Pan American World Airways, Inc. v.

Rapadas
G.R. No. 60673, 19 May 1992, 209 SCRA 67

FACTS:

On 16 January 1975, Jose K. Rapadas held Passenger Ticket and Baggage Claim Check 026394830084-5 for Pan
American World Airways Inc.’s (PanAm) Flight 841 with the route from Guam to Manila. While standing in line to board
the flight at the Guam airport, Rapadas was ordered by PanAm’shandcarry control agent to check-in his Samsonite
attache case. Rapadas protested pointing to the fact that other co-passengers were permitted to handcarry bulkier
baggages. He stepped out of the line only to go back again at the end of it to try if he can get through without having to
register his attache’ case. However, the same man in charge of handcarry control did not fail to notice him and ordered
him again to register his baggage. For fear that he would miss the plane if he insisted and argued on personally taking
the valise with him, he acceded to checking it in. He then gave his attache’ case to his brother who happened to be
around and who checked it in for him, but without declaring its contents or the value of its contents. He was given a
Baggage Claim Tag P-749-713. Upon arriving in Manila on the same date, 16 January 1975, Rapadas claimed and was
given all his checked-in baggages except the attache’ case. Since Rapadas felt ill on his arrival, he sent his son, Jorge
Rapadas to request for the search of the missing luggage. PanAm exerted efforts to locate the luggage through the Pan
American World Airways-Manila International Airport (PAN AM-MIA) Baggage Service. On 30 January 1975, PanAm
required the Rapadas to put the request in writing. Rapadas filled in a Baggage Claim Blank Form. Thereafter, Rapadas
personally followed up his claim. For several times, he called up Mr. Panuelos, the head of the Baggage Section of PAN
AM. He also sent letters demanding and reminding the petitioner of his claim. Rapadas received a letter from PanAm’s
counsel dated 2 August 1975 offering to settle the claim for the sum of $160.00 representing PanAm’s alleged limit of
liability for loss or damage to a passenger’s personal property under the contract of carriage between Rapadas and PAN-
AM.

Refusing to accept this kind of settlement, Rapadas filed the instant action for damages on 1 October 1975. Rapadas
alleged that PanAm discriminated or singled him out in ordering that his luggage be checked in. He also alleged that
PanAm neglected its duty in the handling and safekeeping of his attache’ case from the point of embarkation in Guam to
his destination in Manila.He placed the value of the lost attache’ case and its contents at US$42,403.90. According to him,
the loss resulted in his failure to pay certain monetary obligations, failure to remit money sent through him to relatives,
inability to enjoy the fruits of his retirement and vacation pay earned from working in Tonga Construction Company (he
retired in August 1974) and inability to return to Tonga to comply with then existing contracts. The lower court ruled in
favor of complainant Rapadas after finding no stipulation giving notice to the baggage liability limitation. The court
rejected the claim of PanAm that its liability under the terms of the passenger ticket is only up to $160.00. However, it
scrutinized all the claims of Rapadas. It discredited insufficient evidence to show discriminatory acts or bad faith on the
part of PanAm. The trial court ordered PanAm to pay Rapadas by way of actual damages the equivalent peso value of the
amount of $5,228.90 and 100 paengs (Tongan money), nominal damages in the amount of P20,000.00 and attorney’s
fees of P5,000.00, and the costs of the suit. The trial court also dismissed PanAm’s counterclaim. On appeal, the Court of
Appeals affirmed the trial court decision. Hence, the petition for review.

ISSUE : Whether or not PanAm is liable to pay damages to Rapadas.

HELD: The Supreme Court granted the petition, and reversed and set aside the decision of the Court of Appeals. The
Court ordered PanAm to pay Rapadas damages in the amount of US$400.00 or its equivalent in Philippine Currency at
the time of actual payment, P10,000.00 in attorney’s fees, and costs of the suit.

SANTOS VS NORTHWEST
MARCH 28, 2013 ~ VBDIAZ
G.R. No. 101538 June 23, 1992

AUGUSTO BENEDICTO SANTOS III, represented by his father and legal guardian, Augusto Benedicto Santos vs.
NORTHWEST ORIENT AIRLINES and CA

FACTS: The petitioner is a minor and a resident of the Philippines. Private respondent Northwest Orient Airlines (NOA)
is a foreign corporation with principal office in Minnesota, U.S.A. and licensed to do business and maintain a branch
office in the Philippines.
On October 21, 1986, the petitioner purchased from NOA a round-trip ticket in San Francisco. U.S.A., for his flight from
San Francisco to Manila via Tokyo and back. The scheduled departure date from Tokyo was December 20, 1986. No date
was specified for his return to San Francisco.

On December 19, 1986, the petitioner checked in at the NOA counter in the San Francisco airport for his scheduled
departure to Manila. Despite a previous confirmation and re-confirmation, he was informed that he had no reservation
for his flight from Tokyo to Manila. He therefore had to be wait-listed.

On March 12, 1987, the petitioner sued NOA for damages in the RTC of Makati. On April 13, 1987, NOA moved to dismiss
the complaint on the ground of lack of jurisdiction, citing Article 28(1) of the Warsaw Convention, reading as follows:

1
Art. 28. (1) An action for damage must be brought at the option of the plaintiff, in the territory of one of the High
Contracting Parties, either before the court of the domicile of the carrier or of his principal place of business, or where he
has a place of business through which the contract has been made, or before the court at the place of destination.

The private respondent contended that the Philippines was not its domicile nor was this its principal place of business.
Neither was the petitioner’s ticket issued in this country nor was his destination Manila but San Francisco in the United
States.
Lower court granted the dismissal, CA affirmed.

ISSUE: WON the Philippines has jurisdiction over the case. (Issue raised by the party is WON the provision of the
Warsaw convention was constitutional)

HELD: No jurisdiction (the provision is constitutional)

The Convention is a treaty commitment voluntarily assumed by the Philippine government and, as such, has the force
and effect of law in this country. The petitioner’s allegations are not convincing enough to overcome this presumption.
Apparently, the Convention considered the four places designated in Article 28 the most convenient forums for the
litigation of any claim that may arise between the airline and its passenger, as distinguished from all other places.

NOTES:

WON Warsaw convention applies.

Convention applies to all international transportation of persons performed by aircraft for hire. Whether the
transportation is “international” is determined by the contract of the parties, which in the case of passengers is the
ticket. When the contract of carriage provides for the transportation of the passenger between certain designated
terminals “within the territories of two High Contracting Parties,” the provisions of the Convention automatically apply
and exclusively govern the rights and liabilities of the airline and its passenger.

WON MNL or SFO was the destination.

The place of destination, within the meaning of the Warsaw Convention, is determined by the terms of the contract of
carriage or, specifically in this case, the ticket between the passenger and the carrier. Examination of the petitioner’s
ticket shows that his ultimate destination is San Francisco. Although the date of the return flight was left open, the
contract of carriage between the parties indicates that NOA was bound to transport the petitioner to San Francisco from
Manila. Manila should therefore be considered merely an agreed stopping place and not the destination.

WON Northwest has domicile in the Philippines

Notably, the domicile of the carrier is only one of the places where the complaint is allowed to be filed under Article
28(1). By specifying the three other places, to wit, the principal place of business of the carrier, its place of business
where the contract was made, and the place of destination, the article clearly meant that these three other places were
not comprehended in the term “domicile.”

Everett Streamship Corp. V. CA (1998)

G.R. No. 122494 October 8, 1998
Lessons Applicable: Contracting Parties (Transportation)

In the bill of lading, the carrier made it clear that all claims for which it may be liable shall be adjusted and
settled on the basis of the shipper's 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. Its liability would only be up to One
Hundred Thousand (Y100,000.00) Yen. However, the shipper, had the option to declare a higher valuation if the value of
its cargo was higher than the limited liability of the carrier. Considering that the shipper did not declare a higher
valuation, it had itself to blame for not complying with the stipulations.
The commercial Invoice does not in itself sufficiently and convincingly show that the common carrier has
knowledge of the value of the cargo as contended by the shipper.

FACTS:

 Hernandez Trading Co., Inc. (Hernandez) imported 3 crates of bus spare parts (MARCO C/No. 12, MARCO C/No.
13 and MARCO C/No. 14), from Maruman Trading Company, Ltd. (Maruman), a foreign corporation based in
Japan.
 The crates (covered by Bill of Lading No. NGO53MN) were shipped on board “ADELFAEVERETTE,” a
vessel owned by Everett Orient Lines
 Upon arrival at the port of Manila, it was discovered that the crate marked MARCO C/No. 14 was missing
 Hernandez made a formal claim for Y1,552,500.00, as shown in an Invoice No. MTM-941, dated November 14,
1991
 Everett Streamship Corp. offered to pay only Y100,000.00 the maximum amount stipulated under Clause
18 of the covering bill of lading
 Hernandez rejected the offer and thereafter instituted a suit for collection
 Trial Court: in favor of Hernandez
2
  CA: Affirmed but deleted the award of attorney’s fees
ISSUE:
1. W/N the limited liability clause in the Bill of Lading is valid
2. W/N Hernandez as consignee, who is not a signatory to the bill of lading is bound by the stipulations thereof
HELD:
1. YES.
 A stipulation in the bill of lading limiting the common carrier’s liability for loss or destruction of a cargo to a
certain sum, unless the shipper or owner declares a greater value, is sanctioned by law, particularly Articles
1749 and 1750 of the Civil Code which provide:

ART. 1749. A stipulation that the common carrier’s liability is limited to the value of the goods appearing in the bill of
lading, unless the shipper or owner declares a greater value, is binding.

ART. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction, or
deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been freely and fairly
agreed upon.
 Maruman Trading, had the option to declare a higher valuation if the value of its cargo was higher than the
limited liability of the carrier. Considering that the shipper did not declare a higher valuation, it had itself to
blame for not complying with the stipulations.
 The trial court’s ratiocination that private respondent could not have “fairly and freely” agreed to the limited
liability clause in the bill of lading because the said conditions were printed in small letters does not make the
bill of lading invalid.
 contracts of adhesion are valid and binding
 Greater vigilance, however, is required of the courts when dealing with contracts of adhesion in that the said
contracts must be carefully scrutinized “in order to shield the unwary (or weaker party) from deceptive schemes
contained in ready-made covenant
 Article 24 of the Civil Code which mandates that “(i)n all contractual, property or other relations, when
one of the parties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental
weakness, tender age or other handicap, the courts must be vigilant for his protection
 Maruman Trading, we assume, has been extensively engaged in the trading business. It can not be said to be
ignorant of the business transactions it entered into involving the shipment of its goods to its customers. The
shipper could not have known, or should know the stipulations in the bill of lading and there it should have
declared a higher valuation of the goods shipped. Moreover, Maruman Trading has not been heard to complain
that it has been deceived or rushed into agreeing to ship the cargo in petitioner’s vessel. In fact, it was not even
impleaded in this case.
2. YES.
 the right of a party in the same situation as Hernandez, to recover for loss of a shipment consigned to him under
a bill of lading drawn up only by and between the shipper and the carrier, springs from either a relation of
agency that may exist between him and the shipper or consignor, or his status as stranger in whose favor some
stipulation is made in said contract, and who becomes a party thereto when he demands fulfillment of that
stipulation, in this case the delivery of the goods or cargo shipped
 When Hernandez formally claimed reimbursement for the missing goods from Everett and subsequently filed a
case against the it based on the very same bill of lading, it accepted the provisions of the contract and thereby
made itself a party thereto, or at least has come to court to enforce it.[
 The commercial Invoice No. MTM-941 does not in itself sufficiently and convincingly show that Everett has
knowledge of the value of the cargo as contended by Hernandez

Valenzuela Hardwood vs. CA

(GR 102316, 30 June 1997)

FACTS:
Valenzuela Hardwood and Industrial Supply, Inc. (VHIS) entered into an agreement with the Seven Brothers whereby
the latter undertook to load on board its vessel M/V Seven Ambassador the former’s lauan round logs numbering 940 at
the port of Maconacon, Isabela for shipment to Manila. VHIS insured the logs against loss and/or damage with South Sea
Surety and Insurance Co.

The said vessel sank resulting in the loss of VHIS’ insured logs. VHIS demanded from South Sea Surety the payment of
the proceeds of the policy but the latter denied liability under the policy for non-payment of premium. VHIS likewise
filed a formal claim with Seven Brothers for the value of the lost logs but the latter denied the claim.

The RTC ruled in favor of the petitioner.Both Seven Brothers and South Sea Surety appealed. The Court of Appeals
affirmed the judgment except as to the liability of Seven Brothers.South Sea Surety and VHIS filed separate petitions for
review before the Supreme Court. In a Resolution dated 2 June 1995, the Supreme Court denied the petition of South Sea
Surety. The present decision concerns itself to the petition for review filed by VHIS.

ISSUE: Is a stipulation in a charter party that the “(o)wners shall not be responsible for loss, split, short-landing,
3
breakages and any kind of damages to the cargo” valid?

HELD:
Yes. Xxx [I]t is undisputed that private respondent had acted as a private carrier in transporting petitioner’s lauan logs.
Thus, Article 1745 and other Civil Code provisions on common carriers which were cited by petitioner may not be
applied unless expressly stipulated by the parties in their charter party.

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

The general public enters into a contract of transportation with common carriers without a hand or a voice in the
preparation thereof. The riding public merely adheres to the contract; even if the public wants to, it cannot submit its
own stipulations for the approval of the common carrier. Thus, the law on common carriers extends its protective
mantle against one-sided stipulations inserted in tickets, invoices or other documents over which the riding public has
no understanding or, worse, no choice. Compared to the general public, a charterer in a contract of private carriage is not
similarly situated. It can -- and in fact it usually does -- enter into a free and voluntary agreement. In practice, the parties
in a contract of private carriage can stipulate the carrier’s obligations and liabilities over the shipment which, in turn,
determine the price or consideration of the charter. Thus, a charterer, in exchange for convenience and economy, may
opt to set aside the protection of the law on common carriers. When the charterer decides to exercise this option, he
takes a normal business risk.

PHILIPPINE AIRLINES, INC., petitioner,
vs. COURT OF APPEALS and GILDA C. MEJIA, respondents.
Court: Supreme Court of the Philippines

Case No.: G.R. No. 119706

<Facts>
This is definitely not a case of first impression. The incident, which eventuated in the present controversy, is a drama of
common contentious occurrence between passengers and carriers whenever loss is sustained by the former. Withal, the
exposition of the factual ambience and the legal precepts in this adjudication may hopefully channel the assertiveness of
passengers and the intransigence of carriers into the realization that at times a bad extrajudicial compromise could be
better than a good judicial victory.

Assailed in this petition for review is the decision of respondent Court of Appeals in CA-G.R. CV No. 42744 1 which
affirmed the decision of the lower court 2 finding petitioner Philippine Air Lines, Inc. (PAL) liable as follows:
ACCORDINGLY, judgment is hereby rendered ordering defendant Philippine Air Lines, Inc., to pay plaintiff Gilda C. Mejia:
(1) P30, 000.00 by way of actual damages of the microwave oven;
(2) P10, 000.00 by way of moral damages;
(3) P20, 000.00 by way of exemplary damages;
(4) P10, 000.00 as attorney's fee;
All in addition to the costs of the suit.
Defendant's counterclaim is hereby dismissed for lack of merit.

Mejia shipped through PAL 1 microwave oven from San Francisco to Manila. Upon arrival, she discovered that the front
glass door was broken and the oven could not be used. Mejia filed action against PAL. PAL denied liability and alleged
that it acted in conformity with the Warsaw Convention

<Issues>
Whether or not the air waybill should be strictly construed against petitioner?

<Ruling>
Although the airway bill is binding between the parties, the liability of Pal is not limited on the provisions of the airway
bill. While the Warsaw Convention is law in the Philippines, the Philippines being a signatory thereto, it does not operate
as an exclusive enumeration of the instances when a carrier shall be liable for breach of contract or as an absolute limit
of the extent of liability nor does it preclude the operation of the Civil Code or other pertinent laws.

Also, the willful misconduct and insensitivity of the officers of PAL in not attempting to explain the damage despite due
demand and the unexplained delay in acting on her claim amounted to bad faith and renders unquestionable its liability
for damages

4
Adhesion contract is one that is not negotiated by the parties having been drafted by the dominant party and usually
embodied in a standardized form. It is called a contract of adhesion because the participation of 1 party is limited to
affixing her signature.

Coastwise Lighterage Corp. v. Court of Appeals

GR No. 114167
July 12, 1995

Francisco, J:

Facts: Pag-asa Sales, Inc. entered into a contract to transport molasses from the province of Negros to Manila with
Coastwise Lighterage Corporation using the latter's dumb barges. The barges were towed in tandem by the tugboat MT
Marica, which is likewise owned by Coastwise. Upon reaching Manila Bay, while approaching Pier 18, one of the barges,
"Coastwise 9", struck an unknown sunken object. The forward buoyancy compartment was damaged, and water gushed
in through a hole "two inches wide and twenty-two inches long". As a consequence, the molasses at the cargo tanks were
contaminated and rendered unfit for the use it was intended. This prompted the consignee, Pag-asa Sales, Inc. to reject
the shipment of molasses as a total loss.

Thereafter, Pag-asa Sales, Inc. filed a formal claim with the insurer of its lost cargo, herein private respondent, Philippine
General Insurance Company (PhilGen, for short) and against the carrier, herein petitioner, Coastwise Lighterage.
Coastwise Lighterage denied the claim and it was PhilGen which paid the consignee, Pag-asa Sales, Inc., the amount of
P700,000.00, representing the value of the damaged cargo of molasses.

Issues: Whether or not whether or not petitioner Coastwise Lighterage was transformed into a private carrier, by virtue
of the contract of affreightment which it entered into with the consignee, Pag-asa Sales, Inc.

Whether or not the insurer was subrogated into the rights of the consignee against the carrier, upon payment by
the insurer of the value of the consignee's goods lost while on board one of the carrier's vessels.

Held: No, petitioner Coastwise Lighterage was not transformed into a private carrier, by virtue of the contract of
affreightment.

Yes, the insurer was subrogated into the rights of the consignee against the carrier.

Ratio: As regards the first issue:

Although a charter party may transform a common carrier into a private one, the same however is not true in a contract
of affreightment on account of the aforementioned distinctions between the two. Petitioner admits that the contract it
entered into with the consignee was one of affreightment. We agree. Pag-asa Sales, Inc. only leased three of petitioner's
vessels, in order to carry cargo from one point to another, but the possession, command and navigation of the vessels
remained with petitioner Coastwise Lighterage. Pursuant therefore to the ruling in the aforecited Puromines case,
Coastwise Lighterage, by the contract of affreightment, was not converted into a private carrier, but remained a common
carrier and was still liable as such.

As a common carrier, petitioner is liable for breach of the contract of carriage, having failed to overcome the
presumption of negligence with the loss and destruction of goods it transported, by proof of its exercise of extraordinary
diligence.

As regards the second issue:

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

Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated
to the rights of the insured against the wrongdoer or the person who violated the contract. . . .

Undoubtedly, upon payment by respondent insurer PhilGen of the amount of P700,000.00 to Pag-asa Sales, Inc., the
consignee of the cargo of molasses totally damaged while being transported by petitioner Coastwise Lighterage, the
former was subrogated into all the rights which Pag-asa Sales, Inc. may have had against the carrier, herein petitioner
Coastwise Lighterage.

UNSWORTH TRANSPORT INTERNATIONAL V. CA

Facts: On August 31, 1992, the shipper Sylvex Purchasing Corporation delivered to UTI a shipment of 27 drums of
various raw materials for pharmaceutical manufacturing, consisting of: 1) 3 drums (of) extracts, flavoring liquid,
flammable liquid x xx banana flavoring; 2) 2 drums (of) flammable liquids x xx turpentine oil; 2 pallets. STC: 40 bags
dried yeast; and 3) 20 drums (of) Vitabs: Vitamin B Complex Extract.[4] UTI issued Bill of Lading No. C320/C15991-2,[5]
covering the aforesaid shipment. The subject shipment was insured with private respondent Pioneer Insurance and
5
Surety Corporation in favor of Unilab against all risks in the amount of P1,779,664.77 under and by virtue of Marine Risk
Note Number MC RM UL 0627 92[6] and Open Cargo Policy No. HO-022-RIU.[7]
On the same day that the bill of lading was issued, the shipment was loaded in a sealed 1x40 container van, with no.
APLU-982012, boarded on APLs vessel M/V Pres. Jackson, Voyage 42, and transshipped to APLs M/V Pres. Taft[8] for
delivery to petitioner in favor of the consignee United Laboratories, Inc. (Unilab).
On September 30, 1992, the shipment arrived at the port of Manila. On October 6, 1992, petitioner received the said
shipment in its warehouse after it stamped the Permit to Deliver Imported Goods[9] procured by the Champs Customs
Brokerage.[10] Three days thereafter, or on October 9, 1992, Oceanica Cargo Marine Surveyors Corporation (OCMSC)
conducted a stripping survey of the shipment located in petitioners warehouse.
On October 15, 1992, the arrastre Jardine Davies Transport Services, Inc. (Jardine) issued Gate Pass No. 7614[12] which
stated that 22 drums[13] Raw Materials for Pharmaceutical Mfg. were loaded on a truck with Plate No. PCK-434
facilitated by Champs for delivery to Unilabs warehouse. The materials were noted to be complete and in good order in
the gate pass.[14] On the same day, the shipment arrived in Unilabs warehouse and was immediately surveyed by an
independent surveyor.
On October 23 and 28, 1992, the same independent surveyor conducted final inspection surveys which yielded the same
results. Consequently, Unilabs quality control representative rejected one paper bag containing dried yeast and one steel
drum containing Vitamin B Complex as unfit for the intended purpose.[16]
On November 7, 1992, Unilab filed a formal claim[17] for the damage against private respondent and UTI. On November
20, 1992, UTI denied liability on the basis of the gate pass issued by Jardine that the goods were in complete and good
condition; while private respondent paid the claimed amount on March 23, 1993. By virtue of the Loss and Subrogation
Receipt[18] issued by Unilab in favor of private respondent, the latter filed a complaint for Damages against APL, UTI
and petitioner with the RTC of Makati.[19]The case was docketed as Civil Case No. 93-3473 and was raffled to Branch
134.
The RTC decided in favor of private respondent and against APL, UTI and petitioner. On appeal, the CA affirmed the RTC
decision on April 29, 2004. The CA rejected UTIs defense that it was merely a forwarder, declaring instead that it was a
common carrier.

Issues: WON petitioner is a common carrier.

Ruling: Admittedly, petitioner is a freight forwarder. The term freight forwarder" refers to a firm holding itself out to
the general public (other than as a pipeline, rail, motor, or water carrier) to provide transportation of property for
compensation and, in the ordinary course of its business, (1) to
assemble and consolidate, or to provide for assembling and consolidating, shipments, and to perform or provide for
break-bulk and distribution operations of the shipments; (2) to assume responsibility for the transportation of goods
from the place of receipt to the place of destination; and (3) to use for any part of the transportation a carrier subject to
the federal law pertaining to common carriers.[23]
A freight forwarders liability is limited to damages arising from its own negligence, including negligence in choosing the
carrier; however, where the forwarder contracts to deliver goods to their destination instead of merely arranging for
their transportation, it becomes liable as a common carrier for loss or damage to goods. A freight forwarder assumes the
responsibility of a carrier, which actually executes the transport, even though the forwarder does not carry the
merchandise itself.[24]
It is undisputed that UTI issued a bill of lading in favor of Unilab. Pursuant thereto, petitioner undertook to transport,
ship, and deliver the 27 drums of raw materials for pharmaceutical manufacturing to the consignee.
A bill of lading is a written acknowledgement of the receipt of goods and an agreement to transport and to deliver them
at a specified place to a person named or on his or her order.[25] It operates both as a receipt and as a contract. It is a
receipt for the goods shipped and a contract to transport and
deliver the same as therein stipulated. As a receipt, it recites the date and place of shipment, describes the goods as to
quantity, weight, dimensions, identification marks, condition, quality, and value. As a contract, it names the contracting
parties, which include the consignee; fixes the route, destination, and freight rate or charges; and stipulates the rights
and obligations assumed by the parties.[26]
Undoubtedly, UTI is liable as a common carrier. Common carriers, as a general rule, are presumed to have been at fault
or negligent if the goods they transported deteriorated or got lost or destroyed. That is, unless they prove that they
exercised extraordinary diligence in transporting the goods. In order to avoid responsibility for any loss or damage,
therefore, they have the burden of proving that they observed such diligence.[27] Mere proof of delivery of the goods in
good order to a common carrier and of their arrival in bad order at their destination constitutes a prima facie case of
fault or negligence against the carrier. If no adequate explanation is given as to how the deterioration, loss, or
destruction of the goods happened, the transporter shall be held responsible.

G.R. No. 165647, March 26, 2009

Philippines First Insurance Co., Inc.
vsWallemPhils. Shipping, Inc.

Facts:
October 1995, Anhui Chemicals Import and Export Corp. loaded on board M/S Offshore Master a shipment consisting of
sodium sulphate anhydrous, complete and in good order for transportation to and delivery at the port of Manila for
consignee, covered by a clean bill of lading.

6
On October 16, 1995, the shipment arrived in port of manila and was discharged which caused various degrees of
spillage and losses as evidence by the turn over survey of the arrastre operator. Asia Star Freight delivered the
shipments from pier to the consignees in Quezon City, during the unloading, it was found by the consignee that the
shipment was damaged and in bad condition.

April 29, 1996, the consignee filed a claim with Wallem for the value of the damaged shipment, to no avail. Since the
shipment was insured with Phil. First Insurance against all risks in the amount of P2,470,213.50. The consignee filed a
claim against the First Insurance. First insurance after examining the turn-over survey, the bad order certificate and
other documents paid the consignee but later on sent a demand letter to Wallem for the recovery of the amount paid to
the consignee (in exercise of its right of subrogation). Wallem did not respond to the claim.

First Insurance then instituted an action before RTC for damages against Wallem. RTC held the shipping company and
the arrastre operator solidarily liable since both are charged with the obligation to deliver the goods in good order
condition.

The CA reversed and set aside the RTC's decision. CA says that there is no solidary liability between the carrier and the
arrastre because it was clearly established that the damage and losses of the shipment were attributed to the
mishandling by the arrastre operator in the discharge of the shipment.

Issues:
1. Whether or not the Court of Appeals erred in not holding that as a common carrier, the carriers duties extend to the
obligation to safely discharge the cargo from the vessel;
2. Whether or not the carrier should be held liable for the cost of the damaged shipment;
3. Whether or not Wallems failure to answer the extra judicial demand by petitioner for the cost of the lost/damaged
shipment is an implied admission of the formers liability for said goods;
4. Whether or not the courts below erred in giving credence to the testimony of Mr. Talens.

Ruling:
(1) Yes, the vessel is a common carrier, and thus the determination of the existence or absence of liability will be gauged
on the degree of diligence required of a common carrier. (2) The first and second issue will be resolved concurrently.

(3) The damage of the shipment was documented by the turn0over survey and request for bad order survey, with these
documents, petitioner insist that the shipment incurred damages while still in the care and responsibility of Wallem
before it was turned over to the arrastre operator. However, RTC found the testimony of Mr. Talens (cargo surveyor)
that the loss was caused by the mishandling of the arrastre operator. This mishandling was affirmed by the CA which
was the basis for declaring the arrastre operator solely liable for the damage.

It is established that damage or losses were incurred by the shipment during the unloading. As common carrier, they are
bound to observe extraordinary diligence in the vigilance over the goods transported by them. Subject to certain
exceptions enumerated under Article 1734 of the Civil Code, common carriers are responsible for the loss, destruction,
or deterioration of the goods. 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.

For marine vessels, Article 619 of the Code of Commerce provides that the ship captain is liable for the cargo from the
time it is turned over to him at the dock or afloat alongside the vessel at the port of loading, until he delivers it on the
shore or on the discharging wharf at the port of unloading, unless agreed otherwise.

COGSA provides that under every contract of carriage of goods by sea, the carrier in relation to the loading, handling,
stowage, carriage, custody, care, and discharge of such goods, shall be subject to the responsibilities and liabilities and
entitled to the rights and immunities set forth in the Act. Section 3 (2) thereof then states that among the carriers
responsibilities are to properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried.

On the other hand, the functions of an arrastre operator involve the handling of cargo deposited on the wharf or
between the establishment of the consignee or shipper and the ship's tackle. Being the custodian of the goods discharged
from a vessel, an arrastre operator's duty is to take good care of the goods and to turn them over to the party entitled to
their possession.

Handling cargo is mainly the arrastre operator's principal work so its drivers/operators or employees should observe
the standards and measures necessary to prevent losses and damage to shipments under its custody. Thus, in this case
the appellate court is correct insofar as it ruled that an arrastre operator and a carrier may not be held solidarily liable at
all times. But the precise question is which entity had custody of the shipment during its unloading from the vessel?

The records are replete with evidence which show that the damage to the bags happened before and after their
discharge and it was caused by the stevedores of the arrastre operator who were then under the supervision of Wallem.

It is settled in maritime law jurisprudence that cargoes while being unloaded generally remain under the custody of the
carrier. In the instant case, the damage or losses were incurred during the discharge of the shipment while under the
7
supervision of the carrier. Consequently, the carrier is liable for the damage or losses caused to the shipment. As the cost
of the actual damage to the subject shipment has long been settled, the trial courts finding of actual damages in the
amount of P397,879.69 has to be sustained.

(4) MrTalens credibility must be respected.

CA's decision is set aside. Wallem is liable.

NEW WORLD VS NYK-FILJAPAN (G.R. NO. 171468 AUGUST 24, 2011)

New World International Philippines Inc. vs Nyk-FilJapan Shipping Corp.
G.R. No. 171468 August 24, 2011

Facts: Petitioner New World International Development (Phils.), Inc. (New World) bought from DMT Corporation (DMT)
through its agent, Advatech Industries, Inc. (Advatech) three emergency generator sets worth US$721,500.00. DMT
shipped the generator sets by truck from Wisconsin, United States, to LEP Profit International, Inc. (LEP Profit) in
Chicago, Illinois. From there, the shipment went by train to Oakland, California, where it was loaded on S/S California
Luna V59, owned and operated by NYK Fil-Japan Shipping Corporation (NYK) for delivery to petitioner New World in
Manila. NYK issued a bill of lading, declaring that it received the goods in good condition. NYK unloaded the shipment in
Hong Kong and transshipped it to S/S ACX Ruby V/72 that it also owned and operated. On its journey to Manila,
however, ACX Ruby encountered typhoon Kadiang whose captain filed a sea protest on arrival at the Manila South
Harbor on October 5, 1993 respecting the loss and damage that the goods on board his vessel suffered. Marina Port
Services, Inc. (Marina), the Manila South Harborarrastre or cargo-handling operator, received the shipment on October
7, 1993. Upon inspection of the three container vans separately carrying the generator sets, two vans bore signs of
external damage while the third van appeared unscathed. The shipment remained at Pier 3s Container Yard under
Marinas care pending clearance from the Bureau of Customs. Eventually, on October 20, 1993 customs authorities
allowed petitioners customs broker, Serbros Carrier Corporation (Serbros), to withdraw the shipment and deliver the
same to petitioner New Worlds job site in Makati City. An examination of the three generator sets in the presence of
petitioner New Worlds representatives, Federal Builders (the project contractor) and surveyors of petitioner New
Worlds insurer, SeaboardEastern Insurance Company (Seaboard), revealed that all three sets suffered extensive damage
and could no longer be repaired. For these reasons, New World demanded recompense for its loss from respondents
NYK, DMT, Advatech, LEP Profit, LEP International Philippines, Inc. (LEP), Marina, and Serbros. While LEP and NYK
acknowledged receipt of the demand, both denied liability for the loss.

Issue: Whether or not petitioner is entitled to the claim based from the insurance policy including interests in the delay
of the release of such claim.

Held: Yes. The marine open policy that Seaboard issued to New World was an all-risk policy. Such a policy insured
against all causes of conceivable loss or damage except when otherwise excluded or when the loss or damage was due to
fraud or intentional misconduct committed by the insured. The policy covered all losses during the voyage whether or
not arising from a marine peril.

Here, the policy enumerated certain exceptions like unsuitable packaging, inherent vice, delay in voyage, or vessels
unseaworthiness, among others. But Seaboard had been unable to show that petitioner New Worlds loss or damage fell
within some or one of the enumerated exceptions.

Seaboard cannot pretend that the above documents are inadequate since they were precisely the documents listed in its
insurance policy. Being a contract of adhesion, an insurance policy is construed strongly against the insurer who
prepared it. The Court cannot read a requirement in the policy that was not there.

Section 241 of the Insurance Code provides that no insurance company doing business in the Philippines shall refuse
without just cause to pay or settle claims arising under coverages provided by its policies. And, under Section 243, the
insurer has 30 days after proof of loss is received and ascertainment of the loss or damage within which to pay the claim.
If such ascertainment is not had within 60 days from receipt of evidence of loss, the insurer has 90 days to pay or settle
the claim. And, in case the insurer refuses or fails to pay within the prescribed time, the insured shall be entitled to
interest on the proceeds of the policy for the duration of delay at the rate of twice the ceiling prescribed by the Monetary
Board.

Notably, Seaboard already incurred delay when it failed to settle petitioner New Worlds claim as Section 243 required.
Under Section 244, a prima facie evidence of unreasonable delay in payment of the claim is created by the failure of the
insurer to pay the claim within the time fixed in Section 243.

Consequently, Seaboard should pay interest on the proceeds of the policy for the duration of the delay until the claim is
fully satisfied at the rate of twice the ceiling prescribed by the Monetary Board. The term ceiling prescribed by the
Monetary Board means the legal rate of interest of 12% per annum provided in Central Bank Circular 416, pursuant to
Presidential Decree 116. Section 244 of the Insurance Code also provides for an award of attorneys fees and other
expenses incurred by the assured due to the unreasonable withholding of payment of his claim.

8
NEW ZEALAND INS. CO., LTD. V. CHOA JOY, G.R. NO. L- 7311, SEPT. 30, 1955

What are the requisites before claim for damages under Art. 366 may be demanded?

1. Consignment of goods through a common carrier, by a consignor in one place to a consignee in another place; and

2. The delivery of the merchandise by the carrier to the consignee at the place of destination (New Zealand Ins. Co., Ltd.
v. Choa Joy, G.R. No. L- 7311, Sept. 30, 1955).

This is an action for the recovery of the sum of P5,196.20 with legal interest thereon from the date of the filing of the
complaint.

FACTS
On May 20, 1950, the ship "Jupiter", on her voyage No. 149, received on board at Carangian, Samar, in good order and
condition, 107 bundles of first class loose weight hemp weighing 8,273 kilos, of 130.80 piculs, valued at P6,736.20, from
Lee Teh& Co., Inc., for transportation and delivery to Manila, under a bill of lading issued by the carrier to the shipper.
The ship was owned by Adriano Choa" Joy, doing business under the name of South Sea Shipping Line, while the cargo
was shipped by the branch office of Lee Teh& Co., Inc. at Carangian, Samar, for transportation and delivery to its main
office at Manila.

The cargo failed to arrive in Manila because the vessel ran aground while entering the Laoang Bay, Samar, due to the
negligence of its captain, Jose Molina, who, in the investigation conducted by the Marine Board of Inquiry, was found
negligent of his duties and was suspended from office for a period of three months. Of the cargo, only 7,590 kilos, or 120
piculs of hemp, were saved and because of their damaged condition, they were sold for the sum of P2,040, the consignor
having spent P500 for their salvage, thereby causing Lee Teh& Co., Inc. losses in the sum of P5,196.20.

The cargo was insured by the New Zealand Insurance Co., Ltd., and because of the damage caused to said cargo while in
transit, the losses were paid by said company to the shipper. The carrier having refused to reimburse these damages
despite demands made to that effect, the insurance company, as subrogee of the shipper instituted the present action
before the Court of First Instance of Manila.

CFI found that, while the shipper has suffered damages because of the inability of the carrier to transport the cargo as
agreed upon, however, the liability of the carrier did not attach because of the failure of the shipper or of the consignee
to file its claim for damages within 24 hours from receipt of the cargo as required by law. Consequently, the court
dismissed the case, with costs against the plaintiff. Plaintiff brought this case on appeal directly to this Court.

ISSUE: "Whether Lee Teh& Co., Inc. of Manila, as consignee, or Lee Teh& Co., Inc., of Catarman, Samar, as consignor,
should have filed its claim for damages to the cargo with the shipping company, herein defendant, within twenty four
hours from the date the said cargo was salvaged by the consignor, in accordance with Article 366 of the Code of
Commerce for this action to prosper, or that neither the said consignee nor the said consignor was under the obligation
to file the said claim within the said period, as they are not bound by the provisions of Article 366 of the Code of
Commerce."

Article 366 of the Code of Commerce, which was applied by the court, provides:

"Within twenty-four hours following the receipt of the merchandise, the claim against the carrier for damage or average
which may be found therein upon opening the packages, may be made, provided that the indications of the damage or
average which gives rise to the claim cannot be ascertained from the outside part of such packages, in which case the
claim shall be admitted only at the time of receipt.

"After the periods mentioned have elapsed, or the transportation charges have been paid, no claim shall be admitted
against the carrier with regard to the condition in which the goods transported were delivered."

It would appear from the above that in order that the condition therein provided may be demanded there should be a
consignment of goods, through a common carrier, by a consignor in one place to a consignee in another place. And said
article provides that the claim for damages must be made "within twenty-four hours following the receipt of the
merchandise" by the consignee from the carrier. In other words, there must be delivery of the merchandise by the
carrier to the consignee at the place of destination. In the instant case, the consignor is the branch office of Lee Teh& Co.,
Inc. at Catarman, Samar, which placed the cargo on board the ship Jupiter, and the consignee, its main office at Manila.
The lower court found that the cargo never reached Manila, its destination, nor was1 it ever delivered to the consignee,
the office of the shipper in Manila, because the ship ran aground upon entering Laoang Bay, Samar on the same day of
the shipment. Such being the case, it follows that the aforesaid article 366 does not have application because the cargo
was never received by the consignee. Moreover, under the bill of lading issued by the carrier (Exhibit C), it was the
tetter's undertaking to bring the cargo to its destination Manila, and deliver it to consignee, which undertaking was
never complied with. The carrier, therefore, breached its contract, and, as such, it forefeited its right to invoke in its favor
the conditions required by article 366.

9
One case parallel to the present is Roldan vs. Lim Ponzo& Co., 37 Phil, 285. In that case, plaintiff sought to recover
damages for failure of defendant to transport 2,244 packages of sugar from plaintiff's hacienda to Iloilo. It was proven
that the cargo did not reach its destination because the lorcha carrying it was wrecked in the river Jalaud through the
negligence and lack of skill of the master of ithelorcha. And of the total cargo of 2,244 packages of sugar, only 1,022 were
saved in damaged condition through the efforts made by the shipper. Because plaintiff failed to comply with the
requirement of article 366 of the Code of Commerce, the lower court found for defendant and dismissed the case. But
this Court held that said article "is limited to cases of claims for damages to goods actually received by the consignee; it
has no application in cases wherein the goods entrusted to the carrier are not delivered to the consignee by the carrier
in pursuance of the terms of the carriage contract." Elaborating on this point, this Court commented:

"Article 366 of the Commercial Code is limited to cases of claims for damages to goods actually turned over by the
carrier and received by the consignee, whether those damages be apparent from an examination of the packages in
which the goods are delivered, or of such character that the nature and extent of the damage is not apparent until the
packages are opened and the contents examined. Clearly it has no application in cases wherein the goods entrusted to
the carrier are not delivered by the carrier to the consignee. In such cases there can be no question of & claim for
damages suffered by the goods while in transport, since the claim for damages arises exclusively out of the failure to
make delivery." * * *

"We are of opinion, however, that the necessity for making the claim in accordance with that article did not arise if, as it
is alleged, these 1,022 packages, of sugar were recovered from the wreck by the plaintiff, himself^ in an effort, by his
own activities, to save his property from total loss. The measures to be taken under the terms of Article 367 of the Code
when the parties are unable to arrive at an amicable settlement of claims for damages set up in accordance with Article
866, quite clearly indicate that the necessity for the presentation of claims under this article arises only in those cases
wherein the carrier makes delivery and the consignee receives the goods in pursuance of the terms of the contract."

It is true that in the instant case there is some disagreement as to whether the salvage of the portion of the cargo that
was saved was due to the efforts of the carrier itself or to the combined efforts of the latter and the shipper as a result of
which the salvaged cargo was placed in possession of the shipper who sold it and deducted its proceeds from the liability
of the carrier. But this discrepancy, in our opinion, would seem to be immaterial because the law as well as the contract
contemplates delivery of the cargo to the consignee at its port of destination in order that the benefit of the law may be
availed of. The liability of the carrier must be determined in the light of the carriage contract, and since that contract
calls for reciprocal obligations, the carrier cannot demand fulfillment of its part from the shipper or consignee unless it
first complies with its own obligation. (Article 1100, old Civil Code.) The fact that the consignor is but the branch office
of the company that shipped the goods, and the consignee is the main office at Manila, is of no moment, because the
duties of each party under the law are different. Moreover, even if the consignor and the consignee be considered as one
and the same party, still the carrier cannot disclaim responsibility under its contract for the simple reason that it failed
to comply with its obligation to bring the cargo to its destination. This breach alone justifies its liability under the
carriage contract.

Wherefore, the decision appealed from is hereby reversed, and another one will be entered ordering the defendant to
pay the plaintiff the sum of P5,196.20, with legal interest thereon from the filing of the complaint, with costs against
appellee.

Bengzon, Acting C.J., Padilla, Montemayor, Jugo, Labrador, Concepcion, and Reyes, J.B.L., JJ., concur.

Transportation Case Digest: Mayer Steel Pipe Corp. V. CA (1997)

G.R. No. 124050 June 19, 1997
Ancillary Contracts (transportation)

FACTS:
 1983: Hongkong Government Supplies Department (Hongkong) contracted Mayer Steel Pipe Corporation
(Mayer) to manufacture and supply various steel pipes and fittings
 August to October, 1983: Mayer shipped the pipes and fittings to Hongkong as evidenced by Invoice Nos. MSPC-
1014, MSPC-1015, MSPC-1025, MSPC-1020, MSPC-1017 and MSPC-1022
 Prior to the shipping, Mayer insured the pipes and fittings against all risks with South Sea Surety and Insurance
Co., Inc. (South Sea) and Charter Insurance Corp. (Charter)
 South Sea:Invoice Nos. MSPC-1014, 1015 and 1025 for US$212,772.09
 Charter: Invoice Nos. 1020, 1017 and 1022 for US$149,470.00
 Mayer and Hongkong jointly appointed Industrial Inspection (International) Inc. as third-party inspector to
examine whether the pipes and fittings are manufactured in accordance with the specifications in the contract
 Industrial Inspection certified all the pipes and fittings to be in good order condition before they were
loaded in the vessel
 When the goods reached Hongkong, it was discovered that a substantial portion thereof was damaged
 Mayer and Hongkong a claim against private respondents for indemnity under the insurance contract
 Charter paid petitioner Hongkong the amount of HK$64,904.75
 demanded payment of the balance of HK$299,345.30 which was refused
 April 17, 1986: filed an action to recover HK$299,345.30
 Defense: insurance surveyor's report allegedly showed that the damage is a factory defect
10
  Trial Court: in favor of Mayer and Hongkong
 CA: reversed
 affirmed the finding of the trial court that the damage is not due to factory defect and that it was covered
by the "all risks" insurance policies
 BUT held that Section 3(6) of the Carriage of Goods by Sea Act provides that "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
 applies not only to the carrier but also to the insurer
ISSUE: W/N Section 3(6) of the Carriage of Goods by Sea also applies to insurer

HELD: NO. Petition is granted. CA reversed. RTC reinstated

 Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and the ship shall be discharged from all
liability for loss or damage to the goods if no suit is filed within one year after delivery of the goods or the date
when they should have been delivered. Under this provision, only the carrier's liability is extinguished if no suit
is brought within one year. But the liability of the insurer is not extinguished because the insurer's liability is
based not on the contract of carriage but on the contract of insurance - governed by the Insurance Code
 An insurance contract is a contract whereby one party, for a consideration known as the premium, agrees to
indemnify another for loss or damage which he may suffer from a specified peril
 "all risks" insurance policy covers all kinds of loss other than those due to willful and fraudulent act of
the insured
 prescribes in ten years, in accordance with Article 1144 of the New Civil Code

RIZAL SURETY v. MACONDRAY 130 Phil. 936

Plaintiff, Rizal Surety & Insurance Company seeks the reversal of a decision of the Court of First Instance of Manila
dismissing the complaint herein, with costs.

Plaintiff seeks to recover from defendant, Macondray Co., Inc., as authorized agent, in Manila, of Barber Steamship Line,
Inc., which operates the vessel "SS Tai Ping," the sum of P2,020.00, representing the maximum value recoverable under
the corresponding- bill of lading of some machinery parts shipped, on board said vessel, at New York, and consigned to
Edwardson Manufacturing Corporation, in Manila, but not discharged by the vessel in Manila, in view of which the
plaintiff had to pay, pursuant to its contract of insurance with the consignee, the value of said effects to the latter.

In its answer, the defendant set up the defense of pre-scription which the lower court sustained. Hence, the dismissal of
the complaint, which has been appealed directly to this Court.

Defendant's plea is predicated upon Section 3, Title I, of the Carriage of Goods by Sea Act, the penultimate paragraph of
subparagraph 6 of which reads:

"In any event the carrier and the ship shall be discharged from all liability in respect to loss or damages 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."
The only question submitted for our determination is whe-ther the period of prescription in the foregoing provision is
con-trolling in the case at bar, considering the conditions obtaining therein.

Plaintiff maintains the negative view, upon the theory that the above-quoted provision cannot apply when the shipment
in question has not been discharged from the carrying vessel, as in the case at bar. In such event, it claims, our general
statute of limi-tations of action should apply.

We find no merit in this contention. The aforementioned provision contemplates not only the case of damage, but also,
that of loss. It goes without saying that there could be no possible charge of goods lost during the voyage and before
reaching the destination. Then again, said provision, likewise, anticipates two (2 other possibilities, viz.: 1) that delivery
has been made, in which case the action should be brought "within one year after delivery of the goods;" or 2) that no
delivery has taken place, in which event said period should be computed from "the date when goods should have been
delivered." In the latter contingency, the cause of such non-delivery that is to say, whether the goods have been
discharged from the vessel or not is immaterial. If the goods have not been discharged from the vessel, the non-delivery
is imputable to the carrier. So would it be, if the goods had been unloaded from the vessel, but not delivered to the
consignee. Indeed, in such case of discharge of the goods from the vessel, the carrier would still be liable for non-
delivery of goods, because the same would be due to its own omission, if undertook to make the delivery by itself, or to
the omission of its agent, if the carrier entrusted the custody of the goods and/or its delivery to a third party.

Again, our statute of limitations of action cannot be applied to the present case because the corresponding bill of lading
which is the contract and, hence, the law between the parties expressly stipulates that it is "subject to the Provisions of

11
the Carriage by Sea Act of the U. S. of America, approved April 16, 1936 which shall be deemed to be incorporated"
therein.

The lower court held, and, correctly, that, inasmuch as "SS Tai Ping" arrived at the Port of Manila on November 2, 1962
and left it on November 4, 1962, it was on the latter date that the carrier had the last opportunity to deliver the goods;
that the period of one year within which the carrier could be sued commence to run, therefore, from November 5, 1962
and expired on November 4, 1963; and that said period has expired before this action was commenced on February 10,
1964.

WHEREFORE, the decision appealed from should as it is hereby, affirmed, with costs against plaintiff-appellant.

IT IS SO ORDERED.

Union Carbide Philippines, Inc. vs. Manila Railroad Co. (1977)

FACTS

- Dec 18 1961: the vessel Daishin Maru arrived in Manila with a cargo of synthetic resin which was later sold to Union
Carbide Philippines, Inc.

- Dec 19 1961: that cargo was delivered to the Manila Port Service in good order and condition except for 25 bags which
were in bad order

- 898 bags of resin out of the 1,000 bags were delivered by the customs broker to the consignee. 102 bags were missing.
25 bags were damaged or pilfered while they were in the custody of the arrastre operator.
- The consignee filed with the Manila Port Service, as arrastre operator, and the American Steamship Agencies, Inc., as
agent of the carrier, a provisional claim advising them that the shipment in question was "shorthanded, short delivered
and/or landed in bad order"
- Formal claims were then filed but as the claims were not paid, Union Carbide Philippines, Inc. filed a complaint for the
recovery of damages on Dec 21, 1962
- Union Carbide's complaint was a joinder of 2 causes of action. One was an action in admiralty under the Carriage of
Goods by Sea Act against the carrier's agent for the value of 25 bags of resin which were damaged before they were
landed. The other was an action under the management contract between the Bureau of Customs and the Manila Port
Service, a subsidiary of the Manila Railroad Company, for the recovery of the value of the undelivered 102 bags of resin
and 25 bags, the contents of which were damaged or pilfered while in the custody of the arrastre operator.
- TC dismissed the case as to the carrier's agent on the ground that the action had already prescribed because it was not
"brought w/in 1 year after delivery of the goods", as contemplated in section 3(6) of the Carriage of Goods by Sea Act.
The 1-year period was counted from December 19, 1961 when the cargo was delivered to the arrastre operator. The
action was brought on December 21, 1962 or 2 days late, according to the TC's reckoning. With respect to the
consignee's claim against the arrastre operator, TC found that the provisional claim was filed within the 15-day period
fixed in the arrastre contract but the TC still dismissed the action against the arrastre operator.
- CA elevated the case to court
- Union Carbide alleged that the TC erred (1) in finding that its action was barred by the statute of limitations and (2) in
not holding that the carrier and the arrastre operator were liable for the value of the undelivered and damaged cargo.

ISSUE :
1. WoN the action was barred by the statute of limitations? YES
2. WoN the carrier and the arrastre operator were liable for the value of the undelivered and damaged cargo? YES

RATIO
1. Under the Carriage of Goods by Sea Act, the 1-year period within which the consignee should sue the carrier is
computed from "the delivery of the goods or the date when the goods should have been delivered".

TC construed delivery as referring to the discharge or landing of the cargo.

Union Carbide contends that "delivery" does not mean the discharge of goods or the delivery to the arrastre operator but
the actual delivery of the goods to the consignee by the customs broker.
The carrier contends that delivery means discharge from the vessel into the custody of the customs arrastre operator
because under sections 1201 and 1206 of the Tariff and Customs Code merchandise cannot be directly delivered by the
carrier to the consignee but should first pass through the customhouse at a port of entry for the collection of customs
duties.

What is the meaning of "delivery" in section 3(6) of the Carriage of Goods by Sea Act? Tariff and Customs Code allows the
delivery of imported merchandise to the arrastre operator. Delivery within the meaning of section 3(6) of the Carriage of
Goods by Sea Law means delivery to the arrastre operator. That delivery is evidenced by tally sheets which show
whether the goods were landed in good order or in bad order, a fact which the consignee or shipper can easily ascertain
through the customs broker.

12
To use as basis for computing the one-year period the delivery to the consignee would be unrealistic and might generate
confusion between the loss or damage sustained by the goods while in the carrier's custody and the loss or damage
caused to the goods while in the arrastre operator's possession.

Section 3(6) adheres to the common-law rule that the duty imposed water carriers was merely to transport from wharf
to wharf and that the carrier was not bound to deliver the goods at the warehouse of the consignee. The common-law
requirements as to the proper delivery of goods by water carrier apply only when customs regulations at the port of
destination do not otherwise provide. The delivery must be in accordance with the usages of the port in order that such
delivery would discharge the carrier of responsibility.

In this case, we held that the one-year period was correctly reckoned by the trial court from December 19, 1961.
Inasmuch as the action was filed on December 21, 1962, it was barred by the statute of limitations. Defendant American
Steamship Agencies, Inc., as agent of the carrier, has no more liability to the consignee's assignee, Union Carbide
Philippines, Inc., in connection with the damaged twenty-five bags of resin.

2. The liability of the arrastre contractor has a factual and legal basis different from that of the carrier's. The
management contract between the Manila Port Service and the Bureau of Customs provides that the action against the
arrastre operator to enforce liability for loss of the cargo or damage thereto should be filed within 1 year from the date
of the discharge of the goods or from the date when the claim for the value of such goods has been rejected or denied by
the arrastre operator.

But before the action can be filed, a condition precedent should be complied with-- that a claim (provisional or final)
shall have been previously filed with the arrastre operator w/in 15-days from the date of the discharge of the last
package from the carrying vessel.

In this case, the consignee's customs broker filed with the Manila Port Service a provisional claim on January 3, 1962 or
on the 15th day following December 19, 1961, the date of the discharge of the last package from the carrying vessel. That
claim was never formally rejected or denied by the Manila Port Service.

Having complied with the condition precedent for the filing of a claim within the 15-day period, Union Carbide could file
the court action within 1 year, either from December 19, 1961 or from December 19, 1962. This second date is regarded
as the expiration of the period within which the Manila Port Service should have acted on the claim.

Thus, the claimant or consignee has a 2-year prescriptive period, counted from the date of the discharge of the goods,
within which to file the action in the event that the arrastre contractor, as in this case, has not rejected nor admitted
liability.

The arrastre operator is responsible for the value of 102 bags of resin which were not delivered, and twenty-five bags,
which were damaged, or a total of one hundred twenty-seven bags valued at P6,185.22.

Dispositive: TC's judgment is affirmed insofar as it dismissed plaintiff-appellant's claim against defendant American
Steamship Agencies, Inc. on the ground of prescription BUT reversed insofar as it dismissed plaintiff's claim against the
Manila Railroad Company, as arrastre operator.

What cases are covered under the COGSA?

It applies only in case of loss or damage, and not to misdelivery or conversion of goods. (Ang v. American Steamship
Agencies, Inc., G.R. No. L-22491, Jan. 27, 2967)

Domingo Ang vs. American Steamship agencies inc.

Articles 17 & 18

FACTS:
Yau Yae comerical Bank LTD of Hongkong represented by Yau Yae agreed to sell 140 packsges of galvanized steel
dursink sheets to one Herminio G Teves. Said agreement was subject to the terms and arrangements.

Pursuant to said terms and arrangements, Yau Yae through Tokyo boeki LTD of Tokyo Japan, shipped the articles at
Yakata, Japan and later to Manila which was processed by American Staemship Agencies INC. in which under a shipping
agreement or bill of lading it consigned to order of the shipper with Mr Teves.

On May 9, 1961 the article arrived in manila, and under the bill of lading of the arrival of the goods and requested
payments of the demand draft representing the purchased price of the article, however, Mr Teves did not pay the
demand draft to Hongkong and Shanghai bank where it was to be processed the payments. Prompting the bank to make

13
corresponding protest and the bank likewise returned the bill of lading and demand draft to Yau Yae which later
endorsed the bill of lading to Domingo Ang.

Meanwhile, despite his non-payments of the purchase price of the articles. Teves was able to obtain a bank guaranty in
favor of American Steamship agencies INC. as carriers agent to the effect that he would surrender the negotiable bill of
lading duly endorsed by Yau Yae on the strength of this guaranty. Teves succeded in securing a permit to deliver
imported goods from the carriers agent, which he presented to Bureau of customs which in turn release to him the
articles covered by the bill of lading.

Subsequently, Domingo Ang claimed for the articles from the American steamship agencies Inc. by presenting the
indorsed bill of lading, but he was informed by the latter that the articled he claimed was already delivered to Mr. Teves.

ISSUE: Whether or not the American Steamship Agencies Inc. punishable under carriage of goods by Sea act for
misdelivery of goods?

HELD: When the delivery of articles carried by the herein defendant-appellee (American steamship agencies Inc) on
May 9, 1961 to Herminio Teves but supposedly to Mr Domingo Ang ,plaintiff-appellant and upon knowing by the
plaintiff-appellant that the articles intended to him was misdelivered to other person, he filed in court of first instance of
Manila on October 30, 1963 against American Steamship agencies Inc for allegedly wrongful delivery of goods belonging
to him.

The defendant-appellee filed motion to dismissed with the contention that the ground of the plaitiff’s caused of action is
prescribed under the carriage of goods by sea act particular section 3(6) paragraph 4, which provides that;

“In any event, the carrier and the ship shall be discharge from all liability in respect to loss or damage unless suit is
brought within one year, after delivery of the goods or date when the goods should have been delivered”

The defendant further contented that the action of the plaintiff-appellant even allowing a reasonable time from the date
of delivery on May 9, 1961, still initiated his action on October 30, 1963 which beyond the prescribed period of One (1)
year under the preceding paragraph.

The court rendered it decision dismissing the complaint of the plaintiff, appellant for the ground of prescription,
however the provision involved in this case as mentioned earlier speaks ”loss or damage” despite that the plaintiff filed
motion for reconsideration and it has been denied by the lower court, afterwards, the plaintiff directly appealed to the
higher court for the matter that; has plaintiff-appellant cause of action prescribed under section 3(6) paragraph 4 of the
carriage of goods by sea act?

The court ruled that, the word” loss or damage “as speaks to the provision in this case was not transpired because only
the misdelivery of goods occurred to the defendant, and upon admitted by the defendant in motion to dismissed that the
articles belongs for Mr. Ang has been misdelivered to Mr. Teves.

Therefore it clearly shows that the defendant violates the provision of civil code of the Philppines particular in Article
1144, which provides; the following actions must be brought within ten (10) years from the time the right of the action
accrues, paragraph (1) upon a written contract and Article 1146, the following action must be instituted within four(4)
years, paragraph (2) quasi delict, wherein it supplies the deficiency provided in article 18 of the same code. To read” in
matters which are governed by the code of commerce and special laws, their deficiency shall be supplied by the
provision of this code.”

Wherefore, suits predicated not upon loss or damage but misdelivery of goods that so, the defendant was not held
liable for carriage of goods by sea act and the court hereby reversed the dismissal order afterwards remanded to the
lower court for further proceedings.

FILIPINO MERCHANTS INSURANCE CO., Inc. v. CA

GR No. 85141 Nov. 28, 1989 Second Division [Regalado]

Nature: Petition for review on certiorari challenging a CA decision finding FilMerchant liable to pay plaintiff.

Facts:

14
 This is a story about a consignee/buyer who bought fishmeal products from Bangkok and had it
delivered to the port of Manila. He entered into an insurance contract with defendant insurance
company (FilMerchant) under policy no. M-2678 for P267,653.59 and for goods described as 600 metric
tons of fishmeal in new gunny bags of 90 kilos each. What was actually imported was 59.940mtons in
666 gunny bags. Upon arrival at Manila, arrastre and defendant’s surveyor found 227 bags in bad order
condition. Because of this loss, buyer formally claimed from FilMerchant but the said insurance
company refused to pay. He brought suit. Trial court ruled for him and against FilMerchant, CA affirmed
trial court hence this petition.

FilMerchant argues: (1) CA erred in the interpretation and application of the “all risk” clause of maritime insurance
policy. It says it should not be held liable for partial loss notwithstanding the clear absence of
proof of some fortuitous event, casualty, or accidental cause to which the loss is attributable.

(2) Respondent had no insurable interest in the subject cargo. The shipment reveals that it is a
“C & F” contract of shipment. The seller, not the consignee, paid for the shipment. As there was
yet no delivery to the consignee, ownership (and interest) does not yet pass to him.

ISSUE: W/N CA was correct in its interpretation of the “all risk” clause in the maritime insurance
contract.

W/N the insured had insurable interest over the property insured.

Ruling:

a) “All risks policy” has no technical meaning.

The clause in question reproduced:

“5. This insurance is against all risks of loss or damage to the subject-matter insured but shall in
no case be deemed to extend to cover loss, damage, or expense proximately caused by delay or
inherent vice or nature of the subject-matter insured. Claims recoverable hereunder shall be
payable irrespective of percentage “

An "all risks policy" should be read literally as meaning all risks whatsoever and covering all losses by an accidental
cause of any kind. The very nature of the term "all risks" must be given a broad and comprehensive meaning as covering
any loss other than a willful and fraudulent act of the insured. 7 This is pursuant to the very purpose of an "all risks"
insurance to give protection to the insured in those cases where difficulties of logical explanation or some mystery
surround the loss or damage to property.

Burden of proof shifts to the insurer.

Generally, the burden of proof is upon the insured to show that a loss arose from a covered peril, but under an "all risks"
policy the burden is not on the insured to prove the precise cause of loss or damage for which it seeks compensation.
The insured under an "all risks insurance policy" has the initial burden of proving that the cargo was in good condition
when the policy attached and that the cargo was damaged when unloaded from the vessel; thereafter, the burden then
shifts to the insurer to show the exception to the coverage.

b) Vendee/Consignee has insurable interest

SC: The shipment contract being that of cost and freight (C&F) is immaterial in the determination of insurable
interest. The perfected contract of sale vests in the vendee an equitable title, an interest sufficient enough to be
insurable. Further, Art. 1523 NCC provides that where, in pursuance of a contract of sale, the seller is authorized or
required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for,
the purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer, the exceptions to said
rule not obtaining in the present case. The Court has heretofore ruled that the delivery of the goods on board the
carrying vessels partake of the nature of actual delivery since, from that time, the foreign buyers assumed the
risks of loss of the goods and paid the insurance premium covering them.

WHEREFORE, the instant petition is DENIED and the assailed decision of the respondent Court of Appeals is AFFIRMED
in toto.

DOLE PHILIPPINES, INC. v MARITIME COMPANY OF THE PHILIPPINES

Facts:
The cargo subject of the instant case was discharged in Dadiangas unto the custody of the consignee, Dole Philippines.
The corresponding claim for the damages sustained by the cargo was filed by the plaintiff with the defendant, Maritime
Company on May 4, 1972.

15
On June 11, 1973 the plaintiff filed a complaint in the CFI Manila embodying 3 causes of action involving 3 separate and
different shipments. The third cause of action therein involved the cargo now subject of this present litigation.

On December 11, 1974, Judge Serafin Cuevas issued an Order dismissing the first two causes of action. The third cause of
action which covered the cargo subject of this case now was likewise dismissed but without prejudice as it was not
covered by the settlement. Because of the dismissal of the complaint with respect to the third cause of action, DOLE
instituted this present complaint on January 6, 1975.

Maritime filed an answer pleading inter alia the affirmative defense of prescription under the provisions of the Carriage
of Goods by Sea Act. The Trial Court granted the motion, scheduling the preliminary hearing on April 27, 1977. The
record before the Court does not show whether or not that hearing was held, but under date of May 6, 1977, Maritime
filed a formal motion to dismiss invoking once more the ground of prescription.

The Trial Court, after due consideration, resolved the matter in favor of Maritime and dismissed the complaint.

Issue: Whether or not Article 1155 of the Civil Code applies in lieu of the COGSA.

Held: No. Article 1155 of the Civil Code provides that the prescription of actions is interrupted by the making of an
extrajudicial written demand by the creditor

Section 3, paragraph 6 of the COGSA provides that:

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 conceded, 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.

1. Dole argues that since the provisions of the Civil Code are, by express mandate of said Code, suppletory of deficiencies
in the Code of Commerce and special laws in matters governed by the latter and there being a patent deficiency with
respect to the tolling of the prescriptive period provided for in the Carriage of Goods by Sea Act, prescription under said
Act is subject to the provisions of Article 1155 of the Civil Code on tolling. Since Dole's claim for loss or damage was filed
on May 4, 1972 amounted to a written extrajudicial demand which would toll or interrupt prescription under Article
1155, it operated to toll prescription also in actions under the Carriage of Goods by Sea Act.

These arguments might merit weightier consideration were it not for the fact that the question has already received a
definitive answer, adverse to the position taken by Dole, in The Yek Tong Lin Fire & Marine Insurance Co., Ltd. vs.
American President Lines, Inc.

2. Dole argues that it was error for the court not to have considered the action of plaintiff-appellant suspended by the
extrajudicial demand which took place, according to defendant's own motion to dismiss on August 22, 1952.

Court noticed that while plaintiff avoids stating any date when the goods arrived in Manila, it relies upon the allegation
made in the motion to dismiss that a protest was filed on August 22, 1952 — which goes to show that plaintiff-
appellant's counsel has not been laying the facts squarely before the court for the consideration of the merits of the case.
We have already decided that in a case governed by the Carriage of Goods by Sea Act, the general provisions of the Code
of Civil Procedure on prescription should not be made to apply. (Chua Kuy vs. Everett Steamship Corp., G.R. No. L-5554,
May 27, 1953.) We hold that in such a case the general provisions of the new Civil Code (Art. 1155) cannot be made to
apply, as such application would have the effect of extending the one-year period of prescription fixed in the law. It is
desirable that matters affecting transportation of goods by sea be decided in as short a time as possible; the application
of the provisions of Article 1155 of the new Civil Code would unnecessarily extend the period and permit delays in the
settlement of questions affecting transportation, contrary to the clear intent and purpose of the law.

Under Dole's theory, when its claim was received by Maritime, the one-year prescriptive period was interrupted and
began to run anew from May 4, 1972, affording Dole another period of one year counted from that date within which to
institute action on its claim for damage. Unfortunately, Dole let the new period lapse without filing action. It instituted
Civil Case No. 91043 only on June 11, 1973, more than one month after that period has expired and its right of action had
prescribed.

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What cases are covered under the COGSA?
Also, the deterioration of goods due to delay in their transportation constitutes "loss" or "damage" within the meaning of
Sec. 3(6) of COGSA. (Mitsui O.S.K. Lines Ltd. v. CA, G.R. No. 119571, Mar. 11, 1998)

MITSUI VS. CA, 287 SCRA 366

Facts: Petitioner Mitsui O.S.K. Lines Ltd. is a foreign corporation represented in the Philippines by its agent, Magsaysay
Agencies. It entered into a contract of carriage through Meister Transport, Inc., an international freight forwarder, with
private respondent Lavine Loungewear Manufacturing Corporation to transport goods of the latter from Manila to Le
Havre, France. Petitioner undertook to deliver the goods to France 28 days from initial loading. On July 24, 1991,
petitioner's vessel loaded private respondent's container van for carriage at the said port of origin.

However, in Kaoshiung, Taiwan the goods were not transshipped immediately, with the result that the shipment arrived
in Le Havre only on November 14, 1991. The consignee allegedly paid only half the value of the said goods on the ground
that they did not arrive in France until the "off season" in that country. The remaining half was allegedly charged to the
account of private respondent which in turn demanded payment from petitioner through its agent.

ISSUE : Whether or not private respondent's action is for "loss or damage" to goods shipped, within the meaning of the
Carriage of Goods by Sea Act (COGSA).

Ruling: No. The suit is not for "loss or damage" to goods contemplated in §3(6), the question of prescription of action is
governed not by the COGSA but by Art. 1144 of the Civil Code which provides for a prescriptive period of ten years. As
defined in the Civil Code and as applied to Section 3(6), paragraph 4 of the Carriage of Goods by Sea Act, "loss"
contemplates merely a situation where no delivery at all was made by the shipper of the goods because the same had
perished, gone out of commerce, or disappeared in such a way that their existence is unknown or they cannot be
recovered.

There would be some merit in appellant's insistence that the damages suffered by him as a result of the delay in the
shipment of his cargo are not covered by the prescriptive provision of the Carriage of Goods by Sea Act above referred
to, if such damages were due, not to the deterioration and decay of the goods while in transit, but to other causes
independent of the condition of the cargo upon arrival, like a drop in their market value.

WALLEM PHILIPPINES SHIPPING, INC., Petitioner vs. S.R. FARMS, INC., Respondent, G.R. No. 161849, July 9, 2010

Facts: On March 25, 1992, Continental Enterprises, Ltd. loaded on board the vessel M/V “Hui Yang,” a shipment of Indian
Soya Bean Meal weighing 1,100 metric tons, for transportation and delivery from India to Manila, with SR Farms as
consignee.The vessel is owned and operated by Conti-Feed, with petitioner Wallem as its ship agent.

On April 11, 1992, the said vessel, M/V “Hui Yang” arrived at the port of Manila and was discharged and transferred into
the custody of the receiving barges. Upon checking the cargo, a shortage in the shipment of 80.467 metric tons was
found. Petitioner then filed a Complaint for damages against Conti-Feed and on June 7, 1993, respondent filed an
Amended Complaint impleading herein petitioner as defendant.

Petitioner denied the allegations of respondent claiming, among others, that respondent’s claim is already barred by
laches and/or prescription. RTC dismissed the petition. The CA reversed the decision of the RTC. Hence, this petition.

ISSUE : Whether or not the claim against petitioner was timely filed.

Held: NO.Under Section 3 (6) of the COGSA, notice of loss or damages must be filed within three days of delivery.
Admittedly, respondent did not comply with this provision.Under the same provision, however, a failure to file a notice
of claim within three days will not bar recovery if a suit is nonetheless filed within one year from delivery of the
goods or from the date when the goods should have been delivered.

There is no dispute that the vessel carrying the shipment arrived at the Port of Manila on April 11, 1992 and that the
cargo was completely discharged therefrom on April 15, 1992. However, respondent erred in arguing that the complaint
for damages, insofar as the petitioner is concerned, was filed on March 11, 1993.

In the instant case, petitioner was only impleaded in the amended Complaint of June 7, 1993, or one (1) year, one
(1) month and twenty-three (23) days from April 15, 1992, the date when the subject cargo was fully unloaded from
the vessel. The filing of an amended pleading does not retroact to the date of the filing of the original; the statute of
limitation runs until the submission of the amendment.Hence, reckoned from April 15, 1992, the one-year
prescriptive period had already lapsed.

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Heacock v. Macondray, 42 Phil 90, October 3, 1921

Shipper: HE Heacock Co. (plaintiff and appellant)

Common Carrier:Macondray& Co. (defendant and appellant)
Goods: four cases of merchandise, one of which contained twelve (12) 8-day Edmond Clocks, properly boxed
Destination: New York to Manila
Condition: No delivery of one case which contained twelve (12) 8-day Edmond Clock

Three kinds of stipulations have often been made in a bill of lading. The first is one exempting the carrier from any
and all liability for loss or damage occasioned by its own negligence. The second is one providing for an unqualified
limitation of such liability to an agreed valuation. And the third is one limiting the liability of the carrier to an agreed
valuation unless the shipper declares a higher value and pays a higher rate of freight. According to an almost uniform
weight of authority, the first and second kinds of stipulations are invalid as being contrary to public policy, but the third is
valid and enforceable.

If a common carrier gives to a shipper the choice of two rates and if the shipper makes such a choice,
understandingly and freely, and names his valuation, he cannot thereafter recover more than the value which he thus places
upon his property. A limitation of liability based upon an agreed value does not conflict with any sound principle of public
policy; and it is not conformable to plain principles of justice that a shipper may understate value in order to reduce the rate
and then recover a larger value in case of loss.

Facts:
 Plaintiff Heacock caused to deliver the four cases of merchandise on board in the steamship Bolton Castle. In which
one of which contained twelve (12) 8-day Edmond Clocks.
 When the vessel arrived in the port of Manila, neither the master of the vessel nor the defendant, as its agent,
delivered to the plaintiff the one case of merchandise which contained twelve (12) 8-day Edmond Clocks,
 Lower Court: in favor of Plaintiff; Ruled in accordance with clause 9 of the Bill of Lading; defendant is ordered to
pay P226.02, this being the invoice value of the clocks in question plus freight and insurance, with legal interest
 Both parties appealed
 Other important facts of the case:
1. the market value of the merchandise in city of New York was P22 and in the Manila was P420.
2. The bill of lading issued and delivered to the plaintiff by the master of the said steamship Bolton Castle
contained, among others, the following clauses:

1. It is mutually agreed that the value of the goods receipted for above does not exceed $500 per freight ton, or,
in proportion for any part of a ton, unless the value be expressly stated herein and ad valorem freight paid
thereon.
9. Also, that in the event of claims for short delivery of, or damage to, cargo being made, the carrier shall not be
liable for more than the net invoice price plus freight and insurance less all charges saved, and any loss or
damage for which the carrier may be liable shall be adjusted pro rata on the said basis.

3. The case containing the aforesaid twelve 8-day Edmond clocks measured 3 cubic feet, and the freight ton value
thereof was $1,480, U. S. currency.
4. No greater value than $500, U. S. currency, per freight ton was declared by the plaintiff on the aforesaid clocks,
and no ad valorem freight was paid thereon.

On or about October 9, 1919, the defendant tendered to the plaintiff P76.36, the proportionate freight ton value of the
aforesaid twelve 8-day Edmond clocks, in payment of plaintiff's claim, which tender plaintiff rejected.

Issue:May a Common Carrier, by stipulations inserted in the bill of lading, limit its liability for the loss of or
damage to the cargo to an agreed valuation of the latter Yes.

Contentions of the parties:

1. The plaintiff-appellant insists that it is entitled to recover from the defendant the market value of the clocks in
question, to wit: the sum of P420. The defendant-appellant, on the other hand, contends that, in accordance with
clause 1 of the bill of lading, the plaintiff is entitled to recover only the sum of P76.36, the proportionate freight ton
value of the said clocks.
2. The claim of the plaintiff is based upon the argument that the two clause in the bill of lading above quoted, limiting
the liability of the carrier, are contrary to public order and, therefore, null and void. The defendant, on the other
hand, contends that both of said clauses are valid, and the clause 1 should have been applied by the lower court
instead of clause 9.

Held:

1. Contents of the Bill of Lading (see clause 1 and clause 9)

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2. Three kinds of stipulations often found in a bill of lading
 Three kinds of stipulations have often been made in a bill of lading.The first is one exempting the carrier
from any and all liability for loss or damage occasioned by its own negligence. The second is one
providing for an unqualified limitation of such liability to an agreed valuation.And the third is one limiting the
liability of the carrier to an agreed valuation unless the shipper declares a higher value and pays a higher rate of
freight.

According to an almost uniform weight of authority, the first and second kinds of stipulations are
invalid as being contrary to public policy, but the third is valid and enforceable.

3. Authorities supporting invalidity of absolute exemption from liability and unqualified limitation to an
agreed valuation
The Harter Act (Act of Congress of 13 February 1893), Louisville Ry. Co. vs. Wynn (88 Tenn., 320), and Galt vs.
Adams Express Co. (4 McAr., 124; 48 Am. Rep., 742) support the proposition that the first and second stipulations in
a bill of lading are invalid which either exempt the carrier from liability for loss or damage occasioned by its
negligences or provide for an unqualified limitation of such liability to an agreed valuation.

4. Hart vs. Pennsylvania RR Co.

In the case of Hart vs. Pennsylvania R. R. Co., it was held that “where a contract of carriage, signed by the shipper, is
fairly made with a railroad company, agreeing on a valuation of the property carried, with the rate of freight based
on the condition that the carrier assumes liability only to the extent of the agreed valuation, even in case of loss or
damage by the negligence of the carrier, the contract will be upheld as proper and lawful mode of recurring a due
proportion between the amount for which the carrier may be responsible and the freight he receives, and protecting
himself against extravagant and fanciful valuations.”
5. Union Pacific Railway Co. vs. Burke
In the case of Union Pacific Railway Co. vs. Burke, the court said: it has been declared to be the settled Federal law
that if a common carrier gives to a shipper the choice of two rates, the lower of them conditioned upon his agreeing
to a stipulated valuation of his property in case of loss, even by the carrier’s negligence, if the shipper makes such a
choice, understandingly and freely, and names his valuation, he cannot thereafter recover more than the value which
he thus places upon his property As a matter of legal distinction, estoppel is made the basis of this ruling, — that,
having accepted the benefit of the lower rate, in common honesty the shipper may not repudiate the conditions on
which it was obtained, — but the rule and the effect of it are clearly established.”

6. Limited Liability of a Carrier, based upon an agreed value, not contrary to public policy
A carrier may not, by a valuation agreement with a shipper, limit its liability in case of the loss by negligence of an
interstate shipment to less than the real value thereof, unless the shipper is given a choice of rates, based on
valuation.

 A limitation of liability based upon an agreed value to obtain a lower rate does not conflict with any sound principle
of public policy; and it is not conformable to plain principle of justice that a shipper may understate value in order to
reduce the rate and then recover a larger value in case of loss.

7. Clauses 1 and 9 falls within third kind of stipulation; Article 1255, OCC (article 1306, NCC)

 A reading of clauses 1 and 9 of the bill of lading clearly shows that the present case falls within the third
stipulation, to wit: That a clause in a bill of lading limiting the liability of the carrier to a certain amount unless the
shipper declares a higher value and pays a higher rate of freight, is valid and enforceable.

Clauses 1 and 9 are not contrary to public order. Article 1255 Old Civil Code (Art. 1306 NCC) provides that
“the contracting parties may establish any agreements, terms and conditions they may deem advisable, provided
they are not contrary to law, morals or public order.” Said clauses of the bill of lading are, therefore, valid and
binding upon the parties thereto.

Issue No. 2: WON Clause 1 and clause 9 of the Bill of Lading is to be adopted as the measure of defendant’s
liability.
the Court held that there us irreconcilable conflict between Clauses 1 and 9 with regard to the measure of
Macondray’s liability.
 It is difficult to reconcile them without doing violence to the language used and reading exceptions and conditions
into the undertaking contained in clause 9 that are not there.
this being the case, the bill of lading in question should be interpreted against the defendant carrier, which drew the
conytact.
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1. Irreconcilable conflict between Clauses 1 and 9 with regard to the measure of Macondray’s liability

Whereas clause 1 contains only an implied undertaking to settle in case of loss on the basis of not exceeding $500 per
freight ton, clause 9 contains an express undertaking to settle on the basis of the net invoice price plus freight and
insurance less all charges saved.

 “Any loss or damage for which the carrier may be liable shall be adjusted pro rata on the said basis,” clause 9
expressly provides. It seems that there is an irreconcilable conflict between the two clauses with regard to the
measure of Macondray’s liability. It is difficult to reconcile them without doing violence to the language used and
reading exceptions and conditions into the undertaking contained in clause 9 that are not there.

2. A contract, in case of doubt, be interpreted against the party who drew the contract
The bill of lading should be interpreted against the carrier, which drew said contract. “A written contract should, in
case of doubt, be interpreted against the party who has drawn the contract.” (6 R. C. L., 854.) It is a well-known
principle of construction that ambiguity or uncertainty in an agreement must be construed most strongly against the
party causing it. (6 R. C. L., 855.) These rules are applicable to contracts contained in bills of lading. “In construing a
bill of lading given by the carrier for the safe transportation and delivery of goods shipped by a consignor, the
contract will be construed most strongly against the carrier, and favorably to the consignor, in case of doubt in any
matter of construction.”

Ruling: The Supreme Court affirmed the judgment appealed from, without any finding as to costs.

Everett Steamship Corporation vs. CA

G.R. No.122494, October 8, 1998

PARTIES:
Everett Steamship Corporation, petitioner
Court of Appeals and Hernandez Trading Co. Inc., respondents

BRIEF STATEMENT OF THE CASE:

Validity of the Bill of lading in a contract of carriage

BRIEF STATEMENT OF THE FACTS:

Private respondent imported 3 crates of bus spare parts marked as MARCO C/No. 12, MARCO C/No. 13 and MARCO
C/No. 14, from its supplier, Maruman Trading Company, Ltd. (Maruman Trading), a foreign corporation based in
Inazawa, Aichi, Japan. The crates were shipped from Nagoya, Japan to Manila on board "ADELFAEVERETTE," a vessel
owned by petitioner's principal, Everett Orient Lines. Upon arrival at the port of Manila, it was discovered that the crate
marked MARCO C/No. 14 was missing. Private respondent claim upon petitioner for the value of the lost cargo
amounting to One Million Five Hundred Fifty Two Thousand Five Hundred (Y1, 552,500.00) Yen, the amount shown in
an Invoice No. MTM-941, dated November 14, 1991. However, petitioner offered to pay only One Hundred Thousand
(Y100,000.00) Yen, the maximum amount stipulated under Clause 18 of the covering bill of lading which limits the
liability of petitioner. Private respondent rejected the offer and thereafter instituted a suit for collection. The trial court
rendered a decision in favour of the private respondents and this was affirmed by the Court of Appeals. Thus, this instant
petition.

ISSUES:
1. Is the petitioner liable for the actual value and not the maximum value recoverable under the bill of lading?
2. Is private respondent, as consignee, who is not a signatory to the bill of lading bound by the stipulations thereof?

ARGUMENTS:
1. The Petitioner is only liable for the maximum value recoverable under the bill of lading.

Clause 18 of the covering bill of lading:

18. All claims for which the carrier may be liable shall be adjusted and settled on the basis of the
shipper's 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 (Y100,000.00) or its equivalent in
any other currency per package or customary freight unit (whichever is least) unless the value of the
goods higher than this amount is declared in writing by the shipper before receipt of the goods by the
carrier and inserted in the Bill of Lading and extra freight is paid as required. (Emphasis supplied)

Pertinent provisions that is applicable as to this case:

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

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

Pursuant to the afore-quoted provisions of law, it is required that the stipulation limiting the common carrier's liability
for loss must be "reasonable and just under the circumstances, and has been freely and fairly agreed upon."

The above stipulations are 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.

2. Private Respondents are still bound by the stipulations of the bill of lading

In Sea-Land Service, Inc. vs. Intermediate Appellate Court (supra), it was held that even if the consignee was not a
signatory to the contract of carriage between the shipper and the carrier, the consignee can still be bound by the
contract.

RULING:
The decision of the Court of Appeals is hereby REVERSED and SET ASIDE.

In fine, the liability of petitioner for the loss of the cargo is limited to One Hundred Thousand (Y100,000.00) Yen,
pursuant to Clause 18 of the bill of lading..

Shewaram v. Philippine Airlines, Inc. G.R. No. L-20099, 7 July 1966, 17 SCRA 606

DOCTRINE: It cannot be said that a contract has been entered into between a passenger and the common carrier,
embodying the conditions as printed at the back of the ticket. The fact that those conditions are printed at the back of the
ticket stub in letters so small that they are hard to read would not warrant the presumption that the passenger was aware
of those conditions such that he had "fairly and freely agreed" to those conditions. The passenger is considered not having
agreed to the stipulation on the ticket, as manifested by the fact that he did not sign the ticket. (REPEALED BY THE ONG
YIU DOCTRINE)

FACTS: Shewaram, petitioner herein, is a Hindu from Davao. He boarded a PAL plane for a trip to Manila. He checked in
3 pieces of baggage, a suitcase and 2 other pieces. One of the suitcases were mistagged by the defendant and as a result
the said suitcase did not arrive with him in Manila. Among his things in the suitcase was a Rollflex camera and Transistor
Radio 7. His baggage was later on returned but the camera and radio were missing. He demanded indemnity for his loss
from PAL. The latter offered to pay P100 for his loss but Shewaram. Defendant herein claimed that the PAL ticket, on the
reverse side, stated in fine print that if the value of baggage is not stated, and the baggage is lost, the maximum liability
of PAL is P100.00. If value in excess of P100.00 is stated, PAL will charge extra because PAL is being held liable for an
amount exceeding P100.00. Shewaram rejected the offer and demanded full payment of P800.00 for the amount of the
things he lost. PAL refused to do so.

ISSUE: Whether the stipulation limiting the liability of PAL shall apply in the case at bar.

HELD: The Court held that PAL is liable for the loss of the petitioner herein. The stipulation in at the back of the ticket
shall not be binding against the petitioner. Article 1750 of the NCC provides that the pecuniary liability of a common
carrier may, by contract, be limited to a fixed amount. It is required, however, that the contract must be “reasonable and
just under the circumstances and has been fairly and freely agreed upon.” In this case, the court believes that the
requirements of said article have not been met. It cannot be said that the petitioner had actually entered into a contract
with the PAL, embodying the conditions as printed at the back of the ticket stub that was to the petitioner. The fact that
those conditions are printed at the back of the ticket stub in letters so small that they are hard to read would not warrant
the presumption that the petitioner was aware of those conditions such that he had “fairly and freely agreed” to those
conditions.

21
Ong Yiu v. Court of Appeals G.R. No. L-40597, 29 June 1979, 91 SCRA 223

DOCTRINE: While it may be true that the passenger had not signed the plane ticket, 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 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. A contract limiting liability upon an agreed valuation does not offend against the policy of the law
forbidding one from contracting against his own negligence.

FACTS:

On august 26, 1967, Ong Yiu was a fare paying passenger of respondent PAL from Mactan, Cebu to Butuan City wherein
he was scheduled to attend a trial. As a passenger, he checked in one piece of luggae, blue maleta for which he was issued
a claim ticket. Upon arrival at Butuan City, petitioner claimed his luggage but it could not be found. PAL Butuan sent a
message to PAL Cebu which in turn sent a message to PAL Manila that same afternoon. PAL Manila advised PAL Cebu
that the luggage has been over carried to Manila and that it would be forwarded to PAL Cebu that same day. PAL Cebu
then advised PAL Butuan that the luggage will be forwarded the following day, on scheduled morning flight. This
message was not received by PAL Butuan as all the personnel had already gone for the day. Meanwhile, Ong Yiu was
worried about the missing luggage because it contained vital documents needed for the trial the next day so he wired
PAL Cebu demanding delivery of his luggage before noon that next day or he would hold PAL liable for damages based
on gross negligence. Early morning, petitioner went to the Butuan Airport to inquire about the luggage but did not wait
for the arrival of the morning flight at 10:00am. which carried his luggage. A certain Dagorro, a driver of a colorum car,
who also used to drive the petitioner volunteered to take the luggage to the petitioner. He revelaed that the documents
were lost. Ong Yiu demanded from PAL Cebu actual and compensatory damages as an incident of breach of contract of
carriage.

ISSUES:

1. Whether or not PAL is guilty of only simple negligence and not gross negligence?
2. Whether the doctrine of limited liability doctrine applies in the instant case?

HELD:

1. PAL had not acted in bad faith. It exercised due diligence in looking for petitioner’s luggage which had been
miscarried. Had petitioner waited or caused someone to wait at the airport for the arrival of the morning flight which
carried his luggage, he would have been able to retrieve his luggage sooner. In the absence of a wrongful act or omission
or fraud, the petitioner is not entitled to moral damages. Neither is he entitled to exemplary damages absent any proof
that the defendant acted in a wanton, fraudulent, reckless manner.

2. The limited liability applies in this case. On the presumed negligence of PAL, its liability for the loss however, is limited
on the stipulation written on the back of the plane ticket which is P100 per baggage. The petitioner not having declared a
greater value and not having called the attention of PAL on its true value and paid the tariff therefore. The stipulation is
printed in reasonably and fairly big letters and is easily readable. Moreso, petitioner had been a frequent passenger of
PAL from Cebu to Butuan City and back and he being a lawyer and a businessman, must be fully aware of these
conditions.

G.R. No. L-23222 June 10, 1971

AMERICAN INSURANCE CO., INC., plaintiff-appellee,

vs.
MACONDRAY & CO., INC., defendant-appellant

Shipper: Ansor Corporation of New York

Carrier: S/S Toledo, M/S Bohol (Macondray& Co. Inc)
Consignee: Atlas Consolidated Mining and Development Corporation

FACTS::

 On or about September 12, 1962, certain cargoes were imported by Atlas Consolidated Mining and Development
Corporation and were loaded by the shipper, Ansor Corporation of New York on board the S/S "Toledo" at the
port of New York for delivery to Atlas at Cebu City via Manila.
 American Insurance Company insured the cargoes against damage up to Cebu City for $5,700.00 in favor of the
consignee

22
  The S/S "Toledo' discharged them at the port of Manila on October 17, 1962. For their transshipment to Cebu
City they were loaded on board the M/S "Bohol".
 Upon the vessel's arrival in Cebu City on November 12, 1962, the cargoes were discharged and delivered to the
consignee minus one skid of truck parts which was not loaded on the M/S "Bohol".
 The missing cargo was valued at $482.96 CIF Cebu, equivalent at that time to P1,889.58
 In view of its loss the consignee filed the corresponding claim with herein appellant who disclaimed liability
therefor alleging that the cargoes had been discharged in full at the port of Manila. Appellant, at all times
material to this case, was the agent in the Philippines of the S/S "Toledo", a common carrier in foreign trade
between the United States and Philippine Ports.
 A claim for the insured value of the cargo amounting to P2,087.20 plus the sum of P87.30 as expenses of survey
was filed with appellee under the covering insurance policy and the same was duly paid, thereby acquiring by
subrogation the rights of the consignee
 Thereafter the corresponding action was filed in the lower court to recover from appellant what appellee had
paid to the consignee.

CFI: The lower court rendered the appealed judgment sentencing appellant to pay appellee the amount of P1,889.,58,
with interest

ISSUES:

1. Whether or not the lower court erred in not holding that American Insurance has no cause of action against
Macondray

2. Whether or not the lower court erred in not finding that Macondray is not the real party in interest and that the action
should have been brought against the shipper

3. Whether or not the lower court erred in taking cognizance of the case at bar and in not dismissing it for lack of
jurisdiction

HELD:

1. No. Under the Carriage Contract covering the cargoes in question, it was the duty of the carrying vessel to discharge
them at theport of Cebu City, via the port of Manila. It is clear therefore, that the discharge effected at the latter port did
not terminate the carrying vessel's responsibility which included the transshipment of the cargoes from the port of
Manila to the port of Cebu City. While it complied with the obligation with respect to most of the cargoes covered, by the
bill of lading Exhibit "A", if failed to do so in relation to the one skid of truck parts which, according to the stipulation of
facts, was not loaded on board the M/S "Bohol". In truth and in fact, the same has never been found.

2. No. It was stipulated in this case that the said skid of truck parts was not loaded at all on board the M/S "Bohol." In
accepting the same on board the S/S "Toledo" at the port of New York for shipment to Cebu City, via the port of Manila, it
become precisely appellant's duty to see to it that it was loaded in Manila on board the M/S "Bohol" or any other vessel,
for the port of Cebu City. Not having complied with this duty, its liability for the loss is unavoidable.

On the other hand, their shipper complied with its part of the transaction by delivering the lost cargo to the S/S "Toledo"
at the port of New York. Appellant admits in its brief that, as a general rule under the provisions of the Code of
Commerce, the consignee of a cargo carried by a vessel has a cause of action against the latter's agent for the undelivered
cargo or any portion thereof. This being the case, it is its duty to compensate appellee for the loss suffered.

3. No. It is true that the case invoked only the sum of P1,889.58, but it is also true that appellee's action against appellant
is one involving admiralty jurisdiction, the exercise of which pertains originally and exclusively to Courts of First
Instance.

KLM Royal Dutch Airlines v. CA

Spouses Mendoza, a Filipino couple, entered into a world tour contract with the Phil. Travel Bureau. Of the 35-legged
trip, the longest was with KLM. In Manila, KLM issued their tickets for the tour. Unfortunately, their vacation turned into
a nightmare when they were brusquely shoved aside and called ignorantes Filipinos by the Aer Lingus Manager. Not
being able to board the plane, they took a train to Lourdes, France and incurred unnecessary additional expenses. They
now sued KLM for damages. SC ruled in their favor and held that (1) Art. 30 Warsaw Convention is N/A because this case
involves a willful misconduct of KLM’s agent, Aer Lingus; and (2) the contract was exclusively between KLM and spouses
Mendoza.

facts of the case

In March 1965, Spouses Rufino & Consuelo Mendoza arranged with the Phil. Travel Bureau, an agent for
international carriers, a world tour itinerary which consisted of a trip of 35 legs. They were to fly on different airlines,
23
but the longest would be via KLM. The flight from Barcelona to Lourdes, France, would be made via Aer Lingus, the
only airline serving the route.

The spouses Mendoza were issued KLM tickets for their entire trip in Manila. However, their coupon from Aer
Lingus portion was marked “RQ,” which means “On Request.”

After seeing American and European cities, the couple arrived at Barcelona for the flight to Lourdes. At the airport,
the manager of Aer Lingus directed them to check in. They did so as instructed and were accepted for passage. Later,
however, the spouses were offloaded on orders of the Aer Lingus manager who brusquely showed them aside with
aid of a policeman and who shouted at them, “Coños! Ignorantes Filipinos!”

The couple reached Lourdes by boarding a train after undergoing unnecessary trouble and incurring
additional expenses. Upon arrival in the PH, they filed a suit for damages against KLM arising from breach of
contract and for the humiliating treatment they had received.

KLM’s defenses:

1. The ticket issued to spouses Mendoza stipulated that the carriage is subject to the Warsaw Convention; under
Art.30 of the Convention, in case of transportation to be performed by various successive carriers, each carrier
shall be deemed to be one of the contracting parties insofar as that part of the transportation during which the
accident or delay occurred.
2. All that KLM did was to request for seat reservations among the airlines and to issue a ticket for the entire trip as
a ticket issuing agent. Thus, it should not be liable for the alleged tortuous acts of the Aer Lingus Manager.

issues

1. WON the Warsaw Convention applies. NO.

2. WON KLM should be held liable. YES.

ratio

1. Art. 30 Warsaw Convention N/A because it does NOT involve an accident or delay, but a willful misconduct
on the part of KLM’s agent, Aer Lingus.
Pertinent provision is Art.25 of Warsaw:
a. The carrier shall not be entitled to avail himself of the of the provisions of this Convention, which
exclude or limit his liability, if the damage is caused by his willful misconduct
b. The carrier is likewise liable for the damage caused under the same circumstances by any agent of the
carrier

2. The contract of air transportation was exclusively between the spouses and the KLM, the latter merely
endorsing its performance to other carriers, like Aer Lingus, as its subcontractors on agents.
Dispositive: spouses Mendoza awarded: $43 actual, P50K moral and P6K atty’s fees and costs.

G.R. No. L-23222 June 10, 1971

AMERICAN INSURANCE CO., INC., plaintiff-appellee, vs. MACONDRAY & CO., INC., defendant-appellant

Shipper: Ansor Corporation of New York

Carrier: S/S Toledo, M/S Bohol (Macondray& Co. Inc)
Consignee: Atlas Consolidated Mining and Development Corporation

FACTS::

 On or about September 12, 1962, certain cargoes were imported by Atlas Consolidated Mining and Development
Corporation and were loaded by the shipper, Ansor Corporation of New York on board the S/S "Toledo" at the
port of New York for delivery to Atlas at Cebu City via Manila.
 American Insurance Company insured the cargoes against damage up to Cebu City for $5,700.00 in favor of the
consignee
 The S/S "Toledo' discharged them at the port of Manila on October 17, 1962. For their transshipment to Cebu
City they were loaded on board the M/S "Bohol".
 Upon the vessel's arrival in Cebu City on November 12, 1962, the cargoes were discharged and delivered to the
consignee minus one skid of truck parts which was not loaded on the M/S "Bohol".
 The missing cargo was valued at $482.96 CIF Cebu, equivalent at that time to P1,889.58
 In view of its loss the consignee filed the corresponding claim with herein appellant who disclaimed liability
therefor alleging that the cargoes had been discharged in full at the port of Manila. Appellant, at all times

24
 material to this case, was the agent in the Philippines of the S/S "Toledo", a common carrier in foreign trade
between the United States and Philippine Ports.
 A claim for the insured value of the cargo amounting to P2,087.20 plus the sum of P87.30 as expenses of survey
was filed with appellee under the covering insurance policy and the same was duly paid, thereby acquiring by
subrogation the rights of the consignee
 Thereafter the corresponding action was filed in the lower court to recover from appellant what appellee had
paid to the consignee.

CFI: The lower court rendered the appealed judgment sentencing appellant to pay appellee the amount of P1,889.,58,
with interest

ISSUES:

1. Whether or not the lower court erred in not holding that American Insurance has no cause of action against
Macondray

2. Whether or not the lower court erred in not finding that Macondray is not the real party in interest and that the action
should have been brought against the shipper

3. Whether or not the lower court erred in taking cognizance of the case at bar and in not dismissing it for lack of
jurisdiction

HELD:

1. No. Under the Carriage Contract covering the cargoes in question, it was the duty of the carrying vessel to discharge
them at theport of Cebu City, via the port of Manila. It is clear therefore, that the discharge effected at the latter port did
not terminate the carrying vessel's responsibility which included the transshipment of the cargoes from the port of
Manila to the port of Cebu City. While it complied with the obligation with respect to most of the cargoes covered, by the
bill of lading Exhibit "A", if failed to do so in relation to the one skid of truck parts which, according to the stipulation of
facts, was not loaded on board the M/S "Bohol". In truth and in fact, the same has never been found.

2. No. It was stipulated in this case that the said skid of truck parts was not loaded at all on board the M/S "Bohol." In
accepting the same on board the S/S "Toledo" at the port of New York for shipment to Cebu City, via the port of Manila, it
become precisely appellant's duty to see to it that it was loaded in Manila on board the M/S "Bohol" or any other vessel,
for the port of Cebu City. Not having complied with this duty, its liability for the loss is unavoidable.

On the other hand, their shipper complied with its part of the transaction by delivering the lost cargo to the S/S "Toledo"
at the port of New York. Appellant admits in its brief that, as a general rule under the provisions of the Code of
Commerce, the consignee of a cargo carried by a vessel has a cause of action against the latter's agent for the undelivered
cargo or any portion thereof. This being the case, it is its duty to compensate appellee for the loss suffered.

3. No. It is true that the case invoked only the sum of P1,889.58, but it is also true that appellee's action against appellant
is one involving admiralty jurisdiction, the exercise of which pertains originally and exclusively to Courts of First
Instance.

MAGELLAN MANUFACTURING MARKETING CORPORATION

vs. CA, ORIENT OVERSEAS CONTAINER LINES and F.E. ZUELLIG, INC.
G.R. No. 95529 August 22, 1991

Doctrine:

The holding in most jurisdictions has been that a shipper who receives a bill of lading without objection after an
opportunity to inspect it, and permits the carrier to act on it by proceeding with the shipment is presumed to have
accepted it as correctly stating the contract and to have assented to its terms

Facts: Plaintiff-appellant Magellan Manufacturers Marketing Corp. (MMMC) entered into a contract with Choju Co. of
Yokohama, Japan, on May 20, 1980, to export 136,000 anahaw fans for and in consideration of $23,220.00. A letter of
credit was issued to plaintiff MMMC by the buyer as payment. James Cu, the president of MMMC then contracted F.E.
Zuellig, a shipping agent, through its solicitor, one Mr. King, to ship the anahaw fans through the other appellee, Orient
Overseas Container Lines, Inc., (OOCL) specifying that he needed an on-board bill of lading and that transhipment is not
allowed under the letter of credit. Appellant MMMC paid F.E. Zuellig the freight charges and secured a copy of the bill of
lading which was presented to Allied Bank on June 30, 1980. The bank then credited the amount of US$23,220.00
covered by the letter of credit to appellant's account.

25
When appellant's president James Cu, went back to the bank later, he was informed that the payment was refused by the
buyer because there was no on-board bill of lading, and there was a transhipment of goods. The anahaw fans were
shipped back to Manila by appellees, for which the latter demanded from appellant payment of P246,043.43 as a result
of the refusal of the buyer to accept, and upon appellant’s request. Appellant abandoned the whole cargo and asked
appellees for damages.

The petitioner filed the complaint praying that private respondents be ordered to pay whatever petitioner was not able
to earn from Choju Co., Ltd. The lower court decided the case in favor of private respondents. It dismissed the complaint
on the ground that petitioner had given its consent to the contents of the bill of lading where it is clearly indicated that
there will be transshipment. On appeal to the respondent court, the finding of the lower (court) that petitioner agreed to
a transhipment of the goods was affirmed.

Issues:

1. Whether or not there was transshipment – YES

2. Whether or not the bill of lading which reflected the transshipment against the letter of credit is consented by
MMMC – YES

Ratio:

1.

Transhipment, in maritime law, is defined as "the act of taking cargo out of one ship and loading it in
another," or "the transfer of goods from the vessel stipulated in the contract of affreightment to another
vessel before the place of destination named in the contract has been reached," or "the transfer for further
transportation from one ship or conveyance to another." Clearly, either in its ordinary or its strictly legal
acceptation, there is transhipment whether or not the same person, firm or entity owns the vessels. In
other words, the fact of transhipment is not dependent upon the ownership of the transporting ships or
conveyances or in the change of carriers, as the petitioner seems to suggest, but rather on the fact of actual
physical transfer of cargo from one vessel to another.

It appears on the face of the bill of lading the entry "Hong Kong" in the blank space labeled "Transhipment," which can
only mean that transhipment actually took place. This fact is further bolstered by the certification issued by private
respondent F.E. Zuellig, Inc. dated July 19, 1980, although it carefully used the term "transfer" instead of transhipment.
No amount of semantic juggling can mask the fact that transhipment in truth occurred in this case.
2. It is a long standing jurisprudential rule that a bill of lading operates both as a receipt and as a contract. It is a receipt
for the goods shipped and a contract to transport and deliver the same as therein stipulated.

As a contract, it names the parties, which includes the consignee, fixes the route, destination, and freight
rates or charges, and stipulates the rights and obligations assumed by the parties. Being a contract, it is the
law between the parties who are bound by its terms and conditions provided that these are not contrary
to law, morals, good customs, public order and public policy. A bill of lading usually becomes effective
upon its delivery to and acceptance by the shipper. It is presumed that the stipulations of the bill were, in
the absence of fraud, concealment or improper conduct, known to the shipper, and he is generally bound
by his acceptance whether he reads the bill or not.

The petitioner had full knowledge of, and actually consented to, the terms and conditions of the bill of lading thereby
making the same conclusive as to it, and it cannot now be heard to deny having assented thereto. Based from the
records, James Cu himself, in his capacity as president of MMMC, personally received and signed the bill of lading. There
is no better way to signify consent than by voluntary signing the document which embodies the agreement.

An on board bill of lading is one in which it is stated that the goods have been received on board the vessel
which is to carry the goods, whereas a received for shipment bill of lading is one in which it is stated that the
goods have been received for shipment with or without specifying the vessel by which the goods are to be
shipped. Received for shipment bills of lading are issued whenever conditions are not normal and there is
insufficiency of shipping space.

An on board bill of lading is issued when the goods have been actually placed aboard the ship with every
reasonable expectation that the shipment is as good as on its way. It is, therefore, understandable that a
party to a maritime contract would require an on board bill of lading because of its apparent guaranty of
certainty of shipping as well as the seaworthiness of the vessel which is to carry the goods.

The certification of F.E. Zuellig, Inc. can qualify the bill of lading, as originally issued, into an on board bill of lading as
required by the terms of the letter of credit issued in favor of petitioner. The certification was issued only on July 19,
1980, way beyond the expiry date of June 30, 1980 specified in the letter of credit for the presentation of an on board bill

26
of lading. Thus, even assuming that by a liberal treatment of the certification it could have the effect of converting the
received for shipment bill of lading into an on board of bill of lading, as petitioner would have us believe, such an effect
may be achieved only as of the date of its issuance, that is, on July 19, 1980 and onwards.

The fact remains, though, that on the crucial date of June 30, 1980 no on board bill of lading was presented by petitioner
in compliance with the terms of the letter of credit and this default consequently negates its entitlement to the proceeds
thereof. Said certification, if allowed to operate retroactively, would render illusory the guaranty afforded by an on
board bill of lading, that is, reasonable certainty of shipping the loaded cargo aboard the vessel specified, not to mention
that it would indubitably be stretching the concept of substantial compliance too far.

II. DEGREE OF DILIGENCE REQUIRED

FIREMAN’S FUND INSURANCE CO vs METRO PORT SERVICES
FACTS:
Vulcan Industrial and Mining Corporation imported from the United States several machineries and equipment which
were loaded on board the SIS Albert Maersk at the port of Philadelphia, U.S.A., and transhipped for Manila through the
vessel S/S Maersk Tempo.
The shipment arrived at the port of Manila on June 3, 1979 and was turned over complete and in good order condition to
the arrastre operator E. Razon Inc. (now Metro Port Service Inc. and referred to as the ARRASTRE).
A tractor operator, named Danilo Librando and employed by the ARRASTRE, was ordered to transfer the shipment to
the Equipment Yard at Pier 3. While Librando was maneuvering the tractor (owned and provided by Maersk Line) to the
left, the cargo fell from the chassis and hit one of the container vans of American President Lines. It was discovered that
there were no twist lock at the rear end of the chassis where the cargo was loaded.
An Insurance was claimed by Vulcan Industrial, in turn, the petitioner insurance company demanded recovery from
Maerks Line. The trial court ruled that Maerks and Metro Port be held solidarily liable. On appeal by Metro Port, the
Court of Appeals reversed, ruling that it is only Maerks that is liable.
ISSUE:
WON Maerks and Metro Port exercised the proper degree of diligence.
WON Maerks and Metro Port be held liable solidarity.

RULING:
Maerks and Metro port did not exercise the proper diligence.
In general, the nature of the work of an arrastre operator covers the handling of cargoes at piers and wharves. The
ARRASTRE is required to provide cargo handling equipment which includes among others trailers, chassis for
containers. In some cases, however, the shipping line has its own cargo handling equipment.
In this case, Maerks provide for the chassis and tractors and merely requested the arrastre (Metro) to dispatch a tractor
operator. ARRASTRE which had the sole discretion and prerogative to hire and assign Librando to operate the tractor. It
was also the ARRASTRE's sole decision to detail and deploy Librando for the particular task from among its pool of
tractor operators or drivers. Since the ARRASTRE offered its drivers for the operation of tractors in the handling of cargo
and equipment, then the ARRASTRE should see to it that the drivers under its employ must exercise due diligence in the
performance of their work.
The testimonies are appreciated and the court held that Maerks is at fault in not providing twist locks on the chassis and
Metro is also at fault for Librando’s negligence in not checking that the cargo is securely loaded on the chassis.
Both the arrastre and the carrier are charged with and obligated to deliver the goods in good condition to the
consignee.
The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and warehouseman
(Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]). The relationship between the consignee and the common carrier is
similar to that of the consignee and the arrastre operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253
[1960]). Since it is the duty of the ARRASTRE to take good care of the goods that are in its custody and to deliver them in
good condition to the consignee, such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the
CARRIER are therefore charged with and obligated to deliver the goods in good condition to the consignee.
Metro Port Services vs. CA (GR L-57582, 24 August 1984)
First Division, Melencio-Herrera (J): 5 concur
Facts:
Sometime in April 1973, Union Sales Marketing Corporation (UNION) ordered from Union Carbide of Antwerp, Belgium,
99,540 kilograms of Low Density Polyethylene, valued at US $.245 per kilogram or a total purchase price of US
$24,417.30, at the conversion rate of P6.848 to a US Dollar.
27
The shipment was packed in 4,000 bags of 25 net kilograms, more or less, for each bag, and was loaded at Antwerp,
Belgium, in good order condition on board the “S/S Dingalan Bay”, owned and operated by Universal Shipping Lines, Inc.
(CARRIER) and consigned to UNION in Manila. The shipment was covered by a Marine Risk Note issued by Charter
Insurance Co. (INSURER) for P212,738.17 against all risks.
The CARRIER arrived in Manila on 22 June 1973 and arrastre services were handled by E. Razon, Inc. (ARRASTRE), now
called Metro Port Service, Inc. Out of the 4,000 bags, 1,050 bags were received by the consignee UNION in bad order
condition. As a consequence of the damage and loss, the INSURER paid UNION the sum of P35,709.11 in full settlement
of the claim, and the INSURER became the subrogee of all of UNION’s rights to recover from the parties concerned. On 1
July 1974, the INSURER sued for damages with the then CFI Manila against the CARRIER and the ARRASTRE in the
amount of P35,709.11, in addition to exemplary damages and attorney’s fees.
In its Decision, the Trial Court ordered
(1) the Universal Shipping Lines, Inc., to pay Charter Insurance Co. the amount of P12,285.94 plus 12% interest per
annum from July 1, 1974 until full payment thereof;
(2) E. Razon Inc. to pay Charter Insurance Co. the amount of P9,763.94 plus 12% interest per annum from July 1, 1974
Transportation Law, 2004 ( 15 ) Haystacks (Berne Guerrero) until full payment thereof;
(3) both Universal Shipping and E. Razon to pay the costs; and
(4) both Universal Shipping and E. Razon to pay Charter Insurance, in solidum, P2,000.00 as attorney’s fees.
On appeal by the CARRIER and ARRASTRE, the then Court of Appeals, on 23 March 1981, absolved the CARRIER of any
and all liability and held the ARRASTRE solely liable. Reconsideration filed by the ARRASTRE was denied by the
Appellate Court.
The Supreme Court reversed and set aside the appealed judgment of Court of Appeals, and reinstated that of the CFI
Manila, Branch XI; without costs.
1. Only questions of law may be raised in a Petition for Review on Certiorari, exceptions Ordinarily, in a Petition for
Review on Certiorari, only questions of law may be raised. The Court has held in a number of cases that findings of fact
by the Court of Appeals are, in general, conclusive on the Supreme Court when supported by the evidence on record. The
rule is not absolute, however, and allows of exceptions, which the Court finds present in the case at bar in that the
appellate court’s findings of facts are contrary to those of the Trial Court and are contradicted by the evidence on record.
2. Appellate Court’s ruling disregards evidence of the CARRIER and ARRASTRE that 619 bags were discharged in bad
order condition
In absolving the CARRIER, the appellate court completely disregards the evidence of the CARRIER and the ARRASTRE
that 619 bags were discharged by the CARRIER to the ARRASTRE in bad order condition, as evidenced by the original
and duplicate copies of the Cargo Receipts issued by the CARRIER to the ARRASTRE and signed by their respective
representatives.
The condition of the 619 bags before the turnover to the ARRASTRE from the CARRIER was loss or spoilage of up to
50%, as reflected in the Survey of Bad Order Cargoes, signed by the CARRIER and ARRASTRE representatives.
Accordingly, the Trial Court held the CARRIER liable only for the value of a total of 443 bags, as this is the “evidence of
the plaintiff” (INSURER), at 16.8209 kilograms per bag, less than the actual weight of 25 kilograms net per bag due to
some recovery of spoilage, or a total liability of P12,285.94. Since 619 bags were discharged from the CARRIER already
in bad order condition, it follows that the remaining 431 bags were damaged while in the ARRASTRE’s custody for which
it should be held liable.
3. ARRASTRE’s liability fixed to 351 bags, as INSURER failed to appeal award

However, since the Trial Court computed the liability of the ARRASTRE at 351 bags, notwithstanding the ARRASTRE’s
admission that “80 bags were not included in the bad order cargo certificate,” and the INSURER did not appeal said
award by the Trial Court in its desire to have the case terminated soonest, the INSURER may not, in this appeal, have the
judgment modified. The liability of the ARRASTRE for P9,763.94 fixed by the Trial Court is thus in order.
Eastern Shipping Lines vs. CA (GR 97412, 12 July 1994)
Facts: On 4 December 1981, 2 fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel “SS
Eastern Comet” owned by Eastern Shipping Lines under Bill of Lading YMA-8. The shipment was insured under
Mercantile Insurance Company’s Marine Insurance Policy 81/01177 for P36,382,466.38. Upon arrival of the shipment in
Manila on 12 December 1981, it was discharged unto the custody of Metro Port Services, Inc. The latter excepted to one
drum, said to be in bad order, which damage was unknown to Mercantile Insurance. On 7 January 1982, Allied
Brokerage Corporation received the shipment from Metro Port Service, one drum opened and without seal. On January 8
and 14, 1982, Allied Brokerage made deliveries of the shipment to the consignees’ warehouse.
The latter excepted to one drum which contained spillages, while the rest of the contents was adulterated/fake. Due to
the losses/damage sustained by said drum, the consignee suffered losses totaling P19,032.95, due to the fault and
negligence of the shipping company, arrastre operator and broker-forwarder.

28
Claims were presented against them who failed and refused to pay the same. As a consequence of the losses sustained,
Mercantile Insurance was compelled to pay the consignee P19,032.95 under the aforestated marine insurance policy, so
that it became subrogated to all the rights of action of said consignee against the shipping company, etc.
After trial, the trial court rendered judgment (1) ordering the shipping company, the arrastre operator and the broker-
forwarder to pay Mercantile Insurance, in solidum, the amount of P19,032.95 with the present legal interest of 12% per
annum from October 1, 1982, the date of filing of this complaints, until fully paid (the liability of defendant Eastern
Shipping, Inc. shall not exceed US$500 per case or the CIF value of the loss, whichever is lesser, while the liability of
defendant Metro Port Service, Inc. shall be to the extent of the actual invoice value of each package, crate box or
container in no case to exceed P5,000.00 each, pursuant to Section 6.01 of the Management Contract); P3,000.00 as
attorney’s fees, and costs; and dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied
Brokerage Corporation.
Dissatisfied, Eastern Shipping Lines appealed to the Court of Appeals. The Court of Appeal affirmed in toto the judgment
of the court a quo.
The Supreme Court partly granted the petition. The Court affirmed the appealed decision with the modification that the
legal interest to be paid is 6% on the amount due computed from the decision, dated 3 February 1988, of the court a quo.
A 12% interest, in lieu of 6%, shall be imposed on such amount upon finality of this decision until the payment thereof.
1. Duration of common carrier’s duty to observe requisite diligence
The common carrier’s duty to observe the requisite diligence in the shipment of goods lasts from the time the articles
are surrendered to or unconditionally placed in the possession of, and received by, the carrier for transportation until
delivered to, or until the lapse of a reasonable time for their acceptance, by the person entitled to receive them (Arts.
1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863).
2. Presumption of carrier’s negligence in case of loss, damage of goods;
None of the exclusive exceptions can be applied Transportation Law, 2004 ( 13 ) Haystacks (Berne Guerrero) When the
goods shipped either are lost or arrive in damaged condition, a presumption arises against the carrier of its failure to
observe that diligence, and there need not be an express finding of negligence to hold it liable (Art. 1735, Civil Code;
Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA 365).
There are, of course, exceptional cases when such presumption of fault is not observed but these cases, enumerated in
Article 1734 1 of the Civil Code, are exclusive, not one of which can be applied to the case at bar.
3. The rationale why the carrier and arrastre operator are made liable in solidum
In Fireman’s Fund Insurance vs. Metro Port Services (182 SCRA 455), the Court has explained in holding the carrier and
the arrastre operator liable in solidum, in the manner that “The legal relationship between the consignee and the
arrastre operator is akin to that of a depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967].
The relationship between the consignee and the common carrier is similar to that of the consignee and the arrastre
operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the Arrastre to take
good care of the goods that are in its custody and to deliver them in good condition to the consignee, such responsibility
also devolves upon the Carrier. Both the Arrastre and the Carrier are therefore charged with the obligation to deliver the
goods in goods condition to the consignee.” The pronouncement, however, does not imply that the arrastre operator and
the customs broker are themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that
attendant facts in a given case may not vary the rule.
4. First group of cases on variances on the Court’s ruling on legal interest
In the cases of the cases of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz (1986), Florendo v. Ruiz
(1989) and National Power Corporation v. angas (1992), the basic issue focus on the application of either the 6% (under
the Civil Code) or 12% (under the Central Bank Circular) interest per annum. It is easily discernible in these cases that
there has been a consistent holding that the Central Bank Circular imposing the 12% interest per annum applies only to
loans or forbearance 16 of money, goods or credits, as well as to judgments involving such loan or forbearance of money,
goods or credits, and that the 6% interest under the Civil Code governs when the transaction involves the payment of
indemnities in the concept of damage arising from the breach of a delay in the performance of obligations in general.
Observe, too, that in these cases, a common time frame in the computation of the 6% interest per annum has been
applied, i.e., from the time the complaint is filed until the adjudged amount is fully paid.
5. Second group of cases on variances on the Court’s ruling on legal interest
The cases of Malayan Insurance Company v. Manila Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and
American Express International v. Intermediate Appellate Court (1988), did not alter the pronounced rule on the
application of the 6% or 12% interest per annum, depending on whether or not the amount involved is a loan or
forbearance, on the one hand, or one of indemnity for damage, on the other hand. Unlike, however, the “first group”
which remained consistent in holding that the running of the legal interest should be from the time of the filing of the
complaint until fully paid, the “second group” varied on the commencement of the running of the legal interest. Malayan
held that the amount awarded should bear legal interest from the date of the decision of the court a quo, explaining that
“if the suit were for damages, ‘unliquidated and not known until definitely ascertained, assessed and determined by the
courts after proof,’ then, interest ‘should be from the date of the decision.’” American Express International v. IAC,
29
introduced a different time frame for reckoning the 6% interest by ordering it to be “computed from the finality of (the)
decision until paid.” The Nakpil and Sons case ruled that 12% interest per annum should be imposed from the finality of
the decision until the judgment amount is paid. The factual circumstances may have called for different applications,
guided by the rule that the courts are vested with discretion, depending on the equities of each case, on the award of
interest.
6. Rules in the determination of legal interests
a. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasidelicts 18 is breached,
the contravenor can be held liable for damages. The provisions under Title XVIII on “Damages” of the Civil Code govern
in determining the measure of reoverable damages.
b. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money,
the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of
Article 1169 of the Civil Code.
2. When a obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be
adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from
the time the claim is made judicially or extrajudicially (Article 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin to run only from the date of the
judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount of finally
adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.
SUMMA INSURANCE CORPORATION v. CA, GR No. 84680, 1996-02-05
Facts:
S/S "Galleon Sapphire", a vessel owned by the National Galleon Shipping Corporation (NGSC), arrived at Pier 3, South
Harbor, Manila, carrying a shipment consigned to the order of Caterpillar Far East Ltd. with Semirara Coal Corporation
(Semirara) as
"notify party."
The shipment, including a bundle of PC 8 U blades, was covered by marine insurance under Certificate No. 82/012-FEZ
issued by petitioner and Bill of Lading No. SF/MLA 1014.
shipment was discharged from the vessel to the custody of private respondent, formerly... known as E. Razon, Inc., the
exclusive arrastre operator at the South Harbor. Accordingly, three good-order cargo receipts were issued by NGSC, duly
signed by the ship's checker and a representative of private respondent.
the forwarder, Sterling International Brokerage Corporation, withdrew the shipment from the pier and loaded it on the
barge "Semirara 8104." The barge arrived at its port of destination, Semirara Island, on March 9, 1982. When Semirara
inspected the... shipment at its warehouse, it discovered that the bundle of PC8U blades was missing.
private respondent issued a shortlanded certificate stating that the bundle of PC8U blades was already missing when it
received the shipment from the NGSC vessel.
Semirara then filed with petitioner, private respondent and NGSC its claim for P280,969.68, the... alleged value of the lost
bundle.
petitioner paid Semirara the invoice value of the lost shipment. Semirara thereafter executed a release of claim and
subrogation receipt. Consequently, petitioner filed its claims with NGSC and private respondent but it was unsuccessful.
Petitioner then filed a complaint (Civil Case No. 82-13988) with the Regional Trial Court, Branch XXIV, Manila, against
NGSC and private respondent for collection of a sum of money, damages and attorney's fees.
trial court rendered a decision absolving NGSC from any liability but finding private respondent liable to petitioner.
Court of Appeals modified the decision of the trial court and reduced private respondent's liability to P3,500.00
Issues:
(1) Is the private respondent legally liable for the loss of the shipment in question? YES
30
(2) If so, what is the extent of its liability?
Ruling:
The First Issue: Liability for Loss of Shipment
Petitioner was subrogated to the rights of the consignee. The relationship therefore between the consignee and the
arrastre operator must be examined. This relationship is much akin to that existing between the consignee or owner of
shipped goods and the common... carrier, or that between a depositor and a warehouseman.
the performance of its obligations, an arrastre operator should observe the same degree of diligence as that required of a
common carrier and a warehouseman as enunciated under Article 1733 of... the Civil Code and Section 3(b) of the
Warehouse Receipts Law, respectively.
custodian of the goods discharged from a vessel, an arrastre operator's duty is to take good care of the goods and to turn
them over to the party entitled to their possession.
In this case, it has been established that the shipment was lost while in the custody of private respondent. We
find private respondent liable for the loss.
The Second Issue: Extent of Liability... an arrastre operator is bound by the management contract it had executed with
the Bureau of Customs.
a management contract, which is a sort of a stipulation pour autrui within the meaning of Article 1311 of the Civil Code,
is also binding on a consignee because it is incorporated in the gate pass and delivery receipt which must be presented
by the consignee before delivery can be effected to it.
The insurer, as successor-in-interest of the consignee, is likewise... bound by the management contract.
Indeed, upon taking delivery of the cargo, a consignee (and necessarily its successor-in- interest) tacitly accepts the
provisions of the management contract, including those which are intended to limit the liability of... one of the
contracting parties, the arrastre operator.
However, a consignee who does not avail of the services of the arrastre operator is not bound by the management
contract. Such an exception to the rule does not obtain here as the consignee did in fact accept delivery of the cargo from
the arrastre... operator.
Section 1, Article VI of the Management Contract between private respondent and the Bureau of Customs
Responsibility and Liability for Losses and Damages... that the CONTRACTOR shall be solely responsible as an
independent CONTRACTOR, and hereby agrees to accept liability and to promptly pay to the steamship company,...
consignee, consignor or other interested party or parties for the loss, damage, or non-delivery of cargoes to the extent of
the actual invoice value of... each package which in no case shall be more than Three Thousand Five Hundred Pesos
(P3,500.00) for each package unless the... value of the importation is otherwise specified or manifested or
communicated in writing together with the invoice value and supported... by a certified packing list to the CONTRACTOR
by the interested party or parties before the discharge of the goods, as well as all damage... that may be suffered on
account of loss, damage, or destruction of any merchandise while in custody or under the control of the CONTRACTOR in
any pier, shed, warehouse, facility or other designated place under the supervision of the BUREAU
In the same case, the Court added that the advance notice of the actual invoice of the goods entrusted to the arrastre
operator is "for the purpose of determining its liability, that it may obtain compensation commensurable to the risk it
assumes, (and) not for the purpose of... determining the degree of care or diligence it must exercise as a depository or
warehouseman"[11] since the arrastre operator should not discriminate between cargoes of substantial and small
values, nor exercise care and caution only for the handling of... goods announced to it beforehand to be of sizeable value,
for that would be spurning the public service nature of its business.
In this case, no evidence was offered by petitioner proving the amount of arrastre fees paid to private respondent so as
to put the latter on notice of the value of the cargo. While petitioner alleged that prior to the loss of the package, its
value had been relayed to... private respondent through the documents the latter had processed, petitioner does not
categorically state that among the submitted documents were the pro forma invoice value and the certified packing list.
Neither does petitioner pretend that these two documents were... prerequisites to the issuance of a permit to deliver or
were attachments thereto. Even the permit to deliver, upon which petitioner anchors its arguments, may not be
considered by the Court because it was not identified and formally offered in evidence.[
In civil cases, the burden of proof is on the party who would be defeated if no evidence is given on either side. Said party
must establish his case by a preponderance of evidence, which means that the evidence as a whole adduced by one side
is superior to that of the... other.[14] Petitioner having asserted the affirmative of the issue in this case, it should have
presented evidence required to obtain a favorable judgment.
private respondent was able to prove that it was apprised of the value of the cargo only after its discharge from the
vessel, ironically... through petitioner's claim for the lost package to which were attached the invoice and packing list. All
told, petitioner failed to convince the Court that the requirement of the management contract had been complied with to
entitle it to recover the actual invoice value of the... lost shipment.

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INTERNATIONAL CONTAINER TERMINAL SERVICES, INC. vs. PRUDENTIAL GUARANTEE & ASSURANCE CO., INC.
G.R. No. 134514, December 8, 1999

Facts: Mother vessel Tao He loaded and received on board in San Francisco, California, a shipment of five lots of canned
foodstuff complete and in good order and condition for transport to Manila in favor of Duel Food Enterprises
(consignee) under “shipper’s load and count”.

The shipment arrived at the port of Manila and discharged by the vessel MS Wei He in favor of ICTSI for safekeeping.
The brokerage withdrew the shipment and delivered the same to the consignee. An inspection there revealed that
161 cartoons were missing valued at P85,984.40. Consignee learned of such shortage on June 4, 1990. It filed claim for
loss on October 2, 1990. Claim for indemnification of the loss having been denied by ICTSI and the brokerage, consignee
sought payment from Prudential (insurer) under the marine cargo policy.

The appellate court found ICTSI negligent in its duty to exercise due diligence over the shipment. It also ruled that the
filing of a claim depended on the issuance of a certificate of loss by ICTSI based on the liability clause printed on the back
of the arrastre and wharfage receipt. Since ICTSI did not issue such a certificate despite being informed of the shortage,
the 15-day period given to the consignee for filing a formal claim never began. Prudential, therefore can hold the ICTSI
liable for the shortage.

Issues:
1) Was ICTSI negligent in its duty to exercise due diligence over the shipment?
2) Did the consignee fail to file a formal claim within the period stated on the dorsal side of the arrastre and wharfage
receipt?

Held: 1) No. The consigned goods were shipped under “shipper’s load and count”. This means that the shipper was
solely responsible for the loading of the container, while the carrier was oblivious to the contents of the shipment.
Protection against pilferage of the shipment was the consignee’s lookout. The arrastre operator was not required to
verify the contents of the container received and to compare them with those declared by the shipper because as earlier
stated, the cargo was at the shipper’s load and count. The arrastre operator was expected to deliver to the consignee
only the container received from the carrier.

The legal relationship between the arrastre and consignee is akin to that between a warehouseman and a depositor. As
to both the nature of the functions and the place of their performance, arrastre operator’s services are clearly not
maritime in character.

2) Yes. In order to hold the arrastre operator liable for lost or damaged goods, the claimant should file with the operator
a claim for the value of said goods “within the 15-day period from the date of discharge of the last package from the
carrying vessel.” The filing within the period is in the nature of a prescriptive period for bringing an action and is a
condition precedent to holding the arrastre operator liable. In an endeavor to promote fairness, equity and justness,
however, a long line of cases has held that the 15-day period for filing claims should be counted from the date the
consignee learns of the loss, damage or misdelivery of goods.

In the case at bar, the consignee had all the time to make a formal claim from the day it discovered the shortage in the
shipment, which was June 4, 1990, as shown by the records. By the time the claim for the loss was filed on October 2,
1990, four months had already elapsed from the date of delivery. In any event, within 15 days from the time the loss was
discovered, the consignee could have filed a provisional claim, which would have constituted substantial compliance
with the rule. Its failure to do so relieved the arrastre operator of any liability for the non-delivery of the goods. The
32
rationale between the time limit is that, without it, a consignee could too easily concoct or fabricate claims and deprive
the arrastre operator of the best opportunity to prove immediately their veracity.
Common carrier; liability. Petitioner, through its bus driver, failed to observe extraordinary diligence, and was,
therefore, negligent in transporting the passengers of the bus safely to Gapan, Nueva Ecija on January 27, 1995, since the
bus bumped a tree and a house, and caused physical injuries to respondent. Article 1759 of the Civil Code explicitly
states that the common carrier is liable for the death or injury to passengers through the negligence or willful acts of its
employees, and that such liability does not cease upon proof that the common carrier exercised all the diligence of a
good father of a family in the selection and supervision of its employees. Hence, even if petitioner was able to prove that
it exercised the diligence of a good father of the family in the selection and supervision of its bus driver, it is still liable to
respondent for the physical injuries he sustained due to the vehicular accident. R Transport Corporation vs. Eduardo
Pante, G.R. No. 162104, September 15, 2009.
British Airways vs. CA

The contract of transportation was exclusively between the passenger and common carrier BA. The latter
merely endorsing the Manila to Hong Kong log of the former’s journey to PAL, as its subcontractor or agent. Conditions
of contracts were one of continuous air transportation. Well-settled rule that an agent is also responsible for any
negligence in the performance of its function and is liable for damages which the principal may suffer by reason of its
negligent act. When an action is based on breach of contract of carriage, the passenger can only sue BA and not PAL,
since the latter was not a party in the contract.

The contention of BA with respect to limited liability was overruled although it is recognized in the Philippines,
stating that BA had waived the defense of limited liability when it allowed Mahtani(the passenger) to testify as to the
actual damages he incurred due to the misplacement of his luggage, without any objection.

PAL vs. CA & Zapatos

G.R. No. L-82619, September 15, 1993

FACTS:
Zapatos filed a complaint for damages for breach of contract of carriage against PAL. He took a flight from Cebu-Ozamiz.
15 minutes before landing at Ozamiz, the pilot received a radio message that the airport was closed due to heavy rains
and inclement weather and that he should proceed to Cotabato City instead. He was not given accommodation to the
flight back to Cebu and the flight the next day to Ozamiz. His belongings (including camera worth 2k) were still on board
when the plane flew back to Cebu and were no longer recovered. He received under protest a free ticket to Iligan. PAL
did not provide him with transportation from the airport to the city proper nor food and accommodation for his stay in
Cotabato. The next day, he purchased a ticket to Iligan, informing PAL he would not use the free ticket because he was
filing a case against it.

RTC ordered PAL to pay. CA affirmed.

ISSUE:
Whether PAL is liable.

RULING:
PAL did not rebut the evidence alleging its negligence in caring for its stranded passengers.

The contract of air carriage is a peculiar one. Being imbued with public interest, the law requires common carriers to
carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of every cautious
persons, with due regard for all circumstances. Undisputably, PAL's diversion of its flight due to inclement weather was
a fortuitous event. Nonetheless, such occurrence did not terminate PAL's contract with its passengers. Being in the
business of air carriage and the sole one to operate in the country, PAL is deemed equipped to deal with situations as in
the case at bar.
What we said in one case once again must be stressed, i.e., the relation of carrier and passenger continues until the latter
has been landed at the port of destination and has left the carrier's premises. Hence, PAL necessarily would still have to
exercise extraordinary diligence in safeguarding the comfort, convenience and safety of its stranded passengers until
they have reached their final destination. On this score, PAL grossly failed considering the then ongoing battle between
government forces and Muslim rebels in Cotabato City and the fact that the private respondent was a stranger to the
place.

Since part of the failure to comply with the obligation of common carrier to deliver its passengers safely to their
destination lay in the defendant's failure to provide comfort and convenience to its stranded passengers using
extraordinary diligence, the cause of nonfulfillment is not solely and exclusively due to fortuitous event, but due to
something which defendant airline could have prevented, defendant becomes liable to plaintiff.

Admittedly, private respondent's insistence on being given priority in accommodation was unreasonable considering

33
the fortuitous event and that there was a sequence to be observed in the booking, i.e., in the order the passengers
checked in at their port of origin. His intransigence in fact was the main cause for his having to stay at the airport longer
than was necessary. (moral damages is reduced)

Japan Airlines vs Court of Appeals (G.R. No. 118664)

Accordingly, there is no question that when a party is unable to fulfill his obligation because of "force majeure," the
general rule is that he cannot be held liable for damages for non-performance. Corollarily, when JAL was prevented from resuming
its flight to Manila due to the effects of Mt. Pinatubo eruption, whatever losses or damages in the form of hotel and meal expenses
the stranded passengers incurred, cannot be charged to JAL. Yet it is undeniable that JAL assumed the hotel expenses of
respondents for their unexpected overnight stay on June 15, 1991.
It has been held that airline passengers must take such risks incident to the mode of travel. In this regard, adverse weather
conditions or extreme climatic changes are some of the perils involved in air travel, the consequences of which the passenger must
assume or expect.
While JAL was no longer required to defray private respondents' living expenses during their stay in Narita on account of
the fortuitous event, JAL had the duty to make the necessary arrangements to transport private respondents on the first available
connecting flight to Manila. Petitioner JAL reneged on its obligation to look after the comfort and convenience of its passengers
when it declassified private respondents from "transit passengers" to "new passengers" as a result of which private respondents
were obliged to make the necessary arrangements themselves for the next flight to Manila.

Facts: Private respondents boarded a JAL flight in San Francisco, California bound for Manila. It included an overnight
stopover at Narita, Japan at JAL’s expense. Due to the Mt. Pinatubo eruption, private respondents’ trip to Manila was
cancelled. JAL rebooked all the Manila-bound passengers and paid for the hotel expenses of their unexpected overnight
stay. The flight of private respondents was again cancelled due to NAIA’s indefinite closure. JAL informed the
respondents that it would no longer defray their hotel and accommodation expense during their stay in Narita. The
respondents were forced to pay for their accommodations and meal expenses for 5 days.

Issues:

1. Whether or not JAL has the obligation to shoulder the hotel and meal expenses even if the delay was caused by
force majeure
2. Whether or not the award of damages was proper
Held:

1. When a party is unable to fulfill his obligation because of force majeure, the general rule is that he cannot be held
liable for damages for non-performance. When JAL was prevented from resuming its flight to Manila due to the
effects of the eruption, whatever losses or damages in the form of hotel and meal expenses the stranded
passengers incurred cannot be charged to JAL. The predicament of the private respondents was not due to the
fault or negligence of JAL. JAL had the duty to arrange the respondents’ flight back to Manila. However, it failed
to look after the comfort and convenience of its passengers when it made the passengers arrange their flight
back to Manila on their own and after waiting in the airport for a whole day.
2. Yes, the award of nominal damages is proper. Nominal damages are adjudicated in order that a right of a
plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized and not for the
purpose of indemnifying any loss suffered by him.

Zalamea vs. Court of Appeals 288 SCRA 23 (1993)

FACTS:

Spouses Cesar and Suthira Zalamea, and their daughter, Liana Zalamea, purchased three (3) airline tickets from the
Manila agent of respondent TransWorld Airlines, Inc. (TWA) for a flight from New York to Los Angeles on June 6, 1984.
The tickets of the spouses were
purchased at a discount of 75% while that of their daughter was a full fare ticket. All three tickets represented confirmed
reservations.

While in New York, on June 4, 1984, the spouses Zalamea and their daughter received a notice of reconfirmation of their
reservations for said flight. On the appointed date, however, the spouses Zalamea and their daughter checked in at 10:00
am, an hour earlier than the scheduled flight at 11:00 am but were placed on the wait-list because the number of
passengers who checked in before tem had already taken all the seats available on the flight.

Out of the 42 names on the wait-list, the first 22 names were eventually allowed to board the flight to Los Angeles,
including Cesar Zalamea. The two others, on the other hand, being ranked lower than 22, were not able to fly. As it were,
those holding full-fare ticket were given first priority among the wait-listed passengers. Mr. Zalamea, who was holding
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the full-fare ticket of his daughter, was allowed to board the plane; while his wife and daughter, who presented the
discounted tickets were denied boarding. Even in the next TWA flight to Los Angeles, Mrs. Zalamea and her daughter,
could not be accommodated because it was full booked. Thus, they were constrained to book in another flight and
purchased two tickets from American Airlines.

Upon their arrival in the Philippines, the spouses Zalamea filed an action for damages based on breach of contract of air
carriage before the RTC of Makati which rendered a decision in their favor ordering the TWA to pay the price of the
tickets bought from American Airlines together with moral damages and attorney’s fees. On appeal, the CA held that
moral damages are recoverable in a damage suit predicated upon a breach of contract of carriage only where there is
fraud or bad faith. It further stated that since it is a matter of record that overbooking of flights is a common and
accepted practice of airlines in the United States and is specifically allowed under the Code of Federal Regulations by the
Civil Aeronautics Board, neither fraud nor bad faith could be imputed on TWA.

ISSUE:

Whether or not the CA erred in accepting the finding that overbooking is specifically allowed by the US Code of Federal
Regulations and in holding that there was no fraud or bad faith on the part of TWA ?

HELD:

The CA was in error. There was fraud or bad faith on the part of TWA when it did not allow Mrs. Zalamea and her
daughter to board their flight for Los Angeles in spite of confirmed tickets. The US law or regulation allegedly
authorizing overbooking has never been proved.

1.) Foreign laws do not prove themselves nor can the court take judicial notice of them. Like any other fact, they must be
alleged and proved. Written law may be evidenced by an official publication thereof or by a copy attested by the officers
having legal custody of the record, or by his deputy and accompanied with a certificate that such officer has custody. The
certificate may be made by a secretary of an embassy or legation, consul-general, consul, vice-consul, or consular agent
or by any officer in the foreign service of the Phil. stationed in the foreign country in which the record is kept and
authenticated by the seal of his office. Here, TWA relied solely on the testimony of its customer service agent in her
deposition that the Code of Federal Regulations of the Civil Aeronautic Board allows overbooking. Aside from said
statement, no official publication of said code was presented as evidence. Thus, the CA’s finding that overbooking is
specifically allowed by the US Code of Federal Regulations has no basis in fact.

"That there was fraud or bad faith on the part of respondent airline when it did not allow petitioners to board their flight
for Los Angeles in spite of confirmed tickets cannot be disputed. The U.S. law or regulation allegedly authorizing
overbooking has never been proved. Foreign laws do not prove themselves nor can the courts take judicial notice of
them. Like any other fact, they must be alleged and proved. Written law may be evidenced by an official publication
thereof or by a copy attested by the officer having the legal custody of the record, or by his deputy, and accompanied
with a certificate that such officer has custody. The certificate may be made by a secretary of an embassy or legation,
consul general, consul, vice-consul, or consular agent or by any officer in the foreign service of the Philippines stationed
in the foreign country in which the record is kept, and authenticated by the seal of his office.
Respondent TWA relied solely on the statement of Ms. Gwendolyn Lather, its customer service agent, in her deposition
dated January 27, 1986 that the Code of Federal Regulations of the Civil Aeronautics Board allows overbooking. Aside
from said statement, no official publication of said code was presented as evidence. Thus, respondent court's finding that
overbooking is specifically allowed by the US Code of Federal Regulations has no basis in fact."

"Even if the claimed U.S. Code of Federal Regulations does exist, the same is not applicable to the case at bar in
accordance with the principle of lex loci contractus which require that the law of the place where the airline ticket was
issued should be applied by the court where the passengers are residents and nationals of the forum and the ticket is
issued in such State by the defendant airline. Since the tickets were sold and issued in the Philippines, the applicable law
in this case would be Philippine law."

Other Issues:

2.) Even if the claimed US Code of Federal Regulations does exist, the same is not applicable to the case at bar in
accordance with the principle of lex loci contractus which requires that the law of the place where the airline ticket was
issued should be applied by the court where the passengers are residents and nationals of the forum and the ticket is
issued in such State by the airline.

3.) Existing jurisprudence explicitly states that overbooking amounts to bad faith, entitling the passengers concerned to
an award of moral damages. Where an airline had deliberately overbooked, it took the risk of having to deprive some
passengers of their seats in case all of them would show up for check in. for the indignity and inconvenience of being
refused a confirmed seat on the last minute, said passenger is entitled to an award of moral damages. This is so, for a
contract of carriage generates a relation attended with public duty --- a duty to provide public service and convenience
to its passengers which must be paramount to self-interest or enrichment. Even on the assumption that overbooking is
allowed, TWA is still guilty of bad faith in not informing its passengers beforehand that it could breach the contract of
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carriage even if they have confirmed tickets if there was overbooking. Moreover, TWA was also guilty of not informing
its passengers of its alleged policy of giving less priority to discounted tickets. Evidently, TWA placed self-interest over
the rights of the spouses Zalamea and their daughter under their contract of carriage. Such conscious disregard make
respondent TWA liable for moral damages, and to deter breach of contracts by TWA in similar fashion in the future, the
SC adjudged TWA liable for exemplary damages, as well.

Tan v. Northwest Airlines

Facts:

On May 31, 1994, Priscilla Tan and Connie Tan boarded a Northwest Airlines plane in Chicago bound to the Philippines
with a stop-over at Detroit. Upon their arrival, they found out that their baggage was missing. On June 3, they recovered
the baggage and discovered that some were destroyed and soiled. They filed an action for damages, claiming that they
suffered mental anguish, sleepless nights and great damage. Northwest offered to reimburse the cost of repairs of the
bags or purchase price of new bags. The trial court awarded actual, moral and exemplary damages, and also attorney’s
fees. The Court of Appeals partially affirmed the decision by deleting moral and exemplary damages. Hence, Tan filed
this instant petition.

Issue:

Whether respondent Airline is liable for moral and exemplary damages for willful misconduct and breach of contract of
carriage

Held:

We agree with the Court of Appeals that respondent was not guilty of willful misconduct. "For willful misconduct to exist
there must be a showing that the acts complained of were impelled by an intention to violate the law, or were in
persistent disregard of one's rights. It must be evidenced by a flagrantly or shamefully wrong or improper conduct."
Contrary to petitioner's contention, there was nothing in the conduct of respondent which showed that they were
motivated by malice or bad faith in loading her baggages on another plane. Due to weight and balance restrictions, as a
safety measure, respondent airline had to transport the baggages on a different flight, but with the same expected date
and time of arrival in the Philippines. It is admitted that respondent failed to deliver petitioner's luggages on time.
However, there was no showing of malice in such failure. By its concern for safety, respondent had to ship the baggages
in another flight with the same date of arrival.

Fortune Express, Inc. v. Court of Appeals

Art. 1763 of the Civil Code provides that a common carrier is responsible for injuries suffered by a passenger on account of wilfull
acts of other passengers, if the employees of the common carrier could have prevented the act through the exercise of the diligence of a good
father of a family. In the present case, it is clear that because of the negligence of petitioner's employees, the seizure of the bus by
Mananggolo and his men was made possible.
Despite warning by the Philippine Constabulary at Cagayan de Oro that the Maranaos were planning to take revenge on the
petitioner by burning some of its buses and the assurance of petitioner's operation manager, Diosdado Bravo, that the necessary precautions
would be taken, petitioner did nothing to protect the safety of its passengers. Had petitioner and its employees been vigilant they would not
have failed to see that the malefactors had a large quantity of gasoline with them. Under the circumstances, simple precautionary measures
to protect the safety of passengers, such as frisking passengers and inspecting their baggages, preferably with non-intrusive gadgets such as
metal detectors, before allowing them on board could have been employed without violating the passenger's constitutional rights.
The acts of Maranaos could not be considered as caso fortuito because there was already a warning by the PC.
No contributory negligence could be attributed to the deceased. The assailant's motive was to retaliate for the loss of life of two
Maranaos as a result of the collision between petitioner's bus and the jeepney in which the two Maranaos were riding. The armed men
actually allowed deceased to retrieve something from the bus. What apparently angered them was his attempt to help the driver of the bus by
pleading for his life.

G.R. No. 119756, 18 November 1999, 305 SCRA 15

FACTS:

On November 18, 1989, a bus of petitioner figured in an accident with a jeepney in Kauswagan, Lanao del Norte,
resulting in the death of several passengers of the jeepney, including two Maranaos. Crisanto Generalao, a volunteer field
agent of the Constabulary Regional Security Unit, conducted an investigation of the accident. He found that the owner of
the jeepney was a Maranao residing in Delabayan, Lanao del Norte and that certain Maranaos were planning to take
revenge on the petitioner by burning some of its buses. Generalao went to see Diosdado Bravo, operations manager of
36
petitioner, and informed him about the plot of the Maranaos. Bravo assured him that the necessary precautions to insure
the safety of lives and property would be taken.

Several days later, Atty. Caorong was on board a bus to Iligan when three Maranaos went on board the vehicle. The
leader of the group ordered the passengers to leave the bus. Atty. Caorong later went back to get something when he
saw that the Maranaos were already pouring gasoline on the bus and on the driver. Atty. Caorong pleaded for the life of
the driver, after which the driver jumped out of the vehicle.Caorong was shot to death as a result.

RTC dismissed the complaint stating that Fortune was not negligent. Disregarding the suggestion ofproviding its buses
with security guards is not an omission of petitioner’s duty. The evidence showed that the assailants did not intend to
harm the passengers. The death of Atty. Caorong was an unexpected and unforeseen occurrence beyondpetitioner’s
control.

CA REVERSED RTC’s ruling:Fortune is negligent. Despite the tip to Manager Bravo of the devious plan by several
Maranaos, management did not do not take any safety precautions at all.One available safeguard that could have
absolved Fortunefrom liability was frisking of incoming passengers en route to dangerous areas and bag inspection at
the terminals, which Fortune failed to do. The frisking system is not novel insensitive and dangerous places. Many
companies adopt this measure. Fortune did “absolutely nothing”

ISSUE:

1. W/N Petitioner is liable for the death of Atty. Caorong by failing totakenecessary precautions to ensure the safety of its
passengers;
2. W/N the attack by the Maranaos constituted causo fortuito?

RULING:

1. Petitioner is liable.
Article 1763 holds common carriers liable for the injuries to passengers caused by the wilful act of other passengers, if
its employees failed to exercise the diligence of a good father in preventing the act.
• Despite the warning by the constabulary officer, petitioner did nothing to protect the safety of its passengers. If
petitioner took the necessary precautions, they would have discovered the weapons and the large quantity of gasoline
the malefactors carried with them. A common carrier is liable for failing to prevent hijacking by frisking passengers and
inspecting baggages.
• Petitioner is solely liable for Atty. Caorong’s death. There was no contributory negligence on the part of the victim,
since all he did was pleading for the life of the driver. His heroic effort was neither an act of negligence or recklessness.
From the foregoing, it is evident that petitioner’s employees failed to prevent the attack on one of petitioner’s buses
because they did not exercise the diligence of a good father of a family. Hence, petitioner should be held liable for the
death of Atty. Caorong.

2. Seizure of Petitioner’s Bus is not a Case of Force Majeure

Art. 1174 of the Civil Code defines a fortuitous event as an occurence which could not be foreseen, is inevitable. To be
considered as force majeure, it is necessary that (1) the cause of the breach of the obligation must be independent of the
human will; (2) the event must be either unforeseeable or unavoidable; (3) the occurence must be render it impossible
for the debtor to fulfill the obligation in a normal manner; and (4) the obligor must be free of participation in, or
aggravation of, the injury to the creditor. The absence of any of the requisites mentioned above would prevent the
obligor from being excused from liability.

Thus, in Vasquez v. Court of Appeals, it was held that the common carrier was liable for its failure to take the necessary
precautions against an approaching typhoon, of which it was warned, resulting in the loss of the lives of several
passengers. The event was forseeable, and, thus, the second requisite mentioned above was not fulfilled. This ruling
applies by analogy to the present case. Despite the report of PC agent Generalao that the Maranaos were going to attack
its buses, petitioner took no steps to safeguard the lives and properties of its passengers. The seizure of the bus of the
petitioner was foreseeable and, therefore, was not a fortuitous event which would exempt petitioner from liabilty.

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