G.R. No.
101503 September 15, 1993 Each time a dump truck was filled up, its load of Urea was covered with tarpaulin before it
PLANTERS PRODUCTS, INC., petitioner,
vs.
COURT OF APPEALS, SORIAMONT STEAMSHIP AGENCIES AND KYOSEI
KISEN KABUSHIKI KAISHA, 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 Charter 2 was entered into between Mitsubishi as
shipper/charterer and KKKK as shipowner, in Tokyo, Japan. 3 Riders to the aforesaid charter-
party starting from par. 16 to 40 were attached to the pre-printed agreement. Addenda Nos. 1,
2, 3 and 4 to the charter-party were also subsequently entered into on the 18th, 20th, 21st and
27th of May 1974, respectively.
Before loading the fertilizer aboard the vessel, four (4) of her holds 4 were all presumably
inspected by the charterer's representative and found fit to take a load of urea in bulk pursuant
to par. 16 of the charter-party which reads:
16. . . . At loading port, notice of readiness to be accomplished by certificate from
National Cargo Bureau inspector or substitute appointed by charterers for his account
certifying the vessel's readiness to receive cargo spaces. The vessel's hold to be properly
swept, cleaned and dried at the vessel's expense and the vessel to be presented clean for use
in bulk to the satisfaction of the inspector before daytime commences. (emphasis supplied)
After the Urea fertilizer was loaded in bulk by stevedores hired by and under the supervision
of the shipper, the steel hatches were closed with heavy iron lids, covered with three (3) layers
of tarpaulin, then tied with steel bonds. The hatches remained closed and tightly sealed
throughout the entire voyage.5
Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches were
opened with the use of the vessel's boom. Petitioner unloaded the cargo from the holds into its
steelbodied dump trucks which were parked alongside the berth, using metal scoops attached
to the ship, pursuant to the terms and conditions of the charter-partly (which provided for an
F.I.O.S. clause).6 The hatches remained open throughout the duration of the discharge. 7
was transported to the consignee's warehouse located some fifty (50) meters from the wharf.
Midway to the warehouse, the trucks were made to pass through a weighing scale where they
were individually weighed for the purpose of ascertaining the net weight of the cargo. The
port area was windy, certain portions of the route to the warehouse were sandy and the
weather was variable, raining occasionally while the discharge was in progress. 8 The
petitioner's warehouse was made of corrugated galvanized iron (GI) sheets, with an opening at
the front where the dump trucks entered and unloaded the fertilizer on the warehouse floor.
Tarpaulins and GI sheets were placed in-between and alongside the trucks to contain spillages
of the ferilizer.9
It took eleven (11) days for PPI to unload the cargo, from 5 July to 18 July 1974 (except July
12th, 14th and 18th).10 A private marine and cargo surveyor, Cargo Superintendents Company
Inc. (CSCI), was hired by PPI to determine the "outturn" of the cargo shipped, by taking draft
readings of the vessel prior to and after discharge. 11 The survey report submitted by CSCI to
the consignee (PPI) dated 19 July 1974 revealed a shortage in the cargo of 106.726 M/T and
that a portion of the Urea fertilizer approximating 18 M/T was contaminated with dirt. The
same results were contained in a Certificate of Shortage/Damaged Cargo dated 18 July 1974
prepared by PPI which showed that the cargo delivered was indeed short of 94.839 M/T and
about 23 M/T were rendered unfit for commerce, having been polluted with sand, rust and
dirt. 12
Consequently, PPI sent a claim letter dated 18 December 1974 to Soriamont Steamship
Agencies (SSA), the resident agent of the carrier, KKKK, for P245,969.31 representing the
cost of the alleged shortage in the goods shipped and the diminution in value of that portion
said to have been contaminated with dirt. 13
Respondent SSA explained that they were not able to respond to the consignee's claim for
payment because, according to them, what they received was just a request for shortlanded
certificate and not a formal claim, and that this "request" was denied by them because they
"had nothing to do with the discharge of the shipment." 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; 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 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 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.
G.R. No. 112287 December 12, 1997
NATIONAL STEEL CORPORATION, Petitioner, v. COURT OF APPEALS AND
VLASONS SHIPPING, INC., Respondents.
G.R. No. 112350 December 12, 1997
VLASONS SHIPPING, INC., Petitioner, v. COURT OF APPEALS AND NATIONAL
STEEL CORPORATION, Respondents.
PANGANIBAN, J.:
The Court finds occasion to apply the rules on the seaworthiness of private carrier, its owner's
responsibility for damage to the cargo and its liability for demurrage and attorney's fees. The
Court also reiterates the well-known rule that findings of facts of trial courts, when affirmed
by the Court of Appeals, are binding on this Court.
The Case
Before us are two separate petitions for review filed by National Steel Corporation (NSC) and
Vlasons Shipping, Inc. (VSI), both of which assail the August 12, 1993 Decision of the Court
of Appeals. 1 The Court of Appeals modified the decision of the Regional Trial Court of Pasig,
Metro Manila, Branch 163 in Civil Case No. 23317. The RTC disposed as follows:
WHEREFORE, judgment is hereby rendered in favor of defendant and against the plaintiff dismissing the
complaint with cost against plaintiff, and ordering plaintiff to pay the defendant on the counterclaim as
follows:
1. The sum of P75,000.00 as unpaid freight and P88,000.00 as demurrage with interest at the legal rate on
both amounts from April 7, 1976 until the same shall have been fully paid;
2. Attorney's fees and expenses of litigation in the sum of P100,000.00; and
3. Costs of suit.
SO ORDERED. 2
On the other hand, the Court of Appeals ruled:
WHEREFORE, premises considered, the decision appealed from is modified by reducing the
award for demurrage to P44,000.00 and deleting the award for attorney's fees and expenses of
litigation. Except as thus modified, the decision is AFFIRMED. There is no pronouncement as
to costs.
SO ORDERED. 3
The Facts
The MV Vlasons I is a vessel which renders tramping service and, as such, does not transport
cargo or shipment for the general public. Its services are available only to specific persons
who enter into a special contract of charter party with its owner. It is undisputed that the ship
is a private carrier. And it is in the capacity that its owner, Vlasons Shipping, Inc., entered into
a contract of affreightment or contract of voyage charter hire with National Steel Corporation.
The facts as found by Respondent Court of Appeals are as follows:
(1) On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and defendant
Vlasons Shipping, Inc. (VSI) as Owner, entered into a Contract of Voyage Charter Hire
(Exhibit "B"; also Exhibit "1") whereby NSC hired VSI's vessel, the MV "VLASONS I" to
make one (1) voyage to load steel products at Iligan City and discharge them at North Harbor,
Manila, under the following terms and conditions, viz:
1. . . .
2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Master's option.
3. . . .
4. Freight/Payment: P30.00/metric ton, FIOST basis. Payment upon presentation of Bill of Lading within
fifteen (15) days.
5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974.
6. Loading/Discharging Rate: 750 tons per WWDSHINC. (Weather Working Day of 24 consecutive
hours, Sundays and Holidays Included).
7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.
8. . . .
9. Cargo Insurance: Charterer's and/or Shipper's must insure the cargoes. Shipowners not responsible for
losses/damages except on proven willful negligence of the officers of the vessel.
10. Other terms: (a) All terms/conditions of NONYAZAI C/P [sic] or other internationally recognized
Charter Party Agreement shall form part of this Contract.
xxx xxx xxx
The terms "F.I.O.S.T." which is used in the shipping business is a standard provision in the
NANYOZAI Charter Party which stands for "Freight In and Out including Stevedoring and
Trading", which means that the handling, loading and unloading of the cargoes are the
responsibility of the Charterer. Under Paragraph 5 of the NANYOZAI Charter Party, it states,
"Charterers to load, stow and discharge the cargo free of risk and expenses to owners. . . .
(Emphasis supplied).
Under paragraph 10 thereof, it is provided that "(o)wners shall, before and at the beginning of
the voyage, exercise due diligence to make the vessel seaworthy and properly manned,
equipped and supplied and to make the holds and all other parts of the vessel in which cargo is
carried, fit and safe for its reception, carriage and preservation. Owners shall not be liable for
loss of or damage of the cargo arising or resulting from: unseaworthiness unless caused by
want of due diligence on the part of the owners to make the vessel seaworthy, and to secure
that the vessel is properly manned, equipped and supplied and to make the holds and all other
parts of the vessel in which cargo is carried, fit and safe for its reception, carriage and
preservation; . . . ; perils, dangers and accidents of the sea or other navigable waters; . . . ;
wastage in bulk or weight or any other loss or damage arising from inherent defect, quality or
vice of the cargo; insufficiency of packing; . . . ; latent defects not discoverable by due
diligence; any other cause arising without the actual fault or privity of Owners or without the
fault of the agents or servants of owners."
Paragraph 12 of said NANYOZAI Charter Party also provides that "(o)wners shall not be
responsible for split, chafing and/or any damage unless caused by the negligence or default of
the master and crew."
(2) On August 6, 7 and 8, 1974, in accordance with the Contract of Voyage Charter Hire, the
MV "VLASONS I" loaded at plaintiffs pier at Iligan City, the NSC's shipment of 1,677 skids
of tinplates and 92 packages of hot rolled sheets or a total of 1,769 packages with a total
weight of about 2,481.19 metric tons for carriage to Manila. The shipment was placed in the
three (3) hatches of the ship. Chief Mate Gonzalo Sabando, acting as agent of the vessel[,]
acknowledged receipt of the cargo on board and signed the corresponding bill of lading,
B.L.P.P. No. 0233 (Exhibit "D") on August 8, 1974.
(3) The vessel arrived with the cargo at Pier 12, North Harbor, Manila, on August 12, 1974.
The following day, August 13, 1974, when the vessel's three (3) hatches containing the
shipment were opened by plaintiff's agents, nearly all the skids of tinplates and hot rolled
sheets were allegedly found to be wet and rusty. The cargo was discharged and unloaded by
stevedores hired by the Charterer. Unloading was completed only on August 24, 1974 after
incurring a delay of eleven (11) days due to the heavy rain which interrupted the unloading
operations. (Exhibit "E")
(4) To determine the nature and extent of the wetting and rusting, NSC called for a survey of
the shipment by the Manila Adjusters and Surveyors Company (MASCO). In a letter to the
NSC dated March 17, 1975 (Exhibit "G"), MASCO made a report of its ocular inspection
conducted on the cargo, both while it was still on board the vessel and later at the NDC
warehouse in Pureza St., Sta. Mesa, Manila where the cargo was taken and stored. MASCO
reported that it found wetting and rusting of the packages of hot rolled sheets and metal covers
of the tinplates; that tarpaulin hatch covers were noted torn at various extents; that
container/metal casings of the skids were rusting all over. MASCO ventured the opinion that
"rusting of the tinplates was caused by contact with SEA WATER sustained while still on
board the vessel as a consequence of the heavy weather and rough seas encountered while en
route to destination (Exhibit "F"). It was also reported that MASCO's surveyors drew at
random samples of bad order packing materials of the tinplates and delivered the same to the
M.I.T. Testing Laboratories for analysis. On August 31, 1974, the M.I.T. Testing Laboratories
issued Report No. 1770 (Exhibit "I") which in part, states, "The analysis of bad order samples
of packing materials . . . shows that wetting was caused by contact with SEA WATER".
(5) On September 6, 1974, on the basis of the aforesaid Report No. 1770, plaintiff filed with
the defendant its claim for damages suffered due to the downgrading of the damaged tinplates
in the amount of P941,145.18. Then on October 3, 1974, plaintiff formally demanded
payment of said claim but defendant VSI refused and failed to pay. Plaintiff filed its
complaint against defendant on April 21, 1976 which was docketed as Civil Case No. 23317,
CFI, Rizal.
(6) In its complaint, plaintiff claimed that it sustained losses in the aforesaid amount of
P941,145.18 as a result of the act, neglect and default of the master and crew in the
management of the vessel as well as the want of due diligence on the part of the defendant to
make the vessel seaworthy and to make the holds and all other parts of the vessel in which the
cargo was carried, fit and safe for its reception, carriage and preservation - all in violation of
defendant's undertaking under their Contract of Voyage Charter Hire.
(7) In its answer, defendant denied liability for the alleged damage claiming that the MV
"VLASONS I" was seaworthy in all respects for the carriage of plaintiff's cargo; that said
vessel was not a "common carrier" inasmuch as she was under voyage charter contract with
the plaintiff as charterer under the charter party; that in the course of the voyage from Iligan
City to Manila, the MV "VLASONS I" encountered very rough seas, strong winds and
adverse weather condition, causing strong winds and big waves to continuously pound against
the vessel and seawater to overflow on its deck and hatch covers, that under the Contract of
Voyage Charter Hire, defendant shall not be responsible for losses/damages except on proven
willful negligence of the officers of the vessel, that the officers of said MV "VLASONS I"
exercised due diligence and proper seamanship and were not willfully negligent; that
furthermore the Voyage Charter Party provides that loading and discharging of the cargo was
on FIOST terms which means that the vessel was free of risk and expense in connection with
the loading and discharging of the cargo; that the damage, if any, was due to the inherent
defect, quality or vice of the cargo or to the insufficient packing thereof or to latent defect of
the cargo not discoverable by due diligence or to any other cause arising without the actual
fault or privity of defendant and without the fault of the agents or servants of defendant;
consequently, defendant is not liable; that the stevedores of plaintiff who discharged the cargo
in Manila were negligent and did not exercise due care in the discharge of the cargo; land that
the cargo was exposed to rain and seawater spray while on the pier or in transit from the pier
to plaintiff's warehouse after discharge from the vessel; and that plaintiff's claim was highly
speculative and grossly exaggerated and that the small stain marks or sweat marks on the
edges of the tinplates were magnified and considered total loss of the cargo. Finally,
defendant claimed that it had complied with all its duties and obligations under the Voyage
Charter Hire Contract and had no responsibility whatsoever to plaintiff. In turn, it alleged the
following counterclaim:
(a) That despite the full and proper performance by defendant of its obligations under the
Voyage Charter Hire Contract, plaintiff failed and refused to pay the agreed charter hire of
P75,000.00 despite demands made by defendant;
(b) That under their Voyage Charter Hire Contract, plaintiff had agreed to pay defendant the
sum of P8,000.00 per day for demurrage. The vessel was on demurrage for eleven (11) days
in Manila waiting for plaintiff to discharge its cargo from the vessel. Thus, plaintiff was liable
to pay defendant demurrage in the total amount of P88,000.00.
(c) For filing a clearly unfounded civil action against defendant, plaintiff should be ordered to
pay defendant attorney's fees and all expenses of litigation in the amount of not less than
P100,000.00.
(8) From the evidence presented by both parties, the trial court came out with the following
findings which were set forth in its decision:
(a) The MV "VLASONS I" is a vessel of Philippine registry engaged in the tramping service
and is available for hire only under special contracts of charter party as in this particular case.
(b) That for purposes of the voyage covered by the Contract of Voyage Charter Hire (Exh.
"1"), the MV VLASONS I" was covered by the required seaworthiness certificates including
the Certification of Classification issued by an international classification society, the
NIPPON KAIJI KYOKAI (Exh. "4"); Coastwise License from the Board of Transportation
(Exh. "5"); International Loadline Certificate from the Philippine Coast Guard (Exh. "6");
Cargo Ship Safety Equipment Certificate also from the Philippine Coast Guard (Exh. "7");
Ship Radio Station License (Exh. "8"); Certificate of Inspection by the Philippine Coast
Guard (Exh. "12"); and Certificate of Approval for Conversion issued by the Bureau of
Customs (Exh. "9"). That being a vessel engaged in both overseas and coastwise trade, the
MV "VLASONS I" has a higher degree of seaworthiness and safety.
(c) Before it proceeded to Iligan City to perform the voyage called for by the Contract of
Voyage Charter Hire, the MV "VLASONS I" underwent drydocking in Cebu and was
thoroughly inspected by the Philippine Coast Guard. In fact, subject voyage was the vessel's
first voyage after the drydocking. The evidence shows that the MV "VLASONS I" was
seaworthy and properly manned, equipped and supplied when it undertook the voyage. It has
all the required certificates of seaworthiness.
(d) The cargo/shipment was securely stowed in three (3) hatches of the ship. The hatch
openings were covered by hatchboards which were in turn covered by two or double
tarpaulins. The hatch covers were water tight. Furthermore, under the hatchboards were steel
beams to give support.
(e) The claim of the plaintiff that defendant violated the contract of carriage is not supported
by evidence. The provisions of the Civil Code on common carriers pursuant to which there
exists a presumption of negligence in case of loss or damage to the cargo are not applicable.
As to the damage to the tinplates which was allegedly due to the wetting and rusting thereof,
there is unrebutted testimony of witness Vicente Angliongto that tinplates "sweat" by
themselves when packed even without being in contract (sic) with water from outside
especially when the weather is bad or raining. The trust caused by sweat or moisture on the
tinplates may be considered as a loss or damage but then, defendant cannot be held liable for
it pursuant to Article 1734 of the Civil Case which exempts the carrier from responsibility for
loss or damage arising from the "character of the goods . . ." All the 1,769 skids of the
tinplates could not have been damaged by water as claimed by plaintiff. It was shown as
claimed by plaintiff that the tinplates themselves were wrapped in kraft paper lining and
corrugated cardboards could not be affected by water from outside.
(f) The stevedores hired by the plaintiff to discharge the cargo of tinplates were negligent in
not closing the hatch openings of the MV "VLASONS I" when rains occurred during the
discharging of the cargo thus allowing rainwater to enter the hatches. It was proven that the
stevedores merely set up temporary tents to cover the hatch openings in case of rain so that it
would be easy for them to resume work when the rains stopped by just removing the tent or
canvas. Because of this improper covering of the hatches by the stevedores during the
discharging and unloading operations which were interrupted by rains, rainwater drifted into
the cargo through the hatch openings. Pursuant to paragraph 5 of the NANYOSAI [ sic]
Charter Party which was expressly made part of the Contract of Voyage Charter Hire, the
loading, stowing and discharging of the cargo is the sole responsibility of the plaintiff
charterer and defendant carrier has no liability for whatever damage may occur or maybe [sic]
caused to the cargo in the process.
(g) It was also established that the vessel encountered rough seas and bad weather while en
route from Iligan City to Manila causing sea water to splash on the ship's deck on account of
which the master of the vessel (Mr. Antonio C. Dumlao) filed a "Marine Protest" on August
13, 1974 (Exh. "15"); which can be invoked by defendant as a force majeure that would
exempt the defendant from liability.
(h) Plaintiff did not comply with the requirement prescribed in paragraph 9 of the Voyage
Charter Hire contract that it was to insure the cargo because it did not. Had plaintiff complied
with the requirement, then it could have recovered its loss or damage from the insurer.
Plaintiff also violated the charter party contract when it loaded not only "steel products", i.e.
steel bars, angular bars and the like but also tinplates and hot rolled sheets which are high
grade cargo commanding a higher freight. Thus plaintiff was able to ship grade cargo at a
lower freight rate.
(i) As regards defendant's counterclaim, the contract of voyage charter hire under Paragraph 4
thereof, fixed the freight at P30.00 per metric ton payable to defendant carrier upon
presentation of the bill of lading within fifteen (15) days. Plaintiff has not paid the total freight
due of P75,000.00 despite demands. The evidence also showed that the plaintiff was required
and bound under paragraph 7 of the same Voyage Charter Hire contract to pay demurrage of
P8,000.00 per day of delay in the unloading of the cargoes. The delay amounted to eleven
(11) days thereby making plaintiff liable to pay defendant for demurrage in the amount of
P88,000.00.
Appealing the RTC decision to the Court of Appeals, NSC alleged six errors:
I The trial court erred in finding that the MV "VLASONS I" was seaworthy, properly
manned, equipped and supplied, and that there is no proof of willful negligence of the vessel's
officers.
II The trial court erred in finding that the rusting of NSC's tinplates was due to the inherent
nature or character of the goods and not due to contact with seawater.
III The trial court erred in finding that the stevedores hired by NSC were negligent in the
unloading of NSC's shipment.
IV The trial court erred in exempting VSI from liability on the ground of force majeure.
V The trial court erred in finding that NSC violated the contract of voyage charter hire.
VI The trial court erred in ordering NSC to pay freight, demurrage and attorney's fees, to
VSI. 4
As earlier stated, the Court of Appeals modified the decision of the trial court by reducing the
demurrage from P88,000.00 to P44,000.00 and deleting the award of attorneys fees and
expenses of litigation. NSC and VSI filed separate motions for reconsideration. In a
Resolution 5 dated October 20, 1993, the appellate court denied both motions. Undaunted,
NSC and VSI filed their respective petitions for review before this Court. On motion of VSI,
the Court ordered on February 14, 1994 the consolidation of these petitions.  6
The Issues
In its petition 7 and memorandum, 8 NSC raises the following questions of law and fact:
Questions of Law
1. Whether or not a charterer of a vessel is liable for demurrage due to cargo unloading delays
caused by weather interruption;
2. Whether or not the alleged "seaworthiness certificates" (Exhibits "3", "4", "5", "6", "7", "8",
"9", "11" and "12") were admissible in evidence and constituted evidence of the vessel's
seaworthiness at the beginning of the voyages; and
3. Whether or not a charterer's failure to insure its cargo exempts the shipowner from liability
for cargo damage.
Questions of Fact
1. Whether or not the vessel was seaworthy and cargo-worthy;
2. Whether or not vessel's officers and crew were negligent in handling and caring for NSC's
cargo;
3. Whether or not NSC's cargo of tinplates did sweat during the voyage and, hence, rusted on
their own; and
4. Whether or not NSC's stevedores were negligent and caused the wetting[/]rusting of NSC's
tinplates.
In its separate petition,  9 VSI submits for the consideration of this Court the following alleged
errors of the CA:
A. The respondent Court of Appeals committed an error of law in reducing the award of
demurrage from P88,000.00 to P44,000.00.
B. The respondent Court of Appeals committed an error of law in deleting the award of
P100,000 for attorney's fees and expenses of litigation.
Amplifying the foregoing, VSI raises the following issues in its memorandum:  10
I. Whether or not the provisions of the Civil Code of the Philippines on common carriers
pursuant to which there exist[s] a presumption of negligence against the common carrier in
case of loss or damage to the cargo are applicable to a private carrier.
II. Whether or not the terms and conditions of the Contract of Voyage Charter Hire, including
the Nanyozai Charter, are valid and binding on both contracting parties.
The foregoing issues raised by the parties will be discussed under the following headings:
1. Questions of Fact
2. Effect of NSC's Failure to Insure the Cargo
3. Admissibility of Certificates Proving Seaworthiness
4. Demurrage and Attorney's Fees.
The Court's Ruling
The Court affirms the assailed Decision of the Court of Appeals, except in respect of the
demurrage.
Preliminary Matter: Common Carrier or Private Carrier?
At the outset, it is essential to establish whether VSI contracted with NSC as a common
carrier or as a private carrier. The resolution of this preliminary question determines the law,
standard of diligence and burden of proof applicable to the present case.
Article 1732 of the Civil Code defines a common carrier as "persons, corporations, firms or
associations engaged in the business of carrying or transporting passengers or goods or both,
by land, water, or air, for compensation, offering their services to the public." It has been held
that the true test of a common carrier is the carriage of passengers or goods, provided it has
space, for all who opt to avail themselves of its transportation service for a fee.  11 A carrier
which does not qualify under the above test is deemed a private carrier. "Generally, private
carriage is undertaken by special agreement and the carrier does not hold himself out to carry
goods for the general public. The most typical, although not the only form of private carriage,
is the charter party, a maritime contract by which the charterer, a party other than the
shipowner, obtains the use and service of all or some part of a ship for a period of time or a
voyage or voyages." 12
In the instant case, it is undisputed that VSI did not offer its services to the general public. As
found by the Regional Trial Court, it carried passengers or goods only for those it chose under
a "special contract of charter party." 13 As correctly concluded by the Court of Appeals,
the MV Vlasons I "was not a common but a private carrier."  14 Consequently, the rights and
obligations of VSI and NSC, including their respective liability for damage to the cargo, are
determined primarily by stipulations in their contract of private carriage or charter
party. 15 Recently, in Valenzuela Hardwood and Industrial Supply, Inc., vs. Court of Appeals
and Seven Brothers Shipping Corporation, 16 the Court ruled:
. . . in a contract of private carriage, the parties may freely stipulate their duties and
obligations which perforce would be binding on them. Unlike in a contract involving a
common carrier, private carriage does not involve the general public. Hence, the stringent
provisions of the Civil Code on common carriers protecting the general public cannot
justifiably be applied to a ship transporting commercial goods as a private carrier.
Consequently, the public policy embodied therein is not contravened by stipulations in a
charter party that lessen or remove the protection given by law in contracts involving common
carriers. 17
Extent of VSI's Responsibility and
Liability Over NSC's Cargo
It is clear from the parties' Contract of Voyage Charter Hire, dated July 17, 1974, that VSI
"shall not be responsible for losses except on proven willful negligence of the officers of the
vessel." The NANYOZAI Charter Party, which was incorporated in the parties' contract of
transportation further provided that the shipowner shall not be liable for loss of or a damage to
the cargo arising or resulting from unseaworthiness, unless the same was caused by its lack of
due diligence to make the vessel seaworthy or to ensure that the same was "properly manned,
equipped and supplied," and to "make the holds and all other parts of the vessel in which
cargo [was] carried, fit and safe for its reception, carriage and preservation."  18 The
NANYOZAI Charter Party also provided that "[o]wners shall not be responsible for split,
chafing and/or any damage unless caused by the negligence or default of the master or
crew." 19
Burden of Proof
In view of the aforementioned contractual stipulations, NSC must prove that the damage to its
shipment was caused by VSI's willful negligence or failure to exercise due diligence in
making MV Vlasons I seaworthy and fit for holding, carrying and safekeeping the cargo.
Ineluctably, the burden of proof was placed on NSC by the parties' agreement.
This view finds further support in the Code of Commerce which pertinently provides:
Art. 361. Merchandise shall be transported at the risk and venture of the shipper, if the
contrary has not been expressly stipulated.
Therefore, the damage and impairment suffered by the goods during the transportation, due to
fortuitous event, force majeure, or the nature and inherent defect of the things, shall be for the
account and risk of the shipper.
The burden of proof of these accidents is on the carrier.
Art. 362. The carrier, however, shall be liable for damages arising from the cause mentioned
in the preceding article if proofs against him show that they occurred on account of his
negligence or his omission to take the precautions usually adopted by careful persons, unless
the shipper committed fraud in the bill of lading, making him to believe that the goods were of
a class or quality different from what they really were.
Because the MV Vlasons I was a private carrier, the shipowner's obligations are governed by
the foregoing provisions of the Code of Commerce and not by the Civil Code which, as a
general rule, places the prima facie presumption of negligence on a common carrier. It is a
hornbook doctrine that:
In an action against a private carrier for loss of, or injury to, cargo, the burden is on the
plaintiff to prove that the carrier was negligent or unseaworthy, and the fact that the goods
were lost or damaged while in the carrier's custody does not put the burden of proof on the
carrier.
Since . . . a private carrier is not an insurer but undertakes only to exercise due care in the
protection of the goods committed to its care, the burden of proving negligence or a breach of
that duty rests on plaintiff and proof of loss of, or damage to, cargo while in the carrier's
possession does not cast on it the burden of proving proper care and diligence on its part or
that the loss occurred from an excepted cause in the contract or bill of lading. However, in
discharging the burden of proof, plaintiff is entitled to the benefit of the presumptions and
inferences by which the law aids the bailor in an action against a bailee, and since the carrier
is in a better position to know the cause of the loss and that it was not one involving its
liability, the law requires that it come forward with the information available to it, and its
failure to do so warrants an inference or presumption of its liability. However, such inferences
and presumptions, while they may affect the burden of coming forward with evidence, do not
alter the burden of proof which remains on plaintiff, and, where the carrier comes forward
with evidence explaining the loss or damage, the burden of going forward with the evidence is
again on plaintiff.
Where the action is based on the shipowner's warranty of seaworthiness, the burden of
proving a breach thereof and that such breach was the proximate cause of the damage rests on
plaintiff, and proof that the goods were lost or damaged while in the carrier's possession does
not cast on it the burden of proving seaworthiness. . . . Where the contract of carriage exempts
the carrier from liability for unseaworthiness not discoverable by due diligence, the carrier has
the preliminary burden of proving the exercise of due diligence to make the vessel
seaworthy. 20
In the instant case, the Court of Appeals correctly found the NSC "has not taken the correct
position in relation to the question of who has the burden of proof. Thus, in its brief (pp. 10-
11), after citing Clause 10 and Clause 12 of the NANYOZAI Charter Party (incidentally
plaintiff-appellant's [NSC's] interpretation of Clause 12 is not even correct), it argues that 'a
careful examination of the evidence will show that VSI miserably failed to comply with any
of these obligation's as if defendant-appellee [VSI] had the burden of proof."  21
First Issue: Questions of Fact
Based on the foregoing, the determination of the following factual questions is manifestly
relevant: (1) whether VSI exercised due diligence in making MV Vlasons I seaworthy for the
intended purpose under the charter party; (2) whether the damage to the cargo should be
attributed to the willful negligence of the officers and crew of the vessel or of the stevedores
hired by NSC; and (3) whether the rusting of the tinplates was caused by its own "sweat" or
by contact with seawater.
These questions of fact were threshed out and decided by the trial court, which had the
firsthand opportunity to hear the parties' conflicting claims and to carefully weigh their
respective evidence. The findings of the trial court were subsequently affirmed by the Court
of Appeals. Where the factual findings of both the trial court and the Court of Appeals
coincide, the same are binding on this Court.  22 We stress that, subject to some exceptional
instances, 23 only questions of law - not questions of fact - may be raised before this Court in a
petition for review under Rule 45 of the Rules of Court. After a thorough review of the case at
bar, we find no reason to disturb the lower court's factual findings, as indeed NSC has not
successfully proven the application of any of the aforecited exceptions.
Was MV Vlasons I Seaworthy?
In any event, the records reveal that VSI exercised due diligence to make the ship seaworthy
and fit for the carriage of NSC's cargo of steel and tinplates. This is shown by the fact that it
was drylocked and inspected by the Philippine Coast Guard before it proceeded to Iligan City
for its voyage to Manila under the contract of voyage charter hire.  24 The vessel's voyage from q And will you describe how the canvas cover was secured on the hatch opening?
Iligan to Manila was the vessel's first voyage after drydocking. The Philippine Coast Guard WITNESS
Station in Cebu cleared it as seaworthy, fitted and equipped; it met all requirements for a It was placed flat on top of the hatch cover, with a little canvas flowing over the sides and
trading as cargo vessel. 25 The Court of Appeals itself sustained the conclusion of the trial we place[d] a flat bar over the canvas on the side of the hatches and then we place[d] a
court that MV Vlasons I was seaworthy. We find no reason to modify or reverse this finding of stopper so that the canvas could not be removed.
both the trial and the appellate courts. ATTY DEL ROSARIO
q And will you tell us the size of the hatch opening? The length and the width of the hatch
Who Were Negligent: opening.
Seamen or Stevedores? a Forty-five feet by thirty-five feet, sir.
xxx xxx xxx
q How was the canvas supported in the middle of the hatch opening?
As noted earlier, the NSC had the burden of proving that the damage to the cargo was caused a There is a hatch board.
by the negligence of the officers and the crew of MV Vlasons I in making their vessel ATTY DEL ROSARIO
seaworthy and fit for the carriage of tinplates. NSC failed to discharge this burden. q What is the hatch board made of?
a It is made of wood, with a handle.
Before us, NSC relies heavily on its claim that MV Vlasons I had used an old and torn q And aside from the hatch board, is there any other material there to cover the hatch?
tarpaulin or canvas to cover the hatches through which the cargo was loaded into the cargo a There is a beam supporting the hatch board.
hold of the ship. It faults the Court of Appeals for failing to consider such claim as an q What is this beam made of?
"uncontroverted fact" 26 and denies that MV Vlasons I "was equipped with new canvas covers a It is made of steel, sir.
in tandem with the old ones as indicated in the Marine Protest . . ."  27 We disagree. q Is the beam that was placed in the hatch opening covering the whole hatch opening?
a No, sir.
The records sufficiently support VSI's contention that the ship used the old tarpaulin, only in q How many hatch beams were there placed across the opening?
addition to the new one used primarily to make the ship's hatches watertight. The foregoing a There are five beams in one hatch opening.
are clear from the marine protest of the master of the MV Vlasons I, Antonio C. Dumlao, and ATTY DEL ROSARIO
the deposition of the ship's boatswain, Jose Pascua. The salient portions of said marine protest q And on top of the beams you said there is a hatch board. How many pieces of wood are put
read: on top?
a Plenty, sir, because there are several pieces on top of the hatch beam.
q And is there a space between the hatch boards?
. . . That the M/V "VLASONS I" departed Iligan City or about 0730 hours of August 8, 1974, a There is none, sir.
loaded with approximately 2,487.9 tons of steel plates and tin plates consigned to National q They are tight together?
Steel Corporation; that before departure, the vessel was rigged, fully equipped and cleared by a Yes, sir.
the authorities; that on or about August 9, 1974, while in the vicinity of the western part of q How tight?
Negros and Panay, we encountered very rough seas and strong winds and Manila office was a Very tight, sir.
advised by telegram of the adverse weather conditions encountered; that in the morning of q Now, on top of the hatch boards, according to you, is the canvass cover. How many canvas
August 10, 1974, the weather condition changed to worse and strong winds and big waves covers?
continued pounding the vessel at her port side causing sea water to overflow on deck andhatch
(sic) covers and which caused the first layer of the canvass covering to give way while the
new canvass covering still holding on; a Two, sir. 29

That the weather condition improved when we reached Dumali Point protected by Mindoro;
that we re-secured the canvass covering back to position; that in the afternoon of August 10,
1974, while entering Maricaban Passage, we were again exposed to moderate seas and heavy
rains; that while approaching Fortune Island, we encountered again rough seas, strong winds
and big waves which caused the same canvass to give way and leaving the new canvass
holding on;
xxx xxx xxx 28
That due diligence was exercised by the officers and the crew of the MV Vlasons I was further
demonstrated by the fact that, despite encountering rough weather twice, the new tarpaulin did
not give way and the ship's hatches and cargo holds remained waterproof. As aptly stated by
the Court of Appeals, ". . . we find no reason not to sustain the conclusion of the lower court
based on overwhelming evidence, that the MV 'VLASONS I' was seaworthy when it undertook
the voyage on August 8, 1974 carrying on board thereof plaintiff-appellant's shipment of
1,677 skids of tinplates and 92 packages of hot rolled sheets or a total of 1,769 packages from
NSC's pier in Iligan City arriving safely at North Harbor, Port Area, Manila, on August 12,
1974; . . . 30

And the relevant portions of Jose Pascua's deposition are as follows: Indeed, NSC failed to discharge its burden to show negligence on the part of the officers and
q What is the purpose of the canvas cover? the crew of MV Vlasons I. On the contrary, the records reveal that it was the stevedores of
a So that the cargo would not be soaked with water. NSC who were negligent in unloading the cargo from the ship.
The stevedores employed only a tent-like material to cover the hatches when strong rains
occasioned by a passing typhoon disrupted the unloading of the cargo. This tent-like covering,
however, was clearly inadequate for keeping rain and seawater away from the hatches of the
ship. Vicente Angliongto, an officer of VSI, testified thus:
ATTY ZAMORA:
Q Now, during your testimony on November 5, 1979, you stated on August 14 you went on
board the vessel upon notice from the National Steel Corporation in order to conduct the
inspection of the cargo. During the course of the investigation, did you chance to see the
discharging operation?
WITNESS:
A Yes, sir, upon my arrival at the vessel, I saw some of the tinplates already discharged on the
pier but majority of the tinplates were inside the hall, all the hatches were opened.
Q In connection with these cargoes which were unloaded, where is the place.
A At the Pier.
Q What was used to protect the same from weather?
ATTY LOPEZ:
We object, your Honor, this question was already asked. This particular matter . . . the
transcript of stenographic notes shows the same was covered in the direct examination.
ATTY ZAMORA:
Precisely, your Honor, we would like to go on detail, this is the serious part of the testimony.
COURT:
All right, witness may answer.
ATTY LOPEZ:
Q What was used in order to protect the cargo from the weather?
A A base of canvas was used as cover on top of the tin plates, and tents were built at the
opening of the hatches.
Q You also stated that the hatches were already opened and that there were tents constructed
at the opening of the hatches to protect the cargo from the rain. Now, will you describe [to]
the Court the tents constructed.
A The tents are just a base of canvas which look like a tent of an Indian camp raise[d] high at
the middle with the whole side separated down to the hatch, the size of the hatch and it is
soaks [sic] at the middle because of those weather and this can be used only to temporarily
protect the cargo from getting wet by rains.
Q Now, is this procedure adopted by the stevedores of covering tents proper?
A No, sir, at the time they were discharging the cargo, there was a typhoon passing by and
the hatch tent was not good enough to hold all of it to prevent the water soaking through the
canvass and enter the cargo.
Q In the course of your inspection, Mr. Anglingto [sic], did you see in fact the water enter
and soak into the canvass and tinplates.
A Yes, sir, the second time I went there, I saw it.
Q As owner of the vessel, did you not advise the National Steel Corporation [of] the
procedure adopted by its stevedores in discharging the cargo particularly in this tent covering
of the hatches?
A Yes, sir, I did the first time I saw it, I called the attention of the stevedores but the
stevedores did not mind at all, so, called the attention of the representative of the National
Steel but nothing was done, just the same. Finally, I wrote a letter to them.  31
NSC attempts to discredit the testimony of Angliongto by questioning his failure to complain
immediately about the stevedores' negligence on the first day of unloading, pointing out that
he wrote his letter to petitioner only seven days later.  32 The Court is not persuaded.
Angliongto's candid answer in his aforequoted testimony satisfactorily explained the delay.
Seven days lapsed because he first called the attention of the stevedores, then the NSC's
representative, about the negligent and defective procedure adopted in unloading the cargo.
This series of actions constitutes a reasonable response in accord with common sense and
ordinary human experience. Vicente Angliongto could not be blamed for calling the
stevedores' attention first and then the NSC's representative on location before formally
informing NSC of the negligence he had observed, because he was not responsible for the
stevedores or the unloading operations. In fact, he was merely expressing concern for NSC
which was ultimately responsible for the stevedores it had hired and the performance of their
task to unload the cargo.
We see no reason to reverse the trial and the appellate courts' findings and conclusions on this
point, viz:
In the THIRD assigned error, [NSC] claims that the trial court erred in finding that the
stevedores hired by NSC were negligent in the unloading of NSC's shipment. We do not think
so. Such negligence according to the trial court is evident in the stevedores hired by [NSC],
not closing the hatch of MV 'VLASONS I' when rains occurred during the discharging of the
cargo thus allowing rain water and seawater spray to enter the hatches and to drift to and fall
on the cargo. It was proven that the stevedores merely set up temporary tents or canvas to
cover the hatch openings when it rained during the unloading operations so that it would be
easier for them to resume work after the rains stopped by just removing said tents or canvass.
It has also been shown that on August 20, 1974, VSI President Vicente Angliongto wrote
[NSC] calling attention to the manner the stevedores hired by [NSC] were discharging the
cargo on rainy days and the improper closing of the hatches which allowed continuous heavy
rain water to leak through and drip to the tinplates' covers and [Vicente Angliongto] also
suggesting that due to four (4) days continuos rains with strong winds that the hatches be
totally closed down and covered with canvas and the hatch tents lowered. (Exh. "13"). This
letter was received by [NSC] on 22 August 1974 while discharging operations were still going
on (Exhibit "13-A"). 33
The fact that NSC actually accepted and proceeded to remove the cargo from the ship during
unfavorable weather will not make VSI liable for any damage caused thereby. In passing, it
may be noted that the NSC may seek indemnification, subject to the laws on prescription,
from the stevedoring company at fault in the discharge operations. "A stevedore company
engaged in discharging cargo . . . has the duty to load the cargo . . . in a prudent manner, and it
is liable for injury to, or loss of, cargo caused by its negligence . . . and where the officers and
members and crew of the vessel do nothing and have no responsibility in the discharge of
cargo by stevedores . . . the vessel is not liable for loss of, or damage to, the cargo caused by
the negligence of the stevedores . . ." 34 as in the instant case.
Do Tinplates "Sweat"?
The trial court relied on the testimony of Vicente Angliongto in finding that ". . . tinplates
'sweat' by themselves when packed even without being in contact with water from outside
especially when the weather is bad or raining . . ."  35 The Court of Appeals affirmed the trial
court's finding.
A discussion of this issue appears inconsequential and unnecessary. As previously discussed,
the damage to the tinplates was occasioned not by airborne moisture but by contact with rain
and seawater which the stevedores negligently allowed to seep in during the unloading.
Second Issue: Effect of NSC's Failure to
Insure the Cargo
The obligation of NSC to insure the cargo stipulated in the Contract of Voyage Charter Hire is
totally separate and distinct from the contractual or statutory responsibility that may be
incurred by VSI for damage to the cargo caused by the willful negligence of the officers and
the crew of MV Vlasons I. Clearly, therefore, NSC's failure to insure the cargo will not affect
its right, as owner and real party in interest, to file an action against VSI for damages caused
by the latter's willful negligence. We do not find anything in the charter party that would
make the liability of VSI for damage to the cargo contingent on or affected in any manner by
NSC's obtaining an insurance over the cargo.
Third Issue: Admissibility of Certificates
Proving Seaworthiness
NSC's contention that MV Vlasons I was not seaworthy is anchored on the alleged
inadmissibility of the certificates of seaworthiness offered in evidence by VSI. The said
certificates include the following:
1. Certificate of Inspection of the Philippines Coast Guard at Cebu
2. Certificate of Inspection from the Philippine Coast Guard
3. International Load Line Certificate from the Philippine Coast Guard
4. Coastwise License from the Board of Transportation
5. Certificate of Approval for Conversion issued by the Bureau of Customs  36
NSC argues that the certificates are hearsay for not having been presented in accordance with
the Rules of Court. It points out that Exhibits 3, 4 and 11 allegedly are "not written records or
acts of public officers"; while Exhibits 5, 6, 7, 8, 9, 11 and 12 are not "evidenced by official
publications or certified true copies" as required by Sections 25 and 26, Rule 132, of the Rules
of Court. 37
After a careful examination of these exhibits, the Court rules that Exhibits 3, 4, 5, 6, 7, 8, 9
and 12 are inadmissible, for they have not been properly offered as evidence. Exhibits 3 and 4
are certificates issued by private parties, but they have not been proven by one who saw the
writing executed, or by evidence of the genuineness of the handwriting of the maker, or by a
subscribing witness. Exhibits, 5, 6, 7, 8, 9, and 12 are photocopies, but their admission under
the best evidence rule have not been demonstrated.
We find, however, that Exhibit 11 is admissible under a well-settled exception to the hearsay
rule per Section 44 of Rule 130 of the Rules of Court, which provides that "(e)ntries in official
records made in the performance of a duty by a public officer of the Philippines, or by a
person in the performance of a duty specially enjoined by law, are prima facie evidence of the
facts therein stated."  38 Exhibit 11 is an original certificate of the Philippine Coast Guard in
Cebu issued by Lieutenant Junior Grade Noli C. Flores to the effect that "the vessel
'VLASONS I' was drydocked . . . and PCG Inspectors were sent on board for inspection . . .
After completion of drydocking and duly inspected by PCG Inspectors, the vessel 'VLASONS
I', a cargo vessel, is in seaworthy condition, meets all requirements, fitted and equipped for
trading as a cargo vessel was cleared by the Philippine Coast Guard and sailed for Cebu Port
on July 10, 1974." (sic) NSC's claim, therefore, is obviously misleading and erroneous.
At any rate, it should be stressed that NSC has the burden of proving that MV Vlasons I was
not seaworthy. As observed earlier, the vessel was a private carrier and, as such, it did not
have the obligation of a common carrier to show that it was seaworthy. Indeed, NSC glaringly
failed to discharge its duty of proving the willful negligence of VSI in making the ship
seaworthy resulting in damage to its cargo. Assailing the genuineness of the certificate of
seaworthiness is not sufficient proof that the vessel was not seaworthy.
Fourth Issue: Demurrage and Attorney's Fees
The contract of voyage charter hire provides inter alia:
xxx xxx xxx
2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Master's
option.
xxx xxx xxx
6. Loading/Discharging Rate: 750 tons per WWDSHINC.
7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day. 39
The Court defined demurrage in its strict sense as the compensation provided for in the
contract of affreightment for the detention of the vessel beyond the laytime or that period of
time agreed on for loading and unloading of cargo.  40 It is given to compensate the shipowner
for the nonuse of the vessel. On the other hand, the following is well-settled:
Laytime runs according to the particular clause of the charter party. . . . If laytime is expressed
in "running days," this means days when the ship would be run continuously, and holidays are
not excepted. A qualification of "weather permitting" excepts only those days when bad
weather reasonably prevents the work contemplated.  41
In this case, the contract of voyage charter hire provided for a four-day laytime; it also
qualified laytime as WWDSHINC or weather working days Sundays and holidays
included. 42 The running of laytime was thus made subject to the weather, and would cease to
run in the event unfavorable weather interfered with the unloading of cargo.  43 Consequently,
NSC may not be held liable for demurrage as the four-day laytime allowed it did not lapse,
having been tolled by unfavorable weather condition in view of the WWDSHINC
qualification agreed upon by the parties. Clearly, it was error for the trial court and the Court
of Appeals to have found and affirmed respectively that NSC incurred eleven days of delay in
unloading the cargo. The trial court arrived at this erroneous finding by subtracting from the
twelve days, specifically August 13, 1974 to August 24, 1974, the only day of unloading
unhampered by unfavorable weather or rain, which was August 22, 1974. Based on our
previous discussion, such finding is a reversible error. As mentioned, the respondent appellate
court also erred in ruling that NSC was liable to VSI for demurrage, even if it reduced the
amount by half.

Attorney's Fees

VSI assigns as error of law the Court of Appeals' deletion of the award of attorney's fees. We
disagree. While VSI was compelled to litigate to protect its rights, such fact by itself will not
justify an award of attorney's fees under Article 2208 of the Civil Code when ". . . no
sufficient showing of bad faith would be reflected in a party's persistence in a case other than
an erroneous conviction of the righteousness of his cause . . ."  44 Moreover, attorney's fees may
not be awarded to a party for the reason alone that the judgment rendered was favorable to the
latter, as this is tantamount to imposing a premium on one's right to litigate or seek judicial
redress of legitimate grievances. 45

Epilogue

At bottom, this appeal really hinges on a factual issue: when, how and who caused the damage
to the cargo? Ranged against NSC are two formidable truths. First, both lower courts found
that such damage was brought about during the unloading process when rain and seawater
seeped through the cargo due to the fault or negligence of the stevedores employed by it.
Basic is the rule that factual findings of the trial court, when affirmed by the Court of
Appeals, are binding on the Supreme Court. Although there are settled exceptions, NSC has
not satisfactorily shown that this case is one of them. Second, the agreement between the
parties - the Contract of Voyage Charter Hire - placed the burden of proof for such loss or
damage upon the shipper, not upon the shipowner. Such stipulation, while disadvantageous to
NSC, is valid because the parties entered into a contract of private charter, not one of common
carriage. Basic too is the doctrine that courts cannot relieve a parry from the effects of a
private contract freely entered into, on the ground that it is allegedly one-sided or unfair to the
plaintiff. The charter party is a normal commercial contract and its stipulations are agreed
upon in consideration of many factors, not the least of which is the transport price which is
determined not only by the actual costs but also by the risks and burdens assumed by the
shipper in regard to possible loss or damage to the cargo. In recognition of such factors, the
parties even stipulated that the shipper should insure the cargo to protect itself from the risks it
undertook under the charter party. That NSC failed or neglected to protect itself with such
insurance should not adversely affect VSI, which had nothing to do with such failure or
neglect.

WHEREFORE, premises considered, the instant consolidated petitions are hereby DENIED.
The questioned Decision of the Court of Appeals is AFFIRMED with the MODIFICATION
that the demurrage awarded to VSI is deleted. No pronouncement as to costs.

SO ORDERED.
[ G.R. No. L-5203, April 18, 1956 ]
Defendant  is a  private stevedoring company  engaged in transporting local  products,
including  gasoline in  bulk and has  a fleet of about 140 tugboats and about 90 per cent of its
STANDARD VACUUM OIL COMPANY, PLAINTIFF AND APPELLANT, VS.
business is devoted to transportation.  Though it is engaged in a limited contract of carriage in
LUZON STEVEDORING CO., INC., DEFENDANT AND APPELLEE.
the sense that it chooses its. customers  and  is not opened to the public, nevertheless,  the 
continuity of its operations in this kind of  business have earned  for it the  level  of a public
DECISION
utility The  contract between the  plaintiff  and defendant comes  therefore under the
provisions of the Code of Commerce.  The pertinent law is article 361 which provides:
BAUTISTA ANGELO, J.:

Plaintiff entered  into  a  contract  with defendant  to transport between the ports of Manila "Art.  361. The merchandise shall be  transported at the  risk and venture  of  the shipper, if
and Nin Bay, Sagay, Iloilo, 2,916.44  barrels of bulk gasoline belonging to plaintiff.  The  the contrary was not expressly stipulated.
gasoline was delivered in accordance with the contract  but defendant  failed to transport it  to  Therefore, all damages and impairment  suffered by the goods during the transportation, by
its place of destination and  so plaintiff brought  this  action in the Court of First Instance of reason of accident, force majeure, or by virtue of the nature or defect of the articles, shall be
Manila to recover the sum of P75,578.50 as damages. for the account and  risk of the  shipper.
Defendant, in  its answer,  pleaded that its  failure  to deliver the gasoline was due to "The proof of these accidents is  incumbent on the carrier.''
fortuitous event or caused by  circumstances beyond  its control  and not to its fault or
negligence or that of any of its employees.  The court, after receiving the evidence,  rendered  It therefore  appears  that  whenever  merchandise  is transported on the  sea by virtue  of  a
decision  finding that the disaster that had  befallen the tugboat was the result of an contract entered into between  the shipper and  the carrier, the  merchandies is  deemed
unavoidable accident and the loss of the gasoline was due to a fortuitous even  which was transported at  the risk  and  venture of the  shipper, if the  contrary  is not  stipulated, and all
beyond the control of defendant and,  consequently, dismissed the case with costs against the damages  suffered by  the merchandise during the  transportation by  reason of  accident or
plaintiff. force  majeure shall be for the account and risk of the shipper, but the proof of these accidents
is incumbent on the  carrier.  Implementing this provision, our Supreme Court has  held  that
The facts as found by the trial court are:  "that pursuant to an agreement had  between the all  a shipper has to  prove in  connection  with sea  carriage is delivery of the  merchandise 
parties, defendant's barge No. L-522 was  laden  with gasoline belonging to the  plaintiff to  in  good  condition and  its  non-delivery  at the place  of destination in order that the  burden
be  transported from Manila  to the Port of Iloilo;  that  early in the morning of February 2, of proof  may shift to the carrier to prove any  of  the accidents above  adverted  to.   Thus,  it 
1947, defendant's tugboat "Snapper'  picked up  the barge outside  the breakwater; that the was held that "Shippers who are forced to ship goods  on an ocean liner or any other  ship
barge was placed behind the tugboat, it being connected to the latter by  a tow rope ten inches have some legal  rights,  and when goods are delivered on board a  ship  in  good order and 
in circumference; that behind the barge, three other barges were  likewise placed, one laden  condition, and  the shipowner delivers them  to  the shipper  in  bad  order and condition, it 
with some cargo while the other two containing hardly  any cargo at all; that the weather was then devolves upon the shipowner to both  allege and prove that  the goods were damaged by
good when on that  day the tugboat with its tow started on its voyage; that the weather reason of some fact which legally exempts  him  from liability"  ( Mirasol  vs.  Robert Dollar
remained good  on February 3, 1947,  when it passed Santiago Point  in Batangas; that at Co.,  53 Phil., 129).
about 8:00  o'clock in the morning of February 4,  1947,  the  engine  of the tugboat came to a
dead stop; that the engineer on board the tugboat found out that the trouble was due to a The  issue to be determined is:  Has defendant  proven. that its failure to deliver the gasoline 
broken idler;  that a  message was then sent to the' defendant's radio station  in Manila  to its place of  destination is due to accident or force majeure or to a cause beyond  its
informing its officials .of the engine trouble;  that upon  the receipt of the. message the control?  This  would  require an analysis of the facts and circumstances surrounding the
defendant called up several shipping companies  in Manila to find out if they had any vessels transportation of said gasoline.
in the vicinity where the "Snapper' had stalled but said companies  replied in the negative; 
that thereupon  the defendant radioed  its tugboat Tamban' which  was docked at Batangas, It appears that the  tugboat "Snapper"  was  acquired by  defendant from the Foreign
ordering it to  proceed to the  place where  the 'Snapper'  was; that at about  6:00 o'clock  in Liquidation Commission. It was  a surplus property.  It was a  deep-sea  tugboat that had been
the same morning of  February  4,  1947, the master of the 'Snapper'  attempted to cast anchor in the service of the United  States Armed Forces prior to its  purchase by the  Luzon
but  the water areas around Elefante Island were so deep  that the anchor did not touch Stevedoring Co.  The tugboat was put into operation  without  first submitting it to an
bottom; that in the afternoon  of  the same  day the  weather become worse as  the  wind overhaul in a dry-dock. It also appears that this tugboat had previously made several trips and
increased in intensity and  the waves were  likewise increased  in size and  force; that due to each time.it had to obtain a special permit from the Bureau  of  Customs because it had never
the rough condition of the sea the anchor chains of the 'Snapper' and the  four barges, broke  been dry-docked and did  not  have complete equipment  to be able to obtain a permanent
one by one and as a consequence thereof they were drifted  and were finally dashed against permit.  The special permits that were issued  by  said Bureau specifically state that they were
the  rocks  off  Banton  Island; that  on striking the rocks a  hole was opened in the hull of the issued  "pending submission  of plans  and load  line certificate,  including test and final
'Snapper', which ultimately caused it to sink,  while the barge  No. L-522 was so badly inspection of equipment." It further  appears that, when  the tugboat was  inspected by the
damaged that  the gasoline  it had on board leaked out; and that the  'Tamban' arrived at the Bureau of Customs on  October 18, 1946,  it found it to be inadequately equipped and so the
place after the gasoline had already leaked out." Bureau  required defendant to provide it with the requisite equipment but it was  never able to
complete it.  The fact that  the tugboat was a surplus property,  has not  been dry-docked, and particular cargo. The Cleveco, D.  C. Ohio,  59  P. Supp. 71, 78, affirmed, -C. C. A., 154 P. 2d
was not  provided with the requisite  equipment to make it seaworthy, shows  that defendant  606."  (80  C. J. S. 997, Footnote.)
did  not use reasonable  diligence in putting the tugboat in such a condition as would make its  Let  us now come to  the efforts exerted by defendant in extending help to the tugboat when it 
use  safe  for  operation.  It is true, as defendant  contends,  that there were  then no dry-dock was notified of the breakage  of the idler.   The evidence  shows that the idler was  broken  at 
facilities in the Philippines, but  this  does not mean that they could not be obtained about 3:00 o'clock in the morning of February 4, 1947.  Within  a few minutes, a  message
elsewhere.   It being a surplus property, a dry-dock inspection was  a must, to put the  tugboat was sent to  defendant by radio informing it of the engine trouble.  The weather was good at
in  a sea  going condition.   It may also be true, as contended, that the deficiency in the the time and the sea  was smooth,  and remained good until 12:00 o'clock noon when the
equipment was due to the fact that no such equipment was  available at the time, but this did wind  started to blow.   According to defendant, since it  received  the  message,  it called up
not justify defendant in putting such tugboat in  business even if unequipped  merely to make different shipping lines  in Manila asking them if they had any vessel in  the vicinity where 
a profit.  Nor could  the  fact that the tugboat was given a special permit by the Bureau of the  "Snapper" stalled but, unfortunately, none was available  at the time, and as its  tug
Customs to make the trip relieve defendant from liability. "Tamban"  was  then docked in Batangas, Batangas, which  was nearest to  the place,  it
radioed  said tug to go, to the aid of the "Snapper".  Accordingly, the tug "Tamban" set sail
"Where  owner buys old  tug, licensed  coastwise,  and equips it for ocean going, it is from Batangas for  the rescue only to return to secure a map of the vicinity  where the
negligence to send  tug out without  knowing something  of  her  stability and especially  "Snapper" had stalled, which entailed  a delay  of two hours. In the meantime, the captain of
without  stability  test,' where history  and performance with respect to crankiness  and the "Snapper" attempted to cast anchor.  The water areas off Elefante Island were deep and
tenderness are matters of official record.  Sabine  Towing  Co vs. Brennan,  C. C. A.  Tex., 72  the  anchor would not touch bottom.  Then the sea became rough and the waves increased in
F 2d 490, certiorari' denied 55 'S. Ct. 141, 293 U. S. 611, 79 L. Ed. 701, rehearing denied   55  size and force and notwithstanding the efforts of the crew  to prevent the tug from drifting
S. Ct. 212, 293 U. S. 632, 79 L. Ed. 717."  (80 C.'J. Si 803  Footnote away, the force  of the wind and the  violence of the waves dashed the tug and the barges
There are other circumstances which show the  lack of precaution and diligence taken by against the rocks.   The tug developed a  hole in her hull and sank.   The barge carrying the
defendant  to  make the travel of the tugboat safe. One is the failure to carry on board the gasoline was so badly damaged that the gasoline leaked out. The tug "Tamban"  was finally
necessary  spare  parts.  When   the  idler was broken,  the  engineer of the tugboat examined able to locate the "Snapper"  but it was too  late.
it for the first  time and it was only then  that  he found  that there were no spare parts to use
except a worn  out spare driving chain. And  the necessity of carrying such spare parts was The foregoing acts  only serve  to  emphasize that the efforts made by defendant fall short of
emphasized by the  very  defendant's witness, Mr. Depree, who said that in vessels motored  that diligence and precaution  that are demanded by the situation to save the tugboat and the
by diesel engines it is necessary always to carry spare chains, ball bearings  and chain drives.  barge it was towing  from  disaster for it appears  that more than twenty-four  hours had 
And this  was  not done. elapsed before the  tug "Tamban" showed up to extend  help. The delay was caused not so
much because of the lack of available ships in the vicinity where the "Snapper"  stalled but
because defendant did  not have in readiness any tugboat sufficient in tonnage and equipment
"A  tug  engaged  to tow  a barge  is liable for damage to the cargo  of the barge caused  by to attend to  the rescue. The tug  "Tamban" that was ordered to extend help was fully
faulty equipment  of  the tug.  The Raleigh, D. C. Md. 50  P. Supp.  961."  (80  C.  J.  S. inadequate for  that purpose.  It was a small vessel that was  authorized to operate only within
Footnote.) Manila Bay and did not even have any map of the Visayan Islands. A public utility that   is
Another circumstance refers  to  the  deficiency  or incompetence in the man power of the engaged in  sea transportation even for a limited  service with a fleet  of 140  tugboats  should
tugboat.  According to law, a tugboat of the tonnage and powers of one like the "Snapper" is  have a competent tug to rush for towing or repairs in the event of  untoward happening
required to  have a complement  composed of  one first mate, one second mate, one third Overseas.  If defendant had only such  a tug ready for such an  emergency,  this  disaster 
mate, one chief engineer,  one second  engineer,  and  one third engineer,  (section 1203,  would not have happened.  Defendant could have avoided sending a poorly equipped tug
Revised Administrative  Code); but when the trip in question  was  undertaken,  it  was only which,  as  it is to be expected, failed to do job.
manned by  one master, who was merely licensed as a bay, river, and lake patron, one second 
mate, who  was licensed  as  a  third  mate, one  chief  engineer  who  was licensed  as third While the breaking of the idler may be due to an accident, or to something unexpected, the
motor engineer, one assistant  engineer, wh6 was licensed  as  a  bay, river,  and lake  motor  cause of the disaster which resulted in the loss of the gasoline can only be attributed to the
engineer,  and one second assistant  engineer,  who was unlicensed.  The' employment of this  negligence or lack of precaution to avert  it  on  the  part  of defendant.  Defendant  had
crew to perform  functions beyond its competence and qualifications is not only risky but enough time to effectuate the rescue if it had only a competent tug for the purpose because the
against the law  and if  a mishap is caused, as in  this case,  one  cannot but  surmise that  such weather was good from 3:00 o'clock a.m. to 12:00  o'clock noon of February 4, 1947 and it
incompetence has something to do with  the mishap.  The fact that 'the tugboat  had  was only in  the  afternoon that the  wind began to  blow  with some  intensity,[1]  but  failed  to
undertaken several, trips before with practically the  same  crew  without  any untoward do so because of that shortcoming.   The loss of the  gasoline certainly cannot be  said  to be 
consequence,  cannot  furnish  any  justification  for  continuing in its employ  a  deficient or due to force majeure or unforeseen event but  to the failure of defendant to extend adequate 
incompetent personnel contrary  to  law  and the  regulations of  the Bureau of Customs. and  proper help.  Considering these  circumstances,  and those we have discussed elsewhere,
we are persuaded to conclude that defendant has failed to  establish  that it is exempt from
"(1)  Generally, seaworthiness is that strength, durability and engineering skill made a  part of liability under the law.
a ship's construction and continued  maintenance, together  with a  competent  and sufficient
crew, which would withstand the vicissitudes and dangers of the elements which might Wherefore, the decision appealed from is reversed.  Defendant is hereby ordered to pay to
reasonably be expected or encountered during her voyage without  loss  or damage/ to  her plaintiff the sum of P75,578.50, with legal interest from the  date of the filing of the
complaint, with  costs.
G.R. No. L-69044 May 29, 1987 On August 31, 1979, the Trial Court rendered judgment in favor of Development Insurance in
the amounts of P256,039.00 and P92,361.75, respectively, with legal interest, plus P35,000.00
EASTERN SHIPPING LINES, INC., petitioner, as attorney's fees and costs. Petitioner Carrier took an appeal to the then Court of Appeals
vs. which, on August 14, 1984, affirmed.
INTERMEDIATE APPELLATE COURT and DEVELOPMENT INSURANCE &
SURETY CORPORATION, respondents.
Petitioner Carrier is now before us on a Petition for Review on Certiorari.
No. 71478 May 29, 1987
EASTERN SHIPPING LINES, INC., petitioner,
vs. G.R. NO. 71478
THE NISSHIN FIRE AND MARINE INSURANCE CO., and DOWA FIRE &
MARINE INSURANCE CO., LTD., respondents. On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN for short), and
Dowa Fire & Marine Insurance Co., Ltd. (DOWA, for brevity), as subrogees of the insured,
MELENCIO-HERRERA, J.: filed suit against Petitioner Carrier for the recovery of the insured value of the cargo lost with
the then Court of First Instance of Manila, Branch 11 (Civil Case No. 116151), imputing
unseaworthiness of the ship and non-observance of extraordinary diligence by petitioner
These two cases, both for the recovery of the value of cargo insurance, arose from the same
Carrier.
incident, the sinking of the M/S ASIATICA when it caught fire, resulting in the total loss of
ship and cargo.
Petitioner Carrier denied liability on the principal grounds that the fire which caused the
sinking of the ship is an exempting circumstance under Section 4(2) (b) of the Carriage of
The basic facts are not in controversy:
Goods by Sea Act (COGSA); and that when the loss of fire is established, the burden of
proving negligence of the vessel is shifted to the cargo shipper.
In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel operated
by petitioner Eastern Shipping Lines, Inc., (referred to hereinafter as Petitioner Carrier)
On September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN and DOWA
loaded at Kobe, Japan for transportation to Manila, 5,000 pieces of calorized lance pipes in 28
in the amounts of US $46,583.00 and US $11,385.00, respectively, with legal interest, plus
packages valued at P256,039.00 consigned to Philippine Blooming Mills Co., Inc., and 7
attorney's fees of P5,000.00 and costs. On appeal by petitioner, the then Court of Appeals on
cases of spare parts valued at P92,361.75, consigned to Central Textile Mills, Inc. Both sets of
September 10, 1984, affirmed with modification the Trial Court's judgment by decreasing the
goods were insured against marine risk for their stated value with respondent Development
amount recoverable by DOWA to US $1,000.00 because of $500 per package limitation of
Insurance and Surety Corporation.
liability under the COGSA.

In G.R. No. 71478, during the same period, the same vessel took on board 128 cartons of
garment fabrics and accessories, in two (2) containers, consigned to Mariveles Apparel
Corporation, and two cases of surveying instruments consigned to Aman Enterprises and
General Merchandise. The 128 cartons were insured for their stated value by respondent
Nisshin Fire & Marine Insurance Co., for US $46,583.00, and the 2 cases by respondent
Dowa Fire & Marine Insurance Co., Ltd., for US $11,385.00.
Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total loss
of ship and cargo. The respective respondent Insurers paid the corresponding marine
insurance values to the consignees concerned and were thus subrogated unto the rights of the
latter as the insured.
G.R. NO. 69044
Hence, this Petition for Review on certiorari by Petitioner Carrier.
Both Petitions were initially denied for lack of merit. G.R. No. 69044 on January 16, 1985 by
the First Division, and G. R. No. 71478 on September 25, 1985 by the Second Division. Upon
Petitioner Carrier's Motion for Reconsideration, however, G.R. No. 69044 was given due
course on March 25, 1985, and the parties were required to submit their respective
Memoranda, which they have done.
On the other hand, in G.R. No. 71478, Petitioner Carrier sought reconsideration of the
Resolution denying the Petition for Review and moved for its consolidation with G.R. No.
69044, the lower-numbered case, which was then pending resolution with the First Division.
The same was granted; the Resolution of the Second Division of September 25, 1985 was set
aside and the Petition was given due course.

On May 11, 1978, respondent Development Insurance & Surety Corporation (Development
At the outset, we reject Petitioner Carrier's claim that it is not the operator of the M/S Asiatica
Insurance, for short), having been subrogated unto the rights of the two insured companies,
but merely a charterer thereof. We note that in G.R. No. 69044, Petitioner Carrier stated in its
filed suit against petitioner Carrier for the recovery of the amounts it had paid to the insured
Petition:
before the then Court of First instance of Manila, Branch XXX (Civil Case No. 6087).

There are about 22 cases of the "ASIATICA" pending in various courts where
Petitioner-Carrier denied liability mainly on the ground that the loss was due to an
various plaintiffs are represented by various counsel representing various consignees or
extraordinary fortuitous event, hence, it is not liable under the law.
insurance companies. The common defendant in these cases is petitioner herein, being the
operator of said vessel. ... 1
Petitioner Carrier should be held bound to said admission. As a general rule, the facts alleged
in a party's pleading are deemed admissions of that party and binding upon it. 2 And an
admission in one pleading in one action may be received in evidence against the pleader or his
successor-in-interest on the trial of another action to which he is a party, in favor of a party to
the latter action. 3
The threshold issues in both cases are: (1) which law should govern — the Civil Code
provisions on Common carriers or the Carriage of Goods by Sea Act? and (2) who has the
burden of proof to show negligence of the carrier?
On the Law Applicable
The law of the country to which the goods are to be transported governs the liability of the
common carrier in case of their loss, destruction or deterioration. 4 As the cargoes in question
were transported from Japan to the Philippines, the liability of Petitioner Carrier is governed
primarily by the Civil Code. 5 However, in all matters not regulated by said Code, the rights
and obligations of common carrier shall be governed by the Code of Commerce and by
special laws. 6 Thus, the Carriage of Goods by Sea Act, a special law, is suppletory to the
provisions of the Civil Code. 7
On the Burden of Proof
Under the Civil Code, common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance over goods,
according to all the circumstances of each case. 8 Common carriers are responsible for the
loss, destruction, or deterioration of the goods unless the same is due to any of the following
causes only:
(1) Flood, storm, earthquake, lightning or other natural disaster or
calamity;
xxx xxx xxx 9
Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability under the
phrase "natural disaster or calamity. " However, we are of the opinion that fire may not be
considered a natural disaster or calamity. This must be so as it arises almost invariably from
some act of man or by human means. 10 It does not fall within the category of an act of God
unless caused by lightning 11 or by other natural disaster or calamity. 12 It may even be
caused by the actual fault or privity of the carrier. 13
Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers
to leases of rural lands where a reduction of the rent is allowed when more than one-half of
the fruits have been lost due to such event, considering that the law adopts a protection policy
towards agriculture. 14
As the peril of the fire is not comprehended within the exception in Article
1734, supra, Article 1735 of the Civil Code provides that all cases than those mention in
Article 1734, the common carrier shall be presumed to have been at fault or to have acted
negligently, unless it proves that it has observed the extraordinary deligence required by law.
In this case, the respective Insurers. as subrogees of the cargo shippers, have proven that the
transported goods have been lost. Petitioner Carrier has also proved that the loss was caused
by fire. The burden then is upon Petitioner Carrier to proved that it has exercised the
extraordinary diligence required by law. In this regard, the Trial Court, concurred in by the
Appellate Court, made the following Finding of fact:
The cargoes in question were, according to the witnesses defendant placed in
hatches No, 2 and 3 cf the vessel, Boatswain Ernesto Pastrana noticed that smoke was coming
out from hatch No. 2 and hatch No. 3; that where the smoke was noticed, the fire was already
big; that the fire must have started twenty-four 24) our the same was noticed; that carbon
dioxide was ordered released and the crew was ordered to open the hatch covers of No, 2 tor
commencement of fire fighting by sea water: that all of these effort were not enough to
control the fire.
Pursuant to Article 1733, common carriers are bound to extraordinary diligence in
the vigilance over the goods. The evidence of the defendant did not show that extraordinary
vigilance was observed by the vessel to prevent the occurrence of fire at hatches numbers 2
and 3. Defendant's evidence did not likewise show he amount of diligence made by the crew,
on orders, in the care of the cargoes. What appears is that after the cargoes were stored in the
hatches, no regular inspection was made as to their condition during the voyage.
Consequently, the crew could not have even explain what could have caused the fire. The
defendant, in the Court's mind, failed to satisfactorily show that extraordinary vigilance and
care had been made by the crew to prevent the occurrence of the fire. The defendant, as a
common carrier, is liable to the consignees for said lack of deligence required of it under
Article 1733 of the Civil Code. 15
Having failed to discharge the burden of proving that it had exercised the extraordinary
diligence required by law, Petitioner Carrier cannot escape liability for the loss of the cargo.
And even if fire were to be considered a "natural disaster" within the meaning of Article 1734
of the Civil Code, it is required under Article 1739 of the same Code that the "natural
disaster" must have been the "proximate and only cause of the loss," and that the carrier has
"exercised due diligence to prevent or minimize the loss before, during or after the occurrence
of the disaster. " This Petitioner Carrier has also failed to establish satisfactorily.
Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods by Sea Act,
It is provided therein that:
Sec. 4(2). Neither the carrier nor the ship shall be responsible for loss or damage
arising or resulting from
(b) Fire, unless caused by the actual fault or privity of the carrier.
xxx xxx xxx
In this case, both the Trial Court and the Appellate Court, in effect, found, as a fact, that there
was "actual fault" of the carrier shown by "lack of diligence" in that "when the smoke was
noticed, the fire was already big; that the fire must have started twenty-four (24) hours before
the same was noticed; " and that "after the cargoes were stored in the hatches, no regular
inspection was made as to their condition during the voyage." The foregoing suffices to show
that the circumstances under which the fire originated and spread are such as to show that
Petitioner Carrier or its servants were negligent in connection therewith. Consequently, the
complete defense afforded by the COGSA when loss results from fire is unavailing to
Petitioner Carrier.
On the US $500 Per Package Limitation:
Petitioner Carrier avers that its liability if any, should not exceed US $500 per package as
provided in section 4(5) of the COGSA, which reads:
(5) Neither the carrier nor the ship shall in any event be or become liable for any
loss or damage to or in connection with the transportation of goods in an amount exceeding
$500 per package lawful money of the United States, or in case of goods not shipped in
packages, per customary freight unit, or the equivalent of that sum in other currency, unless
the nature and value of such goods have been declared by the shipper before shipment and
inserted in bill of lading. This declaration if embodied in the bill of lading shall be prima facie
evidence, but all be conclusive on the carrier.
By agreement between the carrier, master or agent of the carrier, and the shipper
another maximum amount than that mentioned in this paragraph may be fixed: Provided, That
such maximum shall not be less than the figure above named. In no event shall the carrier be
Liable for more than the amount of damage actually sustained.
xxx xxx xxx
Article 1749 of the New Civil Code also allows the limitations of liability in this wise:
Art. 1749. A stipulation that the common carrier's liability as limited to the value of
the goods appearing in the bill of lading, unless the shipper or owner declares a greater value,
is binding.
It is to be noted that the Civil Code does not of itself limit the liability of the common carrier
to a fixed amount per package although the Code expressly permits a stipulation limiting such
liability. Thus, the COGSA which is suppletory to the provisions of the Civil Code, steps in
and supplements the Code by establishing a statutory provision limiting the carrier's liability
in the absence of a declaration of a higher value of the goods by the shipper in the bill of
lading. The provisions of the Carriage of Goods by.Sea Act on limited liability are as much a
part of a bill of lading as though physically in it and as much a part thereof as though placed
therein by agreement of the parties. 16
In G.R. No. 69044, there is no stipulation in the respective Bills of Lading (Exhibits "C-2" and
"I-3") 1 7 limiting the carrier's liability for the loss or destruction of the goods. Nor is there a
declaration of a higher value of the goods. Hence, Petitioner Carrier's liability should not
exceed US $500 per package, or its peso equivalent, at the time of payment of the value of the
goods lost, but in no case "more than the amount of damage actually sustained."
The actual total loss for the 5,000 pieces of calorized lance pipes was P256,039 (Exhibit "C"),
which was exactly the amount of the insurance coverage by Development Insurance (Exhibit
"A"), and the amount affirmed to be paid by respondent Court. The goods were shipped in 28
packages (Exhibit "C-2") Multiplying 28 packages by $500 would result in a product of
$14,000 which, at the current exchange rate of P20.44 to US $1, would be P286,160, or "more
than the amount of damage actually sustained." Consequently, the aforestated amount of
P256,039 should be upheld.
With respect to the seven (7) cases of spare parts (Exhibit "I-3"), their actual value was
P92,361.75 (Exhibit "I"), which is likewise the insured value of the cargo (Exhibit "H") and
amount was affirmed to be paid by respondent Court. however, multiplying seven (7) cases by
$500 per package at the present prevailing rate of P20.44 to US $1 (US $3,500 x P20.44)
would yield P71,540 only, which is the amount that should be paid by Petitioner Carrier for
those spare parts, and not P92,361.75.
In G.R. No. 71478, in so far as the two (2) cases of surveying instruments are concerned, the
amount awarded to DOWA which was already reduced to $1,000 by the Appellate Court
following the statutory $500 liability per package, is in order.
In respect of the shipment of 128 cartons of garment fabrics in two (2) containers and insured
with NISSHIN, the Appellate Court also limited Petitioner Carrier's liability to $500 per
package and affirmed the award of $46,583 to NISSHIN. it multiplied 128 cartons
(considered as COGSA packages) by $500 to arrive at the figure of $64,000, and explained
that "since this amount is more than the insured value of the goods, that is $46,583, the Trial
Court was correct in awarding said amount only for the 128 cartons, which amount is less
than the maximum limitation of the carrier's liability."
We find no reversible error. The 128 cartons and not the two (2) containers should be
considered as the shipping unit.
In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the consignees of
tin ingots and the shipper of floor covering brought action against the vessel owner and
operator to recover for loss of ingots and floor covering, which had been shipped in vessel —
supplied containers. The U.S. District Court for the Southern District of New York rendered
judgment for the plaintiffs, and the defendant appealed. The United States Court of Appeals,
Second Division, modified and affirmed holding that:
When what would ordinarily be considered packages are shipped in a container
supplied by the carrier and the number of such units is disclosed in the shipping documents,
each of those units and not the container constitutes the "package" referred to in liability
limitation provision of Carriage of Goods by Sea Act. Carriage of Goods by Sea Act, 4(5), 46
U.S.C.A.& 1304(5).
 Even if language and purposes of Carriage of Goods by Sea Act left doubt as to
whether carrier-furnished containers whose contents are disclosed should be treated as
packages, the interest in securing international uniformity would suggest that they should not
be so treated. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A. 1304(5).
... After quoting the statement in Leather's Best, supra, 451 F 2d at 815, that treating
a container as a package is inconsistent with the congressional purpose of establishing a
reasonable minimum level of liability, Judge Beeks wrote, 414 F. Supp. at 907 (footnotes
omitted):
Although this approach has not completely escaped criticism, there is, nonetheless,
much to commend it. It gives needed recognition to the responsibility of the courts to construe
and apply the statute as enacted, however great might be the temptation to "modernize" or
reconstitute it by artful judicial gloss. If COGSA's package limitation scheme suffers from
internal illness, Congress alone must undertake the surgery. There is, in this regard, obvious
wisdom in the Ninth Circuit's conclusion in Hartford that technological advancements,
whether or not forseeable by the COGSA promulgators, do not warrant a distortion or
artificial construction of the statutory term "package." A ruling that these large reusable metal
pieces of transport equipment qualify as COGSA packages — at least where, as here, they
were carrier owned and supplied — would amount to just such a distortion.
Certainly, if the individual crates or cartons prepared by the shipper and containing
his goods can rightly be considered "packages" standing by themselves, they do not suddenly
lose that character upon being stowed in a carrier's container. I would liken these containers to
detachable stowage compartments of the ship. They simply serve to divide the ship's overall
cargo stowage space into smaller, more serviceable loci. Shippers' packages are quite literally
"stowed" in the containers utilizing stevedoring practices and materials analogous to those
employed in traditional on board stowage.
In Yeramex International v. S.S. Tando,, 1977 A.M.C. 1807 (E.D. Va.) rev'd on
other grounds, 595 F 2nd 943 (4 Cir. 1979), another district with many maritime cases
followed Judge Beeks' reasoning in Matsushita and similarly rejected the functional
economics test. Judge Kellam held that when rolls of polyester goods are packed into
cardboard cartons which are then placed in containers, the cartons and not the containers are
the packages.
xxx xxx xxx
The case of Smithgreyhound v. M/V Eurygenes, 18 followed the Mitsui test:
Eurygenes concerned a shipment of stereo equipment packaged by the shipper into
cartons which were then placed by the shipper into a carrier- furnished container. The number
of cartons was disclosed to the carrier in the bill of lading. Eurygenes followed the Mitsui test
and treated the cartons, not the container, as the COGSA packages. However, Eurygenes
indicated that a carrier could limit its liability to $500 per container if the bill of lading failed
to disclose the number of cartons or units within the container, or if the parties indicated, in
clear and unambiguous language, an agreement to treat the container as the package.
(Admiralty Litigation in Perpetuum: The Continuing Saga of Package Limitations
and Third World Delivery Problems by Chester D. Hooper & Keith L. Flicker, published in
Fordham International Law Journal, Vol. 6, 1982-83, Number 1) (Emphasis supplied)
In this case, the Bill of Lading (Exhibit "A") disclosed the following data:
2 Containers
(128) Cartons)
Men's Garments Fabrics and Accessories Freight Prepaid
Say: Two (2) Containers Only.
Considering, therefore, that the Bill of Lading clearly disclosed the contents of the containers,
the number of cartons or units, as well as the nature of the goods, and applying the ruling in
the Mitsui and Eurygenes cases it is clear that the 128 cartons, not the two (2) containers
should be considered as the shipping unit subject to the $500 limitation of liability.
True, the evidence does not disclose whether the containers involved herein were carrier-
furnished or not. Usually, however, containers are provided by the carrier. 19 In this case, the
probability is that they were so furnished for Petitioner Carrier was at liberty to pack and carry
the goods in containers if they were not so packed. Thus, at the dorsal side of the Bill of
Lading (Exhibit "A") appears the following stipulation in fine print:
11. (Use of Container) Where the goods receipt of which is acknowledged on the
face of this Bill of Lading are not already packed into container(s) at the time of receipt, the
Carrier shall be at liberty to pack and carry them in any type of container(s).
The foregoing would explain the use of the estimate "Say: Two (2) Containers Only" in the
Bill of Lading, meaning that the goods could probably fit in two (2) containers only. It cannot
mean that the shipper had furnished the containers for if so, "Two (2) Containers" appearing
as the first entry would have sufficed. and if there is any ambiguity in the Bill of Lading, it is
a cardinal principle in the construction of contracts that the interpretation of obscure words or
stipulations in a contract shall not favor the party who caused the obscurity.  20 This applies
with even greater force in a contract of adhesion where a contract is already prepared and the
other party merely adheres to it, like the Bill of Lading in this case, which is draw. up by the
carrier. 21
On Alleged Denial of Opportunity to Present Deposition of Its Witnesses: (in G.R. No. 69044
only)
Petitioner Carrier claims that the Trial Court did not give it sufficient time to take the
depositions of its witnesses in Japan by written interrogatories.
We do not agree. petitioner Carrier was given- full opportunity to present its evidence but it
failed to do so. On this point, the Trial Court found:
xxx xxx xxx
 Indeed, since after November 6, 1978, to August 27, 1979, not to mention the time
from June 27, 1978, when its answer was prepared and filed in Court, until September 26,
1978, when the pre-trial conference was conducted for the last time, the defendant had more
than nine months to prepare its evidence. Its belated notice to take deposition on written
interrogatories of its witnesses in Japan, served upon the plaintiff on August 25th, just two
days before the hearing set for August 27th, knowing fully well that it was its undertaking on
July 11 the that the deposition of the witnesses would be dispensed with if by next time it had
not yet been obtained, only proves the lack of merit of the defendant's motion for
postponement, for which reason it deserves no sympathy from the Court in that regard. The
defendant has told the Court since February 16, 1979, that it was going to take the deposition
of its witnesses in Japan. Why did it take until August 25, 1979, or more than six months, to
prepare its written interrogatories. Only the defendant itself is to blame for its failure to
adduce evidence in support of its defenses.

xxx xxx xxx 22

Petitioner Carrier was afforded ample time to present its side of the case.  23 It cannot complain
now that it was denied due process when the Trial Court rendered its Decision on the basis of
the evidence adduced. What due process abhors is absolute lack of opportunity to be heard. 24

On the Award of Attorney's Fees:

Petitioner Carrier questions the award of attorney's fees. In both cases, respondent Court
affirmed the award by the Trial Court of attorney's fees of P35,000.00 in favor of
Development Insurance in G.R. No. 69044, and P5,000.00 in favor of NISSHIN and DOWA
in G.R. No. 71478.

Courts being vested with discretion in fixing the amount of attorney's fees, it is believed that
the amount of P5,000.00 would be more reasonable in G.R. No. 69044. The award of
P5,000.00 in G.R. No. 71478 is affirmed.

WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in that petitioner Eastern
Shipping Lines shall pay the Development Insurance and Surety Corporation the amount of
P256,039 for the twenty-eight (28) packages of calorized lance pipes, and P71,540 for the
seven (7) cases of spare parts, with interest at the legal rate from the date of the filing of the
complaint on June 13, 1978, plus P5,000 as attorney's fees, and the costs.

2) In G.R.No.71478,the judgment is hereby affirmed.

SO ORDERED.
G.R. No. L-9605             September 30, 1957
GAUDIOSO EREZO, ET AL., plaintiff-appellee,
vs.
AGUEDO JEPTE, defendant-appellant.
LABRADOR, J.:
Appeal from a judgment of the Court of First Instance of Manila ordering defendant to pay
plaintiff Gaudioso Erezo P3,000 on the death of Ernesto Erezo, son of plaintiff Gaudioso
Erezo.
Defendant-appellant is the registered owner of a six by six truck bearing plate No. TC-1253.
On August, 9, 1949, while the same was being driven by Rodolfo Espino y Garcia, it collided
with a taxicab at the intersection of San Andres and Dakota Streets, Manila. As the truck went
off the street, it hit Ernesto Erezo and another, and the former suffered injuries, as a result of
which he died. The driver was prosecuted for homicide through reckless negligence in
criminal case No. 10663 of the Court of First Instance of Manila. The accused pleaded guilty
and was sentenced to suffer imprisonment and to pay the heirs of Ernesto Erezo the sum of
P3,000. As the amount of the judgment could not be enforced against him, plaintiff brought
this action against the registered owner of the truck, the defendant-appellant. The
circumstances material to the case are stated by the court in its decision.
The defendant does not deny at the time of the fatal accident the cargo truck driven
by Rodolfo Espino y Garcia was registered in his name. He, however, claims that
the vehicle belonged to the Port Brokerage, of which he was the broker at the time
of the accident. He explained, and his explanation was corroborated by Policarpio
Franco, the manager of the corporation, that the trucks of the corporation were
registered in his name as a convenient arrangement so as to enable the corporation
to pay the registration fee with his backpay as a pre-war government employee.
Franco, however, admitted that the arrangement was not known to the Motor
Vehicle Office.
The trial court held that as the defendant-appellant represented himself to be the owner of the
truck and the Motor Vehicle Office, relying on his representation, registered the vehicles in
his name, the Government and all persons affected by the representation had the right to rely
on his declaration of ownership and registration. It, therefore, held that the defendant-
appellant is liable because he cannot be permitted to repudiate his own declaration. (Section
68 [a], Rule 123, and Art. 1431, New Civil Code.).
Against the judgment, the defendant has prosecuted this appeal claiming that at the time of the
accident the relation of employer and employee between the driver and defendant-appellant
was not established, it having been proved at the trial that the owner of the truck was the Port
Brokerage, of which defendant-appellant was merely a broker. We find no merit or justice in
the above contention. In previous decisions, We already have held that the registered owner of
a certificate of public convenience is liable to the public for the injuries or damages suffered
by passengers or third persons caused by the operation of said vehicle, even though the same
had been transferred to a third person. (Montoya vs. Ignacio, 94 Phil., 182, 50 Off. Gaz., 108;
Roque vs. Malibay Transit Inc., 1 G. R. No. L- 8561, November 18,1955; Vda. de Medina vs.
Cresencia, 99 Phil., 506, 52 Off. Gaz., [10], 4606.)The principle upon which this doctrine is
based is that in dealing with vehicles registered under the Public Service Law, the public has
the right to assume or presume that the registered owner is the actual owner thereof, for it
would be difficult for the public to enforce the actions that they may have for injuries caused
to them by the vehicles being negligently operated if the public should be required to prove
who the actual owner is. How would the public or third persons know against whom to
enforce their rights in case of subsequent transfers of the vehicles? We do not imply by this
doctrine, however, that the registered owner may not recover whatever amount he had paid by
virtue of his liability to third persons from the person to whom he had actually sold, assigned
or conveyed the vehicle.
Under the same principle the registered owner of any vehicle, even if not used for a public
service, should primarily be responsible to the public or to third persons for injuries caused
the latter while the vehicle is being driven on the highways or streets. The members of the
Court are in agreement that the defendant-appellant should be held liable to plaintiff-appellee
for the injuries occasioned to the latter because of the negligence of the driver even if the
defendant-appellant was no longer the owner of the vehicle at the time of the damage because
he had previously sold it to another. What is the legal basis for his (defendant-appellant's)
liability?.
There is a presumption that the owner of the guilty vehicle is the defendant-appellant as he is
the registered owner in the Motor Vehicle Office. Should he not be allowed to prove the truth,
that he had sold it to another and thus shift the responsibility for the injury to the real and
actual owner? The defendant holds the affirmative of this proposition; the trial court held the
negative.
The Revised Motor Vehicle Law (Act No. 3992, as amended) provides that no vehicle may be
used or operated upon any public highway unless the same is properly registered. It has been
stated that the system of licensing and the requirement that each machine must carry a
registration number, conspicuously displayed, is one of the precautions taken to reduce the
danger of injury to pedestrians and other travelers from the careless management of
automobiles, and to furnish a means of ascertaining the identity of persons violating the laws
and ordinances, regulating the speed and operation of machines upon the highways (2 R. C. L.
1176). Not only are vehicles to be registered and that no motor vehicles are to be used or
operated without being properly registered for the current year, but that dealers in motor
vehicles shall furnish the Motor Vehicles Office a report showing the name and address of
each purchaser of motor vehicle during the previous month and the manufacturer's serial
number and motor number. (Section 5 [c], Act. No. 3992, as amended.).
Registration is required not to make said registration the operative act by which ownership in
vehicles is transferred, as in land registration cases, because the administrative proceeding of
registration does not bear any essential relation to the contract of sale between the parties
(Chinchilla vs. Rafael and Verdaguer, 39 Phil. 888), but to permit the use and operation of the
vehicle upon any public highway (section 5 [a], Act No. 3992, as amended).The main aim of
motor vehicle registration is to identify the owner so that if any accident happens, or that any
damage or injury is caused by the vehicles on the public highways, responsibility therefore
can be fixed on a definite individual, the registered owner. Instances are numerous where
vehicles running on public highways caused accidents or injuries to pedestrians or other
vehicles without positive identification of the owner or drivers, or with very scant means of
identification. It is to forestall those circumstances, so inconvenient or prejudicial to the
public, that the motor vehicle registration is primarily ordained, in the interest of the
determination of persons responsible for damages or injuries caused on public highways.

One of the principal purposes of motor vehicles legislation is identification of the

vehicle and of the operator, in case of accident; and another is that the knowledge
that means of detection are always available may act as a deterrent from lax
observance of the law and of the rules of conservative and safe operation. Whatever
purpose there may be in these statutes, it is subordinate at the last to the primary
purpose of rendering it certain that the violator of the law or of the rules of safety
shall not escape because of lack of means to discover him." The purpose of the
statute is thwarted, and the displayed number becomes a "snare and delusion," if
courts will entertain such defenses as that put forward by appellee in this case. No
responsible person or corporation could be held liable for the most outrageous acts
of negligence, if they should be allowed to place a "middleman" between them and
the public, and escape liability by the manner in which they recompense their
servants. (King vs. Brenham Automobile Co., 145 S. W. 278,279.)

With the above policy in mind, the question that defendant-appellant poses is: should not be
registered owner be allowed at the trial to prove who the actual and real owner is, and in
accordance with such proof escape or evade responsibility and lay the same on the person
actually owning the vehicle? We hold with the trial court that the laws does not allow him to
do so; the law, with its aim and policy in mind, does not relieve him directly of the
responsibility that the law fixes and places upon him as an incident or consequence of
registration. Were a registered owner allowed to evade responsibility by proving who the
supposed transferee or owner is, it would be easy for him, by collusion with others or
otherwise, to escape said responsibility and transfer the same to an indefinite person, or to one
who possesses no property with which to respond financially for the damage or injury done. A
victim of recklessness on the public highways is usually without means to discover or identify
the person actually causing the injury or damage. He has no means other than by a recourse to
the registration in the Motor Vehicles Office to determine who is the owner. The protection
that the law aims to extend to him would become illusory were the registered owner given the
opportunity to escape liability by disproving his ownership. If the policy of the law is to be
enforced and carried out, the registered owner should be allowed to prove the contrary to the
prejudice of the person injured that is, to prove that a third person or another has become the
owner, so that he may thereby be relieved of the responsibility to the injured person.

The above policy and application of the law may appear quite harsh and would seem to
conflict with truth and justice. We do not think it is so. A registered owner who has already
sold or transferred a vehicle has the recourse to a third-party complaint, in the same action
brought against him to recover for the damage or injury done, against the vendee or transferee
of the vehicle. The inconvenience of the suit is no justification for relieving him of liability;
said inconvenience is the price he pays for failure to comply with the registration that the law
demands and requires.

In synthesis, we hold that the registered owner, the defendant-appellant herein, is primarily
responsible for the damage caused to the vehicle of the plaintiff-appellee, but he (defendant-
appellant) has a right to be indemnified by the real or actual owner of the amount that he may
be required to pay as damage for the injury caused to the plaintiff-appellant.
[G.R. No. L-57493. January 7, 1987.]
BALIWAG TRANSIT, INC., Petitioner, v. THE HON. COURT OF APPEALS AND
ROMAN MARTINEZ, Respondents.
SYLLABUS
1. CIVIL LAW; TRANSPORTATION; "KABIT SYSTEM," DETERMINING FACTOR. —
The "Kabit System" has been defined by the Supreme Court as an arrangement "whereby a
person who has been granted a certificate of convenience allows another person who owns
motor vehicles to operate under such franchise for a fee." (Lita Enterprises, Inc. v. Second
Civil Cases Division, IAC, Et Al., G.R. No. 64693, April 27, 1984). The determining factor,
therefore, is the possession of a franchise to operate which negates the existence of the "Kabit
System" and not the issuance of one SSS ID Number for both bus lines from which the
existence of said system was inferred.
DECISION
PARAS, J.:
This is a petition for review on certiorari, seeking the reversal of the decision of the Court of
Appeals dated June 4, 1981, the dispositive portion of which reads:
"WHEREFORE, the resolution (decision) of the Social Security Commission in SSC Case
No. 3272 is hereby set aside and another one entered: ordering respondent Baliwag Transit,
Inc. to remit to the Social Security Commission the premium contributions for the petitioner
for the years 1958 to May 1963 and from 1967 to March 1971, inclusive, plus penalties
thereon at the rate of 3% per month of delinquency."
Two passenger bus lines with similar buses and similar routes were being operated by firm
names "Baliwag Transit" and "Baliwag Transit, Inc." (BTI) the herein petitioner. The former
was owned by the late Pascual Tuazon who continued to operate it until his death on January
26, 1972, while the latter was owned by petitioner corporation, incorporated in the year 1968
and existing until the present time. Both bus lines operate under different grants of franchises
by the Public Service Commission (Brief for Petitioner, p. 11), but were issued only one ID
Number 03-22151 by the Social Security System (Rollo, p. 66).
Private respondent claiming to be an employee of both bus lines with one ID Number, filed a
petition with the Social Security Commission on August 14, 1975 which was docketed as SSC
Case No. 3272 to compel BTI to remit to the Social Security System private respondent’s SSS
Premium contributions for the years 1958 to March, 1963 and from 1967 to March, 1971. He
alleged that he was employed by petitioner from 1947 to 1971 as conductor and later as
inspector with corresponding salary increases and that petitioner deducted from his salaries,
premium contributions, but what was remitted to the SSS was only for a period covering June,
1963 to 1966, at a much lesser amount.
In its answer, BTI denied having employed private respondent Ramon Martinez, the truth
being that he was employed by Pascual Tuazon who since 1948 owned and operated buses
under the trade name Baliwag Transit which were separate and distinct from the buses
operated by petitioner company owned by Mrs. Victoria Vda. de Tengco. Both bus lines had
different offices, different maintenance and repair shops, garages, books of account, and
managers. The employment of private respondent lasted until 1971 when his employer
Pascual Tuazon became bankrupt. It was the latter which deducted from private respondent
the amount corresponding to his SSS contributions for the years in question but allegedly did
not remit the same. Finally, herein petitioner BTI claims that private respondent allowed 17
years to elapse and at a time when Pascual Tuazon was already dead before filing the subject
petition with the Social Security Commission. (Rollo, p. 18).
After trial on the merits, the Social Security Commission on September 12, 1979, entered a
resolution in SSC Case No. 3272, the dispositive portion of which reads:
"PREMISES CONSIDERED, this Commission finds and so holds that there existed no
employer-employee relationship between the petitioner and respondent as would warrant
further remittance of SSS contributions for and in behalf of petitioner Roman Martinez.
"Consequently, this petition is hereby dismissed for lack of merit.
"SO ORDERED."
On appeal, the Court of Appeals finding- that the late Pascual Tuazon operated his buses
under the "Kabit" System, reversed and set aside the foregoing resolution as follows:
"WHEREFORE, the resolution (decision) of the Social Security Commission in SSC Case
No. 3272 is hereby set aside and another one entered ordering respondent Baliwag Transit,
Inc. to remit to the Social Security Commission the premium contributions for the petitioner
for the years 1958 to May 1963 and from 1967 to March 1971, inclusive, plus penalties
thereon at the rate of 3% per month of delinquency;
"SO ORDERED."
Herein petitioner filed a Motion for Reconsideration with respondent Court of Appeals, which
Motion was later denied.
Hence, this petition.
In the resolution of August 26, 1981 of the Second Division of this Court, respondents were
required to comment (Rollo, p. 64) which was complied with on September 21, 1981 (Rollo,
pp. 65-71). On October 5, 1981, petitioner filed its Reply (Rollo, pp. 73-75) in compliance
with the resolution of September 30, 1981 (Rollo, p. 71). In the resolution of December 7,
1981, the petition was given due course (Rollo, p. 81). The brief for petitioner-appellant was
filed on March 27, 1982 (Rollo, p. 89) while private respondent filed a manifestation and
motion to be excused for not filing private respondent’s brief and to be allowed to adopt as his
arguments the comments he filed on September 19, 1981 and his brief with the Court of
Appeals (Rollo, p. 92). Said manifestation and motion was noted in the resolution of June 23,
1982 (Rollo, p. 93) and this case was submitted for deliberation in the resolution of February
3, 1984 (Rollo, p. 94).
Petitioners raised the following assignment of errors:chanrob1es virtual 1aw library
I. THAT THE FINDINGS OF THE RESPONDENT HONORABLE COURT OF APPEALS
TO THE EFFECT THAT THE VEHICLES OF THE LATE PASCUAL TUAZON WERE
"ATTACHED" OR "KABIT" WITH PETITIONER, BALIWAG TRANSIT, INC. MAY
NOT HAVE BEEN SUPPORTED BY SUBSTANTIAL EVIDENCE.

II. GRANTING THAT THE VEHICLES OF THE LATE PASCUAL TUAZON WERE
INDEED "ATTACHED" OR "KABIT" WITH PETITIONER BALIWAG TRANSIT, INC.
EMPLOYER-EMPLOYEE RELATIONS MAY NOT EXTENT TO COVER OR INCLUDE
THE EMPLOYEES OF THE ACTUAL OWNER OF THE VEHICLES AS EMPLOYEES
ALSO OF THE HOLDER OF THE CERTIFICATE OF PUBLIC CONVENIENCE WHICH
IS IN THIS CASE, PETITIONER BALIWAG TRANSIT, INC.
However, the main issue in this case is whether or not the issuance by the Social Security
System of one SSS-ID-Number to two bus lines necessarily indicates that one of them,
operates his buses under the "Kabit System."
The answer is in the negative.
The "Kabit System" has been defined by the Supreme Court as an arrangement "whereby a
person who has been granted a certificate of convenience allows another person who owns
motor vehicles to operate under such franchise for a fee." (Lita Enterprises, Inc. v. Second
Civil Cases Division, IAC, Et Al., G.R. No. 64693, April 27, 1984).
The determining factor, therefore, is the possession of a franchise to operate which negates the
existence of the "Kabit System" and not the issuance of one SSS ID Number for both bus
lines from which the existence of said system was inferred.
In the instant case, the findings of the Court of Appeals are as follows:
". . . It is very obvious from the foregoing narration of facts that the late Pascual Tuazon,
during the time material to this case, operated his houses under the "kabit" system; that is,
while actually he was the owner and operator of public utility buses, maintaining his own
drivers, conductors, inspectors and other employees, his buses were not registered with the
Public Service Commission (now the Bureau of Land Transportation) in his own name.
Instead, his buses were absorbed and registered as owned and operated by the "Baliwag
Transit," which was the firm name owned and used by his niece," Victoria Vda. de Tengco."
"It is well settled that the findings of facts of the Court of Appeals . . . are conclusive on the
parties and on this Court, unless: . . . (2) the inference made is manifestly mistaken; . . . (4) the
judgment is based on misapprehension of facts; . . . (6) the Court of Appeals went beyond the
issues of the case and its findings are contrary to the admissions of both appellant and
appellees; (7) the findings of facts of the Court of Appeals are contrary to those of the trial
court; . . ." (Sacay v. Sandiganbayan, G.R. No. 66497-98, July 10, 1986).
In the case at bar, it is undisputed that as testified to, not only by seven (7) witnesses
presented by the petitioner but also by the Social Security System witness Mangowan
Macalaba, Clerk I, of the R & A Division of the Board of Transportation, who had access to
the records of said office with respect to applications and grant of franchises of public utility
vehicles, that Victoria Vda. de Tengco and Pascual Tuazon were granted separate franchises
to operate public utility buses, under Cases Nos. 15904, 114913, 11564, 103366, 64157 and
65894 for the former and Case No. 69-4592 and Case No. 697775 for the latter, both
operating between Manila and Baliuag routes. However, the franchises of Pascual Tuazon
were cancelled on December 16, 1971 and May 14, 1972 respectively (Rollo, p. 22), when the
latter terminated his operation.
It is thus evident that both bus lines operated under their own franchises but opted to retain the
firm name "Baliwag Transit" with slight modification, by the inclusion of the word "Inc." in
the case of herein petitioner, obviously to take advantage of the goodwill such firm name
enjoys with the riding public. Conversely, the conclusion of the Court of Appeals that the late
Pascual Tuazon, during the time material to this case operated his buses under the "Kabit
System" on the ground that while he was actually the owner and operator, his buses were not
registered with the Public Service Commission (now the Bureau of Land Transportation) in
his own name, is not supported by the records. Much less can it be said that there is an
analogy between the case at bar and the cited case of Doligosa, Et. Al. v. Decolongon, Et. Al.
(3 CA Nos. 1135,1142-43) to the extent that Baliwag Transit, Inc. being the ostensible
operator of the buses actually owned by Pascual Tuazon, should be held liable for the
contributions collected or ought to be collected from private respondent (Rollo, pp. 53-54),
presumably to discourage the proliferating "Kabit System" in public utility vehicles.
While it is admitted that petitioner was the one who remitted the SSS premiums of private
respondent, it has also been established by testimonies of witnesses that such arrangement was
done purposely to accommodate the request of the late Pascual Tuazon, the uncle of Victoria
Vda. de Tengco and the money came from him. On the other hand, there is no reason why
such testimonies should not be given credence as the records fail to show that said witnesses
have any motive or reason to falsify or perjure their testimonies (Rollo, pp. 23-24).
Moreover, the Social Security Commission after several hearings had been conducted, arrived
at the following conclusion:
"It was established during the hearings that petitioner Roman Martinez was employed by,
worked for and took orders from Pascual Tuazon and was authorized to get ‘vales’ from the
conductors of the trucks of Mr. Tuazon. This was admitted got ‘vales’ from the buses of
Pascual Tuazon (TSN pp. 24-25, May 7, 1976 and Exhibits "3" to "49").
"On the other hand, there is no evidence introducted to show that petitioner ever received
salaries from respondent or from Mrs. Victoria Vda. de Tengco and neither had he been under
the orders of the latter. The only basis upon which petitioner anchors his claim despite his
actual employment by Pascual Tuazon was the use by the latter of the trade name, Baliwag
Transit, in the operation of his (Mr. Tuazon’s) own buses which the latter had every reason to
do since he laboriously helped and organized said firm until it gained cognizance by the
public.
"It is, therefore, clear that even long before the incorporation of the Baliwag Transit in 1968
petitioner was already an employee of the late Pascual Tuazon who despite having separate
office, employees and buses which were operated under the line of the Baliwag Transit did
not report him for coverage to the SSS. Sad enough, petitioner who claims to be an employee
of the respondent did not refute, by way of submitting rebuttal evidence, the testimonies given
by respondent’s witnesses that he was an employee of the late Pascual Tuazon and not of said
respondent or of Mrs. Victoria Tuazon and not of said respondent or of Mr. Victoria Vda. de
Tengco. Indeed, there is a reasonable basis to believe that he would not attempt to do so if
only to be consistent with his stand when he filed a case before the National Labor Relations
Commission, a claim against both the late Pascual Tuazon and the Respondent. He is now
concentrating his action against the respondent in view of the death of Pascual Tuazon who
during his lifetime sold his trucks and became bankrupt Exhibit "2") —Resolution, September
14, 1979, pp. 29-31)." (Rollo, pp. 28-30)
It has been uniformly held by this Court that it is sufficient that administrative findings of fact
are supported by evidence on the record, or stated negatively, it is sufficient that findings of
fact are not shown to be unsupported by evidence.

The Court has also held further that "in reviewing administrative decisions, the reviewing
court cannot re-examine the sufficiency of the evidence as if originally instituted therein, and
receive additional evidence that was not submitted to the administrative agency concerned.
The findings of fact must be respected, so long as they are supported by substantial evidence,
even if not overwhelming or preponderant." (Police Commission v. Lood, 127 SCRA 758
[1984].

Thus, the employer-employee relationship between the late Pascual Tuazon and herein private
respondent, having been established, the remittance of SSS contributions of the latter, is the
responsibility of his employer Tuazon, regardless of the existence or non-existence of the
"Kabit System."

Moreover, private respondent having allowed seventeen (17) years to elapse before filing his
petition with the Social Security System, has undoubtedly slept on his rights and his cause of
action has already prescribed under Article 1144(2) of the Civil Code (Central Azucarrera del
Davao v. Court of Appeals, 137 SCRA 296 [1985]; applied by analogy).

PREMISES CONSIDERED, the decision of respondent Court of Appeals dated June 4, 1981
is hereby REVERSED and SET ASIDE, and the Resolution of the Social Security
Commission dated September 12, 1979 is hereby REINSTATED.

SO ORDERED.
G.R. No. L-64693 April 27, 1984
LITA ENTERPRISES, INC., petitioner,
vs.
SECOND CIVIL CASES DIVISION, INTERMEDIATE APPELLATE COURT,
NICASIO M. OCAMPO and FRANCISCA P. GARCIA, respondents.
ESCOLIN, J.:
"Ex pacto illicito non oritur actio" [No action arises out of an illicit bargain] is the tune-
honored maxim that must be applied to the parties in the case at bar. Having entered into an
illegal contract, neither can seek relief from the courts, and each must bear the consequences
of his acts.
The factual background of this case is undisputed.
Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca Garcia, herein private
respondents, purchased in installment from the Delta Motor Sales Corporation five (5) Toyota
Corona Standard cars to be used as taxicabs. Since they had no franchise to operate taxicabs,
they contracted with petitioner Lita Enterprises, Inc., through its representative, Manuel
Concordia, for the use of the latter's certificate of public convenience in consideration of an
initial payment of P1,000.00 and a monthly rental of P200.00 per taxicab unit. To effectuate
Id agreement, the aforesaid cars were registered in the name of petitioner Lita Enterprises,
Inc, Possession, however, remained with tile spouses Ocampo who operated and maintained
the same under the name Acme Taxi, petitioner's trade name.
About a year later, on March 18, 1967, one of said taxicabs driven by their employee,
Emeterio Martin, collided with a motorcycle whose driver, one Florante Galvez, died from the
head injuries sustained therefrom. A criminal case was eventually filed against the driver
Emeterio Martin, while a civil case for damages was instituted by Rosita Sebastian Vda. de
Galvez, heir of the victim, against Lita Enterprises, Inc., as registered owner of the taxicab in
the latter case, Civil Case No. 72067 of the Court of First Instance of Manila, petitioner Lita
Enterprises, Inc. was adjudged liable for damages in the amount of P25,000.00 and P7,000.00
for attorney's fees.
This decision having become final, a writ of execution was issued. One of the vehicles of
respondent spouses with Engine No. 2R-914472 was levied upon and sold at public auction
for 12,150.00 to one Sonnie Cortez, the highest bidder. Another car with Engine No. 2R-
915036 was likewise levied upon and sold at public auction for P8,000.00 to a certain Mr.
Lopez.
Thereafter, in March 1973, respondent Nicasio Ocampo decided to register his taxicabs in his
name. He requested the manager of petitioner Lita Enterprises, Inc. to turn over the
registration papers to him, but the latter allegedly refused. Hence, he and his wife filed a
complaint against Lita Enterprises, Inc., Rosita Sebastian Vda. de Galvez, Visayan Surety &
Insurance Co. and the Sheriff of Manila for reconveyance of motor vehicles with damages,
docketed as Civil Case No. 90988 of the Court of First Instance of Manila. Trial on the merits
ensued and on July 22, 1975, the said court rendered a decision, the dispositive portion of
which reads: têñ.£îhqwâ£
WHEREFORE, the complaint is hereby dismissed as far as defendants
Rosita Sebastian Vda. de Galvez, Visayan Surety & Insurance Company
and the Sheriff of Manila are concerned.
Defendant Lita Enterprises, Inc., is ordered to transfer the registration
certificate of the three Toyota cars not levied upon with Engine Nos. 2R-
230026, 2R-688740 and 2R-585884 [Exhs. A, B, C and D] by executing a
deed of conveyance in favor of the plaintiff.
Plaintiff is, however, ordered to pay Lita Enterprises, Inc., the rentals in
arrears for the certificate of convenience from March 1973 up to May
1973 at the rate of P200 a month per unit for the three cars. (Annex A,
Record on Appeal, p. 102-103, Rollo)
Petitioner Lita Enterprises, Inc. moved for reconsideration of the decision, but the same was
denied by the court a quo on October 27, 1975. (p. 121, Ibid.)
On appeal by petitioner, docketed as CA-G.R. No. 59157-R, the Intermediate Appellate Court
modified the decision by including as part of its dispositive portion another paragraph, to wit:
In the event the condition of the three Toyota rears will no longer serve
the purpose of the deed of conveyance because of their deterioration, or
because they are no longer serviceable, or because they are no longer
available, then Lita Enterprises, Inc. is ordered to pay the plaintiffs their
fair market value as of July 22, 1975. (Annex "D", p. 167, Rollo.)
Its first and second motions for reconsideration having been denied, petitioner came to Us,
praying that:
1. ...
2. ... after legal proceedings, decision be rendered or resolution be issued,
reversing, annulling or amending the decision of public respondent so
that:
(a) the additional paragraph added by the public respondent to the
DECISION of the lower court (CFI) be deleted;
 (b) that private respondents be declared liable to petitioner for whatever
amount the latter has paid or was declared liable (in Civil Case No.
72067) of the Court of First Instance of Manila to Rosita Sebastian Vda.
de Galvez, as heir of the victim Florante Galvez, who died as a result ot
the gross negligence of private respondents' driver while driving one
private respondents' taxicabs. (p. 39, Rollo.)
WHEREFORE, all proceedings had in Civil Case No. 90988 entitled "Nicasio Ocampo and
Francisca P. Garcia, Plaintiffs, versus Lita Enterprises, Inc., et al., Defendants" of the Court
of First Instance of Manila and CA-G.R. No. 59157-R entitled "Nicasio Ocampo and
Francisca P. Garica, Plaintiffs-Appellees, versus Lita Enterprises, Inc., Defendant-
Appellant," of the Intermediate Appellate Court, as well as the decisions rendered therein are
hereby annuleled and set aside. No costs.

Unquestionably, the parties herein operated under an arrangement, comonly known as the SO ORDERED.
"kabit system", whereby a person who has been granted a certificate of convenience allows
another person who owns motors vehicles to operate under such franchise for a fee. A
certificate of public convenience is a special privilege conferred by the government . Abuse of
this privilege by the grantees thereof cannot be countenanced. The "kabit system" has been
Identified as one of the root causes of the prevalence of graft and corruption in the
government transportation offices. In the words of Chief Justice Makalintal, 1 "this is a
pernicious system that cannot be too severely condemned. It constitutes an imposition upon
the good faith of the government.

Although not outrightly penalized as a criminal offense, the "kabit system" is invariably
recognized as being contrary to public policy and, therefore, void and inexistent under Article
1409 of the Civil Code, It is a fundamental principle that the court will not aid either party to
enforce an illegal contract, but will leave them both where it finds them. Upon this premise, it
was flagrant error on the part of both the trial and appellate courts to have accorded the parties
relief from their predicament. Article 1412 of the Civil Code denies them such aid. It
provides:

ART. 1412. if the act in which the unlawful or forbidden cause consists
does not constitute a criminal offense, the following rules shall be
observed;

(1) when the fault, is on the part of both contracting parties, neither may
recover what he has given by virtue of the contract, or demand the
performance of the other's undertaking.

The defect of inexistence of a contract is permanent and incurable, and cannot be cured by
ratification or by prescription. As this Court said in Eugenio v. Perdido, 2 "the mere lapse of
time cannot give efficacy to contracts that are null void."

The principle of in pari delicto is well known not only in this jurisdiction but also in the
United States where common law prevails. Under American jurisdiction, the doctrine is stated
thus: "The proposition is universal that no action arises, in equity or at law, from an illegal
contract; no suit can be maintained for its specific performance, or to recover the property
agreed to be sold or delivered, or damages for its property agreed to be sold or delivered, or
damages for its violation. The rule has sometimes been laid down as though it was equally
universal, that where the parties are in pari delicto, no affirmative relief of any kind will be
given to one against the other." 3 Although certain exceptions to the rule are provided by law,
We see no cogent reason why the full force of the rule should not be applied in the instant
case.