Transpo Cases 1

Republic of the Philippines subject to the control and regulation of the Public Utility Commission. "We have not found anything
SUPREME COURT in the evidence showing that the appellant operated the trucks in question for public use. These
Manila trucks, so far as indicated by the evidence and as far as the appellant is concerned, furnished
service under special agreements to carry particular persons and property. . . . For all that we can
EN BANC deduce from the evidence, these passengers, or the owners of the freight, may have controlled
the whole vehicles 'both as to content, direction, and time of use,' which facts, under all the
G.R. No. L-15122 March 10, 1920 circumstances of the case, would, in our opinion, take away the defendant's business from the
provisions of the Public Utility Act."
THE UNITED STATES, plaintiff-appellee,
vs. In support of the conclusion of the Attorney-General, he cites the case of Terminal Taxicab Co. vs.
TAN PIACO, VENTURA ESTUYA, PEDRO HOMERES, MAXIMINO GALSA and EMILIO Kutz (241 U. S.. 252). In that case the Terminal Taxicab Co. furnished automobiles from its central
LEOPANDO, defendants. garage on special orders and did not hold itself out to accommodate any and all persons. The
TAN PIACO, appellant. plaintiff reserve to itself the right to refuse service. The Supreme Court of the United States,
speaking through Mr. Justice Holmes, said: "The bargains made by the plaintiff are individual, and
Recaredo Ma. Calvo for appellant. however much they may tend towards uniformity in price, probably have not the mechanical fixity
Attorney-General Paredes for appellee. of charges that attend the use of taxicabs from the stations to the hotels. The court is of the
opinion that that part of the business is not to be regarded as a public utility. It is true that all
business, and for the matter of that, every life in all its details, has a public aspect, some bearing
JOHNSON, J.:
upon the welfare of the country in which it is passed." The court held that by virtue of the fact that
said company did not hold itself out to serve any and all persons, it was not a public utility and was
Said defendants were charged with a violation of the Public Utility Law (Act No. 2307 as amended
not subject to the jurisdiction of the public utility commission.
by Acts Nos. 2362 and 2694), in that they were operating a public utility without permission from
the Public Utility Commissioner.
Upon the facts adduced during the trial of the cause, and for the foregoing reasons, the Attorney-
General recommends that the sentence of the lower court be revoked and that the appellant be
Upon the complain presented each of said defendants were arrested and brought to trial. After
absolved from all liability under the complaint.
hearing the evidence the Honorable Cayetano Lukban, judge, found that the evidence was
insufficient to support the charges against Ventura Estuya, Pedro Homeres, Maximino Galsa and
Section 14 of Act No. 2307, as amended by section 9 of Act No. 2694, provides that: "The Public
Emilio Leopando, and absolved them from all liability under the complaint and discharged them
Utility Commission or Commissioners shall have general supervision and regulation of, jurisdiction
from all liability under the complaint and discharged them from the custody of the law. The lower
and control over, all public utilities. . . . The term 'public utility' is hereby defined to include every
court found the defendant Tan Piaco guilty of the crime charged in the complaint and sentence
individual, copartnership, association, corporation or joint stock company, etc., etc., that now or
him to pay a fine of P100, and, in case of insolvency, to suffer subsidiary imprisonment, and to pay
hereafter may own, operate, managed, or control any common carrier, railroad, street railway, etc.,
one-fifth part of the costs. From that sentence Tan Piaco appealed to this court.
etc., engaged in the transportation of passengers, cargo, etc., etc., for public use."

The facts proved during the trial of the cause may be stated as follows:
Under the provisions of said section, two things are necessary: (a) The individual, copartnership,
etc., etc., must be a public utility; and (b) the business in which such individual, copartnership, etc.
The appellant rented two automobile trucks and was using them upon the highways of the
etc., is engaged must be for public use. So long as the individual or copartnership, etc., etc., is
Province of Leyte for the purpose of carrying some passengers and freight; that he carried
engaged in a purely private enterprise, without attempting to render service to all who may apply,
passengers and freight under a special contract in each case; that he had not held himself out to
he can in no sense be considered a public utility, for public use.
carry all passengers and all freight for all persons who might offer passengers and freight.

"Public use" means the same as "use by the public." The essential feature of the public use is that
The Attorney-General, in a carefully prepared brief, says: "The question is whether the appellant,
it is not confined to privilege individuals, but is open to the indefinite public. It is this indefinite or
under the above facts, was a public utility under the foregoing definitions," and was therefore
Transpo Cases 1
unrestricted quality that gives it its public character. In determining whether a use is public, we
must look not only the character of the business to be done, but also to the proposed mode of
doing it. If the use is merely optional with the owners, or the public benefit is merely incidental, it is
not a public use, authorizing the exercise of the jurisdiction of the public utility commission. There
must be, in general, a right which the law compels the power to give to the general public. It is not
enough that the general prosperity of the public is promoted. Public use is not synonymous with
public interest. The true criterion by which to judge of the character of the use is whether the
public may enjoy it by right or only by permission.

For all of the foregoing reasons, we agree with the Attorney-General that the appellant was not
operating a public utility, for public use, and was not, therefore, subject to the jurisdiction of the
Public Utility Commission.

Therefore, the sentence of the lower court is hereby revoked, and it is hereby ordered and
decreed that the complaint be dismissed and that the defendant be absolved from all liability under
the same, and that he be discharged from the custody of the law, without any finding as to costs.
So ordered.
Transpo Cases 1
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 166250 July 26, 2010
UNSWORTH TRANSPORT INTERNATIONAL (PHILS.), INC., Petitioner,
vs.
COURT OF APPEALS and PIONEER INSURANCE AND SURETY
CORPORATION, Respondents.
DECISION
NACHURA, J.:
For review is the Court of Appeals (CA) Decision1 dated April 29, 2004 and Resolution2 dated
November 26, 2004. The assailed Decision affirmed the Regional Trial Court (RTC)
decision3 dated February 22, 2001; while the assailed Resolution denied petitioner Unsworth
Transport International (Philippines), Inc., American President Lines, Ltd. (APL), and Unsworth
Transport International, Inc.’s (UTI’s) motion for reconsideration.
The facts of the case are:
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 x x banana flavoring; 2) 2 drums (of) flammable liquids
x x x 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
Surety Corporation in favor of Unilab against all risks in the amount of ₱1,779,664.77 under and
by virtue of Marine Risk Note Number MC RM UL 0627 926 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 APL’s vessel M/V "Pres. Jackson," Voyage 42,
and transshipped to APL’s 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
Goods9 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 petitioner’s warehouse. The survey results stated:
2-pallets STC 40 bags Dried Yeast, both in good order condition and properly sealed
19- steel drums STC Vitamin B Complex Extract, all in good order condition and properly
sealed
1-steel drum STC Vitamin B Complex Extra[ct] with cut/hole on side, with approx. spilling
of 1%11
On October 15, 1992, the arrastre Jardine Davies Transport Services, Inc. (Jardine)
issued Gate Pass No. 761412 which stated that "22 drums13 Raw Materials for
Pharmaceutical Mfg." were loaded on a truck with Plate No. PCK-434 facilitated by
Champs for delivery to Unilab’s 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 Unilab’s
warehouse and was immediately surveyed by an independent surveyor, J.G. Bernas
Adjusters & Surveyors, Inc. (J.G. Bernas). The Report stated:
1-p/bag torn on side contents partly spilled
1-s/drum #7 punctured and retaped on bottom side content lacking
5-drums shortship/short delivery15
On October 23 and 28, 1992, the same independent surveyor conducted final inspection surveys
which yielded the same results. Consequently, Unilab’s 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 claim17 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.
Transpo Cases 1
After the termination of the pre-trial conference, trial on the merits ensued. On February 22, 2001,
the RTC decided in favor of private respondent and against APL, UTI and petitioner, the
dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintif PIONEER INSURANCE &
SURETY CORPORATION and against the defendants AMERICAN PRESIDENT LINES and
UNSWORTH TRANSPORT INTERNATIONAL (PHILS.), INC. (now known as JUGRO
TRANSPORT INT’L., PHILS.), ordering the latter to pay, jointly and severally, the former the
following amounts:
1. The sum of SEVENTY SIX THOUSAND TWO HUNDRED THIRTY ONE and 27/100
(Php76,231.27) with interest at the legal rate of 6% per annum to be computed starting
from September 30, 1993 until fully paid, for and as actual damages;
2. The amount equivalent to 25% of the total sum as attorney’s fees;
3. Cost of this litigation.
SO ORDERED.20
On appeal, the CA affirmed the RTC decision on April 29, 2004. The CA rejected UTI’s defense
that it was merely a forwarder, declaring instead that it was a common carrier. The appellate court
added that by issuing the Bill of Lading, UTI acknowledged receipt of the goods and agreed to
transport and deliver them at a specific place to a person named or his order. The court further
concluded that upon the delivery of the subject shipment to petitioner’s warehouse, its liability
became similar to that of a depositary. As such, it ought to have exercised ordinary diligence in the
care of the goods. And as found by the RTC, the CA agreed that petitioner failed to exercise the
required diligence. The CA also rejected petitioner’s claim that its liability should be limited to $500
per package pursuant to the Carriage of Goods by Sea Act (COGSA) considering that the value of
the shipment was declared pursuant to the letter of credit and the pro forma invoice. As to APL,
the court considered it as a common carrier notwithstanding the non-issuance of a bill of lading
inasmuch as a bill of lading is not indispensable for the execution of a contract of carriage. 21
Unsatisfied, petitioner comes to us in this petition for review on certiorari, raising the following
issues:
1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE
OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN UPHOLDING
THE DECISION OF THE REGIONAL TRIAL COURT DATED 22 FEBRUARY 2001, AWARDING
THE SUM OF SEVENTY SIX THOUSAND TWO HUNDRED THIRTY ONE AND 27/100 PESOS
(PHP76,231.27) WITH LEGAL INTEREST AT 6% PER ANNUM AS ACTUAL DAMAGES AND
25% AS ATTORNEY’S FEES.
2. WHETHER OR NOT PETITIONER UTI IS A COMMON CARRIER.
3. WHETHER OR NOT PETITIONER UTI EXERCISED THE REQUIRED ORDINARY
DILIGENCE.
4. WHETHER OR NOT THE PRIVATE RESPONDENT SUFFICIENTLY ESTABLISHED THE
ALLEGED DAMAGE TO ITS CARGO.22
Petitioner admits that it is a forwarder but disagrees with the CA’s conclusion that it is a common
carrier. It also questions the appellate court’s findings that it failed to establish that it exercised
extraordinary or ordinary diligence in the vigilance over the subject shipment. As to the damages
allegedly suffered by private respondent, petitioner counters that they were not sufficiently proven.
Lastly, it insists that its liability, in any event, should be limited to $500 pursuant to the package
limitation rule. Indeed, petitioner wants us to review the factual findings of the RTC and the CA
and to evaluate anew the evidence presented by the parties.
The petition is partly meritorious.
Well established is the rule that factual questions may not be raised in a petition for review on
certiorari as clearly stated in Section 1, Rule 45 of the Rules of Court, viz.:
Section 1. Filing of petition with Supreme Court. – A party desiring to appeal by certiorari from a
judgment or final order or resolution of the Court of Appeals, the Sandiganbayan, the Regional
Trial Court or other courts whenever authorized by law, may file with the Supreme Court a verified
petition for review on certiorari. The petition shall raise only questions of law which must be
distinctly set forth.
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.231avvphi1
A freight forwarder’s 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
Transpo Cases 1
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.28
Though it is not our function to evaluate anew the evidence presented, we refer to the records of
the case to show that, as correctly found by the RTC and the CA, petitioner failed to rebut the
prima facie presumption of negligence in the carriage of the subject shipment.
First, as stated in the bill of lading, the subject shipment was received by UTI in apparent good
order and condition in New York, United States of America. Second, the OCMSC Survey Report
stated that one steel drum STC Vitamin B Complex Extract was discovered to be with a cut/hole
on the side, with approximate spilling of 1%. Third, though Gate Pass No. 7614, issued by Jardine,
noted that the subject shipment was in good order and condition, it was specifically stated that
there were 22 (should be 27 drums per Bill of Lading No. C320/C15991-2) drums of raw materials
for pharmaceutical manufacturing. Last, J.G. Bernas’ Survey Report stated that "1-s/drum was
punctured and retaped on the bottom side and the content was lacking, and there was a short
delivery of 5-drums."
All these conclusively prove the fact of shipment in good order and condition, and the consequent
damage to one steel drum of Vitamin B Complex Extract while in the possession of petitioner
which failed to explain the reason for the damage. Further, petitioner failed to prove that it
observed the extraordinary diligence and precaution which the law requires a common carrier to
exercise and to follow in order to avoid damage to or destruction of the goods entrusted to it for
safe carriage and delivery.29
However, we affirm the applicability of the Package Limitation Rule under the COGSA, contrary to
the RTC and the CA’s findings.
It is to be noted that the Civil Code does not limit the liability of the common carrier to a fixed
amount per package. In all matters not regulated by the Civil Code, the rights and obligations of
common carriers are governed by the Code of Commerce and special laws. Thus, the COGSA
supplements the Civil Code by establishing a provision limiting the carrier’s liability in the absence
of a shipper’s declaration of a higher value in the bill of lading. 30 Section 4(5) of the COGSA
provides:
(5) Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to
or in connection with the transportation of goods in an amount exceeding $500 per package of
lawful money of the United States, or in case of goods not shipped in packages, per customary
freight unit, or the equivalent of that sum in other currency, unless the nature and value of such
goods have been declared by the shipper before shipment and inserted in the bill of lading. This
declaration, if embodied in the bill of lading, shall be prima facie evidence, but shall not be
conclusive on the carrier.
In the present case, the shipper did not declare a higher valuation of the goods to be shipped.
Contrary to the CA’s conclusion, the insertion of the words "L/C No. LC No. 1-187-008394/ NY
69867 covering shipment of raw materials for pharmaceutical Mfg. x x x" cannot be the basis of
petitioner’s liability.31 Furthermore, the insertion of an invoice number does not in itself sufficiently
and convincingly show that petitioner had knowledge of the value of the cargo.32
In light of the foregoing, petitioner’s liability should be limited to $500 per steel drum. In this case,
as there was only one drum lost, private respondent is entitled to receive only $500 as damages
for the loss. In addition to said amount, as aptly held by the trial court, an interest rate of 6% per
annum should also be imposed, plus 25% of the total sum as attorney’s fees.
WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The Court of Appeals
Decision dated April 29, 2004 and Resolution dated November 26, 2004 are AFFIRMED with
Transpo Cases 1
MODIFICATION by reducing the principal amount due private respondent Pioneer Insurance and On October 20, 1995, 405 cartons of Epoxy Molding Compound were consigned to be shipped
Surety Corporation from ₱76,231.27 to $500, with interest of 6% per annum from date of demand, from Singapore to Manila for Temic Telefunken Microelectronics Philippines (Temic). U-Freight
and 25% of the amount due as attorney’s fees. Singapore PTE Ltd.3 (U-Freight Singapore), a forwarding agent based in Singapore, contracted
the services of Pacific Eagle Lines PTE. Ltd. (Pacific Eagle) to transport the subject cargo. The
The other aspects of the assailed Decision and Resolution STAND. cargo was packed, stored, and sealed by Pacific Eagle in its Refrigerated Container No. 6105660
with Seal No. 13223. As the cargo was highly perishable, the inside of the container had to be
SO ORDERED. kept at a temperature of 0º Celsius. Pacific Eagle then loaded the refrigerated container on board
the M/V Piya Bhum, a vessel owned by RCL, with which Pacific Eagle had a slot charter
Republic of the Philippines agreement. RCL duly issued its own Bill of Lading in favor of Pacific Eagle.
SUPREME COURT
Manila To insure the cargo against loss and damage, Netherlands Insurance issued a Marine Open
Policy in favor of Temic, as shown by MPO-21-05081-94 and Marine Risk Note MRN-21 14022, to
SECOND DIVISION cover all losses/damages to the shipment.

G.R. No. 168151 September 4, 2009 On October 25, 1995, the M/V Piya Bhum docked in Manila. After unloading the refrigerated
container, it was plugged to the power terminal of the pier to keep its temperature constant. Fidel
Rocha (Rocha), Vice-President for Operations of Marines Adjustment Corporation, accompanied
REGIONAL CONTAINER LINES (RCL) OF SINGAPORE and EDSA SHIPPING
by two surveyors, conducted a protective survey of the cargo. They found that based on the
AGENCY, Petitioners,
temperature chart, the temperature reading was constant from October 18, 1995 to October 25,
vs.
1995 at 0º Celsius. However, at midnight of October 25, 1995 – when the cargo had already been
THE NETHERLANDS INSURANCE CO. (PHILIPPINES), INC., Respondent.
unloaded from the ship – the temperature fluctuated with a reading of 33º Celsius. Rocha believed
the fluctuation was caused by the burnt condenser fan motor of the refrigerated container.
DECISION

BRION, J.:
For our resolution is the petition for review on certiorari filed by petitioners Regional Container
Lines of Singapore (RCL) and EDSA Shipping Agency (EDSA Shipping) to annul and set aside
the decision1 and resolution2 of the Court of Appeals (CA) dated May 26, 2004 and May 10, 2005,
respectively, in CA-G.R. CV No. 76690.
RCL is a foreign corporation based in Singapore. It does business in the Philippines through its
agent, EDSA Shipping, a domestic corporation organized and existing under Philippine laws.
Respondent Netherlands Insurance Company (Philippines), Inc. (Netherlands Insurance) is
likewise a domestic corporation engaged in the marine underwriting business.
FACTUAL ANTECEDENTS
The pertinent facts, based on the records are summarized below.
On November 9, 1995, Temic received the shipment. It found the cargo completely damaged.
Temic filed a claim for cargo loss against Netherlands Insurance, with supporting claims
documents. The Netherlands Insurance paid Temic the sum of ₱1,036,497.00 under the terms of
the Marine Open Policy. Temic then executed a loss and subrogation receipt in favor of
Netherlands Insurance.
Seven months from delivery of the cargo or on June 4, 1996, Netherlands Insurance filed a
complaint for subrogation of insurance settlement with the Regional Trial Court, Branch 5, Manila,
against "the unknown owner of M/V Piya Bhum" and TMS Ship Agencies (TMS), the latter thought
to be the local agent of M/V Piya Bhum’s unknown owner.4 The complaint was docketed as Civil
Case No. 96-78612.
Netherlands Insurance amended the complaint on January 17, 1997 to implead EDSA Shipping,
RCL, Eagle Liner Shipping Agencies, U-Freight Singapore, and U-Ocean (Phils.), Inc. (U-Ocean),
as additional defendants. A third amended complaint was later made, impleading Pacific Eagle in
substitution of Eagle Liner Shipping Agencies.
Transpo Cases 1
TMS filed its answer to the original complaint. RCL and EDSA Shipping filed their answers with No costs.
cross-claim and compulsory counterclaim to the second amended complaint. U-Ocean likewise
filed an answer with compulsory counterclaim and cross-claim. During the pendency of the case, SO ORDERED. [Emphasis supplied.]
U-Ocean, jointly with U-Freight Singapore, filed another answer with compulsory counterclaim.
Only Pacific Eagle and TMS filed their answers to the third amended complaint. The CA dismissed Netherland Insurance’s complaint against the other defendants after finding
that the claim had already been barred by prescription.5
The defendants all disclaimed liability for the damage caused to the cargo, citing several reasons
why Netherland Insurance’s claims must be rejected. Specifically, RCL and EDSA Shipping Having been found liable for the damage to the cargo, RCL and EDSA Shipping filed a motion for
denied negligence in the transport of the cargo; they attributed any negligence that may have reconsideration, but the CA maintained its original conclusions.
caused the loss of the shipment to their co-defendants. They likewise asserted that no valid
subrogation exists, as the payment made by Netherlands Insurance to the consignee was invalid. The sole issue for our resolution is whether the CA correctly held RCL and EDSA Shipping liable
By way of affirmative defenses, RCL and EDSA Shipping averred that the Netherlands Insurance as common carriers under the theory of presumption of negligence.
has no cause of action, and is not the real party-in-interest, and that the claim is barred by
laches/prescription.
THE COURT’S RULING

After Netherlands Insurance had made its formal offer of evidence, the defendants including RCL
The present case is governed by the following provisions of the Civil Code:
and EDSA Shipping sought leave of court to file their respective motions to dismiss based on
demurrer to evidence.
ART. 1733. Common carriers, from the nature of their business and for reasons of public policy,
are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of
RCL and EDSA Shipping, in their motion, insisted that Netherlands Insurance had (1) failed to
the passengers transported by them according to all the circumstances of each case.
prove any valid subrogation, and (2) failed to establish that any negligence on their part or that the
loss was sustained while the cargo was in their custody.
Such extraordinary diligence in the vigilance over the goods is further expressed in articles 1734,
1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the
On May 22, 2002, the trial court handed down an Order dismissing Civil Case No. 96-78612 on
passengers is further set forth in articles1755 and 1756.
demurrer to evidence. The trial court ruled that while there was valid subrogation, the defendants
could not be held liable for the loss or damage, as their respective liabilities ended at the time of
ART. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the
the discharge of the cargo from the ship at the Port of Manila.
goods, unless the same is due to any of the following causes only:

Netherlands Insurance seasonably appealed the order of dismissal to the CA.

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

On May 26, 2004, the CA disposed of the appeal as follows:

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

WHEREFORE, in view of the foregoing, the dismissal of the complaint against defendants
3) Act of omission of the shipper or owner of the goods;
Regional Container Lines and Its local agent, EDSA Shipping Agency, is REVERSED and SET
ASIDE. The dismissal of the complaint against the other defendants is AFFIRMED. Pursuant to
Section 1, Rule 33 of the 1997 Rules of Civil Procedure, defendants Regional Container Lines and 4) The character of the goods or defects in the packing or in the containers;
EDSA Shipping Agency are deemed to have waived the right to present evidence.
5) Order or act of competent public authority.
As such, defendants Regional Container Lines and EDSA Shipping Agency are ordered to
reimburse plaintiff in the sum of ₱1,036,497.00 with interest from date hereof until fully paid. ART. 1735. In all cases other that those mentioned in Nos. 1, 2, 3, 4 and 5 of the preceding article,
if the goods are lost, destroyed, or deteriorated, common carriers are presumed to have been at
Transpo Cases 1
fault or to have acted negligently, unless they prove that they observed extraordinary diligence as
required by article 1733.
ART. 1736. The extraordinary responsibility of the common carrier lasts from the time the goods
are unconditionally placed in the possession of, and received by the carrier for transportation until
the sane are delivered, actually or constructively, by the carrier to the consignee, or to the person
who has a right to receive them, without prejudice to the provisions of articles 1738.
ART. 1738. The extraordinary liability of the common carrier continues to be operative even during
the time the goods are stored in a warehouse of the carrier at the place of destination, until the
consignee has been advised of the arrival of the goods and has had reasonable opportunity
thereafter to remove them or otherwise dispose of them.
ART. 1742. Even if the loss, destruction, or deterioration of the goods should be caused by the
character of the goods, or the faulty nature of the packing or of the containers, the common carrier
must exercise due diligence to forestall or lessen the loss.
In Central Shipping Company, Inc. v. Insurance Company of North America,6 we reiterated the
rules for the liability of a common carrier for lost or damaged cargo as follows:
(1) Common carriers are bound to observe extraordinary diligence over the goods they
transport, according to all the circumstances of each case;
(2) In the event of loss, destruction, or deterioration of the insured goods, common
carriers are responsible, unless they can prove that such loss, destruction, or
deterioration was brought about by, among others, "flood, storm, earthquake, lightning, or
other natural disaster or calamity"; and
(3) In all other cases not specified under Article 1734 of the Civil Code, common carriers
are presumed to have been at fault or to have acted negligently, unless they observed
extraordinary diligence.7
In the present case, RCL and EDSA Shipping disclaim any responsibility for the loss or damage to
the goods in question. They contend that the cause of the damage to the cargo was the
"fluctuation of the temperature in the reefer van," which fluctuation occurred after the cargo had
already been discharged from the vessel; no fluctuation, they point out, arose when the cargo was
still on board M/V Piya Bhum. As the cause of the damage to the cargo occurred after the same
was already discharged from the vessel and was under the custody of the arrastre operator
(International Container Terminal Services, Inc. or ICTSI), RCL and EDSA Shipping posit that the
presumption of negligence provided in Article 1735 of the Civil Code should not apply. What
applies in this case is Article 1734, particularly paragraphs 3 and 4 thereof, which exempts the
carrier from liability for loss or damage to the cargo when it is caused either by an act or omission
of the shipper or by the character of the goods or defects in the packing or in the containers. Thus,
RCL and EDSA Shipping seek to lay the blame at the feet of other parties.
We do not find the arguments of RCL and EDSA Shipping meritorious.
A common carrier is presumed to have been negligent if it fails to prove that it exercised
extraordinary vigilance over the goods it transported.8 When the goods shipped are either lost or
arrived 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.91avvphi1
To overcome the presumption of negligence, the common carrier must establish by adequate
proof that it exercised extraordinary diligence over the goods. It must do more than merely show
that some other party could be responsible for the damage.10
In the present case, RCL and EDSA Shipping failed to prove that they did exercise that degree of
diligence required by law over the goods they transported. Indeed, there is sufficient evidence
showing that the fluctuation of the temperature in the refrigerated container van, as recorded in the
temperature chart, occurred after the cargo had been discharged from the vessel and was already
under the custody of the arrastre operator, ICTSI. This evidence, however, does not disprove that
the condenser fan – which caused the fluctuation of the temperature in the refrigerated container –
was not damaged while the cargo was being unloaded from the ship. It is settled in maritime law
jurisprudence that cargoes while being unloaded generally remain under the custody of the
carrier;11 RCL and EDSA Shipping failed to dispute this.1avvphi1
RCL and EDSA Shipping could have offered evidence before the trial court to show that the
damage to the condenser fan did not occur: (1) while the cargo was in transit; (2) while they were
in the act of discharging it from the vessel; or (3) while they were delivering it actually or
constructively to the consignee. They could have presented proof to show that they exercised
extraordinary care and diligence in the handling of the goods, but they opted to file a demurrer to
evidence. As the order granting their demurrer was reversed on appeal, the CA correctly ruled that
they are deemed to have waived their right to present evidence,12 and the presumption of
negligence must stand.
It is for this reason as well that we find RCL and EDSA Shipping’s claim that the loss or damage to
the cargo was caused by a defect in the packing or in the containers. To exculpate itself from
liability for the loss/damage to the cargo under any of the causes, the common carrier is burdened
to prove any of the causes in Article 1734 of the Civil Code claimed by it by a preponderance of
evidence. If the carrier succeeds, the burden of evidence is shifted to the shipper to prove that the
carrier is negligent.13 RCL and EDSA Shipping, however, failed to satisfy this standard of evidence
Transpo Cases 1
and in fact offered no evidence at all on this point; a reversal of a dismissal based on a demurrer
to evidence bars the defendant from presenting evidence supporting its allegations.

WHEREFORE, we DENY the petition for review on certiorari filed by the Regional Container Lines
of Singapore and EDSA Shipping Agency. The decision of the Court of Appeals dated May 26,
2004 in CA-G.R. CV No. 76690 is AFFIRMED IN TOTO. Costs against the petitioners.

SO ORDERED.
Transpo Cases 1
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 101503 September 15, 1993
PLANTERS PRODUCTS, INC., petitioner,
vs.
COURT OF APPEALS, SORIAMONT STEAMSHIP AGENCIES AND KYOSEI KISEN
KABUSHIKI KAISHA, respondents.
Gonzales, Sinense, Jimenez & Associates for petitioner.
Siguion Reyna, Montecillo & Ongsiako Law Office for private respondents.
BELLOSILLO, J.:
Does a charter-party1 between a shipowner and a charterer transform a common carrier into a
private one as to negate the civil law presumption of negligence in case of loss or damage to its
cargo?
Planters Products, Inc. (PPI), purchased from Mitsubishi International Corporation (MITSUBISHI)
of New York, U.S.A., 9,329.7069 metric tons (M/T) of Urea 46% fertilizer which the latter shipped
in bulk on 16 June 1974 aboard the cargo vessel M/V "Sun Plum" owned by private respondent
Kyosei Kisen Kabushiki Kaisha (KKKK) from Kenai, Alaska, U.S.A., to Poro Point, San Fernando,
La Union, Philippines, as evidenced by Bill of Lading No. KP-1 signed by the master of the vessel
and issued on the date of departure.
On 17 May 1974, or prior to its voyage, a time charter-party on the vessel M/V "Sun Plum"
pursuant to the Uniform General Charter2 was entered into between Mitsubishi as
shipper/charterer and KKKK as shipowner, in Tokyo, Japan.3 Riders to the aforesaid charter-party
starting from par. 16 to 40 were attached to the pre-printed agreement. Addenda Nos. 1, 2, 3 and
4 to the charter-party were also subsequently entered into on the 18th, 20th, 21st and 27th of May
1974, respectively.
Before loading the fertilizer aboard the vessel, four (4) of her holds 4 were all presumably inspected
by the charterer's representative and found fit to take a load of urea in bulk pursuant to par. 16 of
the charter-party which reads:
16. . . . At loading port, notice of readiness to be accomplished by certificate from
National Cargo Bureau inspector or substitute appointed by charterers for his
account certifying the vessel's readiness to receive cargo spaces. The vessel's
hold to be properly swept, cleaned and dried at the vessel's expense and the
vessel to be presented clean for use in bulk to the satisfaction of the inspector
before daytime commences. (emphasis supplied)
After the Urea fertilizer was loaded in bulk by stevedores hired by and under the supervision of the
shipper, the steel hatches were closed with heavy iron lids, covered with three (3) layers of
tarpaulin, then tied with steel bonds. The hatches remained closed and tightly sealed throughout
the entire voyage.5
Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches were
opened with the use of the vessel's boom. Petitioner unloaded the cargo from the holds into its
steelbodied dump trucks which were parked alongside the berth, using metal scoops attached to
the ship, pursuant to the terms and conditions of the charter-partly (which provided for an F.I.O.S.
clause).6 The hatches remained open throughout the duration of the discharge.7
Each time a dump truck was filled up, its load of Urea was covered with tarpaulin before it was
transported to the consignee's warehouse located some fifty (50) meters from the wharf. Midway
to the warehouse, the trucks were made to pass through a weighing scale where they were
individually weighed for the purpose of ascertaining the net weight of the cargo. The port area was
windy, certain portions of the route to the warehouse were sandy and the weather was variable,
raining occasionally while the discharge was in progress.8 The petitioner's warehouse was made
of corrugated galvanized iron (GI) sheets, with an opening at the front where the dump trucks
entered and unloaded the fertilizer on the warehouse floor. Tarpaulins and GI sheets were placed
in-between and alongside the trucks to contain spillages of the ferilizer.9
It took eleven (11) days for PPI to unload the cargo, from 5 July to 18 July 1974 (except July 12th,
14th and 18th).10 A private marine and cargo surveyor, Cargo Superintendents Company Inc.
(CSCI), was hired by PPI to determine the "outturn" of the cargo shipped, by taking draft readings
of the vessel prior to and after discharge. 11 The survey report submitted by CSCI to the consignee
(PPI) dated 19 July 1974 revealed a shortage in the cargo of 106.726 M/T and that a portion of the
Urea fertilizer approximating 18 M/T was contaminated with dirt. The same results were contained
in a Certificate of Shortage/Damaged Cargo dated 18 July 1974 prepared by PPI which showed
that the cargo delivered was indeed short of 94.839 M/T and about 23 M/T were rendered unfit for
Transpo Cases 1
commerce, having been polluted with sand, rust and
dirt. 12
Consequently, PPI sent a claim letter dated 18 December 1974 to Soriamont Steamship Agencies
(SSA), the resident agent of the carrier, KKKK, for P245,969.31 representing the cost of the
alleged shortage in the goods shipped and the diminution in value of that portion said to have
been contaminated with dirt. 13
Respondent SSA explained that they were not able to respond to the consignee's claim for
payment because, according to them, what they received was just a request for shortlanded
certificate and not a formal claim, and that this "request" was denied by them because they "had
nothing to do with the discharge of the shipment." 14 Hence, on 18 July 1975, PPI filed an action
for damages with the Court of First Instance of Manila. The defendant carrier argued that the strict
public policy governing common carriers does not apply to them because they have become
private carriers by reason of the provisions of the charter-party. The court a quo however
sustained the claim of the plaintiff against the defendant carrier for the value of the goods lost or
damaged when it ruled thus: 15
. . . Prescinding from the provision of the law that a common carrier is presumed
negligent in case of loss or damage of the goods it contracts to transport, all that
a shipper has to do in a suit to recover for loss or damage is to show receipt by
the carrier of the goods and to delivery by it of less than what it received. After
that, the burden of proving that the loss or damage was due to any of the causes
which exempt him from liability is shipted to the carrier, common or private he
may be. Even if the provisions of the charter-party aforequoted are deemed valid,
and the defendants considered private carriers, it was still incumbent upon them
to prove that the shortage or contamination sustained by the cargo is attributable
to the fault or negligence on the part of the shipper or consignee in the loading,
stowing, trimming and discharge of the cargo. This they failed to do. By this
omission, coupled with their failure to destroy the presumption of negligence
against them, the defendants are liable (emphasis supplied).
On appeal, respondent Court of Appeals reversed the lower court and absolved the carrier from
liability for the value of the cargo that was lost or damaged. 16 Relying on the 1968 case of Home
Insurance Co. v. American Steamship Agencies, Inc.,17 the appellate court ruled that the cargo
vessel M/V "Sun Plum" owned by private respondent KKKK was a private carrier and not a
common carrier by reason of the time charterer-party. Accordingly, the Civil Code provisions on
common carriers which set forth a presumption of negligence do not find application in the case at
bar. Thus —
. . . In the absence of such presumption, it was incumbent upon the plaintiff-
appellee to adduce sufficient evidence to prove the negligence of the defendant
carrier as alleged in its complaint. It is an old and well settled rule that if the
plaintiff, upon whom rests the burden of proving his cause of action, fails to show
in a satisfactory manner the facts upon which he bases his claim, the defendant
is under no obligation to prove his exception or defense (Moran, Commentaries
on the Rules of Court, Volume 6, p. 2, citing Belen v. Belen, 13 Phil. 202).
But, the record shows that the plaintiff-appellee dismally failed to prove the basis
of its cause of action, i.e. the alleged negligence of defendant carrier. It appears
that the plaintiff was under the impression that it did not have to establish
defendant's negligence. Be that as it may, contrary to the trial court's finding, the
record of the instant case discloses ample evidence showing that defendant
carrier was not negligent in performing its obligation . . . 18 (emphasis supplied).
Petitioner PPI appeals to us by way of a petition for review assailing the decision of the Court of
Appeals. Petitioner theorizes that the Home Insurance case has no bearing on the present
controversy because the issue raised therein is the validity of a stipulation in the charter-party
delimiting the liability of the shipowner for loss or damage to goods cause by want of due
deligence on its part or that of its manager to make the vessel seaworthy in all respects, and not
whether the presumption of negligence provided under the Civil Code applies only to common
carriers and not to private carriers. 19 Petitioner further argues that since the possession and
control of the vessel remain with the shipowner, absent any stipulation to the contrary, such
shipowner should made liable for the negligence of the captain and crew. In fine, PPI faults the
appellate court in not applying the presumption of negligence against respondent carrier, and
instead shifting the onus probandi on the shipper to show want of due deligence on the part of the
carrier, when he was not even at hand to witness what transpired during the entire voyage.
As earlier stated, the primordial issue here is whether a common carrier becomes a private carrier
by reason of a charter-party; in the negative, whether the shipowner in the instant case was able
to prove that he had exercised that degree of diligence required of him under the law.
It is said that etymology is the basis of reliable judicial decisions in commercial cases. This being
so, we find it fitting to first define important terms which are relevant to our discussion.
A "charter-party" is defined as a contract by which an entire ship, or some principal part thereof, is
let by the owner to another person for a specified time or use; 20 a contract of affreightment by
which the owner of a ship or other vessel lets the whole or a part of her to a merchant or other
person for the conveyance of goods, on a particular voyage, in consideration of the payment of
freight; 21 Charter parties are of two types: (a) contract of affreightment which involves the use of
shipping space on vessels leased by the owner in part or as a whole, to carry goods for others;
Transpo Cases 1
and, (b) charter by demise or bareboat charter, by the terms of which the whole vessel is let to the
charterer with a transfer to him of its entire command and possession and consequent control over
its navigation, including the master and the crew, who are his servants. Contract of affreightment
may either be time charter, wherein the vessel is leased to the charterer for a fixed period of time,
or voyage charter, wherein the ship is leased for a single voyage. 22 In both cases, the charter-
party provides for the hire of vessel only, either for a determinate period of time or for a single or
consecutive voyage, the shipowner to supply the ship's stores, pay for the wages of the master
and the crew, and defray the expenses for the maintenance of the ship.
Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the Civil
Code. 23 The definition extends to carriers either by land, air or water which hold themselves out
as ready to engage in carrying goods or transporting passengers or both for compensation as a
public employment and not as a casual occupation. The distinction between a "common or public
carrier" and a "private or special carrier" lies in the character of the business, such that if the
undertaking is a single transaction, not a part of the general business or occupation, although
involving the carriage of goods for a fee, the person or corporation offering such service is a
private carrier. 24
Article 1733 of the New Civil Code mandates that common carriers, by reason of the nature of
their business, should observe extraordinary diligence in the vigilance over the goods they
carry.25 In the case of private carriers, however, the exercise of ordinary diligence in the carriage
of goods will suffice. Moreover, in the case of loss, destruction or deterioration of the goods,
common carriers are presumed to have been at fault or to have acted negligently, and the burden
of proving otherwise rests on them.26 On the contrary, no such presumption applies to private
carriers, for whosoever alleges damage to or deterioration of the goods carried has the onus of
proving that the cause was the negligence of the carrier.
It is not disputed that respondent carrier, in the ordinary course of business, operates as a
common carrier, transporting goods indiscriminately for all persons. When petitioner chartered the
vessel M/V "Sun Plum", the ship captain, its officers and compliment were under the employ of the
shipowner and therefore continued to be under its direct supervision and control. Hardly then can
we charge the charterer, a stranger to the crew and to the ship, with the duty of caring for his
cargo when the charterer did not have any control of the means in doing so. This is evident in the
present case considering that the steering of the ship, the manning of the decks, the determination
of the course of the voyage and other technical incidents of maritime navigation were all
consigned to the officers and crew who were screened, chosen and hired by the shipowner. 27
It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of
the whole or portion of a vessel by one or more persons, provided the charter is limited to the ship
only, as in the case of a time-charter or voyage-charter. It is only when the charter includes both
the vessel and its crew, as in a bareboat or demise that a common carrier becomes private, at
least insofar as the particular voyage covering the charter-party is concerned. Indubitably, a
shipowner in a time or voyage charter retains possession and control of the ship, although her
holds may, for the moment, be the property of the charterer. 28
Respondent carrier's heavy reliance on the case of Home Insurance Co. v. American Steamship
Agencies, supra, is misplaced for the reason that the meat of the controversy therein was the
validity of a stipulation in the charter-party exempting the shipowners from liability for loss due to
the negligence of its agent, and not the effects of a special charter on common carriers. At any
rate, the rule in the United States that a ship chartered by a single shipper to carry special cargo is
not a common carrier, 29 does not find application in our jurisdiction, for we have observed that the
growing concern for safety in the transportation of passengers and /or carriage of goods by sea
requires a more exacting interpretation of admiralty laws, more particularly, the rules governing
common carriers.
We quote with approval the observations of Raoul Colinvaux, the learned barrister-at-law 30 —
As a matter of principle, it is difficult to find a valid distinction between cases in
which a ship is used to convey the goods of one and of several persons. Where
the ship herself is let to a charterer, so that he takes over the charge and control
of her, the case is different; the shipowner is not then a carrier. But where her
services only are let, the same grounds for imposing a strict responsibility exist,
whether he is employed by one or many. The master and the crew are in each
case his servants, the freighter in each case is usually without any representative
on board the ship; the same opportunities for fraud or collusion occur; and the
same difficulty in discovering the truth as to what has taken place arises . . .
In an action for recovery of damages against a common carrier on the goods shipped, the shipper
or consignee should first prove the fact of shipment and its consequent loss or damage while the
same was in the possession, actual or constructive, of the carrier. Thereafter, the burden of proof
shifts to respondent to prove that he has exercised extraordinary diligence required by law or that
the loss, damage or deterioration of the cargo was due to fortuitous event, or some other
circumstances inconsistent with its liability. 31
To our mind, respondent carrier has sufficiently overcome, by clear and convincing proof,
the prima facie presumption of negligence.
The master of the carrying vessel, Captain Lee Tae Bo, in his deposition taken on 19 April 1977
before the Philippine Consul and Legal Attache in the Philippine Embassy in Tokyo, Japan,
testified that before the fertilizer was loaded, the four (4) hatches of the vessel were cleaned, dried
and fumigated. After completing the loading of the cargo in bulk in the ship's holds, the steel
pontoon hatches were closed and sealed with iron lids, then covered with three (3) layers of
Transpo Cases 1
serviceable tarpaulins which were tied with steel bonds. The hatches remained close and tightly
sealed while the ship was in transit as the weight of the steel covers made it impossible for a
person to open without the use of the ship's boom. 32
It was also shown during the trial that the hull of the vessel was in good condition, foreclosing the
possibility of spillage of the cargo into the sea or seepage of water inside the hull of the
vessel. 33 When M/V "Sun Plum" docked at its berthing place, representatives of the consignee
boarded, and in the presence of a representative of the shipowner, the foreman, the stevedores,
and a cargo surveyor representing CSCI, opened the hatches and inspected the condition of the
hull of the vessel. The stevedores unloaded the cargo under the watchful eyes of the shipmates
who were overseeing the whole operation on rotation basis. 34
Verily, the presumption of negligence on the part of the respondent carrier has been efficaciously
overcome by the showing of extraordinary zeal and assiduity exercised by the carrier in the care of
the cargo. This was confirmed by respondent appellate court thus —
. . . Be that as it may, contrary to the trial court's finding, the record of the instant
case discloses ample evidence showing that defendant carrier was not negligent
in performing its obligations. Particularly, the following testimonies of plaintiff-
appellee's own witnesses clearly show absence of negligence by the defendant
carrier; that the hull of the vessel at the time of the discharge of the cargo was
sealed and nobody could open the same except in the presence of the owner of
the cargo and the representatives of the vessel (TSN, 20 July 1977, p. 14); that
the cover of the hatches was made of steel and it was overlaid with tarpaulins,
three layers of tarpaulins and therefore their contents were protected from the
weather (TSN, 5 April 1978, p. 24); and, that to open these hatches, the seals
would have to be broken, all the seals were found to be intact (TSN, 20 July
1977, pp. 15-16) (emphasis supplied).
The period during which private respondent was to observe the degree of diligence required of it
as a public carrier began from the time the cargo was unconditionally placed in its charge after the
vessel's holds were duly inspected and passed scrutiny by the shipper, up to and until the vessel
reached its destination and its hull was reexamined by the consignee, but prior to unloading. This
is clear from the limitation clause agreed upon by the parties in the Addendum to the standard
"GENCON" time charter-party which provided for an F.I.O.S., meaning, that the loading, stowing,
trimming and discharge of the cargo was to be done by the charterer, free from all risk and
expense to the carrier. 35 Moreover, a shipowner is liable for damage to the cargo resulting from
improper stowage only when the stowing is done by stevedores employed by him, and therefore
under his control and supervision, not when the same is done by the consignee or stevedores
under the employ of the latter. 36
Article 1734 of the New Civil Code provides that common carriers are not responsible for the loss,
destruction or deterioration of the goods if caused by the charterer of the goods or defects in the
packaging or in the containers. The Code of Commerce also provides that all losses and
deterioration which the goods may suffer during the transportation by reason of fortuitous
event, force majeure, or the inherent defect of the goods, shall be for the account and risk of the
shipper, and that proof of these accidents is incumbent upon the carrier. 37 The carrier,
nonetheless, shall be liable for the loss and damage resulting from the preceding causes if it is
proved, as against him, that they arose through his negligence or by reason of his having failed to
take the precautions which usage has established among careful persons. 38
Respondent carrier presented a witness who testified on the characteristics of the fertilizer shipped
and the expected risks of bulk shipping. Mr. Estanislao Chupungco, a chemical engineer working
with Atlas Fertilizer, described Urea as a chemical compound consisting mostly of ammonia and
carbon monoxide compounds which are used as fertilizer. Urea also contains 46% nitrogen and is
highly soluble in water. However, during storage, nitrogen and ammonia do not normally
evaporate even on a long voyage, provided that the temperature inside the hull does not exceed
eighty (80) degrees centigrade. Mr. Chupungco further added that in unloading fertilizer in bulk
with the use of a clamped shell, losses due to spillage during such operation amounting to one
percent (1%) against the bill of lading is deemed "normal" or "tolerable." The primary cause of
these spillages is the clamped shell which does not seal very tightly. Also, the wind tends to blow
away some of the materials during the unloading process.
The dissipation of quantities of fertilizer, or its daterioration in value, is caused either by an
extremely high temperature in its place of storage, or when it comes in contact with water. When
Urea is drenched in water, either fresh or saline, some of its particles dissolve. But the salvaged
portion which is in liquid form still remains potent and usable although no longer saleable in its
original market value.
The probability of the cargo being damaged or getting mixed or contaminated with foreign particles
was made greater by the fact that the fertilizer was transported in "bulk," thereby exposing it to the
inimical effects of the elements and the grimy condition of the various pieces of equipment used in
transporting and hauling it.
The evidence of respondent carrier also showed that it was highly improbable for sea water to
seep into the vessel's holds during the voyage since the hull of the vessel was in good condition
and her hatches were tightly closed and firmly sealed, making the M/V "Sun Plum" in all respects
seaworthy to carry the cargo she was chartered for. If there was loss or contamination of the
cargo, it was more likely to have occurred while the same was being transported from the ship to
the dump trucks and finally to the consignee's warehouse. This may be gleaned from the
testimony of the marine and cargo surveyor of CSCI who supervised the unloading. He explained
that the 18 M/T of alleged "bar order cargo" as contained in their report to PPI was just an
Transpo Cases 1
approximation or estimate made by them after the fertilizer was discharged from the vessel and
segregated from the rest of the cargo.

The Court notes that it was in the month of July when the vessel arrived port and unloaded her
cargo. It rained from time to time at the harbor area while the cargo was being discharged
according to the supply officer of PPI, who also testified that it was windy at the waterfront and
along the shoreline where the dump trucks passed enroute to the consignee's warehouse.

Indeed, we agree with respondent carrier that bulk shipment of highly soluble goods like fertilizer
carries with it the risk of loss or damage. More so, with a variable weather condition prevalent
during its unloading, as was the case at bar. This is a risk the shipper or the owner of the goods
has to face. Clearly, respondent carrier has sufficiently proved the inherent character of the goods
which makes it highly vulnerable to deterioration; as well as the inadequacy of its packaging which
further contributed to the loss. On the other hand, no proof was adduced by the petitioner showing
that the carrier was remise in the exercise of due diligence in order to minimize the loss or damage
to the goods it carried.

WHEREFORE, the petition is DISMISSED. The assailed decision of the Court of Appeals, which
reversed the trial court, is AFFIRMED. Consequently, Civil Case No. 98623 of the then Court of
the First Instance, now Regional Trial Court, of Manila should be, as it is hereby DISMISSED.

Costs against petitioner.

SO ORDERED.
Transpo Cases 1
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 165647 March 26, 2009
PHILIPPINES FIRST INSURANCE CO., INC., Petitioner,
vs.
WALLEM PHILS. SHIPPING, INC., UNKNOWN OWNER AND/OR UNKNOWN CHARTERER OF
THE VESSEL M/S "OFFSHORE MASTER" AND "SHANGHAI FAREAST SHIP BUSINESS
COMPANY," Respondents.
DECISION
TINGA, J.:
Before us is a Rule 45 petition1 which seeks the reversal of the Decision2 and Resolution3 of the
Court of Appeals in CA-G.R. No. 61885. The Court of Appeals reversed the Decision4 of the
Regional Trial Court (RTC) of Manila, Branch 55 in Civil Case No. 96-80298, dismissing the
complaint for sum of money.
The facts of the case follow.5
On or about 2 October 1995, Anhui Chemicals Import & Export Corporation loaded on board M/S
Offshore Master a shipment consisting of 10,000 bags of sodium sulphate anhydrous 99 PCT Min.
(shipment), complete and in good order for transportation to and delivery at the port of Manila for
consignee, L.G. Atkimson Import-Export, Inc. (consignee), covered by a Clean Bill of Lading. The
Bill of Lading reflects the gross weight of the total cargo at 500,200 kilograms. 6 The Owner and/or
Charterer of M/V Offshore Master is unknown while the shipper of the shipment is Shanghai
Fareast Ship Business Company. Both are foreign firms doing business in the Philippines, thru its
local ship agent, respondent Wallem Philippines Shipping, Inc. (Wallem). 7
On or about 16 October 1995, the shipment arrived at the port of Manila on board the vessel M/S
Offshore Master from which it was subsequently discharged. It was disclosed during the discharge
of the shipment from the carrier that 2,426 poly bags (bags) were in bad order and condition,
having sustained various degrees of spillages and losses. This is evidenced by the Turn Over
Survey of Bad Order Cargoes (turn-over survey) of the arrastre operator, Asian Terminals, Inc.
(arrastre operator).8 The bad state of the bags is also evinced by the arrastre operator’s Request
for Bad Order Survey.9
Asia Star Freight Services, Inc. undertook the delivery of the subject shipment from the pier to the
consignee’s warehouse in Quezon City,10 while the final inspection was conducted jointly by the
consignee’s representative and the cargo surveyor. During the unloading, it was found and noted
that the bags had been discharged in damaged and bad order condition. Upon inspection, it was
discovered that 63,065.00 kilograms of the shipment had sustained unrecovered spillages, while
58,235.00 kilograms had been exposed and contaminated, resulting in losses due to depreciation
and downgrading.11
On 29 April 1996, the consignee filed a formal claim with Wallem for the value of the damaged
shipment, to no avail. Since the shipment was insured with petitioner Philippines First Insurance
Co., Inc. against all risks in the amount of ₱2,470,213.50,12 the consignee filed a formal
claim13 with petitioner for the damage and losses sustained by the shipment. After evaluating the
invoices, the turn-over survey, the bad order certificate and other documents,14 petitioner found
the claim to be in order and compensable under the marine insurance policy. Consequently,
petitioner paid the consignee the sum of ₱397,879.69 and the latter signed a subrogation receipt.
Petitioner, in the exercise of its right of subrogation, sent a demand letter to Wallem for the
recovery of the amount paid by petitioner to the consignee. However, despite receipt of the letter,
Wallem did not settle nor even send a response to petitioner’s claim.15
Consequently, petitioner instituted an action before the RTC for damages against respondents for
the recovery of ₱397,879.69 representing the actual damages suffered by petitioner plus legal
interest thereon computed from the time of the filing of the complaint until fully paid and attorney’s
fees equivalent to 25% of the principal claim plus costs of suit.
In a decision16 dated 3 November 1998, the RTC ordered respondents to pay petitioner
₱397,879.69 with 6% interest plus attorney’s fees and costs of the suit. It attributed the damage
and losses sustained by the shipment to the arrastre operator’s mishandling in the discharge of
the shipment. Citing Eastern Shipping Lines, Inc. v. Court of Appeals,17 the RTC held the shipping
company and the arrastre operator solidarily liable since both the arrastre operator and the carrier
are charged with and obligated to deliver the goods in good order condition to the consignee. It
also ruled that the ship functioned as a common carrier and was obliged to observe the degree of
care required of a common carrier in handling cargoes. Further, it held that a notice of loss or
damage in writing is not required in this case because said goods already underwent a joint
inspection or survey at the time of receipt thereof by the consignee, which dispensed with the
notice requirement.
The Court of Appeals reversed and set aside the RTC’s decision.18 According to the appellate
court, there is no solidary liability between the carrier and the arrastre operator because it was
clearly established by the court a quo that the damage and losses of the shipment were attributed
Transpo Cases 1
to the mishandling by the arrastre operator in the discharge of the shipment. The appellate court
ruled that the instant case falls under an exception recognized in Eastern
Shipping Lines.19 Hence, the arrastre operator was held solely liable to the consignee.
Petitioner raises the following issues:
1. Whether or not the Court of Appeals erred in not holding that as a common carrier, the
carrier’s 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 Wallem’s failure to answer the extra judicial demand by petitioner for
the cost of the lost/damaged shipment is an implied admission of the former’s liability for
said goods;
4. Whether or not the courts below erred in giving credence to the testimony of Mr.
Talens.
It is beyond question that respondent’s vessel is a common carrier.20 Thus, the standards for
determining the existence or absence of the respondent’s liability will be gauged on the degree of
diligence required of a common carrier. Moreover, as the shipment was an exercise of
international trade, the provisions of the Carriage of Goods
by Sea Act21 (COGSA), together with the Civil Code and the Code of Commerce, shall apply.22
The first and second issues raised in the petition will be resolved concurrently since they are
interrelated.
It is undisputed that the shipment was damaged prior to its receipt by the insured consignee. The
damage to the shipment was documented by the turn-over survey23 and Request for Bad Order
Survey.24 The turn-over survey, in particular, expressly stipulates that 2,426 bags of the shipment
were received by the arrastre operator in damaged condition. With these documents, petitioner
insists that the shipment incurred damage or losses while still in the care and responsibility of
Wallem and before it was turned over and delivered to the arrastre operator.
The trial court, however, found through the testimony of Mr. Maximino Velasquez Talens, a cargo
surveyor of Oceanica Cargo Marine Surveyors Corporation, that the losses and damage to the
cargo were caused by the mishandling of the arrastre operator. Specifically, that the torn cargo
bags resulted from the use of steel hooks/spikes in piling the cargo bags to the pallet board and in
pushing the bags by the stevedores of the arrastre operator to the tug boats then to the
ports.25 The appellate court affirmed the finding of mishandling in the discharge of cargo and it
served as its basis for exculpating respondents from liability, rationalizing that with the fault of the
arrastre operator in the unloading of the cargo established it should bear sole liability for the cost
of the damaged/lost cargo.
While it is established that damage or losses were incurred by the shipment during the unloading,
it is disputed who should be liable for the damage incurred at that point of transport. To address
this issue, the pertinent laws and jurisprudence are examined.
Common carriers, from the nature of their business and for reasons of public policy, are bound to
observe extraordinary diligence in the vigilance over the goods transported by them.26 Subject to
certain exceptions enumerated under Article 173427 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.28
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. In Standard Oil Co. of New York v. Lopez Castelo,29 the
Court interpreted the ship captain’s liability as ultimately that of the shipowner by regarding the
captain as the representative of the ship owner.
Lastly, Section 2 of the 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.30 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.
The above doctrines are in fact expressly incorporated in the bill of lading between the shipper
Shanghai Fareast Business Co., and the consignee, to wit:
4. PERIOD OF RESPONSIBILITY. The responsibility of the carrier shall commence from the time
when the goods are loaded on board the vessel and shall cease when they are discharged from
the vessel.
The Carrier shall not be liable of loss of or damage to the goods before loading and after
discharging from the vessel, howsoever such loss or damage arises.31
Transpo Cases 1
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.32 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.33
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.34
In Fireman’s Fund Insurance Co. v. Metro Port Service, Inc.35 the Court explained the relationship
and responsibility of an arrastre operator to a consignee of a cargo, to quote:
unnecessary injury shall be done thereto.39 And the fact that a consignee is required to furnish
persons to assist in unloading a shipment may not relieve the carrier of its duty as to such
unloading.40
The exercise of the carrier’s custody and responsibility over the subject shipment during the
unloading actually transpired in the instant case during the unloading of the shipment as testified
by Mr. Talens, the cargo surveyor, to quote:
Atty. Repol:
- Do you agree with me that Wallem Philippines is a shipping [company]?

The legal relationship between the consignee and the arrastre operator is akin to that of a A Yes, sir.
depositor and warehouseman. The relationship between the consignee and the common carrier is
similar to that of the consignee and the arrastre operator. Since it is the duty of the ARRASTRE to Q And, who hired the services of the stevedores?
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 A The checker of the vessel of Wallem, sir.41
CARRIER are therefore charged with and obligated to deliver the goods in good condition to the
consignee.(Emphasis supplied) (Citations omitted)
xxx

The liability of the arrastre operator was reiterated in Eastern Shipping Lines, Inc. v. Court of
Q Mr. Witness, during the discharging operation of this cargo, where was the master of
Appeals36 with the clarification that the arrastre operator and the carrier are not always and
the vessel?
necessarily solidarily liable as the facts of a case may vary the rule.

A On board the vessel, supervising, sir.

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
Q And, observed the discharging operation?
custody of the shipment during its unloading from the vessel?

A Yes, sir.
The aforementioned Section 3(2) of the COGSA states that among the carriers’ responsibilities are
to properly and carefully load, care for and discharge the goods carried. The bill of lading covering
the subject shipment likewise stipulates that the carrier’s liability for loss or damage to the goods Q And, what did the master of the vessel do when the cargo was being unloaded from the
ceases after its discharge from the vessel. Article 619 of the Code of Commerce holds a ship vessel?
captain liable for the cargo from the time it is turned over to him until its delivery at the port of
unloading. A He would report to the head checker, sir.

In a case decided by a U.S. Circuit Court, Nichimen Company v. M./V. Farland,37 it was ruled that Q He did not send the stevedores to what manner in the discharging of the cargo from the
like the duty of seaworthiness, the duty of care of the cargo is non-delegable,38 and the carrier is vessel?
accordingly responsible for the acts of the master, the crew, the stevedore, and his other agents. It
has also been held that it is ordinarily the duty of the master of a vessel to unload the cargo and A And head checker po and siyang nagpapatakbo ng trabaho sa loob ng barko, sir. 42
place it in readiness for delivery to the consignee, and there is an implied obligation that this shall
be accomplished with sound machinery, competent hands, and in such manner that no xxx
Transpo Cases 1
Q Is he [the head checker] an employee of the company? assertions in the absence of further circumstances making an answer requisite or natural has no
effect as an admission.47
A He is a contractor/checker of Wallem Philippines, sir.43
With respect to the attorney’s fees, it is evident that petitioner was compelled to litigate this matter
Moreover, the liability of Wallem is highlighted by Mr. Talen’s notes in the Bad Order Inspection, to to protect its interest. The RTC’s award of ₱20,000.00 as attorney’s fees is reasonable.
wit:
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals dated 22 June
"The bad order torn bags, was due to stevedores[‘] utilizing steel hooks/spikes in piling the cargo 2004 and its Resolution dated 11 October 2004 are REVERSED and SET ASIDE. Wallem is
to [the] pallet board at the vessel’s cargo holds and at the pier designated area before and after ordered to pay petitioner the sum of ₱397,879.69, with interest thereon at 6% per annum from the
discharged that cause the bags to torn [sic]."44 (Emphasis supplied) filing of the complaint on 7 October 1996 until the judgment becomes final and executory.
Thereafter, an interest rate of 12% per annum shall be imposed.48 Respondents are also ordered
The records are replete with evidence which show that the damage to the bags happened before to pay petitioner the amount of ₱20,000.00 for and as attorney’s fees, together with the costs of
and after their discharge45 and it was caused by the stevedores of the arrastre operator who were the suit.
then under the supervision of Wallem.1awphi1.net
SO ORDERED.
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 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 court’s finding of actual damages in the amount of
₱397,879.69 has to be sustained.

On the credibility of Mr. Talens which is the fourth issue, the general rule in assessing credibility of
witnesses is well-settled:

x x x the trial court's evaluation as to the credibility of witnesses is viewed as correct and entitled
to the highest respect because it is more competent to so conclude, having had the opportunity to
observe the witnesses' demeanor and deportment on the stand, and the manner in which they
gave their testimonies. The trial judge therefore can better determine if such witnesses were telling
the truth, being in the ideal position to weigh conflicting testimonies. Therefore, unless the trial
judge plainly overlooked certain facts of substance and value which, if considered, might affect the
result of the case, his assessment on credibility must be respected.46

Contrary to petitioner’s stance on the third issue, Wallem’s failure to respond to its demand letter
does not constitute an implied admission of liability. To borrow the words of Mr. Justice Oliver
Wendell Holmes, thus:

A man cannot make evidence for himself by writing a letter containing the statements that he
wishes to prove. He does not make the letter evidence by sending it to the party against whom he
wishes to prove the facts [stated therein]. He no more can impose a duty to answer a charge than
he can impose a duty to pay by sending goods. Therefore a failure to answer such adverse
Transpo Cases 1
Republic of the Philippines In June 1996, the Zarates contracted the Pereñas to transport Aaron to and from Don Bosco. On
SUPREME COURT August 22, 1996, as on previous school days, the van picked Aaron up around 6:00 a.m. from the
Manila Zarates’ residence. Aaron took his place on the left side of the van near the rear door. The van,
with its air-conditioning unit turned on and the stereo playing loudly, ultimately carried all the 14
FIRST DIVISION student riders on their way to Don Bosco. Considering that the students were due at Don Bosco
by 7:15 a.m., and that they were already running late because of the heavy vehicular traffic on the
G.R. No. 157917 August 29, 2012 South Superhighway, Alfaro took the van to an alternate route at about 6:45 a.m. by traversing the
narrow path underneath the Magallanes Interchange that was then commonly used by Makati-
SPOUSES TEODORO1 and NANETTE PERENA, Petitioners, bound vehicles as a short cut into Makati. At the time, the narrow path was marked by piles of
vs. construction materials and parked passenger jeepneys, and the railroad crossing in the narrow
SPOUSES TERESITA PHILIPPINE NICOLAS and L. ZARATE, NATIONAL RAILWAYS, and path had no railroad warning signs, or watchmen, or other responsible persons manning the
the COURT OF APPEALS Respondents. crossing. In fact, the bamboo barandilla was up, leaving the railroad crossing open to traversing
motorists.
DECISION
At about the time the van was to traverse the railroad crossing, PNR Commuter No. 302 (train),
operated by Jhonny Alano (Alano), was in the vicinity of the Magallanes Interchange travelling
BERSAMIN, J.:
northbound. As the train neared the railroad crossing, Alfaro drove the van eastward across the
railroad tracks, closely tailing a large passenger bus. His view of the oncoming train was blocked
The operator of a. school bus service is a common carrier in the eyes of the law. He is bound to
because he overtook the passenger bus on its left side. The train blew its horn to warn motorists of
observe extraordinary diligence in the conduct of his business. He is presumed to be negligent
its approach. When the train was about 50 meters away from the passenger bus and the van,
when death occurs to a passenger. His liability may include indemnity for loss of earning capacity
Alano applied the ordinary brakes of the train. He applied the emergency brakes only when he
even if the deceased passenger may only be an unemployed high school student at the time of
saw that a collision was imminent. The passenger bus successfully crossed the railroad tracks, but
the accident.
the van driven by Alfaro did not. The train hit the rear end of the van, and the impact threw nine of
the 12 students in the rear, including Aaron, out of the van. Aaron landed in the path of the train,
The Case which dragged his body and severed his head, instantaneously killing him. Alano fled the scene on
board the train, and did not wait for the police investigator to arrive.
By petition for review on certiorari, Spouses Teodoro and Nanette Perefia (Perefias) appeal the
adverse decision promulgated on November 13, 2002, by which the Court of Appeals (CA) Devastated by the early and unexpected death of Aaron, the Zarates commenced this action for
affirmed with modification the decision rendered on December 3, 1999 by the Regional Trial Court damages against Alfaro, the Pereñas, PNR and Alano. The Pereñas and PNR filed their
(RTC), Branch 260, in Parañaque City that had decreed them jointly and severally liable with respective answers, with cross-claims against each other, but Alfaro could not be served with
Philippine National Railways (PNR), their co-defendant, to Spouses Nicolas and Teresita Zarate summons.
(Zarates) for the death of their 15-year old son, Aaron John L. Zarate (Aaron), then a high school
student of Don Bosco Technical Institute (Don Bosco).
At the pre-trial, the parties stipulated on the facts and issues, viz:

Antecedents
A. FACTS:

The Pereñas were engaged in the business of transporting students from their respective
(1) That spouses Zarate were the legitimate parents of Aaron John L. Zarate;
residences in Parañaque City to Don Bosco in Pasong Tamo, Makati City, and back. In their
business, the Pereñas used a KIA Ceres Van (van) with Plate No. PYA 896, which had the
capacity to transport 14 students at a time, two of whom would be seated in the front beside the (2) Spouses Zarate engaged the services of spouses Pereña for the adequate and safe
driver, and the others in the rear, with six students on either side. They employed Clemente Alfaro transportation carriage of the former spouses' son from their residence in Parañaque to
(Alfaro) as driver of the van. his school at the Don Bosco Technical Institute in Makati City;
Transpo Cases 1
(3) During the effectivity of the contract of carriage and in the implementation thereof,
Aaron, the minor son of spouses Zarate died in connection with a vehicular/train collision
which occurred while Aaron was riding the contracted carrier Kia Ceres van of spouses
Pereña, then driven and operated by the latter's employee/authorized driver Clemente
Alfaro, which van collided with the train of PNR, at around 6:45 A.M. of August 22, 1996,
within the vicinity of the Magallanes Interchange in Makati City, Metro Manila, Philippines;
(4) At the time of the vehicular/train collision, the subject site of the vehicular/train
collision was a railroad crossing used by motorists for crossing the railroad tracks;
(5) During the said time of the vehicular/train collision, there were no appropriate and
safety warning signs and railings at the site commonly used for railroad crossing;
(6) At the material time, countless number of Makati bound public utility and private
vehicles used on a daily basis the site of the collision as an alternative route and short-cut
to Makati;
(7) The train driver or operator left the scene of the incident on board the commuter train
involved without waiting for the police investigator;
(8) The site commonly used for railroad crossing by motorists was not in fact intended by
the railroad operator for railroad crossing at the time of the vehicular collision;
(9) PNR received the demand letter of the spouses Zarate;
(10) PNR refused to acknowledge any liability for the vehicular/train collision;
(11) The eventual closure of the railroad crossing alleged by PNR was an internal
arrangement between the former and its project contractor; and
(12) The site of the vehicular/train collision was within the vicinity or less than 100 meters
from the Magallanes station of PNR.
B. ISSUES
(1) Whether or not defendant-driver of the van is, in the performance of his functions,
liable for negligence constituting the proximate cause of the vehicular collision, which
resulted in the death of plaintiff spouses' son;
(2) Whether or not the defendant spouses Pereña being the employer of defendant Alfaro
are liable for any negligence which may be attributed to defendant Alfaro;
(3) Whether or not defendant Philippine National Railways being the operator of the
railroad system is liable for negligence in failing to provide adequate safety warning signs
and railings in the area commonly used by motorists for railroad crossings, constituting
the proximate cause of the vehicular collision which resulted in the death of the plaintiff
spouses' son;
(4) Whether or not defendant spouses Pereña are liable for breach of the contract of
carriage with plaintiff-spouses in failing to provide adequate and safe transportation for
the latter's son;
(5) Whether or not defendants spouses are liable for actual, moral damages, exemplary
damages, and attorney's fees;
(6) Whether or not defendants spouses Teodorico and Nanette Pereña observed the
diligence of employers and school bus operators;
(7) Whether or not defendant-spouses are civilly liable for the accidental death of Aaron
John Zarate;
(8) Whether or not defendant PNR was grossly negligent in operating the commuter train
involved in the accident, in allowing or tolerating the motoring public to cross, and its
failure to install safety devices or equipment at the site of the accident for the protection of
the public;
(9) Whether or not defendant PNR should be made to reimburse defendant spouses for
any and whatever amount the latter may be held answerable or which they may be
ordered to pay in favor of plaintiffs by reason of the action;
(10) Whether or not defendant PNR should pay plaintiffs directly and fully on the amounts
claimed by the latter in their Complaint by reason of its gross negligence;
(11) Whether or not defendant PNR is liable to defendants spouses for actual, moral and
exemplary damages and attorney's fees.2
The Zarates’ claim against the Pereñas was upon breach of the contract of carriage for the safe
transport of Aaron; but that against PNR was based on quasi-delict under Article 2176, Civil Code.
Transpo Cases 1
In their defense, the Pereñas adduced evidence to show that they had exercised the diligence of a
good father of the family in the selection and supervision of Alfaro, by making sure that Alfaro had
been issued a driver’s license and had not been involved in any vehicular accident prior to the
collision; that their own son had taken the van daily; and that Teodoro Pereña had sometimes
accompanied Alfaro in the van’s trips transporting the students to school.
For its part, PNR tended to show that the proximate cause of the collision had been the reckless
crossing of the van whose driver had not first stopped, looked and listened; and that the narrow
path traversed by the van had not been intended to be a railroad crossing for motorists.
Ruling of the RTC
On December 3, 1999, the RTC rendered its decision,3 disposing:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and
against the defendants ordering them to jointly and severally pay the plaintiffs as follows:
(1) (for) the death of Aaron- Php50,000.00;
(2) Actual damages in the amount of Php100,000.00;
(3) For the loss of earning capacity- Php2,109,071.00;
(4) Moral damages in the amount of Php4,000,000.00;
(5) Exemplary damages in the amount of Php1,000,000.00;
(6) Attorney’s fees in the amount of Php200,000.00; and
(7) Cost of suit.
SO ORDERED.
On June 29, 2000, the RTC denied the Pereñas’ motion for reconsideration,4 reiterating that the
cooperative gross negligence of the Pereñas and PNR had caused the collision that led to the
death of Aaron; and that the damages awarded to the Zarates were not excessive, but based on
the established circumstances.
The CA’s Ruling
Both the Pereñas and PNR appealed (C.A.-G.R. CV No. 68916).
PNR assigned the following errors, to wit:5
The Court a quo erred in:
1. In finding the defendant-appellant Philippine National Railways jointly and severally
liable together with defendant-appellants spouses Teodorico and Nanette Pereña and
defendant-appellant Clemente Alfaro to pay plaintiffs-appellees for the death of Aaron
Zarate and damages.
2. In giving full faith and merit to the oral testimonies of plaintiffs-appellees witnesses
despite overwhelming documentary evidence on record, supporting the case of
defendants-appellants Philippine National Railways.
The Pereñas ascribed the following errors to the RTC, namely:
The trial court erred in finding defendants-appellants jointly and severally liable for actual, moral
and exemplary damages and attorney’s fees with the other defendants.
The trial court erred in dismissing the cross-claim of the appellants Pereñas against the Philippine
National Railways and in not holding the latter and its train driver primarily responsible for the
incident.
The trial court erred in awarding excessive damages and attorney’s fees.
The trial court erred in awarding damages in the form of deceased’s loss of earning capacity in the
absence of sufficient basis for such an award.
On November 13, 2002, the CA promulgated its decision, affirming the findings of the RTC, but
limited the moral damages to ₱ 2,500,000.00; and deleted the attorney’s fees because the RTC
did not state the factual and legal bases, to wit:6
WHEREFORE, premises considered, the assailed Decision of the Regional Trial Court, Branch
260 of Parañaque City is AFFIRMED with the modification that the award of Actual Damages is
reduced to ₱ 59,502.76; Moral Damages is reduced to ₱ 2,500,000.00; and the award for
Attorney’s Fees is Deleted.
SO ORDERED.
Transpo Cases 1
The CA upheld the award for the loss of Aaron’s earning capacity, taking cognizance of the ruling
in Cariaga v. Laguna Tayabas Bus Company and Manila Railroad Company,7 wherein the Court
gave the heirs of Cariaga a sum representing the loss of the deceased’s earning capacity despite
Cariaga being only a medical student at the time of the fatal incident. Applying the formula
adopted in the American Expectancy Table of Mortality:–
2/3 x (80 - age at the time of death) = life expectancy
the CA determined the life expectancy of Aaron to be 39.3 years upon reckoning his life
expectancy from age of 21 (the age when he would have graduated from college and started
working for his own livelihood) instead of 15 years (his age when he died). Considering that the
nature of his work and his salary at the time of Aaron’s death were unknown, it used the prevailing
minimum wage of ₱ 280.00/day to compute Aaron’s gross annual salary to be ₱ 110,716.65,
inclusive of the thirteenth month pay. Multiplying this annual salary by Aaron’s life expectancy of
39.3 years, his gross income would aggregate to ₱ 4,351,164.30, from which his estimated
expenses in the sum of ₱ 2,189,664.30 was deducted to finally arrive at P 2,161,500.00 as net
income. Due to Aaron’s computed net income turning out to be higher than the amount claimed by
the Zarates, only ₱ 2,109,071.00, the amount expressly prayed for by them, was granted.
On April 4, 2003, the CA denied the Pereñas’ motion for reconsideration.8
Issues
In this appeal, the Pereñas list the following as the errors committed by the CA, to wit:
I. The lower court erred when it upheld the trial court’s decision holding the petitioners jointly and
severally liable to pay damages with Philippine National Railways and dismissing their cross-claim
against the latter.
II. The lower court erred in affirming the trial court’s decision awarding damages for loss of earning
capacity of a minor who was only a high school student at the time of his death in the absence of
sufficient basis for such an award.
III. The lower court erred in not reducing further the amount of damages awarded, assuming
petitioners are liable at all.
Ruling
The petition has no merit.
1.
Were the Pereñas and PNR jointly
and severally liable for damages?
The Zarates brought this action for recovery of damages against both the Pereñas and the PNR,
basing their claim against the Pereñas on breach of contract of carriage and against the PNR on
quasi-delict.
The RTC found the Pereñas and the PNR negligent. The CA affirmed the findings.
We concur with the CA.
To start with, the Pereñas’ defense was that they exercised the diligence of a good father of the
family in the selection and supervision of Alfaro, the van driver, by seeing to it that Alfaro had a
driver’s license and that he had not been involved in any vehicular accident prior to the fatal
collision with the train; that they even had their own son travel to and from school on a daily basis;
and that Teodoro Pereña himself sometimes accompanied Alfaro in transporting the passengers
to and from school. The RTC gave scant consideration to such defense by regarding such
defense as inappropriate in an action for breach of contract of carriage.
We find no adequate cause to differ from the conclusions of the lower courts that the Pereñas
operated as a common carrier; and that their standard of care was extraordinary diligence, not the
ordinary diligence of a good father of a family.
Although in this jurisdiction the operator of a school bus service has been usually regarded as a
private carrier,9 primarily because he only caters to some specific or privileged individuals, and his
operation is neither open to the indefinite public nor for public use, the exact nature of the
operation of a school bus service has not been finally settled. This is the occasion to lay the matter
to rest.
A carrier is a person or corporation who undertakes to transport or convey goods or persons from
one place to another, gratuitously or for hire. The carrier is classified either as a private/special
carrier or as a common/public carrier.10 A private carrier is one who, without making the activity a
vocation, or without holding himself or itself out to the public as ready to act for all who may desire
his or its services, undertakes, by special agreement in a particular instance only, to transport
goods or persons from one place to another either gratuitously or for hire.11 The provisions on
ordinary contracts of the Civil Code govern the contract of private carriage.The diligence required
of a private carrier is only ordinary, that is, the diligence of a good father of the family. In contrast,
a common carrier is a person, corporation, firm or association engaged in the business of carrying
or transporting passengers or goods or both, by land, water, or air, for compensation, offering
such services to the public.12 Contracts of common carriage are governed by the provisions on
Transpo Cases 1
common carriers of the Civil Code, the Public Service Act,13 and other special laws relating to
transportation. A common carrier is required to observe extraordinary diligence, and is presumed
to be at fault or to have acted negligently in case of the loss of the effects of passengers, or the
death or injuries to passengers.14
In relation to common carriers, the Court defined public use in the following terms in United States
v. Tan Piaco,15 viz:
"Public use" is the same as "use by the public". The essential feature of the public use is not
confined to privileged individuals, but is open to the indefinite public. It is this indefinite or
unrestricted quality that gives it its public character. In determining whether a use is public, we
must look not only to the character of the business to be done, but also to the proposed mode of
doing it. If the use is merely optional with the owners, or the public benefit is merely incidental, it is
not a public use, authorizing the exercise of the jurisdiction of the public utility commission. There
must be, in general, a right which the law compels the owner to give to the general public. It is not
enough that the general prosperity of the public is promoted. Public use is not synonymous with
public interest. The true criterion by which to judge the character of the use is whether the public
may enjoy it by right or only by permission.
In De Guzman v. Court of Appeals,16 the Court noted that Article 1732 of the Civil Code avoided
any distinction between a person or an enterprise offering transportation on a regular or an
isolated basis; and has not distinguished a carrier offering his services to the general public, that
is, the general community or population, from one offering his services only to a narrow segment
of the general population.
Nonetheless, the concept of a common carrier embodied in Article 1732 of the Civil Code
coincides neatly with the notion of public service under the Public Service Act, which supplements
the law on common carriers found in the Civil Code. Public service, according to Section 13,
paragraph (b) of the Public Service Act, includes:
x x x every person that now or hereafter may own, operate, manage, or control in the Philippines,
for hire or compensation, with general or limited clientèle, whether permanent or occasional, and
done for the general business purposes, any common carrier, railroad, street railway, traction
railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed route
and whatever may be its classification, freight or carrier service of any class, express service,
steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of
passengers or freight or both, shipyard, marine repair shop, ice-refrigeration plant, canal, irrigation
system, gas, electric light, heat and power, water supply and power petroleum, sewerage system,
wire or wireless communications systems, wire or wireless broadcasting stations and other similar
public services. x x x.17
Given the breadth of the aforequoted characterization of a common carrier, the Court has
considered as common carriers pipeline operators,18 custom brokers and warehousemen,19 and
barge operators20 even if they had limited clientèle.
As all the foregoing indicate, the true test for a common carrier is not the quantity or extent of the
business actually transacted, or the number and character of the conveyances used in the activity,
but whether the undertaking is a part of the activity engaged in by the carrier that he has held out
to the general public as his business or occupation. If the undertaking is a single transaction, not a
part of the general business or occupation engaged in, as advertised and held out to the general
public, the individual or the entity rendering such service is a private, not a common, carrier. The
question must be determined by the character of the business actually carried on by the carrier,
not by any secret intention or mental reservation it may entertain or assert when charged with the
duties and obligations that the law imposes.21
Applying these considerations to the case before us, there is no question that the Pereñas as the
operators of a school bus service were: (a) engaged in transporting passengers generally as a
business, not just as a casual occupation; (b) undertaking to carry passengers over established
roads by the method by which the business was conducted; and (c) transporting students for a
fee. Despite catering to a limited clientèle, the Pereñas operated as a common carrier because
they held themselves out as a ready transportation indiscriminately to the students of a particular
school living within or near where they operated the service and for a fee.
The common carrier’s standard of care and vigilance as to the safety of the passengers is defined
by law. Given the nature of the business and for reasons of public policy, the common carrier is
bound "to observe extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances of each case." 22 Article 1755
of the Civil Code specifies that the common carrier should "carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence of very cautious persons, with a
due regard for all the circumstances." To successfully fend off liability in an action upon the death
or injury to a passenger, the common carrier must prove his or its observance of that extraordinary
diligence; otherwise, the legal presumption that he or it was at fault or acted negligently would
stand.23 No device, whether by stipulation, posting of notices, statements on tickets, or otherwise,
may dispense with or lessen the responsibility of the common carrier as defined under Article 1755
of the Civil Code. 24
And, secondly, the Pereñas have not presented any compelling defense or reason by which the
Court might now reverse the CA’s findings on their liability. On the contrary, an examination of the
records shows that the evidence fully supported the findings of the CA.
As earlier stated, the Pereñas, acting as a common carrier, were already presumed to be
negligent at the time of the accident because death had occurred to their passenger. 25 The
Transpo Cases 1
presumption of negligence, being a presumption of law, laid the burden of evidence on their
shoulders to establish that they had not been negligent.26 It was the law no less that required them
to prove their observance of extraordinary diligence in seeing to the safe and secure carriage of
the passengers to their destination. Until they did so in a credible manner, they stood to be held
legally responsible for the death of Aaron and thus to be held liable for all the natural
consequences of such death.
There is no question that the Pereñas did not overturn the presumption of their negligence by
credible evidence. Their defense of having observed the diligence of a good father of a family in
the selection and supervision of their driver was not legally sufficient. According to Article 1759 of
the Civil Code, their liability as a common carrier did not cease upon proof that they exercised all
the diligence of a good father of a family in the selection and supervision of their employee. This
was the reason why the RTC treated this defense of the Pereñas as inappropriate in this action for
breach of contract of carriage.
The Pereñas were liable for the death of Aaron despite the fact that their driver might have acted
beyond the scope of his authority or even in violation of the orders of the common carrier.27 In this
connection, the records showed their driver’s actual negligence. There was a showing, to begin
with, that their driver traversed the railroad tracks at a point at which the PNR did not permit
motorists going into the Makati area to cross the railroad tracks. Although that point had been
used by motorists as a shortcut into the Makati area, that fact alone did not excuse their driver into
taking that route. On the other hand, with his familiarity with that shortcut, their driver was fully
aware of the risks to his passengers but he still disregarded the risks. Compounding his lack of
care was that loud music was playing inside the air-conditioned van at the time of the accident.
The loudness most probably reduced his ability to hear the warning horns of the oncoming train to
allow him to correctly appreciate the lurking dangers on the railroad tracks. Also, he sought to
overtake a passenger bus on the left side as both vehicles traversed the railroad tracks. In so
doing, he lost his view of the train that was then coming from the opposite side of the passenger
bus, leading him to miscalculate his chances of beating the bus in their race, and of getting clear
of the train. As a result, the bus avoided a collision with the train but the van got slammed at its
rear, causing the fatality. Lastly, he did not slow down or go to a full stop before traversing the
railroad tracks despite knowing that his slackening of speed and going to a full stop were in
observance of the right of way at railroad tracks as defined by the traffic laws and regulations. 28 He
thereby violated a specific traffic regulation on right of way, by virtue of which he was immediately
presumed to be negligent.29
The omissions of care on the part of the van driver constituted negligence, 30 which, according to
Layugan v. Intermediate Appellate Court,31 is "the omission to do something which a reasonable
man, guided by those considerations which ordinarily regulate the conduct of human affairs, would
do, or the doing of something which a prudent and reasonable man would not do,32 or as Judge
Cooley defines it, ‘(t)he failure to observe for the protection of the interests of another person, that
degree of care, precaution, and vigilance which the circumstances justly demand, whereby such
other person suffers injury.’"33
The test by which to determine the existence of negligence in a particular case has been aptly
stated in the leading case of Picart v. Smith,34 thuswise:
The test by which to determine the existence of negligence in a particular case may be stated as
follows: Did the defendant in doing the alleged negligent act use that reasonable care and caution
which an ordinarily prudent person would have used in the same situation? If not, then he is guilty
of negligence. The law here in effect adopts the standard supposed to be supplied by the
imaginary conduct of the discreet paterfamilias of the Roman law. The existence of negligence in
a given case is not determined by reference to the personal judgment of the actor in the situation
before him. The law considers what would be reckless, blameworthy, or negligent in the man of
ordinary intelligence and prudence and determines liability by that.
The question as to what would constitute the conduct of a prudent man in a given situation must of
course be always determined in the light of human experience and in view of the facts involved in
the particular case. Abstract speculation cannot here be of much value but this much can be
profitably said: Reasonable men govern their conduct by the circumstances which are before them
or known to them. They are not, and are not supposed to be, omniscient of the future. Hence they
can be expected to take care only when there is something before them to suggest or warn of
danger. Could a prudent man, in the case under consideration, foresee harm as a result of the
course actually pursued? If so, it was the duty of the actor to take precautions to guard against
that harm. Reasonable foresight of harm, followed by the ignoring of the suggestion born of this
prevision, is always necessary before negligence can be held to exist. Stated in these terms, the
proper criterion for determining the existence of negligence in a given case is this: Conduct is said
to be negligent when a prudent man in the position of the tortfeasor would have foreseen that an
effect harmful to another was sufficiently probable to warrant his foregoing the conduct or guarding
against its consequences. (Emphasis supplied)
Pursuant to the Picart v. Smith test of negligence, the Pereñas’ driver was entirely negligent when
he traversed the railroad tracks at a point not allowed for a motorist’s crossing despite being fully
aware of the grave harm to be thereby caused to his passengers; and when he disregarded the
foresight of harm to his passengers by overtaking the bus on the left side as to leave himself blind
to the approach of the oncoming train that he knew was on the opposite side of the bus.
Unrelenting, the Pereñas cite Phil. National Railways v. Intermediate Appellate Court, 35 where the
Court held the PNR solely liable for the damages caused to a passenger bus and its passengers
when its train hit the rear end of the bus that was then traversing the railroad crossing. But the
circumstances of that case and this one share no similarities. In Philippine National Railways v.
Intermediate Appellate Court, no evidence of contributory negligence was adduced against the
Transpo Cases 1
owner of the bus. Instead, it was the owner of the bus who proved the exercise of extraordinary
diligence by preponderant evidence. Also, the records are replete with the showing of negligence
on the part of both the Pereñas and the PNR. Another distinction is that the passenger bus in
Philippine National Railways v. Intermediate Appellate Court was traversing the dedicated railroad
crossing when it was hit by the train, but the Pereñas’ school van traversed the railroad tracks at a
point not intended for that purpose.
At any rate, the lower courts correctly held both the Pereñas and the PNR "jointly and severally"
liable for damages arising from the death of Aaron. They had been impleaded in the same
complaint as defendants against whom the Zarates had the right to relief, whether jointly,
severally, or in the alternative, in respect to or arising out of the accident, and questions of fact
and of law were common as to the Zarates.36 Although the basis of the right to relief of the Zarates
(i.e., breach of contract of carriage) against the Pereñas was distinct from the basis of the Zarates’
right to relief against the PNR (i.e., quasi-delict under Article 2176, Civil Code), they nonetheless
could be held jointly and severally liable by virtue of their respective negligence combining to
cause the death of Aaron. As to the PNR, the RTC rightly found the PNR also guilty of negligence
despite the school van of the Pereñas traversing the railroad tracks at a point not dedicated by the
PNR as a railroad crossing for pedestrians and motorists, because the PNR did not ensure the
safety of others through the placing of crossbars, signal lights, warning signs, and other
permanent safety barriers to prevent vehicles or pedestrians from crossing there. The RTC
observed that the fact that a crossing guard had been assigned to man that point from 7 a.m. to 5
p.m. was a good indicium that the PNR was aware of the risks to others as well as the need to
control the vehicular and other traffic there. Verily, the Pereñas and the PNR were joint tortfeasors.
2.
Was the indemnity for loss of
Aaron’s earning capacity proper?
The RTC awarded indemnity for loss of Aaron’s earning capacity. Although agreeing with the RTC
on the liability, the CA modified the amount. Both lower courts took into consideration that Aaron,
while only a high school student, had been enrolled in one of the reputable schools in the
Philippines and that he had been a normal and able-bodied child prior to his death. The basis for
the computation of Aaron’s earning capacity was not what he would have become or what he
would have wanted to be if not for his untimely death, but the minimum wage in effect at the time
of his death. Moreover, the RTC’s computation of Aaron’s life expectancy rate was not reckoned
from his age of 15 years at the time of his death, but on 21 years, his age when he would have
graduated from college.
We find the considerations taken into account by the lower courts to be reasonable and fully
warranted.
Yet, the Pereñas submit that the indemnity for loss of earning capacity was speculative and
unfounded.1âwphi1 They cited People v. Teehankee, Jr.,37 where the Court deleted the indemnity
for victim Jussi Leino’s loss of earning capacity as a pilot for being speculative due to his having
graduated from high school at the International School in Manila only two years before the
shooting, and was at the time of the shooting only enrolled in the first semester at the Manila Aero
Club to pursue his ambition to become a professional pilot. That meant, according to the Court,
that he was for all intents and purposes only a high school graduate.
We reject the Pereñas’ submission.
First of all, a careful perusal of the Teehankee, Jr. case shows that the situation there of Jussi
Leino was not akin to that of Aaron here. The CA and the RTC were not speculating that Aaron
would be some highly-paid professional, like a pilot (or, for that matter, an engineer, a physician,
or a lawyer). Instead, the computation of Aaron’s earning capacity was premised on him being a
lowly minimum wage earner despite his being then enrolled at a prestigious high school like Don
Bosco in Makati, a fact that would have likely ensured his success in his later years in life and at
work.
And, secondly, the fact that Aaron was then without a history of earnings should not be taken
against his parents and in favor of the defendants whose negligence not only cost Aaron his life
and his right to work and earn money, but also deprived his parents of their right to his presence
and his services as well. Our law itself states that the loss of the earning capacity of the deceased
shall be the liability of the guilty party in favor of the heirs of the deceased, and shall in every case
be assessed and awarded by the court "unless the deceased on account of permanent physical
disability not caused by the defendant, had no earning capacity at the time of his
death."38 Accordingly, we emphatically hold in favor of the indemnification for Aaron’s loss of
earning capacity despite him having been unemployed, because compensation of this nature is
awarded not for loss of time or earnings but for loss of the deceased’s power or ability to earn
money.39
This favorable treatment of the Zarates’ claim is not unprecedented. In Cariaga v. Laguna
Tayabas Bus Company and Manila Railroad Company,40 fourth-year medical student Edgardo
Carriaga’s earning capacity, although he survived the accident but his injuries rendered him
permanently incapacitated, was computed to be that of the physician that he dreamed to become.
The Court considered his scholastic record sufficient to justify the assumption that he could have
finished the medical course and would have passed the medical board examinations in due time,
and that he could have possibly earned a modest income as a medical practitioner. Also, in
People v. Sanchez,41 the Court opined that murder and rape victim Eileen Sarmienta and murder
victim Allan Gomez could have easily landed good-paying jobs had they graduated in due time,
and that their jobs would probably pay them high monthly salaries from ₱ 10,000.00 to ₱
15,000.00 upon their graduation. Their earning capacities were computed at rates higher than the
Transpo Cases 1
minimum wage at the time of their deaths due to their being already senior agriculture students of
the University of the Philippines in Los Baños, the country’s leading educational institution in
agriculture.

3.
Were the amounts of damages excessive?

The Pereñas plead for the reduction of the moral and exemplary damages awarded to the Zarates
in the respective amounts of ₱ 2,500,000.00 and ₱ 1,000,000.00 on the ground that such amounts
were excessive.

The plea is unwarranted.

The moral damages of ₱ 2,500,000.00 were really just and reasonable under the established
circumstances of this case because they were intended by the law to assuage the Zarates’ deep
mental anguish over their son’s unexpected and violent death, and their moral shock over the
senseless accident. That amount would not be too much, considering that it would help the
Zarates obtain the means, diversions or amusements that would alleviate their suffering for the
loss of their child. At any rate, reducing the amount as excessive might prove to be an injustice,
given the passage of a long time from when their mental anguish was inflicted on them on August
22, 1996.

Anent the ₱ 1,000,000.00 allowed as exemplary damages, we should not reduce the amount if
only to render effective the desired example for the public good. As a common carrier, the
Pereñas needed to be vigorously reminded to observe their duty to exercise extraordinary
diligence to prevent a similarly senseless accident from happening again. Only by an award of
exemplary damages in that amount would suffice to instill in them and others similarly situated like
them the ever-present need for greater and constant vigilance in the conduct of a business
imbued with public interest.

WHEREFORE, we DENY the petition for review on certiorari; AFFIRM the decision promulgated
on November 13, 2002; and ORDER the petitioners to pay the costs of suit.

SO ORDERED.
Transpo Cases 1
SECOND DIVISION
G.R. No. 201822, August 12, 2015
MARINA PORT SERVICES, INC.*, Petitioner, v. AMERICAN HOME ASSURANCE
CORPORATION, Respondent.
DECISION
DEL CASTILLO, J.:
1
This Petition for Review on Certiorari filed pursuant to Rule 45 of the Rules of Court assails the
December 29, 2011 Decision2 and May 8, 2012 Resolution3 of the Court of Appeals (CA) in CA
GR. CV No. 88321, which granted the appeal filed therein by respondent American Home
Assurance Corporation (AHAC) and reversed and set aside the October 17, 2006 Decision 4 of the
Regional Trial Court (RTC), Pasig City, Branch 271 dismissing AHAC's Complaint5 for Damages
against petitioner Marina Port Services, Inc. (MPSI).
Factual Antecedents
On September 21, 1989, Countercorp Trading PTE., Ltd. shipped from Singapore to the
Philippines 10 container vans of soft wheat flour with seals intact on board the vessel M/V Uni
Fortune. The shipment was insured against all risks by AHAC and consigned to MSC Distributor
(MSC).
Upon arrival at the Manila South Harbor on September 25, 1989, the shipment was discharged in
good and complete order condition and with safety seals in place to the custody of the arrastre
operator, MPSI. After unloading and prior to hauling, agents of the Bureau of Customs officially
broke the seals, opened the container vans, and examined the shipment for tax evaluation in the
presence of MSC's broker and checker. Thereafter, the customs inspector closed the container
vans and refastened them with safety wire seals while MSC's broker padlocked the same. MPSI
then placed the said container vans in a back-to-back arrangement at the delivery area of the
harbor's container yard where they were watched over by the security guards of MPSI and of the
Philippine Ports Authority.
On October 10, 1989, MSC's representative, AD's Customs Services (ACS), took out five
container vans for delivery to MSC. At the compound's exit, MPSI issued to ACS the
corresponding gate passes for the vans indicating its turnover of the subject shipment to MSC.
However, upon receipt of the container vans at its warehouse, MSC discovered substantial
shortages in the number of bags of flour delivered. Hence, it filed a formal claim for loss with
MPSI.
From October 12 to 14, 1989 and pursuant to the gate passes issued by MPSI, ACS took out the
remaining five container vans from the container yard and delivered them to MSC. Upon receipt,
MSC once more discovered substantial shortages. Thus, MSC filed another claim with MPSI.
Per MSC, the total number of the missing bags of flour was 1,650 with a value of £257,083.00.
MPSI denied both claims of MSC. As a result, MSC sought insurance indemnity for the lost
cargoes from AHAC. AHAC paid MSC the value of the missing bags of flour after finding the
tetter's claim in order. In turn, MSC issued a subrogation receipt in favor of AHAC.
Thereafter, AHAC filed a Complaint6 for damages against MPSI before the RTC.
Ruling of the Regional Trial Court
AHAC averred in its Complaint that the partial loss of the bags of flour was due to the fault or
negligence of MPSI since the loss happened while the shipment was still in MPSI's custody.
MPSL, on the other hand, disclaimed any liability. It essentally maintained in its Answer 7 that the
bags of flour were inside sealed container vans when it received the same; that it handled the
subject shipment with the diligence required of it; and, mat the container vans were turned over by
it to MSC in the same condition that they were in at the time of their discharge from the vessel.
MPSI likewise countered that the failure of MSC to request for a bad order survey belied the
latter's claim for loss.
Trial then ensued.
On October 17, 2006, the RTC rendered a Decision8 dismissing AHAC's Complaint. It held that
while there was indeed a shortage of 1,650 sacks of soft wheat flour, AHAC's evidence failed to
clearly show that the loss happened while the subject shipment was still under MPSI's
responsibility. Hence, the dispositive portion of the RTC Decision:LawlibraryofCRAlaw
WHEREFORE, premises considered, the complaint is hereby DISMISSED.
SO ORDERED.9
Ruling of the Court of Appeals
Aggrieved, AHAC appealed to the CA.
In its Decision10 dated December 29, 2011, the CA stressed that in a claim for loss filed by a
consignee, the burden of proof to show due compliance with the obligation to deliver the goods to
Transpo Cases 1
the appropriate party devolves upon the arrastre operator. In consonance with this, a presumption
of fault or negligence for the loss of the goods arises against the arrastre operator pursuant to
Articles 126511 and 198112 of the Civil Code. In this case, the CA found that MPSI failed to
discharge such burden and to rebut the aforementioned presumption. Thus, it was held liable to
AHAC for the value of the missing bags of flour, viz.:LawlibraryofCRAlaw
We conclude that x x x MPSI was negligent in the handling and safekeeping of the subject
shipment. It did not create and implement a more defined, concrete and effective measure to
detect, curb and prevent the loss or pilferage of cargoes in its custody. This is manifested by the
fact that [MPSI] never took any action to address such complaint even after it received the formal
claim of loss in the first five (5) vans. As a consequence, more bags of flour were eventually lost or
pilfered in the remaining container vans that were still in [MPSI's] custody at that time. Case law
tells us that negligence is that conduct which creates undue risk of harm to another, the failure to
observe that degree of care, precaution and vigilance which the circumstance[s] justly demand,
whereby that other person suffers injury. Clearly, [MPSI] breached its arrastre obligations to the
consignee for it failed to deliver said bags in good and complete condition.
In view of MPSI's failure to exercise that degree of diligence, precaution and care the law
[requires] of arrastre operators in the performance of their duties to the consignee, [MPSI] is
legally bound to reimburse [AHAC] for the value of the missing bags of flour that it paid to MSC
pursuant to the insurance policy.13
In view of the same, the said court disposed of the appeal in this wise:LawlibraryofCRAlaw
WHEREFORE, premises considered, the appeal is GRANTED. The Decision of the Regional Trial
Court of Pasig City, Branch 271 dated 17 October 2006 is REVERSED and SET ASIDE. Appellee
Marina Port Services, Inc. is ORDERED to pay appellant, American Home Assurance Corporation,
the sum of Two Hundred Fifty Seven Thousand and Eighty Three Pesos (PhP257,083.00) with
interest thereon at Six percent (6%) [per annum] from the filing of this complaint on 24 September
1990 until the decision becomes final and executory, and thereafter, at the rate of twelve (12)
percent [per annum] until fully paid, and additionally, to pay the x x x sum of Fifty Thousand Pesos
(PhP50,000.00) as attorney's fees.
SO ORDERED.14
15
MPSI moved for reconsideration but the CA denied the same in its Resolution dated May 8,
2012.
Hence, the present recourse.
Issue
The core issue to be resolved in this case is whether MPSI is liable for the loss of the bags of flour.
Our Ruling
There is merit in the Petition.
Albeit involving factual questions, the
Court shall proceed to resolve this case
since it falls under several exceptions to
the rule that only questions of law are
proper in a petition for review on
certiorari.
At the outset, it is evident that the resolution of the instant case requires the scrutiny of factual
issues which are, however, outside the scope of the present petition filed pursuant to Rule 45 of
the Rules of Court. However, the Court held in Asian Terminals, Inc. v. Philam Insurance Co.,
Inc.16 that:LawlibraryofCRAlaw
But while it is not our duty to review, examine and evaluate or weigh all over again the probative
value of the evidence presented, the Court may nonetheless resolve questions of fact when the
case falls under any of the following exceptions:LawlibraryofCRAlaw
(1) when the findings are grounded entirely on speculation, surmises, or conjectures; (2) when the
inference made is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of
fact are conflicting; (6) when in making its findings the Court of Appeals went beyond the issues of
the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7)
when the findings are contrary to those of the trial court; (8) when the findings are conclusions
without citation of specific evidence on which they are based; (9) when the facts set forth in the
petition as well as in the petitioner's main and reply briefs are not disputed by the respondent; and
(10) when the findings of fact are premised on the supposed absence of evidence and
contradicted by the evidence on record.17
The Court finds that the instant case falls under the aforementioned second, fourth, fifth, and
seventh exceptions. Hence, it shall proceed to delve into factual matters essential to the proper
determination of the merits of this case.
Several well-entrenched legal principles
govern the relationship of an arrastre
operator and a consignee.
Transpo Cases 1
The relationship between an arrastre operator and a consignee is similar to that between a
warehouseman and a depositor, or to that between a common carrier and the consignee and/or
the owner of the shipped goods.18 Thus, an arrastre operator should adhere to the same degree of
diligence as that legally expected of a warehouseman or a common carrier19 as set forth in Section
3[b] of the Warehouse Receipts [Act]20 and Article 1733 of the Civil Code.21 As custodian of the
shipment discharged from the vessel, the arrastre operator must take good care of the same and
turn it over to the party entitled to its possession.22redarclaw
In case of claim for loss filed by a consignee or the insurer as subrogee,23 it is the arrastre
operator that carries the burden of proving compliance with the obligation to deliver the goods to
the appropriate party.24 It must show that the losses were not due to its negligence or that of its
employees.25 It must establish that it observed the required diligence in handling the
shipment.26 Otherwise, it shall be presumed that the loss was due to its fault.27 In the same
manner, an arrastre operator shall be liable for damages if the seal and lock of the goods
deposited and delivered to it as closed and sealed, be broken through its fault.28 Such fault on the
part of the arrastre operator is likewise presumed unless there is proof to the contrary.29redarclaw
MPSI was able to prove delivery of the
shipment to MSC in good and complete
condition and with locks and seals intact.
It is significant to note that MPSI, in order to prove that it properly delivered the subject shipment
consigned to MSC, presented 10 gate passes marked as Exhibits 4 to 13. 30 Each of these gate
passes bore the duly identified signature31 of MSC's representative which serves, among others,
as an acknowledgement that:LawlibraryofCRAlaw
Issuance of [the] Gate Pass constitutes delivery to and receipt by consignee of the goods as
described above in good order and condition, unless an accompanying B.O. certificate duly issued
and noted on the face of [the] Gate Pass appears.32
As held in International Container Terminal Services, Inc. v. Prudential Guarantee & Assurance
Co., Inc.,33 the signature of the consignee's representative on the gate pass is evidence of receipt
of the shipment in good order and condition.34redarclaw
Also, that MPSI delivered the subject shipment to MSC's representative in good and complete
condition and with lock and seals intact is established by the testimonies of MPSFs employees
who were directly involved in the processing of the subject shipment. Mr. Ponciano De Leon
testified that as MPSI's delivery checker, he personally examined the subject container vans and
issued the corresponding gate passes that were, in turn, countersigned by the consignee's
representative. MPSI's other witness, Chief Claims Officer Sergio Icasiano (Icasiano), testified that
the broker, as the consignee's representative, neither registered any complaints nor requested for
an inspection, to wit:LawlibraryofCRAlaw
RE-DIRECT EXAMINATION:
Atty. Laurente
xxxx
Q [A]fter receipt by the broker of the container van containing the cargo, do you require the
broker to issue you a report or certification as to the appearance of the container van?
A [W]e only rely on the gate pass.
Q [A]nd you don't place there "the padlock is still intact or the wirings still intact"?
A [I]t is stated in the gate pass, your Honor.
xxxx
Q [A]nd the findings [are counter-signed] by the representative of the broker also on the
same date?
A [Y]es, your honor.35
xxxx
RE-CROSS EXAMINATION
Atty. Laino
q [B]ut did you not say that in the gate pass it is stated there as to the external appearance
of the container van?
a [I]here was no indication of any inspection of the container van x x x
meaning the container vans were all in good condition, sir.
q [Y]ou said a [while] ago that you did not receive any complaint for broken seals, is it not?
a [Y]es, sir.
q [B]ut the complaint that you received indicates that there were losses,
a [W]e did not receive any complaint from the broker, sir.
q [I]f the broker will complain they have to file a request for inspection of the cargo so that
they will know if there [are] shortages x x x.
a [Y]es, sir.
[C]ourt
q [A]nd if the broker would notice or detect [something] peculiar, the way the door of the
container van appears whether close[d] or not, they have to request for an inspection[?]
a [Y]es, your honor.
q [O]r in the absence of the padlock or wirings, the broker will request for an inspection[?]
a [Y]es,your honor[;] they can require for the examination of the cargo.
q [B]ut there was no request at all by the broker?
a [T]here was none, your Honor.36
Verily, the testimonies of the aforementioned employees of MPSI confirm that the container vans,
together with their padlocks and wirings, were in order at the time the gate passes were issued up
to the time the said container vans were turned over to ACS.
AHAC justifies the failure of ACS to immediately protest the alleged loss or pilferage upon initial
pick-up of the first batch of container vans. According to it, ACS could not have discovered the
Transpo Cases 1
loss at that moment since the stripping of container vans in the pier area is not allowed. The Court
cannot, however, accept such excuse. For one, AHAC's claim that stripping of the container vans
is not allowed in the pier area is a mere allegation without proof. It is settled that "[m]ere
allegations do not suffice; they must be substantiated by clear and convincing proof."37 For
another, even assuming that stripping of the container vans is indeed not allowed at the pier area,
it is hard to believe that MSC or its representative ACS has no precautionary measures to protect
itself from any eventuality of loss or pilferage. To recall, ACS's representative signed the gate
passes without any qualifications. This is despite the fact that such signature serves as an
acknowledgment of ACS's receipt of the goods in good order and condition. If MSC was keen
enough in protecting its interest, it (through ACS) should have at least qualified the receipt of the
goods as subject to inspection, and thereafter arrange for such an inspection in an area where the
same is allowed to be done. However, no such action or other similar measure was shown to have
been undertaken by MSC. What is clear is that ACS accepted the container vans on its behalf
without any qualification. As aptly observed by the RTC:LawlibraryofCRAlaw
During [the] period of tum-over of goods from the arrastre to [ACS], there had been no protest on
anything on the part of consignee's representative x x x. Otherwise, the complaint would have
been shown [on] the gate passes. In fact, each gate pass showed the date of delivery, the location
of delivery, the truck number of the truck used in the delivery, the actual quantity of goods
delivered, the numbers of the safety wires and padlocks of the vans and the signatures of the
receiver. More importantly, the gate passes bared the fact that the shipments were turned-over by
[MPSI] to [ACS] on the same dates of customs inspections and turnovers. 38
There being no exception as to bad order, the subject shipment, therefore, appears to have been
accepted by MSC, through ACS, in good order.39 "It logically follows [then] that the case at bar
presents no occasion for the necessity of discussing the diligence required of an [arrastre
operator] or of the theory of [its] prima facie liability x x x, for from all indications, the shipment did
not suffer loss or damage while it was under the care x x x of the arrastre operator x x
x."40redarclaw
Even in the light of Article 1981, no
presumption of fault on the part of MPSI
arises since it was not sufficiently shown
that the container vans were re-opened
or that their locks and seals were broken
for the second time.
Indeed, Article 1981 of the Civil Code also mandates a presumption of fault on the part of the
arrastre operator as follows:LawlibraryofCRAlaw
Article 1981. When the thing deposited is delivered closed and sealed, the depositary must return
it in the same condition, and he shall be liable for damages should the seal or lock be broken
through his fault.
Fault on the part of the depositary is presumed, unless there is proof to the contrary.
As regards the value of the thing deposited, the statement of the depositor shall be accepted,
when the forcible opening is imputable to the depositary, should there be no proof to the contrary.
However, the courts may pass upon the credibility of the depositor with respect to the value
claimed by him.
When the seal or lock is broken, with or without the depositary's fault, he shall keep the secret of
the deposit.
However, no such presumption arises in this case considering that it was not sufficiently shown
that the container vans were re-opened or that their locks and seals were broken for the second
time. As may be recalled, the container vans were opened by a customs official for examination of
the subject shipment and were thereafter resealed with safety wires. While this fact is not disputed
by both parties, AHAC alleges that the container vans were re-opened and this gave way to the
alleged pilferage. The Court notes, however, that AHAC based such allegation solely on the
survey report of the Manila Adjuster & Surveyors Company (MASCO). As observed by the
RTC:LawlibraryofCRAlaw
AHAC x x x claim[s] that there were two instances when the seals were broken. [First], when the
customs officer examined the shipment and had it resealed with safety wires. [Second], when the
surveyor and consignee's broker visually inspected the shipment and allegedly found the safety
wires of the customs officer to have been detached and missing which they then replaced. This
second instance is only upon their say so as there is no x x x documentary or testimonial proof on
the matter [other] than the [MASCO] survey report.41
However, the person who prepared the said report was not presented in court to testify on the
same. Thus, the said survey report has no probative value for being hearsay. "It is a basic rule that
evidence, whether oral or documentary, is hearsay, if its probative value is not based on the
personal knowledge of the witness but on the knowledge of another person who is not on the
witness stand."42 Moreover, "an unverified and unidentified private document cannot be accorded
probative value. It is precluded because the party against whom it is presented is deprived of the
right and opportunity to cross-examine the person to whom the statements or writings are
attributed. Its executor or author should be presented as a witness to provide the other party to the
litigation the opportunity to question its contents. Being mere hearsay evidence, failure to present
the author of the letter renders its contents suspect and of no probative value."43redarclaw
There being no other competent evidence that the container vans were reopened or that their
locks and seals were broken for the second time, MPSI cannot be held liable for damages due to
the alleged loss of the bags of flour pursuant to Article 1981 of the Civil Code.
Transpo Cases 1
At any rate, the goods were shipped
under "Shipper's Load and Count"
arrangement. Thus, protection against
pilferage of the subject shipment was
the consignees lookout.

At any rate, MPSI cannot just the same be held liable for the missing bags of flour since the
consigned goods were shipped under "Shipper's Load and Count" arrangement. "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, like any ordinary depositary, duty-bound to take good care of
the goods received from the vessel and to turn the same over to the party entitled to their
possession, subject to such qualifications as may have validly been imposed in the contract
between the parties. 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."44redarclaw

All told, the Court holds that MPSI is not liable for the loss of the bags of flour.

WHEREFORE, the Petition is GRANTED. The Decision dated December 29, 2011 and Resolution
dated May 8, 2012 of the Court of Appeals in CA-GR. CV No. 88321 are REVERSED AND SET
ASIDE. The Decision dated October 17, 2006 of the Regional Trial Court, Branch 271, Pasig City
in Civil Case No. 90-54517 is REINSTATED and the Complaint in the said case is DISMISSED.

SO ORDERED.cralawlawlibrary
Transpo Cases 1
Republic of the Philippines The accident occurred between 7 and 8 o'clock on a dark night, and as the railroad station was
SUPREME COURT lighted dimly by a single light located some distance away, objects on the platform where the
Manila accident occurred were difficult to discern especially to a person emerging from a lighted car.

EN BANC The explanation of the presence of a sack of melons on the platform where the plaintiff alighted is
found in the fact that it was the customary season for harvesting these melons and a large lot had
G.R. No. L-12191 October 14, 1918 been brought to the station for the shipment to the market. They were contained in numerous
sacks which has been piled on the platform in a row one upon another. The testimony shows that
JOSE CANGCO, plaintiff-appellant, this row of sacks was so placed of melons and the edge of platform; and it is clear that the fall of
vs. the plaintiff was due to the fact that his foot alighted upon one of these melons at the moment he
MANILA RAILROAD CO., defendant-appellee. stepped upon the platform. His statement that he failed to see these objects in the darkness is
readily to be credited.
Ramon Sotelo for appellant.
Kincaid & Hartigan for appellee. The plaintiff was drawn from under the car in an unconscious condition, and it appeared that the
injuries which he had received were very serious. He was therefore brought at once to a certain
hospital in the city of Manila where an examination was made and his arm was amputated. The
result of this operation was unsatisfactory, and the plaintiff was then carried to another hospital
where a second operation was performed and the member was again amputated higher up near
the shoulder. It appears in evidence that the plaintiff expended the sum of P790.25 in the form of
FISHER, J.:
medical and surgical fees and for other expenses in connection with the process of his curation.

At the time of the occurrence which gave rise to this litigation the plaintiff, Jose Cangco, was in the
Upon August 31, 1915, he instituted this proceeding in the Court of First Instance of the city of
employment of Manila Railroad Company in the capacity of clerk, with a monthly wage of P25. He
Manila to recover damages of the defendant company, founding his action upon the negligence of
lived in the pueblo of San Mateo, in the province of Rizal, which is located upon the line of the
the servants and employees of the defendant in placing the sacks of melons upon the platform
defendant railroad company; and in coming daily by train to the company's office in the city of
and leaving them so placed as to be a menace to the security of passenger alighting from the
Manila where he worked, he used a pass, supplied by the company, which entitled him to ride
company's trains. At the hearing in the Court of First Instance, his Honor, the trial judge, found the
upon the company's trains free of charge. Upon the occasion in question, January 20, 1915, the
facts substantially as above stated, and drew therefrom his conclusion to the effect that, although
plaintiff arose from his seat in the second class-car where he was riding and, making, his exit
negligence was attributable to the defendant by reason of the fact that the sacks of melons were
through the door, took his position upon the steps of the coach, seizing the upright guardrail with
so placed as to obstruct passengers passing to and from the cars, nevertheless, the plaintiff
his right hand for support.
himself had failed to use due caution in alighting from the coach and was therefore precluded form
recovering. Judgment was accordingly entered in favor of the defendant company, and the plaintiff
On the side of the train where passengers alight at the San Mateo station there is a cement
appealed.
platform which begins to rise with a moderate gradient some distance away from the company's
office and extends along in front of said office for a distance sufficient to cover the length of
It can not be doubted that the employees of the railroad company were guilty of negligence in
several coaches. As the train slowed down another passenger, named Emilio Zuñiga, also an
piling these sacks on the platform in the manner above stated; that their presence caused the
employee of the railroad company, got off the same car, alighting safely at the point where the
plaintiff to fall as he alighted from the train; and that they therefore constituted an effective legal
platform begins to rise from the level of the ground. When the train had proceeded a little farther
cause of the injuries sustained by the plaintiff. It necessarily follows that the defendant company is
the plaintiff Jose Cangco stepped off also, but one or both of his feet came in contact with a sack
liable for the damage thereby occasioned unless recovery is barred by the plaintiff's own
of watermelons with the result that his feet slipped from under him and he fell violently on the
contributory negligence. In resolving this problem it is necessary that each of these conceptions of
platform. His body at once rolled from the platform and was drawn under the moving car, where
liability, to-wit, the primary responsibility of the defendant company and the contributory
his right arm was badly crushed and lacerated. It appears that after the plaintiff alighted from the
negligence of the plaintiff should be separately examined.
train the car moved forward possibly six meters before it came to a full stop.
Transpo Cases 1
It is important to note that the foundation of the legal liability of the defendant is the contract of
carriage, and that the obligation to respond for the damage which plaintiff has suffered arises, if at
all, from the breach of that contract by reason of the failure of defendant to exercise due care in its
performance. That is to say, its liability is direct and immediate, differing essentially, in legal
viewpoint from that presumptive responsibility for the negligence of its servants, imposed by article
1903 of the Civil Code, which can be rebutted by proof of the exercise of due care in their
selection and supervision. Article 1903 of the Civil Code is not applicable to obligations arising ex
contractu, but only to extra-contractual obligations — or to use the technical form of expression,
that article relates only to culpa aquiliana and not to culpa contractual.
Manresa (vol. 8, p. 67) in his commentaries upon articles 1103 and 1104 of the Civil Code, clearly
points out this distinction, which was also recognized by this Court in its decision in the case of
Rakes vs. Atlantic, Gulf and Pacific Co. (7 Phil. rep., 359). In commenting upon article 1093
Manresa clearly points out the difference between "culpa, substantive and independent, which of
itself constitutes the source of an obligation between persons not formerly connected by any legal
tie" and culpa considered as an accident in the performance of an obligation already existing . . . ."
In the Rakes case (supra) the decision of this court was made to rest squarely upon the
proposition that article 1903 of the Civil Code is not applicable to acts of negligence which
constitute the breach of a contract.
Upon this point the Court said:
The acts to which these articles [1902 and 1903 of the Civil Code] are applicable are
understood to be those not growing out of pre-existing duties of the parties to one
another. But where relations already formed give rise to duties, whether springing from
contract or quasi-contract, then breaches of those duties are subject to article 1101, 1103,
and 1104 of the same code. (Rakes vs. Atlantic, Gulf and Pacific Co., 7 Phil. Rep., 359 at
365.)
This distinction is of the utmost importance. The liability, which, under the Spanish law, is, in
certain cases imposed upon employers with respect to damages occasioned by the negligence of
their employees to persons to whom they are not bound by contract, is not based, as in the
English Common Law, upon the principle of respondeat superior — if it were, the master would be
liable in every case and unconditionally — but upon the principle announced in article 1902 of the
Civil Code, which imposes upon all persons who by their fault or negligence, do injury to another,
the obligation of making good the damage caused. One who places a powerful automobile in the
hands of a servant whom he knows to be ignorant of the method of managing such a vehicle, is
himself guilty of an act of negligence which makes him liable for all the consequences of his
imprudence. The obligation to make good the damage arises at the very instant that the unskillful
servant, while acting within the scope of his employment causes the injury. The liability of the
master is personal and direct. But, if the master has not been guilty of any negligence whatever in
the selection and direction of the servant, he is not liable for the acts of the latter, whatever done
within the scope of his employment or not, if the damage done by the servant does not amount to
a breach of the contract between the master and the person injured.
It is not accurate to say that proof of diligence and care in the selection and control of the servant
relieves the master from liability for the latter's acts — on the contrary, that proof shows that the
responsibility has never existed. As Manresa says (vol. 8, p. 68) the liability arising from extra-
contractual culpa is always based upon a voluntary act or omission which, without willful intent, but
by mere negligence or inattention, has caused damage to another. A master who exercises all
possible care in the selection of his servant, taking into consideration the qualifications they should
possess for the discharge of the duties which it is his purpose to confide to them, and directs them
with equal diligence, thereby performs his duty to third persons to whom he is bound by no
contractual ties, and he incurs no liability whatever if, by reason of the negligence of his servants,
even within the scope of their employment, such third person suffer damage. True it is that under
article 1903 of the Civil Code the law creates a presumption that he has been negligent in the
selection or direction of his servant, but the presumption is rebuttable and yield to proof of due
care and diligence in this respect.
The supreme court of Porto Rico, in interpreting identical provisions, as found in the Porto Rico
Code, has held that these articles are applicable to cases of extra-contractual culpa exclusively.
(Carmona vs. Cuesta, 20 Porto Rico Reports, 215.)
This distinction was again made patent by this Court in its decision in the case of
Bahia vs. Litonjua and Leynes, (30 Phil. rep., 624), which was an action brought upon the theory
of the extra-contractual liability of the defendant to respond for the damage caused by the
carelessness of his employee while acting within the scope of his employment. The Court, after
citing the last paragraph of article 1903 of the Civil Code, said:
From this article two things are apparent: (1) That when an injury is caused by the
negligence of a servant or employee there instantly arises a presumption of law that there
was negligence on the part of the master or employer either in selection of the servant or
employee, or in supervision over him after the selection, or both; and (2) that that
presumption is juris tantum and not juris et de jure, and consequently, may be rebutted. It
follows necessarily that if the employer shows to the satisfaction of the court that in
selection and supervision he has exercised the care and diligence of a good father of a
family, the presumption is overcome and he is relieved from liability.
This theory bases the responsibility of the master ultimately on his own negligence and
not on that of his servant. This is the notable peculiarity of the Spanish law of negligence.
Transpo Cases 1
It is, of course, in striking contrast to the American doctrine that, in relations with
strangers, the negligence of the servant in conclusively the negligence of the master.
The opinion there expressed by this Court, to the effect that in case of extra-
contractual culpa based upon negligence, it is necessary that there shall have been some fault
attributable to the defendant personally, and that the last paragraph of article 1903 merely
establishes a rebuttable presumption, is in complete accord with the authoritative opinion of
Manresa, who says (vol. 12, p. 611) that the liability created by article 1903 is imposed by reason
of the breach of the duties inherent in the special relations of authority or superiority existing
between the person called upon to repair the damage and the one who, by his act or omission,
was the cause of it.
On the other hand, the liability of masters and employers for the negligent acts or omissions of
their servants or agents, when such acts or omissions cause damages which amount to the
breach of a contact, is not based upon a mere presumption of the master's negligence in their
selection or control, and proof of exercise of the utmost diligence and care in this regard does not
relieve the master of his liability for the breach of his contract.
Every legal obligation must of necessity be extra-contractual or contractual. Extra-contractual
obligation has its source in the breach or omission of those mutual duties which civilized society
imposes upon it members, or which arise from these relations, other than contractual, of certain
members of society to others, generally embraced in the concept of status. The legal rights of
each member of society constitute the measure of the corresponding legal duties, mainly negative
in character, which the existence of those rights imposes upon all other members of society. The
breach of these general duties whether due to willful intent or to mere inattention, if productive of
injury, give rise to an obligation to indemnify the injured party. The fundamental distinction
between obligations of this character and those which arise from contract, rests upon the fact that
in cases of non-contractual obligation it is the wrongful or negligent act or omission itself which
creates the vinculum juris, whereas in contractual relations the vinculum exists independently of
the breach of the voluntary duty assumed by the parties when entering into the contractual
relation.
With respect to extra-contractual obligation arising from negligence, whether of act or omission, it
is competent for the legislature to elect — and our Legislature has so elected — whom such an
obligation is imposed is morally culpable, or, on the contrary, for reasons of public policy, to extend
that liability, without regard to the lack of moral culpability, so as to include responsibility for the
negligence of those person who acts or mission are imputable, by a legal fiction, to others who are
in a position to exercise an absolute or limited control over them. The legislature which adopted
our Civil Code has elected to limit extra-contractual liability — with certain well-defined exceptions
— to cases in which moral culpability can be directly imputed to the persons to be charged. This
moral responsibility may consist in having failed to exercise due care in the selection and control
of one's agents or servants, or in the control of persons who, by reason of their status, occupy a
position of dependency with respect to the person made liable for their conduct.
The position of a natural or juridical person who has undertaken by contract to render service to
another, is wholly different from that to which article 1903 relates. When the sources of the
obligation upon which plaintiff's cause of action depends is a negligent act or omission, the burden
of proof rests upon plaintiff to prove the negligence — if he does not his action fails. But when the
facts averred show a contractual undertaking by defendant for the benefit of plaintiff, and it is
alleged that plaintiff has failed or refused to perform the contract, it is not necessary for plaintiff to
specify in his pleadings whether the breach of the contract is due to willful fault or to negligence on
the part of the defendant, or of his servants or agents. Proof of the contract and of its
nonperformance is sufficient prima facie to warrant a recovery.
As a general rule . . . it is logical that in case of extra-contractual culpa, a suing creditor
should assume the burden of proof of its existence, as the only fact upon which his action
is based; while on the contrary, in a case of negligence which presupposes the existence
of a contractual obligation, if the creditor shows that it exists and that it has been broken,
it is not necessary for him to prove negligence. (Manresa, vol. 8, p. 71 [1907 ed., p. 76]).
As it is not necessary for the plaintiff in an action for the breach of a contract to show that the
breach was due to the negligent conduct of defendant or of his servants, even though such be in
fact the actual cause of the breach, it is obvious that proof on the part of defendant that the
negligence or omission of his servants or agents caused the breach of the contract would not
constitute a defense to the action. If the negligence of servants or agents could be invoked as a
means of discharging the liability arising from contract, the anomalous result would be that person
acting through the medium of agents or servants in the performance of their contracts, would be in
a better position than those acting in person. If one delivers a valuable watch to watchmaker who
contract to repair it, and the bailee, by a personal negligent act causes its destruction, he is
unquestionably liable. Would it be logical to free him from his liability for the breach of his contract,
which involves the duty to exercise due care in the preservation of the watch, if he shows that it
was his servant whose negligence caused the injury? If such a theory could be accepted, juridical
persons would enjoy practically complete immunity from damages arising from the breach of their
contracts if caused by negligent acts as such juridical persons can of necessity only act through
agents or servants, and it would no doubt be true in most instances that reasonable care had been
taken in selection and direction of such servants. If one delivers securities to a banking
corporation as collateral, and they are lost by reason of the negligence of some clerk employed by
the bank, would it be just and reasonable to permit the bank to relieve itself of liability for the
breach of its contract to return the collateral upon the payment of the debt by proving that due care
had been exercised in the selection and direction of the clerk?
Transpo Cases 1
This distinction between culpa aquiliana, as the source of an obligation, and culpa contractual as a
mere incident to the performance of a contract has frequently been recognized by the supreme
court of Spain. (Sentencias of June 27, 1894; November 20, 1896; and December 13, 1896.) In
the decisions of November 20, 1896, it appeared that plaintiff's action arose ex contractu, but that
defendant sought to avail himself of the provisions of article 1902 of the Civil Code as a defense.
The Spanish Supreme Court rejected defendant's contention, saying:
These are not cases of injury caused, without any pre-existing obligation, by fault or
negligence, such as those to which article 1902 of the Civil Code relates, but of damages
caused by the defendant's failure to carry out the undertakings imposed by the contracts .
...
A brief review of the earlier decision of this court involving the liability of employers for damage
done by the negligent acts of their servants will show that in no case has the court ever decided
that the negligence of the defendant's servants has been held to constitute a defense to an action
for damages for breach of contract.
In the case of Johnson vs. David (5 Phil. Rep., 663), the court held that the owner of a carriage
was not liable for the damages caused by the negligence of his driver. In that case the court
commented on the fact that no evidence had been adduced in the trial court that the defendant
had been negligent in the employment of the driver, or that he had any knowledge of his lack of
skill or carefulness.
In the case of Baer Senior & Co's Successors vs. Compania Maritima (6 Phil. Rep., 215), the
plaintiff sued the defendant for damages caused by the loss of a barge belonging to plaintiff which
was allowed to get adrift by the negligence of defendant's servants in the course of the
performance of a contract of towage. The court held, citing Manresa (vol. 8, pp. 29, 69) that if the
"obligation of the defendant grew out of a contract made between it and the plaintiff . . . we do not
think that the provisions of articles 1902 and 1903 are applicable to the case."
In the case of Chapman vs. Underwood (27 Phil. Rep., 374), plaintiff sued the defendant to
recover damages for the personal injuries caused by the negligence of defendant's chauffeur while
driving defendant's automobile in which defendant was riding at the time. The court found that the
damages were caused by the negligence of the driver of the automobile, but held that the master
was not liable, although he was present at the time, saying:
. . . unless the negligent acts of the driver are continued for a length of time as to give the
owner a reasonable opportunity to observe them and to direct the driver to desist
therefrom. . . . The act complained of must be continued in the presence of the owner for
such length of time that the owner by his acquiescence, makes the driver's acts his own.
In the case of Yamada vs. Manila Railroad Co. and Bachrach Garage & Taxicab Co. (33 Phil.
Rep., 8), it is true that the court rested its conclusion as to the liability of the defendant upon article
1903, although the facts disclosed that the injury complaint of by plaintiff constituted a breach of
the duty to him arising out of the contract of transportation. The express ground of the decision in
this case was that article 1903, in dealing with the liability of a master for the negligent acts of his
servants "makes the distinction between private individuals and public enterprise;" that as to the
latter the law creates a rebuttable presumption of negligence in the selection or direction of
servants; and that in the particular case the presumption of negligence had not been overcome.
It is evident, therefore that in its decision Yamada case, the court treated plaintiff's action as
though founded in tort rather than as based upon the breach of the contract of carriage, and an
examination of the pleadings and of the briefs shows that the questions of law were in fact
discussed upon this theory. Viewed from the standpoint of the defendant the practical result must
have been the same in any event. The proof disclosed beyond doubt that the defendant's servant
was grossly negligent and that his negligence was the proximate cause of plaintiff's injury. It also
affirmatively appeared that defendant had been guilty of negligence in its failure to exercise proper
discretion in the direction of the servant. Defendant was, therefore, liable for the injury suffered by
plaintiff, whether the breach of the duty were to be regarded as constituting culpa
aquiliana or culpa contractual. As Manresa points out (vol. 8, pp. 29 and 69) whether negligence
occurs an incident in the course of the performance of a contractual undertaking or its itself the
source of an extra-contractual undertaking obligation, its essential characteristics are identical.
There is always an act or omission productive of damage due to carelessness or inattention on the
part of the defendant. Consequently, when the court holds that a defendant is liable in damages
for having failed to exercise due care, either directly, or in failing to exercise proper care in the
selection and direction of his servants, the practical result is identical in either case. Therefore, it
follows that it is not to be inferred, because the court held in the Yamada case that defendant was
liable for the damages negligently caused by its servants to a person to whom it was bound by
contract, and made reference to the fact that the defendant was negligent in the selection and
control of its servants, that in such a case the court would have held that it would have been a
good defense to the action, if presented squarely upon the theory of the breach of the contract, for
defendant to have proved that it did in fact exercise care in the selection and control of the
servant.
The true explanation of such cases is to be found by directing the attention to the relative spheres
of contractual and extra-contractual obligations. The field of non- contractual obligation is much
more broader than that of contractual obligations, comprising, as it does, the whole extent of
juridical human relations. These two fields, figuratively speaking, concentric; that is to say, the
mere fact that a person is bound to another by contract does not relieve him from extra-contractual
liability to such person. When such a contractual relation exists the obligor may break the contract
under such conditions that the same act which constitutes the source of an extra-contractual
obligation had no contract existed between the parties.
Transpo Cases 1
The contract of defendant to transport plaintiff carried with it, by implication, the duty to carry him
in safety and to provide safe means of entering and leaving its trains (civil code, article 1258). That
duty, being contractual, was direct and immediate, and its non-performance could not be excused
by proof that the fault was morally imputable to defendant's servants.
The railroad company's defense involves the assumption that even granting that the negligent
conduct of its servants in placing an obstruction upon the platform was a breach of its contractual
obligation to maintain safe means of approaching and leaving its trains, the direct and proximate
cause of the injury suffered by plaintiff was his own contributory negligence in failing to wait until
the train had come to a complete stop before alighting. Under the doctrine of comparative
negligence announced in the Rakes case (supra), if the accident was caused by plaintiff's own
negligence, no liability is imposed upon defendant's negligence and plaintiff's negligence merely
contributed to his injury, the damages should be apportioned. It is, therefore, important to
ascertain if defendant was in fact guilty of negligence.
It may be admitted that had plaintiff waited until the train had come to a full stop before alighting,
the particular injury suffered by him could not have occurred. Defendant contends, and cites many
authorities in support of the contention, that it is negligence per se for a passenger to alight from a
moving train. We are not disposed to subscribe to this doctrine in its absolute form. We are of the
opinion that this proposition is too badly stated and is at variance with the experience of every-day
life. In this particular instance, that the train was barely moving when plaintiff alighted is shown
conclusively by the fact that it came to stop within six meters from the place where he stepped
from it. Thousands of person alight from trains under these conditions every day of the year, and
sustain no injury where the company has kept its platform free from dangerous obstructions. There
is no reason to believe that plaintiff would have suffered any injury whatever in alighting as he did
had it not been for defendant's negligent failure to perform its duty to provide a safe alighting
place.
We are of the opinion that the correct doctrine relating to this subject is that expressed in
Thompson's work on Negligence (vol. 3, sec. 3010) as follows:
The test by which to determine whether the passenger has been guilty of negligence in
attempting to alight from a moving railway train, is that of ordinary or reasonable care. It is
to be considered whether an ordinarily prudent person, of the age, sex and condition of
the passenger, would have acted as the passenger acted under the circumstances
disclosed by the evidence. This care has been defined to be, not the care which may or
should be used by the prudent man generally, but the care which a man of ordinary
prudence would use under similar circumstances, to avoid injury." (Thompson,
Commentaries on Negligence, vol. 3, sec. 3010.)
Or, it we prefer to adopt the mode of exposition used by this court in Picart vs. Smith (37 Phil. rep.,
809), we may say that the test is this; Was there anything in the circumstances surrounding the
plaintiff at the time he alighted from the train which would have admonished a person of average
prudence that to get off the train under the conditions then existing was dangerous? If so, the
plaintiff should have desisted from alighting; and his failure so to desist was contributory
negligence.1awph!l.net
As the case now before us presents itself, the only fact from which a conclusion can be drawn to
the effect that plaintiff was guilty of contributory negligence is that he stepped off the car without
being able to discern clearly the condition of the platform and while the train was yet slowly
moving. In considering the situation thus presented, it should not be overlooked that the plaintiff
was, as we find, ignorant of the fact that the obstruction which was caused by the sacks of melons
piled on the platform existed; and as the defendant was bound by reason of its duty as a public
carrier to afford to its passengers facilities for safe egress from its trains, the plaintiff had a right to
assume, in the absence of some circumstance to warn him to the contrary, that the platform was
clear. The place, as we have already stated, was dark, or dimly lighted, and this also is proof of a
failure upon the part of the defendant in the performance of a duty owing by it to the plaintiff; for if
it were by any possibility concede that it had right to pile these sacks in the path of alighting
passengers, the placing of them adequately so that their presence would be revealed.
As pertinent to the question of contributory negligence on the part of the plaintiff in this case the
following circumstances are to be noted: The company's platform was constructed upon a level
higher than that of the roadbed and the surrounding ground. The distance from the steps of the
car to the spot where the alighting passenger would place his feet on the platform was thus
reduced, thereby decreasing the risk incident to stepping off. The nature of the platform,
constructed as it was of cement material, also assured to the passenger a stable and even surface
on which to alight. Furthermore, the plaintiff was possessed of the vigor and agility of young
manhood, and it was by no means so risky for him to get off while the train was yet moving as the
same act would have been in an aged or feeble person. In determining the question of
contributory negligence in performing such act — that is to say, whether the passenger acted
prudently or recklessly — the age, sex, and physical condition of the passenger are circumstances
necessarily affecting the safety of the passenger, and should be considered. Women, it has been
observed, as a general rule are less capable than men of alighting with safety under such
conditions, as the nature of their wearing apparel obstructs the free movement of the limbs. Again,
it may be noted that the place was perfectly familiar to the plaintiff as it was his daily custom to get
on and of the train at this station. There could, therefore, be no uncertainty in his mind with regard
either to the length of the step which he was required to take or the character of the platform
where he was alighting. Our conclusion is that the conduct of the plaintiff in undertaking to alight
while the train was yet slightly under way was not characterized by imprudence and that therefore
he was not guilty of contributory negligence.
Transpo Cases 1
The evidence shows that the plaintiff, at the time of the accident, was earning P25 a month as a
copyist clerk, and that the injuries he has suffered have permanently disabled him from continuing
that employment. Defendant has not shown that any other gainful occupation is open to plaintiff.
His expectancy of life, according to the standard mortality tables, is approximately thirty-three
years. We are of the opinion that a fair compensation for the damage suffered by him for his
permanent disability is the sum of P2,500, and that he is also entitled to recover of defendant the
additional sum of P790.25 for medical attention, hospital services, and other incidental
expenditures connected with the treatment of his injuries.

The decision of lower court is reversed, and judgment is hereby rendered plaintiff for the sum of
P3,290.25, and for the costs of both instances. So ordered.
Transpo Cases 1
THIRD DIVISION
G.R. No. 184513, March 09, 2016
DESIGNER BASKETS, INC., Petitioner, v. AIR SEA TRANSPORT, INC. AND ASIA CARGO
CONTAINER LINES, INC., Respondents.
DECISION
JARDELEZA, J.:
This is a Petition for Review on Certiorari1 of the August 16, 2007 Decision2 and September 2,
2008 Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 79790, absolving respondents
Air Sea Transport, Inc. (ASTI) and Asia Cargo Container Lines, Inc. (ACCLI) from liability in the
complaint for sum of money and damages filed by petitioner Designer Baskets, Inc. (DBI).
The Facts
DBI is a domestic corporation engaged in the production of housewares and handicraft items for
export.4 Sometime in October 1995, Ambiente, a foreign-based company, ordered from DBI5 223
cartons of assorted wooden items (the shipment).6 The shipment was worth Twelve Thousand
Five Hundred Ninety and Eighty-Seven Dollars (US$12,590.87) and payable through telegraphic
transfer.7 Ambiente designated ACCLI as the forwarding agent that will ship out its order from the
Philippines to the United States (US). ACCLI is a domestic corporation acting as agent of ASTI, a
US based corporation engaged in carrier transport business, in the Philippines.8
On January 7, 1996, DBI delivered the shipment to ACCLI for sea transport from Manila and
delivery to Ambiente at 8306 Wilshire Blvd., Suite 1239, Beverly Hills, California. To acknowledge
receipt and to serve as the contract of sea carriage, ACCLI issued to DBI triplicate copies of ASTI
Bill of Lading No. AC/MLLA601317.9 DBI retained possession of the originals of the bills of lading
pending the payment of the goods by Ambiente.10
On January 23, 1996, Ambiente and ASTI entered into an Indemnity Agreement
(Agreement).11 Under the Agreement, Ambiente obligated ASTI to deliver the shipment to it or to
its order "without the surrender of the relevant bill(s) of lading due to the non-arrival or loss
thereof."12 In exchange, Ambiente undertook to indemnify and hold ASTI and its agent free from
any liability as a result of the release of the shipment.13 Thereafter, ASTI released the shipment to
Ambiente without the knowledge of DBI, and without it receiving payment for the total cost of the
shipment.14
DBI then made several demands to Ambiente for the payment of the shipment, but to no avail.
Thus, on October 7, 1996, DBI filed the Original Complaint against ASTI, ACCLI and ACCLFs
incorporators-stockholders15 for the payment of the value of the shipment in the amount of
US$12,590.87 or Three Hundred Thirty-Three and Six Flundred Fifty-Eight Pesos (P333,658.00),
plus interest at the legal rate from January 22, 1996, exemplary damages, attorney's fees and cost
of suit.16
In its Original Complaint, DBI claimed that under Bill of Lading Number AC/MLLA601317, ASTI
and/or ACCLI is "to release and deliver the cargo/shipment to the consignee, x x x, only after the
original copy or copies of [the] Bill of Lading is or are surrendered to them; otherwise, they become
liable to the shipper for the value of the shipment."17 DBI also averred that ACCLI should be jointly
and severally liable with its co-defendants because ACCLI failed to register ASTI as a foreign
corporation doing business in the Philippines. In addition, ACCLI failed to secure a license to act
as agent of ASTI.18
On February 20, 1997, ASTI, ACCLI, and ACCLI's incorporators-stockholders filed a Motion to
Dismiss.19 They argued that: (a) they are not the real parties-in-interest in the action because the
cargo was delivered and accepted by Ambiente. The case, therefore, was a simple case of non-
payment of the buyer; (b) relative to the incorporators-stockholders of ACCLI, piercing the
corporate veil is misplaced; (c) contrary to the allegation of DBI, the bill of lading covering the
shipment does not contain a proviso exposing ASTI to liability in case the shipment is released
without the surrender of the bill of lading; and (d) the Original Complaint did not attach a certificate
of non-forum shopping.20
DBI filed an Opposition to the Motion to Dismiss,21 asserting that ASTI and ACCLI failed to
exercise the required extraordinary diligence when they allowed the cargoes to be withdrawn by
the consignee without the surrender of the original bill of lading. ASTI, ACCLI, and ACCLI's
incorporators-stockholders countered that it is DBI who failed to exercise extraordinary diligence in
protecting its own interest. They averred that whether or not the buyer-consignee pays the seller is
already outside of their concern.22
Before the trial court could resolve the motion to dismiss, DBI filed an Amended
Complaint23 impleading Ambiente as a new defendant and praying that it be held solidarity liable
with ASTI, ACCLI, and ACCLFs incorporators-stockholders for the payment of the value of the
shipment. DBI alleged that it received reliable information that the shipment was released merely
on the basis of a company guaranty of Ambiente.24 Further, DBI asserted that ACCLI's
incorporators-stockholders have not yet fully paid their stock subscriptions; thus, "under the
circumstance of [the] case," they should be held liable to the extent of the balance of their
subscriptions.25cralawred
In their Answer,26 ASTI, ACCLI, and ACCLI's incorporators-stockholders countered that DBI has
no cause of action against ACCLI and its incorporators-stockholders because the Amended
Complaint, on its face, is for collection of sum of money by an unpaid seller against a buyer. DBI
did not allege any act of the incorporators-stockholders which would constitute as a ground for
Transpo Cases 1
piercing the veil of corporate fiction.27 ACCLI also reiterated that there is no stipulation in the bill of privy to the Agreement, it is not bound by its terms.40cralawred
lading restrictively subjecting the release of the cargo only upon the presentation of the original bill
of lading.28 It regarded the issue of ASTI's lack of license to do business in the Philippines as The trial court found that ACCLI "has not done enough to prevent the defendants Ambiente and
"entirely foreign and irrelevant to the issue of liability for breach of contract" between DBI and [ASTI] from agreeing among themselves the release of the goods in total disregard of [DBFs]
Ambiente. It stated that the purpose of requiring a license (to do business in the Philippines) is to rights and in contravention of the country's civil and commercial laws."41 As the forwarding agent,
subject the foreign corporation to the jurisdiction of Philippine courts. 29 ACCLI was "well aware that the goods cannot be delivered to the defendant Ambiente since [DBI]
retained possession of the originals of the bill of lading."42 Consequently, the trial court held ACCLI
On July 22, 1997, the trial court directed the service of summons to Ambiente through the solidarily liable with ASTI.
Department of Trade and Industry.30 The summons was served on October 6, 199731 and
December 18, 1997.32 Ambiente failed to file an Answer. Hence, DBI moved to declare Ambiente As regards ACCLFs incorporators-stockholders, the trial court absolved them from liability. The
in default, which the trial court granted in its Order dated September 15, 1998.33 trial court ruled that the participation of ACCLFs incorporators-stockholders in the release of the
cargo is not as direct as that of ACCLI.43
The Ruling of the Trial Court
DBI, ASTI and ACCLI appealed to the CA. On one hand, DBI took issue with the order of the trial
In a Decision34 dated July 25, 2003, the trial court found ASTI, ACCLI, and Ambiente solidarity court awarding the value of the shipment in Philippine Pesos instead of US Dollars. It also alleged
liable to DBI for the value of the shipment. It awarded DBI the following: that even assuming that the shipment may be paid in Philippine Pesos, the trial court erred in
chanRoblesvirtualLawlibrary pegging its value at the exchange rate prevailing at the time of the shipment, rather than at the
exchange rate prevailing at the time of payment.44
1. US$12,590.87, or the equivalent of [P]333,658.00 at the time of the shipment, plus 12%
interest per annum from 07 January 1996 until the same is fully paid; On the other hand, ASTI and ACCLI questioned the trial court's decision finding them solidarily
liable with DBI for the value of the shipment. They also assailed the trial court's award of interest,
2. [P]50,000.00 in exemplary damages; exemplary damages, attorney's fees and cost of suit in DBFs favor.45

3. [P]47,000.00 as and for attorney's fees; and, The Ruling of the Court of Appeals

4. [P]10,000.00 as cost of suit.35 The CA affirmed the trial court's finding that Ambiente is liable to DBI, but absolved ASTI and
ACCLI from liability. The CA found that the pivotal issue is whether the law requires that the bill of
The trial court declared that the liability of Ambiente is "very clear." As the buyer, it has an lading be surrendered by the buyer/consignee before the carrier can release the goods to the
obligation to pay for the value of the shipment. The trial court noted that "[the case] is a simple former. It then answered the question in the negative, thus:
sale transaction which had been perfected especially since delivery had already been effected and chanRoblesvirtualLawlibrary
with only the payment for the shipment remaining left to be done."36 There is nothing in the applicable laws that require the surrender of bills of lading before
the goods may be released to the buyer/consignee. In fact, Article 353 of the Code of
With respect to ASTI, the trial court held that as a common carrier, ASTI is bound to observe Commerce suggests a contrary conclusion, viz —
extraordinary diligence in the vigilance over the goods. However, ASTI was remiss in its duty when "Art. 353. After the contract has been complied with, the bill of lading which the carrier has issued
it allowed the unwarranted release of the shipment to Ambiente.37 The trial court found that the shall be returned to him, and by virtue of the exchange of this title with the thing transported, the
damages suffered by DBI was due to ASTI's release of the merchandise despite the non- respective obligations shall be considered canceled xxx In case the consignee, upon receiving the
presentation of the bill of lading. That ASTI entered into an Agreement with Ambiente to release goods, cannot return the bill of lading subscribed by the carrier because of its loss or of any other
the shipment without the surrender of the bill of lading is of no moment. 38 The Agreement cannot cause, he must give the latter a receipt for the goods delivered, this receipt producing the same
save ASTI from liability because in entering into such, it violated the law, the terms of the bill of effects as the return of the bill of lading."
lading and the right of DBI over the goods.39 The clear import of the above article is that the surrender of the bill of lading is not an absolute and
mandatory requirement for the release of the goods to the consignee. The fact that the carrier is
The trial court also added that the Agreement only involved Ambiente and ASTI. Since DBI is not given the alternative option to simply require a receipt for the goods delivered suggests
Transpo Cases 1
that the surrender of the bill of lading may be dispensed with when it cannot be produced
by the consignee for whatever cause.46 (Emphasis supplied.)
The CA stressed that DBI failed to present evidence to prove its assertion that the surrender of the
bill of lading upon delivery of the goods is a common mercantile practice. 47 Further, even
assuming that such practice exists, it cannot prevail over law and jurisprudence.48
the hill of lading.
This case presents an instance where an unpaid seller sues not only the buyer, but the carrier and
the carrier's agent as well, for the payment of the value of the goods sold. The basis for ASTI and
ACCLI's liability, as pleaded by DBI, is the bill of lading covering the shipment.

As for ASTI, the CA explained that its only obligation as a common carrier was to deliver the A bill of lading is defined as "a written acknowledgment of the receipt of goods and an agreement
shipment in good condition. It did not include looking beyond the details of the transaction to transport and to deliver them at a specified place to a person named or on his order."53 It may
between the seller and the consignee, or more particularly, ascertaining the payment of the goods also be defined as an instrument in writing, signed by a carrier or his agent, describing the freight
by the buyer Ambiente.49 so as to identify it, stating the name of the consignor, the terms of the contract of carriage, and
agreeing or directing that the freight be delivered to bearer, to order or to a specified person at a
Since the agency between ASTI and ACCLI was established and not disputed by any of the specified place.54
parties, neither can ACCLI, as a mere agent of ASTI, be held liable. This must be so in the
absence of evidence that the agent exceeded its authority.50 Under Article 350 of the Code of Commerce, "the shipper as well as the carrier of the merchandise
or goods may mutually demand that a bill of lading be made." A bill of lading, when issued by the
The CA, thus, ruled: carrier to the shipper, is the legal evidence of the contract of carriage between the former and the
chanRoblesvirtualLawlibrary latter. It defines the rights and liabilities of the parties in reference to the contract of carriage. The
WHEREFORE, in view of the foregoing, the Decision dated July 25, 2003 of Branch 255 of the stipulations in the bill of lading are valid and binding unless they are contrary to law, morals,
Regional Trial court of Las [Piñas] City in Civil Case No. LP-96-0235 is hereby AFFIRMED with customs, public order or public policy.55
the following MODIFICATIONS:
Here, ACCLI, as agent of ASTI, issued Bill of Lading No. AC/MLLA601317 to DBI. This bill of
1. Defendants-appellants Air Sea Transport, Inc. and Asia Cargo Container Lines, Inc. are lading governs the rights, obligations and liabilities of DBI and ASTI. DBI claims that Bill of Lading
hereby ABSOLVED from all liabilities; No. AC/MLLA601317 contains a provision stating that ASTI and ACCLI are "to release and deliver
the cargo/shipment to the consignee, x x x, only after the original copy or copies of the said Bill of
2. The actual damages to be paid by defendant Ambiente shall be in the amount of Lading is or are surrendered to them; otherwise they become liable to [DBI] for the value of the
US$12,590.87. Defendant Ambiente's liability may be paid in Philippine currency, computed at shipment."56 Quite tellingly, however, DBI does not point or refer to any specific clause or provision
the exchange rate prevailing at the time of payment;51 and on the bill of lading supporting this claim. The language of the bill of lading shows no such
requirement. What the bill of lading provides on its face is:
3. The rate of interest to be imposed on the total amount of US$12,590.87 shall be 6% per chanRoblesvirtualLawlibrary
annum computed from the filing of the complaint on October 7, 1996 until the finality of this Received by the Carrier in apparent good order and condition unless otherwise indicated hereon,
decision. After this decision becomes final and executory, the applicable rate shall be 12% per the Container(s) and/or goods hereinafter mentioned to be transported and/or otherwise forwarded
annum until its full satisfaction. from the Place of Receipt to the intended Place of Delivery upon and [subject] to all the terms and
conditions appearing on the face and back of this Bill of Lading. If required by the Carrier this
SO ORDERED.52ChanRoblesVirtualawlibrary Bill of Lading duly endorsed must be surrendered in exchange for the Goods of delivery
Hence, this petition for review, which raises the sole issue of whether ASTI and ACCLI may be order.57 (Emphasis supplied.)
held solidarily liable to DBI for the value of the shipment. There is no obligation, therefore, on the part of ASTI and ACCLI to release the goods only upon
the surrender of the original bill of lading.
Our Ruling
Further, a carrier is allowed by law to release the goods to the consignee even without the latter's
We deny the petition. surrender of the bill of lading. The third paragraph of Article 353 of the Code of Commerce is
enlightening:
A common carrier may release the goods to the consignee even without the surrender of chanRoblesvirtualLawlibrary
Transpo Cases 1
Article 353. The legal evidence of the contract between the shipper and the carrier shall be the
bills of lading, by the contents of which the disputes which may arise regarding their execution and
performance shall be decided, no exceptions being admissible other than those of falsity and
material error in the drafting.
After the contract has been complied with, the bill of lading which the carrier has issued shall be
returned to him, and by virtue of the exchange of this title with the thing transported, the respective
obligations and actions shall be considered cancelled, unless in the same act the claim which the
parties may wish to reserve be reduced to writing, with the exception of that provided for in Article
366.
In case the consignee, upon receiving the goods, cannot return the bill of lading
subscribed by the carrier, because of its loss or any other cause, he must give the latter a
receipt for the goods delivered, this receipt producing the same effects as the return of the
bill of lading. (Emphasis supplied.)
The general rule is that upon receipt of the goods, the consignee surrenders the bill of lading to
the carrier and their respective obligations are considered canceled. The law, however, provides
two exceptions where the goods may be released without the surrender of the bill of lading
because the consignee can no longer return it. These exceptions are when the bill of lading gets
lost or for other cause. In either case, the consignee must issue a receipt to the carrier upon the
release of the goods. Such receipt shall produce the same effect as the surrender of the bill of
lading.
We have already ruled that the non-surrender of the original bill of lading does not violate the
carrier's duty of extraordinary diligence over the goods.58 In Republic v. Lorenzo Shipping
Corporation,59 we found that the carrier exercised extraordinary diligence when it released the
shipment to the consignee, not upon the surrender of the original bill of lading, but upon signing
the delivery receipts and surrender of the certified true copies of the bills of lading. Thus, we held
that the surrender of the original bill of lading is not a condition precedent for a common carrier to
be discharged of its contractual obligation.
Under special circumstances, we did not even require presentation of any form of receipt by the
consignee, in lieu of the original bill of lading, for the release of the goods. In Macam v. Court of
Appeals,60 we absolved the carrier from liability for releasing the goods to the consignee without
the bills of lading despite this provision on the bills of lading:
chanRoblesvirtualLawlibrary
"One of the Bills of Lading must be surrendered duly endorsed in exchange for the goods or
delivery order."61 (Citations omitted.)
In clearing the carrier from liability, we took into consideration that the shipper sent a telex to the
carrier after the goods were shipped. The telex instructed the carrier to deliver the goods without
need of presenting the bill of lading and bank guarantee per the shipper's request since "for
prepaid shipt ofrt charges already fully paid our end x x x." 62 We also noted the usual practice of
the shipper to request the shipping lines to immediately release perishable cargoes through
telephone calls.
Also, in Eastern Shipping Lines v. Court of Appeals,63 we absolved the carrier from liability for
releasing the goods to the supposed consignee, Consolidated Mines, Inc. (CMI), on the basis of
an Undertaking for Delivery of Cargo but without the surrender of the original bill of lading
presented by CMI. Similar to the factual circumstance in this case, the Undertaking in Eastern
Shipping Lines guaranteed to hold the carrier "harmless from all demands, claiming liabilities,
actions and expenses."64 Though the central issue in that case was who the consignee was in the
bill of lading, it is noteworthy how we gave weight to the Undertaking in ruling in favor of the
carrier:
chanRoblesvirtualLawlibrary
But assuming that CMI may not be considered consignee, the petitioner cannot be faulted for
releasing the goods to CMI under the circumstances, due to its lack of knowledge as to who was
the real consignee in view of CMI's strong representations and letter of undertaking wherein it
stated that the bill of lading would be presented later. This is precisely the situation covered by the
last paragraph of Art. 353 of the [Code of Commerce] to wit:
chanRoblesvirtualLawlibrary
"If in case of loss or for any other reason whatsoever, the consignee cannot return upon receiving
the merchandise the bill of lading subscribed by the carrier, he shall give said carrier a receipt of
the goods delivered this receipt producing the same effects as the return of the bill of
lading."65ChanRoblesVirtualawlibrary
Clearly, law and jurisprudence is settled that the surrender of the original bill of lading is not
absolute; that in case of loss or any other cause, a common carrier may release the goods to the
consignee even without it.
Here, Ambiente could not produce the bill of lading covering the shipment not because it was lost,
but for another cause: the bill of lading was retained by DBI pending Ambiente's full payment of
the shipment. Ambiente and ASTI then entered into an Indemnity Agreement, wherein the former
asked the latter to release the shipment even without the surrender of the bill of lading. The
execution of this Agreement, and the undisputed fact that the shipment was released to Ambiente
pursuant to it, to our mind, operates as a receipt in substantial compliance with the last paragraph
of Article 353 of the Code of Commerce.
Articles 1733, 1734, and 1735 of the Civil Code are not applicable.
DBI, however, challenges the Agreement, arguing that the carrier released the goods pursuant to
it, notwithstanding the carrier's knowledge that the bill of lading should first be surrendered. As
such, DBI claims that ASTI and ACCLI are liable for damages because they failed to exercise
extraordinary diligence in the vigilance over the goods pursuant to Articles 1733, 1734, and 1735
of the Civil Code.66
Transpo Cases 1
DBI is mistaken.
Articles 1733, 1734, and 1735 of the Civil Code are not applicable in this case. The Articles state:
chanRoblesvirtualLawlibrary
Article 1733. Common carriers, from the nature of their business and for reasons of public policy,
are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of
the passengers transported by them, according to all the circumstances of each case.
Such extraordinary diligence in vigilance over the goods is further expressed in Articles 1734,
1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the
passengers is further set forth in Articles 1755 and 1756.
Article 1734. Common carriers are responsible for the loss, destruction, or deterioration of the
goods, unless the same is due to any of the following causes only:
chanRoblesvirtualLawlibrary
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
The applicable provision instead is Article 353 of the Code of Commerce, which we have
previously discussed. To reiterate, the Article allows the release of the goods to the consignee
even without his surrender of the original bill of lading. In such case, the duty of the carrier to
exercise extraordinary diligence is not violated. Nothing, therefore, prevented the consignee and
the carrier to enter into an indemnity agreement of the same nature as the one they entered here.
No law or public policy is contravened upon its execution.
Article 1503 of the Civil Code does not apply to contracts for carriage of goods.
In its petition, DBI continues to assert the wrong application of Article 353 of the Code of
Commerce to its Amended Complaint. It alleges that the third paragraph of Article 1503 of the Civil
Code is the applicable provision because: (a) Article 1503 is a special provision that deals
particularly with the situation of the seller retaining the bill of lading; and (b) Article 1503 is a law
which is later in point of time to Article 353 of the Code of Commerce.68 DBI posits that being a
special provision, Article 1503 of the Civil Code should prevail over Article 353 of the Code of
Commerce, a general provision that makes no reference to the seller retaining the bill of lading.69

(2) Act of the public enemy in war, whether international or civil; DBFs assertion is untenable. Article 1503 is an exception to the general presumption provided in
the first paragraph of Article 1523, which reads:
(3) Act or omission of the shipper or owner of the goods; chanRoblesvirtualLawlibrary
Article 1523. Where, in pursuance of a contract of sale, the seller is authorized or required to
(4) The character of the goods or defects in the packing or in the containers; 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
(5) Order or act of competent public authority. to the buyer, except in the cases provided for in Articles 1503, first, second and third
Article 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the preceding paragraphs, or unless a contrary intent appears.
article, if the goods are lost, destroyed or deteriorated, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they observed extraordinary Unless otherwise authorized by the buyer, the seller must make such contract with the carrier on
diligence as required in Article 1733. behalf of the buyer as may be reasonable, having regard to the nature of the goods and the other
Articles 1733, 1734, and 1735 speak of the common carrier's responsibility over the goods. They circumstances of the case. If the seller omit so to do, and the goods are lost or damaged in the
refer to the general liability of common carriers in case of loss, destruction or deterioration of course of transit, the buyer may decline to treat the delivery to the carrier as a delivery to himself,
goods and the presumption of negligence against them. This responsibility or duty of the common or may hold the seller responsible in damages.
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 Unless otherwise agreed, where goods are sent by the seller to the buyer under circumstances in
carrier to the consignee, or to the person who has a right to receive them.67 It is, in fact, which the seller knows or ought to know that it is usual to insure, the seller must give such notice
undisputed that the goods were timely delivered to the proper consignee or to the one who was to the buyer as may enable him to insure them during their transit, and, if the seller fails to do so,
authorized to receive them. DBFs only cause of action against ASTI and ACCLI is the release of the goods shall be deemed to be at his risk during such transit. (Emphasis supplied.)
the goods to Ambiente without the surrender of the bill of lading, purportedly in violation of the Article 1503, on the other hand, provides:
terms of the bill of lading. We have already found that Bill of Lading No. AC/MLLA601317 does not chanRoblesvirtualLawlibrary
contain such express prohibition. Without any prohibition, therefore, the carrier had no obligation Article 1503. When there is a contract of sale of specific goods, the seller may, by the terms
to withhold release of the goods. Articles 1733, 1734, and 1735 do not give ASTI any such of the contract, reserve the right of possession or ownership in the goods until certain conditions
obligation. have been fulfilled. The right of possession or ownership may be thus reserved notwithstanding
the delivery of the goods to the buyer or to a carrier or other bailee for the purpose of transmission
Transpo Cases 1
to the buyer.
Where goods are shipped, and by the bill of lading the goods are deliverable to the seller or his
agent, or to the order of the seller or of his agent, the seller thereby reserves the ownership in the
goods. But, if except for the form of the bill of lading, the ownership would have passed to the
buyer on shipment of the goods, the seller's property in the goods shall be deemed to be only for
the purpose of securing performance by the buyer of his obligations under the contract.
Where goods are shipped, and by the bill of lading the goods are deliverable to order of the
buyer or of his agent, but possession of the bill of lading is retained by the seller or his
agent, the seller thereby reserves a right to the possession of the goods as against the
buyer.
Where the seller of goods draws on the buyer for the price and transmits the bill of exchange and
bill of lading together to the buyer to secure acceptance or payment of the bill of exchange, the
buyer is bound to return the bill of lading if he does not honor the bill of exchange, and if he
wrongfully retains the bill of lading he acquires no added right thereby. If, however, the bill of
lading provides that the goods are deliverable to the buyer or to the order of the buyer, or is
indorsed in blank, or to the buyer by the consignee named therein, one who purchases in good
faith, for value, the bill of lading, or goods from the buyer will obtain the ownership in the goods,
although the bill of exchange has not been honored, provided that such purchaser has received
delivery of the bill of lading indorsed by the consignee named therein, or of the goods, without
notice of the facts making the transfer wrongful. (Emphasis supplied.)
Articles 1523 and 1503, therefore, refer to a contract of sale between a seller and a buyer. In
particular, they refer to who between the seller and the buyer has the right of possession or
ownership over the goods subject of the sale. Articles 1523 and 1503 do not apply to a contract of
carriage between the shipper and the common carrier. The third paragraph of Article 1503, upon
which DBI relies, does not oblige the common carrier to withhold delivery of the goods in the event
that the bill of lading is retained by the seller. Rather, it only gives the seller a better right to the
possession of the goods as against the mere inchoate right of the buyer. Thus, Articles 1523 and
1503 find no application here. The case before us does not involve an action where the seller
asserts ownership over the goods as against the buyer. Instead, we are confronted with a
complaint for sum of money and damages filed by the seller against the buyer and the common
carrier due to the non-payment of the goods by the buyer, and the release of the goods by the
carrier despite non-surrender of the bill of lading. A contract of sale is separate and distinct from a
contract of carriage. They involve different parties, different rights, different obligations and
liabilities. Thus, we quote with approval the ruling of the CA, to wit:
chanRoblesvirtualLawlibrary
On the third assigned error, [w]e rule for the defendants-appellants [ASTI and ACCLI]. They are
correct in arguing that the nature of their obligation with plaintiff [DBI] is separate and
distinct from the transaction of the latter with defendant Ambiente. As carrier of the goods
transported by plaintiff, its obligation is simply to ensure that such goods are delivered on
time and in good condition. In the case [Macam v. Court of Appeals], the Supreme Court
emphasized that "the extraordinary responsibility of the common carriers lasts until actual or
constructive delivery of the cargoes to the consignee or to the person who has the right to receive
them." x x x
It is therefore clear that the moment the carrier has delivered the subject goods, its
responsibility ceases to exist and it is thereby freed from all the liabilities arising from the
transaction. Any question regarding the payment of the buyer to the seller is no longer the
concern of the carrier. This easily debunks plaintiffs theory of joint liability.70 x x x (Emphasis
supplied; citations omitted.)
The contract between DBI and ASTI is a contract of carriage of goods; hence, ASTI's liability
should be pursuant to that contract and the law on transportation of goods. Not being a party to
the contract of sale between DBI and Ambiente, ASTI cannot be held liable for the payment of the
value of the goods sold. In this regard, we cite Loadstar Shipping Company, Incorporated v.
Malayan Insurance Company, Incorporated,71 thus:
chanRoblesvirtualLawlibrary
Malayan opposed the petitioners' invocation of the Philex-PASAR purchase agreement, stating
that the contract involved in this case is a contract of affreightment between the petitioners and
PASAR, not the agreement between Philex and PASAR, which was a contract for the sale of
copper concentrates.
On this score, the Court agrees with Malayan that contrary to the trial court's disquisition, the
petitioners cannot validly invoke the penalty clause under the Philex-PASAR purchase agreement,
where penalties are to be imposed by the buyer PASAR against the seller Philex if some elements
exceeding the agreed limitations are found on the copper concentrates upon delivery. The
petitioners are not privy to the contract of sale of the copper concentrates. The contract
between PASAR and the petitioners is a contract of carriage of goods and not a contract of
sale. Therefore, the petitioners and PASAR are bound by the laws on transportation of
goods and their contract of affreightment. Since the Contract of Affreightment between the
petitioners and PASAR is silent as regards the computation of damages, whereas the bill of lading
presented before the trial court is undecipherable, the New Civil Code and the Code of Commerce
shall govern the contract between the parties.72 (Emphasis supplied; citations omitted.)
In view of the foregoing, we hold that under Bill of Lading No. AC/MLLA601317 and the pertinent
law and jurisprudence, ASTI and ACCLI are not liable to DBI. We sustain the finding of the CA that
only Ambiente, as the buyer of the goods, has the obligation to pay for the value of the shipment.
However, in view of our ruling in Nacar v. Gallery Frames,73 we modify the legal rate of interest
imposed by the CA. Instead of 12% per annum from the finality of this judgment until its full
satisfaction, the rate of interest shall only be 6% per annum.chanrobleslaw
WHEREFORE, the petition is DENIED for lack of merit. The August 16, 2007 Decision and the
September 2, 2008 Resolution of the Court of Appeals in CA-G.R. CV No. 79790 are
hereby AFFIRMED with the MODIFICATION that from the finality of this decision until its full
Transpo Cases 1
satisfaction, the applicable rate of interest shall be 6% per annum.

SO ORDERED.cralawlawlibrary