISSED. [Petitioners] counterclaims are DISMISSED. [5]

The assailed Resolution denied petitioners Motion for Reconsideration.


On the other hand, the disposition of the Regional Trial Courts[6] Decision,[7] which
was later reversed by the CA, states:

WHEREFORE, premises considered, the case is hereby DISMISSED for lack of


merit.

No cost. [8]

CMMS| 35
The Facts

The facts of the case are summarized by the appellate court in this wise:

Sometime on December 11, 1991, Nestor Angelia delivered to the Edgar Cokaliong
Shipping Lines, Inc. (now Cokaliong Shipping Lines), [petitioner] for brevity, cargo
consisting of one (1) carton of Christmas dcor and two (2) sacks of plastic toys, to be
transported on board the M/V Tandag on its Voyage No. T-189 scheduled to depart
from Cebu City, on December 12, 1991, for Tandag, Surigao del Sur. [Petitioner]
issued Bill of Lading No. 58, freight prepaid, covering the cargo. Nestor Angelia was
both the shipper and consignee of the cargo valued, on the face thereof, in the amount
of P6,500.00. Zosimo Mercado likewise delivered cargo to [petitioner], consisting of
two (2) cartons of plastic toys and Christmas decor, one (1) roll of floor mat and one
(1) bundle of various or assorted goods for transportation thereof from Cebu City to
Tandag, Surigao del Sur, on board the said vessel, and said voyage. [Petitioner]
issued Bill of Lading No. 59 covering the cargo which, on the face thereof, was
valued in the amount of P14,000.00. Under the Bill of Lading, Zosimo Mercado was
both the shipper and consignee of the cargo.

On December 12, 1991, Feliciana Legaspi insured the cargo, covered by Bill of
Lading No. 59, with the UCPB General Insurance Co., Inc., [respondent] for
brevity, for the amount ofP100,000.00 against all risks under Open Policy No.
002/91/254 for which she was issued, by [respondent], Marine Risk Note No.
18409 on said date. She also insured the cargo covered by Bill of Lading No. 58, with
[respondent], for the amount of P50,000.00, under Open Policy No. 002/91/254 on
the basis of which [respondent] issued Marine Risk Note No. 18410 on said date.

When the vessel left port, it had thirty-four (34) passengers and assorted cargo on
board, including the goods of Legaspi. After the vessel had passed by the Mandaue-
Mactan Bridge, fire ensued in the engine room, and, despite earnest efforts of the
officers and crew of the vessel, the fire engulfed and destroyed the entire vessel
resulting in the loss of the vessel and the cargoes therein. The Captain filed the
required Marine Protest.

Shortly thereafter, Feliciana Legaspi filed a claim, with [respondent], for the value of
the cargo insured under Marine Risk Note No. 18409 and covered by Bill of Lading
No. 59. She submitted, in support of her claim, a Receipt, dated December 11, 1991,
purportedly signed by Zosimo Mercado, and Order Slips purportedly signed by him
for the goods he received from Feliciana Legaspi valued in the amount
of P110,056.00. [Respondent] approved the claim of Feliciana Legaspi and drew and
issued UCPB Check No. 612939, dated March 9, 1992, in the net amount

CMMS| 36
of P99,000.00, in settlement of her claim after which she executed a Subrogation
Receipt/Deed, for said amount, in favor of [respondent]. She also filed a claim for the
value of the cargo covered by Bill of Lading No. 58. She submitted to [respondent]
a Receipt, dated December 11, 1991 and Order Slips, purportedly signed by Nestor
Angelia for the goods he received from Feliciana Legaspi valued
at P60,338.00. [Respondent] approved her claim and remitted to Feliciana Legaspi the
net amount of P49,500.00, after which she signed aSubrogation Receipt/Deed, dated
March 9, 1992, in favor of [respondent].

On July 14, 1992, [respondent], as subrogee of Feliciana Legaspi, filed a complaint


anchored on torts against [petitioner], with the Regional Trial Court of Makati City,
for the collection of the total principal amount of P148,500.00, which it paid to
Feliciana Legaspi for the loss of the cargo, praying that judgment be rendered in its
favor and against the [petitioner] as follows:

WHEREFORE, it is respectfully prayed of this Honorable Court that after due


hearing, judgment be rendered ordering [petitioner] to pay [respondent] the following.

1. Actual damages in the amount of P148,500.00 plus interest thereon at the legal rate
from the time of filing of this complaint until fully paid;

2. Attorneys fees in the amount of P10,000.00; and

3. Cost of suit.

[Respondent] further prays for such other reliefs and remedies as this Honorable Court
may deem just and equitable under the premises.

[Respondent] alleged, inter alia, in its complaint, that the cargo subject of its
complaint was delivered to, and received by, [petitioner] for transportation to Tandag,
Surigao del Sur underBill of Ladings, Annexes A and B of the complaint; that the
loss of the cargo was due to the negligence of the [petitioner]; and that Feliciana
Legaspi had executed Subrogation Receipts/Deeds in favor of [respondent] after
paying to her the value of the cargo on account of the Marine Risk Notes it issued in
her favor covering the cargo.

In its Answer to the complaint, [petitioner] alleged that: (a) [petitioner] was cleared by the Board
of Marine Inquiry of any negligence in the burning of the vessel; (b) the complaint stated no
cause of action against [petitioner]; and (c) the shippers/consignee had already been paid the
value of the goods as stated in the Bill of Lading and, hence, [petitioner] cannot be held liable
for the loss of the cargo beyond the value thereof declared in the Bill of Lading.

CMMS| 37
After [respondent] rested its case, [petitioner] prayed for and was allowed, by the Court a quo, to
take the depositions of Chester Cokaliong, the Vice-President and Chief Operating Officer of
[petitioner], and a resident of Cebu City, and of Noel Tanyu, an officer of the Equitable Banking
Corporation, in Cebu City, and a resident of Cebu City, to be given before the Presiding Judge of
Branch 106 of the Regional Trial Court of Cebu City. Chester Cokaliong and Noel Tanyu did
testify, by way of deposition, before the Court and declared inter alia, that: [petitioner] is a
family corporation like the Chester Marketing, Inc.; Nestor Angelia had been doing business
with [petitioner] and Chester Marketing, Inc., for years, and incurred an account with Chester
Marketing, Inc. for his purchases from said corporation; [petitioner] did issue Bills of Lading
Nos. 58 and 59 for the cargo described therein with Zosimo Mercado and Nestor Angelia as
shippers/consignees, respectively; the engine room of the M/V Tandag caught fire after it passed
the Mandaue/Mactan Bridge resulting in the total loss of the vessel and its cargo; an
investigation was conducted by the Board of Marine Inquiry of the Philippine Coast Guard
which rendered a Report, dated February 13, 1992 absolving [petitioner] of any responsibility on
account of the fire, which Report of the Board was approved by the District Commander of the
Philippine Coast Guard; a few days after the sinking of the vessel, a representative of the Legaspi
Marketing filed claims for the values of the goods under Bills of Lading Nos. 58 and 59 in
behalf of the shippers/consignees, Nestor Angelia and Zosimo Mercado; [petitioner] was able to
ascertain, from the shippers/consignees and the representative of the Legaspi Marketing that the
cargo covered by Bill of Lading No. 59 was owned by Legaspi Marketing and consigned to
Zosimo Mercado while that covered by Bill of Lading No. 58 was purchased by Nestor Angelia
from the Legaspi Marketing; that [petitioner] approved the claim of Legaspi Marketing for the
value of the cargo under Bill of Lading No. 59 and remitted to Legaspi Marketing the said
amount under Equitable Banking Corporation Check No. 20230486 dated August 12, 1992, in
the amount of P14,000.00 for which the representative of the Legaspi Marketing signed Voucher
No. 4379, dated August 12, 1992, for the said amount of P14,000.00 in full payment of claims
under Bill of Lading No. 59; that [petitioner] approved the claim of Nestor Angelia in the
amount of P6,500.00 but that since the latter owed Chester Marketing, Inc., for some purchases,
[petitioner] merely set off the amount due to Nestor Angelia under Bill of Lading No. 58 against
his account with Chester Marketing, Inc.; [petitioner] lost/[misplaced] the original of the check
after it was received by Legaspi Marketing, hence, the production of the microfilm copy by Noel
Tanyu of the Equitable Banking Corporation; [petitioner] never knew, before settling with
Legaspi Marketing and Nestor Angelia that the cargo under both Bills of Lading were insured
with [respondent], or that Feliciana Legaspi filed claims for the value of the cargo with
[respondent] and that the latter approved the claims of Feliciana Legaspi and paid the total
amount of P148,500.00 to her; [petitioner]came to know, for the first time, of the payments by
[respondent] of the claims of Feliciana Legaspi when it was served with the summons and
complaint, on October 8, 1992; after settling his claim, Nestor Angelia x x x executed
the Release and Quitclaim, dated July 2, 1993, and Affidavit, dated July 2, 1993 in favor of
[respondent]; hence, [petitioner] was absolved of any liability for the loss of the cargo covered
by Bills of Lading Nos. 58 and 59; and even if it was, its liability should not exceed the value of
the cargo as stated in the Bills of Lading.

[Petitioner] did not anymore present any other witnesses on its evidence-in-chief. x x
x[9] (Citations omitted)

CMMS| 38
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

The Honorable Court of Appeals erred, granting arguendo that petitioner is liable, in
holding that petitioners liability should be based on the actual insured value of the
goods and not from actual valuation declared by the shipper/consignee in the bill of
lading.

II

The Court of Appeals erred in not affirming the findings of the Philippine Coast
Guard, as sustained by the trial court a quo, holding that the cause of loss of the
aforesaid cargoes under Bill of Lading Nos. 58 and 59 was due to force majeure and
due diligence was [exercised] by petitioner prior to, during and immediately after the
fire on [petitioners] vessel.

III

The Court of Appeals erred in not holding that respondent UCPB General Insurance
has no cause of action against the petitioner. [13]

CMMS| 39
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.[14] Hence, fire is not considered a natural disaster or
calamity. In Eastern Shipping Lines, Inc. v. Intermediate Appellate Court,[15] we
explained:

x x x. This must be so as it arises almost invariably from some act of man or by


human means. It does not fall within the category of an act of God unless caused by
lighting or by other natural disaster or calamity. It may even be caused by the actual
fault or privity of the carrier.

Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous
event refers to leases or 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 protective policy towards agriculture.

As the peril of fire is not comprehended within the exceptions in Article 1734, supra,
Article 1735 of the Civil Code provides that in all cases other than those mentioned in
Article 1734, the common carrier shall be presumed to have been at fault or to have

CMMS| 40
acted negligently, unless it proves that it has observed the extraordinary diligence
required by law.

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[17] of the Civil Code,
we hold petitioner responsible for the loss of the goods covered by Bills of Lading Nos.
58 and 59.

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[18] 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.[19] The attempt by respondent to make light of
this stipulation is unconvincing. As it had the consignees copies of the Bills of
Lading,[20] 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.
A stipulation that limits liability is valid[21] as long as it is not against public
policy. In Everett Steamship Corporation v. Court of Appeals,[22] the Court stated:

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 provides:

CMMS| 41
Art. 1749. A stipulation that the common carriers liability is limited to the value of the
goods appearing in the bill of lading, unless the shipper or owner declares a greater
value, is binding.

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

Such limited-liability clause has also been consistently upheld by this Court in a
number of cases. Thus, in Sea-Land Service, Inc. vs. Intermediate Appellate Court, we
ruled:

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 justness and fairness of the law itself, and this the private respondent
does not pretend to do. But over and above that consideration, the just and reasonable
character of such stipulation is implicit in it giving the shipper or owner the option of
avoiding accrual of liability limitation by the simple and surely far from onerous
expedient of declaring the nature and value of the shipment in the bill of lading.

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. All claims for which the carrier may be liable shall be adjusted and settled on the
basis of the shippers net invoice cost plus freight and insurance premiums, if paid, and
in no event shall the carrier be liable for any loss of possible profits or any
consequential loss.

The carrier shall not be liable for any loss of or any damage to or in any connection
with, goods in an amount exceeding One Hundred Thousand Yen in Japanese
Currency (100,000.00) or its equivalent in any other currency per package or
customary freight unit (whichever is least) unless the value of the goods higher than
this amount is declared in writing by the shipper before receipt of the goods by the
carrier and inserted in the Bill of Lading and extra freight is paid as required.

CMMS| 42
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. (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,[23] 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.
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,

CMMS| 43
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.
Puno, (Chairman), Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.

[1]
Rollo, pp. 10-34.
[2]
Id., pp. 36-60.
[3]
Id., p. 62.
[4]
First Division. Penned by Justice Romeo J. Callejo Sr. (now a member of this Court) and concurred in
by Justices Salome A. Montoya (Division chair) and Martin S. Villarama (member).
[5]
Assailed Decision, p. 7; rollo, p. 36.
[6]
Branch 146, Makati City.
[7]
Penned by Judge Salvador S. Tensuan.
[8]
RTC Decision, p. 4; rollo, p. 66.
[9]
Assailed Decision, pp. 1-5; rollo, pp. 36-40; emphases in original.
[10]
Id., pp. 12 & 47.
[11]
Id., pp. 23 & 58.
[12]
The case was deemed submitted for decision on September 24, 2001, upon receipt by this Court of
respondents Memorandum, which was signed by Atty. Bernard D. Sy. Petitioners Memorandum,
signed by Atty. Melvyn S. Florencio, was received by this Court on August 31, 2001.
[13]
Petitioners Memorandum, pp. 12-13; rollo, pp. 134-135. Original in upper case.

CMMS| 44
[14]
Pons y Compaia v. La Compaia Maritima, 9 Phil. 125, October 26, 1907.
[15]
Eastern Shipping Lines, Inc. v. Intermediate Appellate Court, 150 SCRA 463, May 29, 1987, per
Melencio-Herrera, J.
[16]
Ibid.
[17]
Art. 1735. In all cases other than those mentioned in Nos. 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.
[18]
See the Deposition dated September 30, 1996 of Chester C. Cokaliong, petitioners vice president and
chief operating officer. Deposition, p. 16; records, p. 276.
[19]
Exhibit 7-A-2; id., p. 233.
[20]
TSN, August 8, 1996, p. 4.
[21]
Article 1749 of the Civil Code. See also St. Paul Fire & Marine Insurance Co. v. Macondray & Co., Inc.,
70 SCRA 122, March 25, 1976.
[22]
358 SCRA 129, 135-136, October 8, 1998, per Martinez, J.
[23]
188 SCRA 387, August 6, 1990.

CMMS| 45
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

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

CMMS| 46
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 lower-
numbered 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:

CMMS| 47
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. 8 Common carriers are responsible for the loss, destruction, or
deterioration of the goods unless the same is due to any of the following causes only:

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

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

CMMS| 48
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.

CMMS| 49
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

CMMS| 50
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

CMMS| 51
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.

CMMS| 52
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

CMMS| 53
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.

Narvasa, Cruz, Feliciano and Gancayco, JJ., concur.

Separate Opinions

YAP, J., concurring and dissenting:

With respect to G.R. No. 71478, the majority opinion holds that the 128 cartons of textile materials,
and not the two (2) containers, should be considered as the shipping unit for the purpose of applying
the $500.00 limitation under the Carriage of Goods by Sea Act (COGSA).

The majority opinion followed and applied the interpretation of the COGSA "package" limitation
adopted by the Second Circuit, United States Court of Appeals, in Mitsui & Co., Ltd. vs. American
Export Lines, Inc., 636 F. 2d 807 (1981) and the Smithgreyhound v. M/V Eurygenes, 666, F 2nd,
746. Both cases adopted the rule that carrier-furnished containers whose contents are fully disclosed
are not "packages" within the meaning of Section 4 (5) of COGSA.

I cannot go along with the majority in applying the Mitsui and Eurygenes decisions to the present
case, for the following reasons: (1) The facts in those cases differ materially from those obtaining in
the present case; and (2) the rule laid down in those two cases is by no means settled doctrine.

In Mitsui and Eurygenes, the containers were supplied by the carrier or shipping company.
In Mitsui the Court held: "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

CMMS| 54
suddenly lose that character upon being stowed in a carrier's container. I would liken these
containers to detachable stowage compartments of the ship." Cartons or crates placed inside carrier-
furnished containers are deemed stowed in the vessel itself, and do not lose their character as
individual units simply by being placed inside container provided by the carrier, which are merely
"detachable stowage compartments of the ship.

In the case at bar, there is no evidence showing that the two containers in question were carrier-
supplied. This fact cannot be presumed. The facts of the case in fact show that this was the only
shipment placed in containers. The other shipment involved in the case, consisting of surveying
instruments, was packed in two "cases."

We cannot speculate on the meaning of the words "Say: Two (2) Containers Only, " which appear in
the bill of lading. Absent any positive evidence on this point, we cannot say that those words
constitute a mere estimate that the shipment could fit in two containers, thereby showing that when
the goods were delivered by the shipper, they were not yet placed inside the containers and that it
was the petitioner carrier which packed the goods into its own containers, as authorized under
paragraph 11 on the dorsal side of the bill of lading, Exhibit A. Such assumption cannot be made in
view of the following words clearly stamped in red ink on the face of the bill of lading: "Shipper's
Load, Count and Seal Said to Contain." This clearly indicates that it was the shipper which loaded
and counted the goods placed inside the container and sealed the latter.

The two containers were delivered by the shipper to the carrier already sealed for shipment, and the
number of cartons said to be contained inside them was indicated in the bill of lading, on the mere
say-so of the shipper. The freight paid to the carrier on the shipment was based on the
measurement (by volume) of the two containers at $34.50 per cubic meter. The shipper must have
saved on the freight charges by using containers for the shipment. Under the circumstances, it would
be unfair to the carrier to have the limitation of its liability under COGSA fixed on the number of
cartons inside the containers, rather than on the containers themselves, since the freight revenue
was based on the latter.

The Mitsui and Eurygenes decisions are not the last word on the subject. The interpretation of the
COGSA package limitation is in a state of flux, 1 as the courts continue to wrestle with the troublesome problem of
applying the statutory limitation under COGSA to containerized shipments. The law was adopted before modern technological changes have
revolutionized the shipping industry. There is need for the law itself to be updated to meet the changes brought about by the container
revolution, but this is a task which should be addressed by the legislative body. Until then, this Court, while mindful of American
jurisprudence on the subject, should make its own interpretation of the COGSA provisions, consistent with what is equitable to the parties
concerned. There is need to balance the interests of the shipper and those of the carrier.

In the case at bar, the shipper opted to ship the goods in two containers, and paid freight charges
based on the freight unit, i.e., cubic meters. The shipper did not declare the value of the shipment,
for that would have entailed higher freight charges; instead of paying higher freight charges, the
shipper protected itself by insuring the shipment. As subrogee, the insurance company can recover
from the carrier only what the shipper itself is entitled to recover, not the amount it actually paid the
shipper under the insurance policy.

In our view, under the circumstances, the container should be regarded as the shipping unit or
"package" within the purview of COGSA. However, we realize that this may not be equitable as far
as the shipper is concerned. If the container is not regarded as a "package" within the terms of
COGSA, then, the $500.00 liability limitation should be based on "the customary freight unit." Sec. 4
(5) of COGSA provides that in case of goods not shipped in packages, the limit of the carrier's
liability shall be $500.00 "per customary freight unit." In the case at bar, the petitioner's liability for
the shipment in question based on "freight unit" would be $21,950.00 for the shipment of 43.9 cubic
meters.

CMMS| 55
I concur with the rest of the decision.

Sarmiento, J., concur.

Separate Opinions

YAP, J., concurring and dissenting:

With respect to G.R. No. 71478, the majority opinion holds that the 128 cartons of textile materials,
and not the two (2) containers, should be considered as the shipping unit for the purpose of applying
the $500.00 limitation under the Carriage of Goods by Sea Act (COGSA).

The majority opinion followed and applied the interpretation of the COGSA "package" limitation
adopted by the Second Circuit, United States Court of Appeals, in Mitsui & Co., Ltd. vs. American
Export Lines, Inc., 636 F. 2d 807 (1981) and the Smithgreyhound v. M/V Eurygenes, 666, F 2nd,
746. Both cases adopted the rule that carrier-furnished containers whose contents are fully disclosed
are not "packages" within the meaning of Section 4 (5) of COGSA.

I cannot go along with the majority in applying the Mitsui and Eurygenes decisions to the present
case, for the following reasons: (1) The facts in those cases differ materially from those obtaining in
the present case; and (2) the rule laid down in those two cases is by no means settled doctrine.

In Mitsui and Eurygenes, the containers were supplied by the carrier or shipping company.
In Mitsui the Court held: "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." Cartons or crates placed inside carrier-
furnished containers are deemed stowed in the vessel itself, and do not lose their character as
individual units simply by being placed inside container provided by the carrier, which are merely
"detachable stowage compartments of the ship.

In the case at bar, there is no evidence showing that the two containers in question were carrier-
supplied. This fact cannot be presumed. The facts of the case in fact show that this was the only
shipment placed in containers. The other shipment involved in the case, consisting of surveying
instruments, was packed in two "cases."

We cannot speculate on the meaning of the words "Say: Two (2) Containers Only, " which appear in
the bill of lading. Absent any positive evidence on this point, we cannot say that those words
constitute a mere estimate that the shipment could fit in two containers, thereby showing that when
the goods were delivered by the shipper, they were not yet placed inside the containers and that it
was the petitioner carrier which packed the goods into its own containers, as authorized under
paragraph 11 on the dorsal side of the bill of lading, Exhibit A. Such assumption cannot be made in
view of the following words clearly stamped in red ink on the face of the bill of lading: "Shipper's
Load, Count and Seal Said to Contain." This clearly indicates that it was the shipper which loaded
and counted the goods placed inside the container and sealed the latter.

The two containers were delivered by the shipper to the carrier already sealed for shipment, and the
number of cartons said to be contained inside them was indicated in the bill of lading, on the mere
say-so of the shipper. The freight paid to the carrier on the shipment was based on the

CMMS| 56
measurement (by volume) of the two containers at $34.50 per cubic meter. The shipper must have
saved on the freight charges by using containers for the shipment. Under the circumstances, it would
be unfair to the carrier to have the limitation of its liability under COGSA fixed on the number of
cartons inside the containers, rather than on the containers themselves, since the freight revenue
was based on the latter.

The Mitsui and Eurygenes decisions are not the last word on the subject. The interpretation of the
COGSA package limitation is in a state of flux, 1 as the courts continue to wrestle with the troublesome problem of
applying the statutory limitation under COGSA to containerized shipments. The law was adopted before modern technological changes have
revolutionized the shipping industry. There is need for the law itself to be updated to meet the changes brought about by the container
revolution, but this is a task which should be addressed by the legislative body. Until then, this Court, while mindful of American
jurisprudence on the subject, should make its own interpretation of the COGSA provisions, consistent with what is equitable to the parties
concerned. There is need to balance the interests of the shipper and those of the carrier.

In the case at bar, the shipper opted to ship the goods in two containers, and paid freight charges
based on the freight unit, i.e., cubic meters. The shipper did not declare the value of the shipment,
for that would have entailed higher freight charges; instead of paying higher freight charges, the
shipper protected itself by insuring the shipment. As subrogee, the insurance company can recover
from the carrier only what the shipper itself is entitled to recover, not the amount it actually paid the
shipper under the insurance policy.

In our view, under the circumstances, the container should be regarded as the shipping unit or
"package" within the purview of COGSA. However, we realize that this may not be equitable as far
as the shipper is concerned. If the container is not regarded as a "package" within the terms of
COGSA, then, the $500.00 liability limitation should be based on "the customary freight unit." Sec. 4
(5) of COGSA provides that in case of goods not shipped in packages, the limit of the carrier's
liability shall be $500.00 "per customary freight unit." In the case at bar, the petitioner's liability for
the shipment in question based on "freight unit" would be $21,950.00 for the shipment of 43.9 cubic
meters.

I concur with the rest of the decision.

Sarmiento, J., concur.

Footnotes

1 Petition, p. 6, Rollo of G.R. No. 69044, p. 15.

2 Granada vs. PNB, 18 SCRA 1 (1966); Gardner vs. CA, 131 SCRA 85 (1984)

3 p.51, Vol. 5, Rules of Court by Ruperto G. Martin, citing 31 C.J.S. 1075.

4 Article 1753, Civil Code.

5 See Samar Mining Co., Inc. vs. Nordeutscher Lloyd, 132 SCRA 529 (1984).

6 Art. 1766, Civil Code; Samar Mining Co. Inc. vs. Lloyd, supra.

7 See American President Lines vs. Klepper, 110 Phil. 243, 248 (1960).

CMMS| 57
8 Article 1733, Civil Code.

9 Article 1734, Civil Code.

10 Africa vs. Caltex Phil. 16 SCRA 448, 455 (1966).

11 Lloyd vs. Haugh & K. Storage & Transport Co., 293 Pa. 148, A 516; Forward v.
Pittard, ITR 27, 99 Eng. Reprint, 953.

12 Article 1734, Civil Code.

13 Section 4, Carriage of Goods by Sea Act.

14 Manresa, cited in p. 147, V. Outline of the Civil Law, J.B.L. Reyes and R.C. Puno.

15 Decision, Court of Appeals in CA-G.R. No. 67848-R, appealed in G.R. No. 71478.

16 Shackman v. Cunard White Star, D.C. N. Y. 1940, 31 F. Supp. 948. 46 USCA


866: cited in Phoenix Assurance Company vs. Macondray 64 SCRA 15 (1975),

17 Folio of Exhibits, pp. 6 and 23.

18 666 F. 2d 746, 1982 A.M.C. 320 (2d Circuits 1981).

19 A container is a permanent reusable article of transport equipment not packaging


of goods durably made of metal, and equipped with doors for easy access to the
goods and for repeated use. It is designed to facilitate the handling, loading, stowage
aboard ship, carriage, discharge from ship, movement, and transfer of large numbers
of packages simultaneously by mechanical means to minimize the cost and risks of
manually processing each package individually, It functions primarily as ship's gear
for cargo handling, and is usually provided by the carrier. (Simon, The Law of
Shipping Containers) (Emphasis supplied).

20 Article 1377, Civil Code.

21 See Qua Chee Gan vs. Law Union & Rock Ins. Co., Ltd., 98 Phil. 85 (1956).

22 Amended Record on Appeal, Annex "D," p. 62; Rollo in G.R. No. 69044, p. 89.

23 Associated Citizens Bank vs. Ople, 103 SCRA 130 (1981).

24 Tajonera vs. Lamaroza, 110 SCRA 438 (1981).

Yap, J.:

1 See R.M. Sharpe, Jr. and Mark E. Steiner, "The Container as Customary Freight
Unit". Round Two of the Container Debate?", South Texas Law Journal Vol. 24, No.
2 (1983).

CMMS| 58
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 101089. April 7, 1993.

ESTRELLITA M. BASCOS, petitioners,


vs.
COURT OF APPEALS and RODOLFO A. CIPRIANO, respondents.

Modesto S. Bascos for petitioner.

Pelaez, Adriano & Gregorio for private respondent.

SYLLABUS

1. CIVIL LAW; COMMON CARRIERS; DEFINED; TEST TO DETERMINE COMMON CARRIER.


Article 1732 of the Civil Code defines a common carrier as "(a) person, corporation or firm, or
association engaged in the business of carrying or transporting passengers or goods or both, by
land, water or air, for compensation, offering their services to the public." The test to determine a
common carrier is "whether the given undertaking is a part of the business engaged in by the carrier
which he has held out to the general public as his occupation rather than the quantity or extent of the
business transacted." . . . The holding of the Court in De Guzman vs. Court of Appeals is instructive.
In referring to Article 1732 of the Civil Code, it held thus: "The above article makes no distinction
between one whose principal business activity is the carrying of persons or goods or both, and one
who does such carrying only as an ancillary activity (in local idiom, as a "sideline"). Article 1732 also
carefully avoids making any distinction between a person or enterprise offering transportation
service on a regular or scheduled basis and one offering such service on an occasional, episodic or
unscheduled basis. Neither does Article 1732 distinguished between a carrier offering its services to
the "general public," i.e., the general community or population, and one who offers services or
solicits business only from a narrow segment of the general population. We think that Article 1732
deliberately refrained from making such distinctions."

2. ID.; ID.; DILIGENCE REQUIRED IN VIGILANCE OVER GOODS TRANSPORTED; WHEN


PRESUMPTION OF NEGLIGENCE ARISES; HOW PRESUMPTION OVERCAME; WHEN
PRESUMPTION MADE ABSOLUTE. 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 . . . The
presumption of negligence was raised against petitioner. It was petitioner's burden to overcome it.
Thus, contrary to her assertion, private respondent need not introduce any evidence to prove her
negligence. Her own failure to adduce sufficient proof of extraordinary diligence made the
presumption conclusive against her.

CMMS| 59
3. ID.; ID.; HIJACKING OF GOODS; CARRIER PRESUMED NEGLIGENT; HOW CARRIER
ABSOLVED FROM LIABILITY. In De Guzman vs. Court of Appeals, the Court held that hijacking,
not being included in the provisions of Article 1734, must be dealt with under the provisions of Article
1735 and thus, the common carrier is presumed to have been at fault or negligent. To exculpate the
carrier from liability arising from hijacking, he must prove that the robbers or the hijackers acted with
grave or irresistible threat, violence, or force. This is in accordance with Article 1745 of the Civil
Code which provides: "Art. 1745. Any of the following or similar stipulations shall be considered
unreasonable, unjust and contrary to public policy . . . (6) That the common carrier's liability for acts
committed by thieves, or of robbers who do not act with grave or irresistible threat, violences or
force, is dispensed with or diminished"; In the same case, the Supreme Court also held that: "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 of irresistible threat, violence of 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."

4. REMEDIAL LAW; EVIDENCE; JUDICIAL ADMISSIONS CONCLUSIVE. In this case, petitioner


herself has made the admission that she was in the trucking business, offering her trucks to those
with cargo to move. Judicial admissions are conclusive and no evidence is required to prove the
same.

5. ID.; ID.; BURDEN OF PROOF RESTS WITH PARTY WHO ALLEGES A FACT. Petitioner
presented no other proof of the existence of the contract of lease. He who alleges a fact has the
burden of proving it.

6. ID.; ID.; AFFIDAVITS NOT CONSIDERED BEST EVIDENCE IF AFFIANTS AVAILABLE AS


WITNESSES. While the affidavit of Juanito Morden, the truck helper in the hijacked truck, was
presented as evidence in court, he himself was a witness as could be gleaned from the contents of
the petition. Affidavits are not considered the best evidence if the affiants are available as witnesses.

7. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT IS WHAT LAW DEFINES IT TO


BE. Granting that the said evidence were not self-serving, the same were not sufficient to prove
that the contract was one of lease. It must be understood that a contract is what the law defines it to
be and not what it is called by the contracting parties.

DECISION

CAMPOS, JR., J p:

This is a petition for review on certiorari of the decision ** of the Court of Appeals in "RODOLFO A.
CIPRIANO, doing business under the name CIPRIANO TRADING ENTERPRISES plaintiff-appellee,
vs. ESTRELLITA M. BASCOS, doing business under the name of BASCOS TRUCKING, defendant-
appellant," C.A.-G.R. CV No. 25216, the dispositive portion of which is quoted hereunder:

"PREMISES considered, We find no reversible error in the decision appealed from, which is hereby
affirmed in toto. Costs against appellant." 1

The facts, as gathered by this Court, are as follows:

Rodolfo A. Cipriano representing Cipriano Trading Enterprise (CIPTRADE for short) entered into a
hauling contract 2 with Jibfair Shipping Agency Corporation whereby the former bound itself to haul

CMMS| 60
the latter's 2,000 m/tons of soya bean meal from Magallanes Drive, Del Pan, Manila to the
warehouse of Purefoods Corporation in Calamba, Laguna. To carry out its obligation, CIPTRADE,
through Rodolfo Cipriano, subcontracted with Estrellita Bascos (petitioner) to transport and to deliver
400 sacks of soya bean meal worth P156,404.00 from the Manila Port Area to Calamba, Laguna at
the rate of P50.00 per metric ton. Petitioner failed to deliver the said cargo. As a consequence of that
failure, Cipriano paid Jibfair Shipping Agency the amount of the lost goods in accordance with the
contract which stated that:

"1. CIPTRADE shall be held liable and answerable for any loss in bags due to theft, hijacking and
non-delivery or damages to the cargo during transport at market value, . . ." 3

Cipriano demanded reimbursement from petitioner but the latter refused to pay. Eventually, Cipriano
filed a complaint for a sum of money and damages with writ of preliminary attachment 4 for breach of
a contract of carriage. The prayer for a Writ of Preliminary Attachment was supported by an affidavit
5 which contained the following allegations:

"4. That this action is one of those specifically mentioned in Sec. 1, Rule 57 the Rules of Court,
whereby a writ of preliminary attachment may lawfully issue, namely:

"(e) in an action against a party who has removed or disposed of his property, or is about to do so,
with intent to defraud his creditors;"

5. That there is no sufficient security for the claim sought to be enforced by the present action;

6. That the amount due to the plaintiff in the above-entitled case is above all legal counterclaims;"

The trial court granted the writ of preliminary attachment on February 17, 1987.

In her answer, petitioner interposed the following defenses: that there was no contract of carriage
since CIPTRADE leased her cargo truck to load the cargo from Manila Port Area to Laguna; that
CIPTRADE was liable to petitioner in the amount of P11,000.00 for loading the cargo; that the truck
carrying the cargo was hijacked along Canonigo St., Paco, Manila on the night of October 21, 1988;
that the hijacking was immediately reported to CIPTRADE and that petitioner and the police exerted
all efforts to locate the hijacked properties; that after preliminary investigation, an information for
robbery and carnapping were filed against Jose Opriano, et al.; and that hijacking, being a force
majeure, exculpated petitioner from any liability to CIPTRADE.

After trial, the trial court rendered a decision *** the dispositive portion of which reads as follows:

"WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant ordering the
latter to pay the former:

1. The amount of ONE HUNDRED FIFTY-SIX THOUSAND FOUR HUNDRED FOUR PESOS
(P156,404.00) as an (sic) for actual damages with legal interest of 12% per cent per annum to be
counted from December 4, 1986 until fully paid;

2. The amount of FIVE THOUSAND PESOS (P5,000.00) as and for attorney's fees; and

3. The costs of the suit.

CMMS| 61
The "Urgent Motion To Dissolve/Lift preliminary Attachment" dated March 10, 1987 filed by
defendant is DENIED for being moot and academic.

SO ORDERED." 6

Petitioner appealed to the Court of Appeals but respondent Court affirmed the trial court's judgment.

Consequently, petitioner filed this petition where she makes the following assignment of errors; to
wit:

"I. THE RESPONDENT COURT ERRED IN HOLDING THAT THE CONTRACTUAL


RELATIONSHIP BETWEEN PETITIONER AND PRIVATE RESPONDENT WAS CARRIAGE OF
GOODS AND NOT LEASE OF CARGO TRUCK.

II. GRANTING, EX GRATIA ARGUMENTI, THAT THE FINDING OF THE RESPONDENT COURT
THAT THE CONTRACTUAL RELATIONSHIP BETWEEN PETITIONER AND PRIVATE
RESPONDENT WAS CARRIAGE OF GOODS IS CORRECT, NEVERTHELESS, IT ERRED IN
FINDING PETITIONER LIABLE THEREUNDER BECAUSE THE LOSS OF THE CARGO WAS DUE
TO FORCE MAJEURE, NAMELY, HIJACKING.

III. THE RESPONDENT COURT ERRED IN AFFIRMING THE FINDING OF THE TRIAL COURT
THAT PETITIONER'S MOTION TO DISSOLVE/LIFT THE WRIT OF PRELIMINARY ATTACHMENT
HAS BEEN RENDERED MOOT AND ACADEMIC BY THE DECISION OF THE MERITS OF THE
CASE." 7

The petition presents the following issues for resolution: (1) was petitioner a common carrier?; and
(2) was the hijacking referred to a force majeure?

The Court of Appeals, in holding that petitioner was a common carrier, found that she admitted in her
answer that she did business under the name A.M. Bascos Trucking and that said admission
dispensed with the presentation by private respondent, Rodolfo Cipriano, of proofs that petitioner
was a common carrier. The respondent Court also adopted in toto the trial court's decision that
petitioner was a common carrier, Moreover, both courts appreciated the following pieces of evidence
as indicators that petitioner was a common carrier: the fact that the truck driver of petitioner, Maximo
Sanglay, received the cargo consisting of 400 bags of soya bean meal as evidenced by a cargo
receipt signed by Maximo Sanglay; the fact that the truck helper, Juanito Morden, was also an
employee of petitioner; and the fact that control of the cargo was placed in petitioner's care.

In disputing the conclusion of the trial and appellate courts that petitioner was a common carrier, she
alleged in this petition that the contract between her and Rodolfo A. Cipriano, representing
CIPTRADE, was lease of the truck. She cited as evidence certain affidavits which referred to the
contract as "lease". These affidavits were made by Jesus Bascos 8 and by petitioner herself. 9 She
further averred that Jesus Bascos confirmed in his testimony his statement that the contract was a
lease contract. 10 She also stated that: she was not catering to the general public. Thus, in her
answer to the amended complaint, she said that she does business under the same style of A.M.
Bascos Trucking, offering her trucks for lease to those who have cargo to move, not to the general
public but to a few customers only in view of the fact that it is only a small business. 11

We agree with the respondent Court in its finding that petitioner is a common carrier.

CMMS| 62
Article 1732 of the Civil Code defines a common carrier as "(a) person, corporation or firm, or
association engaged in the business of carrying or transporting passengers or goods or both, by
land, water or air, for compensation, offering their services to the public." The test to determine a
common carrier is "whether the given undertaking is a part of the business engaged in by the carrier
which he has held out to the general public as his occupation rather than the quantity or extent of the
business transacted." 12 In this case, petitioner herself has made the admission that she was in the
trucking business, offering her trucks to those with cargo to move. Judicial admissions are
conclusive and no evidence is required to prove the same. 13

But petitioner argues that there was only a contract of lease because they offer their services only to
a select group of people and because the private respondents, plaintiffs in the lower court, did not
object to the presentation of affidavits by petitioner where the transaction was referred to as a lease
contract.

Regarding the first contention, the holding of the Court in De Guzman vs. Court of Appeals 14 is
instructive. In referring to Article 1732 of the Civil Code, it held thus:

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

Regarding the affidavits presented by petitioner to the court, both the trial and appellate courts have
dismissed them as self-serving and petitioner contests the conclusion. We are bound by the
appellate court's factual conclusions. Yet, granting that the said evidence were not self-serving, the
same were not sufficient to prove that the contract was one of lease. It must be understood that a
contract is what the law defines it to be and not what it is called by the contracting parties. 15
Furthermore, petitioner presented no other proof of the existence of the contract of lease. He who
alleges a fact has the burden of proving it. 16

Likewise, We affirm the holding of the respondent court that the loss of the goods was not due to
force majeure.

Common carriers are obliged to observe extraordinary diligence in the vigilance over the goods
transported by them. 17 Accordingly, they are presumed to have been at fault or to have acted
negligently if the goods are lost, destroyed or deteriorated. 18 There are very few instances when
the presumption of negligence does not attach and these instances are enumerated in Article 1734.
19 In those cases where the presumption is applied, the common carrier must prove that it exercised
extraordinary diligence in order to overcome the presumption.

In this case, petitioner alleged that hijacking constituted force majeure which exculpated her from
liability for the loss of the cargo. In De Guzman vs. Court of Appeals, 20 the Court held that
hijacking, not being included in the provisions of Article 1734, must be dealt with under the
provisions of Article 1735 and thus, the common carrier is presumed to have been at fault or
negligent. To exculpate the carrier from liability arising from hijacking, he must prove that the robbers
or the hijackers acted with grave or irresistible threat, violence, or force. This is in accordance with
Article 1745 of the Civil Code which provides:

CMMS| 63
"Art. 1745. Any of the following or similar stipulations shall be considered unreasonable, unjust and
contrary to public policy;

xxx xxx xxx

(6) That the common carrier's liability for acts committed by thieves, or of robbers who do not act
with grave or irresistible threat, violences or force, is dispensed with or diminished;"

In the same case, 21 the Supreme Court also held that:

"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."

To establish grave and irresistible force, petitioner presented her accusatory affidavit, 22 Jesus
Bascos' affidavit, 23 and Juanito Morden's 24 "Salaysay". However, both the trial court and the Court
of Appeals have concluded that these affidavits were not enough to overcome the presumption.
Petitioner's affidavit about the hijacking was based on what had been told her by Juanito Morden. It
was not a first-hand account. While it had been admitted in court for lack of objection on the part of
private respondent, the respondent Court had discretion in assigning weight to such evidence. We
are bound by the conclusion of the appellate court. In a petition for review on certiorari, We are not
to determine the probative value of evidence but to resolve questions of law. Secondly, the affidavit
of Jesus Bascos did not dwell on how the hijacking took place. Thirdly, while the affidavit of Juanito
Morden, the truck helper in the hijacked truck, was presented as evidence in court, he himself was a
witness as could be gleaned from the contents of the petition. Affidavits are not considered the best
evidence if the affiants are available as witnesses. 25 The subsequent filing of the information for
carnapping and robbery against the accused named in said affidavits did not necessarily mean that
the contents of the affidavits were true because they were yet to be determined in the trial of the
criminal cases.

The presumption of negligence was raised against petitioner. It was petitioner's burden to overcome
it. Thus, contrary to her assertion, private respondent need not introduce any evidence to prove her
negligence. Her own failure to adduce sufficient proof of extraordinary diligence made the
presumption conclusive against her.

Having affirmed the findings of the respondent Court on the substantial issues involved, We find no
reason to disturb the conclusion that the motion to lift/dissolve the writ of preliminary attachment has
been rendered moot and academic by the decision on the merits.

In the light of the foregoing analysis, it is Our opinion that the petitioner's claim cannot be sustained.
The petition is DISMISSED and the decision of the Court of Appeals is hereby AFFIRMED.

SO ORDERED.

Narvasa, C .J ., Padilla, Regalado and Nocon, JJ ., concur.

Footnotes

CMMS| 64
** July 17, 1991; penned by Associate Justice Nicolas P. Lapea, Jr., and concurred in by Associate
Justices Ricardo L. Pronove, Jr., and Consuelo V. Santiago.

1. Rollo, p. 59.

2. Annex "K" of Memorandum for Petitioner; Rollo, p. 229.

3. Ibid.

4. Civil Case No. 49965; Regional Trial Court, Quezon City, Branch 83.

5. Annex "L" of Memorandum for Petitioner; Rollo, p. 230.

*** Civil Case No. 49965, October 12, 1989. Penned by Judge Reynaldo Roura.

6. Rollo, p. 217.

7. Rollo, p. 16.

8. Petition, pp. 12-13; Rollo, pp. 20-21; Annex "G" of Memorandum for Petitioner; rollo, p. 225.

9. Petition, pp. 13-14; Rollo, pp. 21-22.

10. Ibid.; Rollo, p. 21; Annex "E" of Memorandum for Petitioner; Rollo, p. 222.

11. Court of Appeals Decision, p. 51; Rollo, p. 55.

12. 4 AGBAYANI, COMMENTARIES AND JURISPRUDENCE ON THE COMMERCIAL LAWS OF


THE PHILIPPINES, 5 (1987).

13. Solivio vs. Court of Appeals, 182 SCRA 119 (1990).

14. 168 SCRA 612 (1988).

15. Schmid and Oberly, Inc. vs. RJL Martinez Fishing Corp., 166 SCRA 493 (1988).

16. Imperial Victory Shipping Agency vs. NLRC, 200 SCRA 178 (1991).

17. "Art. 1733. Common carriers, from the nature of their business and for reasons of public policy,
are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances of each case.

Such extraordinary diligence in vigilance over the goods is further expressed in articles 1734, 1735,
and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the passengers is
further set forth in articles 1755 and 1756."

18. "Art. 1735. In all cases other than those mentioned in Nos. 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."

CMMS| 65
19. "Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the
goods, unless the same is due to any of the following causes only:

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

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

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

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

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

20. Supra, note 14.

21. Ibid., p. 621.

22. Annex "G" of Memorandum for Petitioner; Rollo, p. 225; and Juanito Morden's affidavit Annex
"H" of Memorandum for Petitioner; Rollo, p. 226.

23. Annex "E" of Memorandum for Petitioner; Rollo, p. 222.

24. Annex "H" of Memorandum for Petitioner; Rollo, p. 226.

25. Ayco vs. Fernandez, 195 SCRA 328 (1991)

CMMS| 66
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-48757 May 30, 1988

MAURO GANZON, petitioner,


vs.
COURT OF APPEALS and GELACIO E. TUMAMBING, respondents.

Antonio B. Abinoja for petitioner.

Quijano, Arroyo & Padilla Law Office for respondents.

SARMIENTO, J.:

The private respondent instituted in the Court of First Instance of Manila 1 an action against the
petitioner for damages based on culpa contractual. The antecedent facts, as found by the respondent
Court, 2 are undisputed:

On November 28, 1956, Gelacio Tumambing contracted the services of Mauro B. Ganzon to haul
305 tons of scrap iron from Mariveles, Bataan, to the port of Manila on board the lighter LCT
"Batman" (Exhibit 1, Stipulation of Facts, Amended Record on Appeal, p. 38). Pursuant to that
agreement, Mauro B. Ganzon sent his lighter "Batman" to Mariveles where it docked in three feet of
water (t.s.n., September 28, 1972, p. 31). On December 1, 1956, Gelacio Tumambing delivered the
scrap iron to defendant Filomeno Niza, captain of the lighter, for loading which was actually begun
on the same date by the crew of the lighter under the captain's supervision. When about half of the
scrap iron was already loaded (t.s.n., December 14, 1972, p. 20), Mayor Jose Advincula of
Mariveles, Bataan, arrived and demanded P5,000.00 from Gelacio Tumambing. The latter resisted
the shakedown and after a heated argument between them, Mayor Jose Advincula drew his gun and
fired at Gelacio Tumambing (t.s.n., March 19, 1971, p. 9; September 28, 1972, pp. 6-7). The<re||an 1w>

gunshot was not fatal but Tumambing had to be taken to a hospital in Balanga, Bataan, for treatment
(t.s.n., March 19, 1971, p. 13; September 28, 1972, p. 15).

After sometime, the loading of the scrap iron was resumed. But on December 4, 1956, Acting Mayor
Basilio Rub, accompanied by three policemen, ordered captain Filomeno Niza and his crew to dump
the scrap iron (t.s.n., June 16, 1972, pp. 8-9) where the lighter was docked (t.s.n., September 28,
1972, p. 31). The rest was brought to the compound of NASSCO (Record on Appeal, pp. 20-22).
Later on Acting Mayor Rub issued a receipt stating that the Municipality of Mariveles had taken
custody of the scrap iron (Stipulation of Facts, Record on Appeal, p. 40; t.s.n., September 28, 1972,
p. 10.)

On the basis of the above findings, the respondent Court rendered a decision, the dispositive portion
of which states:

WHEREFORE, the decision appealed from is hereby reversed and set aside and a
new one entered ordering defendant-appellee Mauro Ganzon to pay plaintiff-

CMMS| 67
appellant Gelacio E. Tumambimg the sum of P5,895.00 as actual damages, the sum
of P5,000.00 as exemplary damages, and the amount of P2,000.00 as attorney's
fees. Costs against defendant-appellee Ganzon. 3

In this petition for review on certiorari, the alleged errors in the decision of the Court of Appeals are:

THE COURT OF APPEALS FINDING THE HEREIN PETITIONER GUILTY OF BREACH OF THE
CONTRACT OF TRANSPORTATION AND IN IMPOSING A LIABILITY AGAINST HIM
COMMENCING FROM THE TIME THE SCRAP WAS PLACED IN HIS CUSTODY AND CONTROL
HAVE NO BASIS IN FACT AND IN LAW.

II

THE APPELLATE COURT ERRED IN CONDEMNING THE PETITIONER FOR THE ACTS OF HIS
EMPLOYEES IN DUMPING THE SCRAP INTO THE SEA DESPITE THAT IT WAS ORDERED BY
THE LOCAL GOVERNMENT OFFICIAL WITHOUT HIS PARTICIPATION.

III

THE APPELLATE COURT FAILED TO CONSIDER THAT THE LOSS OF THE SCRAP WAS DUE
TO A FORTUITOUS EVENT AND THE PETITIONER IS THEREFORE NOT LIABLE FOR LOSSES
AS A CONSEQUENCE THEREOF. 4

The petitioner, in his first assignment of error, insists that the scrap iron had not been unconditionally
placed under his custody and control to make him liable. However, he completely agrees with the
respondent Court's finding that on December 1, 1956, the private respondent delivered the scraps to
Captain Filomeno Niza for loading in the lighter "Batman," That the petitioner, thru his employees,
actually received the scraps is freely admitted. Significantly, there is not the slightest allegation or
showing of any condition, qualification, or restriction accompanying the delivery by the private
respondent-shipper of the scraps, or the receipt of the same by the petitioner. On the contrary, soon
after the scraps were delivered to, and received by the petitioner-common carrier, loading was
commenced.

By the said act of delivery, the scraps were unconditionally placed in the possession and control of
the common carrier, and upon their receipt by the carrier for transportation, the contract of carriage
was deemed perfected. Consequently, the petitioner-carrier's extraordinary responsibility for the
loss, destruction or deterioration of the goods commenced. Pursuant to Art. 1736, such extraordinary
responsibility would cease only upon the delivery, actual or constructive, by the carrier to the
consignee, or to the person who has a right to receive them. 5 The fact that part of the shipment had
not been loaded on board the lighter did not impair the said contract of transportation as the goods
remained in the custody and control of the carrier, albeit still unloaded.

The petitioner has failed to show that the loss of the scraps was due to any of the following causes
enumerated in Article 1734 of the Civil Code, namely:

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

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

CMMS| 68
(3) Act or omission of the shipper or owner of the goods;

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

(5) Order or act of competent public authority.

Hence, the petitioner is presumed to have been at fault or to have acted negligently. 6 By reason of
this presumption, the court is not even required to make an express finding of fault or negligence before it
could hold the petitioner answerable for the breach of the contract of carriage. Still, the petitioner could
have been exempted from any liability had he been able to prove that he observed extraordinary diligence
in the vigilance over the goods in his custody, according to all the circumstances of the case, or that the
loss was due to an unforeseen event or to force majeure. As it was, there was hardly any attempt on the
part of the petitioner to prove that he exercised such extraordinary diligence.

It is in the second and third assignments of error where the petitioner maintains that he is exempt
from any liability because the loss of the scraps was due mainly to the intervention of the municipal
officials of Mariveles which constitutes a caso fortuito as defined in Article 1174 of the Civil Code. 7

We cannot sustain the theory of caso fortuito. In the courts below, the petitioner's defense was that
the loss of the scraps was due to an "order or act of competent public authority," and this contention
was correctly passed upon by the Court of Appeals which ruled that:

... In the second place, before the appellee Ganzon could be absolved from
responsibility on the ground that he was ordered by competent public authority to
unload the scrap iron, it must be shown that Acting Mayor Basilio Rub had the power
to issue the disputed order, or that it was lawful, or that it was issued under legal
process of authority. The appellee failed to establish this. Indeed, no authority or
power of the acting mayor to issue such an order was given in evidence. Neither has
it been shown that the cargo of scrap iron belonged to the Municipality of Mariveles.
What we have in the record is the stipulation of the parties that the cargo of scrap
iron was accilmillated by the appellant through separate purchases here and there
from private individuals (Record on Appeal, pp. 38-39). The fact remains that the
order given by the acting mayor to dump the scrap iron into the sea was part of the
pressure applied by Mayor Jose Advincula to shakedown the appellant for
P5,000.00. The order of the acting mayor did not constitute valid authority for
appellee Mauro Ganzon and his representatives to carry out.

Now the petitioner is changing his theory to caso fortuito. Such a change of theory on appeal we
cannot, however, allow. In any case, the intervention of the municipal officials was not In any case,
of a character that would render impossible the fulfillment by the carrier of its obligation. The
petitioner was not duty bound to obey the illegal order to dump into the sea the scrap iron. Moreover,
there is absence of sufficient proof that the issuance of the same order was attended with such force
or intimidation as to completely overpower the will of the petitioner's employees. The mere difficulty
in the fullfilment of the obligation is not considered force majeure. We agree with the private
respondent that the scraps could have been properly unloaded at the shore or at the NASSCO
compound, so that after the dispute with the local officials concerned was settled, the scraps could
then be delivered in accordance with the contract of carriage.

There is no incompatibility between the Civil Code provisions on common carriers and Articles
361 8 and 362 9 of the Code of Commerce which were the basis for this Court's ruling in Government of
the Philippine Islands vs. Ynchausti & Co.10 and which the petitioner invokes in tills petition. For Art. 1735
of the Civil Code, conversely stated, means that the shipper will suffer the losses and deterioration arising

CMMS| 69
from the causes enumerated in Art. 1734; and in these instances, the burden of proving that damages
were caused by the fault or negligence of the carrier rests upon him. However, the carrier must first
establish that the loss or deterioration was occasioned by one of the excepted causes or was due to an
unforeseen event or to force majeure. Be that as it may, insofar as Art. 362 appears to require of the
carrier only ordinary diligence, the same is .deemed to have been modified by Art. 1733 of the Civil Code.

Finding the award of actual and exemplary damages to be proper, the same will not be disturbed by
us. Besides, these were not sufficiently controverted by the petitioner.

WHEREFORE, the petition is DENIED; the assailed decision of the Court of Appeals is hereby
AFFIRMED. Costs against the petitioner.

This decision is IMMEDIATELY EXECUTORY.

Yap, C.J., Paras and Padilla, JJ., concur.

Separate Opinions

MELENCIO-HERRERA, J., dissenting:

I am constrained to dissent.

It is my view that petitioner can not be held liable in damages for the loss and destruction of the
scrap iron. The loss of said cargo was due to an excepted cause an 'order or act of competent public
authority" (Article 1734[5], Civil Code).

The loading of the scrap iron on the lighter had to be suspended because of Municipal Mayor Jose
Advincula's intervention, who was a "competent public authority." Petitioner had no control over the
situation as, in fact, Tumambing himself, the owner of the cargo, was impotent to stop the "act' of
said official and even suffered a gunshot wound on the occasion.

When loading was resumed, this time it was Acting Mayor Basilio Rub, accompanied by three
policemen, who ordered the dumping of the scrap iron into the sea right where the lighter was
docked in three feet of water. Again, could the captain of the lighter and his crew have defied said
order?

Through the "order" or "act" of "competent public authority," therefore, the performance of a
contractual obligation was rendered impossible. The scrap iron that was dumped into the sea was
"destroyed" while the rest of the cargo was "seized." The seizure is evidenced by the receipt issues
by Acting Mayor Rub stating that the Municipality of Mariveles had taken custody of the scrap iron.
Apparently, therefore, the seizure and destruction of the goods was done under legal process or
authority so that petitioner should be freed from responsibility.

Art. 1743. If through order of public authority the goods are seized or destroyed, the
common carrier is not responsible, provided said public authority had power to issue
the order.

CMMS| 70
Separate Opinions

MELENCIO-HERRERA, J., dissenting:

I am constrained to dissent.

It is my view that petitioner can not be held liable in damages for the loss and destruction of the
scrap iron. The loss of said cargo was due to an excepted cause an 'order or act of competent public
authority" (Article 1734[5], Civil Code).

The loading of the scrap iron on the lighter had to be suspended because of Municipal Mayor Jose
Advincula's intervention, who was a "competent public authority." Petitioner had no control over the
situation as, in fact, Tumambing himself, the owner of the cargo, was impotent to stop the "act' of
said official and even suffered a gunshot wound on the occasion.

When loading was resumed, this time it was Acting Mayor Basilio Rub, accompanied by three
policemen, who ordered the dumping of the scrap iron into the sea right where the lighter was
docked in three feet of water. Again, could the captain of the lighter and his crew have defied said
order?

Through the "order" or "act" of "competent public authority," therefore, the performance of a
contractual obligation was rendered impossible. The scrap iron that was dumped into the sea was
"destroyed" while the rest of the cargo was "seized." The seizure is evidenced by the receipt issues
by Acting Mayor Rub stating that the Municipality of Mariveles had taken custody of the scrap iron.
Apparently, therefore, the seizure and destruction of the goods was done under legal process or
authority so that petitioner should be freed from responsibility.

Art. 1743. If through order of public authority the goods are seized or destroyed, the
common carrier is not responsible, provided said public authority had power to issue
the order.

Footnotes

1 Presided by Judge Jesus P. Morfe

2 Pascual, Chairman, ponente; Agrava and Climaco, JJ., concurring.

3 Decision, 9; Rollo 19.

4 Petitioner's Brief, 3, 7, 9; Rollo, 41.

5 Article 1736, Civil Code of the Philippines:

Art. 1736. The extraordinary responsibility of the common carriers 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, without
prejudice to the provisions of article 1738.

6 Article 1735, supra.

CMMS| 71
Art. 1735. In all cases other than those mentioned in Nos. 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.

7 Art. 11 74, supra:

Art. 1174. Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the assumption
of risk, no person shall be responsible for those events which could not be foreseen,
or which though for foreseen were inevitable.

8 Article 361, Code of Commerce:

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 deterioration


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.

Proof of these accidents is incumbent upon the


carrier.

9 Article 362, Code of Commerce:

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 has established 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 to


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.

10 No. 14191, September 29, 1919, 40 Phil. 219.

CMMS| 72
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 135645 March 8, 2002

THE PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., petitioner,


vs.
MGG MARINE SERVICES, INC. and DOROTEO GAERLAN, respondents.

KAPUNAN, J.:

This petition for review seeks the reversal of the Decision, dated September 23, 1998, of the Court
of Appeals in CA-G.R. CV No. 43915,1 which absolved private respondents MCG Marine Services,
Inc. and Doroteo Gaerlan of any liability regarding the loss of the cargo belonging to San Miguel
Corporation due to the sinking of the M/V Peatheray Patrick-G owned by Gaerlan with MCG Marine
Services, Inc. as agent.

On March 1, 1987, San Miguel Corporation insured several beer bottle cases with an aggregate
value of P5,836,222.80 with petitioner Philippine American General Insurance Company.2 The cargo
were loaded on board the M/V Peatheray Patrick-G to be transported from Mandaue City to Bislig,
Surigao del Sur.

After having been cleared by the Coast Guard Station in Cebu the previous day, the vessel left the
port of Mandaue City for Bislig, Surigao del Sur on March 2, 1987. The weather was calm when the
vessel started its voyage.

The following day, March 3, 1987, M/V Peatheray Patrick-G listed and subsequently sunk off Cawit
Point, Cortes, Surigao del Sur. As a consequence thereof, the cargo belonging to San Miguel
Corporation was lost.

Subsequently, San Miguel Corporation claimed the amount of its loss from petitioner.

Upon petitioner's request, on March 18, 1987, Mr. Eduardo Sayo, a surveyor from the Manila
Adjusters and Surveyors Co., went to Taganauan Island, Cortes, Surigao del Sur where the vessel
was cast ashore, to investigate the circumstances surrounding the loss of the cargo. In his report,
Mr. Sayo stated that the vessel was structurally sound and that he did not see any damage or crack
thereon. He concluded that the proximate cause of the listing and subsequent sinking of the vessel
was the shifting of ballast water from starboard to portside. The said shifting of ballast water
allegedly affected the stability of the M/V Peatheray Patrick-G.

Thereafter, petitioner paid San Miguel Corporation the full amount of P5,836,222.80 pursuant to the
terms of their insurance contract.
1w phi 1.nt

On November 3, 1987, petitioner as subrogee of San Miguel Corporation filed with the Regional Trial
Court (RTC) of Makati City a case for collection against private respondents to recover the amount it
paid to San Miguel Corporation for the loss of the latter's cargo.

CMMS| 73
Meanwhile, the Board of Marine Inquiry conducted its own investigation of the sinking of the M/V
Peatheray Patrick-G to determine whether or not the captain and crew of the vessel should be held
responsible for the incident.3 On May 11, 1989, the Board rendered its decision exonerating the
captain and crew of the ill-fated vessel for any administrative liability. It found that the cause of the
sinking of the vessel was the existence of strong winds and enormous waves in Surigao del Sur, a
fortuitous event that could not have been for seen at the time the M/V Peatheray Patrick-G left the
port of Mandaue City. It was further held by the Board that said fortuitous event was the proximate
and only cause of the vessel's sinking.

On April 15, 1993, the RTC of Makati City, Branch 134, promulgated its Decision finding private
respondents solidarily liable for the loss of San Miguel Corporation's cargo and ordering them to pay
petitioner the full amount of the lost cargo plus legal interest, attorney's fees and costs of suit.4

Private respondents appealed the trial court's decision to the Court of Appeals. On September 23,
1998, the appellate court issued the assailed Decision, which reversed the ruling of the RTC. It held
that private respondents could not be held liable for the loss of San Miguel Corporation's cargo
because said loss occurred as a consequence of a fortuitous event, and that such fortuitous event
was the proximate and only cause of the loss.5

Petitioner thus filed the present petition, contending that:

(A)

IN REVERSING AND SETTING ASIDE THE DECISION OF RTC BR. 134 OF MAKATI CITY
ON THE BASIS OF THE FINDINGS OF THE BOARD OF MARINE INQUIRY, APPELLATE
COURT DECIDED THE CASE AT BAR NOT IN ACCORD WITH LAW OR WITH THE
APPLICABLE DECISIONS OF THE HONORABLE COURT;

(B)

IN REVERSING THE TRIAL COURT'S DECISION, THE APPELLATE COURT GRAVELY


ERRED IN CONTRADICTING AND IN DISTURBING THE FINDINGS OF THE FORMER;

(C)

THE APPELLATE COURT GRAVELY ERRED IN REVERSING THE DECISION OF THE


TRIAL COURT AND IN DISMISSING THE COMPLAINT.6

Common carriers, from the nature of their business and for reasons of public policy, are mandated to
observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers
transported by them.7Owing to this high degree of diligence required of them, common carriers, as a
general rule, are presumed to have been at fault or negligent if the goods transported by them are
lost, destroyed or if the same deteriorated.8

However, this presumption of fault or negligence does not arise in the cases enumerated under
Article 1734 of the Civil Code:

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

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

CMMS| 74
(2) Act of the public enemy in war, whether international or civil;

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

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

(5) Order or act of competent public authority.

In order that a common carrier may be absolved from liability where the loss, destruction or
deterioration of the goods is due to a natural disaster or calamity, it must further be shown that the
such natural disaster or calamity was the proximate and only cause of the loss;9 there must be "an
entire exclusion of human agency from the cause of the injury of the loss."10

Moreover, even in cases where a natural disaster is the proximate and only cause of the loss, a
common carrier is still required to exercise due diligence to prevent or minimize loss before, during
and after the occurrence of the natural disaster, for it to be exempt from liability under the law for the
loss of the goods.11 If a common carrier fails to exercise due diligence--or that ordinary care which
the circumstances of the particular case demand12 -- to preserve and protect the goods carried by it
on the occasion of a natural disaster, it will be deemed to have been negligent, and the loss will not
be considered as having been due to a natural disaster under Article 1734 (1).

In the case at bar, the issues may be narrowed down to whether the loss of the cargo was due to the
occurrence of a natural disaster, and if so, whether such natural disaster was the sole and proximate
cause of the loss or whether private respondents were partly to blame for failing to exercise due
diligence to prevent the loss of the cargo.

The parties do not dispute that on the day the M/V Peatheray Patrick-G sunk, said vessel
encountered strong winds and huge waves ranging from six to ten feet in height. The vessel listed at
the port side and eventually sunk at Cawit Point, Cortes, Surigao del Sur.

The Court of Appeals, citing the decision of the Board of Marine Inquiry in the administrative case
against the vessel's crew (BMI--646-87), found that the loss of the cargo was due solely to the
existence of a fortuitous event, particularly the presence of strong winds and huge waves at Cortes,
Surigao del Sur on March 3, 1987:

xxx

III. WHAT WAS THE PROXIMATE CAUSE OF SINKING?

Evidence shows that when "LCT Peatheray Patrick-G" left the port of Mandawe, Cebu for
Bislig, Surigao del Sur on March 2, 1987 the Captain had observed the fair atmospheric
condition of the area of the pier and confirmed this good weather condition with the Coast
Guard Detachment of Mandawe City. However, on March 3, 1987 at about 10:00 o'clock in
the evening, when the vessel had already passed Surigao Strait. the vessel started to
experience waves as high as 6 to 7 feet and that the Northeasterly wind was blowing at
about five (5) knot velocity. At about 11:00 o'clock P.M. when the vessel was already about
4.5 miles off Cawit Point, Cortes, Surigao del Sur, the vessel was discovered to be listing 15
degrees to port side and that the strength of the wind had increased to 15 knots and the
waves were about ten (10) feet high [Ramilo TSN 10-27-87 p. 32). Immediately thereafter,
emergency measures were taken by the crew. The officers had suspected that a leak or
crack might had developed at the bottom hull particularly below one or two of the empty wing

CMMS| 75
tanks at port side serving as buoyancy tanks resulting in ingress of sea water in the tanks
was confirmed when the Captain ordered to use the cargo pump. The suction valves to the
said tanks of port side were opened in order to suck or draw out any amount of water that
entered into the tanks. The suction pressure of the pump had drawn out sea water in large
quantity indicating therefore, that a leak or crack had developed in the hull as the vessel was
continuously batted and pounded by the huge waves. Bailing out of the water through the
pump was done continuously in an effort of the crew to prevent the vessel from sinking. but
then efforts were in vain. The vessel still continued to list even more despite the continuous
pumping and discharging of sea water from the wing tanks indicating that the amount of the
ingress of sea water was greater in volume that that was being discharged by the pump.
Considering therefore, the location of the suspected source of the ingress of sea water which
was a crack or hole at the bottom hull below the buoyancy tank's port side which was not
accessible (sic) for the crew to check or control the flow of sea water into the said tank. The
accumulation of sea water aggravated by the continuous pounding, rolling and pitching of the
vessel against huge waves and strong northeasterly wind, the Captain then had no other
recourse except to order abandonship to save their lives.13

The presence of a crack in the ill-fated vessel through which water seeped in was confirmed by the
Greutzman Divers who were commissioned by the private respondents to conduct an underwater
survey and inspection of the vessel to determine the cause and circumstances of its sinking. In its
report, Greutzman Divers stated that "along the port side platings, a small hole and two separate
cracks were found at about midship."14

The findings of the Board of Marine Inquiry indicate that the attendance of strong winds and huge
waves while the M/V Peatheray Patrick-G was sailing through Cortes, Surigao del Norte on March 3,
1987 was indeed fortuitous. A fortuitous event has been defined as one which could not be foreseen,
or which though foreseen, is inevitable.15An event is considered fortuitous if the following elements
concur:

xxx (a) the cause of the unforeseen and unexpected occurrence, or the failure of the debtor
to comply with his obligations, must be independent of human will; (b) 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; (c) the occurrence must be such as to render it impossible for the debtor
to fulfill his obligation in a normal manner; and (d) the obligor must be free from any
participation in the aggravation of the injury resulting to the creditor. xxx16

In the case at bar, it was adequately shown that before the M/V Peatheray Patrick-G left the port of
Mandaue City, the Captain confirmed with the Coast Guard that the weather condition would permit
the safe travel of the vessel to Bislig, Surigao del Sur. Thus, he could not be expected to have
foreseen the unfavorable weather condition that awaited the vessel in Cortes, Surigao del Sur. It was
the presence of the strong winds and enormous waves which caused the vessel to list, keel over,
and consequently lose the cargo contained therein. The appellate court likewise found that there
was no negligence on the part of the crew of the M/V Peatheray Patrick-G, citing the following
portion of the decision of the Board of Marine Inquiry:

I. WAS LCT PEATHERAY PATRICK-G SEAWORTHY WHEN SHE LEFT THE PORT OF
MANDAWE, CEBU AND AT THE TIME OF SINKING?

Evidence clearly shows that the vessel was propelled with three (3) diesel engines of 250
BHP each or a total of 750 BHP. It had three (3) propellers which were operating
satisfactorily from the time the vessel left the port of Mandawe up to the time when the hull
on the double bottom tank was heavily floaded (sic) by uncontrollable entry of sea water

CMMS| 76
resulting in the stoppage of engines. The vessel was also equipped with operating generator
pumps for emergency cases. This equipment was also operating satisfactorily up to the time
when the engine room was heavily floaded (sic) with sea water. Further, the vessel had
undergone emergency drydocking and repair before the accident occurred (sic) on
November 9, 1986 at Trigon Shipyard, San Fernando, Cebu as shown by the billing for the
Drydocking and Repair and certificate of Inspection No. 2588-86 issued by the Philippine
coast Guard on December 5, 1986 which expired on November 8, 1987.

LCT Peatheray Patrick-G was skippered by Mr. Manuel P. Ramilo, competent and
experienced licensed Major Patron who had been in command of the vessel for more than
three (3) years from July 1984 up to the time of sinking March 3, 1987. His Chief Mate Mr.
Mariano Alalin also a licensed Major Patron had been the Chief Mate of " LCT Peatheray
Patrick-G" for one year and three months at the time of the accident. Further Chief Mate
Alalin had commanded a tanker vessel named M/T Mercedes of MGM Corporation for
almost two (2) years from 1983-1985 (Alalin TSN-4-13-88 pp. 32-33).

That the vessel was granted SOLAS clearance by the Philippine Coast Guard on March 1,
1987 to depart from Mandawe City for Bislig, Surigao del Sur as evidenced by a certification
issued to D.C. Gaerlan Oil Products by Coast Guard Station Cebu dated December 23,
1987. 1wphi1.nt

Based on the foregoing circumstances, "LCT Peatheray Patrick-G" should be considered


seaworthy vessel at the time she undertook that fateful voyage on March 2, 1987.

To be seaworthy, a vessel must not only be staunch and fit in the hull for the voyage to be
undertaken but also must be properly equipped and for that purpose there is a duty upon the
owner to provide a competent master and a crew adequate in number and competent for
their duty and equals in disposition and seamanship to the ordinary in that calling. (Ralph
299 F-52, 1924 AMC 942). American President 2td v. Ren Fen Fed 629. AMC 1723 LCA 9
CAL 1924).17

Overloading was also eliminated as a possible cause of the sinking of the vessel, as the evidence
showed that its freeboard clearance was substantially greater than the authorized freeboard
clearance.18

Although the Board of Marine Inquiry ruled only on the administrative liability of the captain and crew
of the M/V Peatheray Patrick-G, it had to conduct a thorough investigation of the circumstances
surrounding the sinking of the vessel and the loss of its cargo in order to determine their
responsibility, if any. The results of its investigation as embodied in its decision on the administrative
case clearly indicate that the loss of the cargo was due solely to the attendance of strong winds and
huge waves which caused the vessel accumulate water, tilt to the port side and to eventually keel
over. There was thus no error on the part of the Court of Appeals in relying on the factual findings of
the Board of Marine Inquiry, for such factual findings, being supported by substantial evidence are
persuasive, considering that said administrative body is an expert in matters concerning marine
casualties.19

Since the presence of strong winds and enormous waves at Cortes, Surigao del Sur on March 3,
1987 was shown to be the proximate and only cause of the sinking of the M/V Peatheray Patrick-G
and the loss of the cargo belonging to San Miguel Corporation, private respondents cannot be held
liable for the said loss.

CMMS| 77
WHEREFORE, the assailed Decision of the Court of Appeals is hereby AFFIRMED and the petition
is herebyDENIED.

SO ORDERED.

Davide, Jr., C.J., Puno, and Ynares-Santiago, JJ., concur.

Footnote

1
The Philippine American General Insurance Co., Plaintiff-Appellee vs. MCG Marine Services
and Doroteo Gaerlan, Defendants-Appellants.

2
The terms and conditions of the contract of insurance are set forth in Marine Risk Note No.
0322788 issued by petitioner in favor of San Miguel Corporation.

3
The administrative case against the vessel's crew was docketed as case no. BMI-646-87.

4
Decision dated April 15, 1993 of the Regional Trial Court of Makati City, Branch 134, in Civil
Case No. 18197, pp. 3-4; Rollo, pp. 31-32.

5
Decision of the Court of Appeals, pp. 4-8, Id., at 24-28.

6
Petition, Id., at 8-9.

7
Article 1733, par. 1, Civil Code.

8
Articles 1734 and 1735, Civil Code.

9
Article 1739, Civil Code.

10
V Tolentino, Civil Code of the Philippines Annotated 299 (1992 ed.).

11
Article 1739, Civil Code; Yobido vs. Court of Appeals, 281 SCRA 1 (1997).

12
See Compania Maritama vs. Insurance Company of North America, 12 SCRA 213 (1964).

13
Decision of the Court of Appeals, pp. 6-7, Rollo, pp. 26-27.

14
Report, Exhibit "1," Records, p. 134; see also Exhibit "1-B," Records, p. 136.

15
Article 1174, Civil Code.

16
Yobido vs. Court of Appeals, supra, at 9.

17
Id., at 4-6; Id., at 24-26.

18
Id., at 6; Id., at 26.

19
See Vasquez vs. Court of Appeals, 138 SCRA 553, 559 (1985).

CMMS| 78
SECOND DIVISION

[G.R. No. 148496. March 19, 2002]

VIRGINES CALVO doing business under the name and style


TRANSORIENT CONTAINER TERMINAL SERVICES, INC.,
petitioner, vs. UCPB GENERAL INSURANCE CO., INC. (formerly
Allied Guarantee Ins. Co., Inc.) respondent.

DECISION
MENDOZA, J.:

This is a petition for review of the decision,[1] dated May 31, 2001, of the Court of Appeals,
affirming the decision[2] of the Regional Trial Court, Makati City, Branch 148, which ordered
petitioner to pay respondent, as subrogee, the amount of P93,112.00 with legal interest,
representing the value of damaged cargo handled by petitioner, 25% thereof as attorneys fees,
and the cost of the suit.
The facts are as follows:
Petitioner Virgines Calvo is the owner of Transorient Container Terminal Services, Inc.
(TCTSI), a sole proprietorship customs broker. At the time material to this case, petitioner
entered into a contract with San Miguel Corporation (SMC) for the transfer of 114 reels of semi-
chemical fluting paper and 124 reels of kraft liner board from the Port Area in Manila to SMCs
warehouse at the Tabacalera Compound, Romualdez St., Ermita, Manila. The cargo was insured
by respondent UCPB General Insurance Co., Inc.
On July 14, 1990, the shipment in question, contained in 30 metal vans, arrived in Manila on
board M/V Hayakawa Maru and, after 24 hours, were unloaded from the vessel to the custody of
the arrastre operator, Manila Port Services, Inc. From July 23 to July 25, 1990,
petitioner, pursuant to her contract with SMC, withdrew the cargo from the arrastre operator and
delivered it to SMCs warehouse in Ermita, Manila. On July 25, 1990, the goods were inspected
by Marine Cargo Surveyors, who found that 15 reels of the semi-chemical fluting paper were
wet/stained/torn and 3 reels of kraft liner board were likewise torn. The damage was placed
at P93,112.00.
SMC collected payment from respondent UCPB under its insurance contract for the
aforementioned amount. In turn, respondent, as subrogee of SMC, brought suit against petitioner
in the Regional Trial Court, Branch 148, Makati City, which, on December 20, 1995, rendered
judgment finding petitioner liable to respondent for the damage to the shipment.
The trial court held:

CMMS| 79
It cannot be denied . . . that the subject cargoes sustained damage while in the custody
of defendants. Evidence such as the Warehouse Entry Slip (Exh. E); the Damage
Report (Exh. F) with entries appearing therein, classified as TED and TSN, which the
claims processor, Ms. Agrifina De Luna, claimed to be tearrage at the end and
tearrage at the middle of the subject damaged cargoes respectively, coupled with the
Marine Cargo Survey Report (Exh. H - H-4-A) confirms the fact of the damaged
condition of the subject cargoes. The surveyor[s] report (Exh. H-4-A) in particular,
which provides among others that:

. . . we opine that damages sustained by shipment is attributable to improper handling


in transit presumably whilst in the custody of the broker . . . .

is a finding which cannot be traversed and overturned.

The evidence adduced by the defendants is not enough to sustain [her] defense that
[she is] are not liable. Defendant by reason of the nature of [her] business should have
devised ways and means in order to prevent the damage to the cargoes which it is
under obligation to take custody of and to forthwith deliver to the consignee.
Defendant did not present any evidence on what precaution [she] performed to
prevent [the] said incident, hence the presumption is that the moment the defendant
accepts the cargo [she] shall perform such extraordinary diligence because of the
nature of the cargo.

....

Generally speaking under Article 1735 of the Civil Code, if the goods are proved to
have been lost, destroyed or deteriorated, common carriers are presumed to have been
at fault or to have acted negligently, unless they prove that they have observed the
extraordinary diligence required by law. The burden of the plaintiff, therefore, is to
prove merely that the goods he transported have been lost, destroyed or
deteriorated. Thereafter, the burden is shifted to the carrier to prove that he has
exercised the extraordinary diligence required by law. Thus, it has been held that the
mere proof of delivery of goods in good order to a carrier, and of their arrival at the
place of destination in bad order, makes out a prima facie case against the carrier, so
that if no explanation is given as to how the injury occurred, the carrier must be held
responsible. It is incumbent upon the carrier to prove that the loss was due to accident
or some other circumstances inconsistent with its liability. (cited in Commercial Laws
of the Philippines by Agbayani, p. 31, Vol. IV, 1989 Ed.)

Defendant, being a customs brother, warehouseman and at the same time a common
carrier is supposed [to] exercise [the] extraordinary diligence required by law, hence
the extraordinary responsibility lasts from the time the goods are unconditionally

CMMS| 80
placed in the possession of and received by the carrier for transportation until the
same are delivered actually or constructively by the carrier to the consignee or to the
person who has the right to receive the same.[3]

Accordingly, the trial court ordered petitioner to pay the following amounts

1. The sum of P93,112.00 plus interest;

2. 25% thereof as lawyers fee;

3. Costs of suit.[4]

The decision was affirmed by the Court of Appeals on appeal. Hence this petition for review
on certiorari.
Petitioner contends that:
I. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR [IN]
DECIDING THE CASE NOT ON THE EVIDENCE PRESENTED BUT ON PURE
SURMISES, SPECULATIONS AND MANIFESTLY MISTAKEN INFERENCE.
II. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN
CLASSIFYING THE PETITIONER AS A COMMON CARRIER AND NOT AS
PRIVATE OR SPECIAL CARRIER WHO DID NOT HOLD ITS SERVICES TO THE
PUBLIC.[5]
It will be convenient to deal with these contentions in the inverse order, for if petitioner is
not a common carrier, although both the trial court and the Court of Appeals held otherwise, then
she is indeed not liable beyond what ordinary diligence in the vigilance over the goods
transported by her, would require.[6] Consequently, any damage to the cargo she agrees to
transport cannot be presumed to have been due to her fault or negligence.
Petitioner contends that contrary to the findings of the trial court and the Court of Appeals,
she is not a common carrier but a private carrier because, as a customs broker and
warehouseman, she does not indiscriminately hold her services out to the public but only offers
the same to select parties with whom she may contract in the conduct of her business.
The contention has no merit. In De Guzman v. Court of Appeals,[7] the Court dismissed a
similar contention and held the party to be a common carrier, thus

The Civil Code defines common carriers in the following terms:

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


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

The above article makes no distinction between one whose principal business activity
is the carrying of persons or goods or both, and one who does such carrying only as

CMMS| 81
an ancillary activity . . . Article 1732 also carefully avoids making any distinction
between a person or enterprise offering transportation service on a regular or
scheduled basis and one offering such service on an occasional, episodic or
unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its
services to the general public, i.e., the general community or population, and one who
offers services or solicits business only from a narrow segment of the general
population. We think that Article 1732 deliberately refrained from making such
distinctions.

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

x x x every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, subway motor vehicle,
either for freight or passenger, or both, with or without fixed route and whatever may
be its classification, freight or carrier service of any class, express service, steamboat,
or steamship line, pontines, ferries and water craft, engaged in the transportation of
passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power,
water supply and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and other similar
public services. x x x [8]

There is greater reason for holding petitioner to be a common carrier because the
transportation of goods is an integral part of her business. To uphold petitioners contention
would be to deprive those with whom she contracts the protection which the law affords
them notwithstanding the fact that the obligation to carry goods for her customers, as already
noted, is part and parcel of petitioners business.
Now, as to petitioners liability, Art. 1733 of the Civil Code provides:

Common carriers, from the nature of their business and for reasons of public policy,
are bound to observe extraordinary diligence in the vigilance over the goods and for
the safety of the passengers transported by them, according to all the circumstances of
each case. . . .

In Compania Maritima v. Court of Appeals,[9] the meaning of extraordinary diligence in the


vigilance over goods was explained thus:

CMMS| 82
The extraordinary diligence in the vigilance over the goods tendered for shipment
requires the common carrier to know and to follow the required precaution for
avoiding damage to, or destruction of the goods entrusted to it for sale, carriage and
delivery. It requires common carriers to render service with the greatest skill and
foresight and to use all reasonable means to ascertain the nature and characteristic of
goods tendered for shipment, and to exercise due care in the handling and stowage,
including such methods as their nature requires.

In the case at bar, petitioner denies liability for the damage to the cargo. She claims that the
spoilage or wettage took place while the goods were in the custody of either the carrying vessel
M/V Hayakawa Maru, which transported the cargo to Manila, or the arrastre operator, to whom
the goods were unloaded and who allegedly kept them in open air for nine days from July 14 to
July 23, 1998 notwithstanding the fact that some of the containers were deformed, cracked, or
otherwise damaged, as noted in the Marine Survey Report (Exh. H), to wit:

MAXU-2062880 - rain gutter deformed/cracked

ICSU-363461-3 - left side rubber gasket on door distorted/partly loose

PERU-204209-4 - with pinholes on roof panel right portion

TOLU-213674-3 - wood flooring we[t] and/or with signs of water soaked

MAXU-201406-0 - with dent/crack on roof panel

ICSU-412105-0 - rubber gasket on left side/door panel partly detached loosened.[10]

In addition, petitioner claims that Marine Cargo Surveyor Ernesto Tolentino testified that he
has no personal knowledge on whether the container vans were first stored in petitioners
warehouse prior to their delivery to the consignee. She likewise claims that after withdrawing the
container vans from the arrastre operator, her driver, Ricardo Nazarro, immediately delivered the
cargo to SMCs warehouse in Ermita, Manila, which is a mere thirty-minute drive from the Port
Area where the cargo came from. Thus, the damage to the cargo could not have taken place
while these were in her custody.[11]
Contrary to petitioners assertion, the Survey Report (Exh. H) of the Marine Cargo Surveyors
indicates that when the shipper transferred the cargo in question to the arrastre operator, these
were covered by clean Equipment Interchange Report (EIR) and, when petitioners employees
withdrew the cargo from the arrastre operator, they did so without exception or protest either
with regard to the condition of container vans or their contents. The Survey Report pertinently
reads

Details of Discharge:

CMMS| 83
Shipment, provided with our protective supervision was noted discharged ex vessel to
dock of Pier #13 South Harbor, Manila on 14 July 1990, containerized onto 30 x 20
secure metal vans, covered by clean EIRs. Except for slight dents and paint scratches
on side and roof panels, these containers were deemed to have [been] received in good
condition.

....

Transfer/Delivery:

On July 23, 1990, shipment housed onto 30 x 20 cargo containers was [withdrawn] by
Transorient Container Services, Inc. . . . without exception.

[The cargo] was finally delivered to the consignees storage warehouse located at
Tabacalera Compound, Romualdez Street, Ermita, Manila from July 23/25, 1990.[12]

As found by the Court of Appeals:

From the [Survey Report], it [is] clear that the shipment was discharged from the
vessel to the arrastre, Marina Port Services Inc., in good order and condition as
evidenced by clean Equipment Interchange Reports (EIRs). Had there been any
damage to the shipment, there would have been a report to that effect made by the
arrastre operator. The cargoes were withdrawn by the defendant-appellant from the
arrastre still in good order and condition as the same were received by the
former without exception, that is, without any report of damage or loss. Surely, if the
container vans were deformed, cracked, distorted or dented, the defendant-appellant
would report it immediately to the consignee or make an exception on the delivery
receipt or note the same in the Warehouse Entry Slip (WES). None of these took
place. To put it simply, the defendant-appellant received the shipment in good order
and condition and delivered the same to the consignee damaged. We can only
conclude that the damages to the cargo occurred while it was in the possession of the
defendant-appellant. Whenever the thing is lost (or damaged) in the possession of the
debtor (or obligor), it shall be presumed that the loss (or damage) was due to his fault,
unless there is proof to the contrary. No proof was proffered to rebut this legal
presumption and the presumption of negligence attached to a common carrier in case
of loss or damage to the goods.[13]

Anent petitioners insistence that the cargo could not have been damaged while in her
custody as she immediately delivered the containers to SMCs compound, suffice it to say that to
prove the exercise of extraordinary diligence, petitioner must do more than merely show the
possibility that some other party could be responsible for the damage. It must prove that it used
all reasonable means to ascertain the nature and characteristic of goods tendered for [transport]
and that [it] exercise[d] due care in the handling [thereof]. Petitioner failed to do this.

CMMS| 84
Nor is there basis to exempt petitioner from liability under Art. 1734(4), which provides

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

....

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

....

For this provision to apply, the rule is that if the improper packing or, in this case, the
defect/s in the container, is/are known to the carrier or his employees or apparent upon ordinary
observation, but he nevertheless accepts the same without protest or exception notwithstanding
such condition, he is not relieved of liability for damage resulting therefrom.[14] In this case,
petitioner accepted the cargo without exception despite the apparent defects in some of the
container vans. Hence, for failure of petitioner to prove that she exercised extraordinary
diligence in the carriage of goods in this case or that she is exempt from liability, the
presumption of negligence as provided under Art. 1735[15] holds.
WHEREFORE, the decision of the Court of Appeals, dated May 31, 2001, is AFFIRMED.
SO ORDERED.
Bellosillo, (Chairman), Quisumbing, Buena, and De Leon, Jr., JJ., concur.

[1]
Per Justice Presbitero J. Velasco, Jr., and concurred in by Justices Bienvenido L. Reyes and Juan Q. Enriquez, Jr.
[2]
Per Judge Oscar Pimentel.
[3]
RTC Decision, pp. 3-5; Rollo, pp. 31-33.
[4]
Id., p. 6; id., p. 34.
[5]
Petition, p. 5, Rollo, p. 13.
[6]
Planters Products, Inc. v. Court of Appeals, 226 SCRA 476 (1993).
[7]
168 SCRA 612 (1988).
[8]
Id., pp. 617-618 (italics in the original).
[9]
164 SCRA 685, 692 (1988).
[10]
CA Decision, p. 5; Rollo, p. 25.
[11]
Petition, pp. 6-9; Rollo, pp. 14-17.
[12]
CA Decision, p. 6; Rollo, p. 26 (emphasis in the original).
[13]
Id., pp. 6-7; id., pp. 26-27 (emphasis in the original).

CMMS| 85
[14]
See 5-A Ambrosio Padilla, Civil Code Annotated 472 (6th ed., 1990) citing Southern Lines, Inc. v. Court of
Appeals and City of Iloilo, 114 Phil. 198 (1962).
[15]
Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4 and 5 of [Art. 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 in Article 1733.

CMMS| 86
THIRD DIVISION

[G.R. No. 143133. June 5, 2002]

BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. and


JARDINE DAVIES TRANSPORT SERVICES, INC., petitioners,
vs. PHILIPPINE FIRST INSURANCE CO., INC., respondent.

DECISION
PANGANIBAN, J.:

Proof of the delivery of goods in good order to a common carrier and of their arrival in bad
order at their destination constitutes prima facie fault or negligence on the part of the carrier.If no
adequate explanation is given as to how the loss, the destruction or the deterioration of the goods
happened, the carrier shall be held liable therefor.

Statement of the Case

Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the July 15,
1998 Decision[1] and the May 2, 2000 Resolution[2] of the Court of Appeals[3] (CA) in CA-GR CV
No. 53571. The decretal portion of the Decision reads as follows:

WHEREFORE, in the light of the foregoing disquisition, the decision appealed from
is hereby REVERSED and SET ASIDE. Defendants-appellees are ORDERED to
jointly and severally pay plaintiffs-appellants the following:

1) FOUR Hundred Fifty One Thousand Twenty-Seven Pesos and 32/100


(P451,027.32) as actual damages, representing the value of the damaged
cargo, plus interest at the legal rate from the time of filing of the complaint
on July 25, 1991, until fully paid;

2) Attorneys fees amounting to 20% of the claim; and

3) Costs of suit.[4]

The assailed Resolution denied petitioners Motion for Reconsideration.


The CA reversed the Decision of the Regional Trial Court (RTC) of Makati City (Branch
134), which had disposed as follows:

CMMS| 87
WHEREFORE, in view of the foregoing, judgment is hereby rendered, dismissing the
complaint, as well as defendants counterclaim.[5]

The Facts

The factual antecedents of the case are summarized by the Court of Appeals in this wise:

On June 13, 1990, CMC Trading A.G. shipped on board the MN Anangel Sky at
Hamburg, Germany 242 coils of various Prime Cold Rolled Steel sheets for
transportation to Manila consigned to the Philippine Steel Trading Corporation. On
July 28, 1990, MN Anangel Sky arrived at the port of Manila and, within the
subsequent days, discharged the subject cargo. Four (4) coils were found to be in bad
order B.O. Tally sheet No. 154974. Finding the four (4) coils in their damaged state to
be unfit for the intended purpose, the consignee Philippine Steel Trading Corporation
declared the same as total loss.

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


consignees claim. Consequently, plaintiff-appellant paid the consignee five hundred
six thousand eighty six & 50/100 pesos (P506,086.50), and was subrogated to the
latters rights and causes of action against defendants-appellees. Subsequently,
plaintiff-appellant instituted this complaint for recovery of the amount paid by them,
to the consignee as insured.

Impugning the propriety of the suit against them, defendants-appellees imputed that
the damage and/or loss was due to pre-shipment damage, to the inherent nature, vice
or defect of the goods, or to perils, danger and accidents of the sea, or to insufficiency
of packing thereof, or to the act or omission of the shipper of the goods or their
representatives. In addition thereto, defendants-appellees argued that their liability, if
there be any, should not exceed the limitations of liability provided for in the bill of
lading and other pertinent laws. Finally, defendants-appellees averred that, in any
event, they exercised due diligence and foresight required by law to prevent any
damage/loss to said shipment.[6]

Ruling of the Trial Court

The RTC dismissed the Complaint because respondent had failed to prove its claims with
the quantum of proof required by law.[7]
It likewise debunked petitioners counterclaim, because respondents suit was not manifestly
frivolous or primarily intended to harass them.[8]

CMMS| 88
Ruling of the Court of Appeals

In reversing the trial court, the CA ruled that petitioners were liable for the loss or the
damage of the goods shipped, because they had failed to overcome the presumption of
negligence imposed on common carriers.
The CA further held as inadequately proven petitioners claim that the loss or the
deterioration of the goods was due to pre-shipment damage.[9] It likewise opined that the notation
metal envelopes rust stained and slightly dented placed on the Bill of Lading had not been the
proximate cause of the damage to the four (4) coils.[10]
As to the extent of petitioners liability, the CA held that the package limitation under
COGSA was not applicable, because the words L/C No. 90/02447 indicated that a higher
valuation of the cargo had been declared by the shipper. The CA, however, affirmed the award of
attorneys fees.
Hence, this Petition.[11]

Issues

In their Memorandum, petitioners raise the following issues for the Courts consideration:
I

Whether or not plaintiff by presenting only one witness who has never seen the
subject shipment and whose testimony is purely hearsay is sufficient to pave the way
for the applicability of Article 1735 of the Civil Code;
II

Whether or not the consignee/plaintiff filed the required notice of loss within the time
required by law;
III

Whether or not a notation in the bill of lading at the time of loading is sufficient to
show pre-shipment damage and to exempt herein defendants from liability;
IV

Whether or not the PACKAGE LIMITATION of liability under Section 4 (5) of


COGSA is applicable to the case at bar.[12]

In sum, the issues boil down to three:


1. Whether petitioners have overcome the presumption of negligence of a common carrier

CMMS| 89
2. Whether the notice of loss was timely filed
3. Whether the package limitation of liability is applicable

This Courts Ruling

The Petition is partly meritorious.

First Issue:
Proof of Negligence

Petitioners contend that the presumption of fault imposed on common carriers should not be
applied on the basis of the lone testimony offered by private respondent. The contention is
untenable.
Well-settled is the rule that common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence and vigilance with respect
to the safety of the goods and the passengers they transport.[13] Thus, common carriers are
required to render service with the greatest skill and foresight and to use all reason[a]ble means
to ascertain the nature and characteristics of the goods tendered for shipment, and to exercise due
care in the handling and stowage, including such methods as their nature requires.[14] The
extraordinary responsibility lasts from the time the goods are unconditionally placed in the
possession of and received for transportation by the carrier until they are delivered, actually or
constructively, to the consignee or to the person who has a right to receive them.[15]
This strict requirement is justified by the fact that, without a hand or a voice in the
preparation of such contract, the riding public enters into a contract of transportation with
common carriers.[16] Even if it wants to, it cannot submit its own stipulations for their
approval.[17] Hence, it merely adheres to the agreement prepared by them.
Owing to this high degree of diligence required of them, common carriers, as a general rule,
are presumed to have been at fault or negligent if the goods they transported deteriorated or got
lost or destroyed.[18] That is, unless they prove that they exercised extraordinary diligence in
transporting the goods.[19] In order to avoid responsibility for any loss or damage, therefore, they
have the burden of proving that they observed such diligence.[20]
However, the presumption of fault or negligence will not arise[21] if the loss is due to any of
the following causes: (1) flood, storm, earthquake, lightning, or other natural disaster or
calamity; (2) an act of the public enemy in war, whether international or civil; (3) an act or
omission of the shipper or owner of the goods; (4) the character of the goods or defects in the
packing or the container; or (5) an order or act of competent public authority.[22] This is a closed
list. If the cause of destruction, loss or deterioration is other than the enumerated circumstances,
then the carrier is liable therefor.[23]
Corollary to the foregoing, mere proof of delivery of the goods in good order to a common
carrier and of their arrival in bad order at their destination constitutes a prima facie case of fault

CMMS| 90
or negligence against the carrier. If no adequate explanation is given as to how the deterioration,
the loss or the destruction of the goods happened, the transporter shall be held responsible.[24]
That petitioners failed to rebut the prima facie presumption of negligence is revealed in the
case at bar by a review of the records and more so by the evidence adduced by respondent.[25]
First, as stated in the Bill of Lading, petitioners received the subject shipment in good order
and condition in Hamburg, Germany.[26]
Second, prior to the unloading of the cargo, an Inspection Report[27] prepared and signed by
representatives of both parties showed the steel bands broken, the metal envelopes rust-stained
and heavily buckled, and the contents thereof exposed and rusty.
Third, Bad Order Tally Sheet No. 154979[28] issued by Jardine Davies Transport Services,
Inc., stated that the four coils were in bad order and condition. Normally, a request for a bad
order survey is made in case there is an apparent or a presumed loss or damage.[29]
Fourth, the Certificate of Analysis[30] stated that, based on the sample submitted and tested,
the steel sheets found in bad order were wet with fresh water.
Fifth, petitioners -- in a letter[31] addressed to the Philippine Steel Coating Corporation and
dated October 12, 1990 -- admitted that they were aware of the condition of the four coils found
in bad order and condition.
These facts were confirmed by Ruperto Esmerio, head checker of BM Santos Checkers
Agency. Pertinent portions of his testimony are reproduce hereunder:
Q. Mr. Esmerio, you mentioned that you are a Head Checker. Will you inform the Honorable Court
with what company you are connected?
A. BM Santos Checkers Agency, sir.
Q. How is BM Santos Checkers Agency related or connected with defendant Jardine Davies Transport
Services?
A. It is the company who contracts the checkers, sir.
Q. You mentioned that you are a Head Checker, will you inform this Honorable Court your duties and
responsibilities?
A. I am the representative of BM Santos on board the vessel, sir, to supervise the discharge of cargoes.
xxxxxxxxx
Q. On or about August 1, 1990, were you still connected or employed with BM Santos as a Head
Checker?
A. Yes, sir.
Q. And, on or about that date, do you recall having attended the discharging and inspection of cold
steel sheets in coil on board the MV/AN ANGEL SKY?
A. Yes, sir, I was there.
xxxxxxxxx

CMMS| 91
Q. Based on your inspection since you were also present at that time, will you inform this Honorable
Court the condition or the appearance of the bad order cargoes that were unloaded from the
MV/ANANGEL SKY?
ATTY. MACAMAY:
Objection, Your Honor, I think the document itself reflects the condition of the cold steel sheets
and the best evidence is the document itself, Your Honor that shows the condition of the steel
sheets.
COURT:
Let the witness answer.
A. The scrap of the cargoes is broken already and the rope is loosen and the cargoes are dent on the
sides.[32]
All these conclusively prove the fact of shipment in good order and condition and the
consequent damage to the four coils while in the possession of petitioner,[33] who notably failed to
explain why.[34]
Further, petitioners failed to prove that they observed the extraordinary diligence and
precaution which the law requires a common carrier to know and to follow, to avoid damage to
or destruction of the goods entrusted to it for safe carriage and delivery.[35]
True, the words metal envelopes rust stained and slightly dented were noted on the Bill of
Lading; however, there is no showing that petitioners exercised due diligence to forestall or
lessen the loss.[36] Having been in the service for several years, the master of the vessel should
have known at the outset that metal envelopes in the said state would eventually deteriorate when
not properly stored while in transit.[37] Equipped with the proper knowledge of the nature of steel
sheets in coils and of the proper way of transporting them, the master of the vessel and his crew
should have undertaken precautionary measures to avoid possible deterioration of the cargo. But
none of these measures was taken.[38] Having failed to discharge the burden of proving that they
have exercised the extraordinary diligence required by law, petitioners cannot escape liability for
the damage to the four coils.[39]
In their attempt to escape liability, petitioners further contend that they are exempted from
liability under Article 1734(4) of the Civil Code. They cite the notation metal envelopes rust
stained and slightly dented printed on the Bill of Lading as evidence that the character of the
goods or defect in the packing or the containers was the proximate cause of the damage. We are
not convinced.
From the evidence on record, it cannot be reasonably concluded that the damage to the four
coils was due to the condition noted on the Bill of Lading.[40] The aforecited exception refers to
cases when goods are lost or damaged while in transit as a result of the natural decay of
perishable goods or the fermentation or evaporation of substances liable therefor, the necessary
and natural wear of goods in transport, defects in packages in which they are shipped, or the
natural propensities of animals.[41] None of these is present in the instant case.
Further, even if the fact of improper packing was known to the carrier or its crew or was
apparent upon ordinary observation, it is not relieved of liability for loss or injury resulting
therefrom, once it accepts the goods notwithstanding such condition.[42] Thus, petitioners have not
successfully proven the application of any of the aforecited exceptions in the present case.[43]

CMMS| 92
Second Issue:
Notice of Loss

Petitioners claim that pursuant to Section 3, paragraph 6 of the Carriage of Goods by Sea
Act[44] (COGSA), respondent should have filed its Notice of Loss within three days from
delivery. They assert that the cargo was discharged on July 31, 1990, but that respondent filed its
Notice of Claim only on September 18, 1990.[45]
We are not persuaded. First, the above-cited provision of COGSA provides that the notice
of claim need not be given if the state of the goods, at the time of their receipt, has been the
subject of a joint inspection or survey. As stated earlier, prior to unloading the cargo, an
Inspection Report[46] as to the condition of the goods was prepared and signed by representatives
of both parties.[47]
Second, as stated in the same provision, a failure to file a notice of claim within three days
will not bar recovery if it is nonetheless filed within one year.[48] This one-year prescriptive period
also applies to the shipper, the consignee, the insurer of the goods or any legal holder of the bill
of lading.[49]
In Loadstar Shipping Co., Inc. v. Court of Appeals,[50] we ruled that a claim is not barred by
prescription as long as the one-year period has not lapsed. Thus, in the words of
theponente, Chief Justice Hilario G. Davide Jr.:

Inasmuch as the neither the Civil Code nor the Code of Commerce states a specific
prescriptive period on the matter, the Carriage of Goods by Sea Act (COGSA)--which
provides for a one-year period of limitation on claims for loss of, or damage to,
cargoes sustained during transit--may be applied suppletorily to the case at bar.

In the present case, the cargo was discharged on July 31, 1990, while the Complaint[51] was
filed by respondent on July 25, 1991, within the one-year prescriptive period.

Third Issue:
Package Limitation

Assuming arguendo they are liable for respondents claims, petitioners contend that their
liability should be limited to US$500 per package as provided in the Bill of Lading and by
Section 4(5)[52] of COGSA.[53]
On the other hand, respondent argues that Section 4(5) of COGSA is inapplicable, because
the value of the subject shipment was declared by petitioners beforehand, as evidenced by the
reference to and the insertion of the Letter of Credit or L/C No. 90/02447 in the said Bill of
Lading.[54]
A bill of lading serves two functions. First, it is a receipt for the goods shipped.[55] Second, it
is a contract by which three parties -- namely, the shipper, the carrier, and the consignee --
undertake specific responsibilities and assume stipulated obligations.[56] In a nutshell, the

CMMS| 93
acceptance of the bill of lading by the shipper and the consignee, with full knowledge of its
contents, gives rise to the presumption that it constituted a perfected and binding contract.[57]
Further, a stipulation in the bill of lading limiting to a certain sum the common carriers
liability for loss or destruction of a cargo -- unless the shipper or owner declares a greater
value[58] -- is sanctioned by law.[59] There are, however, two conditions to be satisfied: (1) the
contract is reasonable and just under the circumstances, and (2) it has been fairly and freely
agreed upon by the parties.[60] The rationale for, this rule is to bind the shippers by their
agreement to the value (maximum valuation) of their goods.[61]
It is to be noted, however, that the Civil Code does not limit the liability of the common
carrier to a fixed amount per package.[62] In all matters not regulated by the Civil Code, the right
and the obligations of common carriers shall be governed by the Code of Commerce and special
laws.[63] Thus, the COGSA, which is suppletory to the provisions of the Civil Code, supplements
the latter by establishing a statutory provision limiting the carriers liability in the absence of a
shippers declaration of a higher value in the bill of lading.[64] The provisions on limited liability
are as much a part of the bill of lading as though physically in it and as though placed there by
agreement of the parties.[65]
In the case before us, there was no stipulation in the Bill of Lading[66] limiting the carriers
liability. Neither did the shipper declare a higher valuation of the goods to be shipped. This fact
notwithstanding, the insertion of the words L/C No. 90/02447 cannot be the basis for petitioners
liability.
First, a notation in the Bill of Lading which indicated the amount of the Letter of Credit
obtained by the shipper for the importation of steel sheets did not effect a declaration of the value
of the goods as required by the bill.[67] That notation was made only for the convenience of the
shipper and the bank processing the Letter of Credit.[68]
Second, in Keng Hua Paper Products v. Court of Appeals,[69] we held that a bill of lading
was separate from the Other Letter of Credit arrangements. We ruled thus:

(T)he contract of carriage, as stipulated in the bill of lading in the present case, must
be treated independently of the contract of sale between the seller and the buyer, and
the contract of issuance of a letter of credit between the amount of goods described in
the commercial invoice in the contract of sale and the amount allowed in the letter of
credit will not affect the validity and enforceability of the contract of carriage as
embodied in the bill of lading. As the bank cannot be expected to look beyond the
documents presented to it by the seller pursuant to the letter of credit, neither can the
carrier be expected to go beyond the representations of the shipper in the bill of lading
and to verify their accuracy vis--vis the commercial invoice and the letter of credit.
Thus, the discrepancy between the amount of goods indicated in the invoice and the
amount in the bill of lading cannot negate petitioners obligation to private respondent
arising from the contract of transportation.[70]

CMMS| 94
In the light of the foregoing, petitioners liability should be computed based on US$500 per
package and not on the per metric ton price declared in the Letter of Credit. [71] In Eastern
Shipping Lines, Inc. v. Intermediate Appellate Court[72] we explained the meaning of package:

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


supplied by the carrier and the number of such units is disclosed in the shipping
documents, each of those units and not the container constitutes the package referred
to in the liability limitation provision of Carriage of Goods by Sea Act.

Considering, therefore, the ruling in Eastern Shipping Lines and the fact that the Bill of
Lading clearly disclosed the contents of the containers, the number of units, as well as the nature
of the steel sheets, the four damaged coils should be considered as the shipping unit subject to
the US$500 limitation.
WHEREFORE, the Petition is partly granted and the assailed
Decision MODIFIED. Petitioners liability is reduced to US$2,000 plus interest at the legal rate
of six percent from the time of the filing of the Complaint on July 25, 1991 until the finality of
this Decision, and 12 percent thereafter until fully paid. No pronouncement as to costs.
SO ORDERED.
Sandoval-Gutierrez, and Carpio, JJ., concur.
Puno, J., (Chairman), abroad, on official leave.

[1]
Rollo, pp. 48-55.
[2]
Ibid., p. 57.
[3]
Written by Justice Jainal D. Rasul (Division Chairman); concurred in by Justices Delilah Vidallon-Magtolis and
Rodrigo V. Cosico (members).
[4]
CA Decision, pp. 7-8; rollo, pp. 54-55.
[5]
RTC Decision, p. 4; rollo, p. 108; penned by Acting Presiding Judge Paul T. Arcangel.
[6]
CA Decision, pp. 1-3; rollo, pp. 48-50.
[7]
RTC Decision, p. 3; rollo, p. 107.
[8]
Ibid., pp. 4 & 108.
[9]
CA Decision; p. 5; rollo, p. 52.
[10]
Ibid., pp. 6 & 53.
[11]
The case was deemed submitted for decision on March 29, 2001, upon the Court's receipt of respondent's
Memorandum signed by Atty. Baltazar Y. Repol. Petitioners' Memorandum, filed on February 9, 2001, was signed
by Atty. Lancelot S. Limqueco.
[12]
Pages 5-6; rollo, pp. 172-173.
[13]
Art. 1733, Civil Code.
[14]
Compania Maritima v. Court of Appeals, 164 SCRA 685, 692, August 29, 1988, per Fernan, CJ.

CMMS| 95
[15]
Art. 1736, Civil Code.
[16]
Valenzuela Hardwood and Industrial Supply, Inc. v. Court of Appeals, 274 SCRA 642, June 30, 1997.
[17]
Ibid.
[18]
Philippine American General Insurance Co, Inc. v. MGG Marine Services, Inc. GR No. 135645, March 8, 2002.
[19]
Art. 1735 Civil Code. "In all cases other than those mentioned in Nos. 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."
[20]
Tabacalera Insurance Co. v North Front Shipping Services, Inc., 272 SCRA 527, May 16, 1997.
[21]
Philippine American General Insurance Co, Inc. v. MGG Marine Services, Inc., supra.
[22]
Art. 1734, Civil Code.
[23]
Tabacalera Insurance Co. v. North Front Shipping Services, Inc., supra.
[24]
Compania Maritima v. Court of Appeals, supra; Mirasol v. Robert Dollar Co., 53 Phil. 129, March 27,
1929; Ynchausti Steamship Co. v. Dexter and Unson, 41 Phil. 289, December 14, 1920.
[25]
Tabacalera Insurance Co. v. North Front Shipping Services, Inc., supra.
[26]
See Exhibit "A"; records, p. 31.
[27]
See Exhibit "F"; ibid., p. 39.
[28]
See Annex "C", id., p. 61.
[29]
International Container Services, Inc. v. Prudential Guarantee & Assurance Co., Inc., 320 SCRA 244,
December 8, 1999.
[30]
Exhibit "I"; records, p. 47.
[31]
See Exhibit "L"; ibid., p. 51.
[32]
TSN, December 13, 1993, pp. 4-10.
[33]
Tabacalera Insurance Co. v. North Front Shipping Services, Inc., supra.
[34]
Ibid.
[35]
Compania Maritima v. Court of Appeals, supra.
[36]
Article 1742, Civil Code. "Even if the loss, destruction or deterioration of the goods should be caused by the
character of the goods, or the faulty nature of the packing or of the containers, common carriers exercised due
diligence to forestall or lessen the loss."
[37]
Tabacalera Insurance Co. v. North Front Shipping Services, Inc., supra.
[38]
Ibid.
[39]
Eastern Shipping Lines, Inc. v. Intermediate Appellate Court, supra.
[40]
Compania Maritima v. Court of Appeals, supra.
[41]
Tolentino, Civil Code of the Philippines, Vol. V, 1992 ed., p. 301, citing 9 Am. Jur., pp. 862-863.
[42]
Southern Lines v. Court of Appeals, 4 SCRA 258, January 31, 1962; Philippine Airlines v. Court of Appeals, 255
SCRA 48, March 14, 1996; 9 Am. Jur. P. 869.
[43]
Vlasons Shipping, Inc. v. Court of Appeals, 283 SCRA 45, December 12, 1997.
[44]
Commonwealth Act No. 65. "Section 1. That the provisions of Public Act No. 521 of the 74 th Congress of the
United States, approved on April 16, 1936, be accepted, as it is hereby accepted to be made applicable to all

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contracts for the carriage of goods by sea to and from Philippine ports in foreign trade: Provided, That nothing in
this Act shall be construed as repealing any existing provision of the Code of Commerce which is now in force or as
limiting its application." Approved on April 22, 1936.
[45]
Exhibit "K"; records, p. 50.
[46]
Exhibit F; ibid., p. 39.
[47]
3(6) COGSA provides:
Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the carrier or
his agent at the port of discharge or at the time of the removal of the goods into the custody of the person entitled to
delivery thereof under the contract of carriage, such removal shall be prima facie evidence of the delivery by the
carrier of the goods as described in the bill of lading. If the loss or damage is not apparent, the notice must be given
within three days of delivery.
Said notice of loss or damage may be endorsed upon the receipt for the goods given by the person taking delivery
thereof.
The notice in writing need not be given if the state of the goods has at the time of their receipt been the subject of
joint survey or inspection.
In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is
brought within one year after delivery of the goods or the date when the goods should have been
delivered;Provided, That, if a notice of loss or damage, either apparent or concealed, is not given as provided for in
this section, that fact shall not affect or prejudice the right of the shipper to bring suit within one year after the
delivery of the goods or the date when the goods should have been delivered.
In the case of any actual or apprehended loss or damage, the carrier and the receiver shall give all reasonable
facilities to each other for inspecting and tallying the goods.
[48]
Vitug, Pandect of Commercial Law and Jurisprudence, 3rd ed., 1997, p. 333.
[49]
Ibid., citing Filipino Merchants Insurance Co., Inc. v. Alejandro, 145 SCRA 42, October 14, 1986.
[50]
315 SCRA 339, September 28, 1999, per Davide, Jr., CJ.
[51]
Records, p. 1.
[52]
This section provides:
(5) Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection
with the transportation of goods in an amount exceeding $500 per package 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 the shipment and inserted in 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.
Neither the carrier nor the ship shall be responsible in any event for loss or damage to or in connection with the
transportation of the goods if the nature or value thereof has been knowingly and fraudulently misstated by the
shipper in the bill of lading.
[53]
Petitioners' Memorandum, p. 14; rollo, p. 181.
[54]
Respondent's Memorandum, p. 14; rollo, p. 203.
[55]
Keng Hua Paper Products Co., Inc. v. Court of Appeals, 286 SCRA 257, February 12, 1998.
[56]
Magellan Mftg. Marketing Corp. v. Court of Appeals, 201 SCRA 102, August 22, 1991.

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[57]
Saludo Jr. v. Court of Appeals, 207 SCRA 498, March 23, 1992.
[58]
Art. 1749, Civil Code.
[59]
Everett Steamship Corporation, v. Court of Appeals, 297 SCRA 496, October 8, 1998.
[60]
Art. 1750, Civil Code.
[61]
Vitug, Compendium of Civil Law and Jurisprudence, 1993 rev. ed., p. 702.
[62]
Eastern Shipping Lines, Inc. v. Intermediate Appellate Court, supra.
[63]
Art. 1766, Civil Code.
[64]
Eastern Shipping Lines, Inc. v. Intermediate Appellate Court, supra.
[65]
Phoenix Assurance Company v. Macondray, 64 SCRA 15, May 13, 1975.
[66]
Exhibit "A"; records, p. 31.
[67]
Hernandez & Penasales, Philippine Admirality and Maritime Law, 1st ed., 1987, p. 291, citing McCarthy v.
Barber Steamship Lines, 45 Phil. 488, December 10, 1923.
[68]
Ibid.
[69]
Supra.
[70]
Ibid., pp. 269-270, per Panganiban, J.
[71]
Assailed Decision, p. 7; rollo, p. 54.
[72]
150 SCRA 463, May 29, 1967, citing Mitsui & Co., Ltd. v. American Export Lines, 636 F 2d 807 (1981).

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