Haystacks

Transportation Law

Michael Vernon Guerrero Mendiola

2004

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NonCommercial-ShareAlike 3.0 Philippines
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Some Rights Reserved.

 Table of Contents
Caltex vs. Sulpicio Lines (GR 131166, 30 September 1999)...............1
First Philippine Industrial Corp. vs. CA (GR 125948, 29 December 1998)...............4
Arada vs. CA (GR 98243, 1 July 1992)...............6
Sabena Belgian World Airlines vs. CA (GR 104685, 14 March 1996)...............8
Philippine National Railways (PNR) vs. CA (GR L-55347, 4 October 1985).......................11
Eastern Shipping Lines vs. CA (GR 97412, 12 July 1994)...............13
Metro Port Services vs. CA (GR L-57582, 24 August 1984)...............15
Home Insurance Co. vs. American Steamship Agencies (GR L-25599, 4 April 1968)...............16
Lastimosa vs. Doliente...............[unavailable]
National Steel vs. CA (GR 112287, 12 December 1997)...............18

De Villata vs. JS Stanley (GR 8154, 20 December 1915)...............24

US vs. Quinajon (GR 8686, 30 July 1915)...............31
De Guzman vs. CA (GR L-47822, 22 December 1988)................35
Planters Products vs. CA (GR 101503, 15 September 1993)...............39
Bascos vs. CA (GR 101089, 7 April 1993)...............43
Mendoza vs. PAL (GR L-3678, 29 February 1952)...............45
Coastwise Lighterage Corp. vs. CA (GR 114167, 12 July 1995)...............49
Benedicto vs. IAC (GR 70876, 19 July 1990)...............51
Teja Marketing vs. IAC (GR L-65510, 9 March 1987)...............53
BA Finance vs. CA (GR 98275, 13 November 1992)...............55

Vargas vs. Langkay...............[unavailable]

Nocum vs. Laguna Tayabas Bus Co. (GR L-23733, 31 October 1969)...............57
Tamayo vs. Aquino, et.al. (GR L-12634 & L-12720, 29 May 1959)...............60
Erezo vs. Jepte (GR L-9605, 30 September 1957)...............62
Zamboanga Transportation Co. vs. CA (GR L-25292, 29 November 1969)................64
Santos vs. Sibog (GR L-26815, 26 May 1981)...............66
PAL vs. NLRC (GR L-62961, 2 September 1983)...............70
Vasquez vs. CA (GR L-42926, 13 September 1985)...............71
Dangwa Transportation vs. CA (GR 95582, 7 October 1991)...............73
Delsan Transport Lines vs. CA (GR 127897, 15 November 2001)................76

Loadstar Shipping vs. CA (GR 131621, 28 September 1999)...............79

Metro Manila Transit Corporation vs. CA (GR 104408, 21 June 1993)...............81
Kapalaran Bus vs. Coronado (GR 85331, 25 August 1989).................86
Trans-Asia Shipping Lines vs. CA (GR 118126, 4 March 1996)...............90
Belgian Overseas Chartering and Shipping vs. Philippine First Insurance Co. Inc. (GR 143133, 5 June 2002)................93
Yobido vs. CA (GR 113003, 17 October 1997)...............96
Tan Liam Grocery. vs. De La Rama Steamship...............[unavailable]
National Development Co. vs. CA (GR L-49407, 19 August 1988)...............99
Ganzon vs. CA (GR L-48757, 30 Mary 1988)...............102
Mirasol vs. Robert Dollar Co. (GR 29721, 27 March 1929)...............104

Eastern Shipping Lines vs. IAC (GR L-69044, 29 May 1987)................106

Kui Pai & Co. vs. Dollar Steamship Line (GR 30019, 2 March 1929)....................112
Compania Maritima vs. Insurance Co. of North America (GR L-18965, 30 October 1964).....................114
Government vs. Inchausti (GR 6957, 14 February 1913)...................117
Samar Mining Co. vs. Nordeutscher Lloyd (GR L-28673, 23 October 1984).....................119
Macam vs. CA (GR 125524, 25 August 1999)...............122
Saludo vs. CA (GR 95536, 23 March 1992)...............125
Delgado Bros. vs. CA (GR L-15654, 29 December 1960)...............134
Eastern Shipping Lines vs. CA (GR 80936, 17 October 1990)...............136
Limpangco Sons vs. Yangco Steamship (GR 10283, 25 July 1916)...............139

G. Martini Ltd. vs. Macondray & Co. (GR 13972, 28 July 1919)...............141
Heirs of de los Santos vs. CA (GR 51165, 21 June 1990)...............146
International Department Store vs. Jabellana...............[unavailable]
Compania Maritima vs. CA (GR L-31379, 29 August 1988)...............150
HE Heacock vs. Macondray (GR 16598, 3 October 1921)...............153
St. Paul Fire & Marine Insurance vs. Macondray (GR L-27795, 25 March 1976)...............155
Valenzuela Hardwood and Industrial vs. CA (GR 102316, 30 June 1997)................157
 Sweet Line vs. Teves (GR L-37750, 19 May 1978)...............161
Eastern and Australian Steamship vs. Great American Insurance (GR L-37604, 23 October 1981)...............164
Sea-land Service vs. IAC (GR 75118, 31 August 1987)...............165

Aboitiz Shipping vs. CA (GR 89757, 6 August 1990)...............170

Everett Steamship Corp. vs. CA (GR 122494, 8 October 1998)................173
Shewaram vs. PAL (GR L-20099, 7 July 1966)...............177
Ong Yiu vs. CA (GR L-40597, 29 June 1979)...............179
British Airways vs. CA (GR 121824, 29 January 1998)...............182
PAL vs. CA (GR 92501, 6 March 1992)...............185
Robles vs. Santos...............[unavailable]
Quisumbing vs. CA (GR 50076, 14 September 1990)...............187
PanAm World Airways vs. Rapadas (GR 60673, 19 May 1992)...............189
PAL vs. CA (GR 120262, 17 July 1997)...............193

Baliwag Transit vs. CA (GR 116110, 15 May 1996)...............196

Mecenas vs. CA (GR 88052, 14 December 1989)...............199
PAL vs. CA (GR L-46558, 31 July 1981)...............204
Pilapil vs. CA (GR 52159, 22 December 1989)...............208
Fortune Express vs. CA (GR 119756, 18 March 1999)..................211
Landingin vs. Pangasinan Transportation (GR L-28014-15, 29 May 1970)...............214
California Lines vs. de los Santos (GR L-13254, 30 December 1961)...............216
Estrada vs. Consolacion (GR L-40948, 29 June 1976)...............217
Lara vs. Valencia (GR L-9907, 30 June 1958)................220
Bayasen vs. CA (GR L-25785, 26 February 1981)...............222

Cervantes vs. CA (GR 125138, 2 March 1999)...............223

De Gillaco vs. Manila Railroad Co. (GR L-8034, 18 November 1955)...............225
Maranan vs. Perez (GR L-2272, 26 June 1967)...............227
Lasam vs. Smith (GR 19495, 2 February 1924)................230
Sweet Lines vs. CA (GR L-46340, 28 April 1983)...............232
Magboo vs. Bernardo (GR L-16790, 30 April 1963)...............234
Isaac vs. AL Ammen Transportation (GR L-9671, 23 August 1957)..............235
Sanez vs. Samala...............[unavailable]
Panay Autobus vs. Pastor (GR 47933, 29 July 1942)...............238
Del Prado vs. Meralco (GR 29462, 7 March 1929)...............238

Cangco vs. Manila Railroad (GR 12191, 14 October 1918)...............241

De Guia vs. Manila Electric Railroad & Light Co. (GR 14335, 28 January 1920)...............248
Calalas vs. CA (GR 122039, 31 May 2000)...............251
Jesusa Vda. De Nueca vs Manila Railroad...............[unavailable]
Light Rail Transit Authority vs. Navidad (GR 145804, 6 February 2003)...............253
La Mallorca vs. CA (GR L-20761, 27 July 1966)...............256
Aboitiz Shipping Corp. vs. CA (GR 84458, 6 November 1989)...............258
Bachelor Express vs. CA (GR 85691, 31 July 1990)...............261
Bacarro vs. Castano (HR L-34597, 5 November 1982)...............265

Laguna Tayabas Bus vs. Tiongson (GR L-22143, 30 April 1966)...............267

Sulpicio Lines vs. CA (GR 113578, 14 July 1995)...............269
Fisher vs. Yangco Steamship (GR 8085, 5 November 1914)...............272
Fisher vs. Yangco Steamship (GR 8095, 31 March 1915)...............280
Maritime Co. of the Philippines vs. CA (GR 47004, 8 March 1989)...............282
Gatchalian vs. Delim (GR 56487, 21 October 1991)...............284
American Home Assurance vs. CA (GR 94149, 5 May 1992)...............288
Eastern Shipping Lines vs. Margarine-Verkaufs-Union GmbH (GR L-31087, 27 September 1979)...............290
Magellan Manufacturing Marketing vs. CA (GR 95529, 22 August 1991)...............292
Reyma Brokerage vs. Philippine Home Assurance Corp. (GR 93464, 7 October 1991)...............296
Keng Hua Paper Products vs. CA (GR 116863, 12 February 1998)...............298

Ysmael vs. Barretto (GR 28028, 25 November 1927)...............301

Maersk Line vs. CA (GR 94761, 17 May 1993)...............304
New Zealand Insurance Co. vs. IAC (GR L-66596, 28 August 1984)...............307
Mariano Uy Chaco Sons & Co. vs. Admiral Line (GR 22134, 17 October 1924)...............308
Standard Vacuum Oil Co. vs. Luzon Stevedoring Co. (GR L-5203, 18 April 1956)...............310
Tan Chiong Sian vs. Inchausti (GR 6092, 8 March 1912)...............313
 World Fire vs. Macondray................[unavailable]
Heacock’s Aklam vs. Aboitiz...............[unavailable]
New Zealand Insurance vs. Chua Joy (GR L-7311, 30 September 1955)...............318
E. Razon vs, CA (GR L-50242, 21 May 1988).................320

Pernito Arrastre Services vs. Mendoza (GR L-53492, 29 December 1986)...............322

Tan Pho vs. Dalamal (GR 45598, 26 April 1939)...............327
Baer Senior & Co. vs. La Compania Maritima (GR 1963, 30 April 1906)...............328
Lopez vs. Duruelo (GR 29166, 22 October 1928)...............330
Philippine Refining v. Jarque (GR 41506, 25 March 1935)...............333
McMicking vs. El Banco Espanol-Filipino (GR 5029, 1 April 1909)...............334
Ivancich vs. Odlin (GR 924, 1 May 1902)...............337
Heath vs. Steamer San Nicolas (GR L-3066, 25 February 1907)...............339
Manila Steamship vs. Insa Abdulhaman (GR L-9534, 29 September 1956)...............343
Chua Yek Hong vs. IAC (GR L-74811, 30 September 1988)................345

Commissioner vs. US Lines (GR L-16850, 30 May 1962)...............348

Madrigal Shipping vs. Ogilve (GR L-8431, 30 October 1958)...............350
Garcia vs. Ruiz (GR 923, 16 January 1903)...............353
Yaptico vs. Anderson (GR 9366, 1 August 1916)...............355
Yu Con vs. Ipil (GR 10195, 29 December 1916)...............356
US vs. Steamship “Islas Filipinas” (GR 8746, 30 October 1914)...............360
Ohta Development Co. vs. Steamship Pompey (GR 24658, 31 March 1926)...............363
Triton Insurance vs. Jose (GR 10381 and 10714, 14 January 1916)................364
USA vs. Steamship Rubi (GR 9235, 17 November 1915)...............365
International Harvester Co. in Russia vs. Hamburg-American Line (GR 11515, 29 July 1918)................370

Compagnie Franco-Indochinoise vs. Deutsch Australische Dampschiffs Gesselschaft (GR 11169, 31 March 1917)...............374
Guzman vs. William X (GR L-3649, 24 October 1907)...............378
US vs. Bacho (GR L-4091, 25 March 1908)...............380
Vir-Jen Shipping and Marine Services, NLRC (GR L-58011-12, 20 July 1982)...............381
Wallem Phil. Shipping vs. Minister of Labor (GR L-50734-37, 20 February 1981)...............387
Abueg vs. San Diego (CA-773-775, 17 December 1946)...............390
Murillo vs. Mendoza (GR 46020, 8 December 1938)...............392
Macondray vs. Delgado Bros. (GR L-13118, 28 April 1960)................397
Bryan vs. Eastern & Australian SS (GR 9403, 4 November 1914)...............398
Puromines Inc. vs. CA (GR 91228, 22 March 1993)...............400

Litonjua Shipping vs. National Seamen Board (GR 51910, 10 August 1989)...............403
Maritime Agencies & Services vs. CA (GR 77638, 12 July 1990)...............406
Ouano vs. CA (GR 95900, 23 July 1992)..................411
NFA vs. CA (GR 96453, 4 August 1999)...............414
Market Developers vs. IAC (GR 74978, 8 September 1989)...............418
Marimperio Compania Naviera vs. CA (GR L-40234, 14 December 1987)...............421
O’Farrel vs. Meralco (GR 31222, 29 October 1929)...............424
Overseas Factors Inc. vs. South Sea Shipping (GR L-12138, 27 February 1962)................426
Phoenix Assurance Co. Ltd. vs. US Lines GR L-24033, 22 February 1968)...............431
Telengtan Bros. & Sons. Vs. CA (GR 110581, 21 September 1994)...............434

De la Riva vs. Lizarraga Hermanos (GR L-2464, 7 January 1907)...............438

Banco Agricola y Pecuario v. El Dorado Trading...............[unavailable]
PC Ailment v. Macondray...............[unavailable]
Litton v. PNB...............[unavailable]
Oriental Commercial v. La Naviera Filipina...............[unavailable]
Philippine Home Assurance vs. CA (GR 106999, 20 June 1996)................439
A. Magsaysay Inc. vs. Agan (GR L-6393, 31 January 1955)...............441
Austria vs. CA (GR 133323, 9 March 2000)...............443
Smith Bell vs. CA (GR 56294, 20 May 1991)...............445
Manila vs. Atlantic Gulf and Pacific Co. (GR 4510, 19 December 1908)...............450

Marine Trading vs. Government (GR 13422, 8 November 1918)................451

A. Urrutia & Co. vs. Baco River Plantation (GR 7675, 25 March 1913)...............452
Versoza vs. Lim (GR 20145, 15 November 1923)................458
Government vs. Philippine Steamship Co. (GR 18957, 16 January 1923)...............461
Picart vs. Smith (GR L-12219, 15 March 1918)................462
 US vs. Smith Bell (GR 1876, 30 September 1905)................464
Philippine Shipping Co. vs. Vergara (GR 1600, 1 June 1906)...............465
Chin Guan vs. Compania Maritima (GR 45070, 28 November 1938)...............467
Manila Railroad vs. Macondray (GR L-12475, 21 March 1918)...............468
Standard Oil Co. of New York vs. Lopez Castelo (GR 13695, 18 October 1921)...............470

Jarque vs. Smith Bell (GR 32986, 11 November 1930)...............473

Taxicab Operators v. The Board of Transportation [GR L-59234, 30 September 1982]...............475
Napocor vs. CA (GR 113103, 13 June 1997)...............476
GMCR vs. Bell Telecoms (GR 126496, 30 April 1997)...............480
Maceda vs. ERB (GR 95203-05, 18 December 1990)...............485
Lagman vs. Manila (GR L-23305, 30 June 1966)...............488
Philippine Global Communications vs. Relova (GR L-52819, 2 October 1980)...............491
Philippine Global vs. Relova (GR L-60548, 10 November 1986)...............492
PLDT vs. NTC (GR 88404, 18 October 1990)...............496
RCPI vs. Rodriguez (GR 83768, 28 February 1990)................502

Telefast Communications vs. Castro (GR 73867, 29 February 1988)...............505

RCPI vs. CA (GR 79578, 13 March 1991)...............507
Zulueta vs. Pan American World Airways (GR L-28589, 8 January 1973); Res................509
Lopez vs. Pan American World Airways (GR L-22415, 30 March 1966)...............516
Pan American World Airways vs. IAC (GR L-70462, 11 August 1988)...............521
Luna vs. CA (GR 100374-75, 27 November 1992)...............524
Santos vs. Northwest Orient Airlines (GR 101538, 23 June 1992)...............526
Tan vs. Northwestern Airlines (GR 135802, 3 March 2000)...............532
American Airlines vs. CA (GR 116044-45, 9 March 2000)...............533
Yu Eng Cho vs. Pan American World Airways (GR 123560, 27 March 2000)...............535 {200-11}

Rizal Surety & Insurance vs. Macondray & Co. (GR L-24064, 29 February 1968)...............540
The American Insurance Co. vs. Compania Maritima (GR L-24515, 18 November 1967)...............541
Mitsui vs. CA (GR 119571, 11 March 1998)...............542
Mayer Steel Pipe vs. CA (GR 124050, 19 June 1997)...............544
Barrios vs. Go Thong (GR L-17192, 30 March 1963)...............545
Wallace vs. Pujalte Co. (GR 10019, 29 March 1916)...............547
Atlantic Gulf & Pacific Co. vs. Uchida Kisen Kaisha (GR 15871, 7 November 1921)...............549
Erlanger & Galinger vs. Swedish East Asiatic (GR 10051, 9 March 1916)...............552
Pestano vs. Sumayang (GR 139875, 4 December 2000)...............561
 This collection contains one hundred ninety eight (198)
out of two hundred nine (209) assigned cases
summarized in this format by
Michael Vernon M. Guerrero (as a junior law student)
during the First Semester, school year 2004-2005
in the Transportation Law class
under Atty. Porfirio Panganiban
at the Arellano University School of Law (AUSL).
Compiled as PDF, July 2011.

Berne Guerrero entered AUSL in June 2002

and eventually graduated from AUSL in
2006.
He passed the Philippine bar examinations immediately after (April 2007).

www.berneguerrero.com
 Haystacks (Berne Guerrero)

[1], also [173]

Caltex vs. Sulpicio Lines (GR 131166, 30 September 1999)

First Division, Pardo (J): 3 concur, 1 took no part

Facts: MT Vector is a tramping motor tanker owned and operated by Vector Shipping Corporation, which is
engaged in the business of transporting fuel products such as gasoline, kerosene, diesel and crude oil. On the
other hand, the MV Doña Paz is a passenger and cargo vessel owned and operated by Sulpicio Lines, Inc.
plying the route of Manila/ Tacloban/ Catbalogan/ Manila/ Catbalogan/ Tacloban/ Manila, making trips twice
a week. On 19 December 1987, motor tanker MT Vector left Limay, Bataan, enroute to Masbate, loaded with
8,800 barrels of petroleum products shipped by Caltex, by virtue of a charter contract between Vector
Shipping and Caltex. The next day, the passenger ship MV Doña Paz left the port of Tacloban headed for
Manila with a complement of 59 crew members including the master and his officers, and passengers totaling
1,493 as indicated in the Coast Guard Clearance, but possibly carrying an estimated 4,000 passengers. At
about 10:30 p.m. of 20 December 1987, the two vessels collided in the open sea within the vicinity of Dumali
Point between Marinduque and Oriental Mindoro. All the crewmembers of MV Doña Paz died, while the two
survivors from MT Vector claimed that they were sleeping at the time of the incident. Only 24 survived the
tragedy after having been rescued from the burning waters by vessels that responded to distress calls. Among
those who perished were public school teacher Sebastian Cañezal (47 years old) and his daughter Corazon
Cañezal (11 years old), both unmanifested passengers but proved to be on board the vessel. On 22 March
1988, the board of marine inquiry after investigation found that the MT Vector, its registered operator
Francisco Soriano, and its owner and actual operator Vector Shipping Corporation, were at fault and
responsible for its collision with MV Doña Paz.

On 13 February 1989, Teresita and Sotera Cañezal, filed with the RTC Manila, a complaint for “Damages
Arising from Breach of Contract of Carriage” against Sulpicio Lines, Inc. Sulpicio, in turn, filed a third party
complaint against Francisco Soriano, Vector Shipping Corporation and Caltex (Philippines), Inc. On 15
September 1992, the trial court rendered decision dismissing the third party complaint against Caltex.

On appeal to the Court of Appeals interposed by Sulpicio Lines, Inc. (CA-GR CV 39626), on 15 April 1997,
the Court of Appeal modified the trial court’s ruling and included petitioner Caltex as one of the those liable
for damages. Hence the petition.

The Supreme Court granted the petition and set aside the decision of the Court of Appeals, insofar as it held
Caltex liable under the third party complaint to reimburse/indemnify Sulpicio Lines, Inc. the damages the
latter is adjudged to pay plaintiffs-appellees. The Court affirmed the decision of the Court of Appeals insofar
as it orders Sulpicio Lines, Inc. to pay the heirs of Sebastian E. Cañezal and Corazon Cañezal damages as set
forth therein. Third-party defendant-appellee Vector Shipping Corporation and Francisco Soriano are held
liable to reimburse/indemnify defendant Sulpicio Lines, Inc. whatever damages, attorneys’ fees and costs the
latter is adjudged to pay plaintiffs-appellees in the case.

1. The respective rights and duties of a carrier depends on the nature of the contract of carriage
The respective rights and duties of a shipper and the carrier depends not on whether the carrier is
public or private, but on whether the contract of carriage is a bill of lading or equivalent shipping documents
on the one hand, or a charter party or similar contract on the other. In the case at bar, Caltex and Vector
entered into a contract of affreightment, also known as a voyage charter.

2. Charter party and contract of affreightment defined

A charter party is a contract by which an entire ship, or some principal part thereof, is let by the
owner to another person for a specified time or use; a contract of affreightment is one by which the owner of
a

Transportation Law, 2004 ( 1 )

ship or other vessel lets the whole or 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.

3. Kinds of contract of affreightment

A contract of affreightment may be either time charter, wherein the leased vessel is leased to the
charterer for a fixed period of time, or voyage charter, wherein the ship is leased for a single voyage. In both
cases, the charter-party provides for the hire of the vessel only, either for a determinate period of time or for a
single or consecutive voyage, the ship owner to supply the ship’s store, pay for the wages of the master of the
crew, and defray the expenses for the maintenance of the ship.

4. Charterer’s liability: Bareboat charter vs. Contract of affreightment

Under a demise or bareboat charter, the charterer mans the vessel with his own people and becomes,
in effect, the owner for the voyage or service stipulated, subject to liability for damages caused by negligence.
If the charter is a contract of affreightment, which leaves the general owner in possession of the ship as owner
for the voyage, the rights and the responsibilities of ownership rest on the owner. The charterer is free from
liability to third persons in respect of the ship.

5. Categories of charter parties

Charter parties fall into three main categories: (1) Demise or bareboat, (2) time charter, (3) voyage
charter.

6. Bareboat, but not voyage charter, transforms common carrier into private carrier
Although a charter party may transform a common carrier into a private one, the same however is not
true in a contract of affreightment (Coastwise Lighterage Corp. vs. CA) 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 ship-owner 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. (Planters Products vs. CA). In the case at bar, the charter party agreement did not
convert the common carrier into a private carrier. The parties entered into a voyage charter, which retains the
character of the vessel as a common carrier.

7. Common carrier defined

A common carrier is a person or corporation whose regular business is to carry passengers or
property for all persons who may choose to employ and to remunerate him. In the case at bar, MT Vector fits
the definition of a common carrier under Article 1732 of the Civil Code (Common carriers are persons,
corporations, firms or associations engaged in the business of carrying or transporting passengers for
passengers or goods or both, by land, water, or air for compensation, offering their services to the public).

8. Article 1732, Common carrier, construed

Article 1732 makes no distinction between one whose principal business activity is the carrying of
persons or goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as “a
sideline”). Article 1732 also carefully avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such services on a an occasional,
episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its services to
the “general public,” i.e., the general community or population, and one who offers services or solicits
business only from a narrow segment of the general population. Article 1733 deliberately refrained from
making such distinctions.

9. Responsibility of carrier before voyage; Seaworthiness

 Under Section 3 of the Carriage of Goods by Sea Act, (1) The carrier shall be bound before and at the
beginning of the voyage to exercise due diligence to (a) Make the ship seaworthy; (b) Properly man, equip,
and supply the ship; among others. Carriers are deemed to warrant impliedly the seaworthiness of the ship.
For a vessel to be seaworthy, it must be adequately equipped for the voyage and manned with a sufficient
number of competent officers and crew. The failure of a common carrier to maintain in seaworthy condition
the vessel involved in its contract of carriage is a clear breach of its duty prescribed in Article 1755 of the
Civil Code.

10. Article 1173 of the New Civil Code

Article 1173 of the Civil Code provides that “the fault or negligence of the obligor consists in the
omission of that diligence which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place. When negligence shows bad faith, the provisions
of Article 1171 and 2201 paragraph 2, shall apply. If the law does not state the diligence which is to be
observed in the performance, that which is expected of a good father of a family shall be required.”

11. Negligence defined

Negligence, as commonly understood, is conduct which naturally or reasonably creates undue risk or
harm to others. It may be the failure to observe that degree of care, precaution, and vigilance, which the
circumstances justly demand, or the omission to do something which ordinarily regulate the conduct of
human affairs, would do (Southeastern College vs. CA).

12. Reason for the applicability of Section 3 COGSA, and Article 1755 NCC to carriers, not
shipper and passengers; Ordinary diligence required of shippers
The provisions owed their conception to the nature of the business of common carriers. This business
is impressed with a special public duty. The public must of necessity rely on the care and skill of common
carriers in the vigilance over the goods and safety of the passengers, especially because with the modern
development of science and invention, transportation has become more rapid, more complicated and
somehow more hazardous. For these reasons, a passenger or a shipper of goods is under no obligation to
conduct an inspection of the ship and its crew, the carrier being obliged by law to impliedly warrant its
seaworthiness. The charterer of a vessel has no obligation before transporting its cargo to ensure that the
vessel it chartered complied with all legal requirements. The duty rests upon the common carrier simply for
being engaged in “public service.” The Civil Code demands diligence which is required by the nature of the
obligation and that which corresponds with the circumstances of the persons, the time and the place. Because
of the implied warranty of seaworthiness, shippers of goods, when transacting with common carriers, are not
expected to inquire into the vessel’s seaworthiness, genuineness of its licenses and compliance with all
maritime laws. To demand more from shippers and hold them liable in case of failure exhibits nothing but the
futility of our maritime laws insofar as the protection of the public in general is concerned. By the same
token, passengers cannot be expected to inquire every time they board a common carrier, whether the carrier
possesses the necessary papers or that all the carrier’s employees are qualified. Such a practice would be an
absurdity in a business where time is always of the essence. Considering the nature of transportation business,
passengers and shippers alike customarily presume that common carriers possess all the legal requisites in its
operation. In the case at bar, the nature of the obligation of Caltex demands ordinary diligence like any other
shipper in shipping his cargoes.

13. Caltex not liable for damages

Caltex and Vector Shipping Corporation had been doing business since 1985, or for about two years
before the tragic incident occurred in 1987. Past services rendered showed no reason for Caltex to observe a
higher degree of diligence. Clearly, as a mere voyage charterer, Caltex had the right to presume that the ship
was seaworthy as even the Philippine Coast Guard itself was convinced of its seaworthiness. All things
considered, we find no legal basis to hold petitioner liable for damages.
[2], also [10]

First Philippine Industrial Corp. vs. CA (GR 125948, 29 December 1998)

Second Division , Martinez (J): 3 concur

Facts: First Philippine Industrial Corporation (FPIC) is a grantee of a pipeline concession under RA 387, as
amended, to contract, install and operate oil pipelines. The original pipeline concession was granted in 1967
and renewed by the Energy Regulatory Board in 1992. Sometime in January 1995, FPIC applied for a
mayor’s permit with the Office of the Mayor of Batangas City. However, before the mayor’s permit could be
issued, the City Treasurer required FPIC to pay a local tax based on its gross receipts for the fiscal year 1993
pursuant to the Local Government Code. The City Treasurer assessed a business tax on the petitioner
amounting to P956,076.04 payable in four installments based on the gross receipts for products pumped at
GPS-1 for the fiscal year 1993 which amounted to P181,681,151.00. In order not to hamper its operations,
FPIC paid the tax under protest in the amount of P239,019.01 for the first quarter of 1993. On 8 March 1994,
the City Treasurer denied the protest contending that petitioner cannot be considered engaged in
transportation business, thus it cannot claim exemption under Section 133 (j) of the Local Government Code.

On 15 June 1994, FPIC filed with the RTC Batangas City a complaint for tax refund with prayer for writ of
preliminary injunction against the City of Batangas and Adoracion Arellano in her capacity as City Treasurer
(Civil Case 4293). On 3 October 1994, the trial court rendered a decision dismissing the complaint.

PFIC assailed the aforesaid decision before the Supreme Court via a petition for review. On 27 February
1995, the Supreme Court referred the case to the Court of Appeals for consideration and adjudication (CA-
GR SP 36801). On 29 November 1995, the CA rendered a decision affirming the trial court’s dismissal of
petitioner’s complaint. FPIC’s motion for reconsideration was denied on 18 July 1996. Hence, the petition for
review on certiorari.

At first, the petition was denied due course in a Resolution dated 11 November 1996. FPIC moved for a
reconsideration which was granted by the Supreme Court in a Resolution of 22 January 1997. Thus, the
petition was reinstated. Finally, the Supreme Court granted the petition, and thus reversed and set aside the
decision of the Court of Appeals.

1. Common Carrier defined (broad definition)

A “common carrier” may be defined, broadly, as one who holds himself out to the public as engaged
in the business of transporting persons or property from place to place, for compensation, offering his services
to the public generally.

2. Common Carrier defined (Article 1732)

Article 1732 of the Civil Code defines a “common carrier” as “any person, corporation, firm or
association engaged in the business of carrying or transporting passengers or goods or both, by land, water, or
air, for compensation, offering their services to the public.”

3. Test for determining whether a party is a common carrier of goods

a. He must be engaged in the business of carrying goods for others as a public employment, and must
hold himself out as ready to engage in the transportation of goods for person generally as a business
and not as a casual occupation;
b. He must undertake to carry goods of the kind to which his business is confined;
c. He must undertake to carry by the method by which his business is conducted and over his
established roads; and
d. The transportation must be for hire.
4. FPIC is a common carrier
Based on the definitions and requirements, FPIC is a common carrier. It is engaged in the business of
transporting or carrying goods, i.e. petroleum products, for hire as a public employment. It undertakes to
carry for all persons indifferently, that is, to all persons who choose to employ its services, and transports the
goods by land and for compensation.

5. The fact that FPIC has a limited clientele does not exclude it from the definition of a common
carrier
Article 1732 of the Civil Code makes no distinction between one whose principal business activity is
the carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in
local idiom, as a ‘sideline’). Article 1732 . . . avoids making any distinction between a person or enterprise
offering transportation service on a regular or scheduled basis and one offering such service on an occasional,
episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its services to
the ‘general public,’ i.e., the general community or population, and one who offers services or solicits
business only from a narrow segment of the general population. We think that Article 1877 deliberately
refrained from making such distinctions. (De Guzman vs. CA)

6. Common Carrier under Article 1732 coincides neatly with notion of Public Service
The concept of ‘common carrier’ under Article 1732 may be seen to coincide neatly with the notion
of “public service,” under the Public Service Act (Commonwealth Act 1416, as amended) which at least
partially supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b)
of the Public Service Act, ‘public service’ includes “every person that now or hereafter may own, operate,
manage, or control in the Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes, any common carrier, railroad,
street railway, traction railway, subway motor vehicle, either for freight or passenger, or both, with or without
fixed route and whatever may be its classification, freight or carrier service of any class, express service,
steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or
freight or both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation
system gas, electric light heat and power, water supply and power petroleum, sewerage system, wire or
wireless communications systems, wire or wireless broadcasting stations and other similar public services.”

7. Oil pipeline operators are common carriers; Motor vehicle not required
The definition of “common carriers” in the Civil Code makes no distinction as to the means of
transporting, as long as it is by land, water or air. It does not provide that the transportation of the passengers
or goods should be by motor vehicle. In fact, in the United States, oil pipe line operators are considered
common carriers.

8. Pipeline concessionaire as common carrier (RA 387)

Under the Petroleum Act of the Philippines (Republic Act 387), FPIC is considered a “common
carrier.” Thus, Article 86 thereof provides that “Pipe line concessionaire as common carrier. — A pipe line
shall have the preferential right to utilize installations for the transportation of petroleum owned by him, but is
obliged to utilize the remaining transportation capacity pro rata for the transportation of such other petroleum
as may be offered by others for transport, and to change without discrimination such rates as may have been
approved by the Secretary of Agriculture and Natural Resources.”

9. Petroleum operation regarded as public utility (RA 387)

Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion of Article 7
thereof provides “that everything relating to the exploration for and exploitation of petroleum . . . and
everything relating to the manufacture, refining, storage, or transportation by special methods of petroleum, is
hereby declared to be a public utility.”
10. Pipeline concessionaire a common carrier (BIR Ruling 069-83)
The Bureau of Internal Revenue likewise considers FPIC a “common carrier.” In BIR Ruling 069-83,
it declared that “. . . since (petitioner) is a pipeline concessionaire that is engaged only in transporting
petroleum products, it is considered a common carrier under Republic Act No. 387 . . . Such being the case, it
is not subject to withholding tax prescribed by Revenue Regulations No. 13-78, as amended.”

11. FPIC is a common carrier and is thus exempt from the business tax provided in Section 133 (j)
LGC
FPIC is a “common carrier” and, therefore, exempt from the business tax as provided for in Section
133 (j), of the Local Government Code. Section 133 (j) provides that “(Common Limitations on the Taxing
Powers of Local Government Units) Unless otherwise provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall not extend to the levy of the following: xxx (j.) Taxes on
the gross receipts of transportation contractors and persons engaged in the transportation of passengers or
freight by hire and common carriers by air, land or water, except as provided in this Code.”

12. Non-imposition of business tax against common carriers to prevent duplication of “common
carrier’s tax”
The legislative intent in excluding from the taxing power of the local government unit the imposition
of business tax against common carriers is to prevent a duplication of the so-called “common carrier’s tax.”
The legislature thus provided an exception under Section 125 (now Section 137) that a province may impose
this tax at a specific rate. In the case at bar, FPIC is already paying 3% common carrier’s tax on its gross
sales/earnings under the National Internal Revenue Code. To tax FPIC again on its gross receipts in its
transportation of petroleum business would defeat the purpose of the Local Government Code.

[3]

Arada vs. CA (GR 98243, 1 July 1992)

Second Division, Paras (J): 3 concur

Facts: Alejandro Arada is the proprietor and operator of the firm South Negros Enterprises which has been
organized and established for more than 10 years. It is engaged in the business of small scale shipping as a
common carrier, servicing the hauling of cargoes of different corporations and companies with the five
vessels it was operating. On 24 March 1982, Arada entered into a contract with San Miguel Corporation
(SMC) to safely transport as a common carrier, cargoes of the latter from San Carlos City, Negros Occidental
to Mandaue City using one of Arada’s vessels, M/L Maya. On 24 March 1982, Arada thru its crew master,
Mr. Vivencio Babao, applied for a clearance with the Philippine Coast Guard for M/L Maya to leave the port
of San Carlos City, but due to a typhoon, it was denied clearance by SNI Antonio Prestado PN who was then
assigned at San Carlos City Coast Guard Detachment. On 25 March 1982 M/L Maya was given clearance as
there was no storm and the sea was calm. Hence, said vessel left for Mandaue City. While it was navigating
towards Cebu, a typhoon developed and said vessel was buffeted on all its sides by big waves. Its rudder was
destroyed and it drifted for 16 hours although its engine was running. On 27 March 1982 at about 4:00 a.m.,
the vessel sank with whatever was left of its cargoes. The crew was rescued by a passing pump boat and was
brought to Calanggaman Island. Later in the afternoon, they were brought to Palompon, Leyte, where
Vivencio Babao filed a marine protest. On the basis of such marine protest, the Board of Marine Inquiry
conducted a hearing of the sinking of M/L Maya wherein SMC was duly represented. Said Board made it
findings and recommendation dated 7 November 1983, absolving the owner/operator, officers and crew of
M/L Maya from any administrative liability. The Board’s report containing its findings and recommendation
was then forwarded to the headquarters of the Philippine Coast Guard for appropriate action. On the basis of
such report, the Commandant of the Philippine Coast Guard rendered a decision dated 21 December 1984 in
SBMI Adm. Case No. 88-82 exonerating the owner/operator officers and crew of the ill-fated M/L Maya
from any administrative liability on account of said incident.
On 25 March 1983, SMC filed a complaint in the RTC its first cause of action being for the recovery of the
value of the cargoes anchored on breach of contract of carriage. After due hearing, said court rendered a
decision dated 18 July 1988, where (1) With respect to the first cause of action, claim of plaintiff is hereby
dismissed; (2) Under the second cause of action, defendant must pay plaintiff the sum of P2,000.00; (3) In the
third cause of action, the defendant must pay plaintiff the sum of P2,849.20; (4) Since the plaintiff has
withheld the payment of P12,997.47 due the defendant, the plaintiff should deduct the amount of P4,849.20
from the P12,997.47 and the balance of P8,148.27 must be paid to the defendant; and (5) Defendant’s
counterclaim not having been substantiated by evidence, is likewise dismissed. NO COSTS.” (Orig. Record,
pp. 193-195).

Thereafter, SMC appealed the decision to the Court of Appeals (CA-GR CV 20597). In its decision
promulgated on 8 April 1991, the Court of Appeals reversed the decision of the lower court, and thereupon
ordered Arada to pay unto the SMC the amount of P176,824.80 representing the value of the cargo lost on
board the ill-fated vessel, M/L Maya, with interest thereon at the legal rate from date of the filing of the
complaint on 25 March 1983, until fully paid, and the costs. Hence, the petition for review on certiorari.

On 20 November 1991, the Supreme Court gave due course to the petition. Finally, it affirmed the appealed
decision.

1. Common carriers defined

Common carriers are persons, corporations, firms or associations engaged in the business of carrying
or transporting passengers or goods or both, by land, water or air, for compensation offering their services to
the public (Art. 1732 of the New Civil Code). In the case at bar, there is no doubt that Arada was exercising
its function as a common carrier when it entered into a contract with SMC to carry and transport the latter’s
cargoes. This fact is best supported by the admission of petitioner’s son, Mr. Eric Arada, who testified as the
officer-in-charge for operations of South Negros Enterprises in Cebu City.

2. Duty of common carrier to exercise extraordinary diligence; Fortuitous event

A common carrier, both from the nature of its business and for insistent reasons of public policy is
burdened by law with the duty of exercising extraordinary diligence not only in ensuring the safety of
passengers, but in caring for the goods transported by it. The loss or destruction or deterioration of goods
turned over to the common carrier for the conveyance to a designated destination raises instantly a
presumption of fault or negligence on the part of the carrier, save only where such loss, destruction or damage
arises from extreme circumstances such as a natural disaster or calamity. (Benedicto v. IAC, G.R. No. 70876,
July 19, 1990, 187 SCRA 547)

3. Natural disaster must be the proximate and only cause of the loss to exempt common carrier
from liability
In order that the common carrier may be exempted from responsibility, the natural disaster must have
been the proximate and only cause of the loss. However, the common carrier must exercise due diligence to
prevent or minimize the loss before, during and after the occurrence of flood, storm or other natural disaster
in order that the common carrier may be exempted from liability for the destruction or deterioration of the
goods (Article 1739, New Civil Code).

4. Failure to ascertain the location and direction of typhoon shows negligence

Vivencio Babao, the ship’s captain, knew of the impending typhoon on 24 March 1982 when the
Philippine Coast Guard denied M/L Maya the issuance of a clearance to sail. Less than 24 hours elapsed since
the time of the denial of said clearance and the time a clearance to sail was finally issued on 25 March 1982.
Records will show that Babao did not ascertain where the typhoon was headed by the use of his vessel’s
barometer and radio. Neither did the captain of the vessel monitor and record the weather conditions everyday
as required by Art. 612 of the Code of Commerce. Had he done so while navigating for 31 hours, he could
have anticipated the strong winds and big waves and taken shelter.

5. PAG-ASA’s records as per March 25-27, 1982 on conditions prevailing in the vicinity of
Catmon, Cebu
As per official records of the Climatological Division of the Philippine Atmospheric, Geophysical
and Astronomical Services Administration (PAG-ASA) issued by its Chief of Climatological Division,
Primitivo
G. Ballan, Jr. as to the weather and sea conditions that prevailed in the vicinity of Catmon, Cebu during the
period March 25-27, 1982, the sea conditions on March 25, 1982 were slight to rough and the weather
conditions then prevailing during those times were cloudy skies with rainshowers and the small waves grew
larger and larger.

6. Circumstances constitute lack of foresight and minimum vigilance over the cargoes
A common carrier is obliged to observe extraordinary diligence and the failure of Babao to ascertain
the direction of the storm and the weather condition of the path they would be traversing, constitute lack of
foresight and minimum vigilance over its cargoes taking into account the surrounding circumstances of the
case.

7. Carrier’s fault or negligence presumed

While the goods are in the possession of the carrier, it is but fair that it exercises extraordinary
diligence in protecting them from loss or damage, and if loss occurs, the law presumes that it was due to the
carrier’s fault or negligence; that is necessary to protect the interest of the shipper which is at the mercy of the
carrier (Art. 1756, Civil Code, Aboitiz Shipping Corporation v. Court of Appeals, G.R. No. 89757, Aug. 6,
1990, 188 SCRA 387).

8. Crew of M/L Maya did not have the required qualifications

The records show that the crew of M/L Maya did not have the required qualifications provided for in
PD 97 or the Philippine Merchant Marine Officers Law, all of whom were unlicensed. While it is true that
they were given special permit to man the vessel, such permit was issued at the risk and responsibility of the
owner.

9. Exoneration from administrative liability does not mean exoneration from liability as common
carrier
The exoneration made by the Special Board of Marine Inquiry was but with respect to the
administrative liability of the “owner/operator, officers and crew of the ill-fated” vessel. It could not have
meant exoneration of Arada from liability as a common carrier for his failure to observe extraordinary
diligence in the vigilance over the goods it was transporting and for the negligent acts or omissions of his
employees. Such is the function of the Court, not the Special Board of Marine Inquiry.”

10. Jurisdiction of the Board of Marine Inquiry and the Special Board of Marine Inquiry
The Philippine Merchant Marine Rules and Regulations particularly Chapter XVI thereof entitled
“Marine Investigation and Suspension and Revocation Proceedings” prescribes the Rules governing maritime
casualties or accidents, the rules and procedures in administrative investigation of all maritime cases within
the jurisdiction or cognizance of the Philippine Coast Guard and the grounds for suspension and revocation of
licenses/certificates of marine officers and seamen (1601 — SCOPE); clearly, limiting the jurisdiction of the
Board of Marine Inquiry and Special Board of Marine Inquiry to the administrative aspect of marine
casualties in so far as it involves the shipowners and officers.

[4], also [101]

Sabena Belgian World Airlines vs. CA (GR 104685, 14 March 1996)

First Division: Vitug (J): 4 concur

Facts: On 21 August 1987, Ma. Paula San Agustin was a passenger on board flight SN 284 of Sabena
Belgian World Airlines originating from Casablanca to Brussels, Belgium. She was issued Tag 77143 on her
valuables, namely: jewelries valued at $2,350.00; clothes $1,500.00 shoes/bag $150; accessories $75; luggage
itself $10.00; or a total of $4,265.00. She stayed overnight in Brussels and her luggage was left on board
Flight SN 284. When she arrived at Manila International Airport on 2 September 1987 and immediately
submitted her Tag to facilitate the release of her luggage but the luggage was missing. She was advised to
accomplish and submitted and filed on the same day. She followed up her claim on 14 September 1987 but
the luggage remained to be missing. On 15 September 1987, she filed her formal complaint with the office of
Ferge Massed, the airlines’s Local Manager, demanding immediate attention. On 30 September 1987, on the
Occasion of San Agustin’s following up her luggage claim, she was furnished copies of the airlines’s telexes
with and information that the Brussel’s Office of defendant found the luggage and that they have assured by
the airline that it has notified its Manila Office 1987. But unfortunately San Agustin was informed that the
luggage was lost for the second time.

At the time of the filling of the complaint, the luggage was its content has not been found. San Agustin
demanded from the defendant the money value of the luggage and its contents amounting to $4,265.00 or its
exchange value, but the airline refused to settle the claim. After trial, the trial court rendered judgment
ordering Sabena Belgian World Airlines to pay Ma. Paula San Agustin (a) US$4,265.00 or its legal exchange
in Philippine pesos; “(b) P30,000.00 as moral damages; (c) P10,000.00 as exemplary damages; (d)
P10,000.00. attorney’s fees; and (e) (t)he cost of the suit.

Sabena appealed the decision of the Regional Trial Court to the Court of Appeals. The appellate court, in its
decision of 27 February 1992, affirmed in toto the trial court’s judgment. Hence, the petition for review.

The Supreme Court affirmed the appealed decision, with costs against Sabena Belgian World Airlines.

1. Fault or negligence; Rule in contracts and common carriers

Fault or negligence consists in the omission of that diligence which is demanded by the nature of an
obligation and corresponds with the circumstances of the person, of the time, and of the place. When the
source of an obligation is derived from a contract, the mere breach or non-fulfillment of the prestation gives
rise to the presumption of fault on the part of the obligor. This rule is not different in the case of common
carriers in the carriage of good father of a family but that of “extraordinary” care in the vigilance over the
goods.

2. Extraordinary diligence required on carriers

Art. 1733 of the [Civil] Code provides that from the very nature of their business and by reason of
public policy, common carriers are bound to observe extraordinary diligence in the vigilance over the goods
transported by them. This extraordinary responsibility, according to Art. 1736, lasts from the time the goods
are unconditionally placed in the possession of and received by the consignee or person who has the right to
receive them. Art 1737 states that the common carrier’s duty to observe extraordinary diligence in the
vigilance over the goods transported by them remains in full force and effect even when they are temporarily
unloaded or stored in transits.’ And Art. 1735 establishes the presumption that if the goods are lost, destroyed
or deteriorate, common carrier are presumed to have been at fault or to have acted negligently, unless they
prove that they had observed extraordinary diligence as required in Article 1733.

3. Exceptions to extraordinary diligence requirement

The only exceptions to the foregoing extraordinary responsibility of the common carrier is when the
loss, destruction, or deterioration of the goods is due to any of the following causes:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
 (2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of excepted causes obtains in the case.

4. Tort doctrine not a defense in failure to observe extraordinary diligence

The rules as to the extraordinary diligence required in carriers remain basically unchanged even when
the contract is breached by tort (on the ground that Section 5(c), Article IX, of the General Conditions of
Carriage, signed at Warsaw, Poland, on 02 October 1929, as amended by the Hague Protocol of 1955,
generally observed by International carriers, stating among other things, that: “Passengers shall not include in
his checked baggage, and the carrier may refuse to carry as checked baggage, Fragiles or perishable articles,
money, jewelry, precious metals, negotiable papers, securities or other valuable”) although noncontradictory
principles on quasi-delict may then be assimilated as also forming part of the governing law. The airline
company is not thus entirely off track when it has likewise raised in its defense the tort doctrine cannot
support its case.

5. Proximate cause defined

Proximate cause is that which, in natural and continues sequence, unbroken by any efficient
intervening cause, produces injury and without which the result would not have occurred.

6. Proximate legal cause defined

The proximate legal cause is that acting first and producing the injury, either immediately or by
setting other events in motion, all constituting a natural and continuous chain of events, each having a close
causal connection with its immediate predecessors, the final event in the chain immediately affecting the
injury as a natural and probable result of the cause which first acted, under such circumstances that the person
responsible for the event should, as an ordinarily prudent and intelligent person, have reasonable ground to
expect at the moment of his act or default that an injury to some person might probably result therefrom.

7. Loss of baggage twice shows gross negligence

It remained undisputed that San Agustin’s luggage was lost while it was in the custody of Sabena
Belgian World Airlines. It was supposed to arrive on the same flight that San Agustin took in returning to
Manila on 2 September 1987. On 23 October 1987, she was advised that her luggage had finally been found,
with its contents intact; only to be told later that her luggage had been lost for the second time. Thus, Sabena
Belgian World Airlines is ultimately guilty of “gross negligence” in the handling of San Agustin’s luggage,
for the “loss of said baggage not only once by twice underscore the wanton negligence and lack of care “ on
the part of the carrier.

8. Warsaw convention denies the carrier availment of provisions limiting liability if damage is
caused by willful misconduct or default
The Warsaw Convention denies to the carrier availment “of the provisions which exclude or limit his
liability if the damage is caused by his willful; misconduct or by such default on his part as, in accordance
with the law of the court seized of the case, is considered to be equivalent to willful misconduct,” or “if the
damage is (similarly) caused by any agent of the carrier acting within the scope of his employment.” The
Hague Protocol amended the Warsaw Convention by removing the provision that if the airline took all
necessary steps to avoid the damage, it could exculpate itself completely, and declaring the stated limits of
liability not applicable “if it is proved that the damage resulted from an act or omission of the carrier, its
servants or agents, done with intent to cause damage or recklessly and with knowledge that damage would
probably result.” The same deletion was effected by the Montreal Agreement of 1966, with the result that a
passenger could recover unlimited damages upon proof of wilful misconduct. The Convention does not thus
operate as an exclusive enumeration of the instances of an airline’s liability, or as an absolute limit of the
extent of that liability. Slight reflection readily leads to the conclusion that it should be deemed a limit of
liability only in those cases where the cause of the death or injury to person, or destruction, loss or damage to
property or delay in its transport is not attributable to or attended by any wilful misconduct, bad faith,
recklessness or otherwise improper conduct on the part of any official or employee for which the carrier is
responsible, and the carrier’ or misconduct of its employees, or for some Particular or exceptional type of
damage. (Alitalia vs. IAC)

9. Philippines is country of destination; No error in application of usual rules on extent of

recoverable damages beyond the Warsaw limitations
There is no error in the preponderant application to the case of the usual rules on the extent of
recoverable damages beyond the Warsaw limitations. Under domestic law and jurisprudence (the Philippines
being the country of destination), the attendance of gross negligence (given the equivalent of fraud or bad
faith) holds the common carrier liable for all damages which can be reasonably attribute, although
unforeseen, to the non-performance of the obligation, including moral and exemplary damages.

[5]

Philippine National Railways (PNR) vs. CA (GR L-55347, 4 October 1985)

Second Division, Escolin (J): 3 concur

Facts: On 10 September 1972, at about 9:00 p.m., Winifredo Tupang, husband of Rosario Tupang, boarded
Train 516 of the Philippine National Railways at Libmanan, Camarines Sur, as a paying passenger bound for
Manila. Due to some mechanical defect, the train stopped at Sipocot, Camarines Sur, for repairs, taking some
two hours before the train could resume its trip to Manila. Unfortunately, upon passing Iyam Bridge at
Lucena, Quezon, Winifredo Tupang fell off the train resulting in his death. The train did not stop despite the
alarm raised by the other passengers that somebody fell from the train. Instead, the train conductor, Perfecto
Abrazado, called the station agent at Candelaria, Quezon, and requested for verification of the information.
Police authorities of Lucena City were dispatched to the Iyam Bridge where they found the lifeless body of
Winifredo Tupang. As shown by the autopsy report, Winifredo Tupang died of cardio-respiratory failure due
to massive cerebral hemorrhage due to traumatic injury. Tupang was later buried in the public cemetery of
Lucena City by the local police authorities.

Upon complaint filed by the deceased’s widow, Rosario Tupang, the then CFI Rizal, after trial, held the PNR
liable for damages for breach of contract of carriage and ordered it to pay Rosario Tupang the sum of
P12,000.00 for the death of Winifredo Tupang, plus P20,000.00 for loss of his earning capacity, and the
further sum of P10,000.00 as moral damages, and P2,000.00 as attorney’s fees, and cost.

On appeal, the Appellate Court sustained the holding of the trial court that the PNR did not exercise the
utmost diligence required by law of a common carrier. It further increased the amount adjudicated by the trial
court by ordering PNR to pay the Rosario Tupang an additional sum of P5,000,00 as exemplary damages.
Moving for reconsideration of the above decision, the PNR raised for the first time, as a defense, the doctrine
of state immunity from suit. The motion was denied. Hence the petition for review.

The Supreme Court modified the decision of the appellate court by eliminating therefrom the amounts of
P10,000.00 and P5,000.00 adjudicated as moral and exemplary damages, respectively; without costs.

1. PNR created under RA 4196; PNR may sue and be sued like any other corporation
The PNR was created under A 4156, as amended. Section 4 of the said Act provides that “the
Philippine National Railways shall have the following powers: (a) To do all such other things and to transact
all such business directly or indirectly necessary, incidental or conducive to the attainment of the purpose of
the corporation; and (b) Generally, to exercise all powers of a corporation under the Corporation Law.” Under
the foregoing section, the PNR has all the powers, the characteristics and attributes of a corporation under the

Transportation Law, 2004 ( 11 )

Corporation Law. PNR may sue and be sued and may be subjected to court processes just like any other
corporation.

2. PNR funds subject to garnishment or execution

In Philippine National Railways v. Union de Maquinistas, et al., then Justice Fernando, later Chief
Justice, said that the main issue posed in said proceeding, i.e. “whether or not the funds of the Philippine
National Railways could be garnished or levied upon on execution”, was resolved in two recent decisions, the
Philippine National Bank v. Court of Industrial Relations [81 SCRA 314] and Philippine National Bank v.
Hon. Judge Pabalan [83 SCRA 595], where the Court ruled that there was no legal bar to garnishment or
execution. The argument based on non-suability of a state allegedly because the funds are governmental in
character was unavailing.

3. Other cases as to garnishment of GOCC funds

a. Philippine National Bank v. Court of Industrial Relations: “The premise that the funds could be
spoken of as public in character may be accepted in the sense that the People’s Homesite and Housing
Corporation was a government-owned entity. It does not follow though that they were exempt from
garnishment. “
b. National Shipyard and Steel Corporation v. Court of Industrial Relations: A government-owned
and controlled corporation has a personality of its own, distinct and separate from that of the
Government.

4. By engaging in a particular business as a corporation, government divests itself pro hac vice of
its sovereign character; Doctrine of non-suability cannot be legally set up
As held in Manila Hotel Employees Association v. Manila Hotel Co., when the government enters
into commercial business, it abandons its sovereign capacity and is to be treated like any other corporation.
By engaging in a particular business through the instrumentality of a corporation, the government divests
itself pro hac vice of its sovereign character, so as to render the corporation subject to the rules of law
governing private corporations. In Prisco v. CIR, it was held that “when the government engages in
business, it abdicates part of its sovereign prerogatives and descends to the level of a citizen” In the case at
bar, PNR cannot legally set up the doctrine of non-suability as a bar to the Tupang’s suit for damages.

5. PNR has obligation to observe extraordinary diligence in transporting passengers to their

destinations
PNR has the obligation to transport its passengers to their destinations and to observe extraordinary
diligence in doing so. Death or any injury suffered by any of its passengers gives rise to the presumption that
it was negligent in the performance of its obligation under the contract of carriage. PNR failed to overthrow
such presumption of negligence with clear and convincing evidence, inasmuch as PNR does not deny, (1) that
the train boarded by the deceased Winifredo Tupang was so overcrowded that he and many other passengers
had no choice but to sit on the open platforms between the coaches of the train, (2) that the train did not even
slow down when it approached the Iyam Bridge which was under repair at the time, and (3) that neither did
the train stop, despite the alarm raised by other passengers that a person had fallen off the train at Iyam
Bridge.

6. Contributory negligence of Tupang warrants deletion of moral damages

While PNR failed to exercise extraordinary diligence as required by law, it appears that the deceased
was chargeable with contributory negligence. Since he opted to sit on the open platform between the coaches
of the train, he should have held tightly and tenaciously on the upright metal bar found at the side of said
platform to avoid falling off from the speeding train. Such contributory negligence, while not exempting the
PNR from liability, nevertheless justified the deletion of the amount adjudicated as moral damages.

7. Award of exemplary damages in the absence of fraud, malice or bad faith

 The award of exemplary damages must be set aside. Exemplary damages may be allowed only in
cases where the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. There
being no evidence of fraud, malice or bad faith on the part of PNR, the grant of exemplary damages should be
discarded.

[6], also [51]

Eastern Shipping Lines vs. CA (GR 97412, 12 July 1994)

En Banc, Vitug (J): 13 concur, 1 took no part

Facts: On 4 December 1981, 2 fiber drums of riboflavin were shipped from Yokohama, Japan for delivery
vessel “SS Eastern Comet” owned by Eastern Shipping Lines under Bill of Lading YMA-8. The shipment
was insured under Mercantile Insurance Company’s Marine Insurance Policy 81/01177 for P36,382,466.38.
Upon arrival of the shipment in Manila on 12 December 1981, it was discharged unto the custody of Metro
Port Services, Inc. The latter excepted to one drum, said to be in bad order, which damage was unknown to
Mercantile Insurance. On 7 January 1982, Allied Brokerage Corporation received the shipment from Metro
Port Service, one drum opened and without seal. On January 8 and 14, 1982, Allied Brokerage made
deliveries of the shipment to the consignees’ warehouse. The latter excepted to one drum which contained
spillages, while the rest of the contents was adulterated/fake. Due to the losses/damage sustained by said
drum, the consignee suffered losses totaling P19,032.95, due to the fault and negligence of the shipping
company, arrastre operator and broker-forwarder. Claims were presented against them who failed and refused
to pay the same. As a consequence of the losses sustained, Mercantile Insurance was compelled to pay the
consignee P19,032.95 under the aforestated marine insurance policy, so that it became subrogated to all the
rights of action of said consignee against the shipping company, etc.

After trial, the trial court rendered judgment (1) ordering the shipping company, the arrastre operator and the
broker-forwarder to pay Mercantile Insurance, in solidum, the amount of P19,032.95 with the present legal
interest of 12% per annum from October 1, 1982, the date of filing of this complaints, until fully paid (the
liability of defendant Eastern Shipping, Inc. shall not exceed US$500 per case or the CIF value of the loss,
whichever is lesser, while the liability of defendant Metro Port Service, Inc. shall be to the extent of the actual
invoice value of each package, crate box or container in no case to exceed P5,000.00 each, pursuant to
Section 6.01 of the Management Contract); P3,000.00 as attorney’s fees, and costs; and dismissing the
counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage Corporation.

Dissatisfied, Eastern Shipping Lines appealed to the Court of Appeals. The Court of Appeal affirmed in toto
the judgment of the court a quo.

The Supreme Court partly granted the petition. The Court affirmed the appealed decision with the
modification that the legal interest to be paid is 6% on the amount due computed from the decision, dated 3
February 1988, of the court a quo. A 12% interest, in lieu of 6%, shall be imposed on such amount upon
finality of this decision until the payment thereof.

1. Duration of common carrier’s duty to observe requisite diligence

The common carrier’s duty to observe the requisite diligence in the shipment of goods lasts from the
time the articles are surrendered to or unconditionally placed in the possession of, and received by, the carrier
for transportation until delivered to, or until the lapse of a reasonable time for their acceptance, by the person
entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai
vs. Dollar Steamship Lines, 52 Phil. 863).

2. Presumption of carrier’s negligence in case of loss, damage of goods; None of the exclusive
exceptions can be applied
 When the goods shipped either are lost or arrive in damaged condition, a presumption arises against
the carrier of its failure to observe that diligence, and there need not be an express finding of negligence to
hold it liable (Art. 1735, Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87;
Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, of course, exceptional cases when such
presumption of fault is not observed but these cases, enumerated in Article 1734 1 of the Civil Code, are
exclusive, not one of which can be applied to the case at bar.

3. The rationale why the carrier and arrastre operator are made liable in solidum
In Fireman’s Fund Insurance vs. Metro Port Services (182 SCRA 455), the Court has explained in
holding the carrier and the arrastre operator liable in solidum, in the manner that “The legal relationship
between the consignee and the arrastre operator is akin to that of a depositor and warehouseman (Lua Kian v.
Manila Railroad Co., 19 SCRA 5 [1967]. The relationship between the consignee and the common carrier is
similar to that of the consignee and the arrastre operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil.
253 [1960]). Since it is the duty of the Arrastre to take good care of the goods that are in its custody and to
deliver them in good condition to the consignee, such responsibility also devolves upon the Carrier. Both the
Arrastre and the Carrier are therefore charged with the obligation to deliver the goods in goods condition to
the consignee.” The pronouncement, however, does not imply that the arrastre operator and the customs
broker are themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that
attendant facts in a given case may not vary the rule.

4. First group of cases on variances on the Court’s ruling on legal interest

In the cases of the cases of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz (1986),
Florendo v. Ruiz (1989) and National Power Corporation v. angas (1992), the basic issue focus on the
application of either the 6% (under the Civil Code) or 12% (under the Central Bank Circular) interest per
annum. It is easily discernible in these cases that there has been a consistent holding that the Central Bank
Circular imposing the 12% interest per annum applies only to loans or forbearance 16 of money, goods or
credits, as well as to judgments involving such loan or forbearance of money, goods or credits, and that the
6% interest under the Civil Code governs when the transaction involves the payment of indemnities in the
concept of damage arising from the breach of a delay in the performance of obligations in general. Observe,
too, that in these cases, a common time frame in the computation of the 6% interest per annum has been
applied, i.e., from the time the complaint is filed until the adjudged amount is fully paid.

5. Second group of cases on variances on the Court’s ruling on legal interest

The cases of Malayan Insurance Company v. Manila Port Service (1969), Nakpil and Sons v. Court of
Appeals (1988), and American Express International v. Intermediate Appellate Court (1988), did not alter the
pronounced rule on the application of the 6% or 12% interest per annum, depending on whether or not the
amount involved is a loan or forbearance, on the one hand, or one of indemnity for damage, on the other
hand. Unlike, however, the “first group” which remained consistent in holding that the running of the legal
interest should be from the time of the filing of the complaint until fully paid, the “second group” varied on
the commencement of the running of the legal interest. Malayan held that the amount awarded should bear
legal interest from the date of the decision of the court a quo, explaining that “if the suit were for damages,
‘unliquidated and not known until definitely ascertained, assessed and determined by the courts after proof,’
then, interest ‘should be from the date of the decision.’” American Express International v. IAC, introduced a
different time frame for reckoning the 6% interest by ordering it to be “computed from the finality of (the)
decision until paid.” The Nakpil and Sons case ruled that 12% interest per annum should be imposed from the
finality of the decision until the judgment amount is paid. The factual circumstances may have called for
different applications, guided by the rule that the courts are vested with discretion, depending on the equities
of each case, on the award of interest.

6. Rules in the determination of legal interests

 a. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-
delicts 18 is breached, the contravenor can be held liable for damages. The provisions under Title
XVIII on “Damages” of the Civil Code govern in determining the measure of reoverable damages.

b. With regard particularly to an award of interest in the concept of actual and compensatory damages,
the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When a obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated claims or damages except when
or until the demand can be established with reasonable certainty. Accordingly, where the demand
is established with reasonable certainty, the interest shall begin to run from the time the claim is
made judicially or extrajudicially (Article 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin to run only from
the date of the judgment of the court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for the computation of legal
interest shall, in any case, be on the amount of finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate
of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.

[7]

Metro Port Services vs. CA (GR L-57582, 24 August 1984)

First Division, Melencio-Herrera (J): 5 concur

Facts: Sometime in April 1973, Union Sales Marketing Corporation (UNION) ordered from Union Carbide
of Antwerp, Belgium, 99,540 kilograms of Low Density Polyethylene, valued at US $.245 per kilogram or a
total purchase price of US $24,417.30, at the conversion rate of P6.848 to a US Dollar. The shipment was
packed in 4,000 bags of 25 net kilograms, more or less, for each bag, and was loaded at Antwerp, Belgium, in
good order condition on board the “S/S Dingalan Bay”, owned and operated by Universal Shipping Lines,
Inc. (CARRIER) and consigned to UNION in Manila. The shipment was covered by a Marine Risk Note
issued by Charter Insurance Co. (INSURER) for P212,738.17 against all risks. The CARRIER arrived in
Manila on 22 June 1973 and arrastre services were handled by E. Razon, Inc. (ARRASTRE), now called
Metro Port Service, Inc. Out of the 4,000 bags, 1,050 bags were received by the consignee UNION in bad
order condition. As a consequence of the damage and loss, the INSURER paid UNION the sum of
P35,709.11 in full settlement of the claim, and the INSURER became the subrogee of all of UNION’s rights
to recover from the parties concerned.

On 1 July 1974, the INSURER sued for damages with the then CFI Manila against the CARRIER and the
ARRASTRE in the amount of P35,709.11, in addition to exemplary damages and attorney’s fees. In its
Decision, the Trial Court ordered (1) the Universal Shipping Lines, Inc., to pay Charter Insurance Co. the
amount of P12,285.94 plus 12% interest per annum from July 1, 1974 until full payment thereof; (2) E. Razon
Inc. to pay Charter Insurance Co. the amount of P9,763.94 plus 12% interest per annum from July 1, 1974
until full payment thereof; (3) both Universal Shipping and E. Razon to pay the costs; and (4) both Universal
Shipping and E. Razon to pay Charter Insurance, in solidum, P2,000.00 as attorney’s fees.

On appeal by the CARRIER and ARRASTRE, the then Court of Appeals, on 23 March 1981, absolved the
CARRIER of any and all liability and held the ARRASTRE solely liable. Reconsideration filed by the
ARRASTRE was denied by the Appellate Court.

The Supreme Court reversed and set aside the appealed judgment of Court of Appeals, and reinstated that of
the CFI Manila, Branch XI; without costs.

1. Only questions of law may be raised in a Petition for Review on Certiorari, exceptions
Ordinarily, in a Petition for Review on Certiorari, only questions of law may be raised. The Court has
held in a number of cases that findings of fact by the Court of Appeals are, in general, conclusive on the
Supreme Court when supported by the evidence on record. The rule is not absolute, however, and allows of
exceptions, which the Court finds present in the case at bar in that the appellate court’s findings of facts are
contrary to those of the Trial Court and are contradicted by the evidence on record.

2. Appellate Court’s ruling disregards evidence of the CARRIER and ARRASTRE that 619 bags
were discharged in bad order condition
In absolving the CARRIER, the appellate court completely disregards the evidence of the CARRIER
and the ARRASTRE that 619 bags were discharged by the CARRIER to the ARRASTRE in bad order
condition, as evidenced by the original and duplicate copies of the Cargo Receipts issued by the CARRIER to
the ARRASTRE and signed by their respective representatives. The condition of the 619 bags before the
turnover to the ARRASTRE from the CARRIER was loss or spoilage of up to 50%, as reflected in the Survey
of Bad Order Cargoes, signed by the CARRIER and ARRASTRE representatives. Accordingly, the Trial
Court held the CARRIER liable only for the value of a total of 443 bags, as this is the “evidence of the
plaintiff” (INSURER), at 16.8209 kilograms per bag, less than the actual weight of 25 kilograms net per bag
due to some recovery of spoilage, or a total liability of P12,285.94. Since 619 bags were discharged from the
CARRIER already in bad order condition, it follows that the remaining 431 bags were damaged while in the
ARRASTRE’s custody for which it should be held liable.

3. ARRASTRE’s liability fixed to 351 bags, as INSURER failed to appeal award

However, since the Trial Court computed the liability of the ARRASTRE at 351 bags,
notwithstanding the ARRASTRE’s admission that “80 bags were not included in the bad order cargo
certificate,” and the INSURER did not appeal said award by the Trial Court in its desire to have the case
terminated soonest, the INSURER may not, in this appeal, have the judgment modified. The liability of the
ARRASTRE for P9,763.94 fixed by the Trial Court is thus in order.

[8], also [174]

Home Insurance Co. vs. American Steamship Agencies (GR L-25599, 4 April 1968)
En Banc, Bengzon JP (J): 7 concur

Facts: “Consorcio Pesquero del Peru of South America” shipped freight pre-paid at Chimbate, Peru, 21,740
jute bags of Peruvian fish meal through SS Crowborough, covered by clean bills of lading Numbers 1 and 2,
both dated 17 January 1963. The cargo, consigned to San Miguel Brewery, Inc., now San Miguel Corporation,
and insured by Home Insurance Company for $202,505, arrived in Manila on 7 March 1963 and was
discharged into the lighters of Luzon Stevedoring Company. When the cargo was delivered to consignee San
Miguel Brewery, Inc., there were shortages amounting to P12,033.85, causing the latter to lay claims against
Luzon Stevedoring Corporation, Home Insurance Company and the American Steamship Agencies, owner
and operator of SS Crowborough. Because the others denied liability, Home Insurance Company paid the
consignee P14,870.71 — the insurance value of the loss, as full settlement of the claim.

Having been refused reimbursement by both the Luzon Stevedoring Corporation and American Steamship
Agencies, Home Insurance Company, as subrogee to the consignee, filed against them on 6 March 1964
before the CFI Manila a complaint for recovery of P14,870.71 with legal interest, plus attorney’s fees. On 17
November 1965, the CFI, after trial, absolved Luzon Stevedoring Corporation, having found the latter to have
merely delivered what it received from the carrier in the same condition and quality, and ordered American
Steamship Agencies to pay Home Insurance Co. P14,870.71 with legal interest plus P1,000 attorneys fees.

Disagreeing with such judgment, American Steamship Agencies appealed directly to the Supreme Court. The
Supreme Court reversed the judgment appealed from, and absolved the American Steamship Agencies from
liability to Home Insurance Co.; without costs.

1. Contents of the bill lading in the present case

The bills of lading, covering the shipment of Peruvian fish meal provide at the back thereof that the
bills of lading shall be governed by and subject to the terms and conditions of the charter party, if any,
otherwise, the bills of lading prevail over all the agreements. On the face of the bills are stamped “Freight
prepaid as per charter party. Subject to all terms, conditions and exceptions of charter party dated London,
Dec. 13, 1962.”

2. Charter party in instant case is a Contract of Affreightment

A perusal of the charter party referred to shows that while the possession and control of the ship were
not entirely transferred to the charterer, the vessel was chartered to its full and complete capacity.
Furthermore, the charterer had the option to go north or south or vice-versa, loading, stowing and discharging
at its risk and expense. Accordingly, the charter party contract is one of affreightment over the whole vessel
rather than a demise. As such, the liability of the shipowner for acts or negligence of its captain and crew,
would remain in the absence of stipulation.

3. Source of provisions of Civil Code on common carriers

The provisions of our Civil Code on common carriers were taken from Anglo-American law. Under
American jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a special
person only, becomes a private carrier. As a private carrier, a stipulation exempting the owner from liability
for the negligence of its agent is not against public policy, and is deemed valid. Thus, the Civil Code
provisions on common carriers (especially Article 1744) should not be applied where the carrier is not acting
as such but as a private carrier. In the case at bar, Section 2, paragraph 2 of the charter party – which provides
that the owner is liable for loss or damage to the goods caused by personal want of due diligence on its part or
its manager to make the vessel in all respects seaworthy and to secure that she be properly manned, equipped
and supplied or by the personal act or default of the owner or its manager. Said paragraph, however, exempts
the owner of the vessel from any loss or damage or delay arising from any other source, even from the neglect
or fault of the captain or crew or some other person employed by the owner on board, for whose acts the
owner would ordinarily be liable except for said paragraph – is valid. Such policy has no force where the
public at large is not involved, as in the case of a ship totally chartered for the use of a single party.

4. Consignee cannot claim ignorance of charter party, as bills of lading expressly referred to the
same; Instance for recovery not present in case
In a charter of the entire vessel, the bill of lading issued by the master to the charterer, as shipper, is
in fact and legal contemplation merely a receipt and a document of title, not a contract, for the contract is the
charter party. The consignee may not claim ignorance of said charter party because the bills of lading
expressly referred to the same. Accordingly, the consignees under the bills of lading must likewise abide by
the terms of the charter party. And as stated recovery cannot be had thereunder, for loss or damage to the
cargo, against the shipowners, unless the same is due to personal acts or negligence of said owner or its
manager, as distinguished from its other agents or employees. In this case, no such personal act or negligence
has been proved.

[9]

Lastimosa vs. Doliente

[10] FPIC vs. CA, see [2]

[11]

National Steel vs. CA (GR 112287, 12 December 1997)

Vlasons Shipping vs. CA (GR 112350)
Third Division, Panganiban (J): 4 concur

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. The ship is a private carrier, and it is in this capacity that its owner,
Vlasons Shipping, Inc. (VSA), entered into a contract of affreightment or contract of voyage charter hire with
National Steel Corporation (NSC) on 17 July 1974, whereby NSC hired VSI’s vessel, the MV ‘VLASONS I’
to make 1 voyage to load steel products at Iligan City and discharge them at North Harbor, Manila, under the
following terms and conditions, viz: “xxx (2) Cargo: Full cargo of steel products of not less than 2,500 MT,
10% more or less at Master’s option. xxx (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. xxx (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” On August 6, 7 and 8, 1974, in accordance with the Contract of Voyage
Charter Hire, the MV ‘VLASONS I’ loaded at NSC’s 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 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, BLPP 0233 on 8 August 1974. The vessel arrived with the cargo at Pier 12,
North Harbor, Manila, on 12 August 1974. The following day, when the vessel’s 3 hatches containing the
shipment were opened by NSC’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 24 August 1974 after incurring a delay of 11 days due to the heavy rain
which interrupted the unloading operations. 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 17 March 1975, 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’s surveyors drew at
random samples of bad order packing materials of the tinplates and delivered the same to the MIT Testing
Laboratories for analysis. On 31 August 1974, the MIT Testing Laboratories issued Report 1770 which in
part, states, “The analysis of bad order samples of packing materials . . . shows that wetting was caused by
contact with sea water.” On 6 September 1974, on the basis of Report 1770, NSC filed with VSI its claim for
damages suffered due to the downgrading of the damaged tinplates in the amount of P941,145.18. Then on 3
October 1974, NSC formally demanded payment of said claim but VSI refused and failed to pay.

NSC filed its complaint against VSI on 21 April 1976 (Civil Case 23317) before the CFI of Rizal. The trial
court rendered judgment in favor of VSI and against NSC dismissing the complaint with costs against NSC,
and ordering NSC to pay VSI on the counterclaim for 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; attorney’s fees and expenses of litigation in the sum of P100,000.00; and cost of
suit.

On appeal, and on 12 August 1993, 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 dated 20 October 1993,
the appellate court denied both motions. Undaunted, NSC and VSI filed their respective petitions for review
before the Supreme Court. On motion of VSI, the Court ordered on 14 February 1994 the consolidation of the
petitions.

The Supreme Court denied the consolidated petitions; and affirmed the questioned Decision of the Court of
Appeals with the modification that the demurrage awarded to VSI is deleted. No pronouncement as to costs.

1. The term “FIOST”; Paragraph 5 of the NANYOZAI Charter Party

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 ”

2. Paragraph 10 of the NANYOZAI Charter Party

Under paragraph 10 of the NANYOZAI Charter Party, it is provided that “owners 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.”

3. Paragraph 12 of the NANYOZAI Charter Party

Paragraph 12 of said NANYOZAI Charter Party also provides that “owners shall not be responsible
for split, chafing and/or any damage unless caused by the negligence or default of the master and crew.”

4. Common carriers defined (Article 1732); Test of common carrier

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.
5. Private Carrier; Charter party
A carrier which does not qualify under the test of a common carrier 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.”

6. VSI a private carrier; Rights and obligations of VSI and NSC are determined by stipulations in
charter party
Herein, VSI did not offer its services to the general public. It carried passengers or goods only for
those it chose under a “special contract of charter party.” The MV Vlasons I “was not a common but a private
carrier.” 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.

7. Contract of private carriage; Valenzuela Hardwood vs. CA

In Valenzuela Hardwood and Industrial Supply, Inc., vs. Court of Appeals and Seven Brothers
Shipping Corporation, the Court ruled that “in a contract of private carriage, the parties may freely stipulate
their duties and obligations which perforce would be binding on them. Unlike in a contract involving a
common carrier, private carriage does not involve the general public. Hence, the stringent provisions of the
Civil Code on common carriers protecting the general public cannot justifiably be applied to a ship
transporting commercial goods as a private carrier. Consequently, the public policy embodied therein is not
contravened by stipulations in a charter party that lessen or remove the protection given by law in contracts
involving common carriers.”

8. Extent of VSI’s Responsibility and Liability Over NSC’s Cargo

From the parties’ Contract of Voyage Charter Hire, dated 17 July 1974, 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 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.” The NANYOZAI Charter Party also
provided that “owners shall not be responsible for split, chafing and/or any damage unless caused by the
negligence or default of the master or crew.”

9. Burden of Proof (parties’ agreement)

Herein, 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.

10. Article 361 of the Code of Commerce

Article 361 of the Code of Commerce provides that “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.”

11. Article 362 of the Code of Commerce

Article 362 of the Code of Commerce provides that “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.”

12. Private carrier; Shipowner’s obligation governed by Code of Commerce, not Civil Code
As 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.

13. Burden of proof in action against private carrier for loss of cargo; Plaintiff entitled to benefit of
presumptions and inferences
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.

14. Burden of proof in action based on shipowner’s warranty of seaworthiness; Where contract of
carriage exempts carrier from liability for unseaworthiness not discoverable by due diligence
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.

15. Findings of the trial court, subsequently affirmed by the Court of Appeals, binding upon the
Supreme Court
Where the factual findings of both the trial court and the Court of Appeals coincide, the same are
binding on the Supreme Court. The Court stresses that, subject to some exceptional instances, only questions
of law — not questions of fact — may be raised before the Supreme Court in a petition for review under Rule
45 of the Rules of Court. Herein, after a thorough review of the case, the Court finds no reason to disturb the
lower courts’ factual findings.

16. MV Vlasons I was seaworthy

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 drydocked and harbored by the Philippine Coast
Guard before it proceeded to Iligan City for its voyage to Manila under the contract of voyage charter hire.
The vessel’s voyage from Iligan to Manila was the vessel’s first voyage after drydocking. The Philippine
Coast Guard Station in Cebu cleared it as seaworthy, fitted and equipped; it met all requirements for trading
as cargo vessel.
17. Due diligence exercised by officers and crew of MV Vlasons I; Use of old tarpaulin an addition
to new one used to make hatch waterproof
Due diligence was exercised by the officers and the crew of the MV Vlasons I. This 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. Herein, the ship used the old tarpaulin, only in
addition to the new one used primarily to make the ship’s hatches watertight. The foregoing are clear from the
marine protest of the master of the MV Vlasons I, Antonio C. Dumlao, and the deposition of the ship’s
boatswain, Jose Pascua, where it was stated that every time the strong winds and big waves caused the first
layer of the canvass covering to give way, the new canvass covering still hold on. NSC failed to discharge its
burden to show negligence on the part of the officers and the crew of MV Vlasons I,

18. Stevedores of NSC negligent in unloading cargo form ship; Reason for delay in pointing out
stevedores’ negligence to NSC
It was the stevedores of 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 loading of the cargo. This tent-like covering, however, was clearly inadequate for
keeping rain and seawater away from the hatches of the ship. NSC attempts to discredit the testimony of
Vicente Angliongto, an officer of VSI, 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 NSC only 7 days
later. 7 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. 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.

19. NSC has cause of action against stevedoring company, and not against VSI
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.

20. Duty of a stevedore company

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.

21. 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. Nothing in the charter party 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.

22. Admissibility of certificates proving seaworthiness; Exhibits 3-9 and 12 inadmissible

 The certificates of seaworthiness offered in evidence by VSI include the (1) Certificate of Inspection
of the Philippine 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, and (5) Certificate of Approval for Conversion issued by the Bureau of Customs. 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.

23. Exhibit 11 admissible as exception to hearsay rule

Herein, 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.” 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.

24. Assailing genuineness of certificate of seaworthiness not sufficient proof of unseaworthiness

NSC has the burden of proving that MV Vlasons I was not seaworthy. 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.

25. Demurrage defined

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.

26. How laytime runs

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.

27. Laytime for four days, and qualified as WWDSHINC, in present case
Herein, 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. 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. 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 11 days of delay in unloading the cargo.

28. Attorney’s fees not justified

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.” 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.

[12]

De Villata vs. JS Stanley (GR 8154, 20 December 1915)

En Banc, Carson (J): 4 concur, 1 concur in result

Facts: Joaquin de Villata is the master of SS Vizcaya of the coastwise trade. As such captain, on 6 July 1912,
when sailing from the port of Gubat to the port of Legaspi, Philippine Islands, he failed to notify the
postmaster of the former port, in advance, of his intended sailing, and therefore failed to carry the mails
between said ports. The Collector of Customs (JS Stanley, Acting Insular Collector of Customs) was
threatening to suspend or revoke the license of de Villata by reason of said facts, under and by virtue of the
terms of Customs Administrative Circular 627. De Villata filed an application for a writ of prohibition
directed against the Collector of Customs to restrain him from enforcing Customs Administrative Circular
627 against de Villata. The case was submitted to the Supreme Court upon de Villata’s demurrer to Stanley’s
answer to the complaint.

The Supreme Court held that the complaint, unless amended, must be dismissed, on the ground that no cause
of action is developed by the pleadings. The Court ordered that 20 days thereafter, the complaint be dismissed
at the costs of the de Villata unless amended so as to set forth a cause of action, and 10 days thereafter let the
record be filed in the archives of original actions in the Supreme Court.

1. Customs Administrative Circular 627 (Prescribing regulations for the transportation of mails
on vessels engaged in the Philippine coastwise trade, 24 December 1910)
[par 1] Every vessel to which a license is granted under the provisions of section 117 of Act No. 355
to engage in the coastwise trade of the Philippine Islands . . . shall carry mail tendered for transportation in a
safe and secure manner, and shall keep the same free from injury by water or otherwise. Masters, owners, or
agents of vessels shall give prompt advance notice of the intended sailing thereof to the postmaster at each
port of departure in ample time to permit the making up of mails for dispatch. Any changes in such sailings
shall also be promptly communicated to the postmaster. [par 2] Mails carried by vessels shall be delivered at
ports of call on shore or on a wharf immediately after arrival and prior to the discharge or lading of any cargo,
and shall be taken from shore or wharf just before the vessel’s sailing time, except at ports where the postal
authorities have arranged for ship-side delivery. [par 3] Each vessel mentioned in the preceding paragraph
shall be provided with a lock box having a slot in the top or side thereof to receive letters, papers, or other
mail matter delivered on board the vessel after the mails have been closed at the post office for that particular
voyage. All mail matter deposited in such box shall be delivered by the master, or his representative, to the
postmaster at a port of call where a post office is located. [par 4] The master, owner, agent, or other person in
charge of a vessel shall be legally liable for the loss of or damage to mail in his custody, or in the custody of
his representatives or agents. [par 5] The license of the master of any vessel engaged in the coastwise trade of
the Philippine Islands may be suspended or revoked by the Insular Collector of Customs for failure to comply
with or strictly enforce the regulations governing the transportation of mails. [par 6] Postmasters throughout
the Islands are requested to promptly report to this office in writing any unnecessary delay in the handling of
mails transported by vessels, or failure on the part of masters thereof to comply with the requirements of this
circular. [par 7] Philippine customs officers shall give due publicity to the terms of this circular.”

2. Decree of 4 August 1863

A decree dated 4 August 1863, provided as follows: “In the matter of the investigation made for the
application of the provisions now in force relative to the notice to be given in advance to the post office of the
sailings of ships, in the exceptional case of a ship just arrived in port and which has to sail immediately for
the convenience of the interests of its owners or consignees, Having considered the ordinances relating to
packet boats and other royal orders and superior decrees imposing upon the captain of every ship the duty of
giving notice to the postoffice four days in advance at least of the date they are to sail and the port of
destination, Considering that the actual application of such provisions might affect in a remarkable way the
commercial interests in the very exceptional case spoken of, where the ship just anchored should have to set
sail again before the period of four days referred to, The capitamia del puerto, the administracion general de
aduanas, comandancia general de carabineros and the administracion general de correos, having been heard,
This superior civil government ordains: That when a ship falls within the precise exceptional case raised by
the within resolution, its captain shall only be required to give, from the very instant of determining the
sailing of the ship, immediate notice to the postoffice stating the day and hour in which the sailing must be
made, For the purposes that may be proper, let this decree be communicated to the comandancia general de
marina, capitania del puerto de Manila and Cavite and the administracion general de correos, and let same be
published in the Gazette for general information. Report to the government of H. M. and file.” (Berriz,
Diccionario de la Administracion de Filipinas, 1888, vol. 1, p. 516.)

3. Decree of 13 January 1876

A later decree dated 13 January 1876, was as follows: “Having considered the consultation made by
the comandancia general de marina proposing the amendment of section 7 of the superior decree of December
18, 1868, relative to the duty imposed upon shipowners or consignees of steamers whether national or
foreign, plying between this port and the other ports of the Archipelago or China and vice versa, of giving
four days’ notice before the day they are to sail, to their great prejudice; and Having considered the reports
submitted by the direccion general de administracion civil and the administracion general de correos:
Considering the fact that since that superior order was enforced, the fortunate increase of steamers and
consequently the frequent repetition of voyages made by them, is evident, and therefore, this circumstance
alone would change the object or reason which at that time made it necessary to impose the duty referred to in
said section 7. Considering the importance and value at certain times of the prompt clearance of one of its
ships to a commercial firm which is at all times worthy of protection by the government. This general
government ordains as follows: (1) The period of four days prescribed by section 7 of the superior decree of
December 18, 1868, is reduced to two. (2) The shipowners or consignees of steamers, whether national or
foreign, plying between this port and the other ports of the archipelago or China, and vice versa, shall give
notice to the captain of the port’s before midday, in order that the post office may have immediate notice of
the sailing at an hour that may enable it to insert same in the Gazette of next day, and the ship may sail in the
afternoon of the day next following. (3) The office of the captain of the port will report daily to the
administracion general de correos all ships that at 12 o’clock, noon, may have requested the visita de salida
and in the event of there being none a report shall be sent stating that fact. (4) The report of the captain of the
port’s office must be at that administracion general before 2 o’clock, p. m., every day. (5) Captains and
consignees of ships can in no case request the visita de salida without the period of forty-eight hours
intervening between the time they report and the visit, so as to give opportune notice to the administracion de
correos. (6) The centro de correos shall send the notices to the Gazette and other newspapers, and shall post
them besides on a bulletin board at the door of the postoffice.” (Berriz, Diccionario de la Administracion de
Filipinas, 1888, vol. 1, pp. 528, 529.)

4. Vessels required to carry mails under Spanish sovereignty

An examination of its terms leaves little room for doubt that under Spanish sovereignty the
Government of these Islands assumed and exercised the right to prescribe reasonable regulations requiring
vessels trading in the Philippine Islands to carry the mails and to give due notice of their sailing hours to the
postal authorities. Indeed it is a matter of common knowledge that, under the laws and regulations in force at
the time of the change of sovereignty, all vessels engaged in the coasting trade were required to carry the
mails, and to furnish the postal authorities with due notice of their sailing hours. There is no allegation in the
pleadings denying the continuance in force of this practice under American sovereignty down to the date of
the issuance of the above cited Customs Administrative Circular.

5. Nothing in Philippine Bill of Rights depriving government power to make and enforce
regulations
There is nothing in the Philippine Bill of Rights which deprived the Philippine Government of the
power to make and enforce reasonable regulations of this nature with which it was clothed prior to the
enactment of that statute.

6. Regulations and control exercised on vessels licensed to engage in interisland trade not in
contravention of Philippine Bill of Rights or US Constitution
Vessels licensed to engage in the interisland trade are common carriers; and that as to them, there is
an extensive field of regulation and control which may properly be exercised by the state without
contravention of the provisions of the Philippine Bill of Rights or the Constitution of the United States; and
this notwithstanding the fact that the enforcement of such regulations may tend to restrict their liberty, and to
control the free exercise of their discretion in the conduct of their business to a degree and in a form and
manner which would not be tolerated under the constitutional guarantees with relation to the private business
of a private citizen.

7. Business of common carriers affected with public interest

Common carriers exercise a sort of public office, and have duties to perform in which the public is
interested. Their business is, therefore, affected with a public interest, and is subject to public regulation.

8. As business is of public employment, state may impose reasonable regulations

The nature of the business in which they are engaged as a public employment, is such that it is clearly
within the power of the state to impose such just and reasonable regulations thereon as in the interest of the
public it may deem proper. Of course such regulations must not have the effect of depriving an owner of this
property without due process of law, nor of confiscating or appropriating private property without just
compensation, nor of limiting or prescribing irrevocably vested rights or privileges lawfully acquired under a
charter or franchise. But aside from such constitutional limitations, the determination of the nature and extent
of the regulations which should be precribed rests in the hands of the legislator. (New Jersey Steam Nav. Co.
vs. Merchants’ Bank, 6 How., 344, 382; Munn vs. Illinois, 94 U. S., 113, 13().)

9. Power to regulate not power to destroy, limitation not confiscation

The power to regulate is not a power to destroy, and limitation is not the equivalent of confiscation.
Under pretense of regulating fares and freights the state can not require a railroad corporation to carry persons
or property without reward. Nor can it do that which in law amounts to a taking of private property for public
use without just compensation, or without due process of law. (Chicago etc. R. Co. v.s. Minnesota, 134 U. S.,
418; Minneapolis Eastern R. Co. vs. Minnesota, 134 U. S., 467.)

10. Judicial interference does not occur unless the case presents flagrant attack upon rights and
property in guise of regulation
The judiciary ought not to interfere with regulations established under legislative sanction unless they
are so plainly and palpably unreasonable as to make their enforcement equivalent to the taking of property for
public use without such compensation as under all the circumstances is just both to the owner and to the
public, that is, judicial interference should never occur unless the case presents, clearly and beyond all doubt,
such a flagrant attack upon the rights and property under the guise of regulations as to compel the court to say
that the regulations in question will have the effect to deny just compensation for private property taken for
the public use. (Chicago etc. R. Co. vs. Well- man, 143 U. S., 339; Smyth vs. Ames, 169 U. S., 466, 524;
Henderson Bridge Co. vs. Henderson City, 173 U. S., 592, 614.) “ (Fisher vs. Yangco Steamship Co., 31 Phil.
Rep., 1.)
11. Regulation is reasonable
A regulation requiring all coasting vessels licensed to engage in the interisland trade to carry the
mails and give prompt advance notice in all cases of intended sailings in ample time to permit dispatch of
mails, and of changes of sailing hours, (manifestly with a view to make it possible for the post-office officials
to tender mail for transportation at the last practicable moment prior to the hour of departure) is a reasonable
regulation, made in the interests of the public, which the state has a right to impose when it grants licenses to
the vessels affected thereby.

12. Governments incur considerable expenditures to secure safety of vessels plying in Philippine
waters
Considerable expenditures of public money have been made in the past and continue to be made
annually for the purpose of securing the safety of vessels plying in Philippine waters. To this end lighthouses
have been erected; wharfs and docks constructed; and buoys, bells and other warning signals maintained at
points of danger. Largely for the purpose of conveying timely warnings of threatening weather to those that
go down into the sea in ships, appropriations are made for the support of a Weather Bureau. Coast and
geodetic surveys are conducted to keep them informed as to the dangers hidden beneath the treacherous sea.
Licensed pilots are provided to insure safe entry into the dangerous ports and harbors throughout the Islands.
Maps, charts and general information as to conditions affecting travel by water are kept up to date, and
furnished all vessels having need for them. In a word, the Government unhesitatingly spends a considerable
part of the public funds wherever and whenever it appears that the safety and even the convenience of the
shipping in Philippine waters will be advanced thereby. Can it be fairly contended that a regulation is
unreasonable which requires vessels licensed to engage in the interisland trade, in whose behalf the public
funds are so lavishly expended, to hold themselves in readiness to carry the public mails when duly tendered
for transportation, and to give such reasonable notice of their sailing hours as will insure the prompt dispatch
of all mails ready for delivery at the hours thus designated?

13. Regulations only begin to affect business of shipowner when it enters into employment as
common carrier
It is only when the owner of a vessel enters the quasi-public employment of a common carrier that
regulations of this kind begin to affect or control the conduct of his business, and he cannot be heard to
complain that he is deprived of his property without due process of law when he elects, of his own free will
and accord, to secure a license as a common carrier in Philippine waters, and to engage in a business, one of
the conditions of which is that he will comply with such regulations. Under the law in force in these Islands at
the time of the change of sovereignty, and of the enactment of the Act of Congress the owners of all licensed
coasting vessels were required to comply with regulations of this character, as one of the conditions upon
which they were permitted to engage in the quasi-public employment of carriers in the interisland trade. No
one is compelled to comply with these regulations unless he voluntarily enters upon the business which they
affect, and if he does enter such business he cannot; claim that he is unlawfully deprived, without due process
of law, of that which he voluntarily agrees to surrender.

14. Uniformity of taxes (assuming)

If regulations of this kind be regarded as in the nature of a tax upon the vessels affected thereby, the
tax cannot be attacked for lack of uniformity so long as it is laid uniformly upon all the members of the class
to which it extends. The only limitation upon the authority conferred is uniformity in laying the tax, and
uniformity does not require the equal application of the tax to all persons or corporations who may come
within its operation, but it is limited to geographical uniformity.

15. Distinction between “equality” and “uniformity”

The distinction between “equality” and “uniformity” in taxation is thus stated in Black on
Constitutional Law, page 392, citing Miller, Const., 241: “In practice, therefore, ‘equality’ in taxation means
to be called upon to pay taxes, which taxes shall be strictly proportioned to the relative value of their taxable
property. And ‘uniformity’ in taxation means that all taxable articles or kinds of property, of the same class,
shall be taxed at the same rate. It does not mean that lands, chattels, securities, incomes, occupations,
franchises, privileges, necessities, and luxuries shall all be assessed at the same rate. Different articles may be
taxed at different amounts, provided the rate is uniform on the same class everywhere, with all people, and at
all times. “

16. Power to impose taxes unlimited in force

The power to impose taxes is one so unlimited in force and so searching in extent, that the courts
scarcely venture to declare that it is sub.iect to any restrictions whatever, except such as rest in the discretion
of the authority which exercises it. It reaches to every trade or occupation; to every object of industry, use, or
enjoyment; to every species of possession; and it imposes a burden which, in case of failure to discharge it,
may be followed by seizure and sale or confiscation of property. No attribute of sovereignty is more
pervading, and at no point does the power of the Government affect more constantly and intimately all the
relations of life than through the exactions made under it. . . .

17. Power to tax rests upon necessity, and is inherent in every sovereignty
The power to tax rests upon necessity, and is inherent in every sovereignty. The legislature of every
free State will possess it under the general grant of legislative power, whether particularly specified in the
constitution among the powers to be exercised by it or not. No constitutional government can exist without it,
and no arbitrary government without regular and steady taxation could be anything but an oppressive and
vexatious despotism, since the only alterative to taxation would be a forced extortion for the needs of
government from such persons or objects as the men in power might select as victims. Chief Justice Marshall
has said of this power: ‘The power of taxing the people and their property is essential to the very existence of
government, and may be legitimately exercised on the objects to which it is applicable to the utmost extent to
which the government may choose to carry it.

18. Security against abuse of power of taxation

The only security against the abuse of this power is found in the structure of the government itself. In
imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient security against
erroneous and oppressive taxation. The people of a State, therefore, give to their government a right of taxing
themselves and their property; and as the exigencies of the government cannot be limited, they prescribe no
limits to the exercise of this right, resting confidently on the interest of the legislator, and on the influence of
the constituents over their representative, to guard them against its abuse.’

19. Scope of power of legislation and taxation

The power of legislation, and consequently of taxation, operates on all persons and property
belonging to the body politic. This is an original principle, which has its foundation in society itself. It is
granted by all for the benefit of all. It resides in the government as part of itself, and need not be reserved
where property of any description, or the right to use it in any manner, is granted to individuals or corporate
bodies. However absolute the right of an individual may be, it is still in the nature of that right that it must
bear a portion of the public burdens, and that portion must be determined by the legislature. This vital power
may be abused; but the interest, wisdom, and justice of the representative body, and its relations with its
constituents, furnish the only security where there is no express contract against unjust and excessive
taxation, as well as against unwise legislation generally.

20. Judicial department unfit to inquire on degree of taxation

It is unfit for the judicial department to inquire what degree of taxation is the legitimate use, and what
degree may amount to the abuse, of the power. The judicial cannot prescribe to the legislative department of
the government limitations upon the exercise of its acknowledged powers. The power to tax may be exercised
oppressively upon persons, but the responsibility of the legislature is not to the courts, but to the people by
whom its members are elected. So if a particular tax bears heavily upon a corporation or a class of
corporations, it cannot, for that reason only, be pronounced contrary to the Constitution. (Veazie Bank vs.
Fenno, 8 Wall., 533, 548.)

21. Judicial department charged with duty of enforcing constitution; Separation of powers
As a result of our written constitution, it is axiomatic that the judicial department of the government
is charged with the solemn duty of enforcing the Constitution, and therefore in cases properly presented, of
determining whether a given manifestation of authority has exceed the power conferred by that instrument, no
instance is afforded from the foundation of the government where an act, which was within a power
conferred, was declared to be repugnant to the Constitution, because it appeared to the judicial mind that the
particular exertion of constitutional power was either unwise or unjust. To announce such a principle would
amount to declaring that in our constitutional system the judiciary was not only charged with the duty of
upholding the Constitution but also with the responsibility of correcting every possible abuse arising from the
exercise by the other departments of their conceded authority. So to hold would be to overthrow the entire
distinction between the legislative, judicial and executive departments of the government, upon which our
system is founded, and would be a mere act of judicial usurpation. (McCray vs. U. S., 195 U. S., 27.)

22. Presumed intention of Collector in circular

The provisions of paragraph I require trading vessels to carry mails tendered for transportation in a
safe and secure manner. This does not necessarily require these vessels to accept and to carry mail free of
charge. It is only when goods are lawfully tendered that common carriers may be compelled to carry them,
and it must be presumed that the author of the circular had in mind a lawful tender of mails when he wrote
this paragraph. If a vessels may not be required to carry mail without direct compensation, or a contract
providing for such compensation, it must be presumed that the Collector did not intend to require vessels to
accept mail without tender of reasonable compensation for such services or provision for payment by contract
or otherwise, and that this paragraph was intended merely as a regulation requiring the acceptance of all mail
thus lawfully tendered and the safe transportation of such mail when accepted for transportation.

23. No fact or allegation in pleading that Collector of Customs is compelling vessel’s master to
carry mail free of charge
There is absence of the necessary allegations setting forth that the Collector of Customs has
compelled and is threatening to compel the master of the Viscaya to carry mails free of charge. It does not
appear from the pleadings, nor in fact, that any attempt has been made or is being made by the Collector to
compel the master of the Vizcaya, over his protest, to carry mail without compensation. The allegations of the
complaint disclose merely that he threatened to enforce the regulations of the circular requiring the master of
the Vizcaya to make provision for the transportation of the mails when tendered, and for the giving of
reasonable notice as to sailing hours upon which such tender might be based.

24. Section 3 of Act 355

Section 3 of Act 355 provides that the customs service shall embrace, among other things, (1) the
documenting of vessels built or owned in the Philippine Islands, etc.; (2) the exclusion of foreign vessels from
the coastwise trade; (3) the entry and clearance of vessels; (4) the enforcement of such regulation of
commerce, foreign and coastwise, as shall be established by competent authority; and (5) the regulation of the
carriage of passengers by water and the licensing of vessels therefor.

25. Section 7 of Act 355

Section 7 of Act 355 provides, in part, as follows: “The Insular Collector shall have general authority
throughout the Philippine Islands in all matters embraced within the jurisdiction of the Customs Service.”

26. Section 19 of Act 355

 Section 19 of Act 355 provides, in part, as follows: “The Insular Collector shall, from time to time,
make and promulgate general rules and regulations, not inconsistent withlaw, subject to the approval of the
Secretary of Finance and Justice: (1) Directing the manner of execution of the customs law and laws relating
to commerce, navigation. and immigration. xxx (7) Prescribing the method of loading and unloading
merchandise and the transportation thereof by bonded carriers, railways, vessels, bonded lighters, carts, or
otherwise”

27. Section 73 of Act 355

Section 73 of Act 355 provides as follows: “In the coasting trade, the admeasurement, documenting,
enrollment and licensing of vessels built or owned in the Philippine Archipelago and in the making and
recording of all documents relating thereto, the Insular Collector shall observe, promulgate, and enforce such
orders and regulations respecting the same as have been heretofore or shall hereafter be prescribed by the
proper authority. In the absence of such regulations or orders he shall observe and follow the laws of the
United States and the regulations of the Treasury Department of the United States so far as the same may be,
in his sound judgment, applicable. Certificates of protection shall hereafter be signed by the collector of
customs at ports where issued and countersigned by the Insular Collector.”

28. Section 134 of Act 355

Section 134 of Act 355 is as follows: “The coastwise trade shall be under the general control and
supervision of the Insular Collector, and under the direct supervision of collectors of customs at the subports
of entry within their respective collection districts.”

29. Section 1 of Act 780, as amended by Section 1 of Act 1602

Section 1 of Act 780, as amended by section 1 of Act 1602, provides, in part, as follows: “A board is
hereby created, to consist of the Insular Collector of Customs, the supervising inspector of hulls and boilers,
and assistant inspector of hulls, one person holding an unexpired license as master in the Philippine coastwise
trade, and one other competent person, whose duty it shall be to examine and certify for licenses all applicants
for licenses as watch officers and engineers upon vessels of the Philippine Islands.”

30. Section 2 of Act 780

Section 2 of Act 780 is as follows: “Whenever any person applies for license as master, mate, patron,
or engineer of a Philippine coastwise vessel it shall be the duty of the Board on Philippine Marine
Examinations to make a thorough inquiry as to his character and carefully to examine the applicant, the
evidence he presents in support of his application, and such other evidence as it may deem proper or
desirable, and if satisfied that his capacity, experience, habits of life, and character are such as to warrant the
belief that he can be safely intrusted with the duties and responsibilities of the position for which he makes
application, it shall so certify to the Insular Collector of Customs, who shall issue a license authorizing such
applicant to act as master, mate, patron, or engineer, as the case may be.”

31. Section 6 of Act 780

Section 6 of Act 780 is as follows: “Every license authorized to be issued as above set forth shall be
operative and in force until July first, nineteen hundred and four, but the Insular Collector of Customs may at
any time suspend or revoke any license upon satisfactory proof of misconduct, intemperate habits, incapacity,
or inattention to duty on the part of the licensee.”

32. Section 2 of Act 1025

Section 2 of Act 1025 is as follows: “Upon the expiration of the license authorized to be issued by
said Act Numbered Seven Hundred and eighty, the said Board is further authorized and empowered to renew
such license from year to year upon due application being made as prescribed in said Act, but each renewal
shall be operative for only one year. In case of renewal of license the written examination required by section
three of said Act shall not be had but the applicant for renewal shall only be required to submit to an
examination, if deemed necessary by the Board, to test his physical soundness, but the Board is authorized to
refuse any application for renewal upon satisfactory evidence of misconduct, intemperate habits, incapacity,
or inattention to duty on the part of the licensee and also to revoke any such renewal license, when granted,
for the same reasons, or any of them.”

33. Duties of captain of the port devolved upon Insular Collector of Customs and his subordinates
The duties of the captain of the port, as that office formerly existed and as provided in the Spanish
laws, now devolve upon the Insular Collector of Customs and his subordinates as he may direct, pursuant to
the provisions of section 1 of Act No. 625. Any duties which the captain of the port was required to perform
under the decrees and similar regulations issued under the Spanish Administration of the Government of these
Islands, devolved upon the Collector of Customs at the date of the promulgation of Circular 627, so far as
those decrees and similar regulations continued in force at that time.

34. Insular collector clothed with necessary authority to prepare, promulgate, and enforce Customs
Administrative Circular 627
Insofar as Customs Administrative Circular 627 consists of a body of reasonable regulations
controlling and prescribing the conduct of vessels licensed to engage in the coastwise trade, and of licensed
officers aboard such vessels, with reference to the transportation of mail, the Insular Collector was clothed
with the necessary authority at the date of the circular for its preparation, promulgation and enforcement. The
circular is, when correctly construed, such a body of reasonable regulations, touching the conduct of
coastwise vessels and their officers with reference to the transportation of mails.

[13]

US vs. Quinajon (GR 8686, 30 July 1915)

En Banc, Johnson (J): 4 concur, 1 dissents

Facts: Pascual Quinajon and Eugenio Quitoriano, acting as representatives of the Union Obrera, established
at the port of Currimao, Ilocos Norte, and engaged by means of virayes as common carriers of passengers and
in loading and unloading freight from steamers anchoring at said port, to the shore or to the warehouses, and
vice versa, have regularly collected, during the last four years, 6 centavos for each sack of rice loaded or
unloaded by said association. Quinajon and Quitoriano, representing the same association, collected from the
provincial government of Ilocos Norte 10 centavos for each of the 5,986 sacks of rice which they unloaded
from the steamers during the months of June, July, and September, as property belonging to the said
government, a price which differed from the usual charge of 6 centavos made to other shippers of said
commodity.

Quinajon and Quitoriano were charged with a violation of the provisions of Act 98. A complaint was
presented in the court of the justice of the peace on 11 November 1912. A preliminary examination was had
and Quinajon and Quitoriano were held for trial in the Court of First Instance of the Province of Ilocos Norte.
On 17 November 1912, the prosecuting attorney of the Province of Ilocos Norte presented a complaint. Upon
that complaint Quinajon and Quitoriano were duly arraigned, tried, found guilty of the crime charged, and
sentenced by the Honorable Dionisio Chanco, judge, to pay a fine of $100 (P200) and costs, and to return to
the provincial government of the Province of Ilocos Norte the sum of P359.16.

From that sentence, Quinajon and Quitoriano appealed to the Supreme Court.

The Supreme Court affirmed the judgment of the lower court, with modification. The Court ordered Quinajon
and Quitoriano to the Province of Ilocos Norte the sum P239.44, for which sum a judgment is ordered to be
entered against them, for which execution may issue when this judgment becomes final, in case the same is
not paid. With costs.
1. Quinajon and Quitoriano collected 6 centavos per package
Herein, Quinajon and Quitoriano collected 6 centavos for each package, of whatever kind of
merchandise, large or small, heavy or light, from those merchants only with whom they had a special
contract. From other merchants, with whom they had not made said special contract, as well as the Province
of Ilocos Norte, they collected a different rate. They collected from the Province of Ilocos Norte 10 centavos
for each sack of rice which they unloaded from the steamers during the months of June, July, and September.

2. Simplified facts of the case

(1) The defendants, as common carriers, charged and collected from some shippers and merchants, a
certain price for each package of merchandise, loaded or unloaded, according to a certain schedule. The prices
fixed in the schedule depended upon the size and weight of the package. (2) The defendants entered into a
special contract with certain merchants, under and by virtue of the terms of which they charged and collected,
for loading and unloading merchandise in said port, the sum of 6 centavos for each package, without
reference to its size or weight.

3. Act 98 and Act of Congress of 4 February 1887 are similar; Adoption of interpretation by US
Federal courts justified
Act 98 was largely borrowed from the Act of Congress of 4 February 1887. The language of the two
Acts, so far as they relate to the present case, is practically the same. Said Act of Congress has been construed
by the Federal courts of the United States in several decisions. In view of the similarity of the two Acts, we
feel justified in adopting the interpretation given by the Federal courts of the United States to said Act of
Congress.

4. Section 1, Act 98
“No person or corporation engaged as a common carrier of passengers or property shall directly or
indirectly by any special rate, rebate,, drawback or other device, charge, demand, collect or receive from any
person or persons, a greater or less compensation for any service rendered in the transportation of passengers
or property on land or water between any points in the Philippine Islands than such common carriers charges,
demands, collects or receives from any other person or persons from doing for him a like or contemporaneous
service in the transportation of a like kind of traffic under substantially similar circumstances and conditions,
and any such unjust discrimination is hereby prohibited and declared to be lawful.”

5. Section 2, Act of Congress, 4 February 1887

“That if any common carrier subject to the provision of this Act shall, directly, or indirectly, by any
special rate, rebate, drawback, or other device, charge, demand, collect, or receive from any person or persons
a greater or less compensation for any service rendered, or to be rendered, in the transportation of passengers
or property, subject to the provisions of this Act, than it charges, demands, collects, or receives from any
person or persons for doing for him or them a like and contemporaneous service in the transportation of a like
kind of traffic under substantially similar circumstances and conditions, such common carrier shall be deemed
guilty of unjust discrimination, which is hereby prohibited and declared to be unlawful.”

6. Section 2, Act 98
“It shall be unlawful for any common carrier engaged in the transportation of passengers or property
as above set forth to make or give any unnecessary or unreasonable preference or advantage to any particular
person, company, firm, corporation or locality, or any particular kind of traffic in any respect whatsoever, or
to subject any particular person, company, firm, corporation or locality or any kind of traffic, to any undue or
unreasonable prejudice or discrimination is also hereby prohibited and declared to be unlawful.”

7. Section 3, Act of Congress, 4 February 1887

 “That it shall be unlawful for any common carrier subject to the provision of this Act to make or give
any undue or unreasonable preference or advantage to any particular person, company, firm, corporation, or
locality, or any particular description of traffic, to any undue or unreasonable prejudice or disadvantage in any
respect whatsoever.”

8. Purpose of Act 98; Scope

Act 98 is “An Act to regulate commerce in the Philippine Islands.” Its purpose, so far as it is possible,
is to compel common carriers to render to all persons exactly the same or analogous service for exactly the
same price, to the end that there may be no unjust advantage or unreasonable discrimination. It applies to
persons or corporations engaged as common carriers of passengers or property.

9. Common Carriers defined

A common carrier is a person or corporation whose regular business is to carry passengers or
property for all persons who may choose to employ and remunerate him. A common carrier is a person or
corporation who undertakes to carry goods or persons for hire. Herein, Quinajon and Quitoriano admit that
they are common carriers.

10. What Act 98 provides and what it prohibits

(1) The law provides that no common carrier shall directly or indirectly, by any special rate, rebate,
drawback, or other device, charge, demand, collect, or receive from any person or persons, a greater or less
compensation for any service rendered in the transportation of passengers or property, between points in the
Philippine Islands, than he charges, demands, collects, or receives from any other person or persons, for doing
a like or contemporaneous service, under substantially similar conditions or circumstances.
(2) The law prohibits any common carrier from making or giving any unnecessary or unreasonable
preference or advantage to any particular person, company, firm, corporation or locality, or any particular kind
of traffic, or to subject any particular person, company, firm, corporation, or locality, or any particular kind of
traffic, to any undue or unreasonable prejudice or discrimination whatsoever.

Or simply,
(1) The law requires common carriers to carry for all persons, either passengers or property, for
exactly the same charge for a like or contemporaneous service in the transportation of like kind of traffic
under substantially similar circumstances or conditions.
(2) The law prohibits common carriers from subjecting any person, etc., or locality, or any particular
kind of traffic, to any undue or unreasonable prejudice or discrimination whatsoever.

11. What Act 98 does not require, and what it does not prohibit
(1) The law does not require that the same charge shall be made for the carrying of passengers or
property, unless all the conditions are alike and contemporaneous.
(2) It is not believed that the law prohibits the charging of a different rate for the carrying of
passengers or property when the actual cost of handling and transporting the same is different.
(3) It is not believed that the law intended to require common carriers to carry the same kind of
merchandise, even at the same price, under different and unlike conditions and where the actual cost is
different. The actual cost of handling and transporting the same quantity of rice, for example, might be
different, depending upon the form of the package or other conditions. It would cost more to handle and
transport rice packed in open boxes or baskets, for example, than it would to handle and transport the same
quantity of rice neatly packed in sacks. It would cost more to handle and transport hemp, when it is unbaled
and loose, than it would when it is baled. It might cost more to handle and transport household goods
uncrated than when they are crated.
(4) It is not believed that the law prohibits the charging of a different price for handling and shipping
merchandise when the shipper exercises greater care in preparing the same for shipment, thereby reducing the
actual cost of handling and transporting. If the shipper puts his merchandise in a condition which costs less to
handle and transport, he is certainly entitled to a better rate. The difference in the charge to different
merchants or shippers must be based upon the actual cost of handling and transporting.
(5) The law does not require common carriers to perform different services for the same price, unless
the actual cost is the same. It is when the price charged is for the purpose of favoring persons by localities or
particular kinds of merchandise, that the law intervenes and prohibits.
(6) It is not believed that the law prohibits common carriers from making special rates for the
handling and transporting of merchandise, when the same are made for the purpose of increasing their
business, and to manage their important interests upon the same principles which are regarded as sound, and
adopted in other trades and pursuits.
(7) It is not believed that the law requires absolute equality in all cases. Circumstances and conditions
may make it injurious to the carrier. Absolute equality, under certain circumstances and conditions, may give
some shippers an advantage over others.

12. The law prohibits favoritism and discrimination

It is favoritism and discrimination which the law prohibits. The difference in charge must not be
made to favor one merchant, or shipper, or locality, to the disadvantage of another merchant, or shipper, or
locality. If the services are alike and contemporaneous, discrimination in the price charged is prohibited.

13. Merchandise may be alike in kind or quantity but not as to cost of transportation; Example
For the purposes of the law, it is not sufficient always to say that merchandise is alike, simply because
it is of a like kind or quantity. The quantity, kind, and quality may be exactly the same, and yet not be alike,
so far as the cost of transportation is concerned. For example, A and B are each shippers of bananas between
the same points. A delivers his bananas to the carrier in separate bundles or bunches, without a wrapper or
any kind of protection, while B delivers exactly the same number of bunches of bananas, but they are neatly
packed in a few boxes or baskets. It does not require much argument to convince men conversant with the
shipping of merchandise, in such a case, that the actual cost of handling and shipping would be different and
would, therefore, not be “alike,” although contemporaneous, perhaps.

14. Shipments not rendered unlike because shipment composed of different classes of merchandise;
Example
Neither is it believed that shipments may be rendered unlike by the fact that the total shipment is
composed of different kinds or classes of merchandise. For example, A is a shipper of rice and hemp and B is
a shipper of rice alone. Both A and B prepare their rice for shipment in exactly the same form of package. It is
not believed that the carrier is permitted, under the law, to carry A’s rice for a less price than he carries B’s
rice, simply because A is also a shipper of hemp.

15. Difference in charge of handing may depend on actual cost, actual cost may depend upon
quantity; Examples
A difference in the charge for handling and transporting may only be made when the difference is
based upon actual cost. The actual cost may depend upon quantity. For example, A man who ships freight by
the car-load, by reason of the actual cost of handling and shipping, may be entitled, under certain conditions,
to a better rate than the man who ships a single article or package of the same class or kind of merchandise.
As another example, a train-load of cattle might be shipped from Dagupan to Manila at less cost per head than
it would cost to ship just a few head, less than a car-load.

16. Actual cost depend upon and settled upon proof; Difference in charge must be difference in cost
The actual cost of each shipment must necessarily depend upon and be settled by its own proof. This
rule, however, does not prohibit the making of general schedules, providing they are made applicable to all.
The difference in the charge made by the common carrier cannot be made for the purpose of favoring any
person or locality, to the prejudice or disadvantage of another person or locality. A common carrier may
discriminate between shippers when the amount of goods shipped by one actually costs less to handle and
transport, but he cannot discriminate upon the ground simply that he carries all of the goods of one shipper,
while he does not carry all of the goods of another. The difference in the charge must be the difference in the
cost.

17. Common carriers competent to enter into special agreements for handling and transporting
merchandise
It is competent for a common carrier under the law to enter into special agreements for handling and
transporting merchandise, whereby advantage may accrue to individuals, when it is made clearly to appear
that by such agreements the common carrier has only its interests and the legitimate increase of its profits in
view, and when the consideration given to the individual is for the interest of the common carrier alone, and
when the common carrier gives all shippers exactly the same rate, under the same conditions.

18. Law prohibits unjust, undue, and unreasonable discrimination; Circumstances may intervene
in determining rate of compensation
It is only unjust, undue, and unreasonable discrimination which the law forbids. The law of equality is
in force only where the services performed in the different cases are substantially the same, and the
circumstances and conditions are similar. Many considerations may properly enter into the agreement for the
carriage or shipment rate, such as the quantity carried, its nature, its risks, the expense of carriage at different
periods of time, and the like. Numerous circumstances may intervene, which bear upon the cost and expense
of transportation, and it is but just to the carrier that he be permitted to take these circumstances into
consideration, in determining the rate or amount of his compensation. A question of fact is raised in each case
for the courts to decide.

19. Quinajon and Quitoriano discriminated against the province

Herein, there is no pretense that it actually cost more to handle the rice for the province than it did for
the merchants with whom the special contracts were made. From the evidence it would seem that there was a
clear discrimination made against the province. Discrimination is the thing which is specifically prohibited
and punished under the law.

20. Section 5 of Act 98

Section 5 of Act 98 provides that any person or corporation, who may be damaged by reason of the
doing by a common carrier of any matters and things prohibited, shall be entitled to sue for and recover all
damages so incurred, etc.

21. Quinajon and Quitoriano required to return overpayment of P239.44

Quinajon and Quitoriano had a right to charge the provincial government 6 centavos for each sack of
rice unloaded. They unloaded for the province 5,986 sacks, for which they charged the sum of P598.60. They
had a right to collect 6 centavos, or the sum of P359.16. Quinajon and Quitoriano collected from the province
more than they had a right to collect, the difference between P598.60 and P359.16, or P239.44. They should
be required to return to the province the excess which they collected, or the sum of P239.44.

[14] also [39]

De Guzman vs. CA (GR L-47822, 22 December 1988)

Third Division, Feliciano (J): 4 concur

Facts: Ernesto Cendaña, a junk dealer, was engaged in buying up used bottles and scrap metal in Pangasinan.
Upon gathering sufficient quantities of such scrap material, Cendaña would bring such material to Manila for
resale. He utilized 2 six-wheeler trucks which he owned for hauling the material to Manila. On the return trip
to Pangasinan, Cendaña would load his vehicles with cargo which various merchants wanted delivered to
differing establishments in Pangasinan. For that service, Cendaña charged freight rates which were commonly
lower than regular commercial rates. Sometime in November 1970, Pedro de Guzman, a merchant and
authorized dealer of General Milk Company (Philippines), Inc. in Urdaneta, Pangasinan, contracted with
Cendaña for the hauling of 750 cartons of Liberty filled milk from a warehouse of General Milk in Makati,
Rizal, to de Guzman’s establishment in Urdaneta on or before 4 December 1970. Accordingly, on 1
December 1970, Cendaña loaded in Makati the merchandise on to his trucks: 150 cartons were loaded on a
truck driven by Cendaña himself; while 600 cartons were placed on board the other truck which was driven
by Manuel Estrada, Cendaña ‘s driver and employee. Only 150 boxes of Liberty filled milk were delivered to
de Guzman. The other 600 boxes never reached de Guzman, since the truck which carried these boxes was
hijacked somewhere along the MacArthur Highway in Paniqui, Tarlac, by armed men who took with them the
truck, its driver, his helper and the cargo.

On 6 January 1971, de Guzman commenced action against Cendaña in the CFI of Pangasinan, demanding
payment of P22,150.00, the claimed value of the lost merchandise, plus damages and attorney’s fees. De
Guzman argued that Cendaña, being a common carrier, and having failed to exercise the extraordinary
diligence required of him by the law, should be held liable for the value of the undelivered goods. In his
Answer, Cendaña denied that he was a common carrier and argued that he could not be held responsible for
the value of the lost goods, such loss having been due to force majeure. On 10 December 1975, the trial court
rendered a Decision’ finding Cendaña to be a common carrier and holding him liable for the value of the
undelivered goods (P22,150.00) as well as for P4,000.00 as damages and P2,000.00 as attorney’s fees.

On appeal before the Court of Appeals, Cendaña urged that the trial court had erred in considering him a
common carrier; in finding that he had habitually offered trucking services to the public; in not exempting
him from liability on the ground of force majeure; and in ordering him to pay damages and attorney’s fees.
The Court of Appeals reversed the judgment of the trial court and held that Cendaña had been engaged in
transporting return loads of freight “as a casual occupation — a sideline to his scrap iron business” and not as
a common carrier. De Guzman came to the Supreme Court by way of a Petition for Review.

The Supreme Court denied the Petition for Review on Certiorari; and affirmed the Decision of the Court of
Appeals dated 3 August 1977; without pronouncement as to costs.

1. Common carriers defined; Article 1732 NCC

The Civil Code defines “common carriers” in the following terms (Article 1732): “Common carriers
are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers
or goods or both, by land, water, or air for compensation, offering their services to the public.”

2. Article 1732 NCC makes no distinctions

Article 1732 of the Civil Code makes no distinction between one whose principal business activity is
the carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in
local idiom, as “a sideline”). Article 1732 also carefully avoids making any distinction between a person or
enterprise offering transportation service on a regular or scheduled basis and one offering such service on an
occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its
services to the “general public,” i.e., the general community or population, and one who offers services or
solicits business only from a narrow segment of the general population. Article 1733 deliberately refrained
from making such distinctions.

3. Concept of “common carrier” coincides neatly with the notion of “public service”
The concept of “common carrier” under Article 1732 may be seen to coincide neatly with the notion
of “public service,” under the Public Service Act (Commonwealth Act 1416, as amended) which at least
partially supplements the law on common carriers set forth in the Civil Code.

4. Public Service; Section 13, paragraph (b) of the Public Service Act
 Under Section 13, paragraph (b) of the Public Service Act, “public service” includes “every person
that now or hereafter may own, operate, manage, or control in the Philippines, for hire or compensation, with
general or limited clientele, whether permanent, occasional or accidental, and done for general business
purposes, any common carrier, railroad, street railway, traction railway, subway motor vehicle, either for
freight or passenger, or both, with or without fixed route and whatever may be its classification, freight or
carrier service of any class, express service, steamboat, or steamship line, pontines, ferries and water craft,
engaged in the transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock,
ice plant, ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water supply and
power petroleum, sewerage system, wire or wireless communications systems, wire or wireless broadcasting
stations and other similar public services. “

5. Cendaña a common carrier

Cendaña is properly characterized as a common carrier even though he merely “back-hauled” goods
for other merchants from Manila to Pangasinan, although such backhauling was done on a periodic or
occasional rather than regular or scheduled manner, and even though Cendaña’s principal occupation was not
the carriage of goods for others. There is no dispute that Cendaña charged his customers a fee for hauling
their goods; that fee frequently fell below commercial freight rates is not relevant.

6. Certificate of public convenience not requisite for incurring of liability as common carrier
A certificate of public convenience is not a requisite for the incurring of liability under the Civil Code
provisions governing common carriers. That liability arises the moment a person or firm acts as a common
carrier, without regard to whether or not such carrier has also complied with the requirements of the
applicable regulatory statute and implementing regulations and has been granted a certificate of public
convenience or other franchise. Herein, to exempt Cendaña from the liabilities of a common carrier because
he has not secured the necessary certificate of public convenience, would be offensive to sound public policy;
that would be to reward private respondent precisely for failing to comply with applicable statutory
requirements.

7. Business of common carrier imbued with public interest

The business of a common carrier impinges directly and intimately upon the safety and well being
and property of those members of the general community who happen to deal with such carrier. The law
imposes duties and liabilities upon common carriers for the safety and protection of those who utilize their
services and the law cannot allow a common carrier to render such duties and liabilities merely facultative by
simply failing to obtain the necessary permits and authorizations.

8. Extraordinary diligence required of common carriers

Common carriers, “by the nature of their business and for reasons of public policy,” are held to a very
high degree of care and diligence (“extraordinary diligence”) in the carriage of goods as well as of
passengers. The specific import of extraordinary diligence in the care of goods transported by a common
carrier is, according to Article 1733, “further expressed in Articles 1734, 1735 and 1745, numbers 5, 6 and 7”
of the Civil Code.

9. Article 1734 NCC

Article 1734 establishes the general rule that common carriers are responsible for the loss, destruction
or deterioration of the goods which they carry, “unless the same is due to any of the following causes only: (1)
Flood, storm, earthquake, lightning, or other natural disaster or calamity; (2) Act of the public enemy in war,
whether international or civil; (3) Act or omission of the shipper or owner of the goods; (4) The character of
the goods or defects in the packing or in the containers; and (5) Order or act of competent public authority.”

10. Enumeration in Article 1734 NCC exclusive; Article 1735 NCC

 It is important to point out that the above list of causes of loss, destruction or deterioration which
exempt the common carrier for responsibility therefor, is a closed list. Causes falling outside the foregoing
list, even if they appear to constitute a species of force majeure, fall within the scope of Article 1735, which
provides that “In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the preceding article, if
the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have
acted negligently, unless they prove that they observed extraordinary diligence as required in Article 1733.”

11. Cendaña presumed at fault; Cendaña, however, not required to retain security guard to ride
with truck
Applying Articles 1734 and 1735, the hijacking of the carrier’s truck does not fall within any of the 5
categories of exempting causes listed in Article 1734. It would follow that the hijacking of the carrier’s
vehicle must be dealt with under the provisions of Article 1735, in other words, that Cendaña as common
carrier is presumed to have been at fault or to have acted negligently. This presumption, however, may be
overthrown by proof of extraordinary diligence on the part of Cendaña. The standard of extraordinary
diligence required Cendaña to retain a security guard to ride with the truck and to engage brigands in a fire
fight at the risk of his own life and the lives of the driver and his helper.

12. Hold uppers of second truck armed

Herein, armed men held up the second truck owned by Cendaña which carried de Guzman’s cargo.
The record shows that an information for robbery in band was filed in the CFI of Tarlac, Branch 2, in
Criminal Case 198 entitled “People of the Philippines v. Felipe Boncorno, Napoleon Presno, Armando
Mesina, Oscar Oria and one John Doe.” There, the accused were charged with willfully and unlawfully taking
and carrying away with them the second truck, driven by Manuel Estrada and loaded with the 600 cartons of
Liberty filled milk destined for delivery at de Guzman’s store in Urdaneta, Pangasinan. The decision of the
trial court shows that the accused acted with grave, if not irresistible, threat, violence or force. 3 of the 5 hold-
uppers were armed with firearms. The robbers not only took away the truck and its cargo but also kidnapped
the driver and his helper, detaining them for several days and later releasing them in another province (in
Zambales). The hijacked truck was subsequently found by the police in Quezon City. The CFI convicted all
the accused of robbery, though not of robbery in band.

12. Specific requirements of the duty of extraordinary diligence in the vigilance over the goods
carried in the specific context of hijacking or armed robbery; Armed robbery herein is fortuitous event
The duty of extraordinary diligence in the vigilance over goods is, under Article 1733, given
additional specification not only by Articles 1734 and 1735 but also by Article 1745, numbers 4, 5 and 6,
Article 1745 provides in relevant part: “Any of the following or similar stipulations shall be considered
unreasonable, unjust and contrary to public policy: xxx (5) that the common carrier shall not be responsible
for the acts or omissions of his or its employees; (6) that the common carrier’s liability for acts committed by
thieves, or of robbers who do not act with grave or irresistible threat, violence or force, is dispensed with or
diminished; and (7) that the common carrier shall not responsible for the loss, destruction or deterioration of
goods on account of the defective condition of the car, vehicle, ship, airplane or other equipment used in the
contract of carriage.” Under Article 1745 (6), a common carrier is held responsible — and will not be allowed
to divest or to diminish such responsibility — even for acts of strangers like thieves or robbers, except where
such thieves or robbers in fact acted “with grave or irresistible threat, violence or force.” The limits of the
duty of extraordinary diligence in the vigilance over the goods carried are reached where the goods are lost as
a result of a robbery which is attended by “grave or irresistible threat, violence or force.” In these
circumstances, the occurrence of the loss must reasonably be regarded as quite beyond the control of the
common carrier and properly regarded as a fortuitous event.

14. Common carriers not absolute insurers against all risks of travel and of transport of goods
 Even common carriers are not made absolute insurers against all risks of travel and of transport of
goods, and are not held liable for acts or events which cannot be foreseen or are inevitable, provided that they
shall have complied with the rigorous standard of extraordinary diligence.

[15], also [171]

Planters Products vs. CA (GR 101503, 15 September 1993)

First Division, Bellosillo (J): 2 concur, 1 on leave, 1 took no part

Facts: Planters Products, Inc. (PPI), purchased from Mitsubishi International Corporation of New York, USA,
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 Kyosei Kisen Kabushiki Kaisha (KKKK) from Kenai, Alaska,
USA, to Poro Point, San Fernando, La Union, Philippines, as evidenced by Bill of Lading 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 was entered into
between Mitsubishi as shipper/charterer and KKKK as shipowner, in Tokyo, Japan. Riders to the aforesaid
charter-party starting from paragraph 16 to 40 were attached to the pre-printed agreement. Addenda 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, 4 of her holds were all presumably inspected by
the charterer’s representative and found fit to take a load of urea in bulk pursuant to paragraph 16 of the
charter-party. 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 3 layers of tarpaulin, then tied
with steel bonds. The hatches remained closed and tightly sealed throughout the entire voyage. 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. PPI unloaded the cargo from the holds into its steel-bodied dump trucks which were parked
alongside the berth, using metal scoops attached to the ship, pursuant to the terms and conditions of the
charter-party (which provided for an FIOS clause). The hatches remained open throughout the duration of the
discharge. Each time a dump truck was filled up, its load of Urea was covered with tarpaulin before it was
transported to the consignee’s warehouse located some 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. PPI’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 fertilizer. It took 11 days for PPI
to unload the cargo, from 5 July to 18 July 1974 (except July 12th, 14th and 18th). 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. 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. 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. 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.”
On 18 July 1975, PPI filed an action for damages with the Court of First Instance of Manila. The court a quo
however sustained the claim of PPI against the carrier for the value of the goods lost or damaged.

On appeal, the Court of Appeals reversed the lower court and absolved the carrier from liability for the value
of the cargo that was lost or damaged. PPI appealed by way of petition for review.

The Supreme Court dismissed the petition; affirmed the assailed decision of the Court of Appeals, which
reversed the trial court; and consequently, dismissed Civil Case 98623 of the then CFI, now RTC, of Manila;
with costs against PPI.

1. Charter party defined

A “charter-party” is defined as a contract by which an entire ship, or some principal part thereof, is let
by the owner to another person for a specified time or use; a contract of affreightment by which the owner of
a ship or other vessel lets the whole or a part of her to a merchant or other person for the conveyance of
goods, on a particular voyage, in consideration of the payment of freight.

2. Types of charter parties

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.

3. Kinds of contract of affreightment

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. In both cases, the
charter-party provides for the hire of the vessel only, either for a determinate period of time or for a single or
consecutive voyage, the 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.

4. Common or public carrier defined; Scope of definition

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

5. Distinction between common or public carrier, and private or special carrier

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.

6. Extraordinary diligence required of common carriers (Article 1733); Ordinary diligence

required of private carriers
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. In the case of
private carriers, however, the exercise of ordinary diligence in the carriage of goods will suffice.

7. Common carriers presumed negligent in case of loss, etc. of goods; No presumption in private
carriers
In 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. 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.

8. Kyosei Kisen Kabushiki Kaisha a common carrier, remained as so in charter party

Kyosei Kisen Kabushiki Kaisha, in the ordinary course of business, operates as a common carrier,
transporting goods indiscriminately for all persons. When PPI 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. 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, the charterer is a
stranger to the crew and to the ship. Thus, 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. 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.

9. When charter party converts common carrier to private carrier

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.

10. Reliance on case of Home Insurance vs. American Steamship misplaced

The carrier’s heavy reliance on the case of Home Insurance Co. v. American Steamship Agencies is
misplaced for the reason that the meat of the controversy therein was the validity of a stipulation in the
charter-party exempting the shipowner from liability for loss due to the negligence of its agent, and not the
effects of a special charter on common carriers.

11. American rule as to shipper carrying special cargo not applicable in the Philippines; Stricter
interpretation of admiralty laws
The rule in the United States that a ship chartered by a single shipper to carry special cargo is not a
common carrier, does not find application in Philippine jurisdiction, for the Court has 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.

12. Observations of Raoul Colinvaux, the learned barrister-at-law

“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 collussion occur; and the
same difficulty in discovering the truth as to what has taken place arises . . .”

13. Burden of proof in an action for recovery of damages against a common carrier
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.

14. Carrier has sufficiently overcome, by clear and convincing proof, the prima facie presumption
of negligence
 (1) 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 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 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. (2) 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. 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. Verily, the presumption of negligence
on the part of respondent carrier has been efficaciously overcome by the showing of extraordinary zeal and
assiduity exercised by the carrier in the care of the cargo.

15. Period which carrier was to observe degree of diligence; Limitation clause of FIOS meaning
The period during which the carrier 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 re-examined 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. 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.

15. When common carriers not liable for loss, destruction or deterioration of goods
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 character of the goods or defects in the packaging or
in the containers. The Code of Commerce also provides that all losses and deteriorations 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. 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.

16. Characteristics of urea

Urea is 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 80 degrees centigrade.

17. Expected risks of bulk shipping

(1) 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. (2) The dissipation of quantities of fertilizer,
or its deterioration 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. (3) 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.

18. Hull of vessel in good condition; Improbable that sea water seep in vessel’s hold
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 “bad 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.

19. Variable weather condition a risk of loss or damage which owner or shipper of goods has to face
Herein, 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. 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.
This is a risk the shipper or the owner of the goods has to face.

[16]

Bascos vs. CA (GR 101089, 7 April 1993)

Second Division, Campos Jr. (J): 4 concur

Facts: Rodolfo A. Cipriano representing Cipriano Trading Enterprise (CIPTRADE) entered into a hauling
contract with Jibfair Shipping Agency Corp. whereby the former bound itself to haul the latter’s 2,000 m/tons
of soya bean meal from Magallanes Drive, Del Pan, Manila to the warehouse of Purefoods Corporation in
Calamba, Laguna. To carry out its obligation, CIPTRADE, through Rodolfo Cipriano, subcontracted with
Estrellita Bascos to transport and to deliver 400 sacks of soya bean meal worth P156,404.00 from the Manila
Port Area to Calamba, Laguna at the rate of P50.00 per metric ton. Bascos failed to deliver the said cargo. As
a consequence of that failure, Cipriano paid Jibfair Shipping Agency the amount of the lost goods in
accordance with the contract. Cipriano demanded reimbursement from Bascos but the latter refused to pay.

Eventually, Cipriano filed a complaint for a sum of money and damages with writ of preliminary attachment
for breach of a contract of carriage. The trial court granted the writ of preliminary attachment on 17 February
1987. After trial, the trial court rendered a decision, ordering Bascos to pay Cipriano (1) the amount of
P156,404.00 for actual damages with legal interest of 12% per cent per annum to be counted from 4
December 1986 until fully paid; (2) the amount of P5,000.00 as and for attorney’s fees; and (3) the costs of
the suit. The court further denied the “Urgent Motion To Dissolve/Lift preliminary Attachment” dated 10
March 1987 filed by Bascos for being moot and academic.

Bascos appealed to the Court of Appeals (CA-GR CV 25216) but the appellate court affirmed the trial court’s
judgment. Hence, the petition for review on certiorari.

The Supreme Court dismissed the petition and affirmed the decision of the Court of Appeals.
1. Article 1732 NCC defines common carrier
Article 1732 of the Civil Code defines a common carrier as “(a) person, corporation or firm, or
association engaged in the business of carrying or transporting passengers or goods or both, by land, water or
air, for compensation, offering their services to the public.”

2. Test to determine common carrier

The test to determine a common carrier is “whether the given undertaking is a part of the business
engaged in by the carrier which he has held out to the general public as his occupation rather than the quantity
or extent of the business transacted.”

3. Judicial admissions are conclusive

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

4. No distinctions in Article 1732 as to common carriers; De Guzman vs. CA

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

5. Factual conclusions of the appellate court conclusive upon the Supreme Court; Court’s role in a
petition for review on certiorari
Regarding the affidavits (lease agreements) presented by Bascos to the court, both the trial and
appellate courts have dismissed them as self-serving. The Supreme Court is bound by the appellate court’s
factual conclusions. In a petition for review on certiorari, the court is not to determine the probative value of
evidence but to resolve questions of law.

6. Contracts are understood as what the law defines them to be and not what parties call them;
Burden of proof
Granting that the said evidence were not self-serving, the same were not sufficient to prove that the
contract was one of lease. It must be understood that a contract is what the law defines it to be and not what it
is called by the contracting parties. Furthermore, Bascos presented no other proof of the existence of the
contract of lease. He who alleges a fact has the burden of proving it.

7. Extraordinary diligence; Presumption of negligence; Exceptions in Article 1734; Burden of

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

8. Hijacking not included in Article 1734; Article 1745 NCC, Ruling in De Guzman vs. CA
 In De Guzman vs. Court of Appeals, the Court held that hijacking, not being included in the
provisions of Article 1734, must be dealt with under the provisions of Article 1735 and thus, the common
carrier is presumed to have been at fault or negligent. To exculpate the carrier from liability arising from
hijacking, he must prove that the robbers or the hijackers acted with grave or irresistible threat, violence, or
force. This is in accordance with Article 1745 of the Civil Code.

9. Article 1745 (6) NCC

Article 1745 of the Civil Code provides that “Any of the following or similar stipulations shall be
considered unreasonable, unjust and contrary to public policy; xxx (6) That the common carrier’s liability for
acts committed by thieves, or of robbers who do not act with grave or irresistible threat, violences or force, is
dispensed with or diminished.”

10. When armed robbery a force majeure; De Guzman vs. CA

“Under Article 1745 (6) above, a common carrier is held responsible — and will not be allowed to
divest or to diminish such responsibility — even for acts of strangers like thieves or robbers except where
such thieves or robbers in fact acted with grave or irresistible threat, violence or force. We believe and so hold
that the limits of the duty of extraordinary diligence in the vigilance over the goods carried are reached where
the goods are lost as a result of a robbery which is attended by “grave or irresistible threat, violence or force.”

11. Grave and irresistible force not shown

To establish grave and irresistible force, Bascos presented her accusatory affidavit, Jesus Bascos’
affidavit, and Juanito Morden’s “Salaysay”. However, both the trial court and the Court of Appeals have
concluded that these affidavits were not enough to overcome the presumption. (1) Bascos’s affidavit about the
hijacking was based on what had been told her by Juanito Morden. It was not a first-hand account. While it
had been admitted in court for lack of objection on the part of Cipriano, the lower court had discretion in
assigning weight to such evidence. (2) The affidavit of Jesus Bascos did not dwell on how the hijacking took
place. (3) While the affidavit of Juanito Morden, the truck helper in the hijacked truck, was presented as
evidence in court, he himself was a witness as could be gleaned from the contents of the petition.

12. Affidavits not considered best evidence if affiants are available as witnesses
Affidavits are not considered the best evidence if the affiants are available as witnesses. The
subsequent filing of the information for carnapping and robbery against the accused named in said affidavits
did not necessarily mean that the contents of the affidavits were true because they were yet to be determined
in the trial of the criminal cases.

[17], also [117]

Mendoza vs. PAL (GR L-3678, 29 February 1952)

En Banc, Montemayor (J): 7 concur

Facts: In 1948, Jose Mendoza was the owner of the Cita Theater located in the City of Naga, Camarines Sur,
where he used to exhibit movie pictures booked from movie producers or film owners in Manila. The fiesta or
town holiday of the City of Naga, held on September 17 and 18, yearly, was usually attended by a great many
people, mostly from the Bicol region, especially since the Patron Saint Virgin of Peña Francia was believed
by many to be miraculous. As a good businessman, he took advantage of these circumstances and decided to
exhibit a film which would fit the occasion and have a special attraction and significance to the people
attending said fiesta. A month before the holiday, that is to say, August 1948, he contracted with the LVN
pictures Inc., a movie producer in Manila for him to show during the town fiesta the Tagalog film entitled
“Himala ng Birhen” or Miracle of the Virgin. He made extensive preparations; he had 2,000 posters printed
and later distributed not only in the City of Naga but also in the neighboring towns. He also advertised in a
weekly of general circulation in the province. The posters and advertisement stated that the film would be
shown in the Cita Theater on the 17th and 18th of September, corresponding to the eve and day of the fiesta
itself. In pursuance of the agreement between the LVN Pictures Inc. and Mendoza, the former on September
17th, 1948, delivered to the Philippine Airlines (PAL) whose planes carried passengers and cargo and made
regular trips from Manila to the Pili Air Port near Naga, Camarines Sur, a can containing the film “Himala ng
Birhen” consigned to the Cita Theater. For this shipment, PAL issued its Air Way Bill 317133. This can of
films was loaded on PAL flight 113, the plane arriving at the Air Port at Pili a little after 4:00 p.m. of the
same day, September 17th. For reasons not explained by PAL, but which would appear to be the fault of its
employees or agents, this can of film was not unloaded at Pili Air Port and it was brought back to Manila.
Mendoza who had completed all arrangements for the exhibition of the film beginning in the evening of
September 17th, to exploit the presence of the big crowd that came to attend the town fiesta, went to the Air
Port and inquired from PAL’s station master there about the can of film. Said station master could not explain
why the film was not unloaded and sent several radiograms to his principal in Manila making inquiries and
asking that the film be sent to Naga immediately. After investigation and search in the Manila office, the film
was finally located the following day, September 18th, and then shipped to the Pili Air Port on September
20th. Mendoza received it and exhibited the film but he had missed his opportunity to realize a large profit as
he expected for the people after the fiesta had already left for their towns.

To recoup his losses, Mendoza brought this action against the PAL. After trial, the lower court found that
because of his failure to exhibit the film “Himala ng Birhen” during the town fiesta, Mendoza suffered
damages or rather failed to earn profits in the amount of P3,000.00, but finding the PAL not liable for said
damages, dismissed the complaint.

The Supreme Court affirmed the decision appealed from; with no pronouncement as to costs.

1. PAL a debtor in good faith

Although PAL was not obligated to load the film on any specified plane or on any particular day, once
said can of film was loaded and shipped on one of its planes making the trip to Camarines, then it assumed
the obligation to unload it at its point of destination and deliver it to the consignee, and its unexplained failure
to comply with this duty constituted negligence. The Court however found that fraud was not involved and
that PAL was a debtor in good faith.

2. A debtor in good faith is liable only for foreseen losses and damages
Applying the provisions of Art. 1107 of the Civil Code which provides that losses and damages for
which a debtor in good faith is liable are those foreseen, or which might have been foreseen, at the time of
constituting the obligation, and which are a necessary consequence of the failure to perform it, the Court held
that inasmuch as these damages suffered by Mendoza were not foreseen or could not have been foreseen at
the time that PAL accepted the can of film for shipment, for the reason that neither the shipper LVN Pictures
Inc. nor the consignee Mendoza had called its attention to the special circumstances attending the shipment
and the showing of the film during the town fiesta of Naga, Mendoza may not recover the damages sought.
(See Similar case of Daywalt vs. Corporacion de PP Agustinos Recoletos, 39 PHIL 587)

3. Contract of transportation by air may be regarded as commercial; Obvious reason why

transport by air not included in Code of Commerce
A contract of transportation by air may be regarded as commercial. The reason is that at least in the
present case the transportation company (PAL) is a common carrier; besides, air transportation is clearly
similar or analogous to land and water transportation. The obvious reason for its non-inclusion in the Code of
Commerce was that at the time of its promulgation, transportation by air on a commercial basis was not yet
known. In the United States where air transportation has reached its highest development, an airline company
engaged in the transportation business is regarded as a common carrier.

4. When Aircraft Operator is common carrier

 “That aircraft and the industry of carriage by aircraft are new is no reason why one in fact employing
aircraft as common-carrier vehicles should not be classified as a common carrier and charged with liability as
such. There can be no doubt, under the general law of common carriers, that those air lines and aircraft
owners engaged in the passenger service on regular schedules on definite routes, who solicit the patronage of
the traveling public, advertise schedules for routes, times of leaving, and rates of fare, and make the usual
stipulation as to baggage, are common carriers by air. A flying service company which, according to its
printed advertising, will take anyone anywhere at any time, though not operating on regular routes or
schedules, and basing its charges not on the number of passengers, but on the operating cost of the plane per
mile, has been held to be a common carrier. It is not necessary, in order to make one carrying passengers by
aircraft a common carrier of passengers that the passengers be carried from one point to another; the status
and the liability as a common carrier may exist notwithstanding the passenger’s ticket issued by an airplane
carrier of passengers for hire contains a statement that it is not a common carrier, etc., or a stipulation that it is
to be held only for its proven negligence. But an airplane owner cannot be classed as a common carrier of
passengers unless he undertakes, for hire, to carry all persons who apply for passage indiscriminately as long
as there is room and no legal excuse for refusing. “

5. Rules and principles applied to other common carrier applicable to carriers by aircraft
The principles which govern carriers by other means, such as by railroad or motor bus, govern
carriers by aircraft. The rules governing the business of a common carrier by airship or flying machine may
be readily assimilated to those applied to other common carriers.

6. Test to determine common carrier by air

The test of whether one is a common carrier by air is whether he holds out that he will carry for hire,
so long as he has room, goods of everyone bringing goods to him for carriage, not whether he is carrying as a
public employment or whether he carries to a fixed place.

7. Article 358 of the Code of Commerce similar to Article 1101 of the Civil Code, pertaining to
ordinary damages or damages in general
Art. 358 of the Code of Commerce provides that if there is no period fixed for the delivery of the
goods, the carrier shall be bound to forward them in the first shipment of the same or similar merchandise
which he may make to the point of delivery, and that upon failure to do so, the damages caused by the delay
should be suffered by the carrier. This is a general provision for ordinary damages and is no different from the
provisions of the Civil Code, particularly Art. 1101 thereof, providing for the payment of damages caused by
the negligence or delay in the fulfillment of one’s obligation. The pertinent provisions regarding damages
only treats of ordinary damages or damages in general, not special damages like those suffered by Mendoza.

9. Order of applicable laws pertaining to commercial transactions

Article 2 of the Code of Commerce provides that commercial transactions are to be governed by the
provisions of the Code of Commerce, but in the absence of applicable provisions, they will be governed by
the usages of commerce generally observed in each place; and in default of both, by those of the Civil Law. In
the present case, assuming that the present case involved a commercial transaction, still inasmuch as the
special damages claimed finds no applicable provision in the Code of Commerce, neither has it been shown
that there are any commercial usages applicable thereto, then in the last analysis, the rules of the civil law
would have to come into play.

10. Chapman vs. Fargo similar

In the case of Chapman vs. Fargo, L.R.A. (1918 F) p. 1049, the plaintiff in Troy, New York, delivered
motion picture films to Fargo, an express company, consigned and to be delivered to him in Utica. At the time
of shipment the attention of the express company was called to the fact that the shipment involved motion
picture films to be exhibited in Utica, and that they should be sent to their destination, rush. There was delay
in their delivery and it was found that the plaintiff because of his failure to exhibit the film in Utica due to the
delay suffered damages or loss of profits. But the highest court in the State of New York refused to award him
special damages.

11. Means to make common carrier liable for special damages

Before defendant could be held to special damages, such as alleged loss of profits on account of delay
or failure of delivery, it must have appeared that he had notice at the time of delivery to him of the particular
circumstances attending the shipment, and which probably would lead to such special loss if he defaulted. Or,
as the rule has been stated in another form, in order to impose on the defaulting party further liability than for
damages naturally and directly, i.e., in the ordinary course of things, arising from a breach of contract, such
unusual or extraordinary damages must have been brought within the contemplation of the parties as the
probable result of a breach at the time of or prior to contracting. Generally, notice then of any special
circumstances which will show that the damages to be anticipated from a breach would be enhanced has been
held sufficient for this effect.”

12. Prompt delivery not required of common carriers, unless they previously assume the obligation
Common carriers are not obligated by law to carry and to deliver merchandise, and persons are not
vested with the right to prompt delivery, unless such common carriers previously assume the obligation. Said
rights and obligations are created by a specific contract entered into by the parties.

13. Mendoza a party to the contract of transportation

LVN Pictures Inc. and Jose Mendoza on one side, and PAL on the other, entered into a contract of
transportation.
a. One interpretation of said finding is that the LVN Pictures Inc. through previous agreement with
Mendoza acted as the latter’s agent. When he negotiated with the LVN Pictures Inc. to rent the film
“Himala ng Birhen” and show it during the Naga town fiesta, he most probably authorized and
enjoined the Picture Company to ship the film for him on the PAL on September 17th.
b. Another interpretation is that even if the LVN Pictures Inc. as consignor of its own initiative, and
acting independently of Mendoza for the time being, made Mendoza as consignee, a stranger to the
contract if that is possible, nevertheless when he, Mendoza, appeared at the Pili Air Port armed with
the copy of the Air Way Bill demanding the delivery of the shipment to him, he thereby made himself
a party to the contract of transportation.

14. Malagarriga in his book Codigo de Comercio Comentado, Vol. I, p. 400

On the possibility of a conflict between the order of the shipper on the one hand and the order of the
consignee on the other, as when the shipper orders the shipping company to return or retain the goods shipped
while the consignee demands their delivery, the right of the shipper to countermand the shipment terminates
when the consignee or legitimate holder of the bill of lading appears with such bill of lading before the carrier
and makes himself a party to the contract. Prior to that time, he is stranger to the contract.

15. A cause of action by a party to the contract of transportation must be founded on its breach
The contract of carriage between the LVN Pictures Inc. and PAL contains the stipulations of delivery
to Mendoza as consignee (Art. 1257, paragraph 2, of the old Civil Code: Should the contract contain any
stipulation in favor of a third person, he may demand its fulfillment, provided he has given notice of his
acceptance to the person bound before the stipulation has been revoked). His demand for the delivery of the
can of film to him at the Pili Air Port may be regarded as a notice of his acceptance of the stipulation of the
delivery in his favor contained in the contract of carriage, such demand being one for the fulfillment of the
contract of carriage and delivery. In this case he also made himself a party to the contract, or at least has come
to court to enforce it. His cause of action must necessarily be founded on its breach.

16. Precautions to be made by exhibitor in similar cases

 In situations where failure to exhibit films on a certain day would spell substantial damages or
considerable loss of profits, including waste of efforts on preparations and expenses incurred in
advertisements, exhibitors, for their security, may either get hold of the films well ahead of the time of
exhibition in order to make allowance for any hitch in the delivery, or else enter into a special contract or
make a suitable arrangement with the common carrier for the prompt delivery of the films, calling the
attention of the carrier to the circumstances surrounding the case and the approximate amount of damages to
be suffered in case of delay.

[18], also [177]

Coastwise Lighterage Corp. vs. CA (GR 114167, 12 July 1995)

Third Division, Francisco R. (J): 4 concur

Facts: Pag-asa Sales Inc. entered into a contract to transport molasses from the province of Negros to Manila
with Coastwise Lighterage Corp., using the latter’s dumb barges. The barges were towed in tandem by the
tugboat MT Marica, which is likewise owned by Coastwise. Upon reaching Manila Bay, while approaching
Pier 18, one of the barges, “Coastwise 9”, struck an unknown sunken object. The forward buoyancy
compartment was damaged, and water gushed in through a hole “2 inches wide and 22 inches long”. As a
consequence, the molasses at the cargo tanks were contaminated and rendered unfit for the use it was
intended. This prompted the consignee, Pag-asa Sales, Inc. to reject the shipment of molasses as a total loss.
Thereafter, Pag-asa Sales, Inc. filed a formal claim with the insurer of its lost cargo, Philippine General
Insurance Company (PhilGen) and against the carrier, Coastwise Lighterage. Coastwise Lighterage denied the
claim and it was PhilGen which. paid the consignee, Pag-asa Sales the amount of P700,000.00 representing
the value of the damaged cargo of molasses.

In turn, PhilGen then filed an action against Coastwise Lighterage before the RTC of Manila, seeking to
recover the amount of P700,000.00 which it paid to Pag-asa Sales for the latter’s lost cargo PhilGen now
claims to be subrogated to all the contractual rights and claims which the consignee may have against the
carrier, which is presumed to have violated the contract of carriage. The RTC (Branch 35) awarded the
amount prayed for by PhilGen, i.e. the principal amount of P700,000.00 plus interest thereon at the legal rate
computed from 29 March 1989, the date the complaint was filed until fully paid and another sum of
P100,000.00 as attorney’s fees and costs.

On Coastwise Lighterage’s appeal to the Court of Appeals, the award was affirmed on 17 December 1993.
Hence, the petition for review.

The Supreme Court denied the petition, and affirmed the appealed decision.

1. Liability of shipowner in contract of affreightment over vessels, as common carrier, remains in

the absence of the stipulation
When the charter party contract is one of affreightment over the whole vessels, rather than a demise,
the liability of the shipowner for acts or negligence of its captain and crew, would remain in the absence of
stipulation. Although a charter party may transform a common carrier into a private one, the same however is
not true in a contract of affreightment on account of the distinctions between a contract of affreightment and a
bareboat charter. Herein, Pag-asa Sales only leased three of Coastwise Lighterage’s vessels, in order to carry
cargo from one point to another, but the possession, command mid navigation of the vessels remained with
Coastwise Lighterage. The contract thus entered into with the consignee was one of affreightment.

2. Demise or bareboat charter of the vessel; Puromines vs. CA

Under the demise or bareboat charter of the vessel, the charterer will generally be regarded as the
owner for the voyage or service stipulated. The charterer mans the vessel with his own people and becomes
the owner pro hac vice, subject to liability to others for damages caused by negligence. To create a demise,
the owner of a vessel must completely and exclusively relinquish possession, command and navigation
thereof to the charterer anything short of such a complete transfer is a contract of affreightment (time or
voyage charter party) or not a charter party all.

3. Contract of affreightment; Puromines vs. CA

A contract of affreightment is one in which the owner of the vessel leases part or all of its space to
haul goods for others. It is a contract for special service to be rendered by the owner of the vessel and under
such contract the general owner retains the possession, command and navigation of the ship, the charterer or
freighter merely having use of the space in the vessel in return for his payment or the charter hire. An owner
who retains possession of the ship though the hold is the property of the charterer, remains liable as carrier
and must answer for any breach of duty as to the care, loading and unloading of the cargo . . .”

4. Presumption of negligence
The law and jurisprudence on common carriers both hold that the mere proof of delivery of goods in
good order to a carrier and the subsequent arrival of the same goods at the place of destination in bad order
makes for a prima facie case against the carrier. It follows then that the presumption of negligence that
attaches to common carriers, once the goods it is sports are lost, destroyed or deteriorated, applies to
Coastwise Lighterage. This presumption, which is overcome only by proof of the exercise of extraordinary
diligence, remained unrebutted in the present case. As a common carrier, Coastwise Lighterage is liable for
breach of the contract of carriage, having failed to overcome the presumption of negligence with the loss and
destruction of goods it transported, by proof of its exercise of extraordinary diligence.

5. Article 609 of the Code of Commerce

Article 609 of the Code of Commerce, which subsidiarily governs common carriers (which are
primarily governed by the provisions of the Civil Code) provides that “captains, masters, or patrons of vessels
must be Filipinos, have legal capacity to contract in accordance with this code, and prove the skill capacity
and qualifications necessary to command and direct the vessel, as established by marine and navigation laws,
ordinances or regulations, and must not be disqualified according to the same for the discharge of the duties
of the position.”

6. Carrier remised in observance of duties; Unlicensed patron presumes lack of skill and lack of
familiarity to usual and safe routes taken by seasoned and authorized ones
Far from having rendered service with the greatest skill and outmost foresight, and being free from
fault, the carrier was culpably remiss in the observance of its duties. For one, Jesus R. Constantino, the patron
of the vessel “Coastwise 9” admitted that he was not licensed. Clearly, Coastwise Lighterage’s embarking on
a voyage with an unlicensed patron violates Article 609 of the Code of Commerce. It cannot safely claim to
have exercised extraordinary diligence, by placing a person whose navigational skills are questionable, at the
helm of the vessel which eventually met the fateful accident. It may also logically, follow that a person
without license to navigate, lacks not just the skill to do so, but also the utmost familiarity with the usual and
safe routes taken by seasoned and legally authorized ones. Had the patron been licensed he could be
presumed to have both the skill and the knowledge that would have prevented the vessel’s hitting the sunken
derelict ship that lay on their way to Pier 18.

7. Article 2207 NCC

Article 2207 of the Civil Code provides that “If the plaintiff’s property has been insured, and he has
received indemnity from the insurance company for the injury or loses arising out of the wrong or breach of
contract complained of the insurance company shall be subrogated to the rights of the insured against the
wrongdoer or the person who violated the contract.”

8. Principle of subrogation explained

 Article 2207 NCC containing the equitable principle of subrogation has been applied in a long line of
cases including Compania Maritima v. Insurance Company of North America; Firesman’s Fund Insurance
Company v. Jamilla & Company, Inc., and Pan Malayan Insurance Corporation v. Court of Appeals, wherein
the Court explained that “Article 2207 of the Civil Code is founded on the well-settled principle of
subrogation. If the insured property is destroyed or damaged through the fault or negligence of a party other
than the assured, then the insurer, upon payment to the assured will be subrogated to the rights of the assured
to recover from the wrongdoer to the extent that the insurer has been obligated to pay. Payment by the insurer
to the assured operated as an equitable assignment to the former of all remedies which the latter may have
against the third party whose negligence or wrongful act caused the loss. The right of subrogation is not
dependent upon, nor does it grow out of, any private of contract or upon written assignment of, claim. It
accrues simply upon payment of the insurance claim by the insurer.” Herein, Coastwise Lighterage was liable
for breach of the contract of carriage it entered into with the Pag-asa Sales. However, for the damage
sustained by the loss of the cargo which the carrier was transporting, it was not the carrier which paid the
value thereof to Pag-asa Sales but the latter’s insurer, PhilGen. Upon payment by insurer PhilGen of the
amount of P700,000.00 to Pag-asa Sales, the consignee of the cargo of molasses totally damaged while being
transported by Coastwise Lighterage, the former was, subrogated into all the rights which Pag-asa Sales may
have had against the carrier, Coastwise Lighterage.

[19]

Benedicto vs. IAC (GR 70876, 19 July 1990)

Third Division, Feliciano (J): 3 concur, 1 took no part

Facts: Greenhills Wood Industries Co. Inc., a lumber manufacturing firm with business address at Dagupan
City, operates a sawmill in Maddela, Quirino. Sometime in May 1980, Greenhills Wood bound itself to sell
and deliver to Blue Star Mahogany, Inc., a company with business operations in Valenzuela, Bulacan 100,000
board feet of sawn lumber with the understanding that an initial delivery would be made on 15 May 1980. To
effect its first delivery, Greenhills Wood’s resident manager in Maddela, Dominador Cruz, contracted Virgilio
Licuden, the driver of a cargo truck bearing Plate 225 GA TH to transport its sawn lumber to the consignee
Blue Star in Valenzuela, Bulacan. This cargo truck was registered in the name of Ma. Luisa Benedicto, the
proprietor of Macoven Trucking, a business enterprise engaged in hauling freight, with main office in B.F.
Homes, Parañaque. On 15 May 1980, Cruz in the presence and with the consent of driver Licuden, supervised
the loading of 7,690 board feet of sawn lumber with invoice value of P16,918.00 aboard the cargo truck.
Before the cargo truck left Maddela for Valenzuela, Bulacan, Cruz issued to Licuden Charge Invoices 3259
and 3260 both of which were initialed by the latter at the bottom left corner. The first invoice was for the
amount of P11,822.80 representing the value of 5,374 board feet of sawn lumber, while the other set out the
amount of P5,095.20 as the value of 2,316 board feet. Cruz instructed Licuden to give the original copies of
the 2 invoices to the consignee upon arrival in Valenzuela, Bulacan and to retain the duplicate copies in order
that he could afterwards claim the freightage from Greenhills Wood’s Manila office. On 16 May 1980, the
Manager of Blue Star called up by long distance telephone Greenhills Wood’ president, Henry Lee Chuy,
informing him that the sawn lumber on board the subject cargo truck had not yet arrived in Valenzuela,
Bulacan. The latter in turn informed Greenhills Wood’ resident manager in its Maddela sawmill of what had
happened. In a letter dated 18 May 1980, Blue Star’s administrative and personnel manager, Manuel R.
Bautista, formally informed Greenhills Wood’ president and general manager that Blue Star still had not
received the sawn lumber which was supposed to arrive on 15 May 1980 and because of this delay, “they
were constrained to look for other suppliers.”

On 25 June 1980, after confirming the above with Blue Star and after trying vainly to persuade it to continue
with their contract, Greenhills Wood filed Criminal Case 668 against driver Licuden for estafa. Greenhills
Wood also filed against Benedicto Civil Case D-5206 for recovery of the value of the lost sawn lumber plus
damages before the RTC of Dagupan City. In her answer, Benedicto denied liability alleging that she was a
complete stranger to the contract of carriage, the subject truck having been earlier sold by her to Benjamin
Tee, on 28 February 1980 as evidenced by a deed of sale. She claimed that the truck had remained registered
in her name notwithstanding its earlier sale to Tee because the latter had paid her only P50,000.00 out of the
total agreed price of P68,000.00 However, she averred that Tee had been operating the said truck in Central
Luzon from that date (28 February 1980) onwards, and that, therefore, Licuden was Tee’s employee and not
hers. On 20 June 1983, based on the finding that petitioner Benedicto was still the registered owner of the
subject truck, and holding that Licuden was her employee, the trial court ordered Benedicto to pay the
Greenhills Wood, thru its President and General Manager, the amount of P16,016 cost of the sawn lumber
loaded on the cargo truck, with legal rate of interest from the filing of the complaint; to pay attorney’s fees in
the amount of P2,000.00; and to pay the costs of the suit.

On 30 January 1985, upon appeal by Benedicto, the Intermediate Appellate Court affirmed the decision of the
trial court in toto. Benedicto moved for reconsideration, without success. Hence, the petition for review.

The Supreme Court denied the Petition for Review for lack of merit; and affirmed the Decision of the former
IAC dated 30 January 1985; with costs against Benedicto.

1. Registered owner liable for consequences flowing from the operation of the carrier, although
the specific vehicle has been transferred to another person; Public Service Law as basis
Herein, Benedicto has been holding herself out to the public as engaged in the business of hauling or
transporting goods for hire or compensation. Benedicto is, in brief, a common carrier. The prevailing doctrine
on common carriers makes the registered owner liable for consequences flowing from the operations of the
carrier, even though the specific vehicle involved may already have been transferred to another person. This
doctrine rests upon the principle that in dealing with vehicles registered under the Public Service Law, the
public has the right to assume that the registered owner is the actual or lawful owner thereof. It would be very
difficult and often impossible as a practical matter, for members of the general public to enforce the rights of
action that they may have for injuries inflicted by the vehicles being negligently operated if they should be
required to prove who the actual owner is. The registered owner is not allowed to deny liability by proving
the identity of the alleged transferee.

2. Conclusive presumption; Registered owner not allowed to prove actual owner

Herein, Greenhills Wood is not required to go beyond the vehicle’s certificate of registration to
ascertain the owner of the carrier. In this regard, the letter allegedly written by Benjamin Tee admitting that
Licuden was his driver, had no evidentiary value not only because Benjamin Tee was not presented in court
to testify on this matter but also because of the above doctrine. To permit the ostensible or registered owner to
prove who the actual owner is, would be to set at naught the purpose or public policy which infuses that
doctrine.

3. Benedicto has the legal security device of chattel mortgage; Retention of registered ownership
erroneous
Herein, assuming the truth of her story, Benedicto retained registered ownership of the freight truck
for her own benefit and convenience, i.e. to secure the payment of the balance of the selling price of the truck.
She may have been unaware of the legal security device of chattel mortgage; or she, or her buyer, may have
been unwilling to absorb the expenses of registering a chattel mortgage over the truck. In either case,
considerations both of public policy and of equity require that she bear the consequences flowing from
registered ownership of the subject vehicle.

4. Extraordinary diligence required of common carriers; Presumption of fault or negligence,

exceptions
A common carrier, both from the nature of its business and for insistent reasons of public policy, is
burdened by the law with the duty of exercising extraordinary diligence not only in ensuring the safety of
passengers but also in caring for goods transported by it. The loss or destruction or deterioration of goods
turned over to the common carrier for conveyance to a designated destination, raises instantly a presumption
of fault or negligence on the part of the carrier, save only where such loss, destruction or damage arises from
extreme circumstances such as a natural disaster or calamity or act of the public enemy in time of war, or
from an act or omission of the shipper himself or from the character of the goods or their packaging or
container. The presumption may be overcome only by proof of extraordinary diligence on the part of the
carrier.

5. Common carrier cannot be permitted to escape responsibility by proving prior sale of vehicle;
Reason
Clearly, to permit a common carrier to escape its responsibility for the passengers or goods
transported by it by proving a prior sale of the vehicle or means of transportation to an alleged vendee would
be to attenuate drastically the carrier’s duty of extraordinary diligence. It would also open wide the door to
collusion between the carrier and the supposed vendee and to shifting liability from the carrier to one without
financial capability to respond for the resulting damages. In other words, the thrust of the public policy here
involved is as sharp and real in the case of carriage of goods as it is in the transporting of human beings.
Herein, to sustain Benedicto’s contention, that is, to require the shipper to go behind a certificate of
registration of a public utility vehicle, would be utterly subversive of the purpose of the law and doctrine.

6. Driver Licuden has implied authority to contract carriage of goods

Herein, Greenhills Wood had no reason at all to doubt the authority of Licuden to enter into a contract
of carriage on behalf of the registered owner. It appears that, earlier, in the first week of May 1980, Greenhills
Wood had contracted Licuden who was then driving the same cargo truck to transport and carry a load of
sawn lumber from the Maddela sawmill to Dagupan City. No one came forward to question that contract or
the authority of Licuden to represent the owner of the carrier truck. Driver Licuden was entrusted with
possession and control of the freight truck by the registered owner (and by the alleged secret owner, for that
matter). Driver Licuden, under the circumstances, was clothed with at least implied authority to contract to
carry goods and to accept delivery of such goods for carriage to a specified destination.

7. Contract of carriage perfected; Benedicto’s liability to Greenhills Wood fixed, has right to
proceed against Tee and Licuden for reimbursement or contribution
That the freight to be paid may not have been fixed before loading and carriage, did not prevent the
contract of carriage from arising, since the freight was at least determinable if not fixed by the tariff schedules
in Benedicto’s main business office. Put in somewhat different terms, driver Licuden is in law regarded as the
employee and agent of Benedicto, for whose acts Benedicto must respond. A contract of carriage of goods
was shown; the sawn lumber was loaded on board the freight truck; loss or non-delivery of the lumber at Blue
Star’s premises in Valenzuela, Bulacan was also proven; and Benedicto has not proven either that she had
exercised extraordinary diligence to prevent such loss or non-delivery or that the loss or non-delivery was due
to some casualty or force majeure inconsistent with her liability. Benedicto’s liability to Greenhills Wood was
thus fixed and complete, without prejudice to her right to proceed against her putative transferee Benjamin
Tee and driver Licuden for reimbursement or contribution.

[20]

Teja Marketing vs. IAC (GR L-65510, 9 March 1987)

Second Division, Paras (J): 5 concur, 1 took no part

Facts: On 9 May 1975, Pedro N. Nale bought from Teja Marketing (and/or Angel Jaucian) a motorcycle with
complete accessories and a sidecar in the total consideration of P8,000.00 as shown by Invoice 144. Out of
the total purchase price Nale gave a downpayment of P1,700.00 with a promise that he would pay plaintiff the
balance within 60 days. Nale, however, failed to comply with his promise and so upon his own request, the
period of paying the balance was extended to 1 year in monthly installments until January 1976 when he
stopped paying anymore. In this particular transaction a chattel mortgage was constituted as a security for the
payment of the balance of the purchase price. The motorcycle sold to Nale was first mortgaged to the Teja
Marketing by Angel Jaucian though the Teja Marketing and Angel Jaucian are one and the same, because it
was made to appear that way only as Nale had no franchise of his own and he attached the unit to Teja
Marketing’s MCH Line. The agreement was that Teja Marketing undertake the yearly registration of the
motorcycle with the Land Transportation Commission (LTC). Pursuant to the agreement and on 22 February
1976, Nale gave Teja Marketing P90.00, the P8.00 would be for the mortgage fee and the P82.00 for the
registration fee of the motorcycle. Teja Marketing, however, failed to register the motorcycle on that year on
the ground that Nale failed to comply with some requirements such as the payment of the insurance premiums
and the bringing of the motorcycle to the LTC for stenciling. Further, although the ownership of the
motorcycle was already transferred to Nale the vehicle was still mortgaged with the consent of Nale to the
Rural Bank of Camaligan for the reason that all motorcycle purchased from Teja Marketing on credit was
rediscounted with the bank.

Teja Marketing made demands for the payment of the motorcycle but just the same Nale failed to comply,
thus forcing Teja Marketing to consult a lawyer and file an action for damage before the City Court of Naga
in the amount of P546.21 for attorney’s fees and P100.00 for expenses of litigation. Teja Marketing also
claimed that as of 20 February 1978, the total account of Nale was already P2,731,05 as shown in a statement
of account; includes not only the balance of P1,700.00 but an additional 12% interest per annum on the said
balance from 26 January 1976 to 27 February 1978; a 2% service charge; and P546.21 representing attorney’s
fees. On his part, Nale did not dispute the sale and the outstanding balance of P1,700.00 still payable to Teja
Marketing; but contends that because of this failure of Teja Marketing to comply with his obligation to
register the motorcycle, Nale suffered damages when he failed to claim any insurance indemnity which would
amount to no less than P15,000.00 for the more than 2 times that the motorcycle figured in accidents aside
from the loss of the daily income of P15.00 as boundary fee beginning October 1976 when the motorcycle
was impounded by the LTC for not being registered. The City Court rendered judgment in favor of Teja
Marketing, dismissing the counterclaim, and ordered Nale to pay Teja Marketing the sum of P1,700.00
representing the unpaid balance of the purchase price with legal rate of interest from the date of the filing of
the complaint until the same is fully paid; the sum of P546.21 as attorney’s fees; the sum of P200.00 as
expenses of litigation; and the costs.

On appeal to the Court of First Instance of Camarines Sur, the decision was affirmed in toto. Nale filed a
petition for review with the Intermediate Appellate Court. On 18 July 1983, the appellate court set aside the
decision under review on the basis of doctrine of “pari delicto,” and accordingly, dismissed the complaint of
Teja Marketing, as well as the counterclaim of Nale; without pronouncements as to costs. Hence, the petition
for review was filed by Teja Marketing and/or Angel Jaucian.

The Supreme Court dismissed the petition for lack of merit; and affirmed the assailed decision of the
Intermediate Appellate Court (now the Court of Appeals); without costs.

1. Nature of the kabit system

Herein, the parties operated under an arrangement, commonly known as the “kabit system” whereby
a person who has been granted a certificate of public convenience allows another person who owns motor
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.

2. Kabit system, although not penalized as a criminal offense, is contrary to public policy
 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.

3. Article 1412 NCC

It is a fundamental principle that the court will not aid either party to enforce an illegal contract, but
will leave both where it finds them. Upon this premise it would be error to accord the parties relief from their
predicament. Article 1412 of the Civil Code denies them such aid. It provides that “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 that he has given
by virtue of the contract, or demand, the performance of the other’s undertaking.”

4. Inexistent contract cannot be cured by ratification nor by prescription

The defect of inexistence of a contract is permanent and cannot be cured by ratification or by
prescription. The mere lapse of time cannot give efficacy to contracts that are null and void.

5. Ex pacto illicito non oritur actio

“‘Ex pacto illicito’ non oritur actio’ (No action arises out of illicit bargain) is the time-honored
maxim that must be applied to the parties in the present case. Having entered into an illegal contract, neither
can seek relief from the courts, and each must bear the consequences of his acts.” (Lita Enterprises vs. IAC,
129 SCRA 81.)

[21]

BA Finance vs. CA (GR 98275, 13 November 1992)

Third Division, Melo (J): 4 concur

Facts: On 6 March 1983, an accident occurred involving BA Finance Corp.’s Isuzu ten-wheeler truck then
driven by an employee of Lino Castro, Rogelio Villar y Amera, resulting in triple homicide with multiple
physical injuries with damage to property. Neither Lino Castro nor the driver was connected with BA Finance
Corp., as the truck was leased by BA Finance to Rock Component Philippines Onc.

A criminal suit was filed against Villar. The trial court of Bulacan (Branch 6., RTC Malolos Bulacan) found
Villar guilty beyond reasonable doubt of reckless imprudence resulting in triple homicide with multiple
physical injuries with damage to property on 16 February 1984.

A suit for damages was filed by Carlos Ocampo, et.al., the injured in the accident against driver Villar and BA
Finance, inasmuch as the truck was registered in the name of the latter. On 13 October 1988, the trial court
rendered a decision (1) ordering Rock Component Philippines Inc., BA Finance and Rogelio Villar y Amare
jointly and severally to pay (a) Carlos Ocampo P121,650.00, (b) Moises Ocampo P298,500.00, (c) Nicolas
Cruz P154,740.00, and (d) Inocencio Turla, Sr..48,000.00; (2) dismissing the case against Lino Castro; (3)
dismissing the third-party complaint against Stronghold; (4) dismissing all the counterclaims of Villar and BA
Finance and Stronghold; and (5) ordering Rock to reimburse BA Finance the total amount of P622,890.00
which the latter is adjudged to pay to Ocampo, et. al.

The Court of Appeals affirmed the appealed disposition in toto through Justice Rasul, with Justices De Pano,
Jr. and Imperial concurring, on practically the same grounds arrived at by the court a quo. Efforts exerted
towards re-evaluation of the adverse judgment were futile. Hence, the petition for review on certiorari.

The Supreme Court dismissed the petition, and affirmed the decision under review, without special
pronouncement as to costs.
1. Registered owner of CPC liable to public for injuries or damages suffered by passengers or
third persons; Basis of doctrine
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. 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.

2. Doctrine does not imply that registered owner cannot recover

By the doctrine, however, it is not implied 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.

3. Registered owner of vehicle primarily responsible to public and third persons

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. There is a presumption that the owner of the guilty vehicle as he is
the registered owner in the Motor Vehicles Office.

4. Revised Motor Vehicles Law; No vehicle used in public highway unless properly registered
The Revised Motor vehicles Law (Act 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 travellers 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. 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 3992, as amended).

5. Registration required, not as an operative act in which ownership is transferred in vehicles but
permit use of vehicle in highways
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 3992, as
amended).

6. Main of motor vehicle registration

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 vehicle on the public highways, responsibility therefor 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 these 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.
7. Court cannot entertain registrant’s defense to avoid liability, as it will thwart the purpose of the
statute; Registered not allowed to prove vehicle’s ownership
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 an individual or corporation should be allowed to pace a “middleman” between them and the
public, and escape liability by the manner in which they recompense their servants. 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 not 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.

8. Policy and application of law not harsh

The above policy and application of the law may appear quite harsh and would seem to conflict with
truth and justice; but actually is not. 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.

9. Cases of Duavit vs. CA and Duquillo vs. Bayot not applicable

The rulings in Duavit vs. Court of Appeals and in Duquillo vs. Bayot is legally unpalatable for the
purpose of the present discourse. The vehicles adverted to in the two cases shared a common thread, in that
the jeep and the truck were driven in reckless fashion without the consent or knowledge of the respective
owners. In the case of Duavit vs. CA, the Court was cognizant of the inculpatory testimony spewed by
Sabiniano when he admitted that he took the jeep from the garage of Duavit without the consent or authority
of the latter. In the Duquillo case, the defendant therein cannot be held liable for anything because of
circumstances which indicated that the truck was driven without the consent or knowledge of the owner
thereof.

[22]

Vargas vs. Langkay

[23]

Nocum vs. Laguna Tayabas Bus Co. (GR L-23733, 31 October 1969)
First Division, Barredo (J): 7 concur, 1 concur in result, 1 reserves vote

Facts: Herminio L. Nocum, a passenger in Laguna Tayabas Bus Co.’s Bus 120, which was then making a trip
within the barrio of Dita, Municipality of Bay, Laguna, was injured as a consequence of the explosion of
firecrackers, contained in a box, loaded in said bus and declared to its conductor as containing clothes and
miscellaneous items by a co-passenger.
Nocum filed a case against Laguna Tayabas Bus for damages. The CFI of Batangas (Civil Case 834)
sentenced Laguna Tayabas to pay Nocum the sum of P1,351.00 for actual damages and P500.00 as attorney’s
fees, with legal interest from the filing of the complaint plus costs. Laguna Tayabas appealed.

The Supreme Court reversed the appealed judgment of the trial court, and dismissed the case, without costs.

1. Article 1733 NCC

Article 1733 of the Civil Code provides that “Common carriers, from the nature of their business and
for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and
for the safety of the passengers transported by them, according to all the circumstances of each case. Such
extraordinary diligence in the vigilance over the goods is further expressed in articles 1734, 1735, and 1745,
Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the passengers is further set forth in
articles 1755 and 1756.

2. Article 1755 NCC

Article 1755 of the Civil Code provides that “A common carrier is bound to carry the passengers
safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons,
with a due regard for all the circumstances.

3. Article 1756 NCC

Article 1756 of the Civil Code provides that “In case of death of or injuries to passengers, common
carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as prescribed in articles 1733 and 1755.”

4. Article 1733 NCC not too exacting; Carrier not mandated to require opening of baggage
Before the box containing the firecrackers were allowed to be loaded in the bus by the conductor,
inquiry was made with the passenger carrying the same as to what was in it, since its “opening was folded and
tied with abaca.” According to the judge of the lower court, “if proper and rigid inspection were observed by
the defendant, the contents of the box could have been discovered and the accident avoided. Refusal by the
passenger to have the package opened was no excuse because, as stated by Dispatcher Cornista, employees
should call the police if there were packages containing articles against company regulations.” Even it that
may be true, the law does not require as much. Article 1733 is not as unbending, for it reasonably qualifies the
extraordinary diligence required of common carriers for the safety of the passengers transported by them to be
“according to all the circumstances of each case.” “In fact, Article 1755 repeats this same qualification: “A
common carrier is bound to carry the passengers safely as far as human care and foresight can provide, using
the utmost diligence of very cautious persons, with due regard for all the circumstances.”

5. Passengers presumed that a passenger that will not take with him anything dangerous
While it is true the passengers of Laguna Tayabas’ bus should not be made to suffer for something
over which they had no control, fairness demands that in measuring a common carrier’s duty towards its
passengers, allowance must be given to the reliance that should be reposed on the sense of responsibility of
all the passengers in regard to their common safety. It is to be presumed that a passenger will not take with
him anything dangerous to the lives and limbs of his co-passengers, not to speak of his own.

6. Right to privacy
Not to be lightly considered be the right to privacy to which each passenger is entitled. He cannot be
subjected to any unusual search, when he protests the innocuousness of his baggage and nothing appears to
indicate the contrary, as in the case at bar. In other words, inquiry may be verbally made as to the nature of a
passenger’s baggage when such is not outwardly perceptible, but beyond this, constitutional boundaries are
already in danger of being transgressed. Calling a policeman to his aid in compelling the passenger to submit
to more rigid inspection, after the passenger had already declared that the box contained mere clothes and
other miscellanies, could not have justified invasion of a constitutionally protected domain. Police officers
acting without judicial authority secured in the manner provided by law are not beyond the pale of
constitutional inhibitions designed to protect individual human rights and liberties. Withal, what must be
importantly considered is not so much the infringement of the fundamental sacred rights of the particular
passenger involved, but the constant threat any contrary ruling would pose on the right of privacy of all
passengers of all common carriers, considering how easily the duty to inspect can be made an excuse for
mischief and abuse.

7. Proper understanding of the service manual issued by Laguna Tayabas

When there are sufficient indications that the representations of the passenger regarding the nature of
his baggage may not be true, in the interest of the common safety of all, the assistance of the police
authorities may be solicited, not necessarily to force the passenger to open his baggage, but to conduct the
needed investigation consistent with the rules of propriety and, above all, the constitutional rights of the
passenger. It is in this sense that the service manual issued by Laguna Tayabas Bus Co. to its conductors must
be understood.

8. Resort to decisions of foreign jurisdiction similar tot the present one

Decisions in other jurisdictions evidently because of the paucity of local precedents squarely in point,
emphasize that there is need for evidence of circumstances indicating cause or causes for apprehension that
the passenger’s baggage is dangerous and that it is failure of the common carrier’s employee to act in the face
of such evidence that constitutes the cornerstone of the common carrier’s liability in cases similar to the
present one.

9. Principle controlling servants of the carrier; Clark vs. Louisville

The principle that must control the servants of the carrier in a case is correctly stated in the opinion in
the case of Clarke v. Louisville & N.R. Co. (20 Ky L. Rep. 839, 49 S.W. 1120). In that case Clarke was a
passenger on the defendant’s train. Another passenger took a quantity of gasoline into the same coach in
which Clarke was riding. It ignited and exploded, by reason of which he was severely injured. The trial court
peremptorily instructed the jury to find for the defendant. In the opinion, affirming the judgment, it is said: ‘It
may be stated briefly, in assuming the liability of a railroad to its passengers for injury done by another
passenger, only where the conduct of this passenger had been such before the injury as to induce a reasonably
prudent and vigilant conductor to believe that there was reasonable ground to apprehend violence and danger
to the other passengers, and in that case asserting it to be the duty of the conductor of the railroad train to use
all reasonable means to prevent such injury, and if he neglects this reasonable duty, and injury is done, that
then the company is responsible; that otherwise the railroad is not responsible.

10. Principle controlling servants of the carrier; Gulf vs. Shields as cited in Clark vs. Louisville
“The opinion quotes with approval from the case of Gulf, C. & S. F. R. Co. vs. Shields, 9 Tex. Civ.
App. 652, 29 S. W. 652, in which case the plaintiff was injured by alcohol which had been carried upon the
train by another passenger. In the opinion in that case it is said: ‘It was but a short period of time after the
alcohol was spilt when it was set on fire and the accident occurred, and it was not shown that appellant’s
employees knew that the jug contained alcohol. In fact, it is not shown that the conductor or any other
employee knew that Harris had a jug with him until it fell out of the sack, though the conductor had collected
his fare, and doubtless knew that he had the sack on the seat with him. It cannot be successfully denied that
Harris had the right as a passenger to carry baggage on the train, and that he had a right to carry it in a sack if
he chose to do so. We think it is equally clear that, in the absence of some intimation or circumstance
indicating that the sack contained something dangerous to other passengers, it was not the duty of appellant’s
conductor or any other employee to open the sack and examine its contents. [Quinn v. Louisville & N. R. Co.
98 Ky. 231, 32 S. W. 742; Wood v. Louisville & N. R. Co. 101 Ky. 703, 42 S. W. 349; Louisville & N. R. Co.
v. Vincent, 29 Ky. L. Rep. 1049, 96 S. W. 898; Louisville & N. R. Co. v. Renfro, 142 Ky. 590, 33 L. R. A. (N.
S.) 133, 135 S. W. 266]
11. Explosive or Dangerous Contents
Explosive or Dangerous Contents. — A carrier is ordinarily not liable for injuries to passengers from
fires or explosions caused by articles brought into its conveyances by other passengers, in the absence of any
evidence that the carrier, through its employees, was aware of the nature of the article or had any reason to
anticipate danger therefrom. (Bogard v. Illinois C. R Co. 144 Ky. 649, 139 S. W. 855, 36 L. R. A. [N. S.] 337;
Clarke v. Louisville & N. R. Co. 101 Ky. 34, 39 S. W. 840, 36 L. R. A. 123 [explosion of can of gasoline]; East
Indian R. Co. v. Mukerjee [1901] A. C. [Eng.] 396, 3 B. R. C. 420 — P. C. [explosion of fireworks];
Annotation: 37 L. R. A. [N. S.] 725.)

12. Extraordinary diligence shown; Ruling on fortuitous event not necessary

Since the Court holds that Laguna Tayabas has succeeded in rebutting the presumption of negligence
by showing that it has exercised extraordinary diligence for the safety of its passengers, “according to the
circumstances of the case”, the Court deemed it unnecessary to rule whether or not there was any fortuitous
event in the present case.

[24]

Tamayo vs. Aquino, et.al. (GR L-12634 & L-12720, 29 May 1959)
Also Rayos vs. Tamayo, et. al.
En Banc, Labrador (J): 7 concur

Facts: While Epifania Gonzales was making a trip aboard truck with Plate TPU-735, it bumped against a
culvert on the side of the road in Bugallon, Pangasinan. As a consequence of this accident Epifania Gonzales
was thrown away from the vehicle and two pieces of wood embeded in her skull as a result of which she died.
The impact of the truck against the culvert was so violent that the roof of the vehicle was ripped off from its
body, one fender was smashed and the engine damaged beyond repair.

Inocencio Aquino and his children brought an action against Jose G. Tamayo, holder of a certificate of public
convenience to operate two trucks for damages for the death of Inocencio’s wife, Epifania Gonzales, while
riding aboard Tamayo’s truck. The complaint was for the recovery of P10,000 as actual damages, P10,000 as
moral damages, and costs. Upon being summoned, Tamayo answered, alleging that the truck is owned by
Silvestre Rayos so he filed a third-party complaint against the latter, alleging that he no longer had any
interest whatsoever in the said truck, as he had sold the same before the accident to Rayos. Answering the
third-party complaint, Rayos alleged that if any indemnity is due, it should come from Tamayo, because he
did not have any transaction with him regarding such sale. The CFI found that the truck with plate TPU-735
was one of the trucks of Tamayo under a certificate of public convenience issued to him; that he had sold it to
Rayos in March 1953, but did not inform the Public Service Commission of the sale until 30 June 1953, one
month after the accident. On the basis of said facts, the CFI ordered Tamayo and Rayos to pay Aquino jointly
and severally the sum of P6,000 as compensatory damages, and another sum of P5,000 as moral damages,
with interest, and authorized Tamayo or Rayos, whoever should pay the entire amount, to recover from the
other any sum in excess of ½ of the amount ordered to be paid, with interest. The court also dismissed the
third-party complaint.

Appeal against the above decision was made to the Court of Appeals. This court affirmed the judgment of the
CFI in all respects. Tamayo and Rayos filed separate petitions for certiorari before the Supreme Court.

The Supreme Court modified the judgment appealed from, in that Tamayo was ordered to pay to Aquino the
sum of P6,000 as compensatory damages for the death of the deceased, but that Tamayo has the right to be
indemnified by Rayos of the amount he was ordered to pay; with costs against Tamayo and Rayos.
1. Registered owner of public service vehicle responsible for damages
As held in the cases of Medina vs. Cresencia (99 Phil., 506; 52 Off. Gaz., [11] 4606); Timbol vs.
Osias (98 Phil., 432; 52 Off. Gaz. [3] 1392), Montoya vs. Ignacio (94 Phil., 182; 50 Off. Gaz., 108), and
Roque vs. Malibay (L-8561, 18 November 1955), the registered owner of a public service vehicle is
responsible for damages that may be caused to any of the passengers therein, even if the said vehicle had
already been sold, leased or transferred to another person who was, at the time of the accident, actually
operating the vehicle. This principle was also reafirmed in the case of Erezo vs. Jepte (102 Phil., 103).

2. Reason why liability imposed upon the registered owner of the vehicle under a certificate of
public convenience; Erezo vs. Jepte
The reason for the liability imposed upon the registered owner of the vehicle under a certificate of
public convenience is that “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 not 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.”

3. Source of obligation based on breach of contract, rather than quasi-delict

The action instituted in the present case is one for breach of contract, for failure Tamayo to carry
safety the deceased to her destination. The liability for which he is made responsible, i. e., for the death of the
passenger, may not be considered as arising from a quasi-delict. As the registered owner Tamayo and his
tranferee Rayos may not be held guilty of tort or a quasi-delict; their responsibility is not solidary as provided
in Article 2194 NCC (joint tortfeasors).

4. Responsibility of the transferee (as agent of the registered owner); Present case
As Tamayo is the registered owner of the truck, his responsibility to the public or to any passenger
riding in the vehicle or truck must be direct, for the reasons given in the decision in the case of Erezo vs.
Jepte. But as the transferee, who operated the vehicle when the passenger died, is the one directly responsible
for the accident and death he should in turn be made responsible to the registered owner for what the latter
may have been adjudged to pay. In operating the truck without transfer thereof having been approved by the
Public Service Commission, the transferee acted merely as agent of the registered owner and should be
responsible to him (the registered owner), for any damages that he may cause the latter by his negligence.
Further, inspite of the fact that the agreement between Tamayo and Rayos was for Rayos to use the truck in
carrying of gasoline, the latter used the same in transporting passengers outside the route covered by the
franchise of Tamayo. For this additional reason, the agent or Rayos must be held responsible to the registered
owner, to the extent that the latter may suffer damage by reason of the death caused during the accident.

5. Responsibility of the transferee (as agent of the registered owner); Erezo vs. Jepte
In the case of Erezo vs. Jepte, the court held that the registered owner (the defendant appellant
therein) 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.
6. Third party complaint proper; Rule 12 of Rules of Court
The procedural means by which the liability of the transferee to the holder of the certificate should be
enforced is that indicated in the case of Erezo vs. Jepte. Herein, this procedure was adopted by Tamayo, when
he presented third-party complaint against Rayos. The courts should have adjudged the responsibility to make
indemnity in accordance therewith. The transferee is liable to indemnify the registered owner for the damages
that the latter may be required to pay for the accident, hence the remedy is by third-party complaint (See Rule
12, Rules of Court).

7. No moral damages due in culpa-contractual; Article 2220 NCC

As the responsibility of Tamayo and his agent Rayos is culpa-contractual, no award of moral damages
can be given. The law on this matter is expressed in Article 2220 of the Civil Code, which provides that
“willful injury to property may be a legal ground for awarding moral damages if the court should find that,
under the circumstances, such damages are justly due. The same rule applies to breaches of contract where
the defendant acted fraudulently or in bad faith.”

8. No bad faith on part of Tamayo present to allow award of moral damages

The law expressly provides that award of moral damages can be made in a suit for breach of contract
only when the defendants acted fraudulently or in bad faith. Herein, the holder of the certificate was not guilty
of fraud or bad faith. There appears to be no fraud at all in the transfer. Transfers are prohibited only if made
without approval by the Public Service Commission. There may have been a violation of the regulations
because Tamayo did not secure a previous authority to transfer from said Commission, but he actually applied
for and obtained said permission or approval about a month after the accident. Besides, the truck was
transferred to Rayos with the understanding that the same was not to be used as a public convenience, so that
insofar as Tamayo is concerned, there could have been no shade or tint of bad faith at all. Consequently, the
ground upon which moral damages may be demanded from him does not exist.

9. No bad faith, only breach of agreement, on part of Rayos

There was no fraud or bad faith committed on the part of the transferee or agent either. There may
have been a breach of the agreement between Tamayo and Rayos, but this was not the immediate cause of the
accident. It was the negligence of the driver. What the law would seem to consider as bad faith which may
furnish a ground for the award of moral damages in the present case would be bad faith in the securing and in
the execution of the contract and in the enforcement of its terms (Article 1338, Civil Code), or any other kind
of deceit which may have been used by both defendants. None can be said to have been present in the present
case. There was no bad faith on the part of the agent Rayos, there was negligence of the driver employed by
him, but this is certainly not bad faith as contemplated by law.

[25]

Erezo vs. Jepte (GR L-9605, 30 September 1957)

First Division, Labrador (J): 7 concur, 1 concur in result

Facts: Aguedo Jepte 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 10663 of the CFI 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, Gaudioso Erezo, Ernesto’s father, brought
the action against the registered owner of the truck, Jepte. Jepte did not deny that 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. The
trial court held that as Jepte represented himself to be the owner of the truck and the Motor Vehicles 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
Jepte is liable because he cannot be permitted to repudiate his own declaration. Hence, the appeal.

The Supreme Court affirmed the judgment appealed from, with costs against Jepte.

1. Registered owner of CPC liable to public for injuries and damages suffered by passengers or
third person caused by his vehicle’s operation; Rationale of the law; Right of recourse
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. The doctrine however does not imply 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.

2. Registered owner of vehicle primary responsible even he was no longer owner of vehicle at time
of damage
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.

3. Motor Vehicles Registration; System of licensing, Duties of motor vehicle dealers

The Revised Motor Vehicles 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 travellers
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.)

4. Nature of motor vehicle registration

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).

5. Purpose of motor vehicle registration

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.” 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. The motor vehicle registration is primarily
ordained, in the interest of the determination of persons responsible for damages or injuries caused on public
highways.

6. Registered owner not allowed to prove actual and real owner

The law does not allow the registered owner to prove who the actual and real owner is at the trial. 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 not 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.

7. Application of law not in conflict with truth and justice

The policy and application of the law may appear quite harsh and would seem to conflict with truth
and justice, but actually is not. 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.

8. Registered owner primary responsible, with recourse against real or actual owner
Herein, Jepte should be held liable to Erezo for the injuries occasioned to the latter because of the
negligence of the driver, even if Jepte was no longer the owner of the vehicle at the time of the damage
because he had previously sold it to another. The registered owner is primarily responsible for the damage
caused to the vehicle of Erezo, but Jepte 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 Erezo.

[26]

Zamboanga Transportation Co. vs. CA (GR L-25292, 29 November 1969)

En Banc, Barredo (J): 7 concur, 2 took no part

Facts: In the evening of 13 August 1955, the spouses Ramon and Josefina Dagamanuel boarded a bus at
Manicahan, Zamboanga City, to attend a benefit dance at the Bunguiao Elementary School, also in
Zamboanga City, where Josefina was a public school teacher. After the dance, the couple boarded the same
bus to return to Manicahan. At around 1 a.m. of 14 August 1955, the bus (1955 TPU-1137), and driven by
Valeriano Marcos, fell off the road and pinned to death the said spouses and several other passengers.
Jose Mario Dagamanuel, the only child of the deceased spouses, through his maternal grandmother as
guardian ad-litem, Pascuala Julian de Punzalan, instituted an action against Zamboanga Transportation Co.,
Inc. (Zamtanco) and the Zamboanga Rapids Co., Inc. (Zambraco) for breach of contract of carriage, alleging
that the accident was due to the fault and negligence of the driver in operating the bus and due to the
negligence of the companies in their supervision of their driver. Dagamanuel asks for actual or compensatory
damages in the sum of P40,000, moral damages in the sum of P40,000, exemplary damages in the sum of
P20,000, attorney’s fees in the sum of P5,000 and costs. Zamtranco filed a third-party complaint against the
driver Marcos. The Zambraco also filed a third-party complaint against the driver. Finding that (1) the
Zamtranco and the Zambraco were under one management at the time of the accident; (2) the accident was
due to the negligence of the driver who was under their employ; and (3) the sale made by Marcos of his
property was done with intent to defraud his creditors, the trial court rendered judgment (1) sentencing the
three, jointly and severally, to pay the plaintiff P16,000 for the death of the spouses, P4,000 as exemplary
damages, P2,000 as attorney’s fees, and costs; and (2) annulling the deed of sale executed by Marcos.

Zamtranco, Zambraco and Marcos appealed. Marcos’ appeal was later dismissed; hence as to him the
judgment is already final and executory. The appellate court affirmed the judgment of the trial court with
modification as to the award of damages, to wit, (1) P12,000 for the death of the spouses Ramon and Josefina
Dagamanuel, (2) P11,520 for the loss of earnings of both spouses, (3) P5,000 as moral damages, and (4)
P5,000 as exemplary damages, with costs against Zamtranco and Zambraco. The latter moved for
reconsideration, but the same was denied. Hence, the appeal via a petition for certiorari.

The Supreme Court affirmed the judgment of the Court of Appeals, with the modification that as to damages,
Zamtranco and Zambraco are sentenced to pay jointly and severally no more than the amounts of damages
adjudged by the trial court; with no costs in this instance.

1. Application of previous rulings as to liabilities of parties where CPC is transferred not

necessary as both owners of bus admit driver was in their employ
While it is true that according to previous decisions of the Supreme Court, transfer of a certificate of
public convenience to operate a transportation service is not effective and binding insofar as the responsibility
of the grantee under the franchise in its relation to the public is concerned, without the approval of the transfer
by the Public Service Commission required by the Public Service Act, and that in contemplation of law, the
transferor of such certificate continues to be the operator of the service as long as the transfer is not yet
approved, and as such operator, he is the one responsible jointly and severally with his driver for damages
incurred by passengers or third persons in consequence of injuries or deaths resulting from the operation of
such service, the Court does not find any need for applying these rulings to the present case for the simple
reason that in their respective third-party complaints, the companies both admitted separately that they are the
owners of the bus involved in the incident in question and that Valeriano Marcos, the driver of said bus at the
time of said incident, was in their employ.

2. Zambraco appears to be the registered owner, Zamtranco was in fact the operator
There is abundant evidence that although the Zambraco appears to be the registered owner,
Zamtranco was in fact the operator. To start with, there is the testimony of Filoteo de los Reyes, principal
teacher of Josefina, to the effect that for the trip to and from Bunguiao where the benefit dance was held, he
contracted with Zamtranco at Tetuan; that he saw in Bunguiao the bus sent by Zamtranco; and that he paid the
fare to the driver of Zamtranco. This testimony was never contradicted by the companies, either by
documentary or testimonial evidence.

3. Sale and merger of Zambraco with Zamtranco subject of application with PSC; Zambraco
remains registered with Zambraco
TPU Bus 1327, which figured in the accident that caused the death of the spouses Ramon
Dagamanuel and Josefina Punzalan, was registered in the name of Zambraco in the year 1955. At that time,
the sale and merger of this Zambraco with the Zamtranco was to be the subject of application with the Public
Service Commission. Pending such approval, the ill-fated bus was again registered in the name of the
Zambraco in the year 1956, according to the testimony given at the trial by Leonardo Galvez, then Acting
Registrar of the Motor Vehicle Office in Zamboanga.

4. Previous rulings inapplicable; Registered owners do not seek to pass on liability to the actual
operators on the pretext that they had already sold or transferred their units to the latter
There is no application of the ruling in the previous cases to the present case. There, the registered
owners invariably sought to pass on liability to the actual operators on the pretext that they had already sold
or transferred their units to the latter, whereas in the present case, the registered owner, the Zambraco, admits
whatever liability it has and vigorously objects to any finding that the actual operator, the Zamtranco, is also
liable with it, claiming that as registered owner, it alone should be adjudged liable. We would not inquire into
the motive of the Zambraco why instead of sharing whatever liability it has with the Zamtranco, it prefers to
shoulder it alone. But the fact stands out in bold relief that although still the registered owner at the time of
the accident, it had already sold the vehicle to Zamtranco and the latter was actually operating it.

5. Interest of public requires both registered and actual operators to be solidarily liable with
driver
For the better protection of the public that both the owner of record and the actual operator, as held by
the Court in the past, should be adjudged jointly and severally liable with the driver (see Dizon vs. Octavio, et
al., 51 O.G. No. 8, 4059-4061; Castanares vs. Pages, CA-G.R. 21809-R, March 8, 1962; Redado vs. Bautista,
CA-G.R. 19295-R, Sept. 19, 1961; Bering vs. Noeth, CA-G.R. 28483-R, April 29, 1965).

6. Discretion in fixing moral and exemplary damages primarily lay in the trial court
The discretion in fixing moral and exemplary damages primarily lay in the trial court and the same
should be respected. (Coleongco vs. Claparols, No. L-18616, March 31, 1964). ‘It is well-settled rule that
whenever an appeal is taken in a civil case, an appellee who has not himself appealed cannot obtain from the
appellate court any affirmative relief other than the ones granted in the decision of the court below. An
appellee, who is not appellant, may assign errors in his brief where his purpose is to maintain the judgment on
other grounds, but he may not do so if his purpose is to have the judgment modified or reversed, for, in such a
case, he must appeal. Herein, Dagamanuel did not appeal and so it was error for the Court of Appeals to
award him a relief not granted by the lower court. (Dy, et al. vs. Kuison, L-16654, Nov. 30, 1961).

7. Child of three years cannot feel mental anguish resulting from parent’s death to warrant award
of excessive moral damages
A child 3-year old, as Dagamanuel herein was when his parents died, cannot yet feel the mental
anguish resulting from their death, as to warrant such excessive award of P5,000.00 moral damages. What
degree of mental torture could have been possibly endured by a boy of such tender age? The measure of
moral damages, if any, must be commensurate with the mental anguish suffered by the heir. (Mercado, et al.
vs. Lira, et al., Nos. L-13328-29 and L-13358, Sept. 29, 1961.)

8. Award of damages by trial court not excessive

The judgment of the Court of Appeals in respect to the matter of damages to be more in accordance
with the facts, except perhaps, as to the item of moral damages. The Court of Appeals properly interpreted the
P16,000 awarded by the trial court as including not only damages for the deceased couple but also the other
items of recoverable damages, like compensatory or actual, etc. Thus viewed, the amounts awarded by the
trial court cannot be considered excessive.

[27]

Santos vs. Sibog (GR L-26815, 26 May 1981)

First Division, Melencio-Herrera (J): 3 concur, 1 concur in result, 1 designated to sit in first division, 1 on
leave

Facts: Vicente U. Vidad was a duly authorized passenger jeepney operator, while Adolfo L. Santos was the
owner of a passenger jeep, but he had no certificate of public convenience for the operation of the vehicle as a
public passenger jeep. Santos then transferred his jeep to the name of Vidad so that it could be operated under
the latter’s certificate of public convenience. In other words, Santos became what is known in ordinary
parlance as a kabit operator. For the protection of Santos, Vidad executed a re-transfer document to the
former, which was to be a private document presumably to be registered if and when it was decided that the
passenger jeep of Santos was to be withdrawn from the kabit arrangement. On 26 April 1963, Abraham Sibug
was bumped by a passenger jeepney operated by Vidad and driven by Severo Gragas.

As a result thereof, Sibug filed a complaint for damages against Vidad and Gragas with the Court of First
Instance of Manila (Branch XVII, then presided by Hon. Arsenio Solidum). On 5 December 1963, a judgment
was rendered by the trial court sentencing Vidad and Gragas, jointly and severally, to pay Sibug the sums of
P506.20 as actual damages; P3,000.00 as moral damages; P500.00 as attorney’s fees, and costs.

On 10 April 1964, the Sheriff of Manila levied on a motor vehicle (PUJ-343-64), registered in the name of
Vidad, and scheduled the public auction sale thereof on 8 May 1964. On 11 April 1964, Santos presented a
third-party claim with the Sheriff alleging actual ownership of the motor vehicle levied upon, and stating that
registration thereof in the name of Vidad was merely to enable Santos to make use of Vidad’s Certificate of
Public Convenience. After the third-party complaint was filed, Sibug submitted to the Sheriff a bond issued
by the Philippine Surety Insurance Company, to save the Sheriff from liability if he were to proceed with the
sale and if Santos’ third-party claim should be ultimately upheld.

On 22 April 1964, before the scheduled sale of 8 May 1964, Santos instituted an action for Damages and
Injunction with a prayer for Preliminary Mandatory Injunction against Sibug; Vidad; and the Sheriff (Civil
Case 56842 of Branch X, of the same CFI of Manila). The complaint was later amended to include the
Philippine Surety as a party defendant although its bond had not become effective. No public sale was
conducted on 8 May 1964. On 11 May 1964, Branch X issued a Restraining Order enjoining the Sheriff from
conducting the public auction sale of the motor vehicle levied upon. On 14 October 1965, Branch X affirmed
Santos’ ownership of the jeepney in question based on the evidence adduced, and decreed that the Sibug,
Vidad and the Sheriff are enjoined from proceeding with the sale of the vehicle in question and ordering its
return to Santos and furthermore sentencing Sibug to pay Santos the sum of P15.00 a day from 10 April 1964
until the vehicle is returned to him, and P500.00 as attorney’s fees as well as the costs. This was subsequently
amended on 5 December 1965, upon motion for reconsideration filed by Santos, to include the Philippine
Surety as jointly and severally liable with Sibug, provided that the liability of the Philippine Surety shall in no
case exceed P6,500.00. The Court further ordered Sibug to pay the Philippine Surety, the same sums it is
ordered to pay under the decision.”

From the judgment in the Branch X case, Sibug appealed. Meanwhile, Santos moved for immediate
execution. Sibug opposed it on the ground that Branch X had no jurisdiction over the Branch XVII case, and
that Branch X had no power to interfere by injunction with the judgment of Branch XVII, a Court of
concurrent or coordinate jurisdiction. On 13 November 1965, Branch X released an Order authorizing
immediate execution on the theory that the Branch X case is “principally an action for the issuance of a writ
of prohibition to forbid the Sheriff from selling at public auction property not belonging to the judgment
creditor (sic) and there being no attempt in this case to interfere with the judgment or decree of another court
of concurrent jurisdiction.”

Without waiting for the resolution of his Motion for Reconsideration, Sibug sought relief from the Appellate
Court in a Petition for Certiorari with Preliminary Injunction. On 18 November 1965, the Court of Appeals
enjoined the enforcement of the Branch X Decision and the Order of execution issued by said Branch. On 28
September 1966, the Court of Appeals rendered the herein challenged Decision nullifying the judgment
rendered in the Branch X Case and permanently restraining Branch X from taking cognizance of the Branch
X case filed by Santos. Hence, the petition for review on certiorari filed by Santos on 14 December 1966.

The Supreme Court dismissed the petition for review on certiorari filed by Santos, with costs against Santos.

1. Restraining order wrongfully issued by Branch X

Under the provisions of Section 17, Rule 39, the action taken by the Sheriff cannot be restrained by
another Court or by another Branch of the same Court. The Sheriff has the right to continue with the public
sale on his own responsibility, or he can desist from conducting the public sale unless the attaching creditor
files a bond securing him against the third-party claim. But the decision to proceed or not with the public sale
lies with him.

2. Powers of the sheriff; Uy Piaoco vs. Osmena

As said in Uy Piaoco vs. Osmeña, 9 Phil. 299, 307, “the powers of the Sheriff involve both
discretional power and personal liability.”

3. Discretional power and personal liability of the sheriff; Planas vs. Madrigal
The discretional power and personal liability have been further elucidated in Planas and Verdon vs.
Madrigal & Co., et al., 94 Phil. 754, where it was held, “the duty of the Sheriff in connection with the
execution and satisfaction of judgment of the court is governed by Rule 39 of the Rules of Court. Section 15
thereof provides for the procedure to be followed where the property levied on execution is claimed by a third
person. If the third-party claim is sufficient, the sheriff, upon receiving it, is not bound to proceed with the
levy of the property, unless he is given by the judgment creditor an indemnity bond against the claim
(Mangaoang vs. Provincial Sheriff, 91 Phil., 368). Of course, the sheriff may proceed with the levy even
without the indemnity bond, but in such case he will answer for any damages with his own personal funds
(Waite vs. Peterson, et al., 8 Phil., 419; Alzua, et al. vs. Johnson, 21 Phil., 308; Consulta No. 341 de los
abogados de Smith, Bell & Co., 48 Phil., 565). And the rule also provides that nothing therein contained shall
prevent a third person from vindicating his claim to the property by any proper action (Sec. 15 of Rule 39).”

4. Attaching creditor should furnish bond; If bond not filed, discretion comes in; When sheriff
proceeds
It appears from the above that if the attaching creditor should furnish an adequate bond, the Sheriff
has to proceed with the public auction. When such bond is not filed, then the Sheriff shall decide whether to
proceed, or to desist from proceeding, with the public auction. If he decides to proceed, he will incur personal
liability in favor of the successful third-party claimant.

5. No court can interfere by injunction judgment of concurrent or coordinate jurisdiction,

exceptions; Arabay vs. Salvador
The Court, in Arabay, Inc. vs. Hon. Serafin Salvador, succinctly held that “generally, the rule, that no
court has authority to interfere by injunction with the judgments or decrees of a concurrent or coordinate
jurisdiction having equal power to grant the injunctive relief, is applied in cases, where no third-party
claimant is involved, in order to prevent one court from nullifying the judgment or process of another court of
the same rank or category, a power which devolves upon the proper appellate court. xxx When the sheriff,
acting beyond the bounds of his authority, seizes a stranger’s property, the writ of injunction, which is issued
to stop the auction sale of that property, is not an interference with the writ of execution issued by another
court because the writ of execution was improperly implemented by the sheriff. Under the writ, he could
attach the property of the judgment debtor. He is not authorized to levy upon the property of the third-party
claimant (Polaris Marketing Corporation vs. Plan, L-40666, January 22, 1976, 69 SCRA 93, 97; Manila
Herald Publishing Co., Inc. vs. Ramos, 88 Phil. 94, 102).”
6. Courts; Jurisdiction; Courts without power to interfere by injunction with judgments or
decrees of a court of concurrent jurisdiction (Abiera vs. CA)
“No court has power to interfere by injunction with the judgments or decrees of a court of concurrent
or coordinate jurisdiction having equal power to grant the relief sought by injunction.”

7. Courts; Jurisdiction; Courts without power to interfere by injunction with judgments or

decrees of a court of concurrent jurisdiction; When applicable (Abiera vs. CA)
“For this doctrine to apply, the injunction issued by one court must interfere with the judgment or
decree issued by another court of equal or coordinate jurisdiction and the relief sought by such injunction
must be one which could be granted by the court which rendered the judgment or issued the decree.”

8. Courts; Jurisdiction; Courts without power to interfere by injunction with judgments or

decrees of a court of concurrent jurisdiction; Exception; Judgment rendered by another court in favor
of a third person who claims property levied upon on execution (Abiera vs. CA)
“Under Section 17 of Rule 39 a third person who claims property levied upon on execution may
vindicate such claim by action. A judgment rendered in his favor — declaring him to be the owner of the
property — would not constitute interference with the powers or processes of the court which rendered the
judgment to enforce which the execution was levied. If that be so — and it is so because the property, being
that of a stranger, is not subject to levy — then an interlocutory order, such as injunction, upon a claim and
prima facie showing of ownership by the claimant, cannot be considered as such interference either.”

9. Execution; Where property levied on claimed by third person; ‘Action’ in section 17, Rule 39 of
the Rules of Court, interpreted (Abiera vs. CA)
“The right of a person who claims to be the owner of property levied upon on execution to file a
third-party claim with the sheriff is not exclusive, and he may file an action to vindicate his claim even if the
judgment creditor files an indemnity bond in favor of the sheriff to answer for any damages that may be
suffered by the third party claimant. By ‘action’ as stated in the Rule, what is meant is a separate and
independent action.”

10. Santos has right to vindicate claim of ownership in a separate action; Interference with sheriff’s
custody not an interference with another court’s order of attachment
It was appropriate, as a matter of procedure, for Santos, as an ordinary third-party claimant, to
vindicate his claim of ownership in a separate action under Section 17 of Rule 39. The judgment rendered in
his favor by Branch X , declaring him to be the owner of the property, did not as a basic proposition,
constitute interference with the powers or processes of Branch XVII which rendered the judgment, to enforce
which the jeepney was levied upon. And this is so because property belonging to a stranger is not ordinarily
subject to levy. While it is true that the vehicle in question was in custodia legis, and should not be interfered
with without the permission of the proper Court, the property must be one in which the defendant has
proprietary interest. Where the Sheriff seizes a stranger’s property, the rule does not apply and interference
with his custody is not interference with another Court’s Order of attachment.

11. Judgment of Branch X legally unpalatable

The judgment in the Branch X case appears to be quite legally unpalatable. For instance, since the
undertaking furnished to the Sheriff by the Philippine Surety did not become effective for the reason that the
jeep was not sold, the public sale thereof having been restrained, there was no reason for promulgating
judgment against the Philippine Surety. It has also been noted that the Complaint against Vidad was
dismissed. Most important of all, the judgment against Sibug was inequitable. In asserting his rights of
ownership to the vehicle in question, Santos candidly admitted his participation in the illegal and pernicious
practice in the transportation business known as the kabit system.
12. Section 20 (g) of the Public Service Act
Section 20 (g) of the Public Service Act, then the applicable law, specifically provided that “it shall
be unlawful for any public service or for the owner, lessee or operator thereof, without the approval and
authorization of the Commission previously had — (g) to sell, alienate, mortgage, encumber or lease its
property, franchise, certificates, privileges, or rights, or any part thereof.”

13. Registered owner/operator and grantee of franchise directly and primarily liable for damages
against Sibug
Herein, Santos had fictitiously sold the jeepney to Vidad, who had become the registered owner and
operator of record at the time of the accident. It is true that Vidad had executed a re-sale to Santos, but the
document was not registered. Although Santos, as the kabit, was the true owner as against Vidad, the latter, as
the registered owner/operator and grantee of the franchise, is directly and primarily responsible and liable for
the damages caused to Sibug, the injured party, as a consequence of the negligent or careless operation of the
vehicle. This ruling is based on the principle that the operator of record is considered the operator of the
vehicle in contemplation of law as regards the public and third persons even if the vehicle involved in the
accident had been sold to another where such sale had not been approved by the then Public Service
Commission.

14. Property levied not “stranger’s”

Legally speaking, it was not a “stranger’s property” that was levied upon by the Sheriff pursuant to
the judgment rendered by Branch XVII. The vehicle was, in fact, registered in the name of Vidad, one of the
judgment debtors. And what is more, the aspect of public service, with its effects on the riding public, is
involved. Whatever legal technicalities may be invoked, the Court finds the judgment of the Court of Appeals
to be in consonance with justice. The ultimate conclusion of the appellate court, nullifying the Decision of
Branch X, permanently enjoining the auction sale, should be upheld.

15. Kabit cannot be allowed to defeat levy of his vehicle

For the same basic reason, as the vehicle here in question was registered in Vidad’s name, the levy on
execution against said vehicle should be enforced so that the judgment in the Branch XVII case may be
satisfied, notwithstanding the fact that the secret ownership of the vehicle belonged to another. Santos, as the
kabit, should not be allowed to defeat the levy on his vehicle and to avoid his responsibilities as a kabit owner
for he had led the public to believe that the vehicle belonged to Vidad. This is one way of curbing the
pernicious kabit system that facilitates the commission of fraud against the travelling public.

16. Proper remedy of Santos; Erezo case

As indicated in the Erezo case, Santos’ remedy, as the real owner of the vehicle, is to go against
Vidad, the actual operator who was responsible for the accident, for the recovery of whatever damages Santos
may suffer by reason of the execution. In fact, if Santos, as the kabit, had been impleaded as a party defendant
in the Branch XVII case, he should be held jointly and severally liable with Vidad and the driver for damages
suffered by Sibug, as well as for exemplary damages.

[28]

PAL vs. NLRC (GR L-62961, 2 September 1983)

First Division, Relova (J): 4 concur

Facts: On 3 November 1980, Salvador Gempis, a YS-11 pilot of Philippine Airlines (PAL) with the rank of
captain, filed with the Ministry of Labor, National Capital Region, a complaint against PAL for illegal
suspension and dismissal. The next day, 4 November 1980, PAL filed with the same office an application for
clearance to terminate the employment of Gempis on the grounds of (1) serious misconduct and (2) violation
of the liquor ban and company policies. The charge of PAL and Capt. Jaime H. Manzano against Gempis was
“serious misconduct (abuse of authority)” for forcing First Officers A. Barcebal and J. Ranches to drink on 27
February 1980, at 10:30 p.m. at the coffee shop of the Triton Hotel at Cebu, 6 bottles of beer each, within 30
minutes. Unable to consume the bottles of beer within the time limit set by Gempis, the two pilots were
ordered to stand erect and were hit on the stomach by Gempis. The petition alleged that “the incident occurred
with Gempis’ full knowledge that the 2 affected co-pilots have flight duties the next day with initial
assignments as early as 7:10 a.m. and as late as 12:00 p.m. The Labor Arbiter Teodorico Dogelio denied
PAL’s application for clearance to terminate Gempis’ services inasmuch as the penalty of 6 months demotion
was enough to appear in Gempis’ employment file and ordering PAL to effect Gempis’ immediate
reinstatement as YS-11 Captain, with back wages for a period of 6 months corresponding to the position. The
National Labor Relations Commission affirmed the decision of the Labor Arbiter on 29 November 1982.

The Supreme Court set aside the decision of the NLRC dated 29 November 1982, and approved PAL’s
application for clearance to terminate Gempis from employment.

1. Pilot’s reinstatement grossly unfair as pilot is a risk and liability to the common carrier
It would be grossly unfair to order PAL to reinstate him back to his work as pilot. The nature of
employment of Gempis necessitates that he should not violate the liquor ban as provided for in the Basic
Operations Manual in order to protect not only the interest of the company but the public as well. Gempis is a
risk and liability rather than an asset to PAL. Gempis and those persons he abused (F/Os A. Barcebal and J.
Ranches) are pilots. The foremost consideration called for by their position as pilots is the safety of the
passengers. This is so because the duties of a pilot consist of handling controls of the aircraft and to ensure
that the flight is conducted safely and economically.

2. Due Diligence of a good father of a family in the selection and supervision of its employees
The business of Philippine Airlines is such that whenever a passenger dies or is injured the
presumption is, it is at fault notwithstanding the fact that it has exercised due diligence of a good father of a
family in the selection and supervision of its employees. Thus, extraordinary measures and diligence should
be exercised by it for the safety of its passengers and their belongings. Needless to state, a pilot must be sober
all the time for he may be called upon to fly a plane even before his regular scheduled hours, otherwise so
many lives will be in danger if he is drunk. It would be unjust for an employer like petitioner PAL to be
compelled to continue with the employment of a person whose continuance in the service is obviously
inimical to its interests.

[29]

Vasquez vs. CA (GR L-42926, 13 September 1985)

First Division, Melencio-Herrera (J): 6 concur

Facts: When the interisland vessel MV ‘Pioneer Cebu’ left the Port of Manila in the early morning of 15 May
1966 bound for Cebu, it had on board the spouses Alfonso Vasquez and Filipinas Bagaipo and a 4-year old
boy, Mario Marlon Vasquez, among her passengers. The MV ‘Pioneer Cebu’ encountered typhoon ‘Klaring’
and struck a reef on the southern part of Malapascua Island, located somewhere north of the island of Cebu
and subsequently sunk. Said passengers were unheard from since then.

Pedro Vasquez and Soledad Ortega are the parents of Alfonso Vasquez. Cleto Bagaipo and Agustina Virtudes
are the parents of Filipinas Bagaipo. Romeo Vasquez and Maximina Cainay are the parents Mario Marlon
Vasquez. Due to the loss of their children, they sued for damages before the CFI of Manila (Civil Case
67139). Filipinas Pioneer Lines Inc. defended on the plea of force majeure, and the extinction of its liability
by the actual total loss of the vessel. After proper proceedings, the trial Court awarded damages, ordering
Filipinas Pioneer to pay (a) Pedro Vasquez and Soledad Ortega the sums of P15,000.00 for the loss of earning
capacity of the deceased Alfonso Vasquez, P2,100.00 for support, and P10,000.00 for moral damages; (b)
Cleto B. Bagaipo and Agustina Virtudes the sum of P17,000.00 for loss of earning capacity of deceased
Filipinas Bagaipo, and P10,000.00 for moral damages; and (c) Romeo Vasquez and Maximina Cainay the
sum of P10,000.00 by way of moral damages by reason of the death of Mario Marlon Vasquez.

On appeal, the appellate court reversed the judgment and absolved Filipinas Pioneer from any and all liability.
Hence, the Petition for Review on Certiorari.

The Supreme Court reversed the appealed judgment, and reinstated the judgment of the then CFI of Manila
(Branch V, Civil Case 67139); without costs.

1. Circumstances of the last voyage of MV Pioneer Cebu came mainly from Filipinas Pioneer
Lines
The evidence on record as to the circumstances of the last voyage of the MV ‘Pioneer Cebu’ came
mainly, if not exclusively, from Filipinas Pioneer Lines. The MV ‘Pioneer Cebu’ was owned and operated by
Filipinas Pioneer and used in the transportation of goods and passengers in the interisland shipping.
Scheduled to leave the Port of Manila at 9:00 p.m. on 14 May 1966, it actually left port at 5:00 a.m. the
following day, 15 May 1966. It had a passenger capacity of 322 including the crew. It undertook the said
voyage on a special permit issued by the Collector of Customs inasmuch as, upon inspection, it was found to
be without an emergency electrical power system. The special permit authorized the vessel to carry only 260
passengers due to the said deficiency and for lack of safety devices for 322 passengers. A headcount was
made of the passengers on board, resulting on the tallying of 168 adults and 20 minors, although the
passengers manifest only listed 106 passengers. It has been admitted, however, that the headcount is not
reliable inasmuch as it was only done by one man on board the vessel. When the vessel left Manila, its
officers were already aware of the typhoon Klaring building up somewhere in Mindanao. There being no
typhoon signals on the route from Manila to Cebu, and the vessel having been cleared by the Customs
authorities, the MV ‘Pioneer Cebu’ left on its voyage to Cebu despite the typhoon. When it reached Romblon
Island, it was decided not to seek shelter thereat, inasmuch as the weather condition was still good. After
passing Romblon and while near Jintotolo island, the barometer still indicated the existence of good weather
condition continued until the vessel approached Tanguingui island. Upon passing the latter island, however,
the weather suddenly changed and heavy rains fell. Fearing that due to zero visibility, the vessel might hit
Chocolate island group, the captain ordered a reversal of the course so that the vessel could ‘weather out’ the
typhoon by facing the winds and the waves in the open. Unfortunately, at about noontime on 16 May 1966,
the vessel struck a reef near Malapascua island, sustained leaks and eventually sunk, bringing with her
Captain Floro Yap who was in command of the vessel.”

2. Requisites for caso fortuito

To constitute a caso fortuito that would exempt a person from responsibility, it is necessary that (1)
the event must be independent of the human will; (2) the occurrence must render it impossible for the debtor
to fulfill the obligation in a normal manner; and that (3) the obligor must be free of participation in, or
aggravation of, the injury to the creditor.” In the language of the law, the event must have been impossible to
foresee, or if it could be foreseen, must have been impossible to avoid. There must be an entire exclusion of
human agency from the cause of injury or loss.

3. Crew failed to observe extraordinary diligence (utmost diligence required of very cautious
persons)
Herein, while the typhoon was an inevitable occurrence, yet, having been kept posted on the course of
the typhoon by weather bulletins at intervals of 6 hours, the captain and crew were well aware of the risk they
were taking as they hopped from island to island from Romblon up to Tanguingui. They held frequent
conferences, and oblivious of the utmost diligence required of very cautious persons, they decided to take a
calculated risk. In so doing, they failed to observe that extraordinary diligence required of them explicitly by
law for the safety of the passengers transported by them with due regard for all circumstances and
unnecessarily exposed the vessel and passengers to the tragic mishap. They failed to overcome that
presumption of fault or negligence that arises in cases of death or injuries to passengers.

4. Construction of “moot and academic” ruling of the Board of Marine Inquiry; Court disagrees
with Board’s conclusion
While the Board of Marine Inquiry, which investigated the disaster, exonerated the captain from any
negligence, it was because it had considered the question of negligence as “moot and academic,” the captain
having “lived up to the true tradition of the profession.” While the Court is bound by the Board’s factual
findings, the Court disagreed with its conclusion since it obviously had not taken into account the legal
responsibility of a common carrier towards the safety of the passengers involved.

5. Contention on limited liability rule as per Yangco vs. Laserna

With respect to the submission that the total loss of the vessel extinguished its liability pursuant to
Article 587 of the Code of Commerce as construed in Yangco vs. Laserna, 73 Phil. 330 [1941], suffice it to
state that even in said case, it was held that the liability of a shipowner is limited to the value of the vessel or
to the insurance thereon. Despite the total loss of the vessel therefore, its insurance answers for the damages
that a shipowner or agent may be held liable for by reason of the death of its passengers.

[30] also [104]

Dangwa Transportation vs. CA (GR 95582, 7 October 1991)

Second Division, Regalado (J): 4 concur

Facts: On 25 March 1985 at Marivic, Sapid, Mankayan, Benguet, Theodore M. Lardizabal was driving a
passenger bus belonging to Dangwa Transportation Co. in a reckless and imprudent manner and without due
regard to traffic rules and regulations and safety to persons and property, it ran over its passenger, Pedrito
Cudiamat. However, instead of bringing Pedrito immediately to the nearest hospital, the said driver, in utter
bad faith and without regard to the welfare of the victim, first brought his other passengers and cargo to their
respective destinations before bringing said victim to the Lepanto Hospital where he expired.

On 13 May 1985, Inocencia Cudiamat, Emilia Cudiamat Bandoy, Fernando Cudiamat, Marrieta Cudiamat,
Norma Cudiamat, Dante Cudiamat, Samuel Cudiamat and Ligaya Cudiamat (heirs of Pedrito Cudiamat, and
represented by Inocencia Cudiamat) filed a complaint for damages against petitioners for the death of Pedrito
Cudiamat as a result of a vehicular accident which occurred. On 29 July 1988, the trial court rendered a
decision, pronouncing that Pedrito Cudiamat was negligent, which negligence was the proximate cause of his
death. Nonetheless, Lardizabal and Dangwa Transportation, in equity, were hereby ordered to pay the heirs of
Pedrito Cudiamat the sum of P10,000.00 which approximates the amount Lardizabal and Dangwa
Transportation initially offered said heirs for the amicable settlement of the case; without costs.

The Cudiamats appealed to the Court of Appeals which, in a decision (CA-GR CV 19504) promulgated on 14
August 1990, set aside the decision of the lower court, and ordered Dangwa and Lardizabal to pay the
Cudiamats (1) the sum of P30,000.00 by way of indemnity for death of the victim Pedrito Cudiamat; (2) the
sum of P20,000.00 by way of moral damages; (3) the sum of P288,000.00 as actual and compensatory
damages; and (4) the costs of the suit. Dangwa’s and Lardizabal’s motion for reconsideration was denied by
the Court of Appeals in its resolution dated 4 October 1990. Hence, the petition.

The Supreme Court affirmed the challenged judgment and resolution of the Court of Appeals, with
modifications.

1. Factual findings of the Court of Appeals generally final; Exceptions

 It is an established principle that the factual findings of the Court of Appeals as a rule are final and
may not be reviewed by this Court on appeal. However, this is subject to settled exceptions, one of which is
when the findings of the appellate court are contrary to those of the trial court, in which case a reexamination
of the facts and evidence may be undertaken. Herein, the trial court and the Court of Appeals have discordant
positions as to who between Dangwa Transportation and the victim is guilty of negligence. Perforce, the
Court has had to conduct an evaluation of the evidence in this case for the proper calibration of their
conflicting factual findings and legal conclusions.

2. Findings of the trial court

Pedrito Cudiamat was negligent in trying to board a moving vehicle, especially with one of his hands
holding an umbrella; and, without having given the driver or the conductor any indication that he wishes to
board the bus. Dangwa Transportation can also be found wanting of the necessary diligence. In this
connection, it is safe to assume that when the deceased Cudiamat attempted to board the bus, the vehicle’s
door was open instead of being closed. This should be so, for it is hard to believe that one would even attempt
to board a vehicle (i)n motion if the door of said vehicle is closed. Here lies the defendant’s lack of diligence.
Under such circumstances, equity demands that there must be something given to the heirs of the victim to
assuage their feelings. This, also considering that initially, the common carrier had made overtures to
amicably settle the case. It did offer a certain monetary consideration to the victim’s heirs.

3. Findings of the appellate court

The subject bus was at full stop when the victim Pedrito Cudiamat boarded the same as it was
precisely on this instance where a certain Miss Abenoja alighted from the bus. Moreover, the victim did
indicate his intention to board the bus when he declared that Pedrito Cudiamat was no longer walking and
made a sign to board the bus when the latter was still at a distance from him. It was at the instance when
Pedrito Cudiamat was closing his umbrella at the platform of the bus when the latter made a sudden jerk
movement as the driver commenced to accelerate the bus. The incident took place due to the gross negligence
of the driver in prematurely stepping on the accelerator and in not waiting for the passenger to first secure his
seat especially so when we take into account that the platform of the bus was at the time slippery and wet
because of a drizzle. The company utterly failed to observe its duty and obligation as common carrier to the
end that they should observe extra-ordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them according to the circumstances of each case (Article 1733, New Civil Code).

4. Findings of the appellate court supported by witnesses’ testimony; Deceased not guilty of
negligence
The Supreme Court finds no reason to disturb the holding of the Court of Appeals. Its findings are
supported by the testimony of Dangwa Transportation’s own witnesses, Virginia Abalos, and its the bus
conductor, Martin Anglog. The testimonies show that the place of the accident and the place where one of the
passengers alighted were both between Bunkhouses 53 and 54, hence the finding of the Court of Appeals that
the bus was at full stop when the victim boarded the same is correct. They further confirm the conclusion that
the victim fell from the platform of the bus when it suddenly accelerated forward and was run over by the rear
right tires of the vehicle, as shown by the physical evidence on where he was thereafter found in relation to
the bus when it stopped. Under such circumstances, it cannot be said that the deceased was guilty of
negligence.

5. When bus not in motion; Duty of driver and conductor

When the bus is not in motion there is no necessity for a person who wants to ride the same to signal
his intention to board. A public utility bus, once it stops, is in effect making a continuous offer to bus riders.
Hence, it becomes the duty of the driver and the conductor, every time the bus stops, to do no act that would
have the effect of increasing the peril to a passenger while he was attempting to board the same. Herein, the
premature acceleration of the bus was a breach of such duty.
6. Duty of common carriers of passengers
It is the duty of common carriers of passengers, including common carriers by railroad train,
streetcar, or motorbus, to stop their conveyances a reasonable length of time in order to afford passengers an
opportunity to board and enter, and they are liable for injuries suffered by boarding passengers resulting from
the sudden starting up or jerking of their conveyances while they are doing so.

7. Even assuming bus moving, deceased still not negligent

Even assuming that the bus was moving, the act of the victim in boarding the same cannot be
considered negligent under the circumstances. It is not negligence per se, or as a matter of law, for one to
attempt to board a train or streetcar which is moving slowly. An ordinarily prudent person would have made
the attempt to board the moving conveyance under the same or similar circumstances. The fact that
passengers board and alight from a slowly moving vehicle is a matter of common experience and both the
driver and conductor could not have been unaware of such an ordinary practice.

8. When contractual obligation of common carrier starts

The victim herein, by stepping and standing on the platform of the bus, is already considered a
passenger and is entitled to all the rights and protection pertaining to such a contractual relation. Hence, it has
been held that the duty which the carrier of passengers owes to its patrons extends to persons boarding the
cars as well as to those alighting therefrom.

9. Diligence required of common carriers

Common carriers, from the nature of their business and for reasons of public policy, are bound to
observe extraordinary diligence for the safety of the passengers transported by them, according to all the
circumstances of each case. A common carrier is bound to carry the passengers safely as far as human care
and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the
circumstances.

10. Negligence must be proved; Exception in ontract of carriage

In an action based on a contract of carriage, the court need not make an express finding of fault or
negligence on the part of the carrier in order to hold it responsible to pay the damages sought by the
passenger. By the contract of carriage, the carrier assumes the express obligation to transport the passenger to
his destination safely and to observe extraordinary diligence with a due regard for all the circumstances, and
any injury that might be suffered by the passenger is right away attributable to the fault or negligence of the
carrier. This is an exception to the general rule that negligence must be proved, and it is therefore incumbent
upon the carrier to prove that it has exercised extraordinary diligence as prescribed in Articles 1733 and 1755
of the Civil Code.

11. Failure to bring injured immediately to hospital patent proof of negligence

The circumstances under which the driver and the conductor failed to bring the gravely injured victim
immediately to the hospital for medical treatment is a patent and incontrovertible proof of their negligence. It
defies understanding and can even be stigmatized as callous indifference. The evidence shows that after the
accident the bus could have forthwith turned at Bunk 56 and thence to the hospital, but its driver instead opted
to first proceed to Bunk 70 to allow a passenger to alight and to deliver a refrigerator, despite the serious
condition of the victim.

12. Rule as to amount recoverable in tort

The rule is that the amount recoverable by the heirs of a victim of a tort is not the loss of the entire
earnings, but rather the loss of that portion of the earnings which the beneficiary would have received. In
other words, only net earnings, not gross earnings, are to be considered, that is, the total of the earnings less
expenses necessary in the creation of such earnings or income and minus living and other incidental expenses.
13. Actual award of damages to be given
The deductible living and other expense of the deceased may fairly and reasonably be fixed at
P500.00 a month or P6,000.00 a year. In adjudicating the actual or compensatory damages, the appellate court
found that the deceased was 48 years old, in good health with a remaining productive life expectancy of 12
years, and then earning P24,000.00 a year. Using the gross annual income as the basis, and multiplying the
same by 12 years, it accordingly awarded P288,000. Applying the rule on computation based on the net
earnings, said award must be rectified and reduced to P216,000.00. However, in accordance with prevailing
jurisprudence, the death indemnity is hereby increased to P50,000.00.

[31]

Delsan Transport Lines vs. CA (GR 127897, 15 November 2001)

Second Division, De Leon Jr. (J): 4 concur

Facts: Caltex Philippines entered into a contract of affreightment with Delsan Transport Lines, Inc. for a
period of 1 year whereby the said common carrier agreed to transport Caltex’s industrial fuel oil from the
Batangas-Bataan Refinery to different parts of the country. Under the contract, petitioner took on board its
vessel, MT Maysun, 2,277.314 kiloliters of industrial fuel oil of Caltex to be delivered to the Caltex Oil
Terminal in Zamboanga City. The shipment was insured with American Home Assurance Corporation. On 14
August 1986, MT Maysun set sail from Batangas for Zamboanga City. Unfortunately, the vessel sank in the
early morning of 16 August 1986 near Panay Gulf in the Visayas taking with it the entire cargo of fuel oil.
Subsequently, American Home Assurance paid Caltex the sum of P5,096,635.57 representing the insured
value of the lost cargo. Exercising its right of subrogation under Article 2207 of the New Civil Code,
American Home Assurance demanded of Delsan Transport the same amount it paid to Caltex.

Due to its failure to collect from Delsan Transport despite prior demand, American Home Assurance filed a
complaint with the RTC Makati City, Branch 137, for collection of a sum of money. After the trial and upon
analyzing the evidence adduced, the trial court rendered a decision on 29 November 1990 dismissing the
complaint against Delsan Transport without pronouncement as to cost. The trial court found that the vessel,
MT Maysun, was seaworthy to undertake the voyage as determined by the Philippine Coast Guard per Survey
Certificate Report M5-016-MH upon inspection during its annual dry-docking and that the incident was
caused by unexpected inclement weather condition or force majeure, thus exempting the common carrier
from liability for the loss of its cargo.

The decision of the trial court, however, was reversed, on appeal, by the Court of Appeals on 16 June 1996,
which gave credence to the weather report by the Philippine Atmospheric, Geophysical and Astronomical
Services Administration (PAGASA). The subsequent motion for reconsideration of Delsan Transport was
denied by the appellate court on 21 January 1997. Hence, the petition for review on certiorari.

The Supreme Court denied the instant petition, and affirmed the Decision dated 17 June 1996 of the Court of
Appeals; with costs against Delsan Transport.

1. PAGASA Weather report for 15 August 1986

The weather report issued by the Philippine Atmospheric, Geophysical and Astronomical Services
Administration (PAGASA for brevity) showed that from 2:00 o’clock to 8:00 o’clock in the morning on
August 16, 1986, the wind speed remained at 10 to 20 knots per hour while the waves measured from .7 to
two (2) meters in height only in the vicinity of the Panay Gulf where the subject vessel sank, in contrast to
Delsan Transport’s allegation that the waves were 20 feet high.

2. Payment of insured value of lost cargo operates as waiver to enforce term of implied warranty
against Caltex, not an automatic admission of vessel’s seaworthiness
 The payment made by American Home Assurance for the insured value of the lost cargo operates as
waiver of its right to enforce the term of the implied warranty against Caltex under the marine insurance
policy. However, the same cannot be validly interpreted as an automatic admission of the vessel’s
seaworthiness by American Home Assurance as to foreclose recourse against the petitioner for any liability
under its contractual obligation as a common carrier. The fact of payment grants American Home Assurance
subrogatory right which enables it to exercise legal remedies that would otherwise be available to Caltex as
owner of the lost cargo against the petitioner common carrier.

3. Right of Subrogation; Article 2207 NCC

Article 2207 of the New Civil Code provides that “if the plaintiff’s property has been insured, and he
has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach
of contract complained of, the insurance company shall be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not
fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person
causing the loss or injury.”

4. Rationale for right of subrogation

The right of subrogation has its roots in equity. It is designed to promote and to accomplish justice
and is the mode which equity adopts to compel the ultimate payment of a debt by one who in justice and good
conscience ought to pay. It is not dependent upon, nor does it grow out of, any privity of contract or upon
written assignment of claim. It accrues simply upon payment by the insurance company of the insurance
claim. Herein, the payment made by the insurer to the assured operates as an equitable assignment to the
former of all the remedies which the latter may have against the common carrier.

5. Diligence required of common carriers; Liability, exception; Presumption of negligence

From the nature of their business and for reasons of public policy, common carriers are bound to
observe extraordinary diligence in the vigilance over the goods and for the safety of passengers transported by
them, according to all the circumstances of each case. In the event of loss, destruction or deterioration of the
insured goods, common carriers shall be responsible unless the same is brought about, among others, by
flood, storm, earthquake, lightning or other natural disaster or calamity. In all other cases, if the goods are
lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary diligence.

6. Claim of force majeure rebutted by PAGASA report

Herein, from the testimonies of Jaime Jarabe and Francisco Berina, captain and chief mate,
respectively of the ill-fated vessel, it appears that a sudden and unexpected change of weather condition
occurred in the early morning of 16 August 1986; that at around 3:15 a.m. a squall (“unos”) carrying strong
winds with an approximate velocity of 30 knots per hour and big waves averaging 18 to 20 feet high,
repeatedly buffeted MT Maysun causing it to tilt, take in water and eventually sink with its cargo. This tale of
strong winds and big waves by the said officers of Delsan Transport however, was effectively rebutted and
belied by the weather report from PAGASA, the independent government agency charged with monitoring
weather and sea conditions, showing that from 2:00 to 8:00 a.m. on 16 August 1986, the wind speed remained
at 10 to 20 knots per hour while the height of the waves ranged from 0.7 to 2 meters in the vicinity of Cuyo
East Pass and Panay Gulf where the subject vessel sank. There was no squall or bad weather or extremely
poor sea condition in the vicinity when the said vessel sank.

7. Ship captain not expected to testify against interest of employer

Herein, Delsan Transport’s witnesses, Jaime Jarabe and Francisco Berina, ship captain and chief
mate, respectively, of the said vessel, could not be expected to testify against the interest of their employer,
the common carrier.
8. Evidence certificates at time of drydocking and Coast Guard inspection not conclusive as to
condition of vessel at the time of commencement of voyage; Seaworthiness not established by
certificates
Evidence certificates, showing that at the time of dry-docking and inspection by the Philippine Coast
Guard the vessel MT Maysun was fit for voyage, do not necessarily take into account the actual condition of
the vessel at the time of the commencement of the voyage. At the time of dry-docking and inspection, the ship
may have appeared fit. The certificates issued, however, do not negate the presumption of unseaworthiness
triggered by an unexplained sinking. Of certificates issued in this regard, authorities are likewise clear as to
their probative value. Seaworthiness relates to a vessel’s actual condition. Neither the granting of
classification or the issuance of certificates establishes seaworthiness.

9. Certificates of seaworthiness does not satisfy the vessel owner’s obligation

Diligence in securing certificates of seaworthiness does not satisfy the vessel owner’s obligation.
Also securing the approval of the shipper of the cargo, or his surveyor, of the condition of the vessel or her
stowage does not establish due diligence if the vessel was in fact unseaworthy, for the cargo owner has no
obligation in relation to seaworthiness.

10. Exoneration of officers by Board of Marine Inquiry concerns only their administrative liability,
not civil liabililty
The exoneration of MT Maysun’s officers and crew by the Board of Marine Inquiry merely concerns
their respective administrative liabilities. It does not in any way operate to absolve the petitioner common
carrier from its civil liability arising from its failure to observe extraordinary diligence in the vigilance over
the goods it was transporting and for the negligent acts or omissions of its employees, the determination of
which properly belongs to the courts. Herein, Delsan Transport is liable for the insured value of the lost cargo
of industrial fuel oil belonging to Caltex for its failure to rebut the presumption of fault or negligence as
common carrier occasioned by the unexplained sinking of its vessel, MT Maysun, while in transit.

11. Subrogation receipt merely establish relationship of parties thereto; When right of subrogation
accrues
The presentation in evidence of the marine insurance policy is not indispensable in this case before
the insurer may recover from the common carrier the insured value of the lost cargo in the exercise of its
subrogatory right. The subrogation receipt, by itself, is sufficient to establish not only the relationship of the
insurer and the assured shipper of the lost cargo of industrial fuel oil, but also the amount paid to settle the
insurance claim. The right of subrogation accrues simply upon payment by the insurance company of the
insurance claim.

12. Home Insurance Corp. vs. CA; Liability of a hauler

In the absence of proof of stipulations to the contrary, the hauler can be liable only for any damage
that occurred from the time it received the cargo until it finally delivered it to the consignee. Ordinarily, it
cannot be held responsible for the handling of the cargo before it actually received it. The insurance contract,
which was not presented in evidence in that case would have indicated the scope of the insurer’s liability, if
any, since no evidence was adduced indicating at what stage in the handling process the damage to the cargo
was sustained.

13. Home Insurance Corp. vs. CA not applicable

The presentation of the insurance policy was necessary in the case of Home Insurance Corporation v.
CA because the shipment therein (hydraulic engines) passed through several stages with different parties
involved in each stage. First, from the shipper to the port of departure; second, from the port of departure to
the M/S Oriental Statesman; third, from the M/S Oriental Statesman to the M/S Pacific Conveyor; fourth,
from the M/S Pacific Conveyor to the port of arrival; fifth, from the port of arrival to the arrastre operator;
sixth, from the arrastre operator to the hauler, Mabuhay Brokerage Co., Inc.; and lastly, from the hauler to the
consignee. Herein, the presentation of the insurance policy is not applicable, for there is no doubt that the
cargo of industrial fuel oil belonging to Caltex was lost while on board Delsan Transport’s vessel, MT
Maysun, which sank while in transit in the vicinity of Panay Gulf and Cuyo East Pass in the early morning of
16 August 1986.

[32]

Loadstar Shipping vs. CA (GR 131621, 28 September 1999)

First Division, Davide Jr. (CJ): 4 concur

Facts: On 19 November 1984, Loadstar Shipping Co. Inc. received on board its M/V “Cherokee” (a) 705
bales of lawanit hardwood; (b) 27 boxes and crates of tilewood assemblies and others; and (c) 49 bundles of
mouldings R & W (3) Apitong Bolidenized for shipment. The goods, amounting to P6,067,178, were insured
for the same amount with the Manila Insurance Co. (MIC) against various risks including “total loss by total
loss of the vessel.” The vessel, in turn, was insured by Prudential Guarantee & Assurance, Inc. (PGAI) for P4
million. On 20 November 1984, on its way to Manila from the port of Nasipit, Agusan del Norte, the vessel,
along with its cargo, sank off Limasawa Island. As a result of the total loss of its shipment, the consignee
made a claim with Loadstar which, however, ignored the same. As the insurer, MIC paid P6,075,000 to the
insured in full settlement of its claim, and the latter executed a subrogation receipt therefor.

On 4 February 1985, MIC filed a complaint against Loadstar and PGAI, alleging that the sinking of the vessel
was due to the fault and negligence of Loadstar and its employees. It also prayed that PGAI be ordered to pay
the insurance proceeds from the loss of the vessel directly to MIC, said amount to be deducted from MIC’s
claim from Loadstar. In its answer, Loadstar denied any liability for the loss of the shipper’s goods and
claimed that the sinking of its vessel was due to force majeure. PGAI, on the other hand, averred that MIC
had no cause of action against it, Loadstar being the party insured. In any event, PGAI was later dropped as a
party defendant after it paid the insurance proceeds to Loadstar. On 4 October 1991, the trial court (RTC of
Manila, Branch 16, Civil Case 85-29110) rendered judgment in favor of MIC, ordering Loadstar to pay MIC
the amount of P6,067,178, with legal interest from the filing of the complaint until fully paid, P8,000 as
attorney’s fees, and the costs of the suit.

Loadstar elevated the matter to the Court of Appeals, which, however on 30 January 1997, agreed with the
trial court and affirmed its decision in toto. Loadstar’s motion for reconsideration was denied on 19
November 1997. Hence, the petition for review on certiorari.

The Supreme Court denied the petition and affirmed the challenged decision of the Court of Appeals; with
costs against Loadstar.

1. Home Insurance vs. American Steamship, Valenzuela Hardwood vs. CA, and National Steel vs.
CA not applicable; No charter party in present case
In the 1968 case of Home Insurance Co. v. American Steamship Agencies, Inc., the Court held that a
common carrier transporting special cargo or chartering the vessel to a special person becomes a private
carrier that is not subject to the provisions of the Civil Code. Any stipulation in the charter party absolving the
owner from liability for loss due to the negligence of its agent is void only if the strict policy governing
common carriers is upheld. Such policy has no force where the public at large is not involved, as in the case
of a ship totally chartered for the use of a single party. The cases of Valenzuela Hardwood and Industrial
Supply, Inc. v. Court of Appeals and National Steel Corp. v. Court of Appeals, upheld the Home Insurance
doctrine. These cases are not applicable in the present case as the factual settings are different. The records do
not disclose that the M/V “Cherokee” undertook to carry a special cargo or was chartered to a special person
only. There was no charter party. The bills of lading failed to show any special arrangement, but only a
general provision to the effect that the M/V “Cherokee” was a “general cargo carrier.” Further, the bare fact
that the vessel was carrying a particular type of cargo for one shipper, which appears to be purely
coincidental, is not reason enough to convert the vessel from a common to a private carrier, especially where
it was shown that the vessel was also carrying passengers.

2. Common Carriers defined; Article 1732 NCC

Article 1732 of the Civil Code defines “common carriers” as “Common carriers are persons,
corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or
both, by land, water, or air for compensation, offering their services to the public.”

3. Article 1732 NCC construed; De Guzman vs. CA

Article 1732 makes no distinction between one whose principal business activity is the carrying of
persons or goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as “a
sideline”’. Article 1732 also carefully avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such service on an occasional, episodic
or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its services to the
“general public,” i.e., the general community or population, and one who offers services or solicits business
only from a narrow segment of the general population. Article 1733 deliberately refrained from making such
distinctions.

4. Issuance of CPC not a prerequisite for a common carrier; De Guzman vs. CA

A certificate of public convenience is not a requisite for the incurring of liability under the Civil Code
provisions governing common carriers. That liability arises the moment a person or firm acts as a common
carrier, without regard to whether or not such carrier has also complied with the requirements of the
applicable regulatory statute and implementing regulations and has been granted a certificate of public
convenience or other franchise. To exempt the carrier from the liabilities of a common carrier because he has
not secured the necessary certificate of public convenience, would be offensive to sound public policy; that
would be to reward private respondent precisely for failing to comply with applicable statutory requirements.
The business of a common carrier impinges directly and intimately upon the safety and well being and
property of those members of the general community who happen to deal with such carrier. The law imposes
duties and liabilities upon common carriers for the safety and protection of those who utilize their services
and the law cannot allow a common carrier to render such duties and liabilities merely facultative by simply
failing to obtain the necessary permits and authorizations.

5. Vessel not seaworthy as it was not sufficiently manned when it embarked on its voyage
The M/V “Cherokee” was not seaworthy when it embarked on its voyage on 19 November 1984. The
vessel was not even sufficiently manned at the time. “For a vessel to be seaworthy, it must be adequately
equipped for the voyage and manned with a sufficient number of competent officers and crew. The failure of
a common carrier to maintain in seaworthy condition its vessel involved in a contract of carriage is a clear
breach of its duty prescribed in Article 1755 of the Civil Code.”

6. Doctrine of limited liability does not apply when there was negligence on part of vessel owner or
agent
The doctrine of limited liability does not apply where there was negligence on the part of the vessel
owner or agent. Herein, Loadstar was at fault or negligent in not maintaining a seaworthy vessel and in
having allowed its vessel to sail despite knowledge of an approaching typhoon. In any event, it did not sink
because of any storm that may be deemed as force majeure, inasmuch as the wind condition in the area where
it sank was determined to be moderate. Since it was remiss in the performance of its duties, Loadstar cannot
hide behind the “limited liability” doctrine to escape responsibility for the loss of the vessel and its cargo.

7. Stipulations in St. Paul Fire and National Union Fire Insurance cases different from present
one; Present stipulations void as contrary to public policy
 In the cases of St. Paul Fire & Marine Ins. Co. v. Macondray & Co., Inc., and National Union Fire
Insurance v. Stolt-Nielsen Phils., Inc., it was ruled that after paying the claim of the insured for damages
under the insurance policy, the insurer is subrogated merely to the rights of the assured, i.e. it can recover only
the amount that may, in turn, be recovered by the latter. Since the right of the assured in case of loss or
damage to the goods is limited or restricted by the provisions in the bills of lading, a suit by the insurer as
subrogee is necessarily subject to the same limitations and restrictions. These cases involved a limitation on
the carrier’s liability to an amount fixed in the bill of lading which the parties may enter into, provided that
the same was freely and fairly agreed upon (Articles 1749-1750). On the other hand, the stipulation in the
present case effectively reduces the common carrier’s liability for the loss or destruction of the goods to a
degree less than extraordinary (Articles 1744 and 1745), i.e. the carrier is not liable for any loss or damage to
shipments made at “owner’s risk.” Such stipulation is obviously null and void for being contrary to public
policy.

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

9. MIC subrogated to right of shipper

Since the stipulation in question is null and void, it follows that when MIC paid the shipper, it was
subrogated to all the rights which the latter has against the common carrier, Loadstar.

10. Action has not yet prescribed; Stipulation reducing 1 year period void
Herein, MIC’s cause of action had not yet prescribed at the time it was concerned. Inasmuch as
neither the Civil Code nor the Code of Commerce states a specific prescriptive period on the matter, the
Carriage of Goods by Sea Act (COGSA) — which provides for a one-year period of limitation on claims for
loss of, or damage to, cargoes sustained during transit — may be applied suppletorily to the present case. This
one-year prescriptive period also applies to the insurer of the goods. Herein, the period for filing the action for
recovery has not yet elapsed. Moreover, a stipulation reducing the one-year period is null and void; it must,
accordingly, be struck down.

[33]

Metro Manila Transit Corporation vs. CA (GR 104408, 21 June 1993)

Second Division, Regalado (J): 2 concur, 1 on leave

Facts: At about 6:00 a.m. of 28 August 1979, p Nenita Custodio boarded as a paying passenger a public
utility jeepney with plate No. D7 305 PUJ Pilipinas 1979, then driven by Agudo Calebag and owned by
Victorino Lamayo, bound for her work at Dynetics Incorporated located in Bicutan, Taguig, Metro Manila,
where she then worked as a machine operator earning P16.25 a day. While the passenger jeepney was
travelling at a fast clip along DBP Avenue, Bicutan, Taguig, Metro Manila another fast moving vehicle, a
Metro Manila Transit Corp. (MMTC) bus bearing plate 3Z 307 PUB (Philippines) ’79 driven by Godofredo
C. Leonardo was negotiating Honeydew Road, Bicutan, Taguig, Metro Manila bound for its terminal at
Bicutan. As both vehicles approached the intersection of DBP Avenue and Honeydew Road they failed to
slow down and slacken their speed; neither did they blow their horns to warn approaching vehicles. As a
consequence, a collision between them occurred, the passenger jeepney ramming the left side portion of the
MMTC bus. The collision impact caused Custodio to hit the front windshield of the passenger jeepney and
she was thrown out therefrom, falling onto the pavement unconscious with serious physical injuries. She was
brought to the Medical City Hospital where she regained consciousness only after 1 week. Thereat, she was
confined for 24 days, and as a consequence, she was unable to work for 3 ½ months.

A complaint for damages was filed by Custodio, who being then a minor was assisted by her parents, against
all of therein named defendants following their refusal to pay the expenses incurred by the former as a result
of the collision. Said defendants denied all the material allegations in the complaint and pointed an accusing
finger at each other as being the party at fault. The reorganized trial court, in its decision of 1 August 1989,
found both drivers of the colliding vehicles concurrently negligent for non-observance of appropriate traffic
rules and regulations and for failure to take the usual precautions when approaching an intersection. As joint
tortfeasors, both drivers (Calebag and Leonardo), as well as Lamayo, were held solidarily liable for damages
sustained by Custodio, i.e. (a) the sum of P10,000.00 by way of medical expenses; (b) the sum of P5,000.00
by way of expenses of litigation; (c) the sum of P15,000.00 by way of moral damages; (d) the sum of
P2,672.00 by way of loss of earnings; (e) the sum of P5,000.00 by way of exemplary damages; (f) the sum of
P6,000.00 by way of attorney’s fees; and (g) costs of suit. MMTC, on the bases of the evidence presented
was, however, absolved from liability for the accident.

As Custodio’s motion to have that portion of the trial court’s decision absolving MMTC from liability
reconsidered having been denied for lack of merit, an appeal was filed by her with appellate court. After
consideration of the appropriate pleadings on appeal and finding the appeal meritorious, the Court of Appeals
modified the trial court’s decision by holding MMTC solidarily liable with the other defendants for the
damages awarded by the trial court because of their concurrent negligence. The Court of Appeals was resolute
in its conclusion and denied the motions for reconsideration of Custodio and MMTC in a resolution dated 17
February 1982, thus prompting MMTC to file the present petition.

The Supreme Court affirmed the impugned decision of the Court of Appeals.

1. Filing of petition timely; Section 1, Rule 45 of the Rules of Court

The decision of the Court of Appeals, dated 31 October 1991, was received by MMTC on 18
November 1991 and it seasonably filed a motion for the reconsideration thereof on 28 November 1991. Said
motion for reconsideration was denied by the court in its resolution dated 17 February 1992, which in turn
was received by MMTC on 9 March 1992. Therefore, it had, pursuant to Section 1, Rule 45 of the Rules of
Court, 15 days therefrom or up to 24 March 1992 within which to file a petition for review on certiorari.
Anticipating, however, that it may not be able to file said petition before the lapse of the reglementary period
therefor, MMTC filed a motion on 19 March 1992 for an extension of 30 days to file the present petition, with
proof of service of copies thereof to the court and the adverse parties. The Court granted said motion, with the
extended period to be counted from the expiration of the reglementary period. Consequently, it had 30 days
from 24 March 1992 within which to file its petition, or up to 23 April 1992, and the eventual filing of said
petition on 14 April 1992 was well within the period granted by the Court.

2. Reglementary period in a petition for review on certiorari; Effect of motion for reconsideration
and motion for extension of time
In the case of a petition for review on certiorari from a decision rendered by the Court of Appeals,
Section 1, Rule 45 of the Rules of Court, which has long since been clarified in Lacsamana vs. The Hon.
Second Special Cases Division of the Intermediate Appellate Court, et al., allows the same to be filed “within
15 days from notice of judgment or of the denial of the motion for reconsideration filed in due time, and
paying at the same time the corresponding docket fee.” In other words, in the event a motion for
reconsideration is filed and denied, the period of 15 days begins to run all over again from notice of the denial
resolution. Otherwise put, if a motion for reconsideration is filed, the reglementary period within which to
appeal the decision of the Court of Appeals to the Supreme Court is reckoned from the date the party who
intends to appeal received the order denying the motion for reconsideration. Furthermore, a motion for
extension of time to file a petition for review may be filed with this Court within said reglementary period,
paying at the same time the corresponding docket fee.

3. Factual findings of trial court may be reversed by Court of Appeals

Factual findings of the trial court may be reversed by the Court of Appeals, which is vested by law
with the power to review both legal and factual issues, if on the evidence of record, it appears that the trial
court may have been mistaken, particularly in the appreciation of evidence, which is within the domain of the
Court of Appeals.

4. Findings of facts of Court of Appeals conclusive upon the Supreme Court; Exceptions
The general rule laid down in a plethora of cases is that such findings of fact by the Court of Appeals
are conclusive upon and beyond the power of review of the Supreme Court. While the findings of fact of the
Court of Appeals are entitled to great respect, and even finality at times, that rule is not inflexible and is
subject to well established exceptions, to wit: (1) when the conclusion is a finding grounded entirely on
speculation, surmises and conjectures; (2) when the inference made is manifestly mistaken, absurd or
impossible; (3) where there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals, in
making its findings, went beyond the issues of the case and the same are contrary to the admissions of both
appellant and appellee; (7) when the findings of the Court of Appeals are contrary to those of the trial court;
(8) when the findings of fact are conclusions without citation of specific evidence on which they are based;
(9) when the facts set forth in the petition, as well as in the petitioner’s main and reply briefs, are not disputed
by the respondents; and (10) when the findings of fact of the Court of Appeals are premised on the supposed
absence of evidence and are contradicted by the evidence on record.

5. Drivers negligent, jeepney owner solidarily liable

There is no dispute as to the finding of concurrent negligence on the part of Calebag, the driver of the
passenger jeepney, and Leonardo, the bus driver of MMTC, both of whom were solidarily held liable with
Lamayo, the owner of the jeepney, the Court is spared the necessity of determining the sufficiency of
evidence establishing the fact of negligence.

6. Party to prove his own affirmative assertion; Preponderance of evidence in civil cases
It is procedurally required for each party in a case to prove his own affirmative assertion by the
degree of evidence required by law. In civil cases, the degree of evidence required of a party in order to
support his claim is preponderance of evidence, or that evidence adduced by one party which is more
conclusive and credible than that of the other party. It is therefore, incumbent on the plaintiff who is claiming
a right to prove his case. Corollarily, defendant must likewise prove its own allegation to buttress its claim
that it is not liable. In fine, the party, whether plaintiff or defendant, who asserts the affirmative of the issue
has the burden of presenting at the trial such amount of evidence required by law to obtain a favorable
judgment. It is entirely within each of the parties discretion, consonant with the theory of the case it or he
seeks to advance and subject to such procedural strategy followed thereby, to present all available evidence at
its or his disposal in the manner which may be deemed necessary and beneficial to prove its or his position,
provided only that the same shall measure up to the quantum of evidence required by law. In making proof in
its or his case, it is paramount that the best and most complete evidence be formally entered.

7. Oral evidence without object or documentary evidence not sufficiently persuasive proof
While there is no rule which requires that testimonial evidence, to hold sway, must be corroborated by
documentary evidence, or even object evidence for that matter, inasmuch as the witnesses’ testimonies dwelt
on mere generalities, the Court cannot consider the same as sufficiently persuasive proof that there was
observance of due diligence in the selection and supervision of employees. Herein, MMTC’s attempt to prove
its diligentissimi patris familias in the selection and supervision of employees through oral evidence must fail
as it was unable to buttress the same with any other evidence, object or documentary, which might obviate the
apparent biased nature of the testimony.

8. MMTC short of required evidentiary quantum; Central Taxicab vs. Ex-Meralco Employees
Transportation
The evidence for MMTC falls short of the required evidentiary quantum as would convincingly and
undoubtedly prove its observance of the diligence of a good father of a family has its precursor in the
underlying rationale pronounced in the earlier case of Central Taxicab Corp. vs. Ex-Meralco Employees
Transportation Co., et al., set amidst an almost identical factual setting. Therein, it was held that “there is no
hard-and-fast rule on the quantum of evidence needed to prove due observance of all the diligence of a good
father of a family as would constitute a valid defense to the legal presumption of negligence on the part of an
employer or master whose employee has by his negligence, caused damage to another. The failure of the
company to produce in court any “record” or other documentary proof tending to establish that it had
exercised all the diligence of a good father of a family in the selection and supervision of its drivers and
buses, notwithstanding the calls therefor by both the trial court and the opposing counsel, argues strongly
against its pretensions.

9. Case covered by Articles 2176 and 2177, in relation to Article 2180, of the Civil Code; Elements
of quasi-delicts
The present case isy within the coverage of Articles 2176 and 2177, in relation to Article 2180, of the
Civil Code provisions on quasi-delicts, as all the elements thereof are present, to wit: (1) damages suffered by
the plaintiff, (2) fault or negligence of the defendant or some other person for whose act he must respond, and
(3) the connection of cause and effect between fault or negligence of the defendant and the damages incurred
by plaintiff.

10. Article 2180 NCC

The pertinent parts of Article 2180 provide that “The obligation imposed by article 2176 is
demandable not only for one’s own acts or omissions, but also for those of persons for whom one is
responsible. xxx Employers shall be liable for damages caused by their employees and household helpers
acting within the scope of their assigned tasks, even though the former are not engaged in any business or
industry. xxx The responsibility treated of in this article shall cease when the persons herein mentioned prove
that they observed all the diligence of a good father of a family to prevent damage.”

11. Basis of employer’s vicarious liability

The basis of the employer’s vicarious liability has been explained: “The responsibility imposed by
this article arises by virtue of a presumption juris tantum of negligence on the part of the persons made
responsible under the article, derived from their failure to exercise due care and vigilance over the acts of
subordinates to prevent them from causing damage. Negligence is imputed to them by law, unless they prove
the contrary. Thus, the last paragraph of the article says that such responsibility ceases if it is proved that the
persons who might be held responsible under it exercised the diligence of a good father of a family
(diligentissimi patris familias) to prevent damage. It is clear, therefore, that it is not representation, nor
interest, nor even the necessity of having somebody else answer for the damages caused by the persons
devoid of personality, but it is the non-performance of certain duties of precaution and prudence imposed
upon the persons who become responsible by civil bond uniting the actor to them, which forms the foundation
of such responsibility.”

12. Diligentissimi patris familias applicable when there is an employer-employee relationship;

Diligence of a good father of family under Article 2180 refers to due diligence in selection and
supervision of employees
The rule is applicable only where there is an employer-employee relationship, although it is not
necessary that the employer be engaged in business or industry. Whether or not engaged in any business or
industry, the employer under Article 2180 is liable for torts committed by his employees within the scope of
their assigned tasks. But, it is necessary first to establish the employment relationship. Once this is done, the
plaintiff must show, to hold the employer liable, that the employee was acting within the scope of his assigned
task when the tort complained of was committed. It is only then that the defendant, as employer, may find it
necessary to interpose the defense of due diligence in the selection and supervision of employees. The
diligence of a good father of a family required to be observed by employers to prevent damages under Article
2180 refers to due diligence in the selection and supervision of employees in order to protect the public.

12. Presumption that employer negligent when employee causes damage due to his own negligence
With the allegation and subsequent proof of negligence against the driver and of an employer-
employee relation between him and MMTC, the case is undoubtedly based on a quasi-delict under Article
2180. When the employee causes damage due to his own negligence while performing his own duties, there
arises the juris tantum presumption that the employer is negligent, rebuttable only by proof of observance of
the diligence of a good father of a family. For failure to rebut such legal presumption of negligence in the
selection and supervision of employees, the employer is likewise responsible for damages, the basis of the
liability being the relationship of pater familias or on the employer’s own negligence.

13. Drivers and vehicle owners directly and solidarily liable; Gutierrez vs. Gutierrez
As early as the case of Gutierrez vs. Gutierrez, and thereafter, the Court has consistently held that
where the injury is due to the concurrent negligence of the drivers of the colliding vehicles, the drivers and
owners of the said vehicles shall be primarily, directly and solidarily liable for damages and it is immaterial
that one action is based on quasi-delict and the other on culpa contractual, as the solidarity of the obligation is
justified by the very nature thereof.

14. Admonition as to selection of employees; Cambo vs. Camarote

The legal obligation of employers to observe due diligence in the selection and supervision of
employees is not to be considered as an empty play of words or a mere formalism, as appears to be the
fashion of the times, since the non-observance thereof actually becomes the basis of their vicarious liability
under Article 2180. On the matter of selection of employees, the case of Cambo vs. Camarote lays down the
admonition that “in order that the owner of a vehicle may be considered as having exercised all diligence of a
good father of a family, he should not have been satisfied with the mere possession of a professional driver’s
license; he should have carefully examined the applicant for employment as to his qualifications, his
experience and record of service. These steps the vehicle owner failed to observe; he has therefore, failed to
exercise all due diligence required of a good father of a family in the choice or selection of driver.”

15. Scope of due diligence in supervision of employees

Due diligence in the supervision of employees includes the formulation of suitable rules and
regulations for the guidance of employees and the issuance of proper instructions intended for the protection
of the public and persons with whom the employer has relations through his or its employees and the
imposition of necessary disciplinary measures upon employees in case of breach or as may be warranted to
ensure the performance of acts indispensable to the business of and beneficial to their employer. To this, the
Court adds that actual implementation and monitoring of consistent compliance with said rules should be the
constant concern of the employer, acting through dependable supervisors who should regularly report on their
supervisory functions.

16. When defense of due diligence in selection and supervision of employees deemed sufficient
In order that the defense of due diligence in the selection and supervision of employees may be
deemed sufficient and plausible, it is not enough to emptily invoke the existence of said company guidelines
and policies on hiring and supervision. As the negligence of the employee gives rise to the presumption of
negligence on the part of the employer, the latter has the burden of proving that it has been diligent not only
in the selection of employees but also in the actual supervision of their work. The mere allegation of
the
existence of hiring procedures and supervisory policies, without anything more, is decidedly not sufficient to
overcome such presumption.

17. Warning of the Court to employers

The Court emphatically reiterates its holding, as a warning to all employers, that “the mere
formulation of various company policies on safety without showing that they were being complied with is not
sufficient to exempt petitioner from liability arising from negligence of its employees. It is incumbent upon
petitioner to show that in recruiting and employing the erring driver the recruitment procedures and company
policies on efficiency and safety were followed.” Paying lip-service to these injunctions or merely going
through the motions of compliance therewith will warrant stern sanctions from the Court.

18. Rationale for the requirement of highest possible degree of diligence from common carriers
The Court feels it is necessary to stress the following rationale behind these all-important statutory
and jurisprudential mandates, for it has been observed that despite its pronouncement in Kapalaran Bus Line
vs. Coronado, et al., there has been little improvement in the transport situation in the country: “In requiring
the highest possible degree of diligence from common carriers and creating a presumption of negligence
against them, the law compels them to curb the recklessness of their drivers. While the immediate
beneficiaries of the standard of extraordinary diligence are, of course, the passengers and owners of the cargo
carried by a common carrier, they are not the only persons that the law seeks to benefit. For if common
carriers carefully observe the statutory standard of extraordinary diligence in respect of their own passengers,
they cannot help but simultaneously benefit pedestrians and the owners and passengers of other vehicles who
are equally entitled to the safe and convenient use of our roads and highways. The law seeks to stop and
prevent the slaughter and maiming of people (whether passengers or not) and the destruction of property
(whether freight or not) on our highways by buses, the very size and power of which seem often to inflame
the minds of their drivers ”

19. No interest due as such has not been prayed in the complaint; Article 2211 NCC
The appellate court acted in the exercise of sound discretion when it affirmed the trial court’s award,
without requiring the payment of interest thereon as an item of damages just because of delay in the
determination thereof, especially since Custodio did not specifically pray therefor in her complaint. Article
2211 of the Civil Code provides that in quasi-delicts, interest as a part of the damages may be awarded in the
discretion of the court, and not as a matter of right. There have been no intentional dilatory maneuvers or any
special circumstances which would justify that additional award.

[34]

Kapalaran Bus vs. Coronado (GR 85331, 25 August 1989)

Third Division, Feliciano (J): 4 concur

Facts: On 2 August 1982, the jeepney driven by Lope Grajera was then coming from Pila, Laguna on its way
towards the direction of Sta. Cruz, traversing the old highwayAs the jeepney reached the intersection where
there is a traffic sign “yield,” it stopped and cautiously treated the intersection as a “Thru Stop” street, which
it is not. The KBL bus, on the other hand, was on its way from Sta. Cruz, Laguna, driven by its regular driver
Virgilio Llamoso, on its way towards Manila. The regular itinerary of the KBL bus is through the town proper
of Pila, Laguna, but at times it avoids this if a bus is already fully loaded with passengers and can no longer
accommodate additional passengers. As the KBL bus neared the intersection, Virgilio Llamoso inquired from
his conductor if they could still accommodate passengers and learning that they were already full, he decided
to bypass Pila and instead, to proceed along the national highway. Virgilio Llamoso admitted that there was
another motor vehicle ahead of him. Atty. Conrado L. Manicad, who was driving a Mustang car coming from
the direction of Sta. Cruz and proceeding towards the direction of Manila, stopped at the intersection to give
way to the jeepney driven by Grajera. Behind Manicad were two vehicles, a car of his client and another car.
A Laguna Transit bus had just entered the town of Pila ahead of Atty. Manicad. The KBL bus ignored the
stopped vehicles of Atty. Manicad and the other vehicles behind Atty. Manicad and overtook both vehicles at
the intersection, therefore, causing the accident. The KBL bus appeared to have been travelling at a fast rate
of speed because, after the collision, it did not stop; it travelled for another 50 meters and stopped only when
it hit an electric post.

On 14 September 1982, Kapalaran, apparently believing that the best defense was offense, filed a complaint
for damage to property and physical injuries through reckless imprudence against Angel Coronado and Lope
Grajera in the Regional Trial Court, Branch 27, Sta. Cruz, Laguna. Coronado and Grajera answered with their
own claims (counter-claims) for damages. A third-party complaint and/or a complaint for intervention was
also filed in the same case against Kapalaran by jeepney passenger Dionisio Shinyo. On 15 October 1986,
after trial, the trial court rendered a judgment in favor of Coronado, Grajera and Shinyo and ordering
Kapalaran (a) to pay Angel Coronado the sum of P40,000.00 as compensation for the totally wrecked jeepney,
plus the sum of P5,000.00 as attorney’s fees and litigation expenses, and (b) to Dionisio Shinyo the sum of
P35,000.00 representing the expenses incurred by said intervenor for his treatment including his car-hire, the
further sum of P30,000.00 representing the expenses said defendant will incur for his second operation to
remove the intramedulary nail from his femur, the additional sum of P50,000.00 to serve as moral damages
for the pain and suffering inflicted on said defendant, plus the sum of P10,000.00 in the concept of exemplary
damages to serve as a deterrent to others who, like the plaintiff, may be minded to induce accident victims to
perjure themselves in a sworn statement, and the sum of P15,000.00 as attorney’s fees and litigation expenses.
From the above judgment, Kapalaran appealed to the Court of Appeals assailing the trial court’s findings on
the issue of fault and the award of damages.

The Court of Appeals, on 28 June 1988, affirmed the decision of the trial court but modified the award of
damages by setting aside the grant of exemplary damages as well as the award of attorney’s fee and litigation
expenses made to Dionisio Shinyo. A motion for reconsideration by Kapalaran having been denied by the
appellate court on 13 October 1988. Hence, the petition for Review.

The Supreme Court denied the Petition for Review on Certiorari for lack of merit and affirmed the Decision
of the Court of Appeals, except (1) that the award of exemplary damages to Dionisio Shinyo shall be restored
and increased from P10,000.00 to P25,000.00, and (2) that the grant of attorney’s fees and litigation expenses
in the sum of P15,000.00 to Dionisio Shinyo shall similarly be restored. Costs against Kapalaran.

1. General rules as to right-of-way

The general rule is that the vehicle on the national highway has the right-of-way as against a feeder
road. Another general rule is that the vehicle coming from the right has the right-of-way over the vehicle
coming from the left. The general rules on right-of-way may be invoked only if both vehicles approach the
intersection at almost the same time.

2. Supreme Court not a trier of facts

It is not the function of the Supreme Court to analyze and weigh evidence presented by the parties all
over again and that its jurisdiction is in principle limited to reviewing errors of law that might have been
committed by the Court of Appeals. Herein, Kapalaran has made no compelling showing of any
misapprehension of facts on the part of the Court of Appeals that would require us to review and overturn the
factual findings of that court. On the contrary, examination of the record shows that not only are the
conclusions of fact of the Court of Appeals and the trial court on who had acted negligently and was at fault
in the collision of their vehicles, amply supported by the evidence of record, but also that Kapalaran’s bus
driver was grossly negligent and had acted wantonly and in obvious disregard of the applicable rules on safety
on the highway.

3. Bus driver actually violating traffic rules and regulations, presumed negligent
 Kapalaran’s driver had become aware that some vehicles ahead of the bus and travelling in the same
direction had already stopped at the intersection obviously to give way either to pedestrians or to another
vehicle about to enter the intersection. The bus driver, who was driving at a speed too high to be safe and
proper at or near an intersection on the highway, and in any case too high to be able to slow down and stop
behind the cars which had preceded it and which had stopped at the intersection, chose to swerve to the left
lane and overtake such preceding vehicles, entered the intersection and directly smashed into the jeepney
within the intersection. Immediately before the collision, the bus driver was actually violating the following
traffic rules and regulations, among others, in the Land Transportation and Traffic Code, RA 4136, as
amended. Thus, a legal presumption arose that the bus driver was negligent, a presumption Kapalaran was
unable to overthrow.

4. Section 35(a) of RA 4136, Restriction as to speed

Section 35 (a) provides that “any person driving a motor vehicle on a highway shall drive the same at
a careful and prudent speed, not greater nor less than is reasonable and proper, having due regard for the
traffic, the width of the highway, and or any other condition then and there existing; and no person shall drive
any motor vehicle upon a highway at such a speed as to endanger the life, limb and property of any person,
nor at a speed greater than will permit him to bring the vehicle to a stop within the assured clear distance
ahead.”

5. Section 41 (a) of RA 4136, Restrictions on overtaking and passing

Section 41 (a) provides that “the driver of a vehicle shall not drive to the left side of the center line of
a highway in overtaking or passing another vehicle, proceeding in the same direction, unless such left side is
clearly visible, and is free of oncoming traffic for a sufficient distance ahead to permit such overtaking or
passing to be made in safety.”

6. Section 41 (c) of RA 4136, Restrictions on overtaking and passing

Section 41 (c) provides that “the driver of a vehicle shall not overtake or pass any other vehicle
proceeding in the same direction, at any railway grade crossing, or at any intersection of highways, unless
such intersection or crossing is controlled by traffic signal, or unless permitted to do so by a watchman or a
peace officer, except on a highway having two or more lanes for movement of traffic in one direction where
the driver of a vehicle may overtake or pass another vehicle on the right. Nothing in this section shall be
construed to prohibit a driver overtaking or passing, upon the right, another vehicle which is making or about
to make a left turn.

7. Jeepney driver has right to assume further vehicles would stop

The jeepney driver, seeing the cars closest to the intersection on the opposite side of the highway
come to a stop to give way to him, had the right to assume that other vehicles further away and behind the
stopped cars would similarly come to a stop and not seek illegally to overtake the stopped vehicles and come
careening into the intersection at an unsafe speed. Kapalaran’s bus was still relatively far away from the
intersection when the jeepney entered the same; the bus collided head-on into the jeepney because the bus had
been going at an excessively high velocity immediately before and at the time of overtaking the stopped cars,
and so caught the jeepney within the intersection.

8. Responsibility of driver to see to it that left lane of road was clear

It was the responsibility of the bus driver to see to it, when it overtook the 2 cars ahead which had
stopped at the intersection, that the left lane of the road within the intersection and beyond was clear. The
point of impact was on the left side of the intersection (the right lane so far as concerns the jeepney coming
from the opposite side), which was precisely the lane or side on which the jeepney had a right to be.

9. Driver’s gross negligence raises presumption that Kapalaran guilty of negligence in selection
and supervision of employees; Right of recourse
 The patent and gross negligence on the part of Kapalaran’s driver raised the legal presumption that
Kapalaran as employer was guilty of negligence either in the selection or in the supervision of its bus drivers.
Where the employer is held liable for damages, it has of course a right of recourse against its own negligent
employee. If Kapalaran was interested in maintaining its right of recourse against or reimbursement from its
own driver, it should have appealed from that portion of the trial court’s decision which had failed to hold the
bus driver responsible for any damage. Contrary to Kapalaran’s pretense, its liability for the acts and
negligence of its bus driver is not “merely subsidiary,” and is not limited to cases where the employee “cannot
pay his liability,” nor are Coronado, et. al. compelled first to proceed against the bus driver. The liability of
the employer under Article 2180 of the Civil Code is direct and immediate; it is not conditioned upon prior
recourse against the negligent employee and a prior showing of the insolvency of such employee.

10. Award of moral damages in order; Shinyo’s death

The award of moral damages against Kapalaran is not only entirely in order; it is also quite modest
considering Dionisio Shinyo’s death during the pendency of this petition, a death hastened by, if not directly
due to, the grievous injuries sustained by him in the violent collision.

11. Court entitled to take judicial notice of negligence

Kapalaran’s bus driver was grossly and very probably criminally negligent in his reckless disregard
of the rights of other vehicles and their passengers and of pedestrians as well. The Court is entitled to take
judicial notice of the gross negligence and the appalling disregard of the physical safety and property of
others so commonly exhibited today by the drivers of passenger buses and similar vehicles on our highways.

12. Diligence required of a common carrier

The law requires a common carrier to exercise extraordinary diligence in carrying and transporting
their passengers safely “as far as human care and foresight can provide, using the utmost diligence of very
cautious persons, with due regard for all the circumstances.” In requiring the highest possible degree of
diligence from common carriers and creating a presumption of negligence against them, the law compels
them to curb the recklessness of their drivers.

13. Beneficiaries of standard of extraordinary diligence

While the immediate beneficiaries of the standard of extraordinary diligence are, of course, the
passengers and owners of cargo carried by a common carrier, they are not the only persons that the law seeks
to benefit. For if common carriers carefully observed the statutory standard of extraordinary diligence in
respect of their own passengers, they cannot help but simultaneously benefit pedestrians and the owners and
passengers of other vehicles who are equally entitled to the safe and convenient use of our roads and
highways. The law seeks to stop and prevent the slaughter and maiming of people (whether passengers or
not) and the destruction of property (whether freight or not) on our highways by buses, the very size and
power of which seem often to inflame the minds of their drivers.

14. Exemplary damages; Article 2231 NCC

Article 2231 of the Civil Code explicitly authorizes the imposition of exemplary damages in cases of
quasi-delicts “if the defendant acted with gross negligence.” Herein, the award of exemplary damages by the
trial court was quite proper, although granted for the wrong reason, and should not only be restored but
augmented.

15. Issues not raised may be considered by Court if substantial justice and/or public policy require
it
Issues which must be resolved if substantial justice is to be rendered to the parties, may and should be
considered and decided by the Supreme Court even if those issues had not been explicitly raised by the party
affected. Herein, it is not only the demands of substantial justice but also the compelling considerations of
public policy noted above, which impel us to the conclusion that the trial court’s award of exemplary
damages
was erroneously deleted and must be restored and brought more nearly to the level which public policy and
substantial justice require.

[35]

Trans-Asia Shipping Lines vs. CA (GR 118126, 4 March 1996)

Third Division, Davide Jr. (J): 4 concur

Facts: Atty. Renato Arroyo, a public attorney, bought a ticket Trans-Asia Shipping Lines Inc., a corporation
engaged in inter-island shipping, for the voyage of M/V Asia Thailand vessel to Cagayan de Oro City from
Cebu City on 12 November 1991. At around 5:30p.m of the said day, Arroyo boarded the M/V Asia Thailand
vessel. At that instance, Arroyo noticed that some repair work were being undertaken on the engine of the
vessel. The vessel departed at around 11:00 p.m. with only 1 engine running. After an hour of slow voyage,
the vessel stopped near Kawit Island and dropped its anchor thereat. After half an hour of stillness, some
passengers demanded that they should be allowed to return to Cebu City for they were no longer willing to
continue their voyage to Cagayan de Oro City. The captain acceded [sic] to their request and thus the vessel
headed back to Cebu City. At Cebu City, Arroyo, together with the other passengers who requested to be
brought back to Cebu City, were allowed to disembark. Thereafter, the vessel proceeded to Cagayan de Oro
City. Arroyo, the next day, boarded the M/V Asia Japan for its voyage to Cagayan de Oro City, likewise a
vessel of Trans-Asia.

On account of the failure of Trans-Asia to transport him to the place of destination on 12 November 1991,
Arroyo filed before the trial court a complaint for damages against Trans-Asia. After due trial, the trial court
rendered its decision and ruled that the action was only for breach of contract, with Articles 1170, 1172, and
1173 of the Civil Code as applicable law — not Article 2180 of the same Code. The Court dismissed the
complaint as it did not appear that Arroyo was left in the Port of Cebu because of the fault, negligence, malice
or wanton attitude of Trans-Asia’s employees; and likewise dismissed Trans-Asia’s counterclaim is likewise
dismissed it not appearing also that filing of the case by Arroyo was motivated by malice or bad faith.

Unsatisfied, Arroyo appealed to the Court of Appeals (CA-GR CV 39901). In its decision of 23 November
1994, the Court of Appeals reversed the trial court’s decision by applying Article 1755 in relation to Articles
2201, 2208, 2217, and 2232 of the Civil Code and, accordingly, awarded (1) P20,000.00 as moral damages;
(2) P10,000.00 as exemplary damages; (3) P5,000.00 as attorney’s fees; and (4) Cost of suit. Trans-Asia
instituted the petition for review on certiorari.

The Supreme Court denied the petition, and affirmed the challenged decision of the Court of Appeals, subject
to the modification as to the award for attorney’s fees which is set aside; with costs against Trans-Asia.

1. Laws applicable
Undoubtedly, there was, between Trans-Asia and Arroyo, a contract of common carriage. The laws of
primary application then are the provisions on common carriers under Section 4, Chapter 3, Title VIII, Book
IV of the Civil Code, while for all other matters not regulated thereby, the Code of Commerce and special
laws.

2. Article 1733 NCC, Extraordinary diligence; Article 1755, Utmost diligence of very cautious
persons
Under Article 1733 of the Civil Code, Trans-Asia was bound to observe extraordinary diligence in
ensuring the safety of Arroyo. That meant that Trans-Asia was, pursuant to Article 1755 of the said Code,
bound to carry Arroyo safely as far as human care and foresight could provide, using the utmost diligence of
very cautious persons, with due regard for all the circumstances. Herein, Trans-Asia failed to discharge this
obligation.
3. Vessel was unseaworthy even before voyage began; Unseaworthiness defined, a clear breach of
duty of carrier
Before commencing the contracted voyage, Trans-Asia undertook some repairs on the cylinder head
of one of the vessel’s engines. But even before it could finish these repairs, it allowed the vessel to leave the
port of origin on only one functioning engine, instead of two. Moreover, even the lone functioning engine was
not in perfect condition as sometime after it had run its course, it conked out. This caused the vessel to stop
and remain adrift at sea, thus in order to prevent the ship from capsizing, it had to drop anchor. Plainly, the
vessel was unseaworthy even before the voyage began. For a vessel to be seaworthy’, it must be adequately
equipped for the voyage and manned with a sufficient number of competent officers and crew. The failure of
a common carrier to maintain in seaworthy condition its vessel involved in a contract of carriage is a clear
breach of is duty prescribed in Article 1755 of the Civil Code.

4. Article 1764 NCC; Liability for damages

As to its liability for damages, Article 1764 of the Civil Code expressly provides that “Damages in
cases comprised in this Section shall be awarded in accordance with Title XVIII of this Book, concerning
Damages. Article 2206 shall also apply to the death of a passenger caused by the breach of contract by
common carrier. The damages comprised in Title XVIII of the Civil Code are actual or compensatory, moral,
nominal, temperate or moderate, liquidated, and exemplary.”

5. Actual and compensatory damages

Actual or compensatory damages represent the adequate compensation for pecuniary loss suffered
and for profits the obligee failed to obtain.

6. Damages resulting in contracts or quasi-contracts

In contracts or quasi-contracts, the obligor is liable for all the damages which may be reasonably
attributed to the non- performance of the obligation if he is guilty of fraud, bad faith, malice, or wanton
attitude.

7. Moral damages
Moral damages include moral suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, or similar injury. They may be recovered in the
cases enumerated in Article 2219 of the Civil Code, likewise, if they are the proximate result of, as herein,
Trans-Asia’s breach of the contract of carriage. Anent a breach of a contract of common carriage, moral
damages may be awarded if the common carrier acted fraudulently or in bad faith.

8. Exemplary damages; not a matter of right

Exemplary damages are imposed by way of example or correction for the public good, in addition to
moral, temperate, liquidated or compensatory damages. In contracts and quasi-contracts, exemplary damages
may be awarded if the defendant acted in a wanton fraudulent, reckless, oppressive or malevolent manner. It
cannot, however, be considered as a matter of right; the court having to decide whether or not they should be
adjudicated. Before the court may consider an award for exemplary damages, the plaintiff must first show that
he is entitled to moral, temperate or compensatory damages; but it is not necessary that he prove the monetary
value thereof.

9. Article 1169 not applicable

The Court of Appeals did not grant Arroyo actual or compensatory damages, reasoning that no delay
was incurred since there was no demand, as required by Article 1169 of the Civil Code. This article, however,
finds no application in the case because, as there was in fact no delay in the commencement of the contracted
voyage. If any delay was incurred, it was after the commencement of such voyage, more specifically, when
the voyage was subsequently interrupted when the vessel had to stop near Kawit Island after the only
functioning engine conked out.

10. Article 698 of the Code of Commerce applies suppletorily to Article 1766 NCC; Rights and
duties of parties arising out of delay
As to the rights and duties of the parties strictly arising out of such delay, the Civil Code is silent.
However, as correctly pointed out by the petitioner, Article 698 of the Code of Commerce specifically
provides for such a situation. It reads “In case a voyage already begun should be interrupted, the passengers
shall be obliged to pay the fare in proportion to the distance covered, without right to recover for losses and
damages if the interruption is due to fortuitous event or force majeure, but with a right to indemnity if the
interruption should have been caused by the captain exclusively. If the interruption should be caused by the
disability of the vessel and a passenger should agree to await the repairs, he may not be required to pay any
increased price of passage, but his living expenses during the stay shall be for his own account.” This article
applies suppletorily pursuant to Article 1766 of the Civil Code.

11. Article 698 of the Code of Commerce must be read with Articles 2199, 2200, 2201, and 2208 in
relation to Article 21 NCC; Arroyo not entitled to actual or compensatory damages
The cause of the delay or interruption was Trans-Asia’s failure to observe extraordinary diligence.
Article 698 must then be read together with Articles 2199, 2200, 2201, and 2208 in relation to Article 21 of
the Civil Code. In so reading, it means that Trans-Asia is liable for any pecuniary loss or loss of profits which
Arroyo may have suffered by reason thereof. For Arroyo, such would be the loss of income if unable to report
to his office on the day he was supposed to arrive were it not for the delay. This, however, assumes that he
stayed on the vessel and was with it when it thereafter resumed its voyage; but he did not. As he and some
passengers resolved not to complete the voyage, the vessel had to return to its port of origin and allow them to
disembark. Arroyo then took Trans-Asia’s other vessel the following day, using the ticket he had purchased
for the previous day’s voyage. Any further delay then in Arroyo’s arrival at the port of destination was caused
by his decision to disembark. Had he remained on the first vessel, he would have reached his destination at
noon of 13 November 1991, thus been able to report to his office in the afternoon. He, therefore, would have
lost only the salary for half of a day. But actual or compensatory damages must be proved, which Arroyo
failed to do. There is no convincing evidence that he did not receive his salary for 13 November 1991 nor that
his absence was not excused.

12. Trans-Asia is liable for moral and exemplary damages

Trans-Asia is liable for moral and exemplary damages. In allowing its unseaworthy M/V Asia
Thailand to leave the port of origin and undertake the contracted voyage, with full awareness that it was
exposed to perils of the sea, it deliberately disregarded its solemn duty to exercise extraordinary diligence and
obviously acted with bad faith and in a wanton and reckless manner.

13. Trans-Asia’s assertion shows lack of genuine concern for safety of passengers; Trans-Asia
cannot expect passengers to act in manner it desired
Trans-Asia’s assertions that the safety of the vessel and passengers was never at stake because the sea
was “calm” in the vicinity where it stopped as faithfully recorded in the vessel’s log book demonstrates
beyond cavil Trans-Asia’s lack of genuine concern for the safety of its passengers. It was, perhaps, only
providential than the sea happened to be calm. Even so, Trans-Asia should not expect its passengers to act in
the manner it desired. The passengers were not stoics; becoming alarmed, anxious, or frightened at the
stoppage of a vessel at sea in an unfamiliar zone a nighttime is not the sole prerogative of the faint-hearted.
More so in the light of the many tragedies at sea resulting in the loss of lives of hopeless passengers and
damage to property simply because common carriers failed in their duty to exercise extraordinary diligence in
the performance of their obligations.

14. Article 2208 NCC

 Article 2208 of the Civil Code provides that “ In the absence of stipulation, attorney’ s fees and
expenses of litigation, other than judicial costs cannot be recovered except: (1) When exemplary damages are
awarded; (2) When the defendant’s act or omission has compelled the plaintiff to litigate with third persons or
to incur expenses to protect his interest.”

15. Award of attorney’s fees not justified

Under Article 2208 of the Civil Code, Attorney’s fees are recoverable only in the concept of actual
damages, not as moral damages nor judicial costs. Hence, to merit such an award, it is settled that the amount
thereof must be proven. Moreover, such must be specifically prayed for and may not be deemed incorporated
within a general prayer for “such other relief and remedy as the court may deem just and equitable. The
statement that the “plaintiff was forced to litigate in order that he can claim moral and exemplary damages for
the suffering he incurred” does not satisfy the benchmark of “factual, legal and equitable justification”
needed as basis for an award of attorney’s fees. In sum, for lack of factual and legal basis, the award of
attorney’s fees must be deleted.

[36], also [78] and [189]

Belgian Overseas Chartering and Shipping vs. Philippine First Insurance Co. Inc. (GR 143133, 5 June
2002)
Third Division, Panganiban (J): 2 concur, 1 on leave

Facts: On 13 June 1990, CMC Trading A.G. shipped on board the M/V ‘Anangel Sky’ at Hamburg, Germany
242 coils of various Prime Cold Rolled Steel sheets for transportation to Manila consigned to the Philippine
Steel Trading Corporation. On 28 July 1990, M/V Anangel Sky arrived at the port of Manila and, within the
subsequent days, discharged the subject cargo. 4 coils were found to be in bad order (BO Tally sheet 154974).
Finding the 4 coils in their damaged state to be unfit for the intended purpose, the consignee Philippine Steel
Trading Corporation declared the same as total loss. Despite receipt of a formal demand, Belgian Overseas
Chartering and Shipping NV (BOCSNV) and Jardine Davies Transport Services Inc. (JDTSI) refused to
submit to the consignee’s claim. Consequently, Philippine First Insurance Co. Inc. (PFIC) paid the consignee
P506,086.50, and was subrogated to the latter’s rights and causes of action against BOCSNV and JDTSI.

PFCI instituted a complaint for recovery of the amount paid by them, to the consignee as insured. The
Regional Trial Court of Makati City (Branch 134) rendered judgment, dismissing the complaint, as well as
the defendants’ counterclaim.

On appeal, and on 15 July 1998, reversed and set aside the decision of the trial court, and ordered BOCSNV
and JDTSI jointly and severally pay PFIC P451,027.32 as actual damages, representing the value of the
damaged cargo, plus interest at the legal rate from the time of filing of the complaint on 25 July 1991, until
fully paid; attorney’s fees amounting to 20% of the claim, and costs of suit. BOCSNV and JDTSI’s motion for
reconsideration was denied. Hence, the petition for review.

The Supreme Court partially granted the Petition, and modified the assailed Decision. The Court reduced
BOCSNV and JDTSI’s liability is reduced to US$2,000 plus interest at the legal rate of 6% from the time of
the filing of the Complaint on 25 July 1991 until the finality of this Decision, and 12% thereafter until fully
paid. No pronouncement as to costs.

1. Extraordinary diligence required of common carriers; Period as to when observance of

extraordinary responsibility lasts
Well-settled is the rule that common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence and vigilance with respect to the safety of the
goods and the passengers they transport. Thus, common carriers are required to render service with the
greatest skill and foresight and “to use all reasonable means to ascertain the nature and characteristics of the
goods tendered for shipment, and to exercise due care in the handling and stowage, including such methods as
their nature requires.” The extraordinary responsibility lasts from the time the goods are unconditionally
placed in the possession of and received for transportation by the carrier until they are delivered, actually or
constructively, to the consignee or to the person who has a right to receive them.

2. Rationale why extraordinary diligence required

This strict requirement is justified by the fact that, without a hand or a voice in the preparation of
such contract, the riding public enters into a contract of transportation with common carriers. Even if it wants
to, it cannot submit its own stipulations for their approval. Hence, it merely adheres to the agreement prepared
by them.

3. Common carrier presumed to have been at fault or negligent; Burden of proof

Owing to this high degree of diligence required of them, common carriers, as a general rule, are
presumed to have been at fault or negligent if the goods they transported deteriorated or got lost or destroyed.
That is, unless they prove that they exercised extraordinary diligence in transporting the goods. In order to
avoid responsibility for any loss or damage, therefore, they have the burden of proving that they observed
such diligence.

4. When presumption of fault or negligence will not arise; List exclusive

The presumption of fault or negligence will not arise if the loss is due to any of the following causes:
(1) flood, storm, earthquake, lightning, or other natural disaster or calamity; (2) an act of the public enemy in
war, whether international or civil; (3) an act or omission of the shipper or owner of the goods; (4) the
character of the goods or defects in the packing or the container; or (5) an order or act of competent public
authority. This is a closed list. If the cause of destruction, loss or deterioration is other than the enumerated
circumstances, then the carrier is liable therefor.

5. Prima facie case of fault of negligence

Mere proof of delivery of the goods in good order to a common carrier and of their arrival in bad
order at their destination constitutes a prima facie case of fault or negligence against the carrier. If no
adequate explanation is given as to how the deterioration, the loss or the destruction of the goods happened,
the transporter shall be held responsible. Herein, (1) as stated in the Bill of Lading, BOCSNV and JDTSI
received the subject shipment in good order and condition in Hamburg, Germany; (2) prior to the unloading
of the cargo, an Inspection Report prepared and signed by representatives of both parties showed the steel
bands broken, the metal envelopes rust-stained and heavily buckled, and the contents thereof exposed and
rusty; (3) Bad Order Tally Sheet 154979 issued by JDTSI, stated that 4 coils were in bad order and condition.
Normally, a request for a bad order survey is made in case there is an apparent or a presumed loss or damage;
(4) the Certificate of Analysis stated that, based on the sample submitted and tested, the steel sheets found in
bad order were wet with fresh water; (5) BOCSNV and JDTSI — in a letter addressed to the Philippine Steel
Coating Corporation and dated 12 October 1990 — admitted that they were aware of the condition of the 4
coils found in bad order and condition. All these conclusively prove the fact of shipment in good order and
condition and the consequent damage to the 4 coils while in the possession of petitioner, who notably failed to
explain why.

6. Common carrier should observe precaution to avoid damage or destruction of the goods
entrusted to it for safe carriage and delivery
The words “metal envelopes rust stained and slightly dented” were noted on the Bill of Lading;
however, there is no showing that BOCSNV and JDTSI exercised due diligence to forestall or lessen the loss.
Having been in the service for several years, the master of the vessel should have known at the outset that
metal envelopes in the said state would eventually deteriorate when not properly stored while in transit.
Equipped with the proper knowledge of the nature of steel sheets in coils and of the proper way of
transporting them, the master of the vessel and his crew should have undertaken precautionary measures to
avoid possible deterioration of the cargo. But none of these measures was taken. Having failed to discharge
the burden of proving that they have exercised the extraordinary diligence required by law, BOCSNV and
JDTSI cannot escape liability for the damage to the 4 coils.

7. Improper packing does not relieve common carrier from liability per se
Even if the fact of improper packing was known to the carrier or its crew or was apparent upon
ordinary observation, it is not relieved of liability for loss or injury resulting therefrom, once it accepts the
goods notwithstanding such condition. Thus, BOCSNV and JDTSI have not successfully proven the
application of any of the exceptions in the present case.

8. Section 3, paragraph 6 COGSA; Notice of claim need not be given at time of receipt if subject
of a joint inspection or survey
Section 3, paragraph 6 of COGSA provides that the notice of claim need not be given if the state of
the goods, at the time of their receipt, has been the subject of a joint inspection or survey. Herein, prior to
unloading the cargo, an Inspection Report as to the condition of the goods was prepared and signed by
representatives of both parties.

9. Section 3, paragraph 6 COGSA; Failure to file notice of claim does not bar recovery
A failure to file a notice of claim within three days will not bar recovery if it is nonetheless filed
within 1 year. This one-year prescriptive period also applies to the shipper, the consignee, the insurer of the
goods or any legal holder of the bill of lading.

10. Claim not barred by prescription as long as 1 year period not lapsed; Loadstar Shipping vs. CA
In Loadstar Shipping Co., Inc. v. Court of Appeals, the Court ruled that a claim is not barred by prescription
as long as the one-year period has not lapsed. Inasmuch as neither the Civil Code nor the Code of Commerce
states a specific prescriptive period on the matter, COGSA — which provides for a one-year period of
limitation on claims for loss of, or damage to, cargoes sustained during transit — may be applied
suppletorily.

11. Functions of bill of lading

A bill of lading serves two functions. First, it is a receipt for the goods shipped. Second, it is a
contract by which three parties — namely, the shipper, the carrier, and the consignee — undertake specific
responsibilities and assume stipulated obligations. In a nutshell, the acceptance of the bill of lading by the
shipper and the consignee, with full knowledge of its contents, gives rise to the presumption that it constituted
a perfected and binding contract.

12. Limited Liability clause sanctioned by law; Conditions required; Rationale of the rule
A stipulation in the bill of lading limiting to a certain sum the common carrier’s liability for loss or
destruction of a cargo — unless the shipper or owner declares a greater value — is sanctioned by law. There
are, however, two conditions to be satisfied: (1) the contract is reasonable and just under the circumstances,
and (2) it has been fairly and freely agreed upon by the parties. The rationale for this rule is to bind the
shippers by their agreement to the value (maximum valuation) of their goods.

13. Civil Code does not limit liability of the common carrier to a fixed amount per package;
Suppletory application of Code of Commerce and COGSA
The Civil Code does not limit the liability of the common carrier to a fixed amount per package. In all
matters not regulated by the Civil Code, the right and the obligations of common carriers shall be governed
by the Code of Commerce and special laws. Thus, the COGSA, which is suppletory to the provisions of the
Civil Code, supplements the latter by establishing a statutory provision limiting the carrier’s liability in the
absence of a shipper’s declaration of a higher value in the bill of lading. The provisions on limited liability are
as
much a part of the bill of lading as though physically in it and as though placed there by agreement of the
parties.

14. The insertion of the words “L/C 90/02447 cannot be the basis for BOCSNV and JDTSI ‘s
liability
A notation in the Bill of Lading which indicated the amount of the Letter of Credit obtained by the
shipper for the importation of steel sheets did not effect a declaration of the value of the goods as required by
the bill. That notation was made only for the convenience of the shipper and the bank processing the Letter of
Credit.

15. Keng Hua Paper Products vs. CA; Bill of lading separate from other letter of credit
arrangements
In Keng Hua Paper Products v. Court of Appeals, the Court held that a bill of lading was separate
from the Other Letter of Credit arrangements. Therein, the contract of carriage, as stipulated in the bill of
lading, must be treated independently of the contract of sale between the seller and the buyer, and the contract
of issuance of a letter of credit between the amount of goods described in the commercial invoice in the
contract of sale and the amount allowed in the letter of credit will not affect the validity and enforceability of
the contract of carriage as embodied in the bill of lading. As the bank cannot be expected to look beyond the
documents presented to it by the seller pursuant to the letter of credit, neither can the carrier be expected to go
beyond the representations of the shipper in the bill of lading and to verify their accuracy vis-a-vis the
commercial invoice and the letter of credit. Thus, the discrepancy between the amount of goods indicated in
the invoice and the amount in the bill of lading cannot negate the obligation arising from the contract of
transportation.

16. BOCSNV and JDTSI’s liability should be computed based on US$500 per package; Eastern
Shipping Line vs. IAC, meaning of package
BOCSNV and JDTSI’s liability should be computed based on US$500 per package and not on the per
metric ton price declared in the Letter of Credit. In Eastern Shipping Lines, Inc. v. Intermediate Appellate
Court, the Court explained the meaning of package, i.e. “when what would ordinarily be considered packages
are shipped in a container supplied by the carrier and the number of such units is disclosed in the shipping
documents, each of those units and not the container constitutes the ‘package’ referred to in the liability
limitation provision of Carriage of Goods by Sea Act.” Herein, considering the ruling in Eastern Shipping
Lines and the fact that the Bill of Lading clearly disclosed the contents of the containers, the number of units,
as well as the nature of the steel sheets, the 4 damaged coils should be considered as the shipping unit subject
to the US$500 limitation.

[37]

Yobido vs. CA (GR 113003, 17 October 1997)

Third Division, Romero (J): 4 concur

Facts: On 26 April 1988, spouses Tito and Leny Tumboy and their minor children named Ardee and Jasmin,
boarded at Mangagoy, Surigao del Sur, a Yobido Liner bus bound for Davao City. Along Picop Road in Km.
17, Sta. Maria, Agusan del Sur, the left front tire of the bus exploded. The bus fell into a ravine around 3 feet
from the road and struck a tree. The incident resulted in the death of 28-year-old Tito Tumboy, and physical
injuries to other passengers.

On 21 November 1988, a complaint for breach of contract of carriage, damages and attorney’s fees was filed
by Leny and her children against Alberta Yobido, the owner of the bus, and Cresencio Yobido, its driver,
before the RTC of Davao City. When the Yobidos filed their answer to the complaint, they raised the
affirmative defense of caso fortuito. They also filed a third-party complaint against Philippine Phoenix Surety
and Insurance, Inc. This third-party defendant filed an answer with compulsory counterclaim. At the pre-trial
conference, the parties agreed to a stipulation of facts. Upon a finding that the third party defendant was not
liable under the insurance contract, the lower court dismissed the third party complaint. No amicable
settlement having been arrived at by the parties, trial on the merits ensued. On 29 August 1991, the lower
court rendered a decision dismissing the action for lack of merit.

Dissatisfied, the Tumboys appealed to the Court of Appeals. On 23 August 1993, the Court of Appeals
rendered the Decision reversing that of the lower court, ordering the Yobidos to pay the Tumboys the sum of
P50,000.00 for the death of Tito Tumboy, P30,000.00 in moral damages, and P7,000.00 for funeral and burial
expenses. The Yobidos filed a motion for reconsideration of said decision which was denied on 4 November
1993 by the Court of Appeals. Hence, the petition for review on certiorari.

The Supreme Court affirmed the Decision of the Court of Appeals subject to the modification that the
Yobidos shall, in addition to the monetary awards therein, be liable for the award of exemplary damages in
the amount of P20,000.00; with costs against the Yobidos.

1. Ruling of the Court of Appeals; Explosion of the tire not in itself a fortuitous event
The explosion of the tire is not in itself a fortuitous event. The cause of the blow-out, if due to a
factory defect, improper mounting, excessive tire pressure, is not an unavoidable event. On the other hand,
there may have been adverse conditions on the road that were unforeseeable and/or inevitable, which could
make the blow-out a caso fortuito. The fact that the cause of the blow-out was not known does not relieve the
carrier of liability. Owing to the statutory presumption of negligence against the carrier and its obligation to
exercise the utmost diligence of very cautious persons to carry the passenger safely as far as human care and
foresight can provide, it is the burden of the defendants to prove that the cause of the blow-out was a
fortuitous event. It is not incumbent upon the plaintiff to prove that the cause of the blow-out is not caso
fortuito. Proving that the tire that exploded is a new Goodyear tire is not sufficient to discharge defendants’
burden. As enunciated in Necesito vs. Paras, the passenger has neither choice nor control over the carrier in
the selection and use of its equipment and the good repute of the manufacturer will not necessarily, relieve the
carrier from liability. Moreover, there is evidence that the bus was moving fast, and the road was wet and
rough. The driver could have explained that the blow out that precipitated the accident that caused the death
of the passenger could not have been prevented even if he had exercised due care to avoid the same, but he
was not presented as witness.

2. Factual findings may not be reviewed on appeal by the Supreme Court; Exception
The Court did re-examine the facts and evidence because of the inapplicability of the established
principle that the factual findings of the Court of Appeals are final and may not be reviewed on appeal by the
Supreme Court. This general principle is subject to exceptions such as that the lower court and the Court of
Appeals arrived at diverse factual findings. Herein, however, upon such re-examination, the Court found no
reason to overturn the findings and conclusions of the Court of Appeals.

3. Carrier not an insurer of safety of its passengers; However, when passenger injured or dies,
common carrier presumed negligent
As a rule, when a passenger boards a common carrier, he takes the risks incidental to the mode of
travel he has taken. After all, a carrier is not an insurer of the safety of its passengers and is not bound
absolutely and at all events to carry them safely and without injury. However, when a passenger is injured or
dies, while traveling, the law presumes that the common carrier is negligent.

4. Article 1755 NCC; Diligence required

Article 1755 provides that “(a) common carrier is bound to carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence of very cautious persons, with a due regard
for all the circumstances.”
5. Article 1756 of the Civil Code; Presumption of negligence
Article 1756 of the Civil Code provides that “In case of death or injuries to passengers, common
carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as prescribed in articles 1733 and 1755.”

6. Culpa contractual; Disputable presumption of negligence, how to overcome

In culpa contractual, once a passenger dies or is injured, the carrier is presumed to have been at fault
or to have acted negligently. This disputable presumption may only be overcome by evidence that the carrier
had observed extraordinary diligence as prescribed by Articles 1733, 1755 and 1756 of the Civil Code or that
the death or injury of the passenger was due to a fortuitous event. Consequently, the court need not make an
express finding of fault or negligence on the part of the carrier to hold it responsible for damages sought by
the passenger.

7. Characteristics of a fortuitous event

A fortuitous event is possessed of the following characteristics: (a) the cause of the unforeseen and
unexpected occurrence, or the failure of the debtor to comply with his obligations, must be independent of
human will; (b) it must be impossible to foresee the event which constitutes the caso fortuito, or if it can be
foreseen, it must be impossible to avoid; (c) the occurrence must be such as to render it impossible for the
debtor to fulfill his obligation in a normal manner; and (d) the obligor must be free from any participation in
the aggravation of the injury resulting to the creditor.

8. Article 1174 NCC

As Article 1174 provides, no person shall be responsible for a fortuitous event which could not be
foreseen, or which, though foreseen, was inevitable.

9. There must be an entire exclusion of human agency from the cause of injury or loss
Herein, the explosion of the new tire may not be considered a fortuitous event. There are human
factors involved in the situation. The fact that the tire was new did not imply that it was entirely free from
manufacturing defects or that it was properly mounted on the vehicle. Neither may the fact that the tire
bought and used in the vehicle is of a brand name noted for quality, resulting in the conclusion that it could
not explode within 5 days’ use. Be that as it may, it is settled that an accident caused either by defects in the
automobile or through the negligence of its driver is not a caso fortuito that would exempt the carrier from
liability for damages.

10. Common carrier not absolved by force majeure alone, should prove not negligent
A common carrier may not be absolved from liability in case of force majeure or fortuitous event
alone. The common carrier must still prove that it was not negligent in causing the death or injury resulting
from an accident.

11. Contradictory facts as to bus’ speed resolved in favor of liability due to presumption of
negligence of carrier
The Yobidos proved through the bus conductor, Salce, that the bus was running at “60-50” kilometers
per hour only or within the prescribed lawful speed limit. However, they failed to rebut the testimony of Leny
Tumboy that the bus was running so fast that she cautioned the driver to slow down. These contradictory facts
must, therefore, be resolved in favor of liability in view of the presumption of negligence of the carrier in the
law. Coupled with this is the established condition of the road — rough, winding and wet due to the rain. It
was incumbent upon the defense to establish that it took precautionary measures considering partially
dangerous condition of the road.

12. Routinary check-ups of vehicle’s parts part of exercise of extraordinary diligence of the carrier
 Proof that the tire was new and of good quality is not sufficient proof that it was not negligent. The
Yobidos should have shown that it undertook extraordinary diligence in the care of its carrier, such as
conducting daily routinary check-ups of the vehicle’s parts. Although it may be impracticable, to require of
carriers to test the strength of each and every part of its vehicles before each trip; due regard for the carrier’s
obligations toward the traveling public demands adequate periodical tests to determine the condition and
strength of those vehicle portions the failure of which may endanger the safety of the passengers.

13. Failure of carrier to overthrow presumption of negligence makes it liable for damages
Having failed to discharge its duty to overthrow the presumption of negligence with clear and
convincing evidence, the Yobidos held liable for damages.

14. Amount of damages for death of passenger

Article 1764 in relation to Article 2206 of the Civil Code prescribes the amount of at least P3,000 as
damages for the death of a passenger. Under prevailing jurisprudence, the award of damages under Article
2206 has been increased to P50,000.00.

15. Moral damages

Moral damages are generally not recoverable in culpa contractual except when bad faith had been
proven. However, the same damages may be recovered when breach of contract of carriage results in the
death of a passenger as in the present case.

16. Exemplary damages

Exemplary damages, awarded by way of example or correction for the public good when moral
damages are awarded, may likewise be recovered in contractual obligations if the defendant acted in wanton,
fraudulent, reckless, oppressive, or malevolent manner. Herein, because the Yobidos failed to exercise the
extraordinary diligence required of a common carrier, which resulted in the death of Tito Tumboy, it is
deemed to have acted recklessly. As such, the Tumboys shall be entitled to exemplary damages.

[38]

Tan Liam Grocery. vs. De La Rama Steamship

[39] De Guzman vs. CA , see [14]

[40] also [48] and [195]

National Development Co. vs. CA (GR L-49407, 19 August 1988)

Maritime Co. of the Philippines vs. CA (GR L-49469)
Second Division, Paras (J): 3 concur

Facts: In accordance with a memorandum agreement entered into between National Development
Corporation (NDC) and Maritime Corporation of the Philippines Inc. (MCP) on 13 September 1962, NDC as
the first preferred mortgagee of three ocean going vessels including one with the name ‘Doña Nati’ appointed
MCP as its agent to manage and operate said vessel for and in its behalf and account. Thus, on 28 February
1964 the E. Philipp Corporation of New York loaded on board the vessel ‘Doña Nati’ at San Francisco,
California, a total of 1,200 bales of American raw cotton consigned to the order of Manila Banking
Corporation, Manila and the People’s Bank and Trust Company acting for and in behalf of the Pan Asiatic
Commercial Company, Inc., who represents Riverside Mills Corporation. Also loaded on the same vessel at
Tokyo, Japan, were the cargo of Kyokuto Boekui, Kaisa, Ltd., consigned to the order of Manila Banking
Corporation consisting of 200 cartons of sodium lauryl sulfate and 10 cases of aluminum foil. En route to
Manila the vessel Doña Nati figured in a collision at 6:04 a.m. on 15 April 1964 at Ise Bay, Japan with a
Japanese vessel ‘SS Yasushima Maru’ as a result of which 550 bales of aforesaid cargo of American raw
cotton were lost and/or destroyed, of which 535 bales as damaged were landed and sold on the authority of
the General Average Surveyor for Y6,045,500 and 15 bales were not landed and deemed lost. The damaged
and lost cargoes was worth P344,977.86 which amount, the Development Insurance and Surety Corporation
(DISC) as insurer, paid to the Riverside Mills Corporation as holder of the negotiable bills of lading duly
endorsed. Also considered totally lost were the aforesaid shipment of Kyokuto, Boekui, Kaisa Ltd., consigned
to the order of Manila Banking Corporation, Manila, acting for Guilcon, Manila. The total loss was
P19,938.00 which DISC as insurer paid to Guilcon as holder of the duly endorsed bill of lading. Thus, DISC
had paid as insurer the total amount of P364,915.86 to the consignees or their successors-in-interest, for the
said lost or damaged cargoes.

On 22 April 1965, DISC filed before the then Court of First Instance of Manila an action for the recovery of
the sum of P364,915.86 plus attorney’s fees of P10,000.00 against NDC and MCP. On 12 November 1969,
after DISC and MCP presented their respective evidence, the trial court rendered a decision ordering MCP
and NDC to pay jointly and solidarily to DISC the sum of P364,915.86 plus the legal rate of interest to be
computed from the filing of the complaint on 22 April 1965, until fully paid and attorney’s fees of
P10,000.00. Likewise, in said decision, the trial court granted MCP’s cross-claim against NDC.

MCP interposed its appeal on 20 December 1969, while NDC filed its appeal on 17 February 1970 after its
motion to set aside the decision was denied by the trial court in its order dated 13 February 1970. On 17
November 1978, the Court of Appeals promulgated its decision affirming in toto the decision of the trial
court. Hence, the appeals by certiorari. On 25 July 1979, the Supreme Court ordered the consolidation of the
above cases.

The Supreme Court denied the subject petitions for lack of merit, and affirmed the assailed decision of the
Appellate Court.

1. Law of country of destination governs liability of common carrier

As held in Eastern Shipping Lines Inc. v. IAC (150 SCRA 469-470 [1987]) where it was held under
similar circumstances that “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” (Article 1753, Civil Code).
Thus, the rule was specifically laid down that for cargoes transported from Japan to the Philippines, the
liability of the carrier is governed primarily by the Civil Code and 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
(Article 1766, Civil Code). Hence, the Carriage of Goods by Sea Act, a special law, is merely suppletory to
the provisions of the Civil Code.

2. Actual collision occurring in foreign waters immaterial

Herein, it has been established that the goods in question are transported from San Francisco,
California and Tokyo, Japan to the Philippines and that they were lost or damaged due to a collision which
was found to have been caused by the negligence or fault of both captains of the colliding vessels. Under the
above ruling, it is evident that the laws of the Philippines will apply, and it is immaterial that the collision
actually occurred in foreign waters, such as Ise Bay, Japan.

3. Extraordinary diligence required of common carriers; Negligence presumed

Under Article 1733 of 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 the goods and for
the safety of the passengers transported by them according to all circumstances of each case. Accordingly,
under Article 1735 of the same Code, in all cases other than those mentioned is Article 1734 thereof, the
common carrier shall be presumed to have been at fault or to have acted negligently, unless it proves that it
has observed the extraordinary diligence required by law.
4. Collision does not fall under matters regulated by Civil Code; Application of Article 826 to 839
of the Code of Commerce proper
The collision, however, falls among matters not specifically regulated by the Civil Code, so that no
reversible error can be found in the lower court’s application to the present case of Articles 826 to 839, Book
Three of the Code of Commerce, which deal exclusively with collision of vessels.

5. Articles 826 and 827 of the Code of Commerce; Liability of owner either when imputable to the
personnel of the vessel or imputable to both vessels
Article 826 of the Code of Commerce provides that where collision is imputable to the personnel of a
vessel, the owner of the vessel at fault, shall indemnify the losses and damages incurred after an expert
appraisal. But more in point to the instant case is Article 827 of the same Code, which provides that if the
collision is imputable to both vessels, each one shall suffer its own damages and both shall be solidarily
responsible for the losses and damages suffered by their cargoes.

6. Primary liability of shipowner on occasion of collision due to fault of captain

Under the provisions of the Code of Commerce, particularly Articles 826 to 839, the shipowner or
carrier, is not exempt from liability for damages arising from collision due to the fault or negligence of the
captain. Primary liability is imposed on the shipowner or carrier in recognition of the universally accepted
doctrine that the shipmaster or captain is merely the representative of the owner who has the actual or
constructive control over the conduct of the voyage (Yeung Sheng Exchange and Trading Co. v. Urrutia &
Co., 12 Phil. 751 [1909]).

7. Code of Commerce applies both to domestic and foreign trade; COGSA does not repeal nor
limit Code of Commerce’s application
The Code of Commerce applies not only to domestic trade but also foreign trade. Aside from the fact
that the Carriage of Goods by Sea Act (Commonwealth Act 65) does not specifically provide for the subject
of collision, said Act in no uncertain terms, restricts its application “to all contracts for the carriage of goods
by sea to and from Philippine ports in foreign trade.” Under Section 1 thereof, it is explicitly provided that
“nothing in this Act shall be construed as repealing any existing provision of the Code of Commerce which is
now in force, or as limiting its application.” By such incorporation, it is obvious that said law not only
recognizes the existence of the Code of Commerce, but more importantly does not repeal nor limit its
application.

8. DISC a subrogee, has a right of action against MCP

Herein, Riverside Mills Corporation and Guilcon, Manila are the holders of the duly endorsed bills of
lading covering the shipments in question and an examination of the invoices in particular, shows that the
actual consignees of the said goods are the aforementioned companies. Moreover, no less than MCP itself
issued a certification attesting to this fact. Accordingly, as it is undisputed that the insurer, DISC paid the total
amount of P364,915.86 to said consignees for the loss or damage of the insured cargo, it is evident that DISC
has a cause of action to recover (what it has paid) from MCP.

9. MCP an agent; Agency broad enough to include shipagent in maritime law

The Memorandum Agreement of 13 September 1962 shows that NDC appointed MCP as Agent, a
term broad enough to include the concept of Ship-agent in Maritime Law. In fact, MCP was even conferred
all the powers of the owner of the vessel, including the power to contract in the name of the NDC.
Consequently, under the circumstances, MCP cannot escape liability.

10. Owner and agent of offending vessel liable when both are impleaded
It is well settled that both the owner and agent of the offending vessel are liable for the damage done
where both are impleaded (Philippine Shipping Co. v. Garcia Vergara, 96 Phil. 281 [1906]); that in case of
collision, both the owner and the agent are civilly responsible for the acts of the captain (Yueng Sheng
Exchange and Trading Co. v. Urrutia & Co., supra citing Article 586 of the Code of Commerce; Standard Oil
Co. of New York v. Lopez Castelo, 42 Phil. 256, 262 [1921]); that while it is true that the liability of the
naviero in the sense of charterer or agent, is not expressly provided in Article 826 of the Code of Commerce,
it is clearly deducible from the general doctrine of jurisprudence under the Civil Code but more specially as
regards contractual obligations in Article 586 of the Code of Commerce. Moreover, the Court held that both
the owner and agent (Naviero) should be declared jointly and severally liable, since the obligation which is
the subject of the action had its origin in a tortious act and did not arise from contract (Verzosa and Ruiz,
Rementeria y Cia v. Lim, 45 Phil. 423 [1923]). Consequently, the agent, even though he may not be the owner
of the vessel, is liable to the shippers and owners of the cargo transported by it, for losses and damages
occasioned to such cargo, without prejudice, however, to his rights against the owner of the ship, to the extent
of the value of the vessel, its equipment, and the freight (Behn, Meyer Y Co. v. McMicking et al. 11 Phil. 276
[1908]).

11. Value of goods declared in bills of lading, liability of MCP not limited to P200 per package or
per bale of raw cotton as stated in paragraph 17 of bill of lading
The declared value of the goods was stated in the bills of lading and corroborated no less by invoices
offered as evidence during the trial. Besides, common carriers, in the language of the court in Juan Ysmael &
Co., Inc. v. Barretto et al., (51 Phil. 90 [1927]) “cannot limit its liability for injury to a less of goods where
such injury or loss was caused by its own negligence.” Negligence of the captains of the colliding vessel
being the cause of the collision, and the cargoes not being jettisoned to save some of the cargoes and the
vessel, the trial court and the Court of Appeals acted correctly in not applying the law on averages (Articles
806 to 818, Code of Commerce).

12. Action not prescribed; Section 3 (6)

The bills of lading issued allow trans-shipment of the cargo, which simply means that the date of
arrival of the ship Doña Nati on 18 April 1964 was merely tentative to give allowances for such contingencies
that said vessel might not arrive on schedule at Manila and therefore, would necessitate the trans-shipment of
cargo, resulting in consequent delay of their arrival. In fact, because of the collision, the cargo which was
supposed to arrive in Manila on 18 April 1964 arrived only on June 12, 13, 18, 20 and July 10, 13 and 15,
1964. Hence, had the cargoes in question been saved, they could have arrived in Manila on the said dates.
Accordingly, the complaint was filed on 22 April 1965, i.e. long before the lapse of 1 year from the date the
lost or damaged cargo “should have been delivered” in the light of Section 3, sub-paragraph (6) of COGSA.

[41], also [58]

Ganzon vs. CA (GR L-48757, 30 Mary 1988)

Second Division, Sarmiento (J): 3 concur

Facts: On 28 November 1956, Gelacio Tumambing contracted the services of Mauro B. Ganzon to haul 305
tons of scrap iron from Mariveles, Bataan, to the port of Manila on board the lighter LCT “Batman.” Pursuant
to this agreement, Mauro B. Ganzon sent his lighter “Batman” to Mariveles where it docked in 3 feet of
water. On 1 December 1956, Gelacio Tumambing delivered the scrap iron to Filomeno Niza, captain of the
lighter, for loading which was actually begun on the same date by the crew of the lighter under the captain’s
supervision. When about half of the scrap iron was already loaded, Mayor Jose Advincula of Mariveles,
Bataan, arrived and demanded P5,000.00 from Gelacio Tumambing. The latter resisted the shakedown and
after a heated argument between them, Mayor Jose Advincula drew his gun and fired at Gelacio Tumambing.
The gunshot was not fatal but Tumambing had to be taken to a hospital in Balanga, Bataan, for treatment.
After sometime, the loading of the scrap iron was resumed. But on 4 December 1956, Acting Mayor Basilio
Rub, accompanied by 3 policemen, ordered captain Filomeno Niza and his crew to dump the scrap iron where
the lighter was docked. The rest was brought to the compound of NASSCO. Later on Acting Mayor Rub
issued a receipt stating that the Municipality of Mariveles had taken custody of the scrap iron.
Tumambing instituted in the CFI of Manila an action against Ganzon for damages based on culpa contractual.
The trial court rendered a decision absolving Ganzon from liability. On appeal, however, the appellate court
reversed and set aside the decision appealed from, and entered a new one ordering Ganzon to pay Tumambing
the sum of P5,895.00 as actual damages, the sum of P5,000.00 as exemplary damages, and the amount of
P2,000.00 as attorney’s fees; with costs against Ganzon. Hence, the petition for review on certiorari.

The Supreme Court denied the petition, and affirmed the assailed decision of the Court of Appeals; with costs
against Ganzon; the decision being immediately executory.

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

2. Loss not due to any cause enumerated in Article 1734 of the Civil Code
Herein, Ganzon has failed to show that the loss of the scraps was due to any of the following causes
enumerated in Article 1734 of the Civil Code, namely: (1) Flood, storm, earthquake, lightning, or other
natural disaster or calamity; (2) Act of the public enemy in war, whether international or civil; (3) Act or
omission of the shipper or owner of the goods; (4) The character of the goods or defects in the packing or in
the containers; and (5) Order or act of competent public authority.

3. Negligence presumed; Burden of proof to prove otherwise

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

4. Order by competent authority must be valid, to allow carrier’s absolution from liability as per
caso fortuito
Before Ganzon could be absolved from responsibility on the ground that he was ordered by
competent public authority to unload the scrap iron, it must be shown that Acting Mayor Basilio Rub had the
power to issue the disputed order, or that it was lawful, or that it was issued under legal process of authority.
The appellee failed to establish this. Indeed, no authority or power of the acting mayor to issue such an order
was given in evidence. Neither has it been shown that the cargo of scrap iron belonged to the Municipality of
Mariveles. What we have in the record is the stipulation of the parties that the cargo of scrap iron was
accumulated by the appellant through separate purchases here and there from private individuals. The fact
remains that the order given by the acting mayor to dump the scrap iron into the sea was part of the pressure
applied by Mayor Jose Advincula to shakedown Tumambing for P5,000.00. The order of the acting mayor did
not constitute valid authority for Ganzon and his representatives to carry out.

5. The intervention of the municipal officials was not of a character that would render impossible
the fulfillment by the carrier of its obligation
 The intervention of the municipal officials was not of a character that would render impossible the
fulfillment by the carrier of its obligation. Herein, Ganzon was not duty bound to obey the illegal order to
dump into the sea the scrap iron. Moreover, there is absence of sufficient proof that the issuance of the same
order was attended with such force or intimidation as to completely overpower the will of the petitioner’s
employees. The mere difficulty in the fulfillment of the obligation is not considered force majeure. The scraps
could have been properly unloaded at the shore or at the NASSCO compound, so that after the dispute with
the local officials concerned was settled, the scraps could then be delivered in accordance with the contract of
carriage.

6. No incompatibility between Civil Code provisions on common carriers and Articles 361 and 362
of the Code of Commerce; Article 1733 NCC modified Article 352 as to degree of diligence required of
carrier
There is no incompatibility between the Civil Code provisions on common carriers and Articles 361
and 362 of the Code of Commerce which were the basis for the Court’s ruling in Government of the
Philippine Islands vs. Ynchausti & Co. and which Ganzon invokes in the petition. For Article 1735 of the
Civil Code, conversely stated, means that the shipper will suffer the losses and deterioration arising from the
causes enumerated in Article 1734; and in these instances, the burden of proving that damages were caused
by the fault or negligence of the carrier rests upon him. However, the carrier must first establish that the loss
or deterioration was occasioned by one of the excepted causes or was due to an unforeseen event or to force
majeure. Be that as it may, insofar as Article 362 appears to require of the carrier only ordinary diligence, the
same is deemed to have been modified by Article 1733 of the Civil Code.

7. Findings on actual and exemplary damages not disturbed

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

[42]

Mirasol vs. Robert Dollar Co. (GR 29721, 27 March 1929)

Second Division, Johns (J): 5 concur

Facts: Amando Mirasol alleged that he is the owner and consignee of two cases of books shipped in good
order and condition at New York, USA, on board Robert Dollar Co.’s steamship President Garfield, for
transport and delivery to Mirasol in the City of Manila, all freight charges paid; that the two cases arrived in
Manila on 1 September 1927, in bad order and damaged condition, resulting in the total loss of one case and a
partial loss of the other; that the loss in one case is P1,630, and the other P700, for which he filed his claims,
and Robert Dollar has refused and neglected to pay, giving as its reason that the damage in question “was
caused by sea water”; that Mirasol never entered into any contract with the Robert Dollar limiting the latter’s
liability as a common carrier, and when he wrote the letter of 3 September 1927, he had not then ascertained
the contents of the damaged case, and could not determine their value; that he never intended to ratify or
confirm any agreement to limit the liability of the defendant; and that on 9 September 1927, when the other
case was found, Mirasol filed a claim for the real damage of the books therein named in the sum of $375.
Mirasol prayed for corresponding judgment, with legal interest from the filing of the complaint and costs.

For answer, Robert Dollar made a general and specific denial, and as a separate and special defense alleged
that the steamship President Garfield at all the times alleged was in all respects seaworthy and properly
manned, equipped and supplied, and fit for the voyage; that the damage to Robert Dollar’s merchandise, if
any, was not caused through the negligence of the vessel, its master, agent, officers, crew, tackle or
appurtenances, nor by reason of the vessel being unseaworthy or improperly manned, “but that such damage,
if any, resulted from faults or errors in navigation or in the management of said vessel.” As a second separate
and special defense, Robert Dollar alleged that in the bill of lading, it was agreed in writing that Robert Dollar
should not be “held liable for any loss of, or damage to, any of said merchandise resulting from any of the
following causes, to wit: Acts of God, perils of the sea or other waters,” and that Mirasol’s damage, if any,
was caused by “Acts of God” or “perils of the sea.” As a third special defense, Robert Dollar quoted clause 13
of the bill of lading, in which it is stated that in no case shall it be held liable “for or in respect to said
merchandise or property beyond the sum of 250 dollars for any piece package or any article not enclosed in a
package, unless a higher value is stated herein and ad valorem freight paid or assessed thereon,” and that there
was no other agreement; that on 3 September 1927 Mirasol wrote Robert Dollar a letter which reads
“Therefore, I wish to file claim of damage to the meager maximum value that your bills of lading will
indemnify me, that is $250 as per condition 13.” As a fourth special defense, Robert Dollar alleged that the
damage, if any, was caused by “sea water,” and that the bill of lading exempts defendant from liability for that
cause. That damage by “sea water” is a shipper’s risk, and that Robert Dollar is not liable. As a result of the
trial upon such issues, the lower court rendered judgment for Mirasol for P2,080, with legal interest thereon
from the date of the final judgment, with costs. Both parties appealed.

The Supreme Court modified the judgment of the lower court, so as to give Mirasol legal interest on the
amount of his judgment from the date of its rendition in the lower court, and in all other respects affirmed,
with costs.

1. Mirasol entitled to P400, not P700, for his Encyclopedia Britannica

The evidence shows that with the P400 (not P700 as claimed) which the court allowed, Mirasol could
buy a new set of Encyclopedia Britannica which would contain all of the material and subject matter of the
one which he lost.

2. Mirasol entitled to legal interest from date of judgment rendered by lower court
Under all of the authorities, Mirasol is entitled to legal interest from the date of his judgment rendered
in the lower court and not the date when it becomes final.

3. Worth of damage sustained by evidence; Manner of proving proper

The lower court found that Mirasol’s damage was P2,080, and that finding is sustained by the
evidence. There was a total loss of one case and a partial loss of the other, and in the very nature of things,
Mirasol could not prove his loss in any other way or manner than he did prove it, and the trial court who
heard him testify must have been convinced of the truth of his testimony.

4. Mirasol not legally bound by clause limiting the carrier’s liability

There is no claim or pretense that Mirasol signed the bill of lading or that he knew of its contents at
the time it was issued. In that situation he was not legally bound by the clause which purports to limit Robert
Dollar’s liability. That question was squarely met and decided by the Supreme Court in banc in Juan Ysmael
& Co., vs. Gabino Barretto & Co. (51 Phil., 90; see numerous authorities there cited).

5. Restriction of liability of steamship company against own negligence against public policy; Case
of The Kesington applies
Restrictions of the liability of a steamship company for its own negligence or failure of duty toward a
passenger, being against the public policy enforced by the courts of the United States, will not be upheld,
though the ticket was issued and accepted in a foreign country and contained a condition making it subject to
the law thereof, which sustain such stipulations. A stipulation in a steamship passenger’s ticket, which
compels him to value his baggage, at a certain sum, far less than it is worth, or, in order to have a higher value
put upon it, to subject it to the provisions of the Harter Act, by which the carrier would be exempted from all
liability therefor from errors in navigation or management of the vessel or other negligence, is unreasonable
and in conflict with public policy. An arbitrary limitation of 250 francs for the baggage of any steamship
passenger, unaccompanied by any right to increase the amount by adequate and reasonable proportional
payment, is void as against public policy.
6. Goods, when delivered to carrier, are under its control and supervision; Burden of proof
against damages shifts to carrier
Shippers who are forced to ship goods on an ocean liner or any other ship have some legal rights, and
when goods are delivered on board ship in good order and condition, and the shipowner delivers them to the
shipper in bad order and condition, it then devolves upon the shipowner to both allege and prove that the
goods were damaged by reason of some fact which legally exempts him from liability; otherwise, the shipper
would be left without any redress, no matter what may have caused the damage. Herein, Robert Dollar having
received the two boxes in good condition, its legal duty was to deliver them to Mirasol in the same condition
in which it received them. From the time of their delivery to Robert Dollar in New York until they were
delivered to Mirasol in Manila, the boxes were under the control and supervision of Robert Dollar and beyond
the control of Mirasol. Robert Dollar having admitted that the boxes were damaged while in transit and in its
possession, the burden of proof then shifted, and it devolved upon Robert Dollar to both allege and prove that
the damage was caused by reason of some fact which exempted it from liability. As to how the boxes were
damaged, when or where, was a matter peculiarly and exclusively within the knowledge of Robert Dollar, and
in the very nature of things could not be in the knowledge of Mirasol. To require Mirasol to prove as to when
and how the damage was caused would force him to call and rely upon the employees of Robert Dollar’s ship,
which in legal effect would be to say that he could not recover any damage for any reason. That is not the
law.

7. Article 361 of the Code of Commerce

Merchandise shall be transported at the risk and venture of the shipper, if the contrary was not
expressly stipulated. Therefore, all damages and impairment suffered by the goods during the transportation,
by reason of accident, force majeure, or by virtue of the nature or defect of the articles, shall be for the
account and risk of the shipper. The proof of these accidents is incumbent on the carrier.”

8. Damage by “sea water” not evidence that goods damaged by force majeure; Perils of sea
The fact that the cases were damaged by “sea water,” standing alone and within itself, is not evidence
that they were damaged by force majeure or for a cause beyond the carrier’s control. The words “perils of the
sea” apply to “all kinds of marine casualties, such as shipwreck, foundering, stranding,” and among other
things, it is said: “Tempest rocks, shoals, icebergs and other obstacles are within the expression,” and “where
the peril is the proximate cause of the loss, the shipowner is excused.” “Something fortuitous and out of the
ordinary course is involved in both words ‘peril’ or ‘accident.’”

9. Government vs. Ynchausti not in point

The case of Government of the Philippine Islands vs. Ynchausti & Company (40 Phil., 219) and the
present case are very different and, hence, it is not in point. In the present case, there is no claim or pretense
that the two cases were not in good order when received on board the ship, and it is admitted that they were in
bad order on their arrival at Manila. Hence, they must have been damaged in transit. In the very nature of
things, if they were damaged by reason of a tempest, rocks, icebergs, foundering, stranding or the perils of the
sea, that would be a matter exclusively within the knowledge of the officers of Robert Dollar’s ship, and in
the very nature of things would not be within Mirasol’s knowledge, and upon all of such questions, there is a
failure of proof.

[43]

Eastern Shipping Lines vs. IAC (GR L-69044, 29 May 1987)

Eastern Shipping Lines vs. Nisshin Fire and Marine Insurance Co. (GR L-71478)
First Division, Melencio-Herrera (J): 4 concur

Facts: In GR 69044, sometime in or prior to June 1977, the M/S ASIATICA, a vessel operated by Eastern
Shipping Lines loaded at Kobe, Japan for transportation to Manila, 5,000 pieces of calorized lance pipes in 28
packages valued at P256,039.00 consigned to Philippine Blooming Mills Co., Inc., and 7 cases of spare parts
valued at P92,361.75, consigned to Central Textile Mills, Inc. Both sets of goods were insured against marine
risk for their stated value with Development Insurance and Surety Corporation. In GR 71478, during the same
period, the same vessel took on board 128 cartons of garment fabrics and accessories, in 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 Nisshin Fire &
Marine Insurance Co., for US$46,583.00, and the 2 cases by 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 Insurers paid the corresponding marine insurance values to the consignees
concerned and were thus subrogated unto the rights of the latter as the insured.

[GR 69044] On 11 May 1978, Development Insurance, having been subrogated unto the rights of the two
insured companies, filed suit against Eastern Shipping for the recovery of the amounts it had paid to the
insured before the then Court of First Instance of Manila (Branch XXX, Civil Case 116087). Eastern
Shipping denied liability mainly on the ground that the loss was due to an extraordinary fortuitous event,
hence, it is not liable under the law. On 31 August 1979, the Trial Court rendered judgment in favor of
Development Insurance in the amounts of P256,039.00 and P92,361.75, respectively, with legal interest, plus
P35,000.00 as attorney’s fees and costs. Eastern Shipping took an appeal to the then Court of Appeals which,
on 14 August 1984, affirmed the decision of the trial court. Eastern Shipping filed a petition for review on
certiorari.

[GR 71478] On 16 June 1978, Nisshin, and Dowa, as subrogees of the insured, filed suit against Eastern
Shipping for the recovery of the insured value of the cargo lost with the then Court of First Instance of Manila
(Branch II, Civil Case 116151), imputing unseaworthiness of the ship and non-observance of extraordinary
diligence by Eastern Shipping. Eastern Shipping denied liability on the principal grounds that the fire which
caused the sinking of the ship is an exempting circumstance under Section 4(2) (b) of the Carriage of Goods
by Sea Act (COGSA); and that when the loss of fire is established, the burden of proving negligence of the
vessel is shifted to the cargo shipper. On 15 September 1980, the Trial Court rendered judgment in favor of
Nisshin and Dowa in the amounts of US$46,583.00 and US$11,385.00, respectively, with legal interest, plus
attorney’s fees of P5,000.00 and costs. On appeal by Eastern Shipping, the then Court of Appeals on 10
September 1984, affirmed with modification the Trial Court’s judgment by decreasing the amount recoverable
by Dowa to US$1,000.00 because of $500 per package limitation of liability under the COGSA. Hence, the
petition for review on certiorari by Eastern Shipping.

Both Petitions were initially denied for lack of merit. GR 69044 on 16 January 1985 by the First Division, and
GR 71478 on 25 September 1985 by the Second Division. Upon Eastern Shipping’s Motion for
Reconsideration, however, GR 69044 was given due course on 25 March 1985, and the parties were required
to submit their respective Memoranda, which they have done. On the other hand, in GR 71478, Eastern
Shipping sought reconsideration of the Resolution denying the Petition for Review and moved for its
consolidation with GR 69044, which was then pending resolution with the First Division. The same was
granted; the Resolution of the Second Division of 25 September 1985 was set aside and the Petition was
given due course.

The Supreme Court modified the judgment in GR 69044, in that Eastern Shipping shall pay the Development
Insurance the amount of P256,039 for the 28 packages of calorized lance pipes, and P71,540 for the 7 cases of
spare parts, with interest at the legal rate from the date of the filing of the Complaint on 13 June 1978, plus
P5,000 as attorney’s fees, and the costs. The Court, on the other hand, in GR 71478, affirmed the judgment.

1. Admission of Eastern Shipping as operator of vessel

As a general rule, the facts alleged in a party’s pleading are deemed admissions of that party and
binding upon it. 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. Herein, although Eastern Shipping claimed that it is not the operator of the M/S Asiatica but
merely a charterer thereof, it, in fact, stated in its petition in GR 69044 that “there are about 22 cases of the
‘ASIATICA’ pending in various courts where various plaintiffs are represented by various counsel
representing various consignees or insurance companies. The common defendant in these cases is petitioner
herein, being the operator of said vessel.” Eastern Shipping should thus be held bound to said admission.

2. 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. Herein, as the cargoes in question were transported
from Japan to the Philippines, the liability of Eastern Shipping is governed primarily by the Civil Code.
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. Thus, the Carriage of Goods by Sea Act, a special
law, is suppletory to the provisions of the Civil Code.

3. Common carriers liable for loss; Natural disaster or calamity an exception

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. 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”

4. Fire not a natural disaster or calamity

Easter Shipping claims that the loss of the vessel by fire exempts it from liability under the phrase
“natural disaster or calamity.” However, fire may not be considered a natural disaster or calamity, as it arises
almost invariably from some act of man or by human means. It does not fall within the category of an act of
God unless caused by lightning or by other natural disaster or calamity. It may even be caused by the actual
fault or privity of the carrier.

5. Construction of Article 1680 as to fire as an extraordinary fortuitous event

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 protective policy towards agriculture.

6. Fire not comprehended within exceptions in Article 1734; Carrier presumed at fault unless it
proves otherwise
As the peril of fire is not comprehended within the exceptions in Article 1734, Article 1735 of the
Civil Code provides that in all cases other than those mentioned in Article 1734, the common carrier shall be
presumed to have been at fault or to have acted negligently, unless it proves that it has observed the
extraordinary diligence required by law. Herein, the respective Insurers, as subrogees of the cargo shippers,
have proven that the transported goods have been lost. Eastern Shipping has also proven that the loss was
caused by fire. The burden then is upon Eastern Shipping to prove that it has exercised the extraordinary
diligence required by law. Having failed to discharge the burden of proving that it had exercised the
extraordinary diligence required by law, Eastern Shipping cannot escape liability for the loss of the cargo.

7. Natural disaster must be proximate and only cause of the loss, and that carrier has exercised
due diligence to prevent or minimize loss
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.” Herein, Eastern Shipping has also
failed to establish satisfactorily.
8. Section 4 (2) of COGSA; Relief in COGSA unavailing as Eastern shipping actually at fault due
to lack of diligence
Section 4(2) of COGSA provides that “Neither the carrier nor the ship shall be responsible for loss or
damage arising or resulting from. xxx (b) Fire, unless caused by the actual fault or privity of the carrier. xxx”
Herein, 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 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 Eastern Shipping or its servants were negligent in connection therewith.
Consequently, the complete defense afforded by the COGSA when loss results from fire is unavailing to
Eastern Shipping.

9. Section 4(5) of COGSA

Section 4(5) of the COGSA, 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”

10. Article 1749 NCC

Article 1749 of the New Civil Code also allows the limitations of liability in this wise, “A stipulation
that the common carrier’s liability is limited to the value of the goods appearing in the bill of lading, unless
the shipper or owner declares a greater value, is binding.”

11. Civil Code does not limit liability of common carrier; COGSA suppletory to provisions of Civil
Code
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.

12. Eastern Shipping’s liability should not exceed US$500 per package
In GR 69044, there is no stipulation in the respective Bills of Lading 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, Eastern
Shipping’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.”

13. Actual liability of Eastern Shipping in GR 69044

In GR 69044, (1) the actual total loss for the 5,000 pieces of calorized lance pipes was P256,039,
which was exactly the amount of the insurance coverage by Development Insurance, and the amount affirmed
to be paid by the Court. The goods were shipped in 28 packages. 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 amount of P256,039 should be
upheld. (2) With respect to the 7 cases of spare parts, their actual value was P92,361.75, which is likewise the
insured value of the cargo and which amount was affirmed to be paid by the Court. However, multiplying 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 Eastern Shipping for those spare parts, and not
P92,361.75.

14. Actual liability of Eastern Shipping in GR 71478

In GR 71478, in so far as the 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 2 containers and insured
with Nisshin, the Appellate Court also limited Eastern Shipping’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. The 128 cartons and not the 2 containers
should be considered as the shipping unit.

15. Mitsui vs. American Export Lines

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].

16. Courts to construe and apply statute as enacted; Congress alone must be the one to modernize
or reconstitute it
The approach 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 they were carrier-owned and
supplied — would amount to just such a distortion.

17. Individual crates or cartons considered packages although in a carrier’s containers

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 showed in
a carrier’s container. These containers are likened 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.

18. Yeramex Internation vs. SS Tando (US)

In Yeramex International v. S.S. Tando, 1977 A.M.C. 1807 (E.D. Va.), rev’d on other grounds, 595 F
2d 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.

19. Smithgreyhound vs. M/V Eurygenes (US)

The case of Smithgreyhound v. M/V Eurygenes followed the Mitsui test, holding therein “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.”

20. Bill of lading disclosed contents of containers; Mitsui and Eurygenes cases applied
Considering 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 2 containers should be considered as the shipping unit subject to the
$500 limitation of liability.

21. “Say: Two (2) Containers Only” construed; Obscure words or stipulations in contract
construed against party who caused obscurity, especially in a contract of adhesion
In light of the stipulation in fine print in the dorsal side of the Bill of lading (“[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 use of the estimate “Say: Two (2) Containers Only” in the Bill of Lading, means that the
goods could probably fit in 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. 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, which is drawn up by the carrier.

22. No Denial of Opportunity to Present Deposition of Its Witnesses (in GR 69044 only); What due
process abhors
Herein, Eastern Shipping was given full opportunity to present its evidence but it failed to do so.
Since after 6 November 1978, to 27 August 1979, not to mention the time from 27 June 1978, when its
answer was prepared and filed in Court, until 26 September 1978, when the pre-trial conference was
conducted for the last time, Eastern Shipping had more than 9 months to prepare its evidence. Its belated
notice to take deposition on written interrogatories of its witnesses in Japan, served upon Development
Insurance on August 25th, just two days before the hearing set for August 27th, knowing fully well that it was
its undertaking on July 11th 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 Eastern Shipping’s motion for postponement, for
which reason it deserves no sympathy from the Court in that regard. Eastern Shipping has told the Court since
16 February 1979, that it was going to take the deposition of its witnesses in Japan. Why did it take until 25
August 1979, or more than 6 months, to prepare its written interrogatories. Only Eastern Shipping itself is to

Transportation Law, 2004 (

111 )
blame for its failure to adduce evidence in support of its defenses. Thus, Eastern Shipping was afforded ample
time to present its side of the case. 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.

23. Award of Attorney’s Fees

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 GR 69044. The award of P5,000.00 in GR 71478 was
affirmed.

[44]

Kui Pai & Co. vs. Dollar Steamship Line (GR 30019, 2 March 1929)
En Banc, Johns (J): 7 concur

Facts: Kui Pai & Co. (a limited mercantile partnership) alleged that about 12 April 1927, Mee Hing Chan of
Hongkong shipped and delivered to Dollar Steamship (a foreign corporation licensed to do business in the
Philippine Islands and engaged in the operation of ocean ships) in Hongkong on board its ship President Taft,
goods, wares and merchandise in good order and condition, consigned to Kui Pai; that Dollar Steamshop
received and accepted said merchandise, for which it issued the corresponding bill of lading, and agreed to
deliver it Kui Pai in Manila. Dollar Steamship failed and neglected to deliver 2 cases of the goods; that Kui
Pai has paid all freight charges to Dollar Steamship; that it has repeatedly demanded the delivery of the
merchandise, and that it has never been delivered; that as shown by the records of the Manila Terminal
Company of Manila, the two packages or cases lost or missing were never landed in Manila from the
President Taft; that through such loss and failure to deliver, Kui Pai has been damaged in the sum of
P11,734.15, which is the net invoice value of the goods, plus freight and profit, for which demand has been
made and payment refused. Kui Pai prays for a corresponding judgment, with interest from April 14,1927,
and costs.

For answer, Dollar Steamship made a general and specific denial, and as a first special defense alleges that
about 14 April 1927, in the City of Manila, Dollar Steamship tendered to Kui Pai “the six identical cases
shipped by Mee Hing Chan and covered by the Bill of Lading,” but that Kui Pai accepted and took delivery of
only 4, and refused and refuses to accept delivery of the other 2, and in its fourth special defense alleges that
at Hongkong on 12 April 1927, when the cases were brought aboard the President Taft, they were measured
by the Official Measure’s Office at Hongkong, which certified that the 3 packages contained 68 cubic feet,
and that the weight of the 3 packages was 996 pounds only, and that the measurements of the two cases of
piece goods described in the certificate, 3/6 by 3/5 by 2/3, specifically refer to the identical two cases now
claimed by Kui Pai. Dollar Steamship pleads 11 separate defenses, the substance of which is that it tendered
to Kui Pai the identical 6 cases which were placed on board Dollar Steamship’s ship at Hongkong. As a result
of the trial upon such issues, the lower court rendered judgment for Dollar Steamship, from which Kui Pai
appealed.

The Supreme Court affirmed the judgment of the lower court, with costs.

1. When liability of a carrier begins

The liability of the carrier shall begin from the moment he receives the merchandise, in person or
through a person entrusted thereto in the place indicated for their reception. (Art. 355, Code of Commerce.)

2. Liability (responsibility) of a carrier

The carrier shall be obliged to deliver the goods transported in the same condition in which,
according to the bill of lading, they were at the time of their receipt, without any detriment or impairment,
and
should he not do so, he shall be obliged to pay the value of the goods not delivered at the point where they
should have been and at the time the delivery should have taken place. (Art. 363, Code of Commerce).

3. Exceptions to liability by carrier

Consequently the law, proceeding on the moral principle of prudent prevention, cut off from the
carrier all temptation of pecuniary gain and made him absolutely liable with the exception of causes for which
he could not be supposed to be responsible — namely the act of God or the public enemy. (4 R. C. L., 700.)

4. When liability of a carrier ends

The relation of carrier endures from the shipment of the goods until their arrival at their destination,
and continues after the arrival of the goods at their destination until they are ready to be delivered at the usual
place of delivery, and the owner or consignee has a reasonable opportunity, during the hours when such
goods are usually delivered there, of examining them sufficiently to judge from their outward appearance of
their identity, and whether they are in proper condition, and to take them away. (4 R. C. L., 548.)

5. Article 1602 NCC

Article 1602 of the Civil Code provides that “Carriers are also liable for the loss of and damage to the
things which they receive, unless they prove that the loss or damage arose from a fortuitous event or force
majeure.”

6. Boxes tendered to Kui Pai

It is conceded that six boxes or cases consigned to Kui Pai were delivered to Dollar Steamship in
Hongkong to be shipped to Manila. It is also conceded that at the time of delivery, the boxes were measured
as to their width, length and depth, and that the boxes which Dollar Steamship delivered and tendered to Kui
Pai are each exact in their respective measurements with those which Dollar Steamship received on board of
its ship in Hongkong, and the trial court found as a fact that the six boxes were originally marked “K. P.,” and
that the marks on two of them have been changed.

7. K. P. markings changed to R. B.; Alteration evident

The evidence is clear and convincing that the two identical cases KP 3 and 4 were delivered from
hold 9 of the ship on to pier 7 at Manila. These two cases were offered in evidence. On each, the marks
appear on three sides of each case; thus there are six separate and distinct marks on these two exhibits. The
marks are in green ink or paint. Without the aid of a magnifying glass but by ocular inspection, it is perfectly
clear and indisputable that the six letters K have been changed or altered to R and the letters P to B and that
the numeral 1 has been placed in front of the numerals 3 and 4 so as to give them the appearance of 13 and
14, but it is to be observed that the numeral 1 is omitted from one of the three sides of each. The changes or
alterations in the lettering and the addition of the numeral 1 are very crude, to say the least. The ink or paint
used in making the changes is not of the same shade of green as the original letters and numerals. No one can
possibly be deceived by the changes or alterations and additions. The court is convinced that the original
markings, formerly read KP, 3 and 4 and that they were changed, altered and added to so as to now read RB
13 and 14, except, as previously observed, that the numeral 1 is omitted on one side of each of said cases.

8. No port of call between Hongkong and Manila; Cargo of ship tallies with bills of lading issued
It is a matter of common knowledge that there is no port of call between Hongkong and Manila, and
it appears from the records, which are confirmed by the testimony of the checker at the time the ship was
unloaded and that of the Manila Terminal Company, that the cargo of the ship exactly tallies with the bills of
lading which were issued by Dollar Steamship, as to the number of pieces, boxes or cases in the cargo. That is
to say, that the number of pieces of cargo on board the ship, which were to be delivered at Manila, including
the two boxes in question, correspond exactly with the number of pieces or cargo found on the ship at the
time it was unloaded in Manila. The evidence for Kui Pai shows that the six boxes were placed in hold 9 of
the ship in Hongkong, and that upon its arrival in Manila, six boxes of the same cubical contents were taken
out
of that same hold. Hence, it must follow that, in the very nature of things, the contents of two of those boxes
could not be taken out and replaced with Chinese cigarette papers after Dollar Steamship’s ship left
Hongkong and while in transit to Manila, and that the short change artist must have appeared on the scene in
Hongkong.

[45], also [118]

Compania Maritima vs. Insurance Co. of North America (GR L-18965, 30 October 1964)
En Banc, Bautista Angelo (J): 10 concur

Facts: Sometime in October, 1952, Macleod and Company of the Philippines contracted by telephone the
services of the Compañia Maritima, a shipping corporation, for the shipment of 2,645 bales of hemp from the
former’s Sasa private pier at Davao City to Manila and for their subsequent transshipment to Boston,
Massachusetts, USA on board the S.S. Steel Navigator. This oral contract was later on confirmed by a formal
and written booking issued by Macleod’s branch office in Sasa and hand carried to Compañia Maritima’s
branch office in Davao in compliance with which the latter sent to Macleod’s private wharf LCT 1023 and
1025 on which the loading of the hemp was completed on 29 October 1952. These two lighters were manned
each by a patron and an assistant patron. The patron of both barges issued the corresponding carrier’s receipts
and that issued by the patron of Barge 1025. Thereafter, the 2 loaded barges left Macleod’s wharf and
proceeded to and moored at the government’s marginal wharf in the same place to await the arrival of the S.S.
Bowline Knot belonging to Compañia Maritima on which the hemp was to be loaded. During the night of 29
October 1952, or at the early hours of October 30, LCT 1025 sank resulting in the damage or loss of 1,162
bales of hemp loaded therein. On 30 October 1952, Macleod promptly notified the carrier’s main office in
Manila and its branch in Davao advising it of its liability. The damaged hemp was brought to Odell Plantation
in Madaum, Davao, for cleaning, washing, reconditioning, and redrying. During the period from November 1-
15, 1952, the carrier’s trucks and lighters hauled from Odell to Macleod at Sasa a total of 2,197.75 piculs of
the reconditioned hemp out of the original cargo of 1,162 bales weighing 2,324 piculs, which had a total of
P116,835.00. After reclassification, the value of the reconditioned hemp was reduced to P84,887.28, or a loss
in value of P31,947.72. Adding to this last amount the sum of P8,863.30 representing Macleod’s expenses in
checking, grading, rebaling, and other fees for washing, cleaning and redrying in the amount of P19,610.00,
the total loss adds up to P60,421.02. All abaca shipments of Macleod, including the 1,162 bales loaded on the
carrier’s LCT 1025, were insured with the Insurance Company of North America against all losses and
damages. In due time, Macleod filed a claim for the loss it suffered as above stated with said insurance
company, and after the same had been processed, the sum of P64,018.55 was paid, which was noted down in a
document which, aside from being a receipt of the amount paid, was a subrogation agreement between
Macleod and the insurance company wherein the former assigned to the latter its rights over the insured and
damaged cargo.

Having failed to recover from the carrier the sum of P60,421.021, which is the only amount supported by
receipts, the insurance company instituted the action on 28 October 1953. After trial, the court a quo rendered
judgment ordering the carrier to pay the insurance company the sum of P60,421.02, with legal interest
thereon from the date of the filing of the complaint until fully paid, and the costs. This judgment was affirmed
by the Court of Appeals on 14 December 1960. Hence, the petition for review.

The Supreme Court affirmed the decision appealed from, with costs against Compania Maritima.

1. Contract of carriage exists

Herein, Macleod and Company contracted by telephone the services of petitioner to ship the hemp in
question from the former’s private pier at Sasa, Davao City, to Manila, to be subsequently transshipped to
Boston, Massachusetts, U.S.A., which oral contract was later confirmed by a formal and written booking
issued by the shipper’s branch office, Davao City, in virtue of which the carrier sent two of its lighters to
undertake the service. It also appears that the patrons of said lighters were employees of the carrier with due
authority to undertake the transportation and to sign the documents that may be necessary therefor so much so
that the patron of LCT 1025 signed the receipt covering the cargo of hemp loaded therein.

2. The fact that the carrier sent its lighters free of charge does not impair the contract of carriage
The fact that the carrier sent its lighters free of charge to take the hemp from Macleod’s wharf at Sasa
preparatory to its loading unto the ship Bowline Knot does not in any way impair the contract of carriage
already entered into between the Carrier and the shipper, for that preparatory steps is but a part and parcel of
said contract of carriage. The lighters were merely employed as the first step of the voyage, but once that step
was taken and the hemp delivered to the carrier’s employees, the rights and obligations of the parties attached
thereby subjecting them to the principles and usages of the maritime law. In other words, there is a complete
contract of carriage the consummation of which has already begun: the shipper delivering the cargo to the
carrier, and the latter taking possession thereof by placing it on a lighter manned by its authorized employees,
under which Macleod became entitled to the privilege secured to him by law for its safe transportation and
delivery, and the carrier to the full payment of its freight upon completion of the voyage.

3. When contract of carriage begins

The receipt of goods by the carrier has been said to lie at the foundation of the contract to carry and
deliver, and if actually no goods are received there can be no contract. The liability and responsibility of the
carrier under a contract for the carriage of goods commence on their actual delivery to, or receipt by, the
carrier or an authorized agent and delivery to a lighter in charge of a vessel for shipment on the vessel, where
it is the custom to deliver in that way, is a good delivery and binds the vessel receiving the freight, the liability
commencing at the time of delivery to the lighter and, similarly, where there is a contract to carry goods from
one port to another, and they cannot be loaded directly on the vessel, and lighters are sent by the vessel to
bring the goods to it, the lighters are for the time its substitutes, so that the bill of lading is applicable to the
goods as soon as they are placed on the lighters.”

4. Test whether relation of shipper and carrier had been established

The test as to whether the relation of shipper and carrier had been established is, had the control and
possession of the cotton been completely surrendered by the shipper to the railroad company? Whenever the
control and possession of goods passes to the carrier and nothing remains to be done by the shipper, then it
can be said with certainty that the relation of shipper and carrier has been established.

5. Contract of affreightment commenced even if the hemp was not actually loaded on S.S. Bowline
Knot
The claim that there can be no contract of affreightment because the hemp was not actually loaded on
the ship that was to take it from Davao City to Manila is of no moment, for the delivery of the hemp to the
carrier’s lighter is in line with the contract. In fact, the receipt signed by the patron of the lighter that carried
the hemp stated that he was receiving the cargo “in behalf of S.S. Bowline Knot in good order and condition.
“

6. Bill of lading not indispensable to creation of contract of carriage; Martin on Philippine

Commercial Laws
The authorities are to the effect that a bill of lading is not indispensable for the creation of a contract
of carriage. Martin (Philippine Commercial Laws, Vol. II, Revised Edition, pp. 12-13) has written that “As to
issuance of a bill of lading, although Article, 350 of the Code of Commerce provides that ‘the shipper as well
as the carrier of merchandise of goods may mutually demand that a bill of lading be made,’ still, said bill of
lading is not indispensable. ‘As regards the form of the contract of carriage it can be said that provided that
there is a meeting of the minds and from such meeting arise rights and obligations, there should be no
limitations as to form.’ The bill of lading is not essential to the contract, although it may become obligatory
by reason of the regulations of railroad companies, or as a condition imposed in the contract by the agreement
of
the parties themselves. The bill of lading is juridically a documentary proof of the stipulations and conditions
agreed upon by both parties. (Del Viso p. 314-315; Robles vs. Santos, 44 O.G., 2268). In other words, the
Code does not demand, as necessary requisite in the contract of transportation, the delivery of the bill of
lading to the shipper, but gives right to both the carrier and the shipper to mutually demand of each other the
delivery of said bill. (Sp. Sup. Ct. Decision, May 6, 1895).”

7. Bill of lading not indispensable to creation of contract of carriage; 13 C.J.S., p. 288

The liability of the carrier as common carrier begins with the actual delivery of the goods for
transportation, and not merely with the formal execution of a receipt or bill of lading; the issuance of a bill of
lading is not necessary to complete delivery and acceptance. Even where it is provided by statute that liability
commences with the issuance of the bill of lading, actual delivery and acceptance are sufficient to bind the
carrier.

8. Mishap due to lack of adequate precaution or measures, not due to force majeure
The mishap that caused the damage or loss was due, not to force majeure, but to lack of adequate
precaution or measures taken by the carrier to prevent the loss. Aside from the fact that the ill-fated barge had
cracks on its bottom which admitted sea water in the same manner as rain entered “thru tank manholes,”
(barge therefore was not seaworthy); on the night of the nautical accident there was no storm, flood, or other
natural disaster or calamity. The report of marine surveyors (R. J. del Pan & Co., Inc.) attributes the sinking of
LCT 1025 to the non-watertight conditions of various buoyancy compartments.

9. What constitutes a storm

According to Beaufort’s wind scale, a storm has wind velocities of from 64 to 75 miles per hour; and
by Philippine Weather Bureau standards winds should have a velocity of from 55 to 74 miles per hour in order
to be classified as a storm (Northern Assurance Co., Ltd. vs. Visayan Stevedore Transportation Co.). Herein,
winds of 11 miles per hour, although stronger than the average 4.6 miles per hour then prevailing in Davao on
29 October 1952, cannot be classified as storm.

10. Insurance company subrogated to right of shipper; Carrier cannot set up as a defense any
defect in the insurance policy as it was not privy thereto
The insurance company can recover from the carrier as assignee of the owner of the cargo for the
insurance amount it paid to the latter under the insurance contract. Since the Cargo that was damaged was
insured with the insurance company and the latter paid the amount represented by the loss, it is but fair that it
be given the right to recover from the party responsible for the loss. The instant case, therefore, is not one
between the insured and the insurer, but one between the shipper and the carrier, because the insurance
company merely stepped into the shoes of the shipper. And since the shipper has a direct cause of action
against the carrier on account of the damage of the cargo, no valid reason is seen why such action cannot be
asserted or availed of by the insurance company as a subrogee of the shipper. Nor can the carrier set up as a
defense any defect in the insurance policy not only because it is not a privy to it but also because it cannot
avoid its liability to the shipper under the contract of carriage which binds it to pay any loss that may be
caused to the cargo involved therein.

11. Desistance of the carrier from producing the books of accounts of Odell Plantation implies an
admission of the correctness of the statements of accounts contained therein
The act of Compania Maritima in waiving its right to have the books of accounts of Odell Plantation
presented in Court is tantamount to an admission that the statements contained therein are correct and their
verification not necessary because its main defense was that it is not liable for the loss because there was no
contract of carriage between it and the shipper and the loss caused, if any, was due to a fortuitous event.
Hence, under the carrier’s theory, the correctness of the account representing the loss was not so material as
would necessitate the presentation of the books in question. At any rate, even if the books of accounts were
not produced, the correctness of the accounts cannot be disputed for the same is supported by the original
documents on which the entries in said books were based which were presented by the shipper as part of its
evidence. These documents alone sufficiently establish the award of P60,421.02 made in favor of respondent.

12. Insurance company has juridical personality to file suit

With regard to the question concerning the personality of the insurance company to maintain the
action, the Court finds the same of no importance, for the attorney himself of the carrier admitted in open
court that it is a foreign corporation doing business in the Philippines with a personality to file the present
action.

[46] also [- after 158]

Government vs. Inchausti (GR 6957, 14 February 1913)

First Division, Trent (J): 4 concur

Facts: On 3 June 1909, the Government placed aboard Inchausti’s steamer Venus 500 barrels of cement
consigned to the district engineer of the Province of Albay, to be shipped to Tabaco, Albay. The cement, when
placed aboard the steamer in Manila Bay, was in good order and condition. On arrival of the steamer at the
port of Tabaco, Inchausti, through its agents, unloaded the 500 barrels of cement and received a receipt
therefor from the consignee stating that the property had been received in good condition. Subsequently
thereto (the exact time not alleged in the complaint) the consignee discovered that 42 barrels had been broken
open and about half of the cement in each barrel lost, and it is alleged that this loss was due to the careless
handling on the part of Inchausti’s agents. There is no allegation in the complaint showing that either the
Government or the consignee or anyone else representing them made any complaint or demand on Inchausti
at any time prior to the presentation of the complaint, which was filed on 18 February 1911, to be reimbursed
for the loss of the cement. The trial court sustained Inchausti’s demurrer. Hence, the appeal by the
Government.

The Supreme Court affirmed the order appealed from, with costs against the Government.

1. Article 366 of the Code of Commerce

Article 366 of the Code of Commerce reads “within the twenty-four hours following the receipt of the
merchandise a claim may be brought against the carrier on account of damage or average found therein on
opening the packages, provided that the indications of the damage or average giving rise to the claim cannot
be ascertained from the exterior of said packages, in which case said claim would only be admitted on the
receipt of the packages. After the periods mentioned have elapsed, or after the transportation charges have
been paid, no claim whatsoever shall be admitted against the carrier with regard to the condition in which the
goods transported were delivered.”

2. Article 952 (2) of the Code of Commerce

Article 952 (2) of the Code of Commerce reads “the following (actions) shall prescribe after one year:
xxx (2) {paragraph 1} The actions relating to the delivery of the cargo in maritime or land transportation or to
the indemnity for delays and damages suffered by the goods transported, the period of the prescription to be
counted from the day of the delivery of the cargo at the place of its destination, or from the day on which it
should have been delivered according to the conditions of its transportation. {paragraph 2} The actions for
damages or defaults cannot be brought if at the time of the delivery of the respective shipments or within the
twenty-four hours following, when damages which do not appear on the exterior of the packages received are
in question, the proper protests or reservations should not have been made.”

3. Section 67, Act 1792

Section 67 of Act 1792 reads “When public funds or property are shipped from one place to another
and the consignee whether an agent of the Government or otherwise shall accomplish the bill of lading or
receipt therefor without notation thereon of a shortage in or damage to the public property covered by such
bill of lading, such consignee shall be held for the full amount and value of such public property in default of
competent evidence to the contrary satisfactory to the Auditor, a district auditor, or other committee appointed
under the provisions of this Act: Provided, That evidence of the opening or tampering with any package of
public property shall bind the carrier for any shortage or damage that may appear therein, and when notation
is made upon the bill of lading or receipt of such evidence the burden of proof that the shortage or damage
occurred after the shipment left the carrier’s possession shall be upon such carrier.”

4. First paragraph of clause 2 of Article 952 repealed by Section 43 of the Code of Civil Procedure
Section 43 of the Code of Civil Procedure relates to the limitation or prescription of civil actions
other than for the recovery of real property. Such actions must be brought within the periods therein set forth
after the right of action accrues. The first paragraph of clause 2 of article 952 of the Code of Commerce
relates to the same matter as that covered by section 43 of Act 190, and may properly be said to have been
repealed by said section 43.

5. Article 366 and last paragraph of clause 2 of Article 952 not repealed
Article 366 and the last paragraph of clause 2 of article 952 of the Code of Commerce do not relate to
the prescription or limitation of actions. They create conditions precedent to the accruing of the right of action
against carriers for damages caused to merchandise, and have not been repealed by section 43.

6. If right action depends upon a condition precedent, he must allege and prove fulfillment or
excuse for nonfulfillment
If the plaintiff’s right of action depends upon a condition precedent, he must allege and prove the
fulfillment of the condition or a legal excuse for its nonfulfillment. And if he omits such allegation his
declaration, complaint, or petition will be bad on demurrer. (9 Cyc., 699, and cases cited.)

7. History of Section 67, Act 1792

Section 67 first appeared as section 23 of Act 215 under the heading of “Transportation of Property,”
the title of that Act being “An Act establishing and regulating accountability for public property in the
Philippine Archipelago.” The Act as a whole relates solely to the liability of officers of the Government by
reason of the possession of Government funds and other property. This Act, including the section in question,
went through a series of amendments until the section was finally inserted in its present form in the
Accounting Act as section 67.

8. Changes made by Section 67, Act 1792

Section 67 has made no change whatever in the existing law except with respect to the liability of the
consignee as an officer or agent of the Government. A reading of the section that the only part which can by
any possibility be construed as affecting the liability of common carriers is that liability of the consignee. The
latter part of this section makes the carrier liable for any shortage in any package of public property or any
damage thereto upon proof of the opening or tampering with such package, and when a notation is made upon
the bill of lading or receipt of such evidence, the burden of proof that the shortage or damage occurred after
the shipment left the carrier’s possession is upon the carrier.

8. Liability of carrier due to “opening” of package or “tampering” of goods before the passage of
Act 1792
Before the passage of Act 1792, evidence of the “opening” of a package or “tampering” with the
goods delivered to him for transportation made the carrier liable for the loss, provided the required notice was
given in time. And when the fact that the packages in which goods have been received showed evidence of
having been opened or tampered with the time of delivery, and this fact was noted upon the bill of lading, the
burden rested upon the carrier to show that, although the package may have been broken at the time of
delivery, the contents were intact.
9. Repetition of a part of the existing law cannot be construed to repeal by implication unrepealed
parts of the law
The mere repetition in the Act or section of a part of the existing law on the subject of the liability of
common carriers cannot be construed so as to have the effect of repealing by implication the unrepealed parts
of that law in the absence of a clear intention on the part of the Legislature to effect such repeal.

10. Burden of proof when there is annotation of receipt of goods in bad condition; Prescription
The statement that an annotation of the receipt of goods in bad condition on the bill of lading throws
the burden of proof on the carrier to show that they were in fact intact and in good condition at the time of
delivery does involve as a necessary corollary the proposition that when the goods are received and receipted
for as being in good condition, that the shipper can bring an action against the carrier at any time within the
10 years allowed by section 43 of Act 190, within which to sue on an obligation arising from a contract in
writing and recover upon proof that the goods, although receipted for as being in good condition, were really
received to the Code of Commerce is to give the carrier an opportunity to ascertain whether the claim is a
well-founded one before the goods leave his hands with respect to damages which are observable upon the
exterior of the goods or of the packages in which they are contained, and before the goods have been
consumed or their identity destroyed in cases in which it is alleged that the damage has been discovered after
the goods were received by the consignee.

11. Article 366 of the Code of Commerce applicable to maritime transporation

Article 366 of the Code of Commerce is applicable to maritime transportation, as declared in the case
of Cordoba vs. Warner, Barnes & Co. (1 Phil. Rep., 7). The court finds no reason for changing the doctrine
announced in that case.

[47], also [185]

Samar Mining Co. vs. Nordeutscher Lloyd (GR L-28673, 23 October 1984)
Second Division, Cuevas (J): 4 concur, 1 concur in result, 1 took no part

Facts: An importation was made by Samar Mining Co. Inc. of 1 crate Optima welded wedge wire sieves
through the M/S Schwabenstein, a vessel owned by Nordeutscher Lloyd, (represented in the Philippines by its
agent, C.F. Sharp & Co., Inc.), which shipment is covered by Bill of Lading 18 duly issued to consignee
Samar Mining. Upon arrival of the vessel at the port of Manila, the importation was unloaded and delivered in
good order and condition to the bonded warehouse of AMCYL. The goods were however never delivered to,
nor received by, the consignee at the port of destination — Davao. When the letters of complaint sent to
Nordeutscher Lloyd failed to elicit the desired response, Samar Mining filed a formal claim for P1,691.93, the
equivalent of $424.00 at the prevailing rate of exchange at that time, against the former, but neither paid.

Samar Mining filed a suit to enforce payment. Nordeutscher Lloyd and CF Sharp & Co. brought in AMCYL
as third party defendant. The trial court rendered judgment in favor of Samar Mining, ordering Nordeutscher
Lloyd, et. al. to pay the amount of P1,691.93 plus attorney’s fees and costs. However, the Court stated that
Nordeutscher Lloyd, et. al. may recoup whatever they may pay Samar Mining by enforcing the judgment
against third party defendant AMCYL which had earlier been declared in default. Nordeutscher Lloyd and CF
Sharp & Co. appealed from said decision.

The Supreme Court reversed the appealed decision, and dismissed Samar Mining’s complaint; without costs.

1. Nature of bill of lading

The nature of the bill of lading is that it operates both as a receipt for the goods; and more
importantly, as a contract to transport and deliver the same as stipulated therein. Being a contract, it is the law
between the parties thereto, who are bound by its terms and conditions provided that these are not contrary to
law, morals, good customs, public order and public policy.

2. Goods to be transshipped at “port of discharge from ship” (Manila) to “port of discharge of

goods” (Davao)
Bill of Lading 18 sets forth in page 2 thereof that one (1) crate of Optima welded wedge wire sieves
was received by the carrier NORDEUTSCHER LLOYD at the “port of loading” which is Bremen, Germany,
while the freight had been prepaid up to the port of destination or the “port of discharge of goods”, Davao, the
carrier undertook to transport the goods in its vessel, M/S SCHWABENSTEIN, only up to the “port of
discharge from ship” — Manila. Thereafter, the goods were to be transshipped by the carrier to the port of
destination or “port of discharge of goods”. The stipulation is plainly indicated on the face of the bill which
contains the following phrase printed below the space provided for the “port of discharge from ship”, thus, “if
goods are to be transshipped at port of discharge, show destination under the column for `description of
contents.’”

3. Content of” description of contents” in bill of lading

The following words appeared typewritten under the column for “description of contents”: “PORT
OF DISCHARGE OF GOODS: DAVAO FREIGHT PREPAID”

4. Transship defined
The word “transship” means “to transfer for further transportation from one ship or conveyance to
another.”

5. Extent of carrier’s responsibility or liability in transshipment delineated under Section 1

paragraph 3 and Section 11 of the Bill of Lading
The extent of the carrier’s responsibility and/or liability in the transshipment of the goods are spelled
out and delineated under Section 1, paragraph 3 of Bill of Lading 18, to wit “The carrier shall not be liable in
any capacity whatsoever for any delay, loss or damage occurring before the goods enter ship’s tackle to be
loaded or after the goods leave ship’s tackle to be discharged, transshipped or forwarded”; and in Section 11
of the same Bill, which provides that “Wherever the carrier or master may deem it advisable or in any case
where the goods are placed at carrier’s disposal at or consigned to a point where the ship does not expect to
load or discharge, the carrier or master may, without notice, forward the whole or any part of the goods before
or after loading at the original port of shipment, . . . This carrier, in making arrangements for any
transshipping or forwarding vessels or means of transportation not operated by this carrier shall be considered
solely the forwarding agent of the shipper and without any other responsibility whatsoever even though the
freight for the whole transport has been collected by him Pending or during forwarding or transshipping
the carrier may store the goods ashore or afloat solely as agent of the shipper and at risk and expense of the
goods and the carrier shall not be liable for detention nor responsible for the acts, neglect, delay or failure to
act of anyone to whom the goods are entrusted or delivered for storage, handling or any service incidental
thereto”

6. Validity of stipulations exempting carrier from liability for loss of goods not in its actual
custody; Phoenix Assurance Co. vs. US Lines
The validity of stipulations in bills of lading exempting the carrier from liability for loss or damage to
the goods when the same are not in its actual custody has been upheld by the Court in Phoenix Assurance Co.
Ltd. vs. United States Lines, 22 SCRA 674 (1968). Said case matches the present controversy not only as to
the material facts but more importantly, as to the stipulations contained in the bill of lading concerned. As if
to underline their awesome likeness, the goods in question in both cases were destined for Davao, but were
discharged from ship in Manila, in accordance with their respective bills of lading.

7. Applicable law; Law of country of destination

The liability of the common carrier for the loss, destruction or deterioration of goods transported from a
foreign country to the Philippines is governed primarily by the New Civil Code. In all matters not regulated
by said Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and
by special laws.

8. Article 1736 NCC; When responsibility of common carrier lasts

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

9. Article 1738 NCC; When liability of common carrier operative

Article 1738, referred to in Article 1736, provides that “The extraordinary liability of the common
carrier continues to be operative even during the time the goods are stored in a warehouse of the carrier at the
place of destination, until the consignee has been advised of the arrival of the goods and has had reasonable
opportunity thereafter to remove them or otherwise dispose of them.”

10. Article 1738 not applicable

Article 1738 finds no applicability to the present case, as it contemplates a situation where the goods
had already reached their place of destination and are stored in the warehouse of the carrier. The subject
goods were still awaiting transshipment to their port of destination, and were stored in the warehouse of a
third party when last seen and/or heard of.

11. Article 1736 applicable

Article 1736 is applicable to the present case. Under said article, the carrier may be relieved of the
responsibility for loss or damage to the goods upon actual or constructive delivery of the same by the carrier
to the consignee, or to the person who has a right to receive them. In sales, actual delivery has been defined as
the ceding of corporeal possession by the seller, and the actual apprehension of corporeal possession by the
buyer or by some person authorized by him to receive the goods as his representative for the purpose of
custody or disposal. By the same token, there is actual delivery in contracts for the transport of goods when
possession has been turned over to the consignee or to his duly authorized agent and a reasonable time is
given him to remove the goods. Herein, the court a quo found that there was actual delivery to the consignee
through its duly authorized agent, the carrier.

12. Relationship between Samar Mining and the Nordeutscher Lloyd and Sharp as to the
transactions involving transport of goods and transshipment of the same
Two undertakings appeared embodied and/or provided for in the Bill of Lading. The first is FOR
THE TRANSPORT OF GOODS from Bremen, Germany to Manila. The second, THE TRANSSHIPMENT
OF THE SAME GOODS from Manila to Davao, with appellant acting as agent of the consignee. At the
hiatus between these two undertakings of Nordeutscher Lloyd which is the moment when the subject goods
are discharged in Manila, its personality changes from that of carrier to that of agent of the consignee. Thus,
the character of the Nordeutscher Lloyd’s possession also changes, from possession in its own name as
carrier, into possession in the name of consignee as the latter’s agent. Such being the case, there was, in
effect, actual delivery of the goods from Nordeutscher Lloyd as carrier to itself as agent of the consignee.
Upon such delivery, Nordeutscher Lloyd, as erstwhile carrier, ceases to be responsible for any loss or damage
that may befall the goods from that point onwards.

13. Agent not guilty of negligence, deceit or fraud, cannot be held responsible for the failure of the
principal to accomplish the object of the agency
Even as agent of the consignee, Nordeutscher Lloyd cannot be made answerable for the value of the
missing goods. It is true that the transshipment of the goods, which was the object of the agency, was not fully
performed. However, Nordeutscher Lloyd had commenced said performance, the completion of which was
aborted by circumstances beyond its control. An agent who carries out the orders and instructions of the
principal without being guilty of negligence, deceit or fraud, cannot be held responsible for the failure of the
principal to accomplish the object of the agency.

14. Article 1884 NCC

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

15. Article 1889 NCC

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

16. Article 1892 NCC

Article 1892 of the Civil Code provides that “The agent may appoint a substitute if the principal has
not prohibited him from doing so; but he shall be responsible for the acts of the substitute: (1) When he was
not given the power to appoint one; (2) When he was given such power but without designating the person
and the person appointed was notoriously incompetent or insolvent.”

17. Article 1909 NCC

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

18. Discharge of goods in Manila and delivery of the same to the bonded warehouse in full accord
to stipulations in bill of lading; Carrier not liable for loss of goods
In discharging the goods from the ship at the port of Manila, and delivering the same into the custody
of AMCYL, the bonded warehouse, the carriers were acting in full accord with the contractual stipulations
contained in Bill of Lading 18. The delivery of the goods to AMCYL was part of the carriers’ duty to
transship the goods from Manila to their port of destination — Davao. The records fail to reveal proof of
negligence, deceit or fraud committed by Nordeutscher Lloyd or by its representative in the Philippines.
Neither is there any showing of notorious incompetence or insolvency on the part of AMCYL which acted as
appellant’s substitute in storing the goods awaiting transshipment. The actions of the carrier and of its
representative in the Philippines being in full faith with the lawful stipulations of Bill of Lading 18 and in
conformity with the provisions of the New Civil Code on common carriers, agency and contracts, they incur
no liability for the loss of the goods in question.

[48]

Macam vs. CA (GR 125524, 25 August 1999)

Second Division, Bellosillo (J): 3 concur

Facts: On 4 April 1989, Benito Macam, doing business under the name and style Ben-Mac Enterprises,
shipped on board the vessel Nen Jiang, owned and operated by China Ocean Shipping Co., through local
agent Wallem Philippines Shipping, Inc. 3,500 boxes of watermelons valued at US$5,950.00 covered by Bill
of Lading HKG 99012 and exported through Letter of Credit HK 1031/30 issued by National Bank of
Pakistan, Hongkong and 1,611 boxes of fresh mangoes with a value of US$14,273.46 covered by Bill of
Lading HKG 99013 and exported through Letter of Credit HK 1032/30 also issued by Pakistan Bank. The
Bills of Lading contained the following pertinent provision: “One of the Bills of Lading must be surrendered
duly endorsed in exchange for the goods or delivery order.” The shipment was bound for Hongkong with
Pakistan Bank as consignee and Great Prospect Company (GPC) of Kowloon, Hongkong as notify party. On
6 April 1989, per letter of credit requirement, copies of the bills of lading and commercial invoices were
submitted to Macam’s depository bank, Consolidated Banking Corporation (SolidBank), which paid Macam
in advance the total value of the shipment of US$20,223.46. Upon arrival in Hongkong, the shipment was
delivered by Wallem directly to GPC, not to Pakistan Bank, and without the required bill of lading having
been surrendered. Subsequently, GPC failed to pay Pakistan Bank such that the latter, still in possession of
the original bills of lading, refused to pay Macam through SolidBank. Since SolidBank already pre-paid
Macam the value of the shipment, it demanded payment from respondent Wallem through 5 letters but was
refused. Macam was thus allegedly constrained to return the amount involved to SolidBank, then demanded
payment from Wallem in writing but to no avail.

On 25 September 1991, Macam sought collection of the value of the shipment of US$20,223.46 or its
equivalent of P546,033.42 from China Ocean Shipping and/or Wallem before the RTC of Manila, based on
delivery of the shipment to GPC without presentation of the bills of lading and bank guarantee. On 14 May
1993, the trial court ordered China Ocean Shipping and Wallem to pay, jointly and severally, (1) P546,033.42
plus legal interest from 6 April 1989 until full payment; (2) P10,000.00 as attorney’s fees; and, (3) the costs.
The counterclaims were dismissed for lack of merit.

The Court of Appeals appreciated the evidence in a different manner. Thus, on 13 March 1996, the appellate
court set aside the decision of the trial court and dismissed the complaint together with the counterclaims. On
5 July 1996 reconsideration was denied. Hence, the petition for review.

The Supreme Court denied the petition; and affirmed the decision of respondent Court of Appeals of 13
March 1996, as well as its resolution of 5 July 1996 denying reconsideration.

1. Content of telex of 5 April 1989

The telex dated 5 April 1989 conveying Macam’s request read “AS PER SHPR’S REQUEST
KINDLY ARRANGE DELIVERY OF A/M SHIPT TO RESPECTIVE CNEES WITHOUT PRESENTATION
OF OB/L 2 and bank guarantee since for prepaid ship ofrt charges already fully paid our end.”

2. Explanation for the delivery without presentation of bills of lading and bank guarantee
The shipment was delivered to GPC without presentation of the bills of lading and bank guarantee per
request of Macam himself because the shipment consisted of perishable goods. It is a standard maritime
practice, when immediate delivery is of the essence, for the shipper to request or instruct the carrier to deliver
the goods to the buyer upon arrival at the port of destination without requiring presentation of the bill of
lading as that usually takes time.

3. Allegation of complaint does not deal with misdelivery of cargoes

The submission of Macam that “the fact that the shipment was not delivered to the consignee as
stated in the Bill of Lading or to a party designated or named by the consignee constitutes a misdelivery
thereof” is a deviation from his cause of action before the trial court. It is clear from the allegation in his
complaint that it does not deal with misdelivery of the cargoes but of delivery to GPC without the required
bills of lading and bank guarantee, i.e. “(6) The goods arrived in Hongkong and were released by the
defendant Wallem directly to the buyer/notify party, Great Prospect Company and not to the consignee, the
National Bank of Pakistan, Hongkong, without the required bills of lading and bank guarantee for the release
of the shipment issued by the consignee of the goods.”

4. Misdelivery never an issue when Macam wrote Wallem for the payment of the value of the
cargoes
Herein, when Macam wrote Wallem demanding payment of the value of the cargoes, misdelivery of
the cargoes did not come into the picture. The letter, in part, states “We are writing you on behalf of our
client, Ben-Mac Enterprises who informed us that Bills of Lading No. 99012 and 99013 with a total
value of
US$20,223.46 were released to Great Prospect, Hongkong without the necessary bank guarantee. We were
further informed that the consignee of the goods, National Bank of Pakistan, Hongkong, did not release or
endorse the original bills of lading. As a result thereof, neither the consignee, National Bank of Pakistan,
Hongkong, nor the importer, Great Prospect Company, Hongkong, paid our client for the goods.”

5. Article 1736 NCC

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

6. When contract of carriage ends; Delivery to party other than actual consignee
The extraordinary responsibility of the common carriers lasts until actual or constructive delivery of
the cargoes to the consignee or to the person who has a right to receive them. Herein, Pakistan Bank was
indicated in the bills of lading as consignee whereas GPC was the notify party. However, in the export
invoices GPC was clearly named as buyer/importer. The delivery of the cargoes to GPC as buyer/importer
which, conformably with Article 1736 had, other than the consignee, the right to receive them was proper.

7. Effect of telegraphic transfers as to bank guarantee

The telex of 5 April 1989 instructed delivery of various shipments to the respective consignees
without need of presenting the bill of lading and bank guarantee per the respective shipper’s request since “for
prepaid shipt ofrt charges already fully paid.” Macam was named therein as shipper and GPC as consignee
with respect to Bill of Lading HKG 99012 and HKG 99013. In transactions covered by a letter of credit, bank
guarantee is normally required by the shipping lines prior to releasing the goods. But for buyers using
telegraphic transfers, Macam dispenses with the bank guarantee because the goods are already fully paid.

8. Prior conduct between Macam and GPC as to perishable good; Bill of Lading not presented
Macam has been transacting with GPC as buyer/importer for around 2 or 3 years already. When
mangoes and watermelons are in season, his shipment to GPC using the facilities of Wallem is twice or thrice
a week. The goods are released to GPC. It has been the practice of Macam to request the shipping lines to
immediately release perishable cargoes such as watermelons and fresh mangoes through telephone calls by
himself or his “people.” In his several years of business relationship with GPC and Wallem, there was not a
single instance when the bill of lading was first presented before the release of the cargoes.

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

10. GPC, not Pakistan Bank, is the consignee referred in telex

The instruction in the telex of 5 April 1989 was “to deliver the shipment to respective consignees.”
The originals of the 2 subject Bills of Lading are still in the possession of the Pakistani Bank. Conformably,
to implement the said telex instruction, the delivery of the shipment must be to GPC, the notify party or real
importer/buyer of the goods and not the Pakistani Bank since the latter can very well present the original Bills
of Lading in its possession. Likewise, if it were the Pakistani Bank to whom the cargoes were to be strictly
delivered, it will no longer be proper to require a bank guarantee as a substitute for the Bill of Lading. To
construe otherwise will render meaningless the telex instruction. After all, the cargoes consist of perishable
fresh fruits and immediate delivery thereof to the buyer/importer is essentially a factor to reckon with.
Besides, GPC is listed as one among the several consignees in the telex and the instruction in the telex was to
arrange delivery of A/M shipment (not any party) to respective consignees without presentation of OB/L and
bank guarantee.

11. Return of money to bank mere accommodation of SolidBank by Macam

Herein, Macam failed to substantiate his claim that he returned to SolidBank the full amount of the
value of the cargoes. It is not far-fetched to entertain the notion that he merely accommodated SolidBank in
order to recover the cost of the shipped cargoes from Wallem. SolidBank initially demanded payment from
respondents through 5 letters. SolidBank must have realized the absence of privity of contract between itself
and Wallem. That is why Macam conveniently took the cudgels for the bank.

[49]

Saludo vs. CA (GR 95536, 23 March 1992)

Second Division, Regalado (J): 4 concur

Facts: After the death of Crispina Galdo Saludo, mother of Aniceto G. Saludo Jr., Maria Salvacion Saludo,
Leopoldo G. Saludo, and Saturnino G. Saludo, in Chicago, Illinois, on 23 October 1976, Pomierski and Son
Funeral Home of Chicago, made the necessary preparations and arrangements for the shipment of the remains
from Chicago to the Philippines. The funeral home had the remains embalmed and secured a permit for the
disposition of dead human body on 25 October 1976. Philippine Vice Consul in Chicago, Illinois, Bienvenido
M. Llaneta, at 3:00 p.m. on 26 October 1976 at the Pomierski & Son Funeral Home, sealed the shipping case
containing a hermetically sealed casket that is airtight and waterproof wherein was contained the remains of
Crispina Galdo Saludo. On the same date, 26 October 1976, Pomierski brought the remains to C.M.A.S.
(Continental Mortuary Air Services) at the airport (Chicago) which made the necessary arrangements such as
flights, transfers, etc.; C.M.A.S. is a national service used by undertakers throughout the nation (U.S.A.), they
furnish the air pouch which the casket is enclosed in, and they see that the remains are taken to the proper air
freight terminal. C.M.A.S. booked the shipment with PAL thru the carrier’s agent Air Care International, with
Pomierski F.H. as the shipper and Mario (Maria) Saludo as the consignee. PAL Airway Bill 079-01180454
Ordinary was issued wherein the requested routing was from Chicago to San Francisco on board TWA Flight
131 of 27 October 1976, and from San Francisco to Manila on board PAL Flight 107 of the same date, and
from Manila to Cebu on board PAL Flight 149 of 29 October 1976. In the meantime, Maria Salvacion Saludo
and Saturnino Saludo, thru a travel agent, were booked with United Airlines from Chicago to California, and
with PAL from California to Manila. She then went to the funeral director of Pomierski Funeral Home who
had her mother’s remains and she told the director that they were booked with United Airlines. But the
director told her that the remains were booked with TWA flight to California. This upset her, and she and her
brother had to change reservations from UA to the TWA flight after she confirmed by phone that her mother’s
remains would be on that TWA flight. They went to the airport and watched from the look-out area. She saw
no body being brought. So, she went to the TWA counter again, and she was told there was no body on that
flight. Reluctantly, they took the TWA flight upon assurance of her cousin, Ani Bantug, that he would look
into the matter and inform her about it on the plane or have it radioed to her. But no confirmation from her
cousin reached her that her mother was on the West Coast. Upon arrival at San Francisco at about 5:00 p.m.,
she went to the TWA counter there to inquire about her mother’s remains. She was told they did not know
anything about it. She then called Pomierski that her mother’s remains were not at the West Coast terminal,
and Pomierski immediately called C.M.A.S., which in a matter of 10 minutes informed him that the remains
were on a place to Mexico City, that there were two bodies at the terminal, and somehow they were switched;
he relayed this information to Miss Saludo in California; later C.M.A.S. called and told him they were
sending the remains back to California via Texas. The following day, 28 October 1976, the shipment or
remains of Crispina Saludo arrived in San Francisco from Mexico on board American Airlines. This shipment
was transferred to or received by PAL at 7:45 p.m. This casket bearing the remains of Crispina Saludo, which
was mistakenly sent to Mexico and was opened (there), was resealed by Crispin F. Padagas for shipment to
the Philippines. The shipment was immediately loaded on PAL flight for Manila that same evening and
arrived in Manila on 30 October 1976, a day after its expected arrival on 29 October 1976. In a letter dated 15
December 1976, the counsel of the Saludos informed Trans World Airlines (TWA) of the misshipment and
eventual delay in the delivery of the cargo containing the remains of the late Crispina Saludo, and of the
discourtesy of its employees to Maria Salvacion Saludo and Saturnino Saludo. In a separate letter on 10 June
1977 addressed to Philippine Airlines (PAL), the Saludos stated that they were holding PAL liable for said
delay in delivery and would commence judicial action should no favorable explanation be given. Both TWA
and PAL denied liability.

A damage suit was filed by the Saludos before the then Court of First Instance, Branch III, Southern Leyte,
praying for the award of actual damages of P50,000.00, moral damages of P1,000,000.00, exemplary
damages, attorney’s fees and costs of suit. The trial court absolved the two airline companies of liability.

The Court of Appeals affirmed the decision of the lower court in toto, and in a subsequent resolution, denied
the Saludos’ motion for reconsideration for lack of merit. Hence, the petition for review on certiorari.

The Supreme Court affirmed the appealed decision, with the modification that an award or P40,000.00 as and
by way of nominal damages is granted in favor of the Saludos to be paid by TWA.

1. Factual findings of the Court of Appeals binding upon the Supreme Court; Exceptions
Only questions of law may be raised in a petition filed in the Supreme Court to review on certiorari
the decision of the Court of Appeals. This being so, the factual findings of the Court of Appeals are final and
conclusive and cannot be reviewed by the Supreme Court. The rule, however, admits of established
exceptions, to wit: (a) where there is grave abuse of discretion; (b) when the finding is grounded entirely on
speculations, surmises or conjectures; (c) when the inference made is manifestly mistaken, absurd or
impossible; (d) when the judgment of the Court of Appeals was based on a misapprehension of facts; (e)
when the factual findings are conflicting; (f) when the Court of Appeals, in making its findings, went beyond
the issues of the case and the same are contrary to the admissions of both appellant and appellee; (g) when the
Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties and which, if
properly considered, would justify a different conclusion; and (h) where the findings of fact of the Court of
Appeals are contrary to those of the trial court, or are mere conclusions without citation of specific evidence,
or where the facts set forth by the petitioner are not disputed by the respondent, or where the findings of fact
of the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on
record.

2. Distinction between question of law and question of fact; Test to determine

A question of law is one which involves a doubt or controversy on what the law is on a certain state
of facts; and, a question of fact, contrarily, is one in which there is a doubt or difference as to the truth or
falsehood of the alleged facts. One test, it has been held, is whether the appellate court can determine the
issue raised without reviewing or evaluating the evidence, in which case it is a question of law, otherwise it
will be a question of fact.

3. Issues warrant second look at facts

Since it is the soundness of the inferences or conclusions that may be drawn from the factual issues
which are being assayed, the Court finds that the issues raised in the present petition indeed warrant a second
look if this litigation is to come to a reasonable denouement. A discussion seriatim of said issues will further
reveal that the sequence of the events involved is in effect disputed. Likewise to be settled is whether or not
the conclusions of the Court of Appeals subject of the review indeed find evidentiary and legal support.

4. Nature of bill of lading

A bill of lading is a written acknowledgment of the receipt of the goods and an agreement to transport
and deliver them at a specified place to a person named or on his order. The two-fold character of a bill of
lading is all too familiar: it is a receipt as to the quantity and description of the goods shipped and a contract
to transport the goods to the consignee or other person therein designated, on the terms specified in such
instrument.

5. Designation of bill of lading immaterial

The designation is immaterial. Such instrument may be called a shipping receipt, forwarder’s receipt
and receipt for transportation. Freight tickets for bus companies as well as receipts for cargo transported by all
forms of transportation, whether by sea or land, fall within the definition. Under the Tariff and Customs Code,
a bill of lading includes airway bills of lading.

6. When bill of lading issued; Inverse order not prohibited by law

Since a bill of lading acknowledges receipt of goods to be transported, delivery of the goods to the
carrier normally precedes the issuance of the bill; or, to some extent, delivery of the goods and issuance of the
bill are regarded in commercial practice as simultaneous acts. However, except as may be prohibited by law,
there is nothing to prevent an inverse order of events, that is, the execution of the bill, of lading even prior to
actual possession and control by the carrier of the cargo to be transported. There is no law which requires that
the delivery of the goods for carriage and the issuance of the covering bill of lading must coincide in point of
time or, for that matter, that the former should precede the latter.

7. Receipt a prima facie evidence of delivery to carrier

Ordinarily, a receipt is not essential to a complete delivery of goods to the carrier for transportation
but, when issued, is competent and prima facie, but not conclusive, evidence of delivery to the carrier. A bill
of lading, when properly executed and delivered to a shipper, is evidence that the carrier has received the
goods described therein for shipment. Except as modified by statute, it is a general rule as to the parties to a
contract of carriage of goods in connection with which a bill of lading is issued reciting that goods have been
received for transportation, that the recital being in essence a receipt alone, is not conclusive, but may be
explained, varied or contradicted by parol or other evidence.

8. Bill of lading vis-à-vis estoppel

An airway bill estops the carrier from denying receipt of goods of the quantity and quality described
in the bill. However, a bill of lading may contain constituent elements of estoppel and thus become something
more than a contract between the shipper and the carrier. However, as between the shipper and the carrier,
when no goods have been delivered for shipment no recitals in the bill can estop the carrier from showing the
true facts. Between the consignor of goods and a receiving carrier, recitals in a bill of lading as to the goods
shipped raise only a rebuttable presumption that such goods were delivered for shipment. As between the
consignor and a receiving carrier, the fact must outweigh the recital.

9. Explanation overcoming presumption that remains were delivered and received by TWA and
PAL
Herein, Philippine Vice Consul in Chicago, Illinois, Bienvenido M. Llaneta, at 3:00 p.m. on 26
October 1976 at the Pomierski & Son Funeral Home, sealed the shipping case containing a hermetically
sealed casket that is airtight and waterproof wherein was contained the remains of Crispina Galdo Saludo. On
the same date, Pomierski brought the remains to C.M.A.S. (Continental Mortuary Air Services) at the airport
(Chicago) which made the necessary arrangements such as flights, transfers, etc; C.M.A.S. is a national
service used by undertakers throughout the nation (U.S.A.), they furnish the air pouch which the casket is
enclosed in, and they see that the remains are taken to the proper air freight terminal. C.M.A.S. booked the
shipment with PAL thru the carrier’s agent Air Care International, with Pomierski F.H. as the shipper and
Mario (Maria) Saludo as the consignee. PAL Airway Bill 079- 01180454 Ordinary was issued wherein the
requested routing was from Chicago to San Francisco on board TWA Flight 131 of 27 October 1976, and
from San Francisco to Manila on board PAL Flight 107 of the same date, and from Manila to Cebu on board
PAL Flight 149 of 29 October 1976.

10. PAL’s explanation

On 26 October 1976 the cargo containing the casketed remains of Crispina Saludo was booked for
PAL Flight PR-107 leaving San Francisco for Manila on 27 October 1976. PAL Airway Bill 079-01180454
was issued, not as evidence of receipt of delivery of the Cargo on 26 October 1976, but merely as a
confirmation of the booking thus made for the San Francisco-Manila flight scheduled on 27 October 1976.
Actually, it was not until 28 October 1976 that PAL received physical delivery of the body at San Francisco,
as duly evidenced by the Interline Freight Transfer Manifest of the American Airline Freight System and
signed for by Virgilio Rosales at 7:45 p.m. on said date.

11. Article 1736 NCC; Period where extraordinary responsibility observed by common carrier;
When delivery made
Explicit is the rule under Article 1736 of the Civil Code that the extraordinary responsibility of the
common carrier begins from the time the goods are delivered to the carrier. This responsibility remains in full
force and effect even when they are temporarily unloaded or stored in transit, unless the shipper or owner
exercises the right of stoppage in transitu, and terminates only after the lapse of a reasonable time for the
acceptance of the goods by the consignee or such other person entitled to receive them. And, there is delivery
to the carrier when the goods are ready for and have been placed in the exclusive possession, custody and
control of the carrier for the purpose of their immediate transportation and the carrier has accepted them.
Where such a delivery has thus been accepted by the carrier, the liability of the common carrier commences
eo instanti.

12. PAL and TWA not liable for switching of caskets prior to their receipt of agreed cargo
While the extraordinary diligence statutorily required to be observed by the carrier instantaneously
commences upon delivery of the goods thereto, for such duty to commence there must in fact have been
delivery of the cargo subject of the contract of carriage; only when such fact of delivery has been
unequivocally established can the liability for loss, destruction or deterioration of goods in the custody of the
carrier, absent the excepting causes under Article 1734, attach and the presumption of fault of the carrier
under Article 1735 be invoked. Herein, the body intended to be shipped as agreed upon was really placed in
the possession and control of PAL on 28 October 1976 and it was from that date that TWA and PAL became
responsible for the agreed cargo under their undertakings in PAL Airway Bill 079-01180454. Consequently,
for the switching of caskets prior thereto which was not caused by them., and subsequent events caused
thereby, TWA and PAL cannot be held liable.

13. TWA without authority, even prohibited, to verify contents of casket

When the cargo was received from C.M.A.S. at the Chicago airport terminal for shipment, which was
supposed to contain the remains of Crispina Saludo, Air Care International and/or TWA, had no way of
determining its actual contents, since the casket was hermetically sealed by the Philippine Vice-Consul in
Chicago and in an air pouch of C.M.A.S., to the effect that Air Care International and/or TWA had to rely on
the information furnished by the shipper regarding the cargo’s content. Neither could Air Care International
and/or TWA open the casket for further verification, since they were not only without authority to do so, but
even prohibited.

14. Pomierski & Son delivered casket to CMAS, and not to TWA
 It was not to TWA, but to C.M.A.S. that the Pomierski & Son Funeral Home delivered the casket
containing the remains of Crispina Saludo. TWA would have no knowledge therefore that the remains of
Crispina Saludo were not the ones inside the casket that was being presented to it for shipment. TWA would
have to rely on the representations of C.M.A.S. The casket was hermetically sealed and also sealed by the
Philippine Vice Consul in Chicago. TWA or any airline for that matter would not have opened such sealed
casket just for the purpose of ascertaining whose body was inside and to make sure that the remains inside
were those of the particular person indicated to be by C.M.A.S. TWA had to accept whatever information was
being furnished by the shipper or by the one presenting the casket for shipment.And so as a matter of fact,
TWA carried to San Francisco and transferred to defendant PAL a shipment covered by or under PAL Airway
Bill 079-ORD-01180454, the airway bill for the shipment of the casketed remains of Crispina Saludo. Only, it
turned out later, while the casket was already with PAL, that what was inside the casket was not the body of
Crispina Saludo so much so that it had to be withdrawn by C.M.A.S. from PAL. The body of Crispina Saludo
had been shipped to Mexico. The casket containing the remains of Crispina Saludo was transshipped from
Mexico and arrived in San Francisco the following day on board American Airlines. It was immediately
loaded by PAL on its flight for Manila. The foregoing points at C.M.A.S. as the one responsible for the
switching or mix-up of the two bodies at the Chicago Airport terminal, and started a chain reaction of the
misshipment of the body of Crispina Saludo and a one-day delay in the delivery thereof to its destination.

15. Right of carrier to require good faith on part of persons delivering goods; Right of carrier to
know contents when it has reasonable ground to suspect goods are dangerous or of illegal character
It is the right of the carrier to require good faith on the part of those persons who deliver goods to be
carried, and enter into contracts with it, and inasmuch as the freight may depend on the value of the article to
be carried, the carrier ordinarily has the right to inquire as to its value. Ordinarily, too, it is the duty of the
carrier to make inquiry as to the general nature of the articles shipped and of their value before it consents to
carry them; and its failure to do so cannot defeat the shipper’s right to recovery of the full value of the
package if lost, in the absence of showing of fraud or deceit on the part of the shipper. In the absence of more
definite information, the carrier has the right to accept shipper’s marks as to the contents of the package
offered for transportation and is not bound to inquire particularly about them in order to take advantage of a
false classification and where a shipper expressly represents the contents of a package to be of a designated
character, it is not the duty of the carrier to ask for a repetition of the statement nor disbelieve it and open the
box and see for itself. However, where a common carrier has reasonable ground to suspect that the offered
goods are of a dangerous or illegal character, the carrier has the right to know the character of such goods and
to insist on an inspection, if reasonable and practical under the circumstances, as a condition of receiving and
transporting such goods.

16. Common carrier entitled to fair representation of nature and value of goods to be carried;
Right of carrier to conduct an inspection
A common carrier is entitled to fair representation of the nature and value of the goods to be carried,
with the concomitant right to rely thereon, and further noting at this juncture that a carrier has no obligation to
inquire into the correctness or sufficiency of such information. The consequent duty to conduct an inspection
thereof arises in the event that there should be reason to doubt the veracity of such representations. Therefore,
to be subjected to unusual search, other than the routinary inspection procedure customarily undertaken, there
must exist proof that would justify cause for apprehension that the baggage is dangerous as to warrant
exhaustive inspection, or even refusal to accept carriage of the same; and it is the failure of the carrier to act
accordingly in the face of such proof that constitutes the basis of the common carrier’s liability.

17. CMAS classified as forwarder, is an agent of the shipper and not of the carrier
While the actual participation of CMAS has been sufficiently and correctly established, to hold that it
acted as agent for TWA and PAL would be both an inaccurate appraisal and an unwarranted categorization of
the legal position it held in the entire transaction. It bears repeating that CMAS was hired to handle all the
necessary shipping arrangements for the transportation of the human remains of Crispina Saludo to Manila.
Hence, it was to CMAS that the Pomierski & Son Funeral Home, as shipper, brought the remains of Saludo
for shipment, with Maria Saludo as consignee. Thereafter, CMAS booked the shipment with PAL through the
carrier’s agent, Air Care International. With its functions, CMAS may accordingly be classified as a
forwarder which, by accepted commercial practice, is regarded as an agent of the shipper and not of the
carrier. As such, it merely contracts for the transportation of goods by carriers, and has no interest in the
freight but receives compensation from the shipper as his agent.

18. CMAS is actual culprit

The facts of the case would point to CMAS as the culprit. Equally telling of the more likely
possibility of CMAS’ liability is the Saludos’ letter to and demanding an explanation from CMAS, regarding
the statement of TWA and PAL laying the blame on CMAS for the incident, clearly allude to CMAS as the
party at fault. This is tantamount to an admission by the Saludos that they consider TWA and PAL without
fault, or is at the very least indicative of the fact that the Saludos entertained serious doubts as to whether
TWA and PAL were responsible for the unfortunate turn of events.

19. Court cannot grant damages at expense of TWA and PAL; Possible liability of CMAS best
deferred to another time and addressed to another forum
The Saludos’ grief over the death of their mother was aggravated by the unnecessary inconvenience
and anxiety that attended their efforts to bring her body home for a decent burial. But, as much as the Court
would like to give them consolation for their undeserved distress, the Court is barred by the inequity of
allowing recovery of the damages prayed for by them at the expense of TWA and PAL whose fault or
negligence in the very acts imputed to them has not been convincingly and legally demonstrated. Neither was
the Court prepared to delve into, much less definitively rule on, the possible liability of CMAS as the
evaluation and adjudication of the same is not what is presently at issue and is best deferred to another time
and addressed to another forum.

20. Carrier did not undertake to carry cargo aboard any specified aircraft
The carrier did not undertake to carry the cargo aboard any specified aircraft, in view of the condition
on the back of the airway bill which provides that “It is agreed that no time is fixed for the completion of
carriage hereunder and that Carrier may without notice substitute alternate carriers or aircraft. Carrier
assumes no obligation to carry the goods by any specified aircraft or over any particular route or routes or to
make connection at any point according to any particular schedule, and Carrier is hereby authorized to select,
or deviate from the route or routes of shipment, notwithstanding that the same may be stated on the face
hereof. The shipper guarantees payment of all charges and advances.” Hence, when TWA shipped the body
on an earlier flight and on a different aircraft, it was acting well within its rights. TWA can use substitute
aircraft even without notice and without the assumption of any obligation whatsoever to carry the goods on
any specified aircraft is clearly sanctioned by the contract of carriage as specifically provided for under the
conditions thereof.

21. Terms clear, no interpretation needed

The terms are clear enough as to preclude the necessity to probe beyond the apparent intendment of
the contractual provisions. There is no ambiguity in the terms of the airway bill to warrant the application of
the rules on interpretation of contracts and documents.

22. Interpretation of contracts

The hornbook rule on interpretation of contracts consecrates the primacy of the intention of the
parties, the same having the force of law between them. When the terms of the agreement are clear and
explicit, that they do not justify an attempt to read into any alleged intention of the parties, the terms are to be
understood literally just as they appear on the face of the contract. The various stipulations of a contract shall
be interpreted together and such a construction is to be adopted as will give effect to all provisions thereof. A
contract cannot be construed by parts, but its clauses should be interpreted in relation to one another. The
whole contract must be interpreted or read together in order to arrive at its true meaning. Certain stipulations
cannot be segregated and then made to control; neither do particular words or phrases necessarily determine
the character of a contract. The legal effect of the contract is not to be determined alone by any particular
provision disconnected from all others, but in the ruling intention of the parties as gathered from all the
language they have used and from their contemporaneous and subsequent acts.

23. Interpretative rule in Rules of Court applies only if there is inconsistency between written and
printed words
The interpretative rule in the Rules of Court that written words control printed words in documents
may be considered only when there is inconsistency between the written and printed words of the contract. As
previously stated, there was no ambiguity in the contract subject of this case that would call for the
application of said rule. In any event, the contract has provided for such a situation by explicitly stating that
the condition remains effective “notwithstanding that the same (fixed time for completion of carriage,
specified aircraft, or any particular route or schedule) may be stated on the face hereof.” Herein, the
typewritten specifications of the flight, routes and dates of departures and arrivals on the face of the airway
bill does not constitute a special contract which modifies the printed conditions at the back thereof. The
typewritten provisions of the contract are to be read and understood subject to and in view of the printed
conditions, fully reconciling and giving effect to the manifest intention of the parties to the agreement.

24. Statement on the face of the airway bill

The statement on the face of the airway bill properly and completely reads “Carrier certifies goods
described below were received for carriage subject to the Conditions on the reverse hereof the goods then
being in apparent good order and condition except as noted hereon.”

25. Carrier not an insurer against delay in transportation of goods in absence of a special contract
The oft-repeated rule regarding a carrier’s liability for delay is that in the absence of a special
contract, a carrier is not an insurer against delay in transportation of goods. When a common carrier
undertakes to convey goods, the law implies a contract that they shall be delivered at destination within a
reasonable time, in the absence of any agreement as to the time of delivery. But where a carrier has made an
express contract to transport and deliver property within a specified time, it is bound to fulfill its contract and
is liable for any delay, no matter from what cause it may have arisen. This result logically follows from the
well-settled rule that where the law creates a duty or charge, and the party is disabled from performing it
without any default in himself, and has no remedy over, then the law will excuse him, but where the party by
his own contract creates a duty or charge upon himself, he is bound to make it good notwithstanding any
accident or delay by inevitable necessity because he might have provided against it by contract. Whether or
not there has been such an undertaking on the part of the carrier is to be determined from the circumstances
surrounding the case and by application of the ordinary rules for the interpretation of contracts.

26. Mendoza vs. PAL; Delayed delivery of air cargo

In a similar case of delayed delivery of air cargo under a very similar stipulation contained in the
airway bill which reads: “The carrier does not obligate itself to carry the goods by any specified aircraft or on
a specified time. Said carrier being hereby authorized to deviate from the route of the shipment without any
liability therefore,” the Supreme Court ruled that common carriers are not obligated by law to carry and to
deliver merchandise, and persons are not vested with the right to prompt delivery, unless such common
carriers previously assume the obligation. Said rights and obligations are created by a specific contract
entered into by the parties (Mendoza vs. PAL, 90 Phil. 836).

27. Specification of flights does not constitute a special contract

To countenance a postulate that the specification of the flights and dates of departures and arrivals
constitute a special contract (that would prevail over the printed stipulations at the back of the airway bill)
would unduly burden the common carrier for that would have the effect of unilaterally transforming every
single bill of lading or trip ticket into a special contract by the simple expedient of filling it up with the
particulars of the flight, trip or voyage, and thereby imposing upon the carrier duties and/or obligations which
it may not have been ready or willing to assume had it been timely advised thereof.

28. Ordinary prudence required of person entering in contract

The fact that the challenged condition 5 was printed at the back of the airway bill militate against its
binding effect on the Saludos as parties to the contract, for there were sufficient indications on the face of said
bill that would alert them to the presence of such additional condition to put them on their guard. Ordinary
prudence on the part of any person entering or contemplating to enter into a contract would prompt even a
cursory examination of any such conditions, terms and/or stipulations.

29. Acceptance of bill of lading without dissent raises presumption that all terms brought to
knowledge of shipper and agreed to by him
The acceptance of a bill of lading without dissent raises a presumption that all terms therein were
brought to the knowledge of the shipper and agreed to by him, and in the absence of fraud or mistake, he is
estopped from thereafter denying that he assented to such terms. This rule applies with particular force where
a shipper accepts a bill of lading with full knowledge of its contents, and acceptance, under such
circumstances makes it a binding contract. In order that any presumption of assent to a stipulation in a bill of
lading limiting the liability of a carrier may arise, it must appear that the clause containing this exemption
from liability plainly formed a part of the contract contained in the bill of lading. A stipulation printed on the
back of a receipt or bill of lading or on papers attached to such receipt will be quite as effective as if printed
on its face, if it is shown that the consignor knew of its terms. Thus, where a shipper accepts a receipt which
states that its conditions are to be found on the back, such receipt comes within the general rule, and the
shipper is held to have accepted and to be bound by the conditions there to be found.

30. When contract of adhesion void and unenforceable

A contract of adhesion may be struck down as void and unenforceable, for being subversive of public
policy, only when the weaker party is imposed upon in dealing with the dominant bargaining party and is
reduced to the alternative of taking it or leaving it, completely deprived of the opportunity to bargain on equal
footing.

31. Ong Yiu vs. CA; Contracts of adhesion not entirely prohibited
The case of Ong Yiu vs. Court of Appeals, et al. instructs that contracts of adhesion are not entirely
prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives
his consent. Herein, the Saludos, far from being the weaker party in the situation, duly signified their
presumed assent to all terms of the contract through their acceptance of the airway bill and are consequently
bound thereby. It cannot be gainsaid that the Saludos were not without several choices as to carriers in
Chicago with its numerous airways and airlines servicing the same.

32. Condition serves as insulation to liability when flight routes and schedules change; Changes
should be justified
Although Condition 5 of the airway bill is binding upon the parties to and fully operative in the
present transaction, it does not mean, that the carriers can at all times whimsically seek refuge from liability
in the exculpatory sanctuary of Condition 5 or arbitrarily vary routes, flights and schedules to the prejudice of
their customers. This condition only serves to insulate the carrier from liability in those instances when
changes in routes, flights and schedules are clearly justified by the peculiar circumstances of a particular case,
or by general transportation practices, customs and usages, or by contingencies or emergencies in aviation
such as weather turbulence, mechanical failure, requirements of national security and the like. And even as it
is conceded that specific routing and other navigational arrangements for a trip, flight or voyage, or variations
therein, generally lie within the discretion of the carrier in the absence of specific routing instructions or
directions by the shipper, it is plainly incumbent upon the carrier to exercise its rights with due deference to
the rights, interests and convenience of its customers.

33. Common carrier has implicit duty to carry property within reasonable time and guard against
delay; Liability of carrier for unreasonable delay
A common carrier undertaking to transport property has the implicit duty to carry and deliver it
within a reasonable time, absent any particular stipulation regarding time of delivery, and to guard against
delay. In case of any unreasonable delay, the carrier shall be liable for damages immediately and proximately
resulting from such neglect of duty. Herein, the delay in the delivery of the remains of Crispina Saludo,
undeniable and regrettable as it was, cannot be attributed to the fault, negligence or malice of PAL and TWA.

34. TWA knew urgency of shipment and actually carried the remains on earlier flight
Herein, TWA knew of the urgency of the shipment by reason of this notation on the lower portion of
the airway bill: “All documents have been certified. Human remains of Cristina (sic) Saludo. Please return
bag first available flight to SFO.” Accordingly, TWA took it upon itself to carry the remains of Crispina
Saludo on an earlier flight, which it could do under the terms of the airway bill, to make sure that there would
be enough time for loading said remains on the transfer flight on board PAL.

35. No showing that personnel treated the Saludos in humiliating or arrogant manner; What
constitutes rude or discourteous conduct
There was no showing of any humiliating or arrogant manner with which the personnel of both TWA
and PAL treated the Saludos. Even their alleged indifference is not clearly established. The initial answer of
the TWA personnel at the counter that they did not know anything about the remains, and later, their answer
that they have not heard anything about the remains, and the inability of the TWA counter personnel to inform
the Saludos of the whereabouts of the remains, cannot be said to be total or complete indifference to the latter.
At any rate, it is any rude or discourteous conduct, malfeasance or neglect, the use of abusive or insulting
language calculated to humiliate and shame passenger or bad faith by or on the part of the employees of the
carrier that gives the passenger an action for damages against the carrier, and none of the above is obtaining
in the present case.

36. Although not in bad faith, actuations of TWA’s employees leave must to be desired
The manner in which TWA’s employees dealt with the Saludos was not grossly humiliating, arrogant
or indifferent as would assume the proportions of malice or bad faith and lay the basis for an award of the
damages claimed. It must however, be pointed out that the lamentable actuations of TWA’s employees leave
much to be desired, particularly so in the face of the Saludos’ grief over the death of their mother,
exacerbated by the tension and anxiety wrought by the impasse and confusion over the failure to ascertain
over an appreciable period of time what happened to her remains.

37. Airline companies admonished to require personnel to be more accommodating towards

customers and general public; Contract of carriage different from other contractual relations, and is
not a mere contract for transportation but also treatment with courtesy and consideration
Airline companies are hereby sternly admonished that it is their duty not only to cursorily instruct but
to strictly require their personnel to be more accommodating towards customers, passengers and the general
public. After all, common carriers such as airline companies are in the business of rendering public service,
which is the primary reason for their enfranchisement and recognition in our law. Because the passengers in a
contract of carriage do not contract merely for transportation, they have a right to be treated with kindness,
respect, courtesy and consideration. A contract to transport passengers is quite different in kind and degree
from any other contractual relation, and generates a relation attended with public duty. The operation of a
common carrier is a business affected with public interest and must be directed to serve the comfort and
convenience of passengers. Passengers are human beings with human feelings and emotions; they should not
be treated as mere numbers or statistics for revenue.
38. Apathy not legally reprehensible but is morally deplorable
Herein, the Saludos were not to be regaled with extra special attention. They were, however, entitled
to the understanding and humane consideration called for by and commensurate with the extraordinary
diligence required of common carriers, and not the cold insensitivity to their predicament. The airline’s
counter personnel were totally helpless about the situation. Common Sense could and should have dictated
that they exert a little extra effort in making a more extensive inquiry, by themselves or through their
superiors, rather than just shrug off the problem with a callous and uncaring remark that they had no
knowledge about it. With all the modern communications equipment readily available to them, which could
have easily facilitated said inquiry and which are used as a matter of course by airline companies in their daily
operations, their apathetic stance while not legally reprehensible is morally deplorable.

39. No attribution of discourtesy or indifference against PAL

No attribution of discourtesy or indifference has been made against PAL by the Saludos and, in fact,
Maria Saludo testified that it was to PAL that they repaired after failing to receive proper attention from
TWA. It was from PAL that they received confirmation that their mother’s remains would be on the same
flight to Manila with them.

40. When moral and exemplary damages, or attorney’s fees, awarded

Moral damages may be awarded for willful or fraudulent breach of contract or when such breach is
attended by malice or bad faith. However, in the absence of strong and positive evidence of fraud, malice or
bad faith, said damages cannot be awarded. Neither can, there be an award of exemplary damages nor of
attorney’s fees as an item of damages in the absence of proof that defendant acted with malice, fraud or bad
faith.

41. Censurable conduct of TWA employees do not approximate dimensions of fraud, malice or
good faith
The censurable conduct of TWA’s employees cannot, however, be said to have approximated the
dimensions of fraud, malice or bad faith. It can be said to be more of a lethargic reaction produced and
engrained in some people by the mechanically routine nature of their work and a racial or societal culture
which stultifies what would have been their accustomed human response to a human need under a former and
different ambience.

42. Award of nominal damages warranted; Articles 2221 and 2222 NCC
The facts show that the Saludos’ right to be treated with due courtesy in accordance with the degree
of diligence required by law to be exercised by every common carrier was violated by TWA and this entitles
them, at least, to nominal damages from TWA alone. Articles 2221 and 2222 of the Civil Code make it clear
that nominal damages are not intended for indemnification of loss suffered but for the vindication or
recognition of a right violated or invaded. They are recoverable where some injury has been done but the
amount of which the evidence fails to show, the assessment of damages being left to the discretion of the
court according to the circumstances of the case. In the exercise of the Court’s discretion, the Court find an
award of P40,000.00 as nominal damages in favor of the Salufos to be a reasonable amount under the
circumstances of the present case.

[50]

Delgado Bros. vs. CA (GR L-15654, 29 December 1960)

Second Division, Bautista Angelo (J): 6 concur

Facts: On 17 February 1956, Richard A. Kleeper shipped on board the S. S. President Cleveland at
Yokohama, Japan one lift van under bill of lading 82, containing personal and household effects. The ship
arrived in the port of Manila on 22 February 1956 and while the lift van was being unloaded by the gantry
crane operated by Delgado Brothers, Inc., it fell on the pier and its contents were spilled and scattered. A
survey was made and the result was that Kleeper suffered damages totalling P6,729.50 arising out of the
breakage, denting and smashing of the goods.

Kleeper brought the action before the CFI Manila to recover the sum of P6,729.50 as damages, plus the sum
of P2,000.00 as sentimental value of the damaged goods and attorney’s fees. The trial court, on 5 November
1957, rendered decision ordering the shipping company (American President Lines Ltd.) to pay Kleeper the
sum of P6,729.50, value of the goods damaged, plus P600.00 as their sentimental value, with legal interest
from the filing of the complaint, and the sum of P1,000.00 as attorney’s fees. The court ordered that, once the
judgment is satisfied, co-defendant Delgado Brothers, Inc. should pay the shipping company the same
amounts by way of reimbursement.

Both Delgado Bros. and American President Lines appealed to the Court of Appeals which affirmed in toto
the decision of the trial court. Delgado Brothers, Inc. interposed the present petition for review.

The Supreme Court modified the decision appealed from in the sense that Delgado Brothers should not be
made liable for the damage caused to the goods in question, without pronouncement as to costs.

1. Contents of Exhibit 1 RE Gantry crane; American President Lines assumed responsibility

The contract entered into between the American President Lines and Delgado Bros. relative to the
gantry crane owned by Delgado Bros. reads: “Please furnish us ONE gantry to be used on hatch No. 2 of the
S/S PRES. CLEVELAND Reg. from 1300 hrs. to FINISH hrs. on 22 February 1955. We hereby assume full
responsibility and liability for damages to cargoes, ship or otherwise arising from use of said crane and we
will not hold the Delgado Brothers, Inc. liable or responsible in any way thereof. We hereby agree to pay the
corresponding charges for above requested services.” The Court cannot agree with the finding that the
phraseology employed in Exhibit 1 would not “induce a conclusion that the American President Lines, Ltd.
assumed responsibility for the negligence of the crane operator who was employed by Delgado Brothers,
Inc.” and that for that reason the latter should be blamed for the consequence of the negligent act of its
operator, because in the Court’s opinion the phraseology thus employed conveys precisely that conclusion.

2. Clause determinative of the responsibility for the use of the crane

The clause determinative of the responsibility for the use of the crane contains two parts, namely: one
wherein the shipping company assumes full responsibility for the use of the crane, and the other where said
company agreed not to hold the Delgado Brothers, Inc. liable in any way. While it may be admitted that under
the first part the carrier may shift responsibility to petitioner when the damage caused arises from the
negligence of the crane operator because exemption from responsibility for negligence must be stated in
explicit terms, however, it cannot do so under the second part when it expressly agreed to exempt petitioner
from liability in any way it may arise, which is a clear case of assumption of responsibility on the part of the
carrier contrary to the conclusion reached by the Court of Appeals.

3. When exemption from liability arising from negligence may be granted

In order that exemption from liability arising from negligence may be granted, the contract “must be
so clear as to leave no room for the operation of the ordinary rules of liability consecrated by experience and
sanctioned by the express provisions of law.”

4. Manila Railroad vs. La Compania Transatlantica not in point

The case of the Manila Railroad Co. vs. La Compañia Trasatlantica, et al., 38 Phil., 875, is not in
point. In the latter case, the evidence adduced is not clear as to the exemption of responsibility. Here the
contrary appears. Hence, the doctrine therein laid down is not controlling.
5. Clause 17 of the bill of lading; Shipper or consignee who takes bill of lading becomes bound by
all stipulation contained therein
Clause 17, printed in red ink that appears on the very face of the bill of lading, reads: “IN
ACCEPTING THIS BILL OF LADING the shipper, consignee and owner of the goods agree to be bound by
all its stipulations, exceptions, and conditions whether written, printed, or stamped on the front or back
hereof, any local customs or privileges to the contrary notwithstanding.” The clause provides that a shipper or
consignee who accepts the bill of lading becomes bound by all stipulations contained therein whether on the
front or back thereof. The shipper cannot elude its provisions simply because they prejudice him and take
advantage of those that are beneficial. Secondly, the fact that the shipper shipped his goods on board the ship
of the shipping company and paid the corresponding freight thereon shows that he impliedly accepted the bill
of lading which was issued in connection with the shipment in question, and so it may be said that the same is
binding upon him as if it has been actually signed by him or by any other person in his behalf. This is more so
where it is both the shipper and the consignee of the goods in question. These circumstances take this case out
of our ruling in the Mirasol case (invoked by the Court of Appeals) and place it within the doctrine in the case
of Mendoza vs. Philippine Air Lines, Inc., 90 Phil., 836.

6. Law of country of destination prevails; If destination is Philippines, COGSA merely suppletory

to the provisions of the Code
Article 1753 (New Civil Code) provides that the law of the country to which the goods are to be
transported shall govern the liability of the common carrier in case of loss, destruction or deterioration. This
means the law of the Philippines, or the new Civil Code. Under Article 1766, ‘In all matters not regulated by
this Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and by
special laws,’ i.e. provisions that govern said rights and obligations (Articles 1736, 1737, and 1738).
Therefore, although Section 4(5) of the Carriage of Goods by Sea Act states that the carrier shall not be liable
in an amount exceeding $500.00 per package unless the value of the goods had been declared by the shipper
and inserted in the bill of lading, said section is merely suppletory to the provisions of the Civil Code.

[51] Eastern Shipping Lines vs. CA, see [6]

[52]

Eastern Shipping Lines vs. CA (GR 80936, 17 October 1990)

Third Division, Gutierrez Jr. (J): 3 concur, 1 on leave

Facts: On 24 February 1980, the Nanyo Corporation of Kobe, Japan shipped a cargo consisting of 5 packages
of supplies and materials for “1200 W x 2500 LMM Apron Feeder and 200 W x 5850 LMM Apron Feeder,”
covered by a bill of lading. The cargo was loaded on board the S/S Eastern Adventure destined for Manila.
The vessel is operated by Eastern Shipping Lines. The bill of lading was consigned to “Shipper’s Order”, with
“Address Arrival Notice to Consolidated Mines Inc. 6799 Ayala Avenue, Makati, Metro Manila, Philippines.”
The cargo arrived in Manila on 4 March 1980. A few days later, on the basis of an Undertaking for Delivery
of Cargo but without the surrender of the original bill of lading presented by Consolidated Mines (CMI),
Eastern Shipping released the shipment in question to CMI. In said guaranty, CMI undertook to indemnify
Eastern Shipping “harmless from all demands, claiming liabilities, actions and expenses” About 5 ½ months
later, or specifically on 19 August 1980, Eastern Shipping received from Hongkong and Shanghai Bank
(HSBC), a letter stating that HSBC holds title to the goods and has possession of the full set of original bills
of lading, and that it is unable to locate the cargo and that it appeared that Eastern Shipping has released it to
CMI. Considering that there was no reply from Eastern Shipping, HSBC wrote another demand letter through
counsel dated 29 October 1980 in contemplation of a legal action against Eastern Shipping should it not make
good HSBC’s claim. On 23 December 1980 CMI wrote a letter to HSBC admitting that they received the
shipment in question due to a guarantee executed by them, and requested HSBC that legal action be held off
for at least 30 days, promising to settle its account with HSBC from the funds it was expecting from Benguet
Corporation. On 14 January 1981, Eastern Shipping wrote a reply to HSBC, stating therein that it regrets
releasing the cargo without the consent of HSBC’s client, but that it was constrained to release the same in
view of the consignee’s strong representation and guarantee that they will settle their obligation with the
bank. Eastern Shipping requested that HSBC advise the former if the consignee be unable to comply with its
requirement after 30 days.

CMI having failed to fulfill its promise, HSBC filed a complaint before the then CFI of Rizal against Eastern
Shipping praying for actual and compensatory damages in the amount of $168,521.16 representing the value
of the goods covered by the Bill of Lading, exemplary damage in the amount deemed just by the court and
P50,000 attorney’s fees plus expenses of litigation and judicial costs. On 15 August 1981, Eastern Shipping
filed a third party complaint against CMI seeking reimbursement from the latter of whatever pecuniary
obligations Eastern Shipping may be liable to HSBC, as well as moral damages. During trial, CMI filed a
Motion to Stay Action in view of the pendency of involuntary insolvency proceedings commenced against it
in the meantime by its creditors which included HSBC. This motion was denied by the trial court. On the
basis of the evidence presented by HSBC and Eastern Shipping, as CMI failed to present its evidence, the
court on 15 January 1985 rendered judgment in favor HSBC and against Eastern Shipping, ordering the latter
to pay the sum of $168,521.16 or its equivalent in Philippine Currency representing the value of the goods
covered by the Bill of Lading plus interest thereon from the filing of the complaint, until fully paid;
P20,000.00 as and for attorney’s fees and to pay the costs. With respect to the Third Party Complaint, the
Court rendered judgment in favor of Eastern Shipping and against the CMI ordering the latter to pay all the
liabilities of the former in favor of HSBC consisting of the value of the goods covered by the Bill of Lading in
the sum of $168,521.16 or its equivalent in Philippine Currency plus interest from the filing of the third party
complaint until fully paid; attorney’s fees of P20,000.00 and to pay the costs.

Its motion for reconsideration having been denied, Eastern Shipping appealed to the Court of Appeals. On 30
June 1987, the Court of Appeals rendered the decision affirming the appealed decision in toto. Eastern
Shipping filed a motion for reconsideration, but the same was denied on 24 November 1987. Hence, the
petition for review.

The Supreme Court granted the petition, set aside the decision and order of the Court of Appeals, dismissed
the complaint before the trial court for lack of merit but without prejudice to HSBC pursuing its claims
against CMI in the proper proceedings.

1. Bill of lading refer to CMI, not HSBC, as consignee

At the outset, the Bill of Lading which was issued by the carrier but contained articles furnished by
the Shipper, shows on its face that the Shipment is consigned “TO SHIPPER’S ORDER” with “ADDRESS
ARRIVAL NOTICE TO CONSOLIDATED MINES INC. 6799 AYALA AVE. MAKATI, METRO MANILA,
PHILIPPINES.” Nowhere did the Bill of Lading refer to HSBC as the consignee or the one to be notified.
The foregoing information, without more, in effect makes CMI for all practical intents and purposes the party
named and ordered to receive the goods.

2. Eastern Shipping not expected to look beyond face of bil of lading

Eastern Shipping, not being privy to any transaction between HSBC and CMI, cannot be expected to
look beyond what is contained on the face of the bill of lading and guess which of the many banks in Metro
Manila or some other unrevealed corporation could possibly be the consignee. To consider otherwise would
not be sound business practice as Eastern Shipping would be forced to wait for the real owner of the goods to
show up, perhaps in vain. The shipment consisted of machinery materials and supplies for a mining company
named in the bill of lading. In the absence of contrary instructions or at least knowledge of other facts, the
carrier is not ordinarily expected to deliver mining equipment to an unnamed or unknown party lurking for
several months.
3. Nature of Bill of lading; Macondray vs. Acting Commissioner of Customs, Phoenix Assurance
vs. US Lines
In Macondray and Company Inc. v. Acting Commissioner of Customs (62 SCRA 427 [1975]), it was
held that a bill of lading is ordinarily merely a convenient commercial instrument designed to protect the
importer or consignee. And in Phoenix Assurance Co., Ltd. v. United States Lines (22 SCRA 674 [1968]), it
was held that as a receipt, a bill of lading recites the place and date of shipment, describes the goods as to
quantity, weight, dimensions, identification marks, condition, quality and value.

4. CMI owner of goods in question; Other evidences

(1) HSBC expressly admitted in its complaint that “pursuant to the Bill of lading the shipment was
issued ‘To Shipper’s Order.’” It never alleged therein that it was the consignee of the shipment in question.
Similarly, by HSBC’s own documentary evidence, CMI is the buyer-owner of the shipment. (2) the Buyer
referred to in the Certificate issued by the shipper Nanyo Corporation should perforce refer to CMI, as that it
certified that the Original Consular Invoice had been airmailed directly to Buyer, and certified that advance
copies of Commercial Invoice Packing List and Bill of Lading were airmailed directly to Buyer. (3) HSBC
has established by its own documentary evidence, more particularly, the Consular Invoice dated 25 February
1980, issued in Tokyo, Japan by the Foreign Service of the Republic of the Philippines, that the consignee of
the shipment in question is CMI. Hence, in view of the admissions of HSBC, exceptional circumstances allow
a deviation from the general rule regarding the surrender of the bill of lading. The rule cannot always be
absolute.

5. Section 3, Rule 128, Rules of Court; Admissibility of evidence

Section 3, Rule 128, of the Rules of Court provide that “Evidence is admissible when it is relevant to
the issue and is not excluded by these rules.”

6. Section 2, Rule 129, Rules of Court; Judicial admissions

Section 2, Rule 129, of the Rules of Court provide that “Admissions made by the parties in the
pleadings, or in the course of the trial or other proceedings do not require proof and cannot be contradicted
unless previously shown to have been made through palpable mistakes.”

7. Article 353 of Code of Commerce

Assuming that CMI may not be considered consignee, Eastern Shipping cannot be faulted for
releasing the goods to CMI under the circumstances, due to its lack of knowledge as to who was the real
consignee in view of CMI’s strong representations and letter of undertaking wherein it stated that the bill of
lading would be presented later. This is precisely the situation covered by the last paragraph of Article 353 of
the Code of Commerce, i.e. “If in case of loss or for any other reason whatsoever, the consignee cannot return
upon receiving the merchandise the bill of lading subscribed by the carrier, he shall give said carrier a receipt
of the goods delivered this receipt producing the same effects as the return of the bill of lading.”

8. State Bonding and Insurance vs. Manila Port Service

In State Bonding and Ins. Co. Inc. v. Manila Port Service, (11 SCRA 400 [1964]), it was held that the
arrival of shipment is deemed admitted by an allegation of delivery to the consignee.

9. Eastern Shipping in good faith

Under the special circumstances of the present case, equity favors Eastern Shipping which proved
that it was in good faith while both CMI and HSBC cannot claim the same. While the goods in question were
released on 4 March 1980 the records show that HSBC received the original bill of lading, as per testimony of
its witness Ederlina Crisostomo, only on April 1980 or long after the goods had been released. This
circumstance goes against the claims of HSBC. Thus HSBC in its original demand letter stated, “We are
unable to locate the cargo and it would appear that it has been released by you to Consolidated Mines, Inc.”
This proves that it had fore-knowledge of the prior release to CMI. And to make things worse, HSBC, despite
CMI’s admission that it received the goods, sued only Eastern Shipping while at the same time claiming for
the value of the goods in the involuntary insolvency proceedings of CMI which the Bank itself, together with
others, initiated. Only later developments led to the present case.

10. Article 1736 NCC; Article uses conjunction “or”

Article 1736 of the Civil Code of the Philippines which provides that “the extraordinary
responsibility of the common carrier lasts from the time the goods are unconditionally placed in the
possession of, and received by the carrier for transportation until the same are delivered, actually or
constructively, by the carrier to the consignee, or to the person who has a right to receive them, without
prejudice to the provisions of Article 1738.” Herein, HSBC wittingly or unwittingly overlooked the fact that
the same article uses the conjunction “or” in reference to whom the goods may be delivered, that is, to the
consignee, or to the person who has a right to receive them.

11. HSBC more negligent party as against Eastern Shipping

It becomes more evident that HSBC is the more negligent party as against Eastern Shipping when
aside from having allowed CMI to be designed in the bills of lading, as the party to be notified, it allowed the
latter to be designated as the consignee in the Consular Invoice, the original of which was directly furnished
to CMI by and as certified to by the shipper Nanyo Corporation. With such vast powers, akin to an agent of
HSBC, CMI acted within its authority, and even if it acted on its own.

12. Article 1883 NCC

“If an agent acts in his own name, the principal has no right of action against the persons with whom
the agent has contracted, neither have such persons against the principal. In such case the agent is the one
directly bound in favor of the person with whom he has contracted, as if the transaction were his own, except
when the contract involves things belonging to the principal. The provisions of this article shall be understood
to be without prejudice to the actions between the principal and agent.”

13. Bad faith by both HSBC and CMI

For almost 6 months from the arrival of the goods HSBC did not do anything to claim the cargo. It
could not possibly be left around lying idle when on the face of the bill of lading, there was a named owner to
be notified. On the other hand, CMI secured the release of the goods through misrepresentation before
Eastern Shipping without settling its account with HSBC and thereafter did not bother to present evidence
before the trial court, leaving Eastern Shipping holding an empty bag as it were. These circumstances also
prove bad faith on the part of CMI. Under the exceptional circumstances and applying especially strong
considerations of equity, Eastern Shipping did not commit any fault sufficient to render it liable to HSBC. On
the contrary, it was HSBC and CMI who were obviously in bad faith in dealing with Eastern Shipping.

[53]

Limpangco Sons vs. Yangco Steamship (GR 10283, 25 July 1916)

Second Division, Per Curiam: 3 concur, 1 concur in result, 1 dissent

Facts: On 3 August 1913, Limpangco Sons employed Yangco Steamship Co. to tow from Guagua to Manila
two cascos loaded with 2,041.80 piculs of sugar, property of Limpanggo Sons, of the value of P11,229.90. On
that date the cascos left Guagua towed by the launches Tahimic and Matulin, belonging to Yangco Steamship.
When the launches, together with their tows, arrived off the Malabon River, the patron of the launch Matulin,
whether of his own motion or whether at the instance of the patrones of the cascos decided to leave the cascos
in the Malabon River. The launch Tahimic towed the cascos into the Malabon River and the launch Matulin
continued the trip to Manila. The reason why this was done was that, at that time, the weather was
threatening, and that there was such a sea on as to make it dangerous for the cascos, heavily loaded as they
were, to continue the voyage to Manila. On 8 August 1913, the launch Maturing was in the Malabon River
and the patron talked to the men in charge of the two cascos, which were at that time tied up at Tansa, and told
them that on the following day, at daybreak, he would await them of the mouth of the Malabon River, outside
the bar, and that, if the weather was then favorable, he would tow them to Manila, It was agreed between the
patron of the Matulin and the patrones of the cascos that the latter should move out of the river by means of
their tikines or bamboo poles and, thus propelled, proceed to the place where the launch Matulin was to be
waiting for them. On the following day, the patron of the Matulin arrived with his launch off the mouth of the
Malabon River and anchored outside of the shallows, something like 1,500 meters from the month of the
river. In accordance with the agreement with the patron of the Matulin and under his instructions, the crews
poled their cascos out of the river following the channel. When they passed the shallow water they were met
with high seas and strong winds. The bamboo poles were unavailing, and, finding themselves in danger of
being washed ashore and destroyed, they claim they called to the Matulin, which was in plain sight, for help.
The patron of the Matulin, they allege, made no effort to assist them and, by reason of the high seas and
strong winds, they were driven ashore or on the shoals and their cargoes lost. The patron of the Matulin
testified that he was unable to render assistance to the cascos by reason of the shallow water in which they
were at the time they were caught by the winds and waves and washed ashore.

An action for negligence was filed as a result of the loss of cargo while two cascos were towed from Guagua
to Manila. <The trial court appeared to have rendered judgment in favor of Yangco Steamship. The actual
dispositive portion of the judgment is not found in the facts> The Supreme Court reversed the judgment of the
trial court.

1. Vessel undertaking towage service liable for reasonable care of the tow; Measure, duration,
scope
A vessel which undertakes a towage service is liable for reasonable care of the tow, and that
reasonable care is measured by the dangers and hazards to which the tow is or may be exposed, which it is the
duty of the master of the tug to know and to guard against not only by giving proper instructions for the
management of the tow, but by watching her when in a dangerous locality, to see that his directions are
obeyed. The duty of the tug to a tow is a continuous one from the time service commences until it is
completed. Its responsibility includes not only the proper and safe navigation of the tug on the journey, but to
furnish safe, sound and reasonable appliances and instrumentalities for the service to be performed, as well as
the giving of proper instructions as to the management of the tow; and if the locality in which the tow finds
itself at any given time is more than ordinarily dangerous, the tug is held to a proportionately higher degree of
care and skill. It is well recognized that in towing a boat built only for the shallow water of an inland stream,
such as the cascos are, greater care must necessarily be used when venturing upon an ocean voyage than with
a vessel fitted for deep water; and this applies not only in the choice of route, to select the one having the
smoothest water and affording shelter in stormy weather, but in the handing of the tow.

2. Yangco negligent
Yangco Steamship directly or through the captain failed in every duty laid upon it by the law. It
neglected to furnish suitable appliances and instrumentalities; for the tug itself was unsuitable for the purpose
in hand. It is negligence to leave two heavily loaded cascos in Manila Bay at the mercy of weather likely to
exist in the month of August for a distance of 1,500 meters with no other motive power than bamboo poles.
Also the captain of the Matulin failed to give proper instructions to the tow. If it was negligence not to
provide himself with appliances by which the cascos could be protected while passing from the mouth of the
river to the launch, it was negligence for him to ask the cascos to move out into the open sea under such
circumstances.

3. Degree of diligence and care required; Extraordinary circumstances

Although the law requires the use of only ordinary diligence and care; the law required the exercise
of more than ordinary care under the circumstances existing at the time the cascos were lost. The fact of time
of time and season and of the probability that in coming out of the river they would be met with wind and
wave
and wave and, in their helpless condition, would in all probability, if so met, be driven on the shoals, made
the situation of the cascos one of more than ordinary danger; and the tug should be held to a proportionate
higher degree of care and skill.

4. Qualification to warrant exemption from liability when proximate or immediate cause is Act of
God
While the captain of the Matulin would not have been responsible for an act of God by which the
cascos were lost, it was his duty to foresee what the weather was likely to be, and to take such precautions as
were necessary to protect his tow. It was not an act of God by which the cascos were lost; it was the direct
result of the failure of the captain of the Matulin to meet the responsibilities which the occasion placed on
him. To be exempt from liability because of an act of God the tug must be free from any previous negligence
or misconduct by which that loss or damage may have been occasioned. For, although the immediate or
proximate cause of the loss in any given instance may have been what is termed an act of God, yet, if the tug
unnecessary exposed the two such accident by any culpable act or omission of its own, it is not excused.

[54], also [137] and [- after 207]

G. Martini Ltd. vs. Macondray & Co. (GR 13972, 28 July 1919)
En Banc, Street (J): 7 concur

Facts: In September 1916, G. Martini, Ltd. arranged with Macondray & Co. Inc., as agents of the Eastern and
Australian Steamship Company, for the shipment of 219 cases or packages of chemical products from Manila,
Philippine Islands, to Kobe, Japan. On 15 September 1916 (Friday), Martini applied to Macondray for
necessary space on the steamship Eastern, and received a shipping order, which constituted authority for the
ship’s officers to receive the cargo aboard. The mate’s receipt did not come to Martini’s hand until Monday
night, but as Martini was desirous of obtaining the bills of lading on the Saturday morning preceding in order
that he might negotiate them at the bank, a request was made for the delivery of the bills of lading on that day
To effectuate this, Martini was required to enter into the written obligation, calling itself a “letter of
guarantee.” In conformity with the purpose of this document the bills of lading were issued, and the
negotiable copies were, upon the same day, negotiated at the bank by the plaintiff for 90% of the invoice
value of the goods. The bills of lading contained on their face, conspicuously stenciled, the words “on deck at
shipper’s risks.” The mate’s receipt, received by the plaintiff two days later also bore the notation “on deck at
shipper’s risk,” written with pencil, and evidently by the officer who took the cargo on board and signed the
receipt. Martini says that upon seeing the stamped “on deck at shipper’s risks”, he at once called the attention
of S. Codina thereto, the latter being an employee of the house whose duty it was to attend to all shipments of
merchandise and who in fact had entire control of all matters relating to the shipping of the cargo. Letters by
Martini, warning Macondray that it would be held liable for loss or damage if the goods were stowed on deck,
were dispatched by messenger, and upon receiving it, Macondray called Codina by telephone at about 4.30
p.m. and, referring to the communication just received, told him that Macondray could not accept the cargo
for transportation otherwise than on deck and that if Martini were dissatisfied, the cargo could be discharged
from the ship. The goods were embarked at Manila on the steamship Eastern and were carried to Kobe on the
deck of that ship, on 16 September 1916. Upon arrival at the port of destination it was found that the
chemicals comprised in the shipment had suffered damage from the effects of both fresh and salt water.

An action was instituted by Martini to recover the amount of the damage thereby occasioned. In the Court of
First Instance judgment was rendered in favor of Martini for the sum of P34,997.56, with interest from 24
March 1917, and costs of the proceeding. From this judgment, Macondray appealed.

The Supreme Court reversed the judgment appealed from and absolved Macondray from the complaint; with
no express pronouncement will be made as to the costs of either instance.
1. Damage was caused by water
The damage was caused by water, either falling in the form of rain or splashing aboard by the action
of wind and waves.

2. Paragraph 19 of the several bills of lading issued for transportation of the cargo
Paragraph 19 of the several bills of lading issued for transportation of the cargo reads “(19) Goods
signed for on this bill of lading as carried on deck are entirely at shipper’s risk, whether carried on deck or
under hatches, and the steamer is not liable for any loss or damage from any cause whatever. “

3. Shipper ordinarily produce mate’s receipt to agents of ship’s company

Ordinarily the shipper is supposed to produce the mate’s receipt to the agents of the ship’s company,
who thereupon issue the bill of lading to the shipper. When, however, the shipper desires to procure the bill of
lading before he obtains the mate’s receipt, it is customary for him to enter into a written obligation, binding
himself, among other things, to abide by the terms of the mate’s receipt. Herein,

4. Contents of the “Letter of Guarantee”

The “Letter of Guarantee” dated 16 September 1916, is of the tenor “In consideration of your signing
us clean B/L for the undermentioned cargo per above steamer to be shipped on or under deck at ship’s option,
for Kobe without production of the mate’s receipt, we hereby guarantee to hold you free from any
responsibility by your doing so, and for any expense should the whole or part of the cargo be shut out, or
otherwise, and to hand you said mate’s receipt as soon as it reaches us and to abide by all clauses and
notations on the same.”

5. Martini did nothing to discharge cargo

In order to get the cargo off certain formalities were necessary which could not be accomplished, as
for instance, the return of the mate’s receipt (which had not yet come to Martini’s hands), the securing of a
permit from the customs authorities, and the securing of an order of discharge from the steamship company.
In view of the fact that Martini did nothing whatever looking towards the discharge of the cargo, not even so
much as to notify Macondray that the cargo must come off, the proof relative to the practicability of discharge
is inconclusive. If Martini had promptly informed Macondray of their resolve to have the cargo discharged,
and the latter had nevertheless permitted the ship to sail without discharging it, there would have been some
ground for Martini’s contention that its consent had not been given for the goods to be carried on deck.
Needless to say the Court attached no weight to the statement of Codina that he was unable to get Macondray
by telephone in order to communicate directions for the discharge of the cargo.

6. Inferred reasons why Martini allowed cargo to be carried away

It is inferable that one reason why Martini allowed the cargo to be carried away without being
discharged, was that the bills had been discounted and to stop the shipment would have entailed the necessity
of refunding the money which the bank had advanced, with the inconveniences incident thereto. Another
reason apparently was that Martini discerned, or thought he discerned the possibility of shifting the risk so as
to make it fall upon the ship’s company.

7. Cordina not deceived into signing document; Guaranty permit stowage either on or under deck
at ship’s option
There was no space in the hold to take the cargo and it was unnecessary to consider whether the
chemicals to be shipped were of an explosive or inflammable character, such as to require stowage on deck.
By reason of the fact that the cargo had to be carried on deck at all events, if carried at all, the guaranty was
so drawn as to permit stowage either on or under deck at the ship’s option; and the attention of Codina must
have been drawn to this provision because Macondray refused to issue the bills of lading upon a guaranty
signed by Codina upon another form, which contained no such provision. The messenger between the two
establishments who was sent for the bills of lading accordingly had to make a second trip and go back for a
letter of guaranty signed upon the desired form.

8. Martini duly notified as to manner in which cargo was shipped, failed to give necessary
instructions manifesting acquiescence
Although Martini would have greatly preferred for the cargo to be carried under the hatches, they
nevertheless consented for it to go on deck. Codina, if attentive to the interests of his house, must have known
from the tenor of the guaranty to which his signature is affixed that Macondray had reserved the right to carry
it on deck, and when the bills of lading were delivered to Martini they plainly showed that the cargo would be
so carried. Martini was duly affected with notice as to the manner in which the cargo was shipped. No
complaint was made until after the bills of lading had been negotiated at the bank. When the manager of
Martini first had his attention drawn to the fact that the cargo was being carried on deck, he called Codina to
account, and the latter found it to his interest to feign surprise and pretend that he had been deceived by
Macondray. Even then there was time to stop the shipment, but Martini failed to give the necessary
instructions, thereby manifesting acquiescence in the accomplished fact. Martini must thus be held to have
assented to the shipment of the cargo on deck and that they are bound by the bills of lading in the form in
which they were issued.

9. Clean bill of lading and stowage of cargo on deck without consent; The Paragon
If a clean bill of lading had been issued and Martini had not consented for the cargo to go on deck,
the ship’s company would have been liable for all damage which resulted from the carriage on deck. In the
case of The Paragon (1 Ware, 326; 18 Fed. Cas. No. 10708), decided in 1836 in one of the district courts of
the United States, it appeared that cargo was shipped from Boston, Massachusetts, to Portland, Maine, upon
what is called a clean bill of lading, that is, one in the common form without any memorandum in the margin
or on its face showing that the goods are to be carried on deck. It was proved that the shipper had not given
his consent for carriage on deck. Nevertheless, the master stowed the goods on deck; and a storm having
arisen, it became necessary to jettison them. None of the cargo in the hold was lost. It was thus evident that
although the cargo in question was lost by peril of the sea, it would not have been lost except for the fact that
it was being carried on deck. It was held that the ship was liable.

10. The Paragon; Loss by fortuitous event, general average

The goods, having been lost by the dangers of the seas, both the master and the vessel are exempted
from responsibility within the common exemption in bills of lading; and the goods having been thrown
overboard from necessity, and for the safety of the vessel and cargo, as well as the lives of the crew, that it
presents a case for a general average or contribution, upon the common principle that when a sacrifice is
made for the benefit of all, that the loss shall be shared by all. In every contract of affreightment, losses by the
dangers of the seas are excepted from the risks which the master takes upon himself, whether the exception is
expressed in the contract or not. The exception is made by the law, and falls within the general principle that
no one is responsible for fortuitous events and accidents of major force. Casus fortuitous nemo praestat.

11. The Paragon; Loss by fortuitous event, exceptions

The general law is subject to an exception, that when the inevitable accident is preceded by a fault of
the debtor or person bound without which it would not have happened, then he becomes responsible for it.
Thus, the master is responsible for the safe and proper stowage of the cargo, and there is no doubt that by the
general maritime law he is bound to secure the cargo safely under deck. If the master carries goods on deck
without the consent of the shipper, he does it at his own risk. If they are damaged or lost in consequence of
their being thus exposed, he cannot protect himself from responsibility by showing that they were damaged or
lost by the dangers of the seas. When the shipper consents to his goods being carried on deck, he takes the
risk upon himself of these peculiar perils.

12. Van Horn vs. Taylor; When shipper had no notice of cargo being carried on deck
 Van Horn vs. Taylor (2 La. Ann., 587; 46 Am. Dec., 558), was a case where goods stowed on deck
were lost in a collision. The court found that the ship carrying these goods was not at fault, and that the
shipper had notice of the fact that the cargo was being carried on deck. It was held that the ship was not liable.
Said the court: “It is said that the plaintiff’s goods were improperly stowed on deck; that the deck load only
was thrown overboard by the collision, the cargo in the hold not being injured. The goods were thus laden
with the knowledge and implied approbation of the plaintiff. He was a passenger on board the steamer, and
does not appear to have made any objection to the goods being thus carried, though the collision occurred
several days after the steamer commenced her voyage.”

13. The Thomas P. Thorn; Risk of damage to shipper when contract is to carry upon deck
In the case of The Thomas P. Thorn (8 Ben., 3; 23 Fed., Cas. No. 13927), decided in the District
Court in the State of New York, it appeared that tobacco was received upon a canal boat, with the
understanding that it was to be carried on deck, covered with tarpaulins. Upon arrival at its destination it was
found damaged by water, for the most part on the top, and evidently as a consequence of rains. At the same
time a quantity of malt stowed below deck on the same voyage was uninjured. In discussing the question
whether upon a contract to carry on deck, the vessel was liable for the wetting of the tobacco, the court said:
“It is manifest that the injury to the tobacco arose simply from the fact that it was carried on deck. The malt,
carried below, although an article easily injured, received no damage, and the voyage was performed with
usual care, and without disaster. Indeed, there is evidence of a statement by the libelant, that tobacco must of
necessity be injured by being carried on deck. But, under a contract to carry upon deck, the risk of any
damage resulting from the place of carriage rests upon the shipper, and, without proof of negligence causing
the damage, there can be no recovery. Here the evidence shows that all reasonable care was taken of the
tobacco during its transportation; that the manner of stowing and covering it was known to and assented to by
the shipper; and the inference is warranted that the injury arose, without fault of the carrier, from rain, to
which merchandise transported on deck must necessarily be in some degree exposed. Any loss arising from
damaged thus occasioned is to be borne by the shipper.”

14. Lawrence vs. Minturn; Goods stowed on deck with consent of shipper jettisoned during storm
entitled to general average
Lawrence vs. Minturn (17 How [U.S,], 100; 15 L ed., 58), was a case where goods stowed on deck
with the consent of the shipper were jettisoned during a storm at sea. In discussing whether this cargo was
entitled to general average, the Supreme Court of the United States said: “The maritime codes and writers
have recognized the distinction between cargo placed on deck, with the consent of the shipper, and cargo
under deck. There is not one of them which gives a recourse against the master, the vessel, or the owners, if
the property lost had been placed on deck with the consent of its owner, and they afford very high evidence of
the general and appropriate usages, in this particular, of merchants and shipowners. So the courts of this
country and England, and the writers on this subject, have treated the owner of goods on deck, with his
consent, as not having a claim on the master or owner of the ship in case of jettison. The received law, on the
point, is expressed by Chancellor Kent, with his usual precision, in 3 Com., 240: ‘Nor is the carrier in that
case (Jettison of deck load) responsible to the owner, unless the goods were stowed on deck without the
consent of the owner, or a general custom binding him, and then he would be chargeable with the loss.’”

15. Gould vs. Oliver; Goods loaded on deck with consent of merchant, Merchant has no remedy
against shipper or master
In Gould vs. Oliver (4 Bing., N. C., 132), decided in the English Court of Common Pleas in 1837,
Tindal, C.J., said: “Where the loading on deck has taken place with the consent of the merchant, it is obvious
that no remedy against the shipowner or master for a wrongful loading of the goods on deck can exist. The
foreign authorities are indeed express; on that point. And the general rule of the English law, that no one can
maintain an action for a wrong, where he has consented or contributed to the act which occasioned his loss,
leads to the same conclusion.”
16. When shipper consents to have goods carried on deck, he takes risks of damage or loss
Where the shipper consents to have his goods carried on deck he takes the risks of any damage or loss
sustained as a consequence of their being so carried. In the present case it is indisputable that the goods were
injured during the voyage and solely as a consequence of their being on deck, instead of in the ship’s hold.
The loss must therefore fall on the owner. And this would be true, under the authorities, even though
paragraph 19 of the bills of lading had not been made a term of the contract.

17. When shipowner may be held liable

Upon general principle, and momentarily ignoring paragraph 19 of these bills of lading, the ship’s
owner might be held liable for any damage directly resulting from a negligent failure to exercise the care
properly incident to the carriage of the merchandise on deck. For instance, if it had been improperly placed or
secured, and had been swept overboard as a proximate result of such lack of care, the ship would be liable, to
the same extent as if the cargo had been deliberately thrown over without justification. So, if it had been
shown that, notwithstanding the stowage of these goods on deck, the damage could have been prevented, by
the exercise of proper skill and diligence in the discharge of the duties incumbent on the ship, the owner
might still be held.

18. Ship’s company may be liable for damage that may be avoided by use of precaution
Supposed that a custom had been proved among mariners to protect deck cargo from the elements by
putting a tarpaulin over it; or approaching still more to imaginable conditions, supposed that the persons
charged with the duty of transporting the cargo, being cognizant of the probability of damage by water, had
negligently and without good reason failed to exercise reasonable care to protect it by covering it with
tarpaulins. In such case it could hardly be denied that the ship’s company should be held liable for such
damage as might have been avoided by the use of such precaution.

19. Burden of proof

It is incumbent on Martini, if his cause of action is founded on negligence of this character, to allege
and prove that the damage suffered was due to failure of the persons in charge of the cargo to use the
diligence properly incident to carriage under these conditions.

20. Clark vs. Barnwell; Onus probandi

In Clark vs. Barnwell (12 How. [U.S.], 272; 13 L. ed., 985), the Supreme Court distinguishes with
great precision between the situation where the burden of proof is upon the shipowner to prove that the loss
resulted from an excepted peril and that where the burden of proof is upon the owner of the cargo to prove
that the loss was caused by negligence on the part of the persons employed in the conveyance of the goods.
The first two syllabi in Clark vs. Barnwell read as follows: “Where goods are shipped and the usual bill of
lading given, ‘promising to deliver them in good order, the dangers of the seas excepted,’ and they are found
to be damaged the onus probandi is upon the owners of the vessel, to show that the injury was occasioned by
one of the excepted causes. But, although the injury may have been occasioned by one of the excepted causes,
yet still the owners of the vessel are responsible if the injury might have been avoided, by the exercise of
reasonable skill and attention on the part of the persons employed in the conveyance of the goods. But the
onus probandi then becomes shifted upon the shipper, to show the negligence.

21. Clark vs. Barnwell; Damage due to dampness not the fault of master or owners
Notwithstanding the proof was clear that the damage was occasioned by the effect of the humidity
and dampness of the vessel, which is one of the dangers of navigation, it was competent for the libelants to
show that the shipowner and master might have prevented it by proper skill and diligence in the discharge of
their duties; but no such evidence is found in the record. For caught that appears every precaution was taken
that is usual or customary, or known to shipmasters, to avoid the damage in question. It is to be attributed
exclusively to the dampness of the atmosphere of the vessel, without negligence or fault on the part of the
master or owners.
22. Damage caused by rain and sea water, Macondray not liable
Herein, the damage was caused by rain and sea water — the risk of which is inherently incident to
carriage on deck — Macondray cannot be held liable. It is not permissible for the court, in the absence of any
allegation or proof of negligence, to attribute negligence to the ship’s employees in the matter of protecting
the goods from rains and storms. The complaint clearly indicates that the damage done was due to the mere
fact of carriage on deck, no other fault or delinquency on the part of anybody being alleged.

23. Paragraph 19 of bills of lading would not protect ship from liability for consequences of
negligent acts
By the terms of paragraph 19 of the bills of lading, the ship is not to be held liable, in the case of
goods signed for as carried on deck, for any loss or damage from any cause whatever. This provision would
not have protected the ship from liability for the consequences of negligent acts, if negligence had been
alleged and proved. From the discussion in Manila Railroad Co. vs. Compania Transatlantica and Atlantic,
Gulf & Pacific Co. (38 Phil. Rep., 875), it may be collected that the carrier would be held liable in such case,
notwithstanding the exemption contained in paragraph 19. But however that may be damages certainly cannot
be recovered on the ground of negligence, even from a carrier, where negligence is neither alleged nor
proved.

[55], also [150]

Heirs of de los Santos vs. CA (GR 51165, 21 June 1990)

First Division, Medialdea (J): 4 concur

Facts: On 2 November 1967, Mauricio de los Santos accompanied his common-law wife, Amparo delos
Santos, and children, namely: Romeo, Josie, Hernani (10 years old), Abella (7 years old), Maria Lemia (5
years old) and Melany (5 months old), to pier 8, North Harbor, Manila, to board the M/V ‘Mindoro’, owned
by Compania Maritima, bound for Aklan. Amparo delos Santos and the aforesaid children brought all their
belongings, including household utensils valued at P1,000.00, with the intention of living in Aklan
permanently. On the other hand, as to spouses Diego Salim and Teresa Pamatian, Diego brought with him
P200 in cash and some belongings, while Teresa brought some cash and personal belongings worth P250.
Diego boarded the vessel even if he did not have yet a ticket. As to Ruben Reyes, he brought with him
personal belongings and cash in the amount of P2,900. M/V ‘Mindoro’ sailed from pier 8 North Harbor,
Manila, at about 6:00 p.m. (should have sailed at 2:00 p.m.) of said day bound for New Washington, Aklan,
with many passengers aboard (about 200). Amparo was not included in the manifest as she boarded the boat
without ticket, but appeared to have purchased one in the vessel. It appears that said vessel met typhoon
‘Welming’ on the Sibuyan Sea, Aklan, at about 5:00 a.m. of 4 November 1967 causing the death of many of
its passengers, including Amparo delos Santos and her children. Other drowned victims include spouses
Teresa Pamatian and Diego Salim, and also Felix Reyes Jakusalam. 136 survived the accident, including
Ruben Reyes and Eliadora Crisostomo de Justo. Eliandora was able to board a balsa, while Ruben was able to
swim to an island and with others, rescued later on and brought to the hospital.

A complaint was originally filed on 21 October 1968 and amended on 24 October 1968 by the heirs of Delos
Santos and others as pauper litigants against the Compania Maritima, for damages due to the death of several
passengers as a result of the sinking of the M/V ‘Mindoro’. The trial court, on 27 March 1974, adjudged the
case in favor of Compania Maritima, dismissing the case due to lack of sufficient evidence.

Forthwith, Reyes, and the heirs of the Delos Santos(es), Diego Salim, and Teresa Pamatian brought an appeal
to the Court of Appeals. The appellate court affirmed the decision on appeal.

The Supreme Court reversed the appealed decision, and rendered judgment sentencing Compania Maritima to
pay the following: (1) P30,000.00 as indemnity for death to the heirs of each of the victims; (2) P10,000.00 as
moral damages to the heirs of each of the victims; (3) P6,805.00 as actual damages divided among the
petitioners as follows: heirs of Amparo Delos Santos and her deceased children, P2,000.00; heirs of Teresa
Pamatian, P450.00; heirs of Diego Salem, P400.00; and Ruben Reyes, P2,955.00; (4) P10,000.00 as
attorney’s fees; and (5) the costs.

1. Article 587 of the Code of Commerce

Article 587 of the Code of Commerce provides that “The ship agent shall also be civilly liable for
indemnities in favor of third persons which may arise from the conduct of the captain in the care of the goods
which he loaded on the vessel, but he may exempt himself therefrom by abandoning the vessel with all her
equipment’s and the freight it may have earned during the voyage.”

2. Liability of shipowner or agent confined to which he is entitled as to right to abandon

Under Article 587 of the Code of Commerce, a shipowner or agent has the right of abandonment; and
by necessary implication, his liability is confined to that which he is entitled as of right to abandon — “the
vessel with all her equipment’s and the freight it may have earned during the voyage” (Yangco v. Laserna, et
al., 73 Phil. 330, 332).

3. Article 587 of the Code of Commerce still a good law; Reason

Notwithstanding the passage of the New Civil Code, Article 587 of the Code of Commerce is still
good law. The reason lies in the peculiar nature of maritime law is which is “exclusively real and hypothecary
that operates to limit such liability to the value of the vessel, or to the insurance thereon, if any (Yangco v.
Laserna, ibid). This rule is found necessary to offset against the innumerable hazards and perils of a sea
voyage and to encourage shipbuilding and marine commerce.

4. Application of the limited liability doctrine

The limited liability doctrine applies not only to the goods but also in all cases like death or injury to
passengers wherein the shipowner or agent may properly be held liable for the negligent or illicit acts of the
captain (Yangco v. Laserna, ibid). Article 587 speaks only of situations where the fault or negligence is
committed solely by the captain. In cases where the shipowner is likewise to be blamed, Article 587 does not
apply (see Manila Steamship Co., Inc. v. Abdulhanan, et al., 100 Phil. 32, 38). Such a situation will be
covered by the provisions of the New Civil Code on Common Carriers.

5. Extraordinary diligence in vigilance over goods and safety of passengers required of common
carriers; Utmost diligence of very cautious persons in carrying passengers; Presumption of fault
Owing to the nature of their business and for reasons of public policy, common carriers are tasked to
observe extraordinary diligence in the vigilance over the goods and for the safety of its passengers (Article
1733, New Civil Code). Further, they are bound to carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the
circumstances (Article 1755, New Civil Code). Whenever death or injury to a passenger occurs, common
carriers are presumed to have been at fault or to have acted negligently unless they prove that they observed
extraordinary diligence as prescribed by Articles 1733 and 1755 (Article 1756, New Civil Code).

6. Modern technology belie contention that Maritima did not have information as to typhoon
Welming
Modern technology belie Maritima’s contention that it did not have any information about typhoon
‘Welming’ until after the boat was already at sea. The Weather Bureau is now equipped with modern
apparatus which enables it to detect any incoming atmospheric disturbances. During the periods of November
1-5, 1967, the Bureau issued a total of 17 warnings or advisories of typhoon ‘Welming’ to shipping
companies. Considering the the late departure of the ship at 6:00 p.m. (instead of the scheduled 2:00 p.m.
departure) on 2 November 1967, it is highly improbable that the Weather Bureau had not yet issued any
typhoon bulletin at any time during the day to the shipping companies. Maritima submitted no convincing
evidence to show this omission.

7. Ship’s captain aware of typhoon, Maritima duly informed; Maritima displayed lack of foresight
and minimum concern for safety of passengers
Herein, It cannot be true that he was apprised of the typhoon only at about 11:00 a.m. on 3 November
1967 when the Weather report was transmitted to him from the Weather Bureau at which time he plotted its
position. For in his radiogram sent to Maritima’s office in Manila as early as 8:07 a.m. of 3 November 1967,
he stated in the concluding portion “still observing weather condition.” thereby implicitly suggesting that he
had known even before departure of the unusual weather condition. “ If the captain knew of the typhoon
beforehand, it is inconceivable for Maritima to be totally in the dark of ‘Welming.’ In allowing the ship to
depart late from Manila despite the typhoon advisories, Maritima displayed lack of foresight and minimum
concern for the safety of its passengers taking into account the surrounding circumstances of the case.

8. Maritima shares equally in ship captain’s negligence

While the captain was negligent for overloading the ship, Maritima shares equally in his negligence.
While M/V Mindoro was already cleared by the Bureau of Customs and the Coast Guard for departure at 2:00
p.m. the ship’s departure was, however, delayed for 4 hours. Maritima could not account for the delay
because it neither checked from the captain the reasons behind the delay nor sent its representative to inquire
into the cause of such delay. It was due to this interim that iindeed there is a great probability that
unmanifested cargo (such as dump truck, 3 Toyota cars, steel bars, and 6,000 beer cases) and passengers
(about 241 more than the authorized 193 passengers) were loaded during the 4 hour interval.” Perchance, a
closer supervision could have prevented the overloading of the ship. Maritima could have directed the ship’s
captain to immediately depart in view of the fact that as of 11:07 a.m. of 2 November 1967, the typhoon had
already attained surface winds of about 240 kilometers per hour. Verily, if it were not for this delay, the vessel
could have reached its destination and thereby have avoided the effects of the storm. This conclusion was
buttressed by evidence that another ship, M/V Mangaren, an inter island vessel, sailed for New Washington,
Aklan on 2 November 1967, ahead of M/V Mindoro and took the same route as the latter but it arrived safely.

9. Seaworthiness; Necessity of installation of a radar

Maritima presents evidence of the seaworthy condition of the ship prior to its departure to prove that
it exercised extraordinary diligence in this case. M/V Mindoro was dry-docked for about a month. Necessary
repairs were made on the ship. Life saving equipment and navigational instruments were installed. Maritima,
however, could not present evidence that it specifically installed a radar which could have allowed the vessel
to navigate safely for shelter during a storm. Consequently, the vessel was left at the mercy of ‘Welming’ in
the open sea because although it was already in the vicinity of the Aklan river, it was unable to enter the
mouth of Aklan River to get into New Washington, Aklan due to darkness and the Floripon Lighthouse at the
entrance of the Aklan River was not functioning or could not be seen at all. With the impending threat of
‘Welming,’ an important device such as the radar could have enabled the ship to pass through the river and to
safety.

10. Storms and typhoons not strange occurrences

Storms and typhoons are not strange occurrences. In 1967 alone before ‘Welming,’ there were about
17 typhoons that hit the country, the latest of which was typhoon Uring which occurred on October 20-25,
which cost so much damage to lives and properties.

11. Maritima’s negligence proximate cause of sinking of M/V Mindoro

Maritima’s lack of extraordinary diligence coupled with the negligence of the captain were the
proximate causes of the sinking of M/V Mindoro. Hence, Maritima is liable for the deaths and injury of the
victims.
12. Trial court generally fix amount of damages; Exceptions
Ordinarily, the Supreme Court would remand the case to the trial court for the reception of evidence.
Considering however, that the case has been pending for almost 23 years and that since all the evidence had
already been presented by both parties and received by the trial court, the Supreme Court resolved to decide
the corresponding damages due to petitioners (see Samal v. Court of Appeals, 99 Phil. 230; Del Castillo v.
Jaymalin, L-28256, March 17, 1982, 112 SCRA 629).

13. Amount of damages for the death of passenger caused by breach of contract of carriage
Under Article 1764 in relation to Article 2206 of the New Civil Code, the amount of damages for the
death of a passenger caused by the breach of contract by a common carrier is at least P3,000.00. The
prevailing jurisprudence has increased the amount of P3,000.00 to P30,000.00 (De Lima v. Laguna Tayabas
Co., L-35697-99, April 15, 1988, 160 SCRA 70). Consequently, Maritima should pay the civil indemnity of
P30,000.00 to the heirs of each of the victims. For mental anguish suffered due to the deaths of their relatives,
Maritima should also pay to the heirs the sum of P10,000.00 each as moral damages.

14. Actual damages

In addition, at the time of death, (1) Amparo delos Santos had with her cash in the sum of P1,000.00
and personal belongings valued at P500.00; (2) Teresa Pamatian, cash in the sum of P250.00 and personal
belongings worth P200.00; and (3) Diego Salem, cash in the sum of P200.00 and personal belongings valued
at P100.00. Likewise, the heirs of Amparo delos Santos and her deceased children incurred transportation and
incidental expenses in connection with the trial in the amount of P500.00 while Dominador Salem, son of
victim Diego Salem and nephew of victim Teresa Pamatian spent about P100.00 for expenses at the trial. With
respect to Reyes, the evidence shows that at the time of the disaster, he had in his possession cash in the sum
of P2,900.00 and personal belongings worth P100.00. Further, due to the disaster, Reyes was unable to work
for 3 months due to shock and he was earning P9.50 a day or in a total sum of P855.00. He also spent about
P100.00 for court expenses. For such losses and incidental expenses at the trial of the case, Maritima should
pay the amounts to the petitioners as actual damages.

15. Moral damages not due; Exception to rule that moral damages not recoverable in action based
on breach of contract
Reyes’ claim for moral damages cannot be granted inasmuch as the same is not recoverable in
damage action based on the breach of contract of transportation under Articles 2219 and 2220 of the New
Civil Code except (1) where the mishap resulted in the death of a passenger and (2) where it is proved that the
carrier was guilty of fraud or bad faith, even if death does not result (Rex Taxicab Co., Inc. v. Bautista, 109
Phil. 712). The exceptions do not apply in the present case since Reyes survived the incident and no evidence
was presented to show that Maritima was guilty of bad faith. Mere carelessness of the carrier does not per se
constitute or justify an inference of malice or bad faith on its part (Rex Taxicab Co., Inc. v. Bautista, supra).

16. Exemplary damages not due

Anent the claim for exemplary damages, the Court is not inclined to grant the same in the absence of
gross or reckless negligence in this case.

17. Attorney’s fees

As regards the claim for attorney’s fees, the records reveal that the petitioners engaged the services of
a lawyer and agreed to pay the sum of P3,000.00 each on a contingent basis. In view thereof, The Court finds
the sum of P10,000.00 as a reasonable compensation for the legal services rendered.

[56]

International Department Store vs. Jabellana

[57]

Compania Maritima vs. CA (GR L-31379, 29 August 1988)

Third Division, Fernan (J): 4 concur

Facts: Vicente E. Concepcion, a civil engineer doing business under the name and style of Consolidated
Construction with office address at Room 412, Don Santiago Bldg., Taft Avenue, Manila, had a contract with
the Civil Aeronautics Administration (CAA) sometime in 1964 for the construction of the airport in Cagayan
de Oro City, Misamis Oriental. Being a Manila-based contractor, Concepcion had to ship his construction
equipment to Cagayan de Oro City. Having shipped some of his equipment through Compania Maritima and
having settled the balance of P2,628.77 with respect to said shipment, Concepcion negotiated anew with
Concepcion, thru its collector, Pacifico Fernandez, on 28 August 1964 for the shipment to Cagayan de Oro
City of 1 unit payloader, 4 units 6x6 Reo trucks and 2 pieces of water tanks. He was issued Bill of Lading 113
on the same date upon delivery of the equipment at the Manila North Harbor. These equipment were loaded
aboard the MV Cebu in its Voyage 316, which left Manila on 30 August 1964 and arrived at Cagayan de Oro
City in the afternoon of 1 September 964. The Reo trucks and water tanks were safely unloaded within a few
hours after arrival, but while the payloader was about 2 meters above the pier in the course of unloading, the
swivel pin of the heel block of the port block of Hatch 2 gave way, causing the payloader to fall. The
payloader was damaged and was thereafter taken to Compania Maritima’s compound in Cagayan de Oro City.
On 7 September 1964, Consolidated Construction, thru Concepcion, wrote Compania Maritima to demand a
replacement of the payloader which it was considering as a complete loss because of the extent of damage.
Consolidated Construction likewise notified Compania Maritima of its claim for damages. Unable to elicit
response, the demand was repeated in a letter dated 2 October 1964. Meanwhile, Compania Maritima shipped
the payloader to Manila where it was weighed at the San Miguel Corporation. Finding that the payloader
weighed 7.5 tons and not 2.5 tons as declared in the Bill of Lading, Compania Maritima denied the claim for
damages of Consolidated Construction in its letter dated 7 October 1964, contending that had Concepcion
declared the actual weight of the payloader, damage to their ship as well as to his payloader could have been
prevented. To replace the damaged payloader, Consolidated Construction in the meantime bought a new one
at P45,000.00 from Bormaheco, Inc. on 3 December 1964.

On 6 July 1965, Concepcion filed an action for damages against Compania Maritima with the then CFI of
Manila (Branch VII, Civil Case 61551), seeking to recover damages in the amount of P41,225.00 allegedly
suffered for the period of 97 days that he was not able to employ a payloader in the construction job at the
rate of P450.00 a day; P34,000.00 representing the cost of the damaged payloader; P11,000.00 representing
the difference between the cost of the damaged payloader and that of the new payloader; P20,000.00
representing the losses suffered by him due to the diversion of funds to enable him to buy a new payloader;
P10,000.00 as attorney’s fees; P5,000.00 as exemplary damages; and cost of the suit. After trial, the then CFI
dismissed on 24 April 1968 the complaint with costs against Concepcion, stating that the proximate cause of
the fall of the payloader was Concepcion’s act or omission in having misrepresented the weight of the
payloader as 2.5 tons, which underdeclaration was intended to defraud Compañia Maritima of the payment of
the freight charges and which likewise led the Chief Officer of the vessel to use the heel block of hatch 2 in
unloading the payloader.

From the adverse decision against him, Concepcion appealed to the Court of Appeals which, on 5 December
1965 rendered a decision, reversing the trial court, and ordering Compania Maritima to pay unto Concepcion
the sum in damages of P24,652.07 with legal interest from the date the decision shall have become final; and
declared the payloader abandoned to Compania Maritima; with costs against the latter. Hence, the petition for
review on certiorari.
The Supreme Court denied the petition; affirmed the decision of the Court of Appeals in all respects with
costs against Compania Maritima, and in view of the length of time this case has been pending, ordered that
the decision is immediately executory.

1. Article 1734 (3) NCC

Paragraph 3 of Article 1734 of the Civil Code provides that “Common carriers are responsible for the
loss, destruction, or deterioration of the goods, unless the same is due to any of the following causes only:
xxx “(3) Act or omission of the shipper or owner of the goods.”

2. General rule under Articles 1735 and 1752 NCC; Negligence presumed
The general rule under Articles 1735 and 1752 of the Civil Code is that common carriers are
presumed to have been at fault or to have acted negligently in case the goods transported by them are lost,
destroyed or had deteriorated. To overcome the presumption of liability for the loss, destruction or
deterioration of the goods under Article 1735, the common carriers must prove that they observed
extraordinary diligence as required in Article 1733 of the Civil Code. The responsibility of observing
extraordinary diligence in the vigilance over the goods is further expressed in Article 1734 of the same Code.

3. Burden of proof incumbent on common carrier

Corollary is the rule that mere proof of delivery of the goods in good order to a common carrier, and
of their arrival at the place of destination in bad order, makes out prima facie case against the common carrier,
so that if no explanation is given as to how the loss, deterioration or destruction of the goods occurred, the
common carrier must be held responsible. Otherwise stated, it is incumbent upon the common carrier to prove
that the loss, deterioration or destruction was due to accident or some other circumstances inconsistent with
its liability.

4. Rationale for the requirement of extraordinary diligence; Article 1733 NCC

Extraordinary diligence is required of common carriers in the vigilance over the goods transported by
them by virtue of the nature of their business, which is impressed with a special public duty. Article 1733 of
the Civil Code provides that “Common carriers, from the nature of their business and for reason of public
policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them according to all the circumstances of each case. Such extraordinary diligence
in the vigilance over the goods is further expressed in Articles 1734, 1735 and 1745, Nos. 5, 6 and 7…”

5. Precaution required of common carrier to avoid damage or destruction to goods

The extraordinary diligence in the vigilance over the goods tendered for shipment requires the
common carrier to know and to follow the required precaution for avoiding damage to, or destruction of the
goods entrusted to it for safe carriage and delivery. It requires common carriers to render service with the
greatest skill and foresight and “to use all reasonable means to ascertain the nature and characteristic of goods
tendered for shipment, and to exercise due care in the handling and stowage, including such methods as their
nature requires.” Under Article 1736 of the Civil Code, the responsibility to observe extraordinary diligence
commences and lasts from the time the goods are unconditionally placed in the possession of, and received by
the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the
consignee, or to the person who has the right to receive them without prejudice to the provisions of Article
1738.

6. Compania Maritima negligent due to its laxity and carelessness in method to ascertain weight
of heavy cargoes
Herein, there was laxity and carelessness among Compania Maritima’s crew in their methods of
ascertaining the weight of heavy cargoes offered for shipment before loading and unloading them, as is
customary among careful persons. The weight submitted by shipper Concepcion as an addendum to the
original enumeration of equipment to be shipped was entered into the bill of lading by Compania Maritima,
thru Pacifico Fernandez, a company collector, without seeing the equipment to be shipped. Mr. Mariano
Gupana, assistant traffic manager of Maritima Compania, confirmed that the company never checked the
information entered in the bill of lading. Worse, the weight of the payloader as entered in the bill of lading
was assumed to be correct by Mr. Felix Pisang, Chief Officer of MV Cebu. The weights stated in a bill of
lading are prima facie evidence of the amount received and the fact that the weighing was done by another
will not relieve the common carrier where it accepted such weight and entered it on the bill of lading.
Besides, common carriers can protect themselves against mistakes in the bill of lading as to weight by
exercising diligence before issuing the same.

7. Compania Maritima negligent in using 5-ton capacity lifting apparatus to unload payloader
Herein, Compania Maritima failed to take the necessary and adequate precautions for avoiding
damage to, or destruction of, the payloader entrusted to it for safe carriage and delivery to Cagayan de Oro
City. It used a 5-ton capacity lifting apparatus to lift and unload a visibly heavy cargo like a payloader. Mr.
Felix Pisang, Chief Officer of the MV Cebu, took the bill of lading on its face value and presumed the same
to be correct by merely “seeing’ it. Acknowledging that there was a “jumbo” in the MV Cebu which has the
capacity of lifting 20 to 25 ton cargoes, Mr. Felix Pisang chose not to use it, because according to him, since
the ordinary boom has a capacity of 5 tons while the payloader was only 2.5 tons, he did not bother to use the
“jumbo” anymore.

8. Misdeclaration as to weight not an excuse for common carrier to avoid liability

Herein, Concepcion’s act of furnishing Compania Maritima with an inaccurate weight of the
payloader cannot be used by the latter as an excuse to avoid liability for the damage caused, as the same could
have been avoided had the latter utilized the “jumbo” lifting apparatus which has a capacity of lifting 20 to 25
tons of heavy cargoes. It is a fact known to the Chief Officer of MV Cebu that the payloader was loaded
aboard the MV Cebu at the Manila North Harbor on 28 August 1964 by means of a terminal crane. Even if
Compania Maritima chose not to take the necessary precaution to avoid damage by checking the correct
weight of the payloader, extraordinary care and diligence compel the use of the “jumbo” lifting apparatus as
the most prudent course for Compania Maritima.

9. Article 1741; Contributory negligence

Article 1741 of the Code provides that “If the shipper or owner merely contributed to the loss,
destruction or deterioration of the goods, the proximate cause thereof being the negligence of the common
carrier, the latter shall be liable in damages, which however, shall be equitably reduced.”

10. Contributory negligence of shipper mitigates liability of common carrier

While Concepcion’s act of furnishing Compania Maritima with an inaccurate weight of the payloader
cannot successfully be used as an excuse by the latter to avoid liability to the damage thus caused, said act
constitutes a contributory circumstance to the damage caused on the payloader, which mitigates the liability
for damages of the latter.

11. Award of recoverable amount of damages reduced

The conclusion of the Court of Appeals – reducing the recoverable amount of damages by 20% or 1/5
of the value of the payloader, valued at P34,000.00, thereby reducing the recoverable amount at 80% or 4/5 of
P34,000.00 or the sum of P27,200.00 – was equitable. Considering that the freight charges for the entire
cargoes shipped by Concepcion amounting to P2,318.40 remained unpaid, the same would be deducted from
the P27,000.00 plus an additional deduction of P228.63 representing the freight charges for the undeclared
weight of 5 tons (difference between 7.5 and 2.5 tons) leaving, therefore, a final recoverable amount of
damages of P24,652.97 due to Concepcion.

12. Assignment of errors by appellee only to maintain judgment on other grounds; Appeal required
to modify or reverse judgment
 It is well-settled that an appellee, who is not an appellant, may assign errors in his brief where his
purpose is to maintain the judgment on other grounds, but he may not do so if his purpose is to have the
judgment modified or reversed, for, in such case, he must appeal. Herein, since Concepcion did not appeal
from the judgment insofar as it limited the award of damages due him, the reduction of 20% or 1/5 of the
value of the payloader stands.

[58] Ganzon vs. CA, see [41]

[59]

HE Heacock vs. Macondray (GR 16598, 3 October 1921)

Second Division, Johnson (J): 4 concur

Facts: On 5 June 1919, HE Heacock caused to be delivered on board the steamship Bolton Castle, then in the
harbor of New York, 4 cases of merchandise one of which contained 12 8-day Edmond clocks, properly
boxed and marked for transportation to Manila, and paid freight on said clocks from New York to Manila in
advance. The said steamship arrived in the port of Manila on or about the 10 September 1919, consigned to
Macondray & Co. Inc. as agent and representative of said vessel in said port. Neither the master of said vessel
nor Macondray, as its agent, delivered to HE Heacock the 12 8-day Edmond clocks, although demand was
made upon them for their delivery. The invoice value of the said 12 8-day Edmond clocks in the city of New
York was P22 and the market value of the same in the City of Manila at the time when they should have been
delivered to HE Heacock was P420. The case containing the 12 8-day Edmond clocks measured 3 cubic feet,
and the freight ton value thereof was $1,480. No greater value than $500 per freight ton was declared by HE
Heacock on the clocks, and no ad valorem freight was paid thereon. On 9 October 1919, Macondray tendered
to HE Heacock P76.36, the proportionate freight ton value of the aforesaid 12 8-day Edmond clocks, in
payment of HE Heacock’s claim, which tender HE Heacock rejected.

HE Heacock commenced in the CFi of Manila an action to recover the sum of P420 together with interest
thereon. The lower court rendered judgment in favor of HE Heacock against Macondray for the sum of
P226.02, this being the invoice value of the clocks in question plus the freight and insurance thereon, with
legal interest thereon from 20 November 1919, the date of the complaint, together with costs. From that
judgment both parties appealed to the Supreme Court.

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

1. Contents of the Bill of Lading

The bill of lading issued and delivered to HE Heacock by the master of the said steamship Bolton
Castle contained, among others, the following clauses: (1) It is mutually agreed that the value of the goods
receipted for above does not exceed $500 per freight ton, or, in proportion for any part of a ton, unless the
value be expressly stated herein and ad valorem freight paid thereon. xxx (9) Also, that in the event of claims
for short delivery of, or damage to, cargo being made, the carrier shall not be liable for more than the net
invoice price plus freight and insurance less all charges saved, and any loss or damage for which the carrier
may be liable shall be adjusted pro rata on the said basis.”

2. Three kinds of stipulations often found in a bill of lading

Three kinds of stipulations have often been made in a bill of lading. The first is one exempting the
carrier from any and all liability for loss or damage occasioned by its own negligence. The second is one
providing for an unqualified limitation of such liability to an agreed valuation. And the third is one limiting
the liability of the carrier to an agreed valuation unless the shipper declares a higher value and pays a higher
rate of freight. According to an almost uniform weight of authority, the first and second kinds of stipulations
are invalid as being contrary to public policy, but the third is valid and enforceable.
3. Authorities supporting invalidity of absolute exemption from liability and unqualified
limitation to an agreed valuation
The Harter Act (Act of Congress of 13 February 1893), Louisville Ry. Co. vs. Wynn (88 Tenn., 320),
and Galt vs. Adams Express Co. (4 McAr., 124; 48 Am. Rep., 742) support the proposition that the first and
second stipulations in a bill of lading are invalid which either exempt the carrier from liability for loss or
damage occasioned by its negligences or provide for an unqualified limitation of such liability to an agreed
valuation.

4. Hart vs. Pennsylvania RR Co.

In the case of Hart vs. Pennsylvania R. R. Co., it was held that “where a contract of carriage, signed
by the shipper, is fairly made with a railroad company, agreeing on a valuation of the property carried, with
the rate of freight based on the condition that the carrier assumes liability only to the extent of the agreed
valuation, even in case of loss or damage by the negligence of the carrier, the contract will be upheld as
proper and lawful mode of recurring a due proportion between the amount for which the carrier may be
responsible and the freight he receives, and protecting himself against extravagant and fanciful valuations.”

5. Union Pacific Railway Co. vs. Burke

In the case of Union Pacific Railway Co. vs. Burke, the court said: “In many cases, from the decision
in Hart vs. Pennsylvania R. R. Co. (112 U. S., 331; 28 L. ed., 717; 5 Sup. Ct. Rep., 151, decided in 1884), to
Boston & M. R. Co. vs. Piper (246 U. S., 439; 62 L. ed., 820; 38 Sup. Ct. Rep., 354; Ann. Cas. 1918 E, 469,
decided in 1918), it has been declared to be the settled Federal law that if a common carrier gives to a shipper
the choice of two rates, the lower of them conditioned upon his agreeing to a stipulated valuation of his
property in case of loss, even by the carrier’s negligence, if the shipper makes such a choice, understandingly
and freely, and names his valuation, he cannot thereafter recover more than the value which he thus places
upon his property As a matter of legal distinction, estoppel is made the basis of this ruling, — that, having
accepted the benefit of the lower rate, in common honesty the shipper may not repudiate the conditions on
which it was obtained, — but the rule and the effect of it are clearly established.”

6. Limited Liability of a Carrier, based upon an agreed value, not contrary to public policy
A carrier may not, by a valuation agreement with a shipper, limit its liability in case of the loss by
negligence of an interstate shipment to less than the real value thereof, unless the shipper is given a choice of
rates, based on valuation. A limitation of liability based upon an agreed value to obtain a lower rate does not
conflict with any sound principle of public policy; and it is not conformable to plain principle of justice that a
shipper may understate value in order to reduce the rate and then recover a larger value in case of loss.

7. Clauses 1 and 9 falls within third kind of stipulation; Article 1255 NCC
A reading of clauses 1 and 9 of the bill of lading clearly shows that the present case falls within the
third stipulation, to wit: That a clause in a bill of lading limiting the liability of the carrier to a certain amount
unless the shipper declares a higher value and pays a higher rate of freight, is valid and enforceable. This
proposition is supported by a uniform lien of decisions of the Supreme Court of the United States rendered
both prior and subsequent to the passage of the Harter Act, from the case of Hart vs. Pennsylvania R. R. Co.
(decided Nov. 24, 1884; 112 U. S., 331), to the case of the Union Pacific Ry. Co. vs. Burke (decided Feb. 28,
1921, Advance Opinions, 1920-1921, p. 318). Clauses 1 and 9 are not contrary to public order. Article 1255
of the Civil Code provides that “the contracting parties may establish any agreements, terms and conditions
they may deem advisable, provided they are not contrary to law, morals or public order.” Said clauses of the
bill of lading are, therefore, valid and binding upon the parties thereto.

8. Irreconcilable conflict between Clauses 1 and 9 with regard to the measure of Macondray’s
liability
Whereas clause 1 contains only an implied undertaking to settle in case of loss on the basis of not
exceeding $500 per freight ton, clause 9 contains an express undertaking to settle on the basis of the net
invoice price plus freight and insurance less all charges saved. “Any loss or damage for which the carrier may
be liable shall be adjusted pro rata on the said basis,” clause 9 expressly provides. It seems that there is an
irreconcilable conflict between the two clauses with regard to the measure of Macondray’s liability. It is
difficult to reconcile them without doing violence to the language used and reading exceptions and conditions
into the undertaking contained in clause 9 that are not there.

9. A contract, in case of doubt, be interpreted against the party who drew the contract
The bill of lading should be interpreted against the carrier, which drew said contract. “A written
contract should, in case of doubt, be interpreted against the party who has drawn the contract.” (6 R. C. L.,
854.) It is a well-known principle of construction that ambiguity or uncertainty in an agreement must be
construed most strongly against the party causing it. (6 R. C. L., 855.) These rules are applicable to contracts
contained in bills of lading. “In construing a bill of lading given by the carrier for the safe transportation and
delivery of goods shipped by a consignor, the contract will be construed most strongly against the carrier, and
favorably to the consignor, in case of doubt in any matter of construction.” (Alabama, etc. R. R. Co. vs.
Thomas, 89 Ala., 294; 18 Am. St. Rep., 119.)

[60]

St. Paul Fire & Marine Insurance vs. Macondray (GR L-27795, 25 March 1976)
Second Division, Antonio (J): 4 concur, 1 on leave, 1 designated to sit in second division

Facts: On 29 June 1960, Winthrop Products, Inc., of New York, New York, U.S.A., shipped aboard the SS
“Tai Ping”, owned and operated by Wilhelm Wilhelmsen, 218 cartons and drums of drugs and medicine, with
the freight prepaid, which were consigned to Winthrop-Steams, Inc., Manila, Philippines. Barber Steamship
Lines, Inc., agent of Wilhelm Wilhelmsen issued Bill of Lading 34, in the name of Winthrop Products, Inc. as
shipper, with arrival notice in Manila to consignee Winthrop-Stearns, Inc., Manila, Philippines. The shipment
was insured by the shipper against loss and/or damage with the St. Paul Fire & Marine Insurance Company
under its insurance Special Policy OC-173766 dated 23 June 1960. On 7 August 1960, the SS “Tai Ping”
arrived at the Port of Manila and discharged its shipment into the custody of Manila Port Service, the arrastre
contractor for the Port of Manila. The said shipment was discharged complete and in good order with the
exception of 1 drum and several cartons which were in bad order condition. Because consignee failed to
receive the whole shipment and as several cartons of medicine were received in bad order condition, the
consignee filed the corresponding claim in the amount of P1,109.67 representing the C.I.F. value of the
damaged drum and cartons of medicine with the carrier, and the Manila Port Service. However, both refused
to pay such claim. Consequently, the consignee filed its claim with the insurer, St. Paul Fire & Marine
Insurance Co., and the insurance company, on the basis of such claim, paid to the consignee the insured value
of the lost and damaged goods, including other expenses in connection therewith, in the total amount of
$1,134.46.

On 5 August 1961, as subrogee of the rights of the shipper and/or consignee, the insurer, St. Paul Fire &
Marine Insurance, instituted with the CFI of Manila an action against Macondray & Co., Barber Steamship
Lines, Wilhelm Wilhelmsen, Manila Port Service and/or Manila Railroad Company for the recovery of said
amount of $1,134.46, plus costs. After due trial, the lower court, on 10 March 1965 rendered judgment
ordering Macondray & Co., Inc., Barber Steamship Lines, Inc. and Wilhelm Wilhelmsen to pay to the
insurance company, jointly and severally, the sum of P300.00, with legal interest thereon from the filing of the
complaint until fully paid, and Manila Railroad Company and Manila Port Service to pay to the insurance
company, jointly and severally, the sum of P809.67, with legal interest thereon from the filing of the
complaint until fully paid, the costs to be borne by all the defendants. On 12 April 1965, the insurance
company, contending that it should recover the amount of $1,134.46, or its equivalent in pesos at the rate of
P3.90, instead of P2.00, for every US$1.00, filed a motion for reconsideration, but this was denied by the
lower court on 5 May 1965. Hence, the appeal.
The Court of Appeals certified the case to the Supreme Court on the ground that the appeal involves purely
questions of law. The Supreme Court affirmed the appealed decision, with costs against the insurance
company.

1. Purpose of the bill of lading; Limited Liability of Carrier

The purpose of the bill of lading is to provide for the rights and liabilities of the parties in reference to
the contract to carry. The stipulation in the bill of lading limiting the common carrier’s liability to the value of
the goods appearing in the bill, unless the shipper or owner declares a greater value, is valid and binding.

2. Limited Liability clause sanctioned by freedom of parties to stipulate; Requisites for validity
This limitation of the carrier’s liability is sanctioned by the freedom of the contracting parties to
establish such stipulations, clauses, terms, or conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs and public policy. A stipulation fixing or limiting the sum that may be
recovered from the carrier on the loss or deterioration of the goods is valid, provided it is (a) reasonable and
just under the circumstances, and (b) has been fairly and freely agreed upon.

3. Liability limited to CIF value of the goods

Herein, the liabilities of Macondray, etc. with respect to the lost or damaged shipments are expressly
limited to the C.I.F. value of the goods as per contract of sea carriage embodied in the bill of lading, which
reads: “Whenever the value of the goods is less than $500 per package or other freight unit, their value in the
calculation and adjustment of claims for which the Carrier may be liable shall for the purpose of avoiding
uncertainties and difficulties in fixing value be deemed to be the invoice value, plus freight and insurance if
paid, irrespective of whether any other value is greater or less. The limitation of liability and other provisions
herein shall inure not only to the benefit of the carrier, its agents, servants and employees, but also to the
benefit of any independent contractor performing services including stevedoring in connection with the goods
covered hereunder.” (Paragraph 17)

4. Shipper and consignee bound by stipulations

It is not pretended that the conditions are unreasonable or were not freely and fairly agreed upon. The
shipper and consignee are, therefore, bound by such stipulations since it is expressly stated in the bill of
lading that in “accepting this Bill of Lading, the shipper, owner and consignee of the goods, and the holder of
the Bill of Lading agree to be bound by all its stipulations, exceptions and conditions, whether written,
stamped or printed, as fully as if they were all signed by such shipper, owner, consignee or holder.” It is
obviously for this reason that the consignee filed its claim against the Macondray, etc. on the basis of the
C.I.F. value of the lost or damaged goods in the aggregate amount of P1,109.67.

5. Right of subrogation
Herein, St. Faul Fire Insurance, as insurer, after paying the claim of the insured for damages under the
insurance, is subrogated merely to the rights of the assured. As subrogee, it can recover only the amount that
is recoverable by the latter. Since the right of the assured, in case of loss or damage to the goods, is limited or
restricted by the provisions in the bill of lading, a suit by the insurer as subrogee necessarily is subject to like
limitations and restrictions. The insurer after paying the claim of the insured for damages under the insurance
is subrogated merely to the rights of the insured and therefore can necessarily recover only that to what was
recoverable by the insured. Upon payment for a total loss of goods insured, the insurance is only subrogated
to such rights of action as the assured has against 3rd persons who caused or are responsible for the loss. The
right of action against another person, the equitable interest in which passes to the insurer, being only that
which the assured has, it follows that if the assured has no such right of action, none passes to the insurer, and
if the assured’s right of action is limited or restricted by lawful contract between him and the person sought to
be made responsible for the loss, a suit by the insurer, in the right of the assured, is subject to like limitations
or restrictions.
6. Obligation of carrier commenced on date it failed to deliver shipment in good condition
The contention of the insurance company – that because of extraordinary inflation, it should be
reimbursed for its dollar payments at the rate of exchange on the date of the judgment and not on the date of
the loss or damage – is untenable. The obligation of the carrier to pay for the damage commenced on the date
it failed to deliver the shipment in good condition to the consignee. Herein, the C.I.F. Manila value of the
goods which were lost or damaged, according to the claim of the consignee dated 26 September 1960 is
$226.37 (for the pilferage) and $324.33 (shortlanded) or P456.14 and P653.53, respectively. The peso
equivalent was based by the consignee on the exchange rate of P2.015 to $1.00 which was the rate existing at
that time. The trial court committed no error in adopting the aforesaid rate of exchange.

[61]

Valenzuela Hardwood and Industrial vs. CA (GR 102316, 30 June 1997)

Third Division, Panganiban (J): 4 concur

Facts: On 16 January 1984, Valenzuela Hardwood and Industrial Supply, Inc. (VHIS) entered into an
agreement with the Seven Brothers whereby the latter undertook to load on board its vessel M/V Seven
Ambassador the former’s lauan round logs numbering 940 at the port of Maconacon, Isabela for shipment to
Manila. On 20 January 1984, VHIS insured the logs against loss and/or damage with South Sea Surety and
Insurance Co., Inc. for P2,000,000.00 and the latter issued its Marine Cargo Insurance Policy 84/24229 for
P2,000,000.00 on said date. On 24 January 1984, VHIS gave the check in payment of the premium on the
insurance policy to Mr. Victorio Chua. In the meantime, the said vessel M/V Seven Ambassador sank on 25
January 1984 resulting in the loss of VHIS’ insured logs. On 30 January 1984, a check for P5,625.00 to cover
payment of the premium and documentary stamps due on the policy was tendered due to the insurer but was
not accepted. Instead, the South Sea Surety cancelled the insurance policy it issued as of the date of the
inception for non-payment of the premium due in accordance with Section 77 of the Insurance Code. On 2
February 1984, VHIS demanded from South Sea Surety the payment of the proceeds of the policy but the
latter denied liability under the policy. VHIS likewise filed a formal claim with Seven Brothers for the value
of the lost logs but the latter denied the claim.

Raised in the trial court, the Regional Trial Court of Valenzuela, Metro Manila (Branch 171), after due
hearing and trial, ordered South Sea Surety to pay VHIS the sum P2,000,000.00 representing the value of the
policy of the lost logs with legal interest thereon from the date of demand on 2 February 1984 until the
amount is fully paid or in the alternative, Seven Brothers to pay VHIS the amount of P2,000,000.00
representing the value of lost logs plus legal interest from the date of demand on 24 April 1984 until full
payment thereof; the reasonable attorney’s fees in the amount equivalent to 5% of the amount of the claim
and the costs of the suit. The Court also ordered VHIS to pay Seven Brothers the sum of P230,000.00
representing the balance of the stipulated freight charges; and dismissed the counterclaim of South Sea
Surety.

Both Seven Brothers and South Sea Surety appealed. The Court of Appeals, on 15 October 1991, affirmed the
judgment except as to the liability of Seven Brothers to VHIS.

South Sea Surety and VHIS filed separate petitions for review before the Supreme Court. In a Resolution
dated 2 June 1995, the Supreme Court denied the petition of South Sea Surety. There the Court found no
reason to reverse the factual findings of the trial court and the Court of Appeals that Chua was indeed an
authorized agent of South Sea when he received Valenzuela’s premium payment for the marine cargo
insurance policy which was thus binding on the insurer. The present decision concerns itself to the petition for
review filed by VHIS.
The Supreme Court denied the petition for its utter failure to show any reversible error on the part of the
appellate court, and affirmed the assailed decision.

1. Validity of Stipulation is Lis Mota

The charter party between VHIS and Seven Brothers stipulated that the “owners shall not be
responsible for loss, split, short-landing, breakages and any kind of damages to the cargo.” The validity of this
stipulation is the lis mota of the present case.

2. Proximate cause of sinking of M/V Seven Ambassadors

The proximate cause of the sinking of M/V Seven Ambassadors resulting in the loss of its cargo was
the “snapping of the iron chains and the subsequent rolling of the logs to the portside due to the negligence of
the captain in stowing and securing the logs on board the vessel and not due to fortuitous event.”

3. Article 1745 NCC

Article 1745 of the Civil Code provides that “any of the following or similar stipulations shall be
considered unreasonable, unjust and contrary to public policy: (1) That the goods are transported at the risk of
the owner or shipper; (2) That the common carrier will not be liable for any loss, destruction, or deterioration
of the goods; (3) That the common carrier need not observe any diligence in the custody of the goods; (4)
That the common carrier shall exercise a degree of diligence less than that of a good father of a family, or of a
man of ordinary prudence in the vigilance over the movables transported; (5) That the common carrier shall
not be responsible for the acts or omissions of his or its employees; (6) That the common carrier’s liability for
acts committed by thieves, or of robbers who do not act with grave or irresistible threat, violence or force, is
dispensed with or diminished; (7) That the common carrier is not responsible for the loss, destruction, or
deterioration of goods on account of the defective condition of the car, vehicle, ship, airplane or other
equipment used in the contract of carriage.”

3. Status of Seven Brothers as a private carrier undisputed; Common carriers provision may not
be applied unless expressly stipulated in charter party
It is undisputed that Seven Brothers had acted as a private carrier in transporting VHIS’ lauan logs.
Thus, Article 1745 and other Civil Code provisions on common carriers may not be applied unless expressly
stipulated by the parties in their charter party. 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 contacts involving common carriers.

4. Parties may stipulate responsibility rests solely on charterer; Article 1306 NCC
In a contract of private carriage, the parties may validly stipulate that responsibility for the cargo rests
solely on the charterer, exempting the shipowner from liability for loss of or damage to the cargo caused even
by the negligence of the ship captain. Pursuant to Article 1306 of the Civil Code, such stipulation is valid
because it is freely entered into by the parties and the same is not contrary to law, morals, good customs,
public order, or public policy. Indeed, their contract of private carriage is not even a contract of adhesion. In a
contract of private carriage, the parties may freely stipulate their duties and obligations which perforce would
be binding on them.

5. Home Insurance vs. American Steamship Agencies; Where the reason for the rule ceases, the
rule itself does not apply
In Home Insurance Co. vs. American Steamship Agencies, Inc., the trial court similarly nullified a
stipulation identical to that involved in the present case for being contrary to public policy based on Article
1744 of the Civil Code and Article 587 of the Code of Commerce. Consequently, the trial court held the
shipowner liable for damages resulting from the partial loss of the cargo. This Court reversed the trial court
and laid down the well-settled observation and doctrine that “the provisions of our Civil Code on common
carriers were taken from Anglo-American law. Under American jurisprudence, a common carrier undertaking
to carry a special cargo or chartered to a special person only, becomes a private carrier. As a private carrier, a
stipulation exempting the owner from liability for the negligence of its agent is not against public policy, and
is deemed valid.“ The Court finds such doctrine reasonable. “The Civil Code provisions on common carriers
should not be applied where the carrier is not acting as such but as a private carrier. The stipulation in the
charter party absolving the owner from liability for loss due to the negligence of its agent would be void only
if the strict public policy governing common carriers is applied. Such policy has no force where the public at
large is not involved, as in this case of a ship totally chartered for the use of a single party.”

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

7. Home Insurance case applicable in present case

The case of Home Insurance specifically dealt with “the liability of the shipowner for acts or
negligence of its captain and crew” and a charter party stipulation which “exempts the owner of the vessel
from any loss or damage or delay arising from any other source, even from the neglect or fault of the captain
or crew or some other person employed by the owner on board, for whose acts the owner would ordinarily be
liable except for said paragraph.” Undoubtedly, Home Insurance is applicable to the present case.

8. Application of American rule reasonable, as held in Home Insurance; Ruling in Home

Insurance binding based on doctrine of stare decisis and Article 8 NCC
The naked assertion of that the American rule enunciated in Home Insurance is not the rule in the
Philippines deserves scant consideration, as the Court there categorically held that said rule was “reasonable”
and proceeded to apply it in the resolution of that case. VHIS miserably failed to show such circumstances or
arguments which would necessitate a departure from a well-settled rule. Consequently, the ruling in said case
remains a binding judicial precedent based on the doctrine of stare decisis and Article 8 of the Civil Code
which provides that “judicial decisions applying or interpreting the laws or the Constitution shall form part of
the legal system of the Philippines.”

9. Charter party waives right under Articles 586 and 587, Code of Commerce
Whatever rights petitioner may have under Articles 586 and 587 of the Code of Commerce, which
confer on the shipper the right to recover damages from the shipowner and ship agent for the acts or conduct
of the captain, were waived when it entered into the charter party.

10. Rights may be waived; Article 6 NCC

Article 6 of the Civil Code provides that “rights may be waived, unless the waiver is contrary to law,
public order, public policy, morals, or good customs, or prejudicial to a person with a right recognized by
law.” As a general rule, patrimonial rights may be waived as opposed to rights to personality and family rights
which may not be made the subject of waiver. Herein, being patently and undoubtedly patrimonial, VHIS’s
right conferred under said articles may be waived. This, VHIS did by acceding to the contractual stipulation
that it is solely responsible for any damage to the cargo, thereby exempting Seven Brothers from any
responsibility for loss or damage thereto.

11. Article 1170 NCC

Article 1170. of the Civil Code provides that “Those who in the performance of their obligations are
guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for
damages.”

12. Article 1173 NCC

Article 1173 of the Civil Code provides that “The fault or negligence of the obligor consists in the
omission of that diligence which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place. When negligence shows bad faith, the provisions
of articles 1171 and 2201, shall apply. If the law does not state the diligence which is to be observed in he
performance, that which is expected of a good father of a family shall be required.”

13. Articles 1170 and 1173 not applicable in present case

Articles 1170 and 1173 are applicable only to the obligor or the one with an obligation to perform.
Herein, Seven Brothers is not an obligor in respect of the cargo, for this obligation to bear the loss was shifted
to VHIS by virtue of the charter party. This shifting of responsibility is not void. The provisions cited by
VHIS are, therefore, inapplicable to the present case.

14. Standard of ordinary diligence in private carriage; Article 362 of the Code of Commerce
The factual milieu of the present case does not justify the application of the second paragraph of
Article 1173 of the Civil Code which prescribes the standard of diligence to be observed in the event the law
or the contract is silent. In Herein, Article 362 of the Code of Commerce provides the standard of ordinary
diligence for the carriage of goods by a carrier. The standard of diligence under this statutory provision may,
however, be modified in a contract or private carriage as VHIS and Seven Brothers had done in their charter
party.

15. Shewaram vs. PAL, and Ysmael vs. Gabino Barreto not applicable; Common carriers
The cases of Shewaram and Ysmael both involve a common carrier; thus, they necessarily justify the
application of such policy considerations and concomitantly stricter rules. The public policy considerations
behind the rigorous treatment of common carriers are absent in the case of private carriers. Hence, the
stringent laws applicable to common carriers are not applied to private carriers.

16. Manila Railroad vs. Compania Transatlantica not applicable; Promise

The case of Manila Railroad is inapplicable because the action for damages there does not involve a
contract for transportation. Furthermore, the defendant therein made a “promise to use due care in the lifting
operations” and, consequently, it was “bound by its undertaking”; besides, the exemption was intended to
cover accidents due to hidden defects in the apparatus or other unforseeable occurrences” not caused by its
“personal negligence.” This promise was thus construed to make sense together with the stipulation against
liability for damages. Herein, Seven Brothers made no such promise. The agreement of the parties to exempt
the shipowner from responsibility for any damage to the cargo and place responsibility over the same to VHIS
is the lone stipulation considered.

17. Standard Oil of New York vs. Lopez Castelo, Smith vs. Cadwallader Gibson, NT Hashim vs.
Rocha, Ohta vs. Steamship, Limpangco Sons vs. Yangco not applicable; Factual milieu
Herein, VHIS points to Standard Oil Co. of New York vs. Lopez Costelo, Walter A. Smith & Co. vs.
Cadwallader Gibson Lumber Co., N. T . Hashim and Co. vs. Rocha and Co., Ohta Development Co. vs.
Steamship “Pompey” and Limpangco Sons vs. Yangco Steamship Co. in support of its contention that the
shipowner be held liable for damages. 40 These however are not on all fours with the present case because
they do not involve a similar factual milieu or an identical stipulation in the charter party expressly exempting
the shipowner from responsibility for any damage to the cargo.

18. Effect of the South Sea Resolution; Aggrieved party may recover deficient from person causing
loss
As the validity of the questioned charter party stipulation was upheld and as VHIS may not recover
from Seven Brother, the issue whether VHIS has a cause of action against Seven Brother as the Court
affirmed the liability of South Sea Surety for the loss suffered by VHIS, is moot and academic. It suffices to
state that the Resolution of the Court dated 2 June 1995 affirming the liability of South Sea does not, by itself,
necessarily preclude VHIS from proceeding against Seven Brother. An aggrieved party may still recover the
deficiency from the person causing the loss in the event the amount paid by the insurance company does not
fully cover the loss.

19. Article 2207 NCC

Article 2207 of the Civil Code provides that “If the plaintiff’s property has been insured, and he has
received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of
contract complained of, the insurance company shall be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not
fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person
causing the loss or injury.”

[62]

Sweet Line vs. Teves (GR L-37750, 19 May 1978)

Second Division, Santos (J): 3 concur, 1 reserves vote

Facts: Atty. Leovigildo Tandog and Rogelio Tiro, a contractor by professions, bought tickets 0011736 and
011737 for Voyage 90 on 31 December 1971 at the branch office of Sweet Line, Inc., a shipping company
transporting inter-island passengers and cargoes, at Cagayan de Oro City. Tandog and Tiro were to board
Sweet Line’s vessel, M/S “Sweet Hope” bound for Tagbilaran City via the port of Cebu. Upon learning that
the vessel was not proceeding to Bohol, since many passengers were bound for Surigao, Tandog and Tiro per
advice, went to the branch office for proper relocation to M/S “Sweet Town”. Because the said vessel was
already filed to capacity, they were forced to agree “to hide at the cargo section to avoid inspection of the
officers of the Philippine Coastguard.” Tandog and Tiro alleged that they were, during the trip,” “exposed to
the scorching heat of the sun and the dust coming from the ship’s cargo of corn grits,” and that the tickets they
bought at Cagayan de Oro City for Tagbilaran were not honored and they were constrained to pay for other
tickets.

In view thereof, Tandog and Tiro sued Sweet Line for damages and for breach of contract of carriage in the
alleged sum of P110,000.00 before the CFI of Misamis Oriental. Sweet Line moved to dismiss the complaint
on the ground of improper venue. The motion was denied by the trial court. Sweet Line moved to reconsider
the order of denial, but to no avail. Hence, the petition for prohibition with preliminary injunction.

The Supreme Court, in its resolution of 20 November 1973, restrained Judge Teves from proceeding further
with the case and required Tandog and Tiro to comment. On 18 January 1974, the Court gave due course to
the petition and required Tandog and Tiro to answer. Thereafter, the parties submitted their respective
memoranda in support of their respective contentions. The Supreme Court dismissed the petition for
prohibition; and lifted and set aside the restraining order issued on 20 November 1973; with costs against
Sweet Line.
1. Condition printed at back of ticket, as to venue
Condition 14 printed at the back of the tickets, reads “It is hereby agreed and understood that any and
all actions arising out of the conditions and provisions of this ticket, irrespective of where it is issued, shall be
filed in the competent courts in the City of Cebu.”

2. Valid contract of carriage exists; Ticket best evidence of contract

There was a valid contract of carriage entered into by Sweet Line and Tandog and Tiro and that the
passage tickets, upon which the latter based their complaint, are the best evidence thereof. All the essential
elements of a valid contract, i.e., consent, cause or consideration and object, are present.

3. Ticket issued has all elements of a written contract; Peralta de Guerrero, et al. v. Madrigal
Shipping Co., Inc.
It is a matter of common knowledge that whenever a passenger boards a ship for transportation from
one place to another he is issued a ticket by the shipper which has all the elements of a written contract,
Namely: (1) the consent of the contracting parties manifested by the fact that the passenger boards the ship
and the shipper consents or accepts him in the ship for transportation; (2) cause or consideration which is the
fare paid by the passenger as stated in the ticket; (3) object, which is the transportation of the passenger from
the place of departure to the place of destination which are stated in the ticket.”

4. Contracts of adhesion; Validity determined by peculiar circumstances obtaining in each case

With respect to the 14 conditions printed at the back of the passage tickets, these are commonly
known as “contracts of adhesion,” the validly and/or enforceability of which will have to be determined by
the peculiar circumstances obtaining in each case and the nature of the conditions or terms sought to be
enforced. For, “While generally, stipulations in a contract come about after deliberate drafting by the parties
thereto, there are certain contracts almost all the provisions of which have been drafted only by one party,
usually a corporation. Such contracts are called contracts of adhesion, because the only participation of the
party is the signing of his signature or his ‘adhesion’ thereto. Insurance contracts, bills of lading, contracts of
sale of lots on the installment plan fall into this category.”

5. Guidelines in determination of validity and/or enforceability of contracts of adhesion; Qua

Chee Gan v. Law Union and Rock Insurance Co., and Fieldman Insurance v. Vargas
The Court held that “the courts cannot ignore that nowadays, monopolies, cartels and concentration
of capital, endowed with overwhelming economic power, manage to impose upon parties dealing with them
cunningly prepared ‘agreements that the weaker party may not change one whit, his participation in the
‘agreement’ being reduced to the alternative ‘to take it or leave it,’ labelled since Raymond Saleilles
‘contracts by adherence’ (contracts d’ adhesion) in contrast to those entered into by parties bargaining on an
equal footing. Such contracts (of which policies of insurance and international bill of lading are prime
examples) obviously call for greater strictness and vigilance on the part of the courts of justice with a view to
protecting the weaker party from abuses and imposition, and prevent their becoming traps for the unwary.”

6. Protection of disadvantaged expressly enjoined by the Civil Code

To the same effect and import, and, in recognition of the peculiar character of contracts of this kind,
the protection of the disadvantaged is expressly enjoined by the New Civil Code “in all contractual, property
or other relations, when one of the parties is at a disadvantage on account of his moral dependence, is
ignorance, indigence, mental weakness, tender age and other handicap, the courts must be vigilant for his
protection.”

7. Condition 14 void
Considered in the light of the foregoing norms and in the context of circumstances prevailing in the
inter-island shipping industry in the country, the Court finds and holds that Condition 14 printed at the back of
the passage tickets should be held as void and unenforceable for the reasons that (1) under circumstances
obtaining in the inter-island shipping industry, it is not just and fair to bind passengers to the terms of the
conditions printed at the back of the passage tickets, on which Condition 14 is printed in fine letters, and (2)
Condition 14 subverts the public policy on transfer of venue of proceedings of this nature, since the same will
prejudice rights and interests of innumerable passengers in different parts of the country who, under
Condition 14, will have to file suits against Sweet Line only in the City of Cebu.

8. State of inter-island shipping of public knowledge; Court take judicial notice

It is a matter of public knowledge, of which the COurt can take judicial notice, that there is a dearth
of and acute shortage in inter-island vessels plying between the country’s several islands, and the facilities
they offer leave much to be desired. Thus, even under ordinary circumstances, the piers are congested with
passengers and their cargo waiting to be transported, The conditions are even worse at peak and/or the rainy
seasons, when passengers literally scramble to secure whatever accommodations may be availed of, even
through circuitous routes, and/or at the risk of their safety — their immediate concern, for the moment, being
to be able to board vessels with the hope of reaching their destinations. The schedules are — as often as not if
not more so — delayed or altered. This was precisely the experience of private respondents when they were
relocated to M/S “Sweet Town” from M/S “Sweet Hope” and then allegedly “exposed to the scorching heat of
the sun and the dust coming from the ship’s cargo of corn grits,” because even the latter vessel was filled to
capacity.

9. Passengers not expected to examine tickets received from congested counters

Under the circumstances, it is hardly just and proper to expect the passengers to examine their tickets
received from crowded/congested counters, more often than not during rush hours, for conditions that may be
printed thereon, much less charge them with having consented to the conditioner so printed, especially if there
are a number of such conditions in fine print.

10. Unlike fine prints in insurance contract, passengers do not have the same chance to examine
conditions
Condition 14 was prepared solely at the instance of Sweet Line; the passengers had no say in its
preparation. Neither did the latter have the opportunity to take the same into account prior to the purchase of
their tickets. For, unlike the small print provisions of insurance contracts — the common example of contracts
of adherence — which are entered into by the insured in full awareness of said conditions, since the insured is
afforded the opportunity to examine and consider the same, passengers of inter-island vessels do not have the
same chance, since their alleged adhesion is presumed only from the fact that they purchased the passage
tickets.

11. Shipping companies (franchise holders of CPC) possess virtual monopoly over business of
transporting passengers
Shipping companies are franchise holders of certificates of public convenience and, therefore, possess
a virtual monopoly over the business of transporting passengers between the ports covered by their franchise.
This being so, shipping companies, engaged in inter-island shipping, have a virtual monopoly of the business
of transporting passengers and may thus dictate their terms of passage, leaving passengers with no choice but
to buy their tickets and avail of their vessels and facilities.

12. Judicial notice that bulk of passengers from low-income groups

Finally, judicial notice may be taken of the fact that the bulk of those who board these inter-island
vessels come from the low-income groups and are less literate, and who have little or no choice but to avail of
Sweet Line’s vessels.

13. Condition 14 subversive of public policy on transfers of venue of actions; Rule 4, Section 3,
Rules of Court
 Condition 14 is subversive of public policy on transfers of venue of actions. For, although venue may
be changed or transferred from one province to another by agreement of the parties in writing pursuant to
Rule 4, Section 3, of the Rules of Court, such an agreement will not be held valid where it practically negates
the action of the claimants. The philosophy underlying the provisions on transfer of venue of actions is the
convenience of Sweet Line as well as his witnesses and to promote the ends of justice. Considering the
expense and trouble a passenger residing outside of Cebu City would incur to prosecute a claim in the City of
Cebu, he would most probably decide not to file the action at all. The condition will thus defeat, instead of
enhance, the ends of justice. Upon the other hand, Sweet Line has branches or offices in the respective ports
of call of its vessels and can afford to litigate in any of these places. Hence, the filing of the suit in the CFI of
Misamis Oriental will not cause inconvience to, much less prejudice, Sweet Line.

14. Condition 14 subversive of the public good or interest

Public policy is “that principle of the law which holds that no subject or citizen can lawfully do that
which has a tendency to be injurious to the public or against the public good.” Under this principle “freedom
of contract or private dealing is restricted by law for the good of the public.” Herein, Condition 14, if
enforced, will be subversive of the public good or interest, since it will frustrate in meritorious cases, actions
of passenger claimants outside of Cebu City, thus placing Sweet Line at a decided advantage over said
persons, who may have perfectly legitimate claims against it. The said condition should, therefore, be
declared void and unenforceable, as contrary to public policy — to make the courts accessible to all who may
have need of their services.

[63]

Eastern and Australian Steamship vs. Great American Insurance (GR L-37604, 23 October 1981)
First Division, De Castro (J): 4 concur, 1 concur in result

Facts: On 10 December 1971, the Jackson and Spring (Sydney) Pty. Ltd. shipped from Sydney, Australia, 1
case of impellers for warman pump on board the SS “Chitral,” a vessel owned and operated in the Philippines
by Eastern & Australian Steamship Co., Ltd., thru its agent F.E. Zuellig, Inc. under Bill of Lading 31, for
delivery to Manila, Philippines in favor of consignee Benguet Consolidated, Inc. The shipment was insured
with Great American Insurance, Co. for P35,921.81 against all risks. On 22 December 1971 the SS “Chitral”
arrived in Manila but failed to discharge the shipment or any part thereof. Demand was made on Eastern &
Australian Steamship and FE Zuellig for the delivery of said shipment, but having failed to make delivery, a
claim was presented against them for the value of the shipment. Eastern & Australian Steamship and ZE
Zuellig, likewise, failed to make good the claim. As a consequence of the loss of the shipment, Great
American Insurance Co. was compelled to pay the consignee P35,921.81.

As subrogee, the insurance company filed a complaint dated 20 November 1972 against Eastern & Australian
Steamship and FE Zuellig for recovery of the said amount with legal interest and attorney’s fees. The CFI of
Manila, on 25 July 1973 (Branch XIII, Civil Case 88985) found Eastern & Australian Steamship and Zuellig
liable to Great American Insurance Co. in the amount of $500.00, or its peso equivalent of P3,217.50, with
legal interest thereon from 20 November 1972; and to further pay an amount equivalent to 25% thereof by
way of damages as and for attorney’s fees. Hence, the petition for review on certiorari.

The Supreme Court reversed the decision of the court, and entered another one finding Eastern & Australian
Steamship and Zuellig liable to Great American Insurance Co. in the amount of 100 Sterling or its peso
equivalent of P1,544.40. Without pronouncement as to costs.

1. Section 4 (5) of COGSA and Clause 17 of the Bill of Lading not inconsistent
There is no inconsistency between Section 4 (5) of the Carriage of Goods by Sea Act and Clause 17
of the Bill of Lading. The first part of the provision of Section 4 (5) of the Carriage of Goods by Sea Act
limits the maximum amount that may be recovered by the shipper in the absence of an agreement as to the
nature and value of goods shipped. Said provision does not prescribe the minimum and hence, it could be any
amount which is below $500.00. Clause 17 of the questioned Bill of Lading also provides the maximum for
which the carrier is liable. It prescribes that the carrier may only be held liable for an amount not more than
100 Sterling which is below the maximum limit required in the Carriage of Goods by Sea Act. Both the
Carriage of Goods by Sea Act and Clause 17 of the Bill of Lading allow the payment beyond the respective
maximum limit imposed therein, provided that the value of the goods have been declared in the Bill of
Lading.

2. Clause 17 cannot be read in the light of second paragraph of Section 4 (5) of COGSA as such
would render ineffective the very intent of the law
The second paragraph of Section 4 (5) of the Carriage of Goods by Sea Act prescribing the maximum
amount shall not be less than $500.00 refers to a situation where there is an agreement other than that set forth
in the Bill of Lading providing for a maximum higher than $500.00 per package. Clause 17 of the Bill of
Lading should not be read in the light of second paragraph of Section 4 (5) of the Carriage of Goods by Sea
Act, for it would render ineffective the very intent of the law setting the sum of $500.00 as the maximum
liability of the vessel/carrier, per package, in the absence of a higher valuation of the goods as indicated in the
Bill of Lading. By providing that $500.00 is the maximum liability, the law does not disallow an agreement
for liability at a lesser amount. Herein, it is apparent that there had been no agreement between the parties,
and hence, Clause 17 of the Bill of Lading shall prevail.

3. Article 1749 NCC

Article 1749 of the New Civil Code expressly allows the limitation of the carrier’s liability. It
provides that “a stipulation that the common carrier’s liability is limited to the value of the goods appearing in
the bill of lading, unless the shipper or owner declares a greater value, is binding.”

4. Limitation of carrier’s liability valid

In the case of Northern Motors, Inc. vs. Prince Line, the court held that the Court “has held as valid
and binding a similar provision in a bill of lading limiting the carrier’s liability to a specific amount unless the
shipper expressly declares a higher valuation and pays the corresponding rate thereon.” Also in Phoenix
Assurance Company vs. Macondray & Co., Inc., the validity of a stipulation limiting the carrier’s liability
was reiterated.

5. Right of carrier to limit liability recognized also in the United States

The right of the carrier to limit its liability has been recognized not only in Philippine jurisdiction but
also in American jurisprudence. In one case, it was held that “a stipulation in a contract of carriage that the
carrier will not be liable beyond a specified amount unless the shipper declares the goods to have a greater
value is generally deemed to be valid and will operate to limit the carrier’s liability, even if the loss or damage
results from the carrier’s negligence. Pursuant to such provision, where the shipper is silent as to the value of
his goods, the carrier’s liability for loss or damage thereto is limited to the amount specified in the contract of
carriage and where the shipper states the value of his goods, the carrier’s liability for loss or damage thereto is
limited to that amount. Under a stipulation such as this, it is the duty of the shipper to disclose, rather than the
carrier’s to demand the true value of the goods and silence on the part of the shipper will be sufficient to limit
recovery in case of loss to the amount stated in the contract of carriage.”

[64], also [67]

Sea-land Service vs. IAC (GR 75118, 31 August 1987)

First Division, Narvasa (J): 4 concur
Facts: On 8 January 1981, Sea-Land Service, Inc., a foreign shipping and forwarding company licensed to do
business in the Philippines, received from Seaborne Trading Company in Oakland, California a shipment
consigned to Sen Hiap Hing, the business name used by Paulino Cue in the wholesale and retail trade which
he operated out of an establishment located on Borromeo and Plaridel Streets, Cebu City. The shipper not
having declared the value of the shipment, no value was indicated in the bill of lading. The bill described the
shipment only as “8 CTNS on 2 SKIDS-FILES.” Based on volume measurements Sea-land charged the
shipper the total amount of US$209.28 for freightage and other charges. The shipment was loaded on board
the MS Patriot, a vessel owned and operated by Sea-Land, for discharge at the Port of Cebu. The shipment
arrived in Manila on 12 February 1981, and there discharged in Container 310996 into the custody of the
arrastre contractor and the customs and port authorities. Sometime between February 13 and 16, 1981, after
the shipment had been transferred, along with other cargoes to Container 40158 near Warehouse 3 at Pier 3 in
South Harbor, Manila, awaiting trans-shipment to Cebu, it was stolen by pilferers and has never been
recovered. On 10 March 1981, Paulino Cue, the consignee, made formal claim upon Sea-Land for the value
of the lost shipment allegedly amounting to P179,643.48. Sea-Land offered to settle for US$4,000.00, or its
then Philippine peso equivalent of P30,600.00. asserting that said amount represented its maximum liability
for the loss of the shipment under the package limitation clause in the covering bill of lading.

Cue rejected the offer and thereafter brought suit for damages against Sea-Land in the then Court of First
Instance of Cebu, Branch X. Said Court, after trial, rendered judgment in favor of Cue, sentencing Sea-Land
to pay him P186,048.00 representing the Philippine currency value of the lost cargo, P55,814.00 for
unrealized profit with 1% monthly interest from the filing of the complaint until fully paid, P25,000.00 for
attorney’s fees and P2,000.00 as litigation expenses.

Sea-Land appealed to the Intermediate Appellate Court. That Court however affirmed the decision of the Trial
Court in toto. Sea-Land thereupon filed the present petition for review.

The Supreme Court reversed and set aside the Decision of the Intermediate Appellate Court complained of,
holding that (1) the stipulation in the questioned bill of lading limiting Sea-Land’s liability for loss of or
damage to the shipment covered by said bill to US$500.00 per package is valid and binding on Paulino Cue;
(2) Sea-Land is liable in the aggregate amount of US$4,000.00 as there was no question of the fact that the
lost shipment consisted of 8 cartons or packages; (3) Sea-Land was discharged of that obligation by paying
Cue the sum of P32,000.00, the equivalent in Philippine currency of US$4,000.00 at the conversion rate of
P8.00 to $1.00. Costs against Cue.

1. Consignee in bill of lading has right to recover from carrier although document drawn by
consignor and carrier
In principle, a consignee in a bill of lading has the right to recover from the carrier or shipper for loss
of, or damage to, goods being transported under said bill, although that document may have been — as in
practice it oftentimes is — drawn up only by the consignor and the carrier without the intervention of the
consignee.

2. Mendoza vs. PAL; When consignee becomes party to contract

Therein, even if the LVN Pictures Inc. as consignor of its own initiative, and acting independently of
Mendoza for the time being, made Mendoza as consignee, a stranger to the contract if that is possible,
nevertheless when he, Mendoza appeared at the Phil Air Port armed with the copy of the Air Way Bill
demanding the delivery of the shipment to him, he thereby made himself a party to the contract of
transportation. The right of the shipper to countermand the shipment terminates when the consignee or
legitimate holder of the bill of lading appears with such bill of lading before the carrier and makes himself a
party to the contract. Prior to that time he is a stranger to the contract.
3. Mendoza vs. PAL; Common carriers not obligated to make prompt delivery, unless such
obligation is assumed
Common carriers are not obligated by law to carry and to deliver merchandise, and persons are not
vested with the right to prompt delivery, unless such common carriers previously assume the obligation. Said
rights and obligations are created by a specific contract entered into by the parties.

4. Mendoza vs. PAL; Article 1357 paragraph 2 of old Civil Code, now Article 1311, second
paragraph NCC
Article 1257, paragraph 2, of the old Civil Code (now Article 1311, second paragraph) reads “Should
the contract contain any stipulation in favor of a third person, he may demand its fulfillment provided he has
given notice of his acceptance to the person bound before the stipulation has been revoked.”

5. Liability of common carrier governed by laws of country of destination

Since the liability of a common carrier for loss of or damage to goods transported by it under a
contract of carriage is governed by the laws of the country of destination and the goods in question were
shipped from the United States to the Philippines, the liability of Sea-Land to the consignee is governed
primarily by the Civil Code, and as ordained by the said Code, suppletorily, in all matters not determined
thereby, by the Code of Commerce and special laws. One of these suppletory special laws is the Carriage of
Goods by Sea Act, U.S. Public Act No. 521 which was made applicable to all contracts for the carriage of
goods by sea to and from Philippine ports in foreign trade by Commonwealth Act 65, approved on 22
October 1936.

6. Section 4 (5) of COGSA

Section 4(5) of Commonwealth Act 65, in part, reads “(5) Neither the carrier nor the ship shall in any
event be or become liable for any loss or damage to or in connection with the transportation of goods in an
amount exceeding $500 per package lawful money of the United States, or in case of goods not shipped in
packages, per customary freight unit, or the equivalent of that sum in other currency, unless the nature and
value of such goods have been declared by the shipper before shipment and inserted in the bill of lading. This
declaration, if embodied in the bill of lading, shall be prima facie evidence, but shall not be conclusive on the
carrier. By agreement between the carrier, master, or agent of the carrier, and the shipper another maximum
amount than that mentioned in this paragraph may be fixed: Provided; That such maximum shall not be less
than the figure above named. In no event shall the carrier be liable for more than the amount of damage
actually sustained. xxx”

7. Clause 22, first paragraph of the long-form bill of lading

Clause 22, first paragraph, of the long-form bill of lading customarily issued by Sea-Land to its
shipping clients is a virtual copy of the first paragraph of the foregoing provision. It says: “(22)
VALUATION. In the event of any loss, damage or delay to or in connection with goods exceeding in actual
value $500 per package, lawful money of the United States, or in case of goods not shipped in packages, per
customary freight unit, the value of the goods shall be deemed to be $500 per package or per customary
freight unit, as the case may be, and the carrier’s liability, if any, shall be determined on the basis of a value of
$500 per package or customary freight unit, unless the nature and a higher value shall be declared by the
shipper in writing before shipment and inserted in this Bill of Lading.”

8. Clause 22, second paragraph of the long-form bill of lading

And in its second paragraph, the bill states that “If a value higher than $500 shall have been declared
in writing by the shipper upon delivery to the carrier and inserted in this bill of lading and extra freight paid,
if required and in such case if the actual value of the goods per package or per customary freight unit shall
exceed such declared value, the value shall nevertheless be deemed to be declared value and the carrier’s
liability, if any, shall not exceed the declared value and any partial loss or damage shall be adjusted pro rata
on the basis of such declared value.”
9. Nothing in Civil Code which prohibits agreements as to limitation of carrier’s liability
Article 1766 of the Civil Code expressly subjects the rights and obligations of common carriers to the
provisions of the Code of Commerce and of special laws in matters not regulated by said (Civil) Code. There
is nothing in the Civil Code which absolutely prohibits agreements between shipper and carrier limiting the
latter’s liability for loss of or damage to cargo shipped under contracts of carriage; it is also quite clear that
said Code in fact has agreements of such character in contemplation in providing, in its Articles 1749 and
1750.

10. Article 1749 NCC

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

11. Article 1750 NCC

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

12. Nothing in Section 4 (5) of COGSA is repugnant or inconsistent with Articles 1749 and 1750
NCC
Nothing contained in section 4(5) of the Carriage of Goods by Sea Act is repugnant to or inconsistent
with any of the provisions of the Civil Code. Said section merely gives more flesh and greater specificity to
the rather general terms of Article 1719 (without doing any violence to the plain intent thereof) and of Article
1750, to give effect to just agreements limiting carriers’ liability for loss or damage which are freely and
fairly entered into.

13. Limited liability clause valid even without Section 4 (5) of COGSA
Even if section 4(5) of the Carriage of Goods by Sea Act did not exist, the validity and binding effect
of the liability limitation clause in the bill of lading are nevertheless fully sustainable on the basis alone of the
Civil Code provisions. That said stipulation is just and reasonable is arguable from the fact that it echoes
Article 1750 itself in providing a limit to liability only if a greater value is not declared for the shipment in the
bill of lading. To hold otherwise would amount to questioning the justice and fairness of that law itself.

14. Determination of just and reasonable character of stipulation as to liability limitation clause
But over and above that consideration, the just and reasonable character of such stipulation is implicit
in it giving the shipper or owner the option of avoiding accrual of liability limitation by the simple and surely
far from onerous expedient of declaring the nature and value of the shipment in the bill of lading. And since
the shipper here has not been heard to complaint of having been “rushed,” imposed upon or deceived in any
significant way into agreeing to ship the cargo under a bill of lading carrying such a stipulation — in fact, it
does not appear that said party has been heard from at all insofar as this dispute is concerned — there is
simply no ground for assuming that its agreement thereto was not as the law would require, freely and fairly
sought and given.

15. Right of consignee springs from either relation of agency with consignor, or status as a stranger
in whose favor some stipulation is made in said contract
Herein, Cue had no direct part or intervention in the execution of the contract of carriage between the
shipper and the carrier as set forth in the bill of lading in question. As pointed out in Mendoza vs. PAL, the
right of a party to recover for loss of a shipment consigned to him under a bill of lading drawn up only by and
between the shipper and the carrier, springs from either a relation of agency that may exist between him and
the shipper or consignor, or his status as a stranger in whose favor some stipulation is made in said contract,
and who becomes a party thereto when he demands fulfillment of that stipulation, i.e. the delivery of the
goods or cargo shipped.

16. Free agreement not vitiated by fine printed provisions

In neither capacity can he assert personally, in bar to any provision of the bill of lading, the alleged
circumstance that fair and free agreement to such provision was vitiated by its being in such fine print as to be
hardly readable. Parenthetically, it may be observed that in one comparatively recent case where the Court
found that a similar package limitation clause was “(printed in the smallest type on the back of the bill of
lading,” it nonetheless ruled that the consignee was bound thereby on the strength of authority holding that
such provisions on liability limitation are as much a part of a bill of lading as though physically in it and as
though placed therein by agreement of the parties.

17. Agreed limited liability of carrier valid and enforceable

There can be no doubt or equivocation about the validity and enforceability of freely-agreed-upon
stipulations in a contract of carriage or bill of lading limiting the liability of the carrier to an agreed valuation
unless the shipper declares a higher value and inserts it into said contract or bill. This proposition, moreover,
rests upon an almost uniform weight of authority.

18. Clause 13 of Bill of Lading

Clause 13 of the bill of lading which expressly authorizes transshipment of the goods at any point in
the voyage in these terms: “13. THROUGH CARGO AND TRANSSHIPMENT. The carrier or master, in the
exercise of its or his discretion and although transshipment or forwarding of the goods may not have been
contemplated or provided for herein, may at port of discharge or any other place whatsoever transship or
forward the goods or any part thereof by any means at the risk and expense of the goods and at any time,
whether before or after loading on the ship named herein and by any route, whether within or outside the
scope of the voyage or beyond the port of discharge or destination of the goods and without notice to the
shipper or consignee. The carrier or master may delay such transshipping or forwarding for any reason,
including but not limited to awaiting a vessel or other means of transportation whether by the carrier or
others.”

19. Agreements as to transshipment (deviation) recognized by law

Clause 13 of the bill of lading obviates the necessity to offer any other justification for off loading the
shipment in question in Manila for transshipment to Cebu City, the port of destination stipulated in the bill of
lading. Nonetheless, the Court takes note of Sea-Land’s explanation that it only directly serves the Port of
Manila from abroad in the usual course of voyage of its carriers, hence its maintenance of arrangements with
a local forwarder. Aboitiz and Company, for delivery of its imported cargo to the agreed final point of
destination within the Philippines, such arrangements not being prohibited, but in fact recognized, by law.

20. COGSA applicable up to final port of destination

The Carriage of Goods by Sea Act is applicable up to the final port of destination and that the fact
that transshipment was made on an interisland vessel did not remove the contract of carriage of goods from
the operation of said Act.

21. Provisions of COGSA on package limitation a part of bill of lading although placed actually
therein by the parties
The provisions of the Carriage of Goods by Sea Act on package limitation [sec. 4(5) of the Act] are
as much a part of a bill of lading as though actually placed therein by agreement of the parties.

22. Cue bound by stipulations in bill of lading

Cue, by making claim for loss on the basis of the bill of lading, to all intents and purposes accepted
said bill. Having done so, he becomes bound by all stipulations contained therein whether on the front or the
back thereof. He cannot elude its provisions simply because they prejudice him and take advantage of those
that are beneficial. Secondly, the fact that he shipped his goods on board the ship of Sea-Land and paid the
corresponding freight thereon shows that he impliedly accepted the bill of lading which was issued in
connection with the shipment in question, and so it may be said that the same is finding upon him as if it had
been actually signed by him or by any other person in his behalf.

23. Sea-Land’s dollar obligation should be convertible at the rate of P8 to $1

Herein, Cue admits that as early as on 22 April 1981, Sea-Land had offered to settle his claim for
US$4,000.00, the limit of said carrier’s liability for loss of the shipment under the bill of lading. Said sum is
all that is justly due Cue, it does not appear just or equitable that Sea-Land, which offered that amount in
good faith as early as 6 years ago, should, by being made to pay at the current conversion rate of the dollar to
the peso, bear for its own account all of the increase in said rate since the time of the offer of settlement. The
decision of the Regional Trial Court awarding Cue P186,048.00 as the peso value of the lost shipment is
clearly based on a conversion rate of P8.00 to US$1.00, Cue having claimed a dollar value of $23,256.00 for
said shipment. All circumstances considered, it is just and fair that Sea-Land’s dollar obligation be
convertible at the same rate.

[65]

Aboitiz Shipping vs. CA (GR 89757, 6 August 1990)

First Division, Gancayco (J): 4 concur

Facts: On October 28, 1980, the vessel M/V “P. Aboitiz” took on board in Hongkong for shipment to Manila
some cargo consisting of 1 20-footer container holding 271 rolls of goods foe apparel covered by Bill of
Lading 515-M and 1 40-footer container holding 447 rolls, 10 bulk and 95 cartons of goods for apparel
covered by Bill of Landing 505-M. The total value, including invoice value, freightage, customs duties, taxes
and similar imports amount to US$39,885 for the first shipment while that of the second shipment amounts to
US$94,190.55. Both shipments were consigned to the Philippine Apparel, Inc. and insured with the General
Accident Fire and Life Assurance Corporation, Ltd. (GAFLAC). The vessel is owned and operated by Aboitiz
Shipping Corporation. On 31 October 1980 on its way to Manila the vessel sunk and it was declared lost with
all its cargoes. GAFLAC paid the consignee the amounts US$39,885.85 or P319,086.80 and US$94,190.55 or
P753,524.40 for the lost cargo.

As GAFLAC was subrogated to all the rights, interests and actions of the consignee against Aboitiz, it filed
an action for damages against Aboitiz in the Regional Trial Court of Manila alleging that the loss was due to
the fault and negligence of Aboitiz and the master and crew of its vessel in that they did not observe the
extraordinary diligence required by law as regards common carriers. After the issues were joined and the trial
on the merits a decision was rendered by the trial court on 29 June 1985, ordering Aboitiz to pay GAFLAC
actual damages in the sum of P1,072,611.20 plus legal interest from the date of the filing of the complaint on
28 October 1981, until full payment thereof, attorney’s fees in the amount of 20% of the total claim and to
pay the costs.

Not satisfied therewith, Aboitiz appealed to the Court of Appeals wherein in due course a decision was
rendered on 9 March 1989 affirming in toto the appealed decision, with costs against Aboitiz. A motion for
reconsideration of said decision filed by Aboitiz was denied in a resolution dated 15 August 1989.. Hence, the
petition for review.

The Supreme Court dismissed the petition, with costs against Aboitiz.

1. Finding of administrative bodies not always binding upon the court

 The sinking of the vessel M/V “P. Aboitiz” was the subject of an administrative investigation
conducted by the Board of Marine Inquiry (BMI) whereby in a decision dated 26 December 1984, it was
found that the sinking of the vessel may be attributed to force majeure on account of a typhoon. The trial
court did not err in not giving weight to the finding of the BMI that the vessel sank due to a fortuitous event
as findings of administrative bodies are not always binding on courts. This is especially so in the present case
where GAFLAC was not a party in the BMI proceedings and which proceeding was not adversary in
character.

2. General rule as to administrative findings of facts

As a general rule, administrative findings of facts are not disturbed by the courts when supported by
substantial evidence unless it is tainted with unfairness or arbitrariness that would amount to abuse of
discretion or lack of jurisdiction. Even in Vasquez vs. Court of Appeals, the Court ruled that it nevertheless
disagree with the conclusion of the BMI exonerating the captain from any negligence “since it obviously had
not taken into account the legal responsibility of a common carrier towards the security of the passengers
involved.”

3. Trial court not informed of parallel administrative investigation being conducted by BMI;
GAFLAC cannot be bound by findings and conclusions of BMI
The present case was brought to court on 28 October 1981. The trial court was never informed of a
parallel administrative investigation that was being conducted by the BMI in any of the pleadings of Aboitiz.
It was only on 22 March 1985 when Aboitiz revealed to the trial court the decision of the BMI dated 26
December 1984. The said decision appears to have been rendered over 3 years after the case was brought to
court. Said administrative investigation was conducted unilaterally. GAFLAC was not notified or given an
opportunity to participate therein. It cannot thereby be bound by said findings and conclusions of the BMI.

4. Weather condition prevailing under wind force of 10 to 15 knots usual and foreseeable
The wind force when the ill-fated ship foundered was 10 to 15 knots. According to the Beau fort
Scale (Exhibit “I”), which is admittedly an accurate reference for measuring wind velocity, the wind force of
10 to 15 knots is classified as scale No. 4 and described as ‘moderate breeze,’ small waves, becoming longer,
fairly frequent white horses.’ The weather condition prevailing under said wind force is usual and
foreseeable. The vessel M/V “Aboitiz” and its cargo were not lost due to fortuitous event or force majeure.

5. Common carrier bound to observe extraordinary diligence (Article 1732 NCC); Presumption of
negligence, burden of proof
In accordance with Article 1732 of the Civil Code, the common carrier, from the nature of its
business and for reasons of public policy, is bound to observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported by it according to all the circumstances of each case.
While the goods are in the possession of the carrier, it is but fair that it exercise extraordinary diligence in
protecting them from loss or damage, and if loss occurs, the law presumes that it was due to the carrier’s fault
or negligence; that is necessary to protect the interest of the shipper which is at the mercy of the carrier
(Article 17O6, Civil Code; Anuran vs. Puno, 17 SCRA 224; Nocum vs. Laguna Tayabas Bus Co., 30 SCRA
69; Landigan vs. Pangasinan Transportation Company, 88 SCRA 284).” Herein, Aboitiz failed to prove that
the loss of the subject cargo was not due to its fault or negligence.

6. Limited liability clause; Exception

While it is true that in the bill of lading there is such stipulation that the liability of the carrier is
US$500.00 per package/container/customary freight, there is an exception, that is, when the nature and value
of such goods have been declared by the shipper before shipment and inserted in the bill of lading. Herein, the
description of the nature and the value of the goods shipped are declared and reflected in the bills of lading.
Thus, it is the basis of the liability of the carrier as the actual value of the loss.
7. Section 4 (5) COGSA
Section 4(5) of the Carriage of Goods by Sea Act provides that “(5) Neither the carrier nor the ship
shall in any event be or become liable for any loss or damage to or in connection with the transportation of
goods in an amount exceeding $500 per package of lawful money of the United States, or in case of goods not
shipped in packages, per customary freight unit, or the equivalent of that sum in other currency, unless the
nature and value of such goods have been inserted in the bill of lading. This declaration, if embodied in the
bill of lading, shall be prima facie evidence, but shall not be conclusive on the carrier. By agreement between
the carrier, master or agent of the carrier, and the shipper another maximum amount than that mentioned in
this paragraph may be fixed: Provided, that such maximum shall not be less than the figure above named. In
no event shall the carrier be liable for more than the amount of damage actually sustained. Neither the carrier
nor the ship shall be responsible in any event for loss or damage to or in connection with the transportation of
the goods if the nature or value thereof has been knowingly and fraudulently mis-stated by the shipper in the
bill of lading.”

8. “Container” construed; Noscitur a sociis

It is absurd to interpret “container,” as provided in the bill of lading to be valued at US$500.00 each,
to refer to the container which is the modern substitute for the hold of the vessel. The package/container
contemplated by the law to limit the liability of the carrier should be sensibly related to the unit in which the
shipper packed the goods and described them, not a large metal object, functionally a part of the ship, in
which the carrier caused them to be contained. Such “container” must be given the same meaning and
classification as a “package” and “customary freight unit.” By the rule of noscitur a sociis, the word
‘container’ must be given the same meaning as ‘package’ and ‘customary freight unit’ and therefore cannot
possibly refer to modern containers which are used for shipment of goods in bulk.

9. Allied Guarantee Insurance Co. Inc. vs. Aboitiz Shipping Corporation, (CA GR CV 04121, 23
March1987); Limited liability clause must be reasonable and freely agreed upon
Generally speaking, a stipulation, limiting the common carrier’s liability to the value of the goods
appearing in the bill of lading, unless the shipper or owner declares a greater value, is valid. (Civil Code, Art.
1749). Such stipulation, however, must be reasonable and just under the circumstances and must have been
fairly and freely agreed upon. (St. Paul Fire & Marine Insurance Co. vs. Macondray Co., 70 SCRA 122, 126-
127 (1976) Herein, the goods shipped on the M/V “P. Aboitiz” were insured for P278,530.50, which may be
taken as their value. To limit the liability of the carrier to $500.00 would obviously put it in its power to have
taken the whole cargo.

10. Ysmael vs .Gabino Barreto; Limitation of liability inapplicable when loss caused by own
negligence
In Juan Ysmael & Co. vs. Gabino Barreto & Co., 51 Phil. 90 (1927), it was held that a stipulation
limiting the carrier’s liability to $500.00 per package of silk when the value of such package was P2,500.00
unless the true value had been declared and the corresponding freight paid was ‘void as against public policy.’
That ruling applies to the present case. By the weight of modern authority, a carrier cannot limit its liability
for injury or loss of goods shipped where such injury or loss was caused by its own negligence. (Juan Ysmael
& Co. v. Gabino Barreto & Co., supra) Here to limit the liability of Aboitiz Shipping to $500.00 would nullify
the policy of the law imposing on common carriers the duty to observe extraordinary diligence in the carriage
of goods.

11. Issuance of execution pending appeal; Filing of supersedeas bond to stay execution
The purpose of Section 2, Rule 39, of the Rules of Court would not be achieved or execution pending
appeal would not be achieved if insolvency would still be awaited. The remedy is available to petitioner under
Section 3 Rule 39 of the Rules of Court but to place insolvency as a condition to issuance of a writ of
execution pending appeal would render it illusory and ineffectual. Herein, Aboitiz is facing many law suits
arising from said sinking of its vessel involving cargo loss of no less than P50 million, in some cases of which
judgment had been rendered against Aboitiz, and considering that its insurer is now bankrupt, leaving Aboitiz
alone to face and answer the suits, which may render any judgment for GAFLAC ineffectual, that the appeal
is interposed manifestly for delay and the willingness of GAFLAC to put up a bond certainly are cogent bases
for the issuance of an order of execution pending appeal. The statutory undertaking of posting a supersedeas
bond will achieve a three-pronged direction of justice, (1) it will cast no doubt on the solvency of the
defendant; (2) it will not defeat or render phyrric a just resolution of the case whichever party prevails in the
end or in the main case on appeal, since both of their claims are secured by their corresponding bonds; and (3)
it will put to equitable operation Sec. 3 Rule 39 of the Revised Rules of Court.

12. Aboitiz vs. CA (GR 88159; 13 November1989); Doctrine of primary administrative jurisdiction
not applicable
In a similar case for damages arising from the same incident entitled Aboitiz Shipping Corporation
vs. Honorable Court of Appeals and Allied Guaranteed Insurance Company, Inc., G.R. No. 88159, the Court
in a resolution dated 13 November 1989 dismissed the petition for lack of merit. Therein this Court held in
part that the cause of sinking of the vessel was due to its unseaworthiness and the failure of its crew and the
master to exercise extraordinary diligence. Therein, the decision and resolution of the appellate court shows
that the same took into consideration not only the findings of the lower court but also the findings of the BMI.
Thus, the appellate court stated that the decision of the Board was based simply on its finding that the
Philippine Coast Guard had certified the vessel to be seaworthy and that it sank because it was exposed later
to an oncoming typhoon plotted within the radius where the vessel was positioned. This generalization
certainly cannot prevail over the detailed explanation of the trial court in the case as basis for its contrary
conclusion. The Court found therein no cogent reason to deviate from the factual findings of the appellate
court and rule that the doctrine of primary administrative jurisdiction is not applicable in said case.

13. Aboitiz vs. CA (GR 88159; 13 November1989); Limitation of liability would render
inefficacious the extraordinary diligence required by law of common carriers
Generally speaking any stipulation, limiting the common carrier’s liability to the value of the goods
appearing in the bill of lading, unless the shipper or owner declares a greater value is valid. (Civil Code, Art.
1749) Such stipulation, however, must be reasonable and just under the circumstances and must have been
fairly and freely agreed upon. (St. Paul Fire & Marine Insurance Co. v. Macondray & Co., 70 SCRA 122,
126-127 [1976]. Therein, the goods shipped on the M/V ‘P. Aboitiz’ were insured for P278,536.50, which
may be taken as their value. To limit the liability of the carrier to $500.00 would obviously put in its power to
have taken the whole cargo. In Juan Ysmael & Co. v. Gabino Barretto & Co., 51 Phil. 90 [1927], it was held
that a stipulation limiting the carrier’s liability to P300.00 per package of silk, when the value of such
package was P2,500.00, unless the true value had been declared and the corresponding freight paid; was void
as against public policy. That ruling applies to said case.

14. Aboitiz vs. CA (GR 88159; 13 November1989) final and executory

The motion for reconsideration for the Court’s Resolution in GR 88159 filed by Aboitiz was denied
with finality in a resolution dated January 8, 1990. Said resolution of the case had become final and
executory, entry of judgment having been made and the records remanded for execution on 22 March 1990.
Said case is the law of the case applicable to the present petition.

[66]

Everett Steamship Corp. vs. CA (GR 122494, 8 October 1998)

Second Division, Martinez (J): 4 concur

Facts: Hernandez Trading Co. Inc. imported three crates of bus spare parts marked as MARCO C/No. 12,
MARCO C/No. 13 and MARCO C/No. 14, from its supplier, Maruman Trading Company, Ltd. (Maruman
Trading), a foreign corporation based in Inazawa, Aichi, Japan. The crates were shipped from Nagoya, Japan
to Manila on board “ADELFAEVERETTE,” a vessel owned by Everett Steamship Corporation’s principal,
Everett Orient Lines. The said crates were covered by Bill of Lading NGO53MN. Upon arrival at the port of
Manila, it was discovered that the crate marked MARCO C/No. 14 was missing. This was confirmed and
admitted by Everett Steamship in its letter of 13 January 1992 addressed to Hernandez Trading, which
thereafter made a formal claim upon petitioner for the value of the lost cargo amounting to Y 1,552,500.00
Yen, the amount shown in an Invoice MTM-941, dated 14 November 1991. However, Everett Steamship
offered to pay Y100,000.00, the maximum amount stipulated under Clause 18 of the covering bill of lading
which limits the liability of Everett Steamship.

Hernandez Trading rejected the offer and thereafter instituted a suit for collection (Civil Case C-15532),
against Everett Shipping before the RTC of Caloocan City (Branch 126). At the pre-trial conference, both
parties manifested that they have no testimonial evidence to offer and agreed instead to file their respective
memoranda. On 16 July 1993, the trial court rendered judgment in favor of Hernandez Trading, ordering
Everett Steamship to pay: (a) Y1,552,500.00; (b) Y20,000.00 or its peso equivalent representing the actual
value of the lost cargo and the material and packaging cost; (c) 10% of the total amount as an award for and
as contingent attorney’s fees; and (d) to pay the cost of the suit.

On appeal, and on 14 June 1995, the Court of Appeals deleted the award of attorney’s fees but affirmed the
trial court’s findings with the additional observation that Hernandez Trading can not be bound by the terms
and conditions of the bill of lading because it was not privy to the contract of carriage. Everett Steamship
filed a petition for review.

The Supreme Court reversed and set aside the decision of the Court of Appeals.

1. Limited liability clause sanctioned by law

A stipulation in the bill of lading limiting the common carrier’s liability for loss or destruction of a
cargo to a certain sum, unless the shipper or owner declares a greater value, is sanctioned by law, particularly
Articles 1749 and 1750 of the Civil Code.

2. Article 1749 NCC

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

3. Article 1750 NCC

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

4. Limited liability clause upheld by Court; Sea Land vs. IAC

Such limited-liability clause has also been consistently upheld by this Court in a number of cases.
Thus, in Sea Land Service, Inc. vs. IAC, the Court ruled that “It seems clear that even if said section 4 (5) of
the Carriage of Goods by Sea Act did not exist, the validity and binding effect of the liability limitation clause
in the bill of lading here are nevertheless fully sustainable on the basis alone of the cited Civil Code
Provisions. That said stipulation is just and reasonable is arguable from the fact that it echoes Article 1750
itself in providing a limit to liability only if a greater value is not declared for the shipment in the bill of
lading. To hold otherwise would amount to questioning the justness and fairness of the law itself, and this the
private respondent does not pretend to do. But over and above that consideration, the just and reasonable
character of such stipulation is implicit in it giving the shipper or owner the option of avoiding accrual of
liability limitation by the simple and surely far from onerous expedient of declaring the nature and value of
the shipment in the bill of lading . . .”
5. Conditions for the validity of limited liability clause
Pursuant to the provisions of law, it is required that the stipulation limiting the common carrier’s
liability for loss must be “reasonable and just under the circumstances, and has been freely and fairly agreed
upon.”

6. Contents of bill of lading (clause 18)

The bill of lading specifically provides, among others, “(18) All claims for which the carrier may be
liable shall be adjusted and settled on the basis of the shipper’s net invoice cost plus freight and insurance
premiums, if paid, and in no event shall the carrier be liable for any loss of possible profits or any
consequential loss. The carrier shall not be liable for any loss of or any damage to or in any connection with,
goods in an amount exceeding One Hundred Thousand Yen in Japanese Currency (Y100,000.00) or its
equivalent in any other currency per package or customary freight unit (whichever is least) unless the value of
the goods higher than this amount is declared in writing by the shipper before receipt of the goods by the
carrier and inserted in the Bill of Lading and extra freight is paid as required.”

7. Stipulations are reasonable and just

The stipulations are reasonable and just. In the bill of lading, the carrier made it clear that its liability
would only be up to Y100,000.00. However, the shipper, Maruman Trading, had the option to declare a
higher valuation if the value of its cargo was higher than the limited liability of the carrier. Considering that
the shipper did not declare a higher valuation, it had itself to blame for not complying with the stipulations.

8. Contracts of adhesion not invalid per se; PAL vs. CA

As ruled in PAL, Inc. vs. Court of Appeals, the “jurisprudence on the matter reveals the consistent
holding of the court that contracts of adhesion are not invalid per se and that it has on numerous occasions
upheld the binding effect thereof.”

9. Contracts of adhesion; Consent by adhering

In Philippine American General Insurance Co., Inc. vs. Sweet Lines, Inc. the Court held that “Ong
Yiu vs. Court of Appeals, et al., instructs us that ‘contracts of adhesion wherein one party imposes a ready-
made form of contract on the other . . . are contracts not entirely prohibited. The one who adheres to the
contract is in reality free to reject it entirely; if he adheres he gives his consent. . . Not even an allegation of
ignorance of a party excuses non-compliance with the contractual stipulations since the responsibility for
ensuring full comprehension of the provisions of a contract of carriage devolves not on the carrier but on the
owner, shipper, or consignee as the case may be.”

10. Contract of adhesion; Ong Yiu vs. CA

As further explained in Ong Yiu vs. Court of Appeals, stipulations in contracts of adhesion are valid
and binding. While it may be true that the plane ticket was not signed. . ., he is nevertheless bound by the
provisions thereof. Such provisions have been held to be a part of the contract of carriage, and valid and
binding upon the passenger regardless of the latter’s lack of knowledge or assent to the regulation. It is what
is known as a contract of ”adhesion,” in regards which it has been said that contracts of adhesion wherein one
party imposes a ready-made form of contract on the other, as the plane ticket in the case at bar, are contracts
not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres,
he gives his consent , a contract limiting liability upon an agreed valuation does not offend against the
policy of the law forbidding one from contracting against his own negligence.

11. Greater vigilance required of courts when dealing with contracts of adhesion; Article 24 NCC
Greater vigilance, however, is required of the courts when dealing with contracts of adhesion in that
the said contracts must be carefully scrutinized “in order to shield the unwary (or weaker party) from
deceptive schemes contained in ready-made covenants,” such as the bill of lading. The stringent requirement
which the courts are enjoined to observe is in recognition of Article 24 of the Civil Code which mandates that
“in all contractual, property or other relations, when one of the parties is at a disadvantage on account of his
moral dependence, ignorance, indigence, mental weakness, tender age or other handicap, the courts must be
vigilant for his protection.”

12. Shipper extensively engaged in trading business, cannot be said to be ignorant of transactions
as to shipment
The shipper, Maruman Trading, has been extensively engaged in the trading business. It can not be
said to be ignorant of the business transactions it entered into involving the shipment of its goods to its
customers. The shipper could not have known, or should know the stipulations in the bill of lading and there
it should have declared a higher valuation of the goods shipped. Moreover, Maruman Trading has not been
heard to complain that it has been deceived or rushed into agreeing to ship the cargo in Everett Steamship’s
vessel. In fact, it was not even impleaded in the case.

13. Consignee may be bound by contract of carriage although not a signatory thereto (Agency); Sea
Land vs. IAC
In Sea-Land Service, Inc. vs. IAC, the Court held that even if the consignee was not a signatory to the
contract of carriage between the shipper and the carrier, the consignee can still be bound by the contract. To
begin with, there is no question of the right, in principle, of a consignee in a bill of lading to recover from the
carrier or shipper for loss of, or damage to goods being transported under said bill, although that document
may have been — as in practice it oftentimes is-drawn up only by the consignor and the carrier without the
intervention of the consignee...............the right of a party to recover for loss of a shipment consigned to him
under a bill of lading drawn up only by and between the shipper and the carrier, springs from either a relation
of agency that may exist between him and the shipper or consignor, or his status as stranger in whose favor
some stipulation is made in said contract, and who becomes a party thereto when he demands fulfillment of
that stipulation, such as the delivery of the goods or cargo shipped.

14. Consignee may be bound by contract of carriage although not a signatory thereto and even if
stipulations in fine print; Phoenix Assurance Co. vs. Macondray
In neither capacity can he assert personally, in bar to any provision of the bill of lading, the alleged
circumstance that fair and free agreement to such provision was vitiated by its being in such fine print as to be
hardly readable. Parenthetically, it may be observed that in one comparatively recent case (Phoenix
Assurance Company vs. Macondray & Co., Inc., 64 SCRA 15) where the Court found that a similar package
limitation clause was “printed in the smallest type on the back of the bill of lading,” it nonetheless ruled that
the consignee was bound thereby on the strength of authority holding that such provisions on liability
limitation are as much a part of a bill of lading as though physically in it and as though placed therein by
agreement of the parties.

15. Act of consignee that effected acceptance of provisions of contract of carriage

When Hernandez Trading formally claimed reimbursement for the missing goods from Everett
Steamship and subsequently filed a case against the latter based on the very same bill of lading, the former
accepted the provisions of the contract and thereby made itself a party thereto, or at least has come to court to
enforce it. Thus, Hernandez Trading cannot now reject or disregard the carrier’s limited liability stipulation in
the bill of lading. In other words, Hernandez Trading is bound by the whole stipulations in the bill of lading
and must respect the same.

16. Bill of lading proves carrier unaware of contents, quantity and value of crates
The bill of lading confirms the fact that Everett Steamship that it does not know of the contents,
quantity and value of “the shipment which consisted of three pre-packed crates described in Bill of Lading
NGO-53MN (Cases Spare Parts). To defeat the carrier’s limited liability, Clause 18 of the bill of lading
requires that the shipper should have declared in writing a higher valuation of its goods before receipt thereof
by the carrier and insert the said declaration in the bill of lading, with the extra freight paid. These
requirements in the bill of lading were never complied with by the shipper, hence, the liability of the carrier
under the limited liability clause stands. The commercial Invoice MTM-941 does not in itself sufficiently and
convincingly show that Everett Steamship has knowledge of the value of the cargo as contended by
Hernandez Trading.

[67] Sea-Land Service vs. IAC, see [64]

[-], also [234]

Shewaram vs. PAL (GR L-20099, 7 July 1966)

En Banc, Zaldivar (J): 8 concur

Facts: Philippine Airlines (PAL) is a common carrier engaged in air line transportation in the Philippines,
offering its services to the public to carry and transport passengers and cargoes from and to different points in
the Philippines. Parmanand Shewaram was, on 23 November 1959, a paying passenger with ticket 4-30976,
on PAL’s aircraft flight 976/910 from Zamboanga City bound for Manila. On said date, he checked in 3 pieces
of baggages — a suitcase and two 2 other pieces, The suitcase was mistagged by PAL’s personnel in
Zamboanga City, as I.G.N. (for Iligan) with claim check B-3883, instead of MNL (for Manila). When
Shewaram arrived in Manila on the same date, his suitcase did not arrive with his flight because it was sent to
Iligan. He made a claim with PAL’s personnel in Manila airport and another suitcase similar to his own which
was the only baggage left for that flight, the rest having been claimed and released to the other passengers of
said flight, was given to Shewaram for him to take delivery but he did not and refused to take delivery of the
same on the ground that it was not his, alleging that all his clothes were white and the National transistor 7
and a Rollflex camera were not found inside the suitcase, and moreover, it contained a pistol which he did not
have nor placed inside his suitcase (the suitcase belonged to a certain Del Rosario). After inquiries made by
PAL’s personnel in Manila from different airports where the suitcase in question must have been sent, it was
found to have reached Iligan and the station agent of the PAL in Iligan caused the same to be sent to Manila
for delivery to Mr. Shewaram and which suitcase belonging to Shewaram arrived in Manila airport on 24
November 1959. When Shewaram’s suitcase arrived in Manila, he was informed by Mr. Tomas Blanco, Jr.,
the acting station agent of the Manila airport of the arrival of his suitcase but of course minus his Transistor
Radio 7 and the Rollflex camera. Shewaram made demand for these 2 items or for the value thereof but the
same was not complied with by PAL.

Before the municipal court of Zamboanga City, Shewaram instituted an action to recover damages suffered by
him due to the alleged failure of PAL to observe extraordinary diligence in the vigilance and carriage of his
luggage. After trial the municipal court of Zamboanga City rendered judgment ordering PAL to pay
Shewaram P373.00 as actual damages, P100.00 as exemplary damages, P150.00 as attorney’s fees, and the
costs of the action.

PAL appealed to the CFI of Zamboanga City. After hearing the CFI of Zamboanga City modified the
judgment of the inferior court by ordering PAL to pay Shewaram only the sum of P373.00 as actual damages,
with legal interest from 6 May 1960, and the sum of P150.00 as attorney’s fees, eliminating the award of
exemplary damages. From the decision of the CFI of Zamboanga City, PAL appeals to the Supreme Court on
a question of law.

The Supreme Court affirmed the decision appealed from, with costs against PAL.

1. Extraordinary diligence required of common carrier

PAL is a common carrier. As such common carrier PAL, from the nature of its business and for
reasons of public policy, is bound to observe extraordinary diligence in the vigilance over the goods and for
the safety of the passengers transported by it according to the circumstances of each case. Herein, The
suitcase of Shewaram was tampered, and the transistor radio and the camera contained therein were lost. As
the loss of the transistor radio and the camera of Shewaram, costing P373.00 (The transistor radio costs
P197.00 and the camera costs P176.00), was due to the negligence of the employees of PAL, it is clear that
PAL should be held liable for the payment of said loss.

2. Condition of carriage printed at the back of plane ticket stub

The conditions of carriage printed at the back of the plane ticket stub, which conditions are embodied
in Domestic Tariff Regulations 2, which was filed with the Civil Aeronautics Board. One of those conditions,
provides as follows: “The liability, if any, for loss or damage to checked baggage or for delay in the delivery
thereof is limited to its value and, unless the passenger declares in advance a higher valuation and pay an
additional charge therefor, the value shall be conclusively deemed not to exceed P100.00 for each ticket.”

3. Article 1750 NCC

Article 1750 of the New Civil Code provides that “A contract fixing the sum that may be recovered
by the owner or shipper for the loss, destruction, or deterioration of the goods is valid, if it is reasonable and
just under the circumstances, and has been fairly and freely agreed upon.” In accordance with Article 1750 of
the New Civil Code, the pecuniary liability of a common carrier may, by contract, be limited to a fixed
amount. It is required, however, that the contract must be “reasonable and just under the circumstances and
has been fairly and freely agreed upon.”

4. Requirements of Article 1750 must be complied with before common carrier may claim
limitation of liability
The requirements provided in Article 1750 of the New Civil Code must be complied with before a
common carrier can claim a limitation of its pecuniary liability in case of loss, destruction or deterioration of
the goods it has undertaken to transport. Herein, the requirements of said article have not been met. It can not
be said that Shewaram had actually entered into a contract with PAL, embodying the conditions as printed at
the back of the ticket stub that was issued by PAL to Shewaram. The fact that those conditions are printed at
the back of the ticket stub in letters so small that they are hard to read would not warrant the presumption that
Shewaram was aware of those conditions such that he had “fairly and freely agreed” to those conditions.
Inasmuch as passengers do not sign the ticket, much less did Shewaram sign his ticket when he made the
flight on 23 November 1959, Shewaram is not, and can not be, bound by the conditions of carriage found at
the back of the ticket stub issued to him when he made the flight on PAL’s plane.

5. Article 1734 NCC

Article 1734 of the Civil Code provides that “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, or other natural disaster or calamity; (2) Act of the public enemy in war, whether
international or Civil; (3) Act or omission of the shipper or owner of the goods; (4) The character of the goods
or defects in the packing or in the containers; and (5) Order or act of competent public authority.”

6. Article 1735 NCC

Article 1735. of the Civil Code provides that “In all cases other than those mentioned in Nos. 1, 2, 3,
4, and 5 of the preceding article, if the goods are lost, destroyed or deteriorated, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as required in Article 1733.”

7. Carrier cannot limit liability for injury caused by its own negligence
In the case of Ysmael and Co. vs. Barretto, 51 Phil. 90, the Court had laid down the rule that the
carrier can not limit its liability for injury to or loss of goods shipped where such injury or loss was caused by
its own negligence.
8. Corpus Juris, volume 10, p. 154; Paragraph 194.6, Reasonableness of Limitation
Paragraph 194.6. (Reasonableness of Limitation) provides that “The validity of stipulations limiting
the carrier’s liability is to be determined by their reasonableness and their conformity to the sound public
policy, in accordance with which the obligations of the carrier to the public are settled. It cannot lawfully
stipulate for exemption from liability, unless such exemption is just and reasonable, and unless the contract is
freely and fairly made. No contractual limitation is reasonable which is subversive of public policy.”

9. Corpus Juris, volume 10, p. 154; Paragraph 195.7(a), What Limitations of Liability
Permissible, Negligence
Paragraph 195. 7 (What Limitations of Liability Permissible) provides that “a. Negligence — (1)
Rule in America — (a) In Absence of Organic or Statutory Provisions Regulating Subject — aa. Majority
Rule. — In the absence of statute, it is settled by the weight of authority in the United States, that whatever
limitations against its common-law liability are permissible to a carrier, it cannot limit its liability for injury to
or loss of goods shipped, where such injury or loss is caused by its own negligence. This is the common law
doctrine and it makes no difference that there is no statutory prohibition against contracts of this character.”

10. Corpus Juris, volume 10, p. 154; Paragraph 196.bb, Considerations on which Rule Based
Paragraph 196.bb (Considerations on which Rule Based) provides that “The rule, it is said, rests on
considerations of public policy. The undertaking is to carry the goods, and to relieve the shipper from all
liability for loss or damage arising from negligence in performing its contract is to ignore the contract itself.
The natural effect of a limitation of liability against negligence is to induce want of care on the part of the
carrier in the performance of its duty. The shipper and the common carrier are not on equal terms; the shipper
must send his freight by the common carrier, or not at all; he is therefore entirely at the mercy of the carrier
unless protected by the higher power of the law against being forced into contracts limiting the carrier’s
liability. Such contracts are wanting in the element of voluntary assent.”

11. Corpus Juris, volume 10, p. 154; Paragraph 197.cc, Application and Extent of Rule, Negligence
of servants
Paragraph 197.cc (Application and Extent of Rule) provides that “(aa) Negligence of Servants. —
The rule prohibiting limitation of liability for negligence is often stated as a prohibition of any contract
relieving the carrier from loss or damage caused by its own negligence or misfeasance, or that of its servants;
and it has bean specifically decided in many cases that no contract limitation will relieve the carrier from
responsibility for the negligence, unskillfulness, or carelessness of its employees.’”

[68], also [85]

Ong Yiu vs. CA (GR L-40597, 29 June 1979)

First Division, Melencio-Herrera (J): 5 concur

Facts: On 26 August 1967, Augusto B. Ong Yiu was a fare paying passenger of Philippine Air Lines, Inc.
(PAL), on board Flight 463-R, from Mactan, Cebu, bound for Butuan City. He was scheduled to attend the
trial of Civil Case 1005 and Special Proceedings 1125 in the Court of First Instance, Branch II, set for hearing
on August 28-31, 1967. As a passenger, he checked in one piece of luggage, a blue “maleta” for which he was
issued Claim Check 2106-R. The plane left Mactan Airport, Cebu, at about 1:00 p.m., and arrived at Bancasi
airport, Butuan City, at past 2:00 p.m., of the same day. Upon arrival, Ong Yiu claimed his luggage but it
could not be found. According to Ong Yiu, it was only after reacting indignantly to the loss that the matter
was attended to by the porter clerk, Maximo Gomez, which, however, the latter denies. At about 3:00 p.m.,
PAL Butuan, sent a message to PAL, Cebu inquiring about the missing luggage, which message was, in turn,
relayed in full to the Mactan Airport teletype operator at 3:45 p.m. It must have been transmitted to Manila
immediately, for at 3:59 p.m., PAL Manila wired PAL Cebu advising that the luggage had been overcarried to
Manila aboard Flight 156 and that it would be forwarded to Cebu on Flight 345 of the same day. Instructions
were also given that the luggage be immediately forwarded to Butuan City on the first available flight. At
5:00 p.m. of the same afternoon, PAL Cebu sent a message to PAL Butuan that the luggage would be
forwarded on Flight 963 the following day, 27 August 1967. However, this message was not received by PAL
Butuan as all the personnel had already left since there were no more incoming flights that afternoon. In the
meantime, Ong Yiu was worried about the missing luggage because it contained vital documents needed for
trial the next day. At 10:00 p.m., Ong Yiu wired PAL Cebu demanding the delivery of his baggage before
noon the next day, otherwise, he would hold PAL liable for damages, and stating that PAL’s gross negligence
had caused him undue inconvenience, worry, anxiety and extreme embarrassment. This telegram was received
by the Cebu PAL supervisor but the latter felt no need to wire Ong Yiu that his luggage had already been
forwarded on the assumption that by the time the message reached Butuan City, the luggage would have
arrived. Early in the morning of the next day, 27 August 1967, Ong Yiu went to the Bancasi Airport to inquire
about his luggage. He did not wait, however, for the morning flight which arrived at 10:00 a.m., and which
carried the missing luggage. The porter clerk, Maximo Gomez, paged Ong Yiu, but the latter had already left.
A certain Emilio Dagorro, a driver of a “colorum” car, who also used to drive for Ong Yiu, volunteered to
take the luggage to Ong Yiu. As Maximo Gomez knew Dagorro to be the same driver used by Ong Yiu
whenever the latter was in Butuan City, Gomez took the luggage and placed it on the counter. Dagorro
examined the lock, pressed it, and it opened. After calling the attention of Maximo Gomez, the “maleta” was
opened, Gomez took a look at its contents, but did not touch them. Dagorro then delivered the “maleta” to
Ong Yiu, with the information that the lock was open. Upon inspection, Ong Yiu found that a folder
containing certain exhibits, transcripts and private documents in Civil Case No. 1005 and Sp. Procs. No. 1126
were missing, aside from two gift items for his parents-in-law. Ong Yiu refused to accept the luggage.
Dagorro returned it to the porter clerk, Maximo Gomez, who sealed it and forwarded the same to PAL Cebu.
Meanwhile, Ong Yiu asked for postponement of the hearing of Civil Case 1005 due to loss of his documents,
which was granted by the Court. Ong Yiu returned to Cebu City on 28 August 1967. In a letter dated 29
August 1967 addressed to PAL, Cebu, Ong Yiu called attention to his telegram, demanded that his luggage be
produced intact, and that he be compensated in the sum of P250,000.00 for actual and moral damages within
5 days from receipt of the letter, otherwise, he would be left with no alternative but to file suit. On 31 August
1967, Messrs. de Leon, Navarsi, and Agustin, all of PAL Cebu, went to Ong Yiu’s office to deliver the
“maleta”. In the presence of Mr. Jose Yap and Atty. Manuel Maranga, the contents were listed and receipted
for by Ong Yiu. On 5 September 1967, Ong Yiu sent a tracer letter to PAL Cebu inquiring about the results of
the investigation which Messrs. de Leon, Navarsi and Agustin had promised to conduct to pinpoint
responsibility for the unauthorized opening of the “maleta”.

On 13 September 1967, Ong Yiu filed a Complaint against PAL for damages for breach of contract of
transportation with the CFI of Cebu (Branch V, Civil Case R-10188), which PAL traversed. After due trial,
the lower Court found PAL to have acted in bad faith and with malice and declared petitioner entitled to
moral damages in the gum of P80,000.00, exemplary damages of P30,000.00, attorney’s fees of P5,000.00,
and costs.

Both parties appealed to the Court of Appeals. On 22 August 1974, the Court of Appeals, finding that PAL
was guilty only of simple negligence, reversed the judgment of the trial Court granting Ong Yiu moral and
exemplary damages, but ordered PAL to pay Ong Yiu the sum of P100.00, the baggage liability assumed by it
under the condition of carriage printed at the back of the ticket. Hence, the Petition for Review by Certiorari,
filed on 2 May 1975.

On 16 July 1975, the Supreme Court gave due course to the Petition. The Supreme Court denied the petition
for lack of merit, and affirmed the judgment sought to be reviewed in toto; without costs.

1. Bad faith defined

 Bad faith means a breach of a known duty through some motive of interest or ill will. It was the duty
of PAL to look for Ong Yiu’s luggage which had been miscarried; and PAL exerted due diligence in
complying with such duty. PAL had not acted in bad faith.

2. Failure of PAL Cebu to reply to Ong Yiu’s rush telegram does not indicate bad faith
The failure of PAL Cebu to reply to Ong Yiu’s rush telegram is not indicative of bad faith. The
telegram was dispatched by petitioner at around 10:00 p.m. of 26 August 1967. The PAL supervisor at
Mactan Airport was notified of it only in the morning of the following day. At that time the luggage was
already to be forwarded to Butuan City. There was no bad faith in the assumption made by said supervisor
that the plane carrying the bag would arrive at Butuan earlier than a reply telegram. Had Ong Yiu waited or
caused someone to wait at the Bancasi airport for the arrival of the morning flight, he would have been able to
retrieve his luggage sooner.

3. Article 2217 NCC

Article 2217 of the Civil Code provides that “Moral damages include physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation,
and similar injury. Though incapable of pecuniary computation, moral damages may be recovered if they are
the proximate result of the defendant’s wrongful act of omission.”

4. Article 2220 NCC

Article 2220 of the Civil Code provides that “Willful injury to property may be a legal ground for
awarding moral damages if the court should find that, under the circumstances, such damages are justly due.
The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith.”

5. Ong Yiu not entitled to moral damages, nor exemplary damages

In the absence of a wrongful act or omission or of fraud or bad faith, Ong Yiu is not entitled to moral
damages. Ong Yu is neither entitled to exemplary damages. In contracts, as provided for in Article 2232 of
the Civil Code, exemplary damages can be granted if the defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner, which has not been proven in the present case.

6. Condition of carriage printed at back of plane ticket

The pertinent Condition of Carriage printed at the back of the plane ticket reads “8. BAGGAGE
LIABILITY . . . The total liability of the Carrier for lost or damaged baggage of the passenger is LIMITED
TO P100.00 for each ticket unless a passenger declares a higher valuation in excess of P100.00, but not in
excess, however, of a total valuation of P1,000.00 and additional charges are paid pursuant to Carrier’s
tariffs.”

7. Contract of adhesion
While it may be true that Ong Yiu had not signed the plane ticket, he is nevertheless bound by the
provisions thereof. “Such provisions have been held to be a part of the contract of carriage, and valid and
binding upon the passenger regardless of the latter’s lack of knowledge or assent to the regulation”. It is what
is known as a contract of “adhesion”, in regards which it has been said that contracts of adhesion wherein one
party imposes a ready made form of contract on the other, as the plane ticket in the present case, are contracts
not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres,
he gives his consent.

8. Limitation of liability to agreed valuation not contrary to law; Randolph vs. American Airlines
And as held in Randolph v. American Airlines, 103 Ohio App. 172, 144 N.E. 2d 878; Rosenchein vs.
Trans World Airlines, Inc., 349 S.W. 2d 483, “a contract limiting liability upon an agreed valuation does not
offend against the policy of the law forbidding one from contracting against his own negligence.”
9. No declaration of greater value nor payment of tariff for value of luggage
The liability of PAL for the loss, in accordance with the stipulation written on the back of the ticket is
limited to P100.00 per baggage. Ong Yiu not having declared a greater value, and not having called the
attention of PAL on its true value and paid the tariff therefor. The validity of the stipulation is not questioned
by Ong Yiu. They are printed in reasonably and fairly big letters, and are easily readable. Moreover, Ong Yiu
had been a frequent passenger of PAL from Cebu to Butuan City and back, and he, being a lawyer and
businessman, must be fully aware of these conditions. Considering, therefore, that Ong Yiu had failed to
declare a higher value for his baggage, he cannot be permitted a recovery in excess of P100.00. Besides,
passengers are advised not to place valuable items inside their baggage but “to avail of our V-cargo service.”
It is likewise to be noted that there is nothing in the evidence to show the actual value of the goods allegedly
lost by Ong Yiu.

10. Technicality yields to the interests of substantial justice

On 24 October 1974 or two months after the promulgation of the Decision of the appellate Court,
Ong Yiu’s widow filed a Motion for Substitution claiming that Ong Yiu died on 6 January 1974 and that she
only came to know of the adverse Decision on 23 October 1974 when Ong Yiu’s law partner informed her
that he received copy of the Decision on 28 August 1974. Attached to her Motion was an Affidavit of Ong
Yiu’s law partner reciting facts constitutive of excusable negligence. The appellate Court noting that all
pleadings had been signed by Ong Yiu himself allowed the widow “to take such steps as she or counsel may
deem necessary.” She then filed a Motion for Reconsideration over the opposition of PAL which alleged that
the Court of Appeals Decision, promulgated on 22 August 1974, had already become final and executory
since no appeal had been interposed therefrom within the reglementary period. Under the circumstances,
considering the demise of Ong Yiu himself, who acted as his own counsel, it is best that technicality yields to
the interests of substantial justice. Besides, in the last analysis, no serious prejudice has been caused PAL.

[69]

British Airways vs. CA (GR 121824, 29 January 1998)

Third Division, Romero (J): 3 concur, 1 concur in result

Facts: On 16 April 1989, GOP Mahtani decided to visit his relatives in Bombay, India. In anticipation of his
visit, he obtained the services of a certain Mr. Gumar to prepare his travel plans. The latter, in turn, purchased
a ticket from British Airways (BA) where the following itinerary was indicated (Manila [MNL], PR 310Y, 16
April, 1730H, Status OK; Hongkong [HKG] BA 20M, 16 April, 2100H, Status OK; Bombay [BOM], BA
19M, 23 April, 0840H, Status OK; Hongkong [HKG], PR 311 Y; Manila [MNL].” Since BA had no direct
flights from Manila to Bombay, Mahtani had to take a flight to Hongkong via Philippine Airlines (PAL), and
upon arrival in Hongkong he had to take a connecting flight to Bombay on board BA. Prior to his departure,
Mahtani checked in at the PAL counter in Manila his two pieces of luggage containing his clothings and
personal effects, confident that upon reaching Hongkong, the same would be transferred to the BA flight
bound for Bombay.Unfortunately, when Mahtani arrived in Bombay he discovered that his luggage was
missing and that upon inquiry from the BA representatives, he was told that the same might have been
diverted to London. After patiently waiting for his luggage for one week, BA finally advised him to file a
claim by accomplishing the “Property Irregularity Report.”

Back in the Philippines, specifically on 11 June 1990, Mahtani filed his complaint for damages and attorney’s
fees against BA and Mr. Gumar before the trial court (Civil Case CEB-9076). After appropriate proceedings
and trial, on 4 March 1993, the trial court rendered its decision in favor of Mahtani, ordering BA to pay
Mahtani the sum of P7,000.00 for the value of the two (2) suit cases; US$400.00 representing the value of the
contents of Mahtani’s luggage; P50,000.00 Pesos for moral and actual damages and 20% of the total amount
imposed against BA for attorney’s fees and costs of the action. The Court dismissed BA’s third party
complaint against PAL.
Dissatisfied, BA appealed to the Court of Appeals, which however, on 7 September 1995, affirmed the trial
court’s findings in toto, with costs against BA. Hence, the appeal by certiorary.

The Supreme Court modified the decision of the Court of Appeals, reinstating the third-party complaint filed
by British Airways dated 9 November 1990 against Philippine Airlines. No costs.

1. Nature of airline’s contract of carriage

The nature of an airline’s contract of carriage partakes of two types, namely: a contract to deliver a
cargo or merchandise to its destination and a contract to transport passengers to their destination. A business
intended to serve the travelling public primarily, it is imbued with public interest, hence, the law governing
common carriers imposes an exacting standard. Neglect or malfeasance by the carrier’s employees could
predictably furnish bases for an action for damages.

2. Culpability of airline for lost damages; Claimant must prove existence of factual basis for
damages
As in a number of cases, the Court has assessed the airlines’ culpability in the form of damages for
breach of contract involving misplaced luggage. In determining the amount of compensatory damages in this
kind of cases, it is vital that the claimant satisfactorily prove during the trial the existence of the factual basis
of the damages and its causal connection to defendant’s acts.

3. Declaration of higher value needed to recover greater amount; Article 22 (1) of the Warsaw
Convention
In a contract of air carriage a declaration by the passenger of a higher value is needed to recover a
greater amount. Article 22(2) of the Warsaw Convention provides that “In the transportation of checked
baggage and goods, the liability of the carrier shall be limited to a sum of 250 francs per kilogram, unless the
consignor has made, at the time the package was handed over to the carrier, a special declaration of the value
at delivery and has paid a supplementary sum if the case so requires. In that case the carrier will be liable to
pay a sum not exceeding the declared sum, unless he proves that the sum is greater than the actual value to the
consignor at delivery.”

4. Carrier not liable for loss of baggage in amount in excess of limits specified in tariff
American jurisprudence provides that an air carrier is not liable for the loss of baggage in an amount
in excess of the limits specified in the tariff which was filed with the proper authorities, such tariff being
binding on the passenger regardless of the passenger’s lack of knowledge thereof or assent thereto. This
doctrine is recognized in this jurisdiction.

5. No blind reliance on adhesion contracts; Benefits of limited liability subject to waiver

The Court, however, has ruled against blind reliance on adhesion contracts where the facts and
circumstances justify that they should be disregarded. Further, benefits of limited liability are subject to
waiver such as when the air carrier failed to raise timely objections during the trial when questions and
answers regarding the actual claims and damages sustained by the passenger were asked. Herein, given the
foregoing postulates, the inescapable conclusion is that BA had waived the defense of limited liability when it
allowed Mahtani to testify as to the actual damages he incurred due to the misplacement of his luggage,
without any objection.

6. Right to object actually a mere privilege that can be waived; Objection must be made at earliest
opportunity
It is a well-settled doctrine that where the proponent offers evidence deemed by counsel of the
adverse party to be inadmissible for any reason, the latter has the right to object. However, such right is a
mere privilege which can be waived. Necessarily, the objection must be made at the earliest opportunity, lest
silence when there is opportunity to speak may operate as a waiver of objections. Herein, BA has precisely
failed in this regard.

7. Proper time to object; Abrenica vs. Gonda

In the early case of Abrenica v. Gonda, that court ruled that “it has been repeatedly laid down as a
rule of evidence that a protest or objection against the admission of any evidence must be made at the proper
time, and that if not so made it will be understood to have been waived. The proper time to make a protest or
objection is when, from the question addressed to the witness, or from the answer thereto, or from the
presentation of proof, the inadmissibility of evidence is, or may be inferred.” Herein, to compound matters for
BA, its counsel failed not only to interpose a timely objection but even conducted his own cross-examination
as well.

8. Factual findings of trial court entitled to great respect

Needless to say, factual findings of the trial court, as affirmed by the Court of Appeals, are entitled to
great respect. Herein, since the actual value of the luggage involved appreciation of evidence, a task within
the competence of the Court of Appeals, its ruling regarding the amount is assuredly a question of fact, thus, a
finding not reviewable by the Supreme Court.

9. Nature of third party complaint; Firestone Tire Rubber vs. Tempengko

The third-party complaint is a procedural device whereby a ‘third party’ who is neither a party nor
privy to the act or deed complained of by the plaintiff, may be brought into the case with leave of court, by
the defendant, who acts as third-party plaintiff to enforce against such third-party defendant a right for
contribution, indemnity, subrogation or any other relief, in respect of the plaintiff’s claim. The third-party
complaint is actually independent of and separate and distinct from the plaintiff’s complaint. Were it not for
this provision of the Rules of Court, it would have to be filed independently and separately from the original
complaint by the defendant against the third-party. But the Rules permit defendant to bring in a third-party
defendant or so to speak, to litigate his separate cause of action in respect of plaintiff’s claim against a third-
party in the original and principal case with the object of avoiding circuitry of action and unnecessary
proliferation of law suits and of disposing expeditiously in one litigation the entire subject matter arising from
one particular set of facts.

10. PAL a subcontractor or agent of BA

The contract of air transportation was exclusively between Mahtani and BA, the latter merely
endorsing the Manila to Hongkong leg of the former’s journey to PAL, as its subcontractor or agent. In fact,
the fourth paragraph of the “Conditions of Contracts” of the ticket 32 issued by BA to Mahtani confirms that
the contract was one of continuous air transportation from Manila to Bombay (“4. carriage to be performed
hereunder by several successive carriers is regarded as a single operation.”) It is undisputed that PAL, in
transporting Mahtani from Manila to Hongkong acted as the agent of BA.

11. Agent responsible for any negligence in performance of its function, and liable for damages
which principal may suffer
It is a well-settled rule that an agent is also responsible for any negligence in the performance of its
function and is liable for damages which the principal may suffer by reason of its negligent act. Hence, the
Court of Appeals erred when it opined that BA, being the principal, had no cause of action against PAL, its
agent or sub-contractor.

12. Contractual relationship between BA and PAL, both members of the IATA, is one of agency
Both BA and PAL are members of the International Air Transport Association (IATA), wherein
member airlines are regarded as agents of each other in the issuance of the tickets and other matters pertaining
to their relationship. Therefore, herein, the contractual relationship between BA and PAL is one of agency, the
former being the principal, since it was the one which issued the confirmed ticket, and the latter the agent.
13. BA is principal; Pronouncement consistent with Lufthansa vs. CA
The pronouncement that BA is the principal is consistent with the ruling in Lufthansa German
Airlines v. Court of Appeals. In that case, Lufthansa issued a confirmed ticket to Tirso Antiporda covering
five-leg trip aboard different airlines. Unfortunately, Air Kenya, one of the airlines which was to carry
Antiporda to a specific destination “bumped” him off. An action for damages was filed against Lufthansa
which, however, denied any liability, contending that its responsibility towards its passenger is limited to the
occurrence of a mishap on its own line. Consequently, when Antiporda transferred to Air Kenya, its
obligation as a principal in the contract of carriage ceased; from there on, it merely acted as a ticketing agent
for Air Kenya: In rejecting Lufthansa’s argument, the court ruled that “In the very nature of their contract,
Lufthansa is clearly the principal in the contract of carriage with Antiporda and remains to be so, regardless
of those instances when actual carriage was to be performed by various carriers. The issuance of confirmed
Lufthansa ticket in favor of Antiporda covering his entire five-leg trip aboard successive carriers concretely
attest to this.”

14. Mahtani can sue BA alone, not PAL; PAL however not relieved from liability
Since the present petition was based on breach of contract of carriage, Mahtani can only sue BA
alone, and not PAL, since the latter was not a party to the contract. However, this is not to say that PAL is
relieved from any liability due to any of its negligent acts. In China Air Lines, Ltd. v. Court of Appeals, while
not exactly in point, the case, however, illustrates the principle which governs the particular situation. In that
case, the Court recognized that a carrier (PAL), acting as an agent of another carrier, is also liable for its own
negligent acts or omission in the performance of its duties.

15. Proceedings in third party complaint in accord with doctrine against multiplicity of suits
To deny BA the procedural remedy of filing a third-party complaint against PAL for the purpose of
ultimately determining who was primarily at fault as between them, is without legal basis. After all, such
proceeding is in accord with the doctrine against multiplicity of cases which would entail receiving the same
or similar evidence for both cases and enforcing separate judgments therefor. It must be borne in mind that
the purpose of a third-party complaint is precisely to avoid delay and circuity of action and to enable the
controversy to be disposed of in one suit. It is but logical, fair and equitable to allow BA to sue PAL for
indemnification, if it is proven that the latter’s negligence was the proximate cause of Mahtani’s unfortunate
experience, instead of totally absolving PAL from any liability.

[70],Eastern Shipping vs. IAC, also [43]

[71]

PAL vs. CA (GR 92501, 6 March 1992)

First Division, Grino-Aquino (J): 2 concur, 1 took no part

Facts: At about 5:30 a.m. on 17 April 1985, Isidro Co, accompanied by his wife and son, arrived at the
Manila International Airport aboard the airline’s PAL Flight 107 from San Francisco, California, U.S.A. Soon
after embarking, Co proceeded to the baggage retrieval area to claim his 9 pieces of checked-in luggage with
the corresponding claim checks in his possession. Co found eight of his luggage, but despite diligent search,
he failed to locate the 9th luggage, with claim check number 729113. Co’s lost luggage was a Samsonite
suitcase measuring about 62 inches in length, worth about US $200.00 and containing various personal effects
purchased by Co and his wife during their stay in the United States and similar other items sent by their
friends abroad to be given as presents to relatives in the Philippines. Co’s invoices evidencing their purchases
show their missing personal effects to be worth US $1,243.01, in addition to the presents entrusted to them by
their friends which Co testified to be worth about US $500.00 to US $600.00. Co then immediately notified
PAL through its employee, Willy Guevarra, who was then in charge of the PAL claim counter at the airport.
Willy Guevarra filled up a printed form known as a Property Irregularity Report, acknowledging one of the
Co’s luggages to be missing, and signed it after asking Co himself to sign the same document. In accordance
with his procedure in cases of this nature, Willy Guevarra asked Co to surrender to him the nine claim checks
corresponding to the nine luggages, i.e., including the one that was missing. Co, on several occasions,
unrelentingly called at PAL’s office in order to pursue his complaint about his missing luggage but to no avail.
Thus, on 15 April 1985, Co through his lawyer wrote a demand letter to PA: through Rebecca V. Santos, its
manager for Central Baggage Services. On 17 April 1985, Rebecca Santos replied to the demand letter
acknowledging ‘that to date we have been unable to locate your client’s baggage despite our careful search”
and requesting Co’s counsel to “please extend to him our sincere apologies for the inconvenience he was
caused by this unfortunate incident”. Despite the letter, however, PAL never found Co’s missing luggage or
paid its corresponding value.

On 3 May 1985, Co filed a complaint against PAL for damages. The Regional Trial Court of Pasay City found
PAL liable, and rendered judgment on 3 June 1986, sentencing PAL to pay Co the amounts of (1) P42,766.02
by way of actual damages; (2) P20,000.00 by way of exemplary damages; (3) P10,000.00 as attorney’s fees;
all in addition to the costs or the suit.” The court also dismissed PAL’s counterclaim for lack of merit.

On appeal, and on 19 July 1989, the Court of Appeals affirmed in toto the trial court’s award. Hence, the
petition for review.

The Supreme Court denied the petition for review for lack of merit; with costs against PAL.

1. Probative value of PAL’s retrieval report

The probative value of PAL’s retrieval report was passed upon by the Regional Trial Court of Pasay
City, whose finding was affirmed by the Court of Appeals. Although the passenger should produce his claim
tag if he had not surrendered it because there was no baggage received; it would appear that the passenger
surrendered all the 9 claim checks corresponding to the 9 luggages, including the one that was missing, to the
PAL officer after accomplishing the Property Irregularity Report, and thus, it could not be possible for the
passenger to produce the same in court. It is now for the carrier to produce the veracity of their Baggage
Retrieval Report by corroborating evidence other than testimonies of their employees. Such document is
within the control of PAL and necessarily requires other corroborative evidence.

2. Purely factual issues not reviewable by the court

Assignments of error, which raise purely factual issues, are not reviewable by the Supreme Court
(Sec. 2, Rule 45, Rules of Court). The Court reviews only questions of law which must be distinctly set forth
in the petition. (Hodges vs. People, 68 Phil. 178.) Whether or not the lost luggage was ever retrieved by the
passenger, and whether or not the actual and exemplary damages awarded by the court to him are reasonable,
are factual issues which we may not pass upon in the absence of special circumstances requiring a review of
the evidence.

3. Warsaw Convention; Alitalia vs. IAC not applicable

In Alitalia vs. IAC (192 SCRA 9, 18, citing Pan American World Airways, Inc. vs. IAC, 164 SCRA
268), the Warsaw Convention limiting the carrier’s liability was applied because of a simple loss of baggage
without any improper conduct on the part of the officials or employees of the airline, or other special injury
sustained by the passengers. The petitioner therein did not declare a higher value for his luggage, much less
did he pay an additional transportation charge.

4. Law of destination; Samar Mining vs. Nordeutscher Lloyd

In Samar Mining Company, Inc. vs. Nordeutscher Lloyd (132 SCRA 529), the Court ruled that “the
liability of the common carrier for the loss, destruction or deterioration of goods transported from a foreign
country to the Philippines is governed primarily by the New Civil Code. In all matters not regulated by said
Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and by
Special Laws.” Herein, since the passenger’s destination was the Philippines, Philippine law governs the
liability of the carrier for the loss of the passenger’s luggage.

5. Article 1733 NCC

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

6. Article 1735 NCC

Article 1735 provides that “In all cases other than those mentioned in Nos. 1, 2, 3, 4 and 5 of the
preceding article if the goods are lost, destroyed or deteriorated, common carriers are presumed to have been
at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as required
in article 1733.

7. Article 1753 NCC

Article 1753 provides that “The law of the country to which the goods are to be transported shall
govern the liability of the common carrier for their loss, destruction or deterioration.”

8. No error in disregarding limits of liability under Warsaw Convention

Herein, PAL failed to overcome, not only the presumption, but more importantly, Co’s evidence,
proving that the carrier’s negligence was the proximate cause of the loss of his baggage. Furthermore, PAL
acted in bad faith in faking a retrieval receipt to bail itself out of having to pay Co’s claim. The appellate cout
therefore did not err in disregarding the limits of liability under the Warsaw Convention.

9. Award of exemplary damages and attorney’s fees justified

The award of exemplary damages and attorney’s fees to Co was justified. In the cases of Imperial
Insurance, Inc. vs. Simon, 122 Phil. 189 and Bert Osmeña and Associates vs. CA, 120 SCRA 396, the
appellant was awarded attorney’s fees because of appellee’s failure to satisfy the former’s just and valid
demandable claim which forced the appellant to litigate. Likewise, in the case of Phil. Surety and Ins. Co.,
Inc. vs. Royal Oil Products, 102 Phil. 326, the Court justified the grant of exemplary damages and attorney’s
fees for the petitioner’s failure, even refusal, to pay the private respondent’s valid claim.

[-], also [133]

Robles vs.

Santos [72]

Quisumbing vs. CA (GR 50076, 14 September 1990)

First Division, Narvasa (J): 4 concur

Facts: Norberto Quisumbing, Sr. and Gunther Loeffler were among the passengers of PAL’s Fokker
‘Friendship’ PIC-536 plane in its flight of 6 November 1968 which left Mactan City at about 7:30 in the
evening with Manila for its destination. After the plane had taken off, Florencio O. Villarin, a Senior NBI
Agent who was also a passenger of the said plane, noticed a certain ‘Zaldy,’ a suspect in the killing of Judge
Valdez, seated at the front seat near the door leading to the cockpit of the plane. A check by Villarin with the
passenger’s ticket in the possession of flight Stewardess Annie Bontigao, who was seated at the last seat right
row revealed that ‘Zaldy’ had used the name ‘Cardente,’ one of his aliases known to Villarin. Villarin also
came to know from the stewardess that ‘Zaldy had three companions on board the plane. Villarin then
scribbled a note addressed to the pilot of the plane requesting the latter to contact NBI duty agents in Manila
for the said agents to ask the Director of the NBI to send about 6 NBI agents to meet the plane because the
suspect in the killing of Judge Valdez was on board. The said note was handed by Villarin to the stewardess
who in turn gave the same in the pilot. After receiving the note, which was about 15 minutes after take off,
the pilot of the plane, Capt. Luis Bonnevie, Jr., came out of the cockpit and sat beside Villarin at the rear
portion of the plane and explained that he could not send the message because it would be heard by all ground
aircraft stations. Villarin, however, told the pilot of the danger of commission of violent acts on board the
plane by the notorious ‘Zaldy and his three companions. While the pilot and Villarin were talking, ‘Zaldy’ and
one of his companions walked to the rear and stood behind them. Capt. Bonnevie then stood up and went
back to the cockpit. ‘Zaldy’ and his companions returned to their seats, but after a few minutes they moved
back to the rear throwing ugly looks at Villarin who, sensing danger, stood up and went back to his original
seat across the aisle on the second to the last seat near the window. ‘Zaldy’ and his companion likewise went
back to their respective seats in front.’ Soon thereafter an exchange of gunshots ensued between Villarin and
‘Zaldy’ and the latter’s companions. ‘Zaldy’ announced to the passengers and the pilots in the cockpit that it
was hold-up and ordered the pilot not to send any SOS. The hold-uppers divested the passengers of their
belongings. Specifically, Norberto Quisumbing, Sr. was divested of jewelries and cash in the total amount of
P18,650.00 out of which recoveries were made amounting to P4,550.00. Gunther Loeffler was divested of a
wrist watch, cash and a wallet in the total amount of P1,700.00. As a result of the incident, Quisumbing, Sr.
suffered shock, because a gun had been pointed at him by one of the hold-uppers. Upon landing at the Manila
International Airport, Zaldy and his three companions succeeded in escaping. Demands were thereafter made
on PAL by Quisumbing and Loeffler “to indemnify them on their loss, but PAL refused averring that it is not
liable to them in law or in fact.

Quisumbing and Loeffler brought suit against PAL in the CFi of Rizal, to recover the value of the property
lost by them to the robbers as well as moral and exemplary damages, attorney’s fees and expenses of
litigation. After trial, the CFI rendered judgment dismissing Quisumbing’s and Loeffler’s complaint with
costs against them.

Quisumbing and Loeffler appealed to the Court of Appeals. The Court affirmed the trial court’s judgment.
Insisting that the evidence demonstrates negligence on the part of the PAL crew “occurring before and
exposing them to hijacking,” Quisumbing and Loeffler have come up to the Supreme Court praying that the
judgments of the trial Court and the Court of Appeals be reversed and another rendered in their favor.

The Supreme Court denied the petition, and affirmed the appealed Decision of the Court of Appeals, with
costs against Quisumbing and Loeffler.

1. Modern display of irresistible force by hijackers

The hijackers do not board an airplane through a blatant display of firepower and violent fury.
Firearms, hand-grenades, dynamite, and explosives are introduced into the airplane surreptitiously and with
the utmost cunning and stealth, although there is an occasional use of innocent hostages who will be coldly
murdered unless a plane is given to the hijackers’ complete disposal. The objective of modern-day hijackers is
to display the irresistible force amounting to force majeure only when it is most effective and that is when the
jetliner is winging its way at Himalayan altitudes and ill-advised heroics by either crew or passengers would
send the multi-million peso airplane and the priceless lives of all its occupants into certain death and
destruction.

2. Security measures may minimize hijackings but may prove ineffective against truly determined
hijackers
The mandatory use of the most sophisticated electronic detection devices and magnetometers, the
imposition of severe penalties, the development of screening procedures, the compilation of hijacker
behavioral profiles, the assignment of sky marshals, and the weight of outraged world opinion may have
minimized hijackings but all these have proved ineffective against truly determined hijackers. World
experience shows that if a group of armed hijackers want to take over a plane in flight, they can elude the
latest combined government and airline industry measures. As our own experience in Zamboanga City
illustrates, the use of force to overcome hijackers, results in the death and injury of innocent passengers and
crew members. This does not suggest, however, that the Philippine Airlines should not do everything
humanly possible to protect passengers from hijackers’ acts.

3. Acts of airline and crew, while complying with requirements of government agencies, cannot be
faulted as negligence
Where the airline has faithfully complied with the requirements of government agencies and adhered
to the established procedures and precautions of the airline industry at any particular time, its failure to take
certain steps that a passenger in hindsight believes should have been taken is not the negligence or
misconduct which mingles with force majeure as an active and cooperative cause. Herein, the acts of the
airline and its crew cannot be faulted as negligence. The hijackers had already shown their willingness to kill
one passenger was in fact killed and another survived gunshot wounds. The lives of the rest of the passengers
and crew were more important than their properties. Cooperation with the hijackers until they released their
hostages at the runway end near the South Superhighway was dictated by the circumstances.

4. Under the facts, “the highjacking-robbery was force majeure”

The evidence does fail to prove any want of diligence on the part of PAL, or that, more specifically, it
had failed to comply with applicable regulations or universally accepted and observed procedures to preclude
hijacking; and that the particular acts singled out by Quisumbing and Loeffler as supposedly demonstrative of
negligence were, in the light of the circumstances of the case, not in truth negligent acts “sufficient to
overcome the force majeure nature of the armed robbery.”

[73]

PanAm World Airways vs. Rapadas (GR 60673, 19 May 1992)

Third Division, Gutierrez Jr. (J): 4 concur

Facts: On 16 January 1975, Jose K. Rapadas held Passenger Ticket and Baggage Claim Check 026-
394830084-5 for Pan American World Airways Inc.’s (PanAm) Flight 841 with the route from Guam to
Manila. While standing in line to board the flight at the Guam airport, Rapadas was ordered by PanAm’s
handcarry control agent to check-in his Samsonite attache case. Rapadas protested pointing to the fact that
other co-passengers were permitted to handcarry bulkier baggages. He stepped out of the line only to go back
again at the end of it to try if he can get through without having to register his attache case. However, the
same man in charge of handcarry control did not fail to notice him and ordered him again to register his
baggage. For fear that he would miss the plane if he insisted and argued on personally taking the valise with
him, he acceded to checking it in. He then gave his attache case to his brother who happened to be around and
who checked it in for him, but without declaring its contents or the value of its contents. He was given a
Baggage Claim Tag P-749-713. Upon arriving in Manila on the same date, 16 January 1975, Rapadas claimed
and was given all his checked-in baggages except the attache case. Since Rapadas felt ill on his arrival, he
sent his son, Jorge Rapadas to request for the search of the missing luggage. PanAm exerted efforts to locate
the luggage through the Pan American World Airways-Manila International Airport (PAN AM-MIA)
Baggage Service. On 30 January 1975, PanAm required the Rapadas to put the request in writing. Rapadas
filled in a Baggage Claim Blank Form. Thereafter, Rapadas personally followed up his claim. For several
times, he called up Mr. Panuelos, the head of the Baggage Section of PAN AM. He also sent letters
demanding and reminding the petitioner of his claim. Rapadas received a letter from PanAm’s counsel dated 2
August 1975 offering to settle the claim for the sum of $160.00 representing PanAm’s alleged limit of liability
for loss or damage to a passenger’s personal property under the contract of carriage between Rapadas and
PANAM.

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

On appeal, the Court of Appeals affirmed the trial court decision. Hence, the petition for review.

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

1. Notice of limited liability in airline ticket

Herein, there was such a Notice appearing on page two (2) of the airline ticket stating that the
Warsaw Convention governs in case of death or injury to a passenger or of loss, damage or destruction to a
passenger’s luggage. The Notice states that “If the passenger’s journey involves an ultimate destination or
stop in a country other than the country of departure the Warsaw Convention may be applicable and the
Convention governs and in most cases limits the liability of carriers for death or personal injury and in respect
of loss of or damage to baggage. See also notice headed “Advice to International Passengers on Limitation of
Liability.” (The latter notice refers to limited liability for death or personal injury to passengers with proven
damages not exceeding US $75,000 per passenger). Furthermore, paragraph 2 of the “Conditions of
Contracts” also appearing on page 2 of the ticket states that “(2) Carriage hereunder is subject to the rules and
limitations relating to liability established by the Warsaw Convention unless such carriage is not ‘international
carriage’ as defined by that Convention.”

2. Paragraph 2 of Conditions of Contract sufficient notice of applicability of Warsaw limitations

Herein, the original of the Passenger Ticket and Baggage Check 026-394830084-5 itself was not
presented as evidence as it was among those returned to Mr. Faupula (of the Union Steam Ship Company of
New Zealand, Ltd., Tonga; who facilitated the issuance of the tickets on credit). Thus, apart from the evidence
offered by the airline, the lower court had no other basis for determining whether or not there was actually a
stipulation on the specific amounts PanAm had expressed itself to be liable for loss of baggage. Although the
trial court rejected the evidence of the PanAm of a stipulation particularly specifying what amounts it had
bound itself to pay for loss of luggage, the Notice and paragraph 2 of the “Conditions of Contract” should be
sufficient notice showing the applicability of the Warsaw limitations.

3. Warsaw Convention, Article 1, paragraph 2

The Warsaw Convention, as amended, specifically provides that it is applicable to international
carriage which it defines in Article 1, par. 2 as follows, “(2) For the purposes of this Convention, the
expression ‘international carriage’ means any carriage in which, according to the agreement between the
parties, the place of departure and the place of destination, whether or not there be a breach in the carriage or
a transshipment, are situated either within the territories of two High Contracting Parties or within the
territory of a single High Contracting Party if there is an agreed stopping place within the territory of another
State, even if that State is not a High Contracting Party. Carriage between two points within the territory of a
single High Contracting Party without an agreed stopping place within the territory of another State is not
international carriage for the purposes of this Convention.” (“High Contracting Party” refers to a state which
has ratified or adhered to the Convention, or which has not effectively denounced the Convention [Article
40A (1)])”

4. No detailed notice of baggage liability required; Article 22 (2) of Convention

Nowhere in the Warsaw Convention, as amended, is such a detailed notice of baggage liability
limitations required. Nevertheless, it should become a common, safe and practical custom among air carriers
to indicate beforehand the precise sums equivalent to those fixed by Article 22 (2) of the Convention.

5. Passenger ticket complies with Article 3, paragraph 1(c) of the Warsaw Convention
The Convention governs the availment of the liability limitations where the baggage check is
combined with or incorporated in the passenger ticket which complies with the provisions of Article 3, par.
1(c). (Article 4, par. 2) Herein, the baggage check is combined with the passenger ticket in one document of
carriage. The passenger ticket complies with Article 3, par. 1(c) which provides: “(1) In respect of the carriage
of passengers a ticket shall be delivered containing: xxx (c) a notice to the effect that, if the passenger’s
journey involves an ultimate destination or stop in a country other than the country of departure, the Warsaw
Convention may be applicable and that the Convention governs and in most cases limits the liability of
carriers for death or personal injury and in respect of loss of or damage to baggage.”

6. Contracts of adhesion; Ong Yiu vs. CA, and PanAm vs. IAC
As held in the case of Ong Yiu v. Court of Appeals, supra, and reiterated in Pan American World
Airways v. Intermediate Appellate Court (164 SCRA 268 [1988]) that “It (plane ticket) is what is known as a
contract of ‘adhesion’, in regards which it has been said that contracts of adhesion wherein one party imposes
a ready made form of contract on the other, as the plane ticket in the case at bar, are contracts not entirely
prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives
his consent. And as held in Randolph v. American Airlines, 103 Ohio App. 172, 144 N.E. 2d 878; Rosenchein
v. Trans World Airlines, Inc., 349 S.W. 2d 483, ‘a contract limiting liability upon an agreed valuation does
not offend against the policy of the law forbidding one from contracting against his own negligence.’”

7. Contracts of adhesion not prohibited; Blind reliance not encouraged

While contracts of adhesion are not entirely prohibited, neither is a blind reliance on them
encouraged. In the face of facts and circumstances showing they should be ignored because of their basically
one sided nature, the Court does not hesitate to rule out blind adherence to their terms. (See Sweet Lines, Inc.
v. Teves, 83 SCRA 361, 368-369 [1978])

8. Passenger expected to be vigilant insofar as his luggage is concerned

The provisions in the plane ticket sufficient to govern the limitations of liabilities of the airline for
loss of luggage. The passenger, upon contracting with the airline and receiving the plane ticket, was expected
to be vigilant insofar as his luggage is concerned. If the passenger fails to adduce evidence to overcome the
stipulations, he cannot avoid the application of the liability limitations. Herein, Rapadas actually refused to
register the attache case and chose to take it with him despite having been ordered by the PanAm agent to
check it in. In attempting to avoid registering the luggage by going back to the line, Rapadas manifested a
disregard of airline rules on allowable handcarried baggages. Prudence of a reasonably careful person also
dictates that cash and jewelry should be removed from checked-in-luggage and placed in one’s pockets or in a
handcarried Manila-paper or plastic envelope.

9. Alleged lack of enough time to make declaration of higher value and payment of charges not a
defense
The alleged lack of enough time for him to make a declaration of a higher value and to pay the
corresponding supplementary charges cannot justify his failure to comply with the requirement that will
exclude the application of limited liability. Had he not wavered in his decision to register his luggage, he
could have had enough time to disclose the true worth of the articles in it and to pay the extra charges or
remove them from the checked-in-luggage. Moreover, an airplane will not depart meantime that its own
employee is asking a passenger to comply with a safety regulation.

10. No proof of arbitrary behavior; Carrier not liable for discrimination or mistreatment
Passengers are also allowed one handcarried bag each provided it conforms to certain prescribed
dimensions. If Mr. Rapadas was not allowed to handcarry the lost attache case, it can only mean that he was
carrying more than the allowable weight for all his luggages or more than the allowable number of
handcarried items or more than the prescribed dimensions for the bag or valise. The evidence on any arbitrary
behavior of a Pan Am employee or inexcusable negligence on the part of the carrier is not clear from the
petition. Absent such proof, the Court cannot hold the carrier liable because of arbitrariness, discrimination,
or mistreatment.

11. Reason behind limited liability clauses

By no means is it suggested that passengers are always bound to the stipulated amounts printed on a
ticket, found in a contract of adhesion, or printed elsewhere but referred to in handouts or forms. The Court
simply recognize that the reasons behind stipulations on liability limitations arise from the difficulty, if not
impossibility, of establishing with a clear preponderance of evidence the contents of a lost valise or suitcase.
Unless the contents are declared, it will always be the word of a passenger against that of the airline. If the
loss of life or property is caused by the gross negligence or arbitrary acts of the airline or the contents of the
lost luggage are proved by satisfactory evidence other than the self-serving declarations of one party, the
Court will not hesitate to disregard the fine print in a contract of adhesion. (See Sweet Lines Inc. v. Teves,
supra) Otherwise, the Court is constrained to rule that it has to enforce the contract as it is the only reasonable
basis to arrive at a just award.

12. Trial Court’s finding on the amount lost is more of a probability than a proved conclusion
The conclusion of the trial court does not arise from the facts. That the attache case was originally
handcarried does not beg the conclusion that the amount of $4,750.00 in cash could have been placed inside.
It may be noted that out of a claim for US$42,403.90 as the amount lost, the trial court found for only
US$5,228.90 and 100 paengs. The court had doubts as to the total claim.

13. Lost luggage considered as unchecked luggage; $400.00 instead of $160

The lost luggage was declared as weighing around 18 pounds or approximately 8 kilograms. At
$20.00 per kilogram, Pan Am offered to pay $160.00 as a higher value was not declared in advance and
additional charges were not paid. The Court notes, however, that an amount of $400.00 per passenger is
allowed for unchecked luggage. Since the checking-in was against the will of Rapadas, the Court treats the
lost bag as partaking of involuntarily and hurriedly checked-in luggage and continuing its earlier status as
unchecked luggage. The fair liability under PanAm’s own printed terms is $400.00.

14. Damages not supported by factual basis

Since the trial court ruled out discriminatory acts or bad faith on the part of Pan Am or other reasons
warranting damages, there is no factual basis for the grant of P20,000.00 damages.

15. Warsaw convention does not preclude award of attorney’s fees

It is just and equitable for Rapadas to recover expenses for litigation in the amount of P5,000.00.
Article 22 (4) of the Warsaw Convention, as amended does not precluded an award of attorney’s fees. That
provision states that the limits of liability prescribed in the instrument “shall not prevent the court from
awarding, in accordance with its own law, in addition, the whole or part of the court costs and other expenses
of litigation incurred by the plaintiff.” The Court, however, raise the award to P10,000.00 considering the
resort to the Court of Appeals and the Supreme Court.
[74]

PAL vs. CA (GR 120262, 17 July 1997)

Second Division, Regalado (J): 2 concur, 1 took no part, 1 on leave

Facts: On 23 October 1988, Leovigildo A. Pantejo, then City Fiscal of Surigao City, boarded a PAL plane in
Manila and disembarked in Cebu City where he was supposed to take his connecting flight to Surigao City.
However, due to typhoon Osang, the connecting flight to Surigao City was cancelled. To accommodate the
needs of its stranded passengers, PAL initially gave out cash assistance of P 100.00 and, the next day,
P200.00, for their expected stay of 2 days in Cebu. Pantejo requested instead that he be billeted in a hotel at
the PAL’s expense because he did not have cash with him at that time, but PAL refused. Thus, Pantejo was
forced to seek and accept the generosity of a co-passenger, an engineer named Andoni Dumlao, and he shared
a room with the latter at Sky View Hotel with the promise to pay his share of the expenses upon reaching
Surigao. On 25 October 1988 when the flight for Surigao was resumed, Pantejo came to know that the hotel
expenses of his co-passengers, one Superintendent Ernesto Gonzales and a certain Mrs. Gloria Rocha, an
Auditor of the Philippine National Bank, were reimbursed by PAL. At this point, Pantejo informed Oscar
Jereza, PAL’s Manager for Departure Services at Mactan Airport and who was in charge of cancelled flights,
that he was going to sue the airline for discriminating against him. It was only then that Jereza offered to pay
Pantejo P300.00 which, due to the ordeal and anguish he had undergone, the latter declined.

Pantejo filed a suit for damages against PAL with the RTC of Surigao City (Branch 30). On 18 March 1991,
the trial court rendered judgment, ordering PAL to pay Pantejo P300.00 for actual damages, P150,000.00 as
moral damages, P100,000.00 as exemplary damages, P15,000.00 as attorney’s fees, and 6% interest from the
time of the filing of the complaint until said amounts shall have been fully paid, plus costs of suit.

On appeal, and 29 December 1994, the appellate court affirmed the decision of the court a quo, but with the
exclusion of the award of attorney’s fees and litigation expenses. Hence, the appeal by certiorari.

The Supreme Court affirmed the challenged judgment of Court of Appeals, subject to the modification
regarding the computation of the 6% legal rate of interest on the monetary awards granted therein to Pantejo.

1. Contract to transport passenger different for any other contractual relation

A contract to transport passengers is quite different in kind and degree from any other contractual
relation, and this is because of the relation which an air carrier sustains with the public. Its business is mainly
with the travelling public. It invites people to avail of the comforts and advantages it offers. The contract of
air carriage, therefore, generates a relation attended with a public duty. Neglect or malfeasance of the carrier’s
employees naturally could give ground for an action for damages.

2. Circumstance taken into consideration for lower court to declare bad faith existed
In declaring that bad faith existed, the appellate court took into consideration the following factual
circumstances: (1) Contrary to PAL’s claim that cash assistance was given instead because of non-availability
of rooms in hotels where PAL had existing tie-ups, the evidence shows that Sky View Hotel, where Pantejo
was billeted, had plenty of rooms available. (2) It is not true that the P300.00 paid to Ernesto Gonzales, a co-
passenger of Pantejo, was a refund for his plane ticket, the truth being that it was a reimbursement for hotel
and meal expenses. (3) It is likewise not denied that said Gonzales and Pantejo came to know about the
reimbursements only because another passenger, Mrs. Rocha, informed them that she was able to obtain the
refund for her own hotel expenses. (4) PAL offered to pay P300.00 to Pantejo only after he had confronted the
airline’s manager about the discrimination committed against him, which the latter realized was an actionable
wrong. (5) Service Voucher 199351, presented by PAL to prove that it gave cash assistance to its passengers,
was based merely on the list of passengers already given cash assistance and was purportedly prepared at
around 10:00 A.M. of 23 October 1988. This was 2 hours before Pantejo came to know of the cancellation of
his flight to Surigao, hence Pantejo could not have possibly refused the same.

3. Factual findings of lower courts binding upon the Supreme Court

Both the trial court and the Court of Appeals found that PAL acted in bad faith in refusing to provide
hotel accommodations for Pantejo or to reimburse him for hotel expenses incurred despite and in contrast to
the fact that other passengers were so favored. These factual findings, which are supported by substantial
evidence, are binding, final and conclusive upon the Supreme Court absent any reason, and the Court find
none, why this settled evidential rule should not apply.

4. Assuming hotel accommodations or cash assistance merely privilege, no reason for

discriminatory and prejudicial conduct
Assuming arguendo that the hotel accommodations or cash assistance given in case a flight is
cancelled is in the nature of an amenity and is merely a privilege that may be extended at its own discretion,
but never a right that may be demanded by its passengers, and that the airline passengers have no vested right
to the amenities in case a flight is cancelled due to force majeure, what makes PAL liable for damages in the
present case and under the facts obtaining herein is its blatant refusal to accord the so-called amenities equally
to all its stranded passengers who were bound for Surigao City. No compelling or justifying reason was
advanced for such discriminatory and prejudicial conduct.

5. Standard company policy as to cash assistance and hotel accommodations; Testimony relating
to said fact
It has been sufficiently established that it is PAL’s standard company policy, whenever a flight has
been cancelled, to extend to its hapless passengers cash assistance or to provide them accommodations in
hotels with which it has existing tie-ups. (1) PAL’s Mactan Airport Manager for departure services, Oscar
Jereza, admitted that the PAL has an existing arrangement with hotel to accommodate stranded passengers,
and that the hotel bills of Ernesto Gonzales were reimbursed obviously pursuant to that policy. (2) Two
witnesses presented by Pantejo, Teresita Azarcon and Nerie Bol, testified that sometime in November, 1988,
when their flight from Cebu to Surigao was cancelled, they were billeted at Rajah Hotel for two nights and
three days at the expense of PAL. This was never denied by PAL. (3) Ernesto Gonzales, Pantejo’s co-
passenger on that fateful flight, testified that based on his previous experience hotel accommodations were
extended by PAL to its stranded passengers either in Magellan or Rajah Hotels, or even in Cebu Plaza. Thus,
the Court views as impressed with dubiety PAL’s present attempt to represent such emergency assistance as
being merely ex gratia and not ex debito.

6. Passengers not duly informed; Inferior quality of service and professionalism

While PAL insists that the passengers were duly informed that they would be reimbursed for their
hotel expenses, it miserably and significantly failed to explain why the other passengers were given
reimbursements while Pantejo was not. Although Gonzales was subsequently given a refund, this was only so
because he came to know about it by accident through Mrs. Rocha. PAL could only offer the strained and
flimsy pretext that possibly the passengers were not listening when the announcement was made. This is
absurd because when Pantejo came to know that his flight had been cancelled, he immediately proceeded to
PAL’s office and requested for hotel accommodations. He was not only refused accommodations, but he was
not even informed that he may later on be reimbursed for his hotel expenses. This explains why his co-
passenger, Andoni Dumlao, offered to answer for Pantejo’s hotel bill and the latter promised to pay him when
they arrive in Surigao. Had both known that they would be reimbursed by the airline, such arrangement would
not have been necessary.Therefore, the refund of hotel expenses was surreptitiously and discriminatorily
made by PAL since the same was not made known to everyone, except through word of mouth to a handful of
passengers. This is a sad commentary on the quality of service and professionalism of an airline company,
which is the country’s flag carrier at that.
7. PAL acted in bad faith
Herein, PAL acted in bad faith in disregarding its duties as a common carrier to its passengers and in
discriminating against Pantejo. It was even oblivious to the fact that Pantejo was exposed to humiliation and
embarrassment especially because of his government position and social prominence, which altogether
necessarily subjected him to ridicule, shame and anguish. It remains uncontroverted that at the time of the
incident, Pantejo was then the City Prosecutor of Surigao City, and that he is a member of the Philippine
Jaycee Senate, past Lt. Governor of the Kiwanis Club of Surigao, a past Master of the Mount Diwata Lodge
of Free Masons of the Philippines, member of the Philippine National Red Cross, Surigao Chapter, and past
Chairman of the Boy Scout of the Philippines, Surigao del Norte Chapter.

8. Refusal of Pantejo of offered amount justified

Herein, Pantejo had every right to make such refusal since it evidently could not meet his needs and
that was all that PAL claimed it could offer. His refusal to accept the P300.00 proffered as an afterthought
when he threatened suit was justified by his resentment when he belatedly found out that his co-passengers
were reimbursed for hotel expenses and he was not. Worse, he would not even have known about it were it
not for a co-passenger who verbally told him that she was reimbursed by the airline for hotel and meal
expenses. It may even be said that the amounts, the time and the circumstances under which those amounts
were offered could not solve the moral wounds inflicted by PAL on Pantejo but even approximated insult
added to injury.

9. Discriminatory act makes PAL liable for moral damages; Alitalia Airways vs. CA
The discriminatory act of PAL against Pantejo ineludibly makes the former liable for moral damages
under Article 21 in relation to Article 2219 (10) of the Civil Code. As held in Alitalia Airways vs. CA, et al.,
such inattention to and lack of care by the airline for the interest of its passengers who are entitled to its
utmost consideration, particularly as to their convenience, amount to bad faith which entitles the passenger to
the award of moral damages.

10. Purpose of moral damages

Moral damages are emphatically not intended to enrich a plaintiff at the expense of the defendant.
They are awarded only to allow the former to obtain means, diversion, or amusements that will serve to
alleviate the moral suffering he has undergone due to the defendant’s culpable action and must, perforce, be
proportional to the suffering inflicted. However, substantial damages do not translate into excessive damages.
Herein, except for attorney’s fees and costs of suit, it will be noted that the Courts of Appeals affirmed point
by point the factual findings of the lower court upon which the award of damages had been based.

11. Awards for actual, moral and exemplary damages just and equitable; Travelling public should
be afforded protection and duties of common carriers enforced
Under the peculiar circumstances of the case, the awards for actual, moral and exemplary damages
granted in the judgment of the lower court, for the reasons meticulously analyzed and thoroughly explained in
its decision, are just and equitable. It is high time that the travelling public is afforded protection and that the
duties of common carriers, long detailed in our previous laws and jurisprudence and thereafter collated and
specially catalogued in our Civil Code in 1950, be enforced through appropriate sanctions.

12. Interest computed from date of rendition of judgment and not from filing of complaint; Eastern
Shipping Lines vs. CA
The interest of 6% imposed by the court should be computed from the date of rendition of judgment
and not from the filing of the complaint. The rule has been laid down in Eastern Shipping Lines, Inc. vs.
Court of Appeals, et al. that “when an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the
rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except
when or until the demand can be established with reasonable certainty. Accordingly, where the demand is
established with
reasonable certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only from the date the judgment of the court is made
(at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual
base for the computation of legal interest shall, in any case, be on the amount finally adjudged.” This is
because at the time of the filling of the complaint, the amount of the damages to which Pantejo may be
entitled remains unliquidated and not known, until it is definitely ascertained, assessed and determined by the
court, and only after the presentation of proof thereon.

[75]

Baliwag Transit vs. CA (GR 116110, 15 May 1996)

Second Division, Puno (J): 4 concur

Facts: On 31 July 1980, Leticia Garcia, and her 5-year old son, Allan Garcia, boarded Baliwag Transit Bus
2036 bound for Cabanatuan City driven by Jaime Santiago. They took the seat behind the driver. At about
7:30 p.m., in Malimba, Gapan, Nueva Ecija, the bus passengers saw a cargo truck, owned by A & J Trading,
parked at the shoulder of the national highway. Its left rear portion jutted to the outer lane, as the shoulder of
the road was too narrow to accommodate the whole truck. A kerosene lamp appeared at the edge of the road
obviously to serve as a warning device. The truck driver, Julio Recontique, and his helper, Arturo Escala,
were then replacing a flat tire. Bus driver Santiago was driving at an inordinately fast speed and failed to
notice the truck and the kerosene lamp at the edge of the road. Santiago’s passengers urged him to slow down
but he paid them no heed. Santiago even carried animated conversations with his co-employees while driving.
When the danger of collision became imminent, the bus passengers shouted “Babangga tayo!”. Santiago
stepped on the brake, but it was too late. His bus rammed into the stalled cargo truck. It caused the instant
death of Santiago and Escala, and injury to several others. Leticia and Allan Garcia were among the injured
passengers. Leticia suffered a fracture in her pelvis and right leg. They rushed her to the provincial hospital in
Cabanatuan City where she was given emergency treatment. After 3 days, she was transferred to the National
Orthopedic Hospital where she was confined for more than a month. She underwent an operation for partial
hip prosthesis. Allan, on the other hand, broke a leg. He was also given emergency treatment at the provincial
hospital.

Spouses Antonio and Leticia Garcia sued Baliwag Transit, Inc., A & J Trading and Julio Recontique for
damages in the RTC of Bulacan. Leticia sued as an injured passenger of Baliwag and as mother of Allan. At
the time of the complaint, Allan was a minor, hence, the suit initiated by his parents in his favor. After
hearing, the trial court found Baliwag Transit, Inc. liable for having failed to deliver Garcia and her son to
their point of destination safely in violation of Garcia’s and Baliwag Transit’s contractual relation; and
likewise found A & J and Julio Recontique liable for failure to provide its cargo truck with an early warning
device in violation of the Motor Vehicle Law. The trial court ordered Baliwag, A & J Trading and Recontique
to pay jointly and severally the Garcia spouses (1) P25,000.00 hospitalization and medication fee, (2)
P450,000.00 loss of earnings in eight (8) years, (3) P2,000.00 for the hospitalization of their son Allan Garcia,
(4) P50,000.00 moral damages, and (5) P30,000.00 attorney’s fee.

On appeal, the Court of Appeals modified the trial court’s Decision by absolving A & J Trading from liability
and by reducing the award of attorney’s fees to P10,000.00 and loss of earnings to P300,000.00, respectively.
Hence, the petition for certiorari.

The Supreme Court affirmed the Decision of the Court of Appeals (CA-GR CV-31246) with the modification
reducing the actual damages for hospitalization and medical fees to P5,017.74; without costs.

1. Duty of a common carrier; Diligence required; Presumption of negligence; Burden of Proof

 As a common carrier, Baliwag breached its contract of carriage when it failed to deliver its
passengers, Leticia and Allan Garcia to their destination safe and sound. A common carrier is bound to carry
its passengers safely as far as human care and foresight can provide, using the utmost diligence of a very
cautious person, with due regard for all the circumstances. In a contract of carriage, it is presumed that the
common carrier was at fault or was negligent when a passenger dies or is injured. Unless the presumption is
rebutted, the court need not even make an express finding of fault or negligence on the part of the common
carrier. This statutory presumption may only be overcome by evidence that the carrier exercised extraordinary
diligence as prescribed in Articles 1733 and 1755 of the Civil Code.

2. Baliwag did not exercise extraordinary diligence; Driver was reckless

The records are bereft of any proof to show that Baliwag exercised extraordinary diligence. On the
contrary, the evidence demonstrates its driver’s recklessness. Leticia Garcia testified that the bus was running
at a very high speed despite the drizzle and the darkness of the highway. The passengers pleaded for its driver
to slow down, but their plea was ignored. Leticia also revealed that the driver was smelling of liquor. She
could smell him as she was seated right behind the driver. Another passenger, Felix Cruz testified that
immediately before the collision, the bus driver was conversing with a co-employee. All these prove the bus
driver’s wanton disregard for the physical safety of his passengers, which makes Baliwag as a common
carrier liable for damages under Article 1759 of the Civil Code.

3. Article 1759, NCC

Article 1759 of the Civil Code provides that “Common carriers are liable for the death of or injuries
to passengers through the negligence or willfull acts of the former’s employees, although such employees
may have acted beyond the scope of their authority or in violation of the orders of the common carriers. This
liability of the common carriers do not cease upon proof that they exercised all the diligence of a good father
of a family in the selection or supervision of their employees.”

4. Section 34 (g) of the Land Transportation and Traffic Code

Section 34 (g) of the Land Transportation and Traffic Code provides “Lights and reflector when
parked or disabled. — Appropriate parking lights or flares visible one hundred meters away shall be displayed
at the corner of the vehicle whenever such vehicle is parked on highways or in places that are not well-lighted
or, is placed in such manner as to endanger passing traffic. Furthermore, every motor vehicle shall be
provided at all times with built-in reflectors or other similar warning devices either pasted, painted or attached
at its front and back which shall likewise be visible at night at least one hundred meters away. No vehicle not
provided with any of the requirements mentioned in this subsection shall be registered. “

4. Use of kerosene lamp a substantial compliance of law as to early warning device

Herein, Baliwag cannot evade its liability by insisting that the accident was caused solely by the
negligence of A & J Trading and Julio Recontique, for the alleged non use of an early warning device (as
testified to by Col. Demetrio dela Cruz, the station commander of Gapan, Nueva Ecija who investigated the
incident, and Francisco Romano, the bus conductor). The records do not bear out Baliwag’s contention. Col.
dela Cruz and Romano testified that they did not see any early warning device at the scene of the accident.
They were referring to the triangular reflectorized plates in red and yellow issued by the Land Transportation
Office. However, the evidence shows that Recontique and Ecala placed a kerosene lamp or torch at the edge
of the road, near the rear portion of the truck to serve as an early warning device. This substantially complies
with Section 34 (g) of the Land Transportation and Traffic Code. The law clearly allows the use not only of
an early warning device of the triangular reflectorized plates variety but also parking lights or flares visible
100 meters away. Indeed, Col. dela Cruz himself admitted that a kerosene lamp is an acceptable substitute for
the reflectorized plates. No negligence, therefore, may be imputed to A & J Trading and its driver,
Recontique.

5. Testimony of injured passengers and disinterested witnesses against testimony of bus conductor
 The testimonies of injured passengers who may well be considered as disinterested witness appear to
be natural and more probable than the testimony given by Francisco Romano who is undoubtedly interested
in the outcome of the case, being the conductor of Baliwag Transit Inc. Thus, among the testimonies offered
by the witnesses who were present at the scene of the accident, the affirmative testimonies given by the two
injured passengers must be upheld and less credence must be given to the testimony of the bus conductor who
solely testified that no such early warning device exists.

6. Testimony supporting parked truck noticed in drizzly and dark night due to kerosene lamp
The situation then prevailing at the time of the accident was admittedly drizzly and all dark. This
being so, it would be improbable and perhaps impossible on the part of the truck helper without the torch nor
the kerosene to remove the flat tires of the truck. Moreover, witness including the bus conductor himself
admitted that the passengers shouted, that they are going to bump before the collision which consequently
caused the bus driver to apply the brake 3 to 4 meters away from the truck. Again, without the kerosene nor
the torch in front of the truck, it would be improbable for the driver, more so the passengers to notice the
truck to be bumped by the bus considering the darkness of the place at the time of the accident.

7. Testimony of investigating officer of little probative value

Although that the investigating officer testified that he found no early warning device at the time of
his investigation, the Court gives less credence to such testimony insofar as he himself admitted on cross
examination that he did not notice the presence of any kerosene lamp at the back of the truck because when
he arrived at the scene of the accident, there were already many people surrounding the place. He further
admitted that there exists a probability that the lights of the truck may have been smashed by the bus at the
time of the accident considering the location of the truck where its rear portion was connected with the front
portion of the bus. Investigator’s testimony therefore did not confirm nor deny the existence of such warning
device, making his testimony of little probative value.

8. Award of P25,000 as hospitalization and medical fees not supported by evidence; Reduced to
P5,017.74
The award of P25,000.00, as hospitalization and medical fees, is not supported by the evidence on
record. The Garcias presented receipts but their total amounted only to P5,017.74. To be sure, Leticia testified
as to the extra amount spent for her medical needs but without more reliable evidence, her lone testimony
cannot justify the award of P25,000.00. To prove actual damages, the best evidence available to the injured
party must be presented. The court cannot rely on uncorroborated testimony whose truth is suspect, but must
depend upon competent proof that damages have been actually suffered. Thus, herein, the Court reduced the
actual damages for medical and hospitalization expenses to P5,017.74.

9. Award for amount representing lost earnings reasonable

The award of P300,000.00 representing Leticia’s lost earnings is reasonable. Before the accident,
Leticia was engaged in embroidery, earning P5,000.00 per month. Her injuries forced her to stop working.
Considering the nature and extent of her injuries and the length of time it would take her to recover, the Court
found it proper that Baliwag should compensate her lost income for 5 years.

10. Award of moral damages in accord with law

The award of moral damages is in accord with law. In a breach of contract of carriage, moral damages
are recoverable if the carrier, through its agent, acted fraudulently or in bad faith. The evidence shows the
gross negligence of the driver of Baliwag bus which amounted to bad faith. Without doubt, Leticia and Allan
experienced physical suffering, mental anguish and serious anxiety by reason of the accident. Leticia
underwent an operation to replace her broken hip bone with a metal plate. She was confined at the National
Orthopedic Hospital for 45 days. The young Allan was also confined in the hospital for his foot injury.
Contrary to the contention of Baliwag, the award of moral damages to Antonio and Leticia Garcia was not in
their capacity as parents of Allan. Leticia was given moral damages as an injured party. Allan was also
granted moral damages as an injured party but because of his minority, the award in his favor has to be given
to his father who represented him in the suit.

11. Award of attorney’s fees justified

The award of attorney’s fees is justified. The complaint for damages was instituted by the Garcia
spouses on 15 December 1982, following the unjustified refusal of Baliwag to settle their claim. The Decision
was promulgated by the trial court only on 29 January 1991 or about 9 years later. Numerous pleadings were
filed before the trial court, the appellate court and to the Supreme Court. Given the complexity of the case and
the amount of damages involved, the award of attorney’s fee for P10,000.00 is just and reasonable.

[76]

Mecenas vs. CA (GR 88052, 14 December 1989)

Third Division, Feliciano (J): 4 concur

Facts: At 6:20 a.m. of 22 April 1980, the M/T “Tacloban City,” a barge-type oil tanker of Philippine registry,
with a gross tonnage of 1,241.68 tons, owned by the Philippine National Oil Company (PNOC) and operated
by the PNOC Shipping and Transport Corporation (PNOC Shipping), having unloaded its cargo of petroleum
products, left Amlan, Negros Occidental, and headed towards Bataan. At about 1:00 p.m. of that same day,
the M/V “Don Juan,” an inter-island vessel, also of Philippine registry, of 2,391.31 tons gross weight, owned
and operated by the Negros Navigation Co., Inc. (Negros Navigation) left Manila bound for Bacolod with 750
passengers listed in its manifest, and a complete set of officers and crew members. At about 10:30 p.m., the
“Tacloban City” and the “Don Juan” collided at the Talbas Strait near Maestra de Ocampo Island in the
vicinity of the island of Mindoro. When the collision occurred, the sea was calm, the weather fair and
visibility good. As a result of this collision, the M/V “Don Juan” sank and hundreds of its passengers
perished. Among the ill-fated passengers were the spouses Perfecto Mecenas and Sofia Mecenas, whose
bodies were never found despite intensive search by their children, Jose, Romeo, Lilia, Orlando, Violeta
(Acervo), Luzviminda, and Ofelia (Javier).

On 29 December 1980, the Mecenas filed a complaint in the then Court of First Instance of Quezon City
(Civil Case Q-31525), against Negros Navigation and Capt. Roger Santisteban, the captain of the “Don Juan”
without, however, impleading either PNOC or PNOC Shipping. The children prayed for actual damages of
not less than P100,000.00 as well as moral and exemplary damages in such amount as the Court may deem
reasonable to award to them. Another complaint (Civil Case Q-33932), was filed in the same court by Lilia
Ciocon claiming damages against Negros Navigation, PNOC and PNOC Shipping for the death of her
husband Manuel Ciocon, another of the luckless passengers of the “Don Juan.” Manuel Ciocon’s body, too,
was never found. The 2 cases were consolidated and heard jointly by the Regional Trial Court of Quezon City,
Branch 82. On 17 July 1986, after trial, the trial court rendered a decision, ordering (a) Negros Navigation
and Capt. Santisteban jointly and severally liable to pay the Mecenas, the sum of P400,000.00 for the death of
their parents, Perfecto A. Mecenas and Sofia P. Mecenas; to pay the Mecenas the sum of P15,000.00 as and
for attorney’s fees; plus costs of the suit; (b) each of Negros Navigation PNOC/PNOC Shipping to pay
Ciocon the sum of P100,000.00 for the death of Manuel Ciocon, to pay Ciocon jointly and severally, the sum
of P15,000.00 as and for attorney’s fees, plus costs of the suit.

Negros Navigation, Capt. Santisteban, PNOC and PNOC Shipping appealed the trial court’s decision to the
Court of Appeals. Later, PNOC and PNOC Shipping withdrew their appeal citing a compromise agreement
reached by them with Negros Navigation; the Court of Appeals granted the motion by a resolution dated 5
September 1988, subject to the reservation made by Lilia Ciocon that she could not be bound by the
compromise agreement and would enforce the award granted her by the trial court. In time, the Court of
Appeals rendered a decision dated 26 January 1989, affirming the decision of the lower court with
modification with respect to Civil Case 31525, wherein Negros Navigation and Capt. Santisteban are held
jointly and severally liable to pay the Mecenas the amount of P100,000.00 as actual and compensatory
damages and P15,000.00 as attorney’s fees and the cost of the suit. The Mecenas filed a petition for review in
light of the reduction of the amount of damages awarded.

The Supreme Court granted the Petition for Review on Certiorari, reversed and set aside the Decision of the
Court of Appeals insofar as it reduced the amount of damages awarded to the Mecenas to P100,000.00;
restored the award granted by the trial court and augmented as follows: (a) P126,000.00 for actual damages;
(b) P60,000.00 as compensatory damages for wrongful death; (c) P307,000.00 as moral damages; (d)
P307,000.00 as exemplary damages making a total of P800,000.00; and (e) P15,000.00 as attorney’s fees. The
Court also ordered the Mecenas to pay the additional filing fees properly due and payable in view of the
award made, which fees shall be computed by the Clerk of Court of the trial court, and shall constitute a lien
upon the judgment awarded; with costs against Negros Navigation and Capt. Santisteban.

1. Mecenas suit based on breach of contract of carriage, not quasi-delict

Both the trial court and the Court of Appeals considered the action (Civil Case Q-31525) brought by
the sons and daughters of the deceased Mecenas spouses against Negros Navigation as based on quasi-delict.
The action, however, is more appropriately regarded as grounded on contract, the contract of carriage
between the Mecenas spouses as regular passengers who paid for their boat tickets and Negros Navigation;
the surviving children while not themselves passengers are in effect suing the carrier in representation of their
deceased parents.

2. Ciocon suit based on both contract (Negros Navigation) and quasi-delict (PNOC and PNOC
Shipping)
The suit (Civil Case Q-33932) filed by the widow Lilia Ciocon was correctly treated by the trial and
appellate courts as based on contract (vis-a-vis Negros Navigation) and as well on quasi-delict (vis-a-vis
PNOC and PNOC Shipping).

3. Liability of common carrier in action based upon breach of contract of carriage

In an action based upon a breach of the contract of carriage, the carrier under our civil law is liable
for the death of passengers arising from the negligence or wilful act of the carrier’s employees although such
employees may have acted beyond the scope of their authority or even in violation of the instructions of the
carrier, which liability may include liability for moral damages.

4. Article 2232 NCC

Article 2332 of the Civil Code provides that “In contracts and quasi-contracts, the court may award
exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent
manner.”

5. Both vessels at fault

The then Commandant of the Philippine Coast Guard, Commodore B.C. Ochoco, in a decision dated
2 March 1981, held that the “Tacloban City” was “primarily and solely [sic] at fault and responsible for the
collision.” Initially, the Minister of National Defense upheld the decision of Commodore Ochoco. On Motion
for Reconsideration, however, the Minister of National Defense reversed himself and held that both vessels
had been at fault. The trial court, after a review of the evidence submitted during the trial, arrived at the same
conclusion that the Minister of National Defense had reached that both the “Tacloban City” and the “Don
Juan” were at fault in the collision. The trial court found that “M/V Don Juan and Tacloban City became
aware of each other’s presence in the area by visual contact at a distance of something like 6 miles from each
other. They were fully aware that if they continued on their course, they will meet head on. Don Juan steered
to the right; Tacloban City continued its course to the left. There can be no excuse for them not to realize that,
with such maneuvers, they will collide. They executed maneuvers inadequate, and too late, to avoid
collision.” They are thus equally negligent and are liable for damages. The Court of Appeals, for its part,
reached the same conclusion. There is, therefore, no question that the “Don Juan” was at least as negligent as
the M/T “Tacloban City” in the events leading up to the collision and the sinking of the “Don Juan.”

6. Fact pointing to negligence reaching level of recklessness or gross negligence; Captain and crew
playing mahjong
The report of the Philippine Coast Guard Commandant set out that there had been fault or negligence
on the part of Capt. Santisteban and his officers and crew before the collision and immediately after contact of
the 2vessels. The decision of Commodore Ochoco said “MS Don Juan’s Master, Capt. Rogelio Santisteban,
was playing mahjong before and up to the time of collision. Moreover, after the collision, he failed to institute
appropriate measures to delay the sinking of MS Don Juan and to supervise properly the execution of his
order of abandonship. As regards the officer on watch, Senior 3rd Mate Rogelio Devera, he admitted that he
failed or did not call or inform Capt. Santisteban of the imminent danger of collision and of the actual
collision itself . Also, he failed to assist his master to prevent the fast sinking of the ship. The record also
indicates that Auxiliary Chief Mate Antonio Labordo displayed laxity in maintaining order among the
passengers after the collision.” The behaviour of the captain of the “Don Juan” in this instance — playing
mahjong “before and up to the time of collision” — constitutes behaviour that is simply unacceptable on the
part of the master of a vessel to whose hands the lives and welfare of at least 750 passengers had been
entrusted.

7. No such thing as “off-duty” hours for master of a vessel

Whether or not Capt. Santisteban was “off-duty” or “on-duty” at or around the time of actual collision
is quite immaterial; there is, both realistically speaking and in contemplation of law, no such thing as “off-
duty” hours for the master of a vessel at sea that is a common carrier upon whom the law imposes the duty of
extraordinary diligence, i.e. “the duty to carry the passengers safely as far as human care and foresight can
provide, using the utmost diligence of very cautious persons, with a due regard for all the circumstances.” The
record does not show that was the first or only time that Capt. Santisteban had entertained himself during a
voyage by playing mahjong with his officers and passengers; Negros Navigation in permitting, or in failing to
discover and correct such behaviour, must be deemed grossly negligent.

8. Captain failed to maintain seaworthiness of “Don Juan”

Capt. Santisteban was also faulted in the Philippine Coast Guard decision for failing after the
collision, “to institute appropriate measures to delay the sinking of M/V Don Juan.” This appears to us to be a
euphemism for failure to maintain the seaworthiness or the water-tight integrity of the “Don Juan.” The
record shows that the “Don Juan” sank within 10 to 15 minutes after initial contact with the “Tacloban City.”
While the failure of Capt. Santisteban to supervise his officers and crew in the process of abandoning the ship
and his failure to avail of measures to prevent the too rapid sinking of his vessel after collision, did not cause
the collision by themselves, such failures doubtless contributed materially to the consequent loss of life and,
moreover, were indicative of the kind and level of diligence exercised by Capt. Santisteban in respect of his
vessel and his officers and men prior to actual contact between the 2 vessels. The officer-on-watch in the
“Don Juan” admitted that he had failed to inform Capt. Santisteban not only of the “imminent danger of
collision” but even of “the actual collision itself.”

9. “Don Juan” carrying more passengers than what it is certified to carry

The “Don Juan” was carrying more passengers than she had been certified as allowed to carry. The
Certificate of Inspection, dated 27 August 1979, issued by the Philippine Coast Guard Commander at Iloilo
City, the Don Juan’s home port, states “Passengers allowed: 810, Total Persons Allowed: 864.” The report of
the Philippine Coast Guard stated that the “Don Juan” had been “officially cleared with 878 passengers on-
board when she sailed from the port of Manila on 22 April 1980 at about 1:00 p.m.” This head-count of the
passengers “did not include the 126 crew members, children below 3 years old and 2 half-paying passengers”
which had been counted as one adult passenger. Thus, the total number of persons on board the “Don Juan”
on that ill-starred night of 22 April 1980 was 1,004, or 140 persons more than the maximum number that
could be safely carried by the “Don Juan,” per its own Certificate of Inspection. In addition, that only 750
passengers had been listed in its manifest for its final voyage; in other words, at least 128 passengers on board
had not even been entered into the “Don Juan’s” manifest. The “Don Juan’s” Certificate of Inspection showed
that she carried life boat and life raft accommodations for only 864 persons, the maximum number of persons
she was permitted to carry; in other words, she did not carry enough boats and life rafts for all the persons
actually on board that tragic night of 22 April 1980.

10. “Don Juan” grossly negligent

The grossness of the negligence of the “Don Juan” is underscored by the facts: (1) The “Don Juan”
was more than twice as fast as the “Tacloban City.” The “Don Juan’s” top speed was 17 knots; while that of
the “Tacloban City” was 6.3. knots. (2) The “Don Juan” carried the full complement of officers and crew
members specified for a passenger vessel of her class. (3) The “Don Juan” was equipped with radar which
was functioning that night. (4) The “Don Juan’s” officer on-watch had sighted the “Tacloban City” on his
radar screen while the latter was still 4 nautical miles away. Visual confirmation of radar contact was
established by the “Don Juan” while the “Tacloban City” was still 2.7 miles away. In the total set of
circumstances which existed, the “Don Juan,” had it taken seriously its duty of extraordinary diligence, could
have easily avoided the collision with the “Tacloban City.” Indeed, the “Don Juan” might well have avoided
the collision even if it had exercised ordinary diligence merely.

11. Rule 18 of the International Rules of the Road are not to be obeyed and construed without
regard to all circumstances attendant
It is true that the “Tacloban City” failed to follow Rule 18 of the International Rules of the Road
which requires 2 power-driven vessels meeting end on or nearly end on each to alter her course to starboard
(right) so that each vessel may pass on the port side (left) of the other. The “Tacloban City,” when the 2
vessels were only 0.3 of a mile apart, turned (for the second time) 15x to port side while the “Don Juan”
veered hard to starboard. This circumstance, while it may have made the collision immediately inevitable,
cannot, however, be viewed in isolation from the rest of the factual circumstances obtaining before and up to
the collision. In any case, Rule 18 like all other International Rules of the Road, are not to be obeyed and
construed without regard to all the circumstances surrounding a particular encounter between 2 vessels.

12. Route observance of International Rules of Road does not per se relieve vessel from
responsibility
In ordinary circumstances, a vessel discharges her duty to another by a faithful and literal observance
of the Rules of Navigation, and she cannot be held at fault for so doing even though a different course would
have prevented the collision. This rule, however, is not to be applied where it is apparent that her captain was
guilty of negligence or of a want of seamanship in not perceiving the necessity for, or in so acting as to create
such necessity for, a departure from the rule and acting accordingly. In other words, “route observance” of the
International Rules of the Road will not relieve a vessel from responsibility if the collision could have been
avoided by proper care and skill on her part or even by a departure from the rules.

13. Intention of “Tacloban City” signaled to “Don Juan”

Herein, the “Don Juan” having sighted the “Tacloban City” when it was still a long way off was
negligent in failing to take early preventive action and in allowing the 2 vessels to come to such close quarters
as to render the collision inevitable when there was no necessity for passing so near to the “Tacloban City” as
to create that hazard or inevitability, for the “Don Juan” could choose its own distance. The “Tacloban City,”
upon turning hard to port shortly before the moment of collision, signaled its intention to do so by giving 2
short blasts with its horn. The “Don Juan” gave no answering horn blast to signal its own intention and
proceeded to turn hard to starboard.

14. Manchester Development Corp. vs. CA cannot be given retroactive effect

 The Manchester doctrine, which has been modified and clarified in subsequent decision by the Court
in Sun Insurance Office, Ltd. (SIOL), et al. v. Asuncion, et al. cannot be applied in the present case so as to
work a striking out of that portion of the trial court’s award which could be deemed notionally to constitute an
award of moral and exemplary damages. Manchester was promulgated by the Court on 7 May 1987. Circular
7 of the Supreme Court, which embodied the doctrine in Manchester, is dated 24 March 1988. Upon the other
hand, the complaint in the present case was filed on 29 December 1980, that is, long before either Manchester
or Circular 7 of 24 March 1988 emerged. The decision of the trial court was itself promulgated on 17 July
1986, again, before Manchester and Circular 7 were promulgated. Manchester should not be applied
retroactively to the present case where a decision on the merits had already been rendered by the trial court,
even though such decision was then under appeal and had not yet reached finality. There is no indication at all
that the Mecenas here sought simply to evade payment of the court’s filing fees or to mislead the court in the
assessment of the filing fees. In any event, herein, the Court applies Manchester as clarified and amplified by
Sun Insurance Office Ltd. (SIOL), by holding that the Mecenas shall pay the additional filing fee that is
properly payable given the award specified below, and that such additional filing fee shall constitute a lien
upon the judgment.

15. Disaggregation of original award of damages

The amount of damages — compensatory, moral and exemplary — were properly imposable upon
Negros Navigation and Capt. Santisteban. The original award of the trial court of P400,000.00 could well
have been disaggregated by the trial court and the Court of Appeals in the following manner: (1) actual or
compensatory damages proved in the course of trial consisting of actual expenses incurred by petitioners in
their search for their parents’ bodies — 126,000.00; (2) actual or compensatory damages in case of wrongful
death (P30,000.00 x 2) — P 60,000.00; (3) moral damages — P107,000.00; (4) exemplary damages —
P107,000.00; or a total of P400,000.00.

16. Additional moral damages of P200,000 reasonable

Considering that the legitimate children of the deceased spouses Mecenas, are 7 in number and that
they lost both father and mother in one fell blow of fate, and considering the pain and anxiety they doubtless
experienced while searching for their parents among the survivors and the corpses recovered from the sea or
washed ashore, the Court believes that an additional amount of P200,000.00 for moral damages, making a
total of P307,000.00 as moral damages, would be quite reasonable.

17. Judicial notice of dreadful regularity of maritime disasters

The Court will take judicial notice of the dreadful regularity with which grievous maritime disasters
occur in our waters with massive loss of life. The bulk of our population is too poor to afford domestic air
transportation. So it is that notwithstanding the frequent sinking of passenger vessels in our waters, crowds of
people continue to travel by sea.

18. Purpose of exemplary damages; As to common carriers

Exemplary damages are designed by our civil law to permit the courts to reshape behaviour that is
socially deleterious in its consequence by creating negative incentives or deterrents against such behaviour. In
requiring compliance with the standard of extraordinary diligence, a standard which is in fact that of the
highest possible degree of diligence, from common carriers and in creating a presumption of negligence
against them, the law seeks to compel them to control their employees, to tame their reckless instincts and to
force them to take adequate care of human beings and their property. The Court is prepared to use the
instruments given to it by the law for securing the ends of law and public policy. One of those instruments is
the institution of exemplary damages; one of those ends, of special importance in an archipelagic state like the
Philippines, is the safe and reliable carriage of people and goods by sea. Herein, considering the foregoing, an
additional award in the amount of P200,000.00 as exemplary damages, making a total award of P307,000.00
as exemplary damages, is quite modest.
19. Court may consider and resolve all issues to render substantial justice
The Mecenas herein merely asked for the restoration of the P400,000.00 award of the trial court. The
Court underscore once more, however, the firmly settled doctrine that the Court may consider and resolve all
issues which must be decided in order to render substantial justice to the parties, including issues not
explicitly raised by the party affected. In the present case, as in Kapalaran Bus Line v. Coronado, et al., both
the demands of substantial justice and the imperious requirements of public policy compel the Court to the
conclusion that the trial court’s implicit award of moral and exemplary damages was erroneously deleted and
must be restored and augmented and brought more nearly to the level required by public policy and
substantial justice.

[77]

PAL vs. CA (GR L-46558, 31 July 1981)

First Division, Guerrero (J): 2 concur, 2 concur in result

Facts: On 8 January 1951, Jesus V. Samson flew as co-pilot on a regular flight from Manila to Legaspi with
stops at Daet, Camarines Norte and Pili, Camarines Sur, with Captain Delfin Bustamante as commanding
pilot of a C-47 plane belonging to Philippine Air Lines, Inc. (PAL). On attempting to land the plane at Daet
airport, Capt. Bustamante due to his very slow reaction and poor judgment overshot the airfield and as a
result, notwithstanding the diligent efforts of the co-pilot to avert an accident, the airplane crashlanded
beyond the runway; that the jolt caused the head of Samson to hit and break through the thick front
windshield of the airplane causing him severe brain concussion, wounds and abrasions on the forehead with
intense pain and suffering. Thereafter, instead of giving Samson expert and proper medical treatment called
for by the nature and severity of his injuries, PAL simply referred him to a company physician, a general
medical practitioner, who limited the treatment to the exterior injuries without examining the severe brain
concussion of Samson. Several days after the accident, PAL called back Samson to active duty as co-pilot,
and inspite of the latter’s repeated request for expert medical assistance, PAL had not given him any. As a
consequence of the brain injury sustained by plaintiff from the crash, he had been having periodic dizzy spells
and had been suffering from general debility and nervousness. PAL instead of submitting Samson to expert
medical treatment, discharged the latter from its employ on 21 December 1953 on grounds of physical
disability, thereby causing Samson not only to lose his job but to become physically unfit to continue as
aviator due to PAL’s negligence in not giving him the proper medical attention.

Jesus filed a complaint against PAL on 1 July 1954, praying for damages in the amount of P180,000.00
representing his unearned income, P50,000.00 as moral damages, P20,000.00 as attorney’s fees and
P5,000.00 as expenses, or a total of P255,000.00. On 25 March 1958, PALfiled a Motion to Dismiss on the
ground that the complaint is essentially a Workmen’s Compensation claim, stating a cause of action not
cognizable within the general jurisdiction of the court. The Motion to Dismiss was denied in the order of 14
April 1958. After the reception of evidence, the trial court rendered on 15 January 1973 its decision ordering
PAL to pay Samson P1988,000.00 as unearned income or damages; P50,000.00 for moral damages;
P20,000.00 as attorney’s fees and P5,000.00 as expenses of litigation, or a total of P273,000.00; with costs
against PAL.

PAL appealed the decision to the Court of Appeals. On 18 April 1977, the Court of Appeals rendered its
decision affirming the judgment of the lower court but modified the award of damages by imposing legal rate
of interest on the P198,000.00 unearned income from the filing of the complaint, citing Section 8, Rule 51 of
the Rules of Court. Its motion for reconsideration of the above judgment having been denied, PAL filed a
petition for certiorari.

The Supreme Court affirmed the judgment of the appellate court with slight modification in that the correct
amount of compensatory damages is P204,000.00l with costs against PAL.
1. Uncontroverted facts
Herein, the following facts are not the subject of controversy: (1) First, that from July 1950 to 21
December 1953, plaintiff was employed with defendant company as a first officer or co-pilot and served in
that capacity in defendant’s domestic services; (2) that on January 1951, plaintiff did fly on defendant’s PI-C
94, as first officer or co-pilot, with the late Capt. Delfin Bustamante in command as pilot; that while making a
landing at the Daet airport on that date, PI-C 94 did meet an accident as stated above; (3) that at or about the
time of the discharge from defendant company, plaintiff had complained of “spells of dizziness,” “headaches”
and “nervousness”, by reason of which he was grounded from flight duty. In short, that at that time, or
approximately from November 1953 up to the date of his discharge on 21 December 1953, plaintiff was
actually physically unfit to discharge his duties as pilot; (4) that plaintiff’s unfitness for flight duty was
properly established after a thorough medical examination by competent medical experts.

2. Dizzy spells, headache and general debility of Samson was an after-effect of the crash-landing;
Testimony of PAL’s doctors discounted
Herein, PAL would imply that Samson suffered only superficial wounds which were treated and not
brain injury. It would, by the opinion of its company doctors, Dr. Bernardo and Dr. Reyes, attribute the dizzy
spells and headache to organic or as phychosomatic, neurasthenic or psychogenic, which we find outlandishly
exaggerated. That Samson’s condition as psychosomatic rather than organic in nature is allegedly confirmed
by the fact that on 6 separate occasions after the accident he passed the required CAA physical examination
for airman’s certificate. The Court noticed, however, that there were other similar physical examinations
conducted by the CAA on the person of Samson the report on which were not presented in evidence.
Obviously, only those which suited PAL’s cause were hand-picked and offered in evidence. The Court
hesitated to accept the opinion of PAL’s two physicians, considering that Dr. Bernardo admittedly referred to
Dr. Reyes because he could not determine the cause of the dizzy spells and headache and the latter admitted
that it is extremely hard to be certain of the cause of his dizzy spells, and suggested a possibility that it was
due to postraumatic syndrome, evidently due to the injuries suffered by Samson in hitting the forehead against
the windshield of the plane during the accident.

3. Dizzy spells, headache and general debility of Samson was an after-effect of the crash-landing;
Testimony of Samson’s doctors believed
Herein, Dr. Morales, a surgeon, found that blood was coming from Samson’s ears and nose. He
testified that Samson was suffering from cerebral concussion as a result of traumatic injury to the brain
caused by his head hitting on the windshield of the plane during the crash-landing. Dr. Conrado Aramil, a
neurologist and psychiatrist with experience in two hospitals abroad, found abnormality reflected by the
electroencephalogram examination in the frontal area on both sides of Samson’s head. The opinion of these
two specialist renders unnecessary that of Samson’s wife who is a physician in her own right and because of
her relation to Samson, her testimony and opinion may not be discussed, although her testimony is
crystallized by the opinions of Dr. Ador Dionisio, Dr. Marquez, Dr. Jose O. Chan, Dr. Yambao and Dr.
Sandico.

4. PAL grossly negligent for allowing Capt. Bustamante to fly as first pilot (not co-pilot)
notwithstanding that the latter has a tumor of the nasopharynx
The imputation of gross negligence by the court to PAL for having allowed Capt. Delfin Bustamante
to fly on that fateful day of the accident as the same is duly supported by substantial evidence, clearly
established and cited in the decision of said court. The pilot was sick. He admittedly had tumor of the
nasopharynx (nose). The spot is very near the brain and the eyes. Tumor on the spot will affect the sinus, the
breathing, the eyes which are very near it. No one will certify the fitness to fly a plane of one suffering from
the disease. The fact First Pilot Bustamante has a long standing tumor of the Nasopharynx for which reason
he was grounded since November 1947 is admitted in the letter of Dr. Bernardo to the Medical Director of the
CAA requesting waiver of physical standards. The request for waiver of physical standards is itself a positive
proof that the physical condition of Capt. Bustamante is short of the standard set by the CAA. The Deputy
Administrator of the CAA granted the request relying on the representation and recommendation made by Dr.
Bernardo. Although the request says that “it is believed that his continuing to fly as a co-pilot does not
involve any hazard,” flying as a First Officer entails a very different responsibility than flying as a mere co-
pilot. PAL requested the CAA to allow Capt. Bustamante to fly merely as a co-pilot and it is safe to conclude
that the CAA approved the request thus allowing Bustamante to fly only as a co-pilot. For having allowed
Bustamante to fly as a First Officer on 8 January 1951, PAL is guilty of gross negligence and therefore should
be made liable for the resulting accident.

5. Medical condition of Capt. Bustamante affecting skills in flying

Capt. Bustamante used to get treatments from Dr. Sycangco. He used to complain of pain in the face
more particularly in the nose which caused him to have sleepless nights. Samson’s observation of the pilot
was reported to the Chief Pilot who did nothing about it. Captain Carbonel of PAL corroborated Samson of
this matter. The complaint against the slow reaction of the pilot at least proved the observation. The fact that
the complaint was not in writing does not detract anything from the seriousness thereof, considering that a
miscalculation would not only cause the death of the crew but also of the passengers. One month prior to the
crash-landing, when the pilot was preparing to land in Daet, plaintiff warned him that they were not in the
vicinity of Daet but above the town of Ligao. The plane hit outside the airstrip. In another instance, the pilot
would hit the Mayon Volcano had not plaintiff warned him. These more than prove what plaintiff had
complained of. Disregard thereof by defendant is condemnable.

6. Supreme Court not a trier of facts, cannot enter into a calibration of the evidence
It is not the task of the Supreme Court to discharge the functions of a trier of facts much less to enter
into a calibration of the evidence, notwithstanding PAL’s wail that the judgment of the appellate court is based
entirely on speculations, surmises and conjectures. The Supreme Court is convinced that the lower court’s
judgment is supported by strong, clear and substantial evidence.

7. PAL a common carrier; Common carrier required of highest degree of care in discharge of
duty and business
PAL is a common carrier 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, as defined in Art. 1732,
New Civil Code. The law is clear in requiring a common carrier to exercise the highest degree of care in the
discharge of its duty and business of carriage and transportation under Arts. 1733, 1755 and 1756 of the New
Civil Code.

8. Article 1733 NCC

Article 1733 of the Civil Code provides that “Common carriers, from the nature of their business and
for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and
for the safety of the passengers transported by them, according to all the circumstances of each case. Such
extraordinary diligence in the vigilance over the goods is further expressed in Articles 1734, and 1745, Nos.
5, 6, and 7, while the extraordinary diligence for the safety of the passengers is further set forth in articles
1755 and 1756.”

9. Article 1755 NCC

Article 1755 of the Civil Code provides that “A common carrier is bound to carry the passenger
safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons,
with a due regard for all the circumstances.”

10. Article 1756 NCC

Article 1756 of the Civil Code provides that “In case of death of or injuries to passengers, common
carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as prescribed in Articles 1733 and 1755.”
11. Duty to exercise utmost diligence for passengers and members of the crew
The duty to exercise the utmost diligence on the part of common carriers is for the safety of
passengers as well as for the members of the crew or the complement operating the carrier, the airplane in the
present case. And this must be so for any omission, lapse or neglect thereof will certainly result to the
damage, prejudice, nay injuries and even death to all aboard the plane, passengers and crew members alike.

12. Court affirms award of damages under provision of Articles 1711 and 1712 NCC
Having affirmed the gross negligence of PAL in allowing Capt. Delfin Bustamante to fly the plane to
Daet on 8 January 1951 whose slow reaction and poor judgment was the cause of the crash-landing of the
plane which resulted in Samson hitting his head against the windshield and causing him injuries for which
reason PAL terminated his services and employment as pilot after refusing to provide him with the necessary
medical treatment of PAL’s periodic spells, headache and general debility produced from said injuries, the
Court must necessarily affirm likewise the award of damages or compensation under the provisions of
Articles 1711 and 1712 of the New Civil Code.

13. Article 1711 NCC

Article 1711 of the Civil Code provides that “Owners of enterprises and other employers are obliged
to pay compensation for the death or injuries to their laborers, workmen, mechanics or other employees, even
though the event may have been purely accidental or entirely due to a fortuitous cause, if the death or
personal injury arose out of and in the course of the employment. The employer is also liable for
compensation if the employee contracts any illness or disease caused by such employment or as the result of
the nature of the employment. If the mishap was due to the employee’s own notorious negligence, or
voluntary act, or drunkenness, the employer shall not be liable for compensation. When the employee’s lack
of due care contributed to his death or injury, the compensation shall be equitably reduced.”

14. Article 1712 NCC

Article 1712 of the Civil Code provides that “If the death or injury is due to the negligence of a
fellow-worker, the latter and the employer shall be solidarily liable for compensation. If a fellow-worker’s
intentional or malicious act is the only cause of the death or injury, the employer shall not be answerable,
unless it should be shown that the latter did not exercise due diligence in the selection or supervision of the
plaintiffs fellow-worker.”

15. Grant of compensatory damages should be P204,000 not P198,000

The grant of compensatory damages to Samson made by the trial court and affirmed by the appellate
court by computing his basic salary per annum at P750.00 a month as basic salary and P300.00 a month for
extra pay for extra flying time including bonus given in December every year is justified. The correct
computation however should be P750 plus P300 x 12 months = P12,600 per annum x 10 years = P126,000.00
(not P120,000.00 as computed by the court a quo). The further grant of increase in the basic pay of the pilots
to P12,000 annually for 1964 to 1968 totalling P60,000.00 and another P18,000.00 as bonuses and extra pay
for extra flying time at the same rate of P300.00 a month totals P78,000.00. Adding P126,000.00 (1964 to
1968 compensation) makes a grand total of P204,000.00 (not P198,000.00 as originally computed).

16. Grant of moral damages upheld; Quasi-delict (Article 2219 [2] NCC)
The Court approve the grant of moral damages in the sum of P50,000.00 inasmuch as there is bad
faith on the part of PAL. The act of PAL in unjustly refusing Samson’s demand for special medical service
abroad for the reason that Samson’s deteriorating physical condition was not due to the accident violates the
provisions of Article 19 of the Civil Code on human relations “to act with justice, give everyone his due, and
observe honesty and good faith.” Under the facts found by the trial court and affirmed by the appellate court
and under the law and jurisprudence cited and applied, the grant of moral damages in the amount of
P50,000.00 is proper and justified. The fact that Samson suffered physical injuries in the head when the plane
crash-landed due to the negligence of Capt. Bustamante is undeniable. The negligence of the latter is clearly a
quasi-delict and therefore Article 2219, (2) New Civil Code is applicable, justifying the recovery of moral
damages.

17. Grant of moral damages upheld; Bad faith or malice (Article 2220 NCC)
Even from the standpoint of PAL that there is an employer-employee relationship between it and
Samson arising from the contract of employment, Samson is still entitled to moral damages in view of the
finding of bad faith or malice by the appellate court, and affirmed by the Supreme Court applying the
provisions of Article 2220, New Civil Code which provides that willful injury to property may be a legal
ground for awarding moral damages if the court should find that, under the circumstances, such damages are
justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad
faith.

18. Grant of moral damages upheld; Bad faith (Article 19 NCC)

The justification in the award of moral damages under Article 19 of the New Civil Code on Human
Relations which requires that every person must, in the exercise of his rights and in the performance of his
duties, act with justice, give everyone his due, and observe honesty and good faith, as applied by appellate
court is also well-taken.

19. Award of attorney’s fees correct

With respect to the award of attorney’s fees in the sum of P20,000.00 the same is likewise correct.
Samson is entitled to attorney’s fees because he was forced to litigate in order to enforce his valid claim
(Ganaban vs. Bayle, 30 SCRA 365; De la Cruz vs. De la Cruz, 22 SCRA 33; and many others); PAL acted in
bad faith in refusing Samson’s valid claim (Filipino Pipe Foundry Corporation vs. Central Bank, 23 SCRA
1044); and Samson was dismissed and was forced to go to court to vindicate his right (Nadura vs. Benguet
Consolidated, Inc., 5 SCRA 879).

20. Payment of legal interest from date judicial demand was made by Samson
Articles 1169, 2209 and 2212 of the Civil Code govern when interest shall be computed. Thereunder
interest begins to accrue upon demand, extrajudicial or judicial. A complaint is a judicial demand
(Cabarroguis vs. Vicente, 107 Phil. 340). Under Article 2212 of the Civil Code, interest due shall earn legal
interest from the time it is judicially demanded, although the obligation may be silent upon this point.” (CA
Resolution, pp. 153-154, Records). The correct amount of compensatory damages upon which legal interest
shall accrue from the filing of the complaint is P204,000.00 as herein computed and not P198,000.00.

[78] Belgian Chartering vs. PFIC, see [36]

[79] De Guzman vs. CA, see [14]
[80]

Pilapil vs. CA (GR 52159, 22 December 1989)

Second Division, Padilla (J): 3 concur, 1 took no part

Facts: Jose Pilapil, a paying passenger, boarded Alatco Transportation Co.’s bus bearing number 409 at San
Nicolas, Iriga City on 16 September 1971 at about 6:00 P.M. While said bus 409 was in due course
negotiating the distance between Iriga City and Naga City, upon reaching the vicinity of the cemetery of the
Municipality of Baao, Camarines Sur, on the way to Naga City, an unidentified man, a bystander along said
national highway, hurled a stone at the left side of the bus, which hit Pilapil above his left eye. Alatco’s
personnel lost no time in bringing Pilapil to the provincial hospital in Naga City where he was confined and
treated. Considering that the sight of his left eye was impaired, Pilapil was taken to Dr. Malabanan of Iriga
City where he was treated for another week. Since there was no improvement in his left eye’s vision, Pilapil
went to V. Luna Hospital, Quezon City where he was treated by Dr. Capulong. Despite the treatment accorded
to him by Dr. Capulong, Pilapil lost partially his left eye’s vision and sustained a permanent scar above the
left eye.

Thereupon, Pilapil instituted before the CFI of Camarines Sur, Branch I an action for recovery of damages
sustained as a result of the stone-throwing incident. After trial, the court a quo rendered judgment ordering
the transportation company to pay Pilapil the sum of P10,000.00, representing actual and material damages
for causing a permanent scar on the face and injuring the eye-sight of Pilapil; ordering further the
transportation company to pay the sum of P5,000.00, to Pilapil as moral and exemplary damages; and
ordering furthermore, the transportation company to reimburse Pilapil the sum of P300.00 for his medical
expenses and attorney’s fees in the sum of P1,000.00; and to pay the costs.

From the judgment, Alatco Transportation appealed to the Court of Appeals (CA-GR 57354-R). On 19
October 1979, the Court of Appeals, in a Special Division of Five, rendered judgment reversing and setting
aside the judgment of the court a quo. Hence, the petition to review on certiorari.

The Supreme Court affirmed the judgment appealed from.

1. Diligence required of a common carrier, and presumption of negligence; Articles 1733 and 1755
NCC
Under Article 1733 of the Civil Code, common carriers are required to observe extraordinary
diligence for the safety of the passenger transported by them, according to all the circumstances of each case.
The requirement of extraordinary diligence imposed upon common carriers is restated in Article 1755: “A
common carrier is bound to carry the passengers safely as far as human care and foresight can provide, using
the utmost diligence of very cautious persons, with due regard for all the circumstances.” Further, in case of
death of or injuries to passengers, the law presumes said common carriers to be at fault or to have acted
negligently.

2. Article 1755 NCC

Article 1755 of the Civil Code qualifies the duty of extraordinary care, vigilance and precaution in
the carriage of passengers by common carriers to only such as human care and foresight can provide. What
constitutes compliance with said duty is adjudged with due regard to all the circumstances.

3. Article 1756 NCC

Article 1756 of the Civil Code, in creating a presumption of fault or negligence on the part of the
common carrier when its passenger is injured, merely relieves the latter, for the time being, from introducing
evidence to fasten the negligence on the former, because the presumption stands in the place of evidence.
Being a mere presumption, however, the same is rebuttable by proof that the common carrier had exercised
extraordinary diligence as required by law in the performance of its contractual obligation, or that the injury
suffered by the passenger was solely due to a fortuitous event.

4. Intention of the Code

Inferring from the law, the intention of the Code Commission and Congress was to curb the
recklessness of drivers and operators of common carriers in the conduct of their business.

5. Common carrier not an insurer of all risks to passenger and goods

In consideration of the right granted to it by the public to engage in the business of transporting
passengers and goods, a common carrier does not give its consent to become an insurer of any and all risks to
passengers and goods. It merely undertakes to perform certain duties to the public as the law imposes, and
holds itself liable for any breach thereof. While the law requires the highest degree of diligence from
common carriers in the safe transport of their passengers and creates a presumption of negligence against
them, it does not, however, make the carrier an insurer of the absolute safety of its passengers. Neither the
law nor the nature of the business of a transportation company makes it an insurer of the passenger’s safety,
but that its liability for personal injuries sustained by its passenger rests upon its negligence, its failure to
exercise the degree of diligence that the law requires

6. Presumption of fault or negligence merely a disputable presumption

The presumption of fault or negligence against the carrier is only a disputable presumption. It gives in
where contrary facts are established proving either that the carrier had exercised the degree of diligence
required by law or the injury suffered by the passenger was due to a fortuitous event. Herein, where the injury
sustained by Pilapil was in no way due to any defect in the means of transport or in the method of transporting
or to the negligent or willful acts of Alatco’s employees, and therefore involving no issue of negligence in its
duty to provide safe and suitable cars as well as competent employees, with the injury arising wholly from
causes created by strangers over which the carrier had no control or even knowledge or could not have
prevented, the presumption is rebutted and the carrier is not and ought not to be held liable.

7. Standard of extraordinary diligence does not determine liability when acts of strangers directly
caused the injury
While as a general rule, common carriers are bound to exercise extraordinary diligence in the safe
transport of their passengers, it would seem that this is not the standard by which its liability is to be
determined when intervening acts of strangers directly cause the injury, while the contract of carriage exists.

8. Article 1763 NCC

Article 1763 provides that “a common carrier is responsible for injuries suffered by a passenger on
account of the wilful acts or negligence of other passengers or of strangers, if the common carrier’s
employees through the exercise of the diligence of a good father of a family could have prevented or stopped
the act or omission.”

9. Article 1763 explained

A tort committed by a stranger which causes injury to a passenger does not accord the latter a cause
of action against the carrier. The negligence for which a common carrier is held responsible is the negligent
omission by the carrier’s employees to prevent the tort from being committed when the same could have been
foreseen and prevented by them. Further, under the same provision, it is to be noted that when the violation of
the contract is due to the wilful acts of strangers the degree of care essential to be exercised by the common
carrier for the protection of its passenger is only that of a good father of a family.

10. Rule of ordinary care and prudence is not exacting to require exercise of doubtful or
unreasonable precautions
Although the suggested precaution, i.e. mesh-work grills covering windows of the bus, could have
prevented the injury complained of, the rule of ordinary care and prudence is not so exacting as to require one
charged with its exercise to take doubtful or unreasonable precautions to guard against unlawful acts of
strangers. The carrier is not charged with the duty of providing or maintaining vehicles as to absolutely
prevent any and all injuries to passengers. Where the carrier uses cars of the most approved type, in general
use by others engaged in the same occupation, and exercises a high degree of care in maintaining them in
suitable condition, the carrier cannot be charged with negligence in this respect.

11. Congress’ role

Herein, Pilapil contends that it is to the greater interest of the State if a carrier were made liable for
such stone-throwing incidents rather than have the bus riding public lose confidence in the transportation
system. Sad to say, the court is not in a position to so hold. Such a policy would be better left to the
consideration of Congress which is empowered to enact laws to protect the public from the increasing risks
and dangers of lawlessness in society.
[81]

Fortune Express vs. CA (GR 119756, 18 March 1999)

Second Division, Mendoza (J): 3 concur, 1 abroad on official business

Facts: Fortune Express Inc. is a bus company in northern Mindanao. On 18 November 1989, Fortune
Express’ bus figured in an accident with a jeepney in Kauswagan, Lanao del Norte, resulting in the death of
several passengers of the jeepney, including two Maranaos. Crisanto Generalao, a volunteer field agent of the
Constabulary Regional Security Unit (X), conducted an investigation of the accident. He found that the owner
of the jeepney was a Maranao residing in Delabayan, Lanao del Norte and that certain Maranaos were
planning to take revenge on Fortune Express by burning some of its buses. Generalao rendered a report on his
findings to Sgt. Reynaldo Bastasa of the Philippine Constabulary Regional Headquarters at Cagayan de Oro.
Upon the instruction of Sgt. Bastasa he went to see Diosdado Bravo, operations manager of petitioner, at its
main office in Cagayan de Oro City. Bravo assured him that the necessary precautions to insure the safety of
lives and property would be taken. At about 6:45 p.m. on 22 November 1989, 3 armed Maranaos who
pretended to be passengers, seized a bus of Fortune Express at Linamon, Lanao del Norte while on its way to
Iligan City. Among the passengers of the bus was Atty. Talib Caorong. The leader of the Maranaos, identified
as one Bashier Mananggolo, ordered the driver, Godofredo Cabatuan, to stop the bus on the side of the
highway. Mananggolo then shot Cabatuan on the arm, which caused him to slump on the steering wheel. Then
one of the companions of Mananggolo started pouring gasoline inside the bus, as the other held the
passengers at bay with a handgun. Mananggolo then ordered the passengers to get off the bus. The
passengers, including Atty. Caorong, stepped out of the bus and went behind the bushes in a field some
distance from the highway. However, Atty. Caorong returned to the bus to retrieve something from the
overhead rack. At that time, one of the armed men was pouring gasoline on the head of the driver. Cabatuan,
who had meantime regained consciousness, heard Atty. Caorong pleading with the armed men to spare the
driver as he was innocent of any wrong doing and was only trying to make a living. The armed men were,
however, adamant as they repeated their warning that they were going to burn the bus along with its driver.
During this exchange between Atty. Caorong and the assailants, Cabatuan climbed out of the left window of
the bus and crawled to the canal on the opposite side of the highway. He heard shots from inside the bus.
Larry de la Cruz, one of the passengers, saw that Atty. Caorong was hit. Then the bus was set on fire. Some of
the passengers were able to pull Atty. Caorong out of the burning bus and rush him to the Mercy Community
Hospital in Iligan City, but he died while undergoing operation.

Paulie Caorong, the widow of Atty. Caorong, and their minor children Yasser King, Rose Heinni, and Prince
Alexander brought a suit for breach of contract of carriage in the Regional Trial Court of Iligan City (Branch
VI). In its decision, dated 28 December 1990, the trial court dismissed the complaint, and the corresponding
counterclaim; without costs.

On appeal, however, and on 29 July 1994, the Court of Appeals reversed the decision of the trial court, and
rendered another one ordering Fortune Express to pay the Caorongs (1) P3,399,649.20 as death indemnity; (2)
P50,000.00 and P500.00 per appearance as attorney’s fees; and costs against Fortune Express. Hence, the
appeal by petition for review on certiorari.

The Supreme Court affirmed the decision of the Court of Appeals with modification that Fortune Express is
ordered to pay Paulie, Yasser King, Rose Heinni, and Prince Alexander Caorong (1) death indemnity in the
amount of P50,000.00; (2) actual damages in the amount of P30,000.00; (3) moral damages in the amount of
P100,000.00; (4) exemplary damages in the amount of P100,000.00; (5) attorney’s fees in the amount of
P50,000.00; (6) compensation for loss of earning capacity in the amount of P2,121,404.90; and (7) costs of
suits.

Transportation Law, 2004 (

211 )
1. Article 1763 NCC; Common carrier liable for injuries suffered by passenger on account of
willful acts of other passenger
Article 1763 of the Civil Code provides that a common carrier is responsible for injuries suffered by a
passenger on account of the wilful acts of other passengers, if the employees of the common carrier could
have prevented the act through the exercise of the diligence of a good father of a family.

2. Fortune Express negligent; No precautions was undertaken

Herein, it is clear that because of the negligence of Fortune Express’ employees, the seizure of the
bus by Mananggolo and his men was made possible. Despite warning by the Philippine Constabulary at
Cagayan de Oro that the Maranaos were planning to take revenge on Fortune Express by burning some of its
buses and the assurance of petitioner’s operation manager, Diosdado Bravo, that the necessary precautions
would be taken, Fortune Express did nothing to protect the safety of its passengers. Had Fortune Express and
its employees been vigilant they would not have failed to see that the malefactors had a large quantity of
gasoline with them. Under the circumstances, simple precautionary measures to protect the safety of
passengers, such as frisking passengers and inspecting their baggages, preferably with non-intrusive gadgets
such as metal detectors, before allowing them on board could have been employed without violating the
passenger’s constitutional rights. As the Court intimated in Gacal v. Philippine Air Lines, Inc., a common
carrier can be held liable for failing to prevent a hijacking by frisking passengers and inspecting their
baggages.

3. Article 1174 of the Civil Code (Fortuitous event defined); Yobido vs. CA, when unforeseen event
considered a force majeure
Article 1174 of the Civil Code defines a fortuitous event as an occurrence which could not be
foreseen or which though foreseen, is inevitable. In Yobido v. Court of Appeals, the Court held that to be
considered as force majeure, it is necessary that: (1) the cause of the breach of the obligation must be
independent of the human will; (2) the event must be either unforeseeable or unavoidable; (3) the occurrence
must be such as to tender it impossible for the debtor to fulfill the obligation in a normal manner; and (4) the
obligor must be free of participation in, or aggravation of, the injury to the creditor. The absence of any of the
requisites mentioned above would prevent the obligor from being excused from liability.

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

5. Article 1755 NCC

Article 1755 of the Civil Code provides that “a common carrier is bound to carry the passengers as
far as human care and foresight can provide, using the utmost diligence of very cautious persons, with due
regard for all the circumstances.”

6. Pilapil vs. CA and De Guzman vs. CA do not apply

In Pilapil v. Court of Appeals, it was held that a common carrier is not liable for failing to install
window grills on its buses to protect passengers from injuries caused by rocks hurled at the bus by lawless
elements. On the other hand, in De Guzman v. Court of Appeals, it was ruled that a common carrier is not
responsible for goods lost as a result of a robbery which is attended by grave or irresistible threat, violence, or
force. It is clear that the cases of Pilapil and De Guzman do not apply to the present case. In Pilapil and De
Guzman, the respondents therein were not negligent in failing to take special precautions against threats to the
safety of passengers which could not be foreseen, such as tortious or criminal acts of third persons. Herein,
this factor of unforeseeability (the second requisite for an event to be considered force majeure) is lacking, i.e.
despite the report of PC agent Generalao that the Maranaos were planning to burn some of petitioner’s buses
and the assurance of Fortune Express’ operations manager (Diosdado Bravo) that the necessary precautions
would be taken, nothing was really done by Fortune Express to protect the safety of passengers.

7. Deceased not guilty of contributory negligence, let alone recklessness

Herein, Atty. Caorong did not act recklessly. The intended targets of the violence were Fortune
Express and its employees, not its passengers. The assailant’s motive was to retaliate for the loss of life of two
Maranaos as a result of the collision between Fortune Express’ bus and the jeepney in which the two
Maranaos were riding. Mananggolo, the leader of the group which had hijacked the bus, ordered the
passengers to get off the bus as they intended to burn it and its driver. The armed men actually allowed Atty.
Caorong to retrieve something from the bus. What apparently angered them was his attempt to help the driver
of the bus by pleading for his life. He was playing the role of the good Samaritan. Certainly, this act cannot be
considered an act of negligence, let alone recklessness.

8. Fortune Express liable for damages (Indemnity for death); Article 1764 in relation to Article
2206 NCC
Article 1764 of the Civil Code, in relation to Article 2206 thereof, provides for the payment of
indemnity for the death of passengers caused by the breach of contract of carriage by a common carrier.
Initially fixed in Article 2206 at P3,000.00, the amount of the said indemnity for death has through the years
been gradually increased in view of the declining value of the peso. It is presently fixed at P50,000.00. The
Caorongs are entitled to this amount.

9. Fortune Express liable for damages (Actual damages); Article 2199 NCC
Article 2199 of the Civil Code provides that “except as provided by law or by stipulation, one is
entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved.”
The trial court found that the Caorongs spent P30,000.00 for the wake and burial of Atty. Caorong. Since
Fortune Express does not question said finding of the trial court, it is liable to the Caorongs in the said
amount as actual damages.

10. Fortune Express liable for damages (Moral damages); Article 2206 NCC
Under Article 2206 of the Civil Code, the “spouse, legitimate and illegitimate descendants and
ascendants of the deceased may demand moral damages for mental anguish by reason of the death of the
deceased.” The trial court found that Paulie Caorong suffered pain from the death of her husband and worry
on how to provide support for their minor children, Yasser King, Rose Heinni, and Prince Alexander. Fortune
Express likewise does not question said finding of the trial court. Thus, in accordance with recent decisions of
the Court, the Court hold that Fortune Express is liable to the Caorongs in the amount of P100,000.00 as
moral damages for the death of Atty. Caorong.

11. Fortune Express liable for damages (Exemplary damages); Article 2232 NCC
Article 2232 of the Civil Code provides that “in contracts and quasi-contracts, the court may award
exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner.” Herein, Fortune Express acted in a wanton and reckless manner. Despite warning that the Maranaos
were planning to take revenge against Fortune Express by burning some of its buses, and contrary to the
assurance made by its operations manager that the necessary precautions would be taken, Fortune Express
and its employees did nothing to protect the safety of passengers. Under the circumstances, the Court deems it
reasonable to award private respondents exemplary damages in the amount of P100,000.00.

12. Fortune Express liable for damages (Attorney’s fees); Article 2208 NCC
 Pursuant to Article 2208, attorney’s fees may be recovered when exemplary damages are awarded. n
the recent case of Sulpicio Lines, Inc. v. Court of Appeals, the Court held an award of P50,000.00 as
attorney’s fees to be reasonable. Hence, the Caorongs are entitled to attorney’s fees in that amount.

13. Fortune Express liable for damages (Compensation for loss of earning capacity); Article 1764
in relation to Article 2206 NCC
Article 1764 of the Civil Code, in relation to Article 2206 thereof, provides that in addition to the
indemnity for death arising from the breach of contract of carriage by a common carrier, the “defendant shall
be liable for the loss of the earning capacity of the deceased, and the indemnity shall be paid to the heirs of
the latter.”

14. Formula for computing net earning capacity

Life expectancy is equivalent to two thirds (2/3) multiplied by the difference of 80 and the age of the
deceased. Herein, Since Atty. Caorong was 37 years old at the time of his death, he had a life expectancy of
28 2/3 more years. His projected gross annual income, computed based on his monthly salary of P11,385.00
23 as a lawyer in the Department of Agrarian Reform at the time of his death, was P148,005.00. Allowing for
necessary living expenses of 50% of his projected gross annual income, his total earning capacity amounts to
P2,121,404.90. Hence, Fortune Express is liable to the Caorongs in the said amount as compensation for loss
of earning capacity.

[82]

Landingin vs. Pangasinan Transportation (GR L-28014-15, 29 May 1970)

En Banc, Villamor (J): 8 concur, 1 on leave

Facts: In the morning of 20 April 1963, Leonila Landingin, daughter of Marcelo Landigin and Racquel
Bocasas, and Estrella Garcia, daughter of Pedro Garcia and Eufracia Landingin, were among the passengers
in the bus driven by Marcelo Oligan and owned and operated by Pantranco on an excursion trip from
Dagupan City to Baguio City and back. Upon reaching the uphill point at Camp 8, a sudden snapping or
breaking of metal below the floor of the bus was heard, and the bus abruptly stopped, rolling back a few
moments later; that as a result, some of the passengers jumped out of the bus, while others stepped down. The
driver maneuvered the bus safely to and against the side of the mountain where its rear end was made to rest,
ensuring the safety of the many passengers still inside the bus. While the driver was steering the bus towards
the mountainside, he advised the passengers not to jump, but to remain seated. Leonila and Estrella were not
thrown out of the bus, but that they panicked and jumped out. Leonila and Estrella suffered serious injuries as
a result of which Leonila and Estrella died at the hospital on the same day.

In connection with the incident, however, the driver had been charged with and convicted of multiple
homicide and multiple slight physical injuries on account of the death of Leonila and Estrella and of the
injuries suffered by four others. Said criminal case, however, is pending appeal in a higher court.

Civil Cases D-1468 and D-1470 were filed by the spouses Landingin and spouses Garcia for damages
suffered by them in connection with the death of their respective daughters, Leonila and Estrella, due to the
alleged negligence of Pangasinan Transport Co. and Marcelo Oligan and/or breach of contract of carriage. By
agreement of the parties, the two cases were tried jointly. On 17 October 1966, the court a quo rendered its
decision therein concluding that the accident was caused by a fortuitous event or an act of God brought about
by some extra-ordinary circumstances independent of the will of the Pantranco or its employees. The Court
thus absolved the defendants from any liability on account of negligence on their part and therefore
dismissing the complaints in the two cases. However, it ordered Pantranco to pay to the spouses Marcelo
Landingin and Racquel Bocasas in Civil Case D-1468 the amount of P6,500.00; and the amount of P3,500.00
to the spouses Pedro Garcia and Eufracia Landingin in Civil Case D-1470, not in payment of liability because
of any negligence on the part of the defendants but as an expression of sympathy and goodwill. Pantranco
appealed.

The Supreme Court modified the judgment appealed from, and ordered PANTRANCO to pay the spouses
Landingin and spouses Garcia the amounts stated in the judgment appealed from, as damages for breach of
contracts, with interest thereon at the legal rate from the date of the filing of the complaints; with costs against
PANTRANCO.

1. PANTRANCO guilty of breach of contract of carriage

The argument – the court should not have ordered them to assume any pecuniary liability inasmuch
as it has found them to be absolutely free from fault or negligence, and having in fact dismissed the
complaints against them – would have been meritorious if not for the fact that PANTRANCO was guilty of
breach of contract of carriage. Each of the two complaints averred that two buses, including the one in which
the two deceased girls were riding, were hired to transport the excursionist passengers from Dagupan City to
Baguio City, and return, and that the said two passengers did not reach destination safely.

2. Duty of a common carrier

As a common carrier, PANTRANCO was duty bound to carry its passengers “safely as far as human
care and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all
the circumstances.” (Article 1755, Civil Code.)

3. Pantranco did not measure up to the degree of care and foresight required it under the
circumstances
The cross-joint of the bus in which the deceased were riding broke, which caused the malfunctioning
of the motor, which in turn resulted in panic among some of the passengers. In Lasam vs. Smith (45 Phil.
660), the Court held that an accident caused by defects in the automobile is not a caso fortuito. The rationale
of the carrier’s liability is the fact that “the passenger has neither the choice nor control over the carrier in the
selection and use of the equipment and appliances in use by the carrier.” (Necesito, et al. vs. Paras, et al., 104
Phil. 75)

4. Conclusion of “act of God” conjectural and speculative

The lower court’s conclusion that “the accident was caused by a fortuitous event or an act of God
brought about by some extraordinary circumstances independent of the will of the Pantranco or its
employees,” is in large measure conjectural and speculative, and was arrived at without due regard to all the
circumstances, as required by Article 1755.

5. Presumption of negligence when a passenger dies or is injured

When a passenger dies or is injured, the presumption is that the common carrier is at fault or that it
acted negligently (Article 1756). This presumption is only rebutted by proof on the carrier’s part that it
observed the “extraordinary diligence” required in Article 1733 and the “utmost diligence of very cautious
persons” required in Article 1755 (Article 1756).

6. Carrier should give due regard for all circumstances in connection with inspection
The lower court considered the presumption rebutted on the strength of Pantranco’s evidence that
only the day before the incident, the cross-joint in question was duly inspected and found to be in order. It
does not appear, however, that the carrier gave due regard for all the circumstances in connection with the
said inspection. The bus in which the deceased were riding was heavily laden with passengers, and it would
be traversing mountainous, circuitous and ascending roads. Thus the entire bus, including its mechanical
parts, would naturally be taxed more heavily than it would be under ordinary circumstances. The mere fact
that the bus was inspected only recently and found to be in order would not exempt the carrier from liability
unless it is shown that the particular circumstances under which the bus would travel were also considered.
[83]

California Lines vs. de los Santos (GR L-13254, 30 December 1961)

First Division, Dizon (J): 7 concur, 2 took no part

Facts: In Civil Case 27906 of the CFI of Manila (Branch XVII), Josephine W. Regalado sought to recover
from California Lines, Inc., a domestic corporation engaged in the business of operating passenger buses,
and/or the Ricalinda Bus, damages and attorney’s fees in the total sum of P28,000.00. The damages were
claimed to have been the result of physical injuries sustained by her while on board a passenger bus of the
California Lines, Inc. which collided with another belonging to Ricalinda Bus. In its answer to the complaint
the California Lines, Inc. interposed a cross-claim against its co-defendant, Ricalinda Bus. Subsequently,
upon finding that the Ricalinda Bus had no juridical personality because it was a mere trade name, the
California Lines filed a third-party complaint against the owner of the other bus in the accident, Amparo de
los Santos, together with her husband, Victor de los Santos, and her driver, Celedonio N. Morta, in order to
hold them liable for any amount which Regalado may be entitled to collect upon her complaint. After the
hearing of Civil Case 27906 had started, Regalado and de los Santos entered into an amicable settlement, for
which reason the trial court dismissed the case on 11 December 1956; without pronouncement as to costs. On
14 January 1957, the California Lines, as defendants and third-party plaintiff, filed a motion for the
amendment of the court’s order so as to make the dismissal without prejudice insofar as its third-party
complaint was concerned; which was granted by the lower court on 2 February 1956.

On 10 April 1957, the California Lines commenced Civil Case 32298 against Amparo de los Santos, Victor
de los Santos and Celedonio N. Morta in the CFI of Manila (Branch 1) to recover damages suffered by it as a
result of the collision. In their answer filed on 2 May 1957, de los Santos, et. al. alleged that the damages, if at
all, caused to California Lines’ bus were due to the recklessness and lack of prudence and precaution of its
own driver, and filed a counterclaim therein for moral damages in the sum of P10,000.00, for exemplary or
corrective damages in the sum of P5,000.00, for loss of business goodwill of the Ricalinda Bus in the sum of
P10,000.00 and for attorney’s fees in the sum of P5,000.00. 5 days thereafter, defendants filed a motion to
dismiss the complaint on the ground that there was another action pending between the same parties for the
same cause, alleging that the third-party complaint filed by the California Lines in Civil Case 27906 was still
pending adjudication in Branch XVII of the CFI of Manila, and that the parties and cause of action therein
involved are the same as those in Civil Case 32298. In spite of the opposition filed by the California Lines,
the lower court, in its order of 17 July 1957, granted the motion to dismiss the complaint, upon the ground
relied upon in support thereof. On 12 August 1957 California Lines filed a motion in Civil Case 27906 for the
clarification of the order of dismissal dated 2 February 1957, but the same was denied by the court on the
ground that said order was already sufficiently clear. Upon denial of the motion for reconsideration filed by
the California Lines on 22 August 1957, said party took the present appeal.

The Supreme Court reversed and set aside the order of dismissal appealed from, and remanded the case to the
lower court for further proceedings in accordance with law; with costs.

1. Civil case 27906 dismissed without prejudice

Civil Case 27906 was definitely terminated in its entirety by the order of dismissal dated 11
December 1956, as amended by the other issued on 2 February 1956. The former provided for the dismissal
of “this case” — meaning all the claims, counterclaims, cross-claims and third-party complaint involved in
the case — and this was reiterated in the order of 2 February, which merely made the dismissal of the third-
party complaint without prejudice. That the whole case was deemed terminated is also clearly inferable from
the fact that on 20 August 1957, after unsuccessfully seeking a clarification of the original order of dismissal,
California Lines filed a motion to set his third-party complaint for trial, but the court denied the motion.
2. Claims by California Lines
The pertinent allegations of California Lines’ complaint regarding damages are as follows: (VII) That
as a result of the Ricalinda Bus hitting and striking plaintiff’s passenger bus mentioned in paragraph IV
hereof, the latter bus was damaged and was brought to N.C. Mercado for repairs, the amount of the damage
and value of the repairs being P1,700.00, more or less. (VIII) That because of the damage to said plaintiff’s
passenger bus and because of the needed repairs, the said bus was laid up and was not and could not be
operated by plaintiff in its regular and ordinary business from 29 August 1955 to 8 October 1955 when the
needed repairs on the said bus were finished and completed, as a result of which plaintiff suffered damages,
the amount of damages being P35.00 a day, more or less, from 29 August 1955 to 8 October 1955, or a total
of P1,435.00, the said sum of P35.00 being the average daily net earning and profit in the operation of said
passenger bus by plaintiff. (IX) That as a result of the gross negligence of defendants in the maintenance,
supervision and operation of said Ricalinda Bus, the plaintiff is entitled to collect exemplary or corrective
damages from defendants.”

3. Third party complaint actually a cross-claim

The third-party complaint was, in reality, a cross-claim because it sought to obtain judgment ordering
Amparo de los Santos principally, as owner of the Ricalinda Bus vehicle that collided with the one owned by
the California Lines, Inc., to pay to the latter whatever damages it may be sentenced to pay its passenger
Josephine W. Regalado. When the California Lines discovered that the Ricalinda Bus was a mere trade name
and had no juridical personality, it obtained leave of court to file and actually filed a third-party complaint
against Amparo de los Santos, her husband and their driver. These third-party defendants settled the claim of
Regalado for damages, thus leaving nothing in this respect to the California Lines to recover from them.

4. Claim asserted is different from that in third party complaint

Whether it was properly a cross-claim or a third-party complaint is of little moment in the decision of
the appeal. The fact is that the claim asserted therein was for reimbursement of whatever damages the
California Lines might be sentenced to pay its passenger, and it is obvious that said claim is entirely different
from, and does not cover nor is it covered by the claim subject matter of Civil Case 32298, namely, recovery
of the damages suffered by the California Lines. It is obvious, therefore, that the lower court erred in
dismissing the latter case on the ground that there was already another action pending between the same
parties upon the same or similar causes of action.

[84]

Estrada vs. Consolacion (GR L-40948, 29 June 1976)

Second Division, Antonio (J): 2 concur, 1 on leave, 1 designated to sit in the second division

Facts: On 1 January 1975, Gregorio Estrada’s wife, Simeona Estrada, was a passenger of the AC Jeep (ZE-
501), owned and operated by Corazon Ramirez Uy and driven by Lucio Galaura, while said jeep was cruising
along Claro M. Recto Avenue, heading towards the direction of the Jones Circle, Davao City the driver
(Galaura) “without regard for the safety of Estrada’s wife who was among his passengers and without taking
the necessary precaution” in accordance with the situation, bumped a Ford pick-up truck; as a consequence of
the incident Estrada’s wife sustained a fractured left humerus (pulmonary) embolism and shock due to
respiratory failure; she was brought to the San Pedro Hospital where she died.

On 14 February 1975, Gregorio Estrada filed a complaint for damages against Uy and Galaura for breach of
their obligations as a common carrier, in view of the death of his wife while she was a passenger of the
vehicle. Defendants, in their answer, while admitting that Estrada’s wife was a passenger and that she died as
a result of the accident, alleged that the proximate and only cause of the accident was the negligence of third
persons (the drivers, Danilo Ang and Rodolfo D. Endino, of a Toyota pick-up truck [TRU 221], and a Ford
pick-up truck [TRU 420]). Defendants likewise set up a counterclaim for damages by reason of Estrada’s
institution of the clearly unfounded suit against them. On 16 April 1975, defendants filed a motion for
summary judgment against Estrada on the ground that there is no genuine issue as to any material fact in the
case except as to the amount of damages defendants are seeking from Estrada by way of counterclaim. On 20
May 1975, the CFI of Davao (Civil Case 8739) decreed that defendants have judgment summarily against the
Estrada for such amount as may be found due them for damages. A motion for reconsideration of the order
was denied 9 June 1975 for lack of merit. Estrada filed a petition for certiorari with prohibition before the
Supreme Court.

The Supreme Court dismissed the petition for certiorari with prohibition, without special pronouncement as to
costs.

1. Annexes to answer in support of motion for summary judgment

In support of the defendant’s motion for summary judgment, certain annexes to the answer were
incorporated therein, i.e. (a) The sketch of the accident made by Traffic Investigator J.S. Formeloza of the
Davao City Police Department, marked as Annex ‘3’ of the defendants answer. (b) Said investigator’s
affidavit detailing his findings upon investigation stating that the pick-up with plate No. T-RU-420 upon
reaching the intersection of Recto and Bonifacio Streets collided with the pick-up with plate No. T-RU-221,
and that upon impact, the latter pick-up collided with the jeep driven by Lucio Galaura that was coming from
the opposite direction; (c) The respective sworn statements of the drivers of the two pick-ups (Danilo Ang
and Rodolfo Endino) taken by the Traffic Division of the Davao City Police Department after the accident,
marked as Annexes ‘5’ and of the defendants’ answer wherein each driver respectively claimed that he
exercised due care but attributed to the other negligence as the cause of the collision; and (d) The sworn
statement of defendant driver (Lucio Galaura) of said A. C. Jeep, likewise taken by the Traffic Division of the
Davao City Police Department detailing what he did in order to prevent or minimize damages to his vehicle
and his passengers, marked as Annex ‘7’ of defendants’ answer. By means of the annexes, Uy and Galaura
sought to prove that they were relieved of any liability to petitioner inasmuch as the accident which caused
the death of petitioner’s wife “resulted from the negligence of third persons over whom defendants had no
supervision or control, namely, the drivers of the two pick-up trucks which collided at the intersection of C.
M. Recto Ave. and Bonifacio St., Davao City, as a result of which collision, one of them was deviated from
course to the lane where defendants’ A.C.-Jeep was then travelling, where it also collided with the latter.”

2. Section 2, Rule 34 of the Revised Rules

Pursuant to Section 2, Rule 34, of the Revised Rules, “A party against whom a claim, counterclaim,
or crossclaim is asserted or a declaratory relief is sought may, at any time, move with supporting affidavits for
a summary judgment in his favor as to all or any part thereof.” The defendant who believes that he is untitled
to a judgment either on the pleadings or on the basis of extrinsic facts established by affidavits or depositions
may move for summary judgment in his favor. In other words, when the moving party is a defending party,
his pleadings, depositions or affidavits must show that his defenses or denials arc sufficient to defeat the
claimant’s claim.

3. Summary judgment; Procedure

The affidavit submitted by the party moving for summary judgment shall be by persons having
personal knowledge of the facts; it shall recite all material facts and show that there is no defense to the cause
of actions or that the cause of action has no merits. This motion shall be served on the adverse party at least
10 days prior to the time specified in the hearing. The adverse party may also, prior to said date, serve
opposing affidavits The opposing papers, including pleadings, depositions, and affidavits must establish a
genuine issue of fact in order to defeat a motion for summary judgment. After hearing, the motion for
summary judgment shall be granted if, on the basis of all the papers and proofs submitted, the cause of action
or defense shall be established sufficiently to warrant the court as a matter of law in directing judgment in
favor of any party. The motion shall be denied if any party shall show facts sufficient to require a trial of any
issue of fact other than an issue as to the amount or extent of the damages.
4. Summary judgment; Purpose
This Summary Judgment or Accelerated Judgment is a device for weeding out sham claims or
defenses at an early stage of the litigation, thereby avoiding the expense and loss of time involved in a trial.
The very object is to separate what is formal or pretended in denial or averment from what is genuine and
substantial, so that only the latter may subject a suitor to the burden of a trial.

5. Motion for summary judgment deals on whether there are triable issues of facts; Test
In conducting the hearing, the purpose of the judge is not to try the issue, but merely to determine
whether there is a meritorious issue to be tried. Where a motion is made for summary judgment, such motion
is not directed to the pleadings and deals only with the question of whether there are triable issues of facts and
where such issues exist summary judgment must be denied. Summary judgment should not be granted where
is fairly appears that there is a triable issue to be tried. “The Court should not pass, on questions of credibility
or weight of evidence, and that the summary judgment procedure ‘should not be perverted to the trial of
disputed questions of fact upon affidavits”. The test, therefore, of a motion for summary judgment is —
whether the pleadings, affidavits and exhibits in support of the motions are sufficient to overcome the
opposing papers and to justify a finding as a matter of law that there is no defense to the action or the claim is
clearly meritorious.

6. Proceedings for summary judgment; Burden of proof

In proceedings for summary judgment, the burden of proof is upon the plaintiff to prove the cause of
action and to show that the defense is interposed solely for the purpose of delay. After plaintiff’s burden has
been discharged, defendant has the burden to show facts sufficient to entitle him to defend.

7. Duty of carrier under the contract of carriage; Presumption of negligence; Diligence required
Under the contract of carriage, Uy and Galaura assumed the express obligation to transport Estrada’s
wife to her destination safely and to observe extra ordinary diligence with due regard for all the
circumstances, and that any injury suffered by her in the course thereof, is immediately attributable to the
negligence of the carrier. To overcome such presumption, it must be shown that the carrier had observed the
required extraordinary diligence, which means that the carrier must show the “utmost diligence of very
cautious persons as far as human care and foresight can provide”, or that the accident was caused by a
fortuitous event.

8. What constitutes caso fortuito

In order to constitute a case fortuito that would exempt a person from responsibility, it is necessary
that (1) the event must be independent of the human will; (2) the occurrence must render it impossible for the
obligor to fulfill his obligation m a normal manner; and (3) the obligor must be free of a concurrent or
contributory fault or negligence.

9. Purpose of submission of the affidavit; Affidavit prima facie proof, said proof was unrebutted
It was precisely because of the legal presumption that once a passenger in the course of travel is
injured or does not reach his destination safely, the carrier and the driver are presumed to be at fault, that Uy
and Galaura submitted affidavits to prove that the accident which resulted in the death of Estrada’s wife was
due to the fault or negligence of the drivers of the two pickup trucks over whom the carrier had no
supervision or control. Having, therefore, shown prima facie that the accident was due to a caso fortuito and
that the driver was free of concurrent or contributory fault or negligence, it was incumbent upon Estrada to
rebut such proof. Having failed to do so, the defense of the carrier that the proximate cause of the accident
was a caso fortuito remains unrebuted.

10. Questions of facts not yet resolved

 Whether a carrier used such reasonable precautions to avoid the accident as would ordinarily be used
by careful, prudent persons under like circumstances is a question essentially one of fact and, therefore,
ordinarily such issue must be decided at the trial. But where, as herein, Estrada has not submitted opposing
affidavits to controvert Uy’s and Galaura’s evidence that the driver of the passenger jeepney was free of
contributory fault as he stopped the jeepney to avoid the accident, but in spite of such precaution the accident
occurred, the Judge did not, therefore, act arbitrarily in declaring in his Order that “there is no genuine issue
to any material fact and no controversial question of fact to be submitted to the trial court.”

11. Order merely an interlocutory order

This was, however, a mere interlocutory order directing that a hearing be conducted for the purpose
of ascertaining the amount or the assessment of damages which may be adjudged in favor of the prevailing
party. It is a determination of the court of a preliminary point or directing some steps in the proceedings, but
not a disposition of the merits. “Upon the rendering of the assessment, the Court shall direct the entry
forthwith of the appropriate summary judgment.”

12. Order of judge cannot be considered a judgment, in the absence of any findings of fact and
conclusions of law
In the absence of any findings of fact and conclusions of law, the order of the Judge cannot be
considered a judgment. It has been held that “a trial court in granting summary judgment should file findings
of fact and conclusion of law or a memorandum opinion so as to disclose grounds upon which the trial court
reached its determination.” In this jurisdiction, pursuant to Section 9 of Article X of the Constitution and the
procedural rules, all judgments determining the merits of cases should state clearly and distinctly the facts and
the law on which it is based.

13. Present petition premature

There being no judgment, the present petition is, therefore, premature. Certainly, Estrada could move
for the setting aside of the Order of 20 May 1975 by the presentation of opposing affidavits showing that,
other than the issue as to the amount or extent of damages, there is a genuine issue of fact on the carrier’s
liability.

[85] Ong Yiu vs. CA, see [68]

[86]

Lara vs. Valencia (GR L-9907, 30 June 1958)

En Banc, Bautista Angelo (J): 7 concur

Facts: Demetrio Lara went to the lumber concession of Brigido R. Valencia in Parang, Cotabato upon
instructions of his chief in order to classify the logs of defendant which were then ready to be exported and to
be loaded on a ship anchored in the port of Parang. It took Lara 6 days to do his work during which he
contracted malaria fever and for that reason he evinced a desire to return immediately to Davao. At that time,
there was no available bus that could take him back to Davao and so he requested Valencia if he could take
him in his own pick-up. Valencia agreed and, together with Lara, other passengers tagged along, most of them
were employees of the Government. Valencia merely accommodated them and did not charge them any fee
for the service. It was also their understanding that upon reaching barrio Samoay, the passengers would alight
and transfer to a bus that regularly makes the trip to Davao but unfortunately there was none available at the
time and so the same passengers, including Lara, again requested Valencia to drive them to Davao. Valencia
again accommodated them and upon reaching Km. 96, Lara accidentally fell suffering fatal injuries.

An action for damages was brought by Lourdes J. Lara, et. al. against Valencia in the CFI of Davao for the
death of one Demetrio Lara, Sr. allegedly caused by the negligent act of Valencia. Valencia denied the charge
of negligence and set up certain affirmative defenses and a counterclaim. The court after hearing rendered
judgment ordering Valencia to pay Lara, et. al. the following amount: (a) P10,000 as moral damages; (b)
P3,000 as exemplary damages; and (c) P1,000 as attorney’s fees, in addition to the costs of action. Both
parties appealed to the Supreme Court because the damages claimed in the complaint exceed the sum of
P50,000.

The Supreme Court reversed the decision appealed from, without pronouncement as to costs.

1. Lara, et. al. merely accommodation passaengers who paid nothing for service; Degree of
diligence required of owner of vehicle
The deceased, as well as his companions who rode in the pick-up of Valencia, were merely
accommodation passengers who paid nothing for the service and so they can be considered as invited guests
within the meaning of the law. As accommodation passengers or invited guests, Valencia as owner and driver
of the pick-up owes to them merely the duty to exercise reasonable care so that they may be transported safely
to their destination. Thus, “The rule is established by the weight of authority that the owner or operator of an
automobile owes the duty to an invited guest to exercise reasonable care in its operation, and not
unreasonably to expose him to danger and injury by increasing the hazard of travel. This rule, as frequently
stated by the courts, is that an owner of an automobile owes a guest the duty to exercise ordinary or
reasonable care to avoid injuring him. Since one riding in an automobile is no less a guest because he asked
for the privilege of doing so, the same obligation of care is imposed upon the driver as in the case of one
expressly invited to ride” Valencia, therefore, is only required to observe ordinary care, and is not in duty
bound to exercise extraordinary diligence as required of a common carrier by Philippine law.

2. Valencia had done what a reasonable prudent man would have done
Valencia was not in duty bound to take the deceased in his own pick-up to Davao because from
Parang to Cotabato there was a line of transportation that regularly makes trips for the public, and if Valencia
agreed to take the deceased in his own car, it was only to accommodate him considering his feverish condition
and his request that he be so accommodated. The passengers who rode in the pick-up of Valencia took their
respective seats therein at their own choice and not upon indication of Valencia with the particularity that
Valencia invited the deceased to sit with him in the front seat but which invitation the deceased declined. The
reason for this can only be attributed to his desire to be at the back so that he could sit on a bag and travel in a
reclining position because such was more convenient for him due to his feverish condition. All the
circumstances thereof clearly indicate that Valencia had done what a reasonable prudent man would have
done under the circumstances.

3. Finding as to speed not supported by evidence; else, speed not unreasonable

The finding of the trial court that the pick-up was running at more than 40 kilometers per hour is not
supported by evidence. This is a mere surmise made by the trial court considering the time the pick- up left
barrio Samoay and the time the accident occurred in relation to the distance covered by the pick-up. And even
if this is correct, still we say that such speed is not unreasonable considering that they were travelling on a
national road and the traffic then was not heavy.

4. Injury to passenger has been proximately caused by own negligence

The incident may be attributed to lack of care on the part of the deceased considering that the pick-up
was open and he was then in crouching position. Indeed the law provides that “A passenger must observe the
diligence of a good father of a family to avoid injury to himself” (Article 1761, new Civil Code), which
means that if the injury to the passenger has been proximately caused by his own negligence, the carrier
cannot be held liable.

5. Unfortunate happening due to unforeseen accident

There is every reason to believe that the unfortunate happening was only due to an unforeseen
accident caused by the fact at the time the deceased was half asleep and must have fallen from the pick-up
when it ran into some stones causing it to jerk considering that the road was then bumpy, rough and full of
stones. All things considered, the accident occurred not due to the negligence of Valencia but to
circumstances beyond his control and so he should be exempt from liability.

[87]

Bayasen vs. CA (GR L-25785, 26 February 1981)

First Division, Fernandez (J): 4 concur

Facts: On the morning of 15 August 1963, Saturnino Bayasen, the Rural Health Physician in Sagada,
Mountain Province, went to barrio Ambasing to visit a patient. Two nurses from the Saint Theodore’s
Hospital in Sagada, viz., Elena Awichen and Dolores Balcita, rode with him in the jeep assigned for the use of
the Rural Health Unit as they had requested for a ride to Ambasing. Later, at Ambasing, the girls, who wanted
to gather flowers, again asked if they could ride with him up to a certain place on the way to barrio Suyo
which he intended to visit anyway. Dr. Bayasen again allowed them to ride, Elena sitting herself between him
and Dolores. On the way, at barrio Langtiw, the jeep went over a precipice. About 8 feet below the road, it
was blocked by a pine tree. The three, were thrown out of the jeep. Elena was found lying in a creek further
below. Among other injuries, she suffered a skull fracture which caused her death. Saturnino Bayasen was
charged in December 1963 by the Provincial Fiscal of Mountain Province of the crime of Homicide Thru
Reckless Imprudence. After trial, the CFI of Mountain Province (Second Judicial District, Criminal Case
1056) found Bayasen guilty of the charge and sentenced the latter to an indeterminate penalty of 4 Months
and 1 Day of arresto mayor as minimum, to 1 Year, 7 Months and 10 Days of prision correccional, as
maximum, to indemnify the heirs of the deceased Elena Awichen the amount of P3,000.00 as compensatory
damages, and P1,000.00 as fees of the attorney contracted by the said heirs and P1,886.00 for burial expenses
of the deceased, and to pay the costs.

From this decision, Bayasen appealed to the Court of Appeals, which, on 17 November 1965, affirmed the
decision of the trial court with the modifications that the indemnity was increased to P6,000.00; the award of
attorney’s fees was set aside; and that the maximum of the prison term was raised to 1 Year, 7 Months, and 17
Days of prision correccional. The motion for reconsideration of Bayasen was denied. Hence, the petition for
review on certiorari.

The Supreme Court set aside the decision of the Court of Appeals sought to be reviewed, and acquitted
Bayasen of the crime charged in the information in Criminal Case 1056 of the CFI of Mountain Province,
with costs de oficio.

1. Prosecution’s evidence not legally sufficient to show accused was negligent in driving his jeep
A careful examination of the evidence introduced by the prosecution shows no “legally sufficient”
proof that the accused was negligent in driving his jeep. The star witness of the prosecution, Dolores Balcita
who was one of the passengers in the jeep, testified that Saturnino Bayasen was driving his jeep moderately
just before the accident and categorically stated that she did not know what caused the jeep to fall into the
precipice. When asked whether the jeep hit anything before it fell into the precipice, the witness answered
that she did not feel any bump or jolt. It is clear from the last part of the testimony of the witness, Dolores
Balcita, that there was no conversation between the passengers in the jeep that could have distracted the
attention of the accused while driving the jeep. As to the condition of the jeep itself, the same witness testified
that she “did not notice anything wrong” with it from the time they drove from Sagada to Ambasing, and
from there to the place where the jeep fell off the road. Regarding the road, she said that it was fair enough to
drive on, but that it was moist or wet, and the weather was fair, too. As to whether Bayasen was under the
influence of liquor at the time of the accident, she testified that he was not. In the light of the testimony of
Dolores Balcita, the eyewitness of the accident presented by the prosecution, there is absolutely no evidence
on record to show that the accused was negligent in driving his jeep.
2. Accused’s reason for falling into the precipice
Herein, Bayasen testified that before reaching the portion of the road where the jeep fell, he noticed
that the rear wheel skidded, while driving from 8 to 10 kilometers per hour; that as a precautionary measure,
he directed the jeep towards the side of the mountain, along the side of the mountain, but not touching the
mountain; that while doing so, the late Elena Awichen suddenly held the steering wheel and he felt that her
foot stepped on his right foot which was pressed then on the accelerator; and that immediately after, the jeep
suddenly swerved to the right and went off.

3. Positive testimony of better credibility than negative or equivocal testimony

The testimony of a credible witness that he saw or heard at a particular time and place is more reliable
than that of an equally credible witness who with the same opportunities, testifies that he did not see or hear
the same thing at the same time and place. Herein, Dolores Balcita “did not see” what Elena Awichen
suddenly did, and she “did not feel any movement from (her) side.” These answers of Dolores Balcita are all
in the negative and equivocal. They do not deny or preclude the truth of the positive testimony of the accused.
Hence, as to the relative weight to be given to the positive and consistent testimony of Bayasen and to the
negative and equivocal answers of Dolores Balcita, the former is more worthy of credence.

4. Testimony of mayor of Sagada, Mountain Province; Jeep in second gear

The statement of Dolores Balcita that the accused was driving at moderate speed and not “an
unreasonable speed” is bolstered by the testimony of Pablo Lizardo, then mayor of Sagada, Mountain
Province, who found the jeep at second gear when he examined it not long after the incident. Such fact shows
that Bayasen could not have been driving the jeep at a fast rate of speed.

5. Proximate cause of tragedy

The proximate cause of the tragedy was the skidding of the rear wheels of the jeep and not the
“unreasonable speed” of Bayasen because there is no evidence on record to prove or support the finding that
Bayasen was driving at “an unreasonable speed”.

6. Skidding may happen without necessary implying negligence

It is a well known physical fact that cars may skid on greasy or slippery roads without fault on
account of the manner of handling the car. Skidding means partial or complete loss of control of the car under
circumstances not necessarily implying negligence. It may occur without fault. Herein, under the particular
circumstances, Bayasen who skidded could not be regarded as negligent, the skidding being an unforeseen
event, so that Bayasen had a valid excuse for his departure from his regular course.

7. Guilt not proven beyond reasonable doubt

The negligence of Bayasen has not having been sufficiently established, his guilt of the crime charged
has not been proven beyond reasonable doubt. He is, therefore, entitled to acquittal.

[88]

Cervantes vs. CA (GR 125138, 2 March 1999)

Third Division, Purisima (J): 2 concur, 1 on leave, 1 abroad on official business

Facts: On 27 March 1989, Philippines Air Lines (PAL) issued to Nicholas Cervantes a round trip plane ticket
for Manila-Honolulu-Los Angeles-Honolulu-Manila, which ticket expressly provided an expiry of date of one
year from issuance, i.e., until 27 March 1990. The issuance of the said plane ticket was in compliance with a
Compromise Agreement entered into between the contending parties in two previous suits (Civil Case 3392
and 3451 before the RTC in Surigao City). On 23 March 1990, 4 days before the expiry date of subject ticket,
Cervantes used it. Upon his arrival in Los Angeles on the same day, he immediately booked his Los Angeles-
Manila return ticket with the PAL office, and it was confirmed for the 2 April 1990 flight. Upon learning that
the same PAL plane would make a stop-over in San Francisco, and considering that he would be there on 2
April 1990, Cervantes made arrangements with PAL for him to board the flight in San Francisco instead of
boarding in Los Angeles. On 2 April 1990, when Cervantes checked in at the PAL counter in San Francisco,
he was not allowed to board. The PAL personnel concerned marked the following notation on his ticket:
“TICKET NOT ACCEPTED DUE EXPIRATION OF VALIDITY.”

Aggrieved, Cervantes filed a Complaint for Damages, for breach of contract of carriage before the RTC of
Surigao del Norte in Surigao City (Branch 32, Civil Case 3807), but the said complaint was dismissed for
lack of merit.

On 20 September 1993, Cervantes interposed an appeal to the Court of Appeals, which came out with a
Decision, on 25 July 1995, upholding the dismissal of the case. On 22 May 1996, Cervantes came to the
Suprame Court via the Petition for Review.

The Supreme Court denied the petition, and affirmed in toto the decision of the Court of Appeals dated 25
July 1995; without pronouncement as to costs.

1. Conclusion and findings of facts of lower courts should not be disturbed unless for cogent
reasons
As a rule, conclusions and findings of fact arrived at by the trial court are entitled to great weight on
appeal and should not be disturbed unless for strong and cogent reasons.

2. Plane ticket expired

The plane ticket itself provides that it is not valid after 27 March 1990. It is also stipulated in
paragraph 8 of the Conditions of Contract that “this ticket is good for carriage for one year from date of issue,
except as otherwise provided in this ticket, in carrier’s tariffs, conditions of carriage, or related regulations.
The fare for carriage hereunder is subject to change prior to commencement of carriage. Carrier may refuse
transportation if the applicable fare has not been paid.”

3. Lufthansa vs. Court of Appeals

In Lufthansa vs. Court of Appeals, the Tolentinos were issued first class tickets on 3 April 1982,
which will be valid until 10 April 1983. On 10 June 1982, they changed their accommodations to economy
class but the replacement tickets still contained the same restriction. On 7 May 1983, Tolentino requested that
subject tickets be extended, which request was refused by Lufthansa on the ground that the said tickets had
already expired. The non-extension of their tickets prompted the Tolentinos to bring a complaint for breach of
contract of carriage against the petitioner. In ruling against the award of damages, the Court held that the
“ticket constitute the contract between the parties. It is axiomatic that when the terms are clear and leave no
doubt as to the intention of the contracting parties, contracts are to be interpreted according to their literal
meaning.”

4. Article 1898; Acts of agent beyond scope of authority does not bind principal
Under Article 1898 of the New Civil Code, the acts of an agent beyond the scope of his authority do
not bind the principal, unless the latter ratifies the same expressly or impliedly. Furthermore, when the third
person knows that the agent was acting beyond his power or authority, the principal cannot be held liable for
the acts of the agent. If the said third person is aware of such limits of authority, he is to blame, and is not
entitled to recover damages from the agent, unless the latter undertook to secure the principal’s ratification.

5. Confirmation of flights by PAL’s agents did not extend lifetime of ticket; Absence of authority
The confirmation by the PAL’s agents in Los Angeles and San Francisco of Cervantes’ flights did not
extend the validity or lifetime of the ticket, as both had no authority to do so. Cervantes knew this from the
very start when he called up the Legal Department of appellee in the Philippines before he left for the USA.
He had first hand knowledge that the ticket in question would expire on 27 March 1990 and that to secure an
extension, he would have to file a written request for extension at the PAL’s office in the Philippines. Despite
this knowledge, Cervantes persisted to use the ticket in question. Since the PAL agents are not privy to the
said Agreement and Cervantes knew that a written request to the legal counsel of PAL was necessary, he
cannot use what the PAL agents did to his advantage. The said agents acted without authority when they
confirmed the flights of Cervantes.

6. Rule 10, Section 5, 1997 Rules of Civil Procedure; Amendment to conform or authorize
presentation of evidence
Rule 10, Section 5 (Amendment to conform or authorize presentation of evidence) of the 1997 Rules
of Civil Procedure provides that “when issues not raised by the pleadings are tried with express or implied
consent of the parties, as if they had been raised in the pleadings. Such amendment of the pleadings as may be
necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any
party at any time, even after judgment; but failure to amend does not affect the result of the trial of these
issues.”

7. Defense of lack of authority on the part of the PAL employees was not deemed waived
Under Rule 9, Section 2 of the Revised Rules of Court, failure of a party to put up defenses in their
answer or in a motion to dismiss is a waiver thereof. Herein, although the alleged lack of authority of the PAL
employees was neither raised in the answer nor in the motion to dismiss, the records show that the question of
whether there was authority on the part of the PAL employees was only acted upon by the trial court when
Nicholas Cervantes was presented as a witness and the depositions of the PAL employees, Georgina M. Reyes
and Ruth Villanueva, were presented. However, notwithstanding PAL’s failure to raise the defense of lack of
authority of the said PAL agents in its answer or in a motion to dismiss, the omission was cured since the said
issue was litigated upon, as shown by the testimony of Cervantes in the course of trial. Thus, “when evidence
is presented by one party, with the express or implied consent of the adverse party, as to issues not alleged in
the pleadings, judgment may be rendered validly as regards the said issue, which shall be treated as if they
have been raised in the pleadings. There is implied consent to the evidence thus presented when the adverse
party fails to object thereto.”

8. No moral damages due

In awarding moral damages for breach of contract of carriage, the breach must be wanton and
deliberately injurious or the one responsible acted fraudulently or with malice or bad faith. Herein, Cervantes
knew there was a strong possibility that he could not use the subject ticket, so much so that he bought a back-
up ticket to ensure his departure. Should there be a finding of bad faith, it should be on Cervantes. What the
employees of PAL did was one of simple negligence. No injury resulted on the part of Cervantes because he
had a back-up ticket should PAL refuse to accommodate him with the use of subject ticket.

9. No exemplary damages due

Exemplary damages are imposed by way of example or correction for the public good, and the
existence of bad faith is established. The wrongful act must be accompanied by bad faith, and an award of
damages would be allowed only if the guilty party acted in a wanton, fraudulent, reckless or malevolent
manner. Herein, there is no showing that PAL acted in such a manner. The claim for exemplary damages
cannot be upheld.

[89]

De Gillaco vs. Manila Railroad Co. (GR L-8034, 18 November 1955)

Second Division, Reyes JBL (J): 7 concur
Facts: On 1 April 1946, 7:30 a.m., Lt. Tomas Gillaco, husband of Cornelia A. de Gillaco, was a passenger in
the early morning train of the Manila Railroad Company from Calamba, Laguna to Manila. When the train
reached the Paco Railroad station, Emilio Devesa, a train guard of the Manila Railroad Company assigned in
the Manila-San Fernando, La Union Line, happened to be in said station waiting for the same train which
would take him to Tutuban Station, where he was going to report for duty. Devesa’s tour of duty on that day
was from 9:00 a.m., until the train to which he was assigned reached La Union at 7:00 p.m. of the same day.
Devesa had a long standing personal grudge against Tomas Gillaco, same dating back during the Japanese
occupation. And because of this personal grudge, Devesa shot Gillaco with the carbine furnished to him by
the Manila Railroad Company for his use as such train guard, upon seeing him inside the train coach. Tomas
Gillaco died as a result of the would which he sustained from the shot fired by Devesa. Devesa was convicted
of homicide by final judgment of the Court of Appeals.

Cornelia A. de Gillaco filed an action against the Manila Railroad Company with the CFI Laguna. The trial
court sentenced the railroad company to pay P4,000 damages to the de Gillacos, the widow and children of
the late Tomas Gillaco shot by an employee of said company. The railroad company appealed.

The Supreme Court reversed the judgment appealed from, and dismissed the complaint, without costs.

1. Obligation to transport passenger safely to destination; Exception: unforeseen event

A passenger is entitled to protection from personal violence by the carrier or its agents or employees,
since the contract of transportation obligates the carrier to transport a passenger safely to his destination. But
under the law of the case, this responsibility extends only to those that the carrier could foresee or avoid
through the exercise of the degree of care and diligence required of it. As held in Lasam vs. Smith, that by
entering into that contract the carrier bound himself to carry the plaintiff safely and securely to their
destination; and that having failed to do so he is liable in damages unless he shows that the failure to fulfill
his obligation was due to causes mentioned in article 1105 of the Civil Code, which reads as follows: ‘No one
shall be liable for events which could not be foreseen or which, even if foreseen, were inevitable, with the
exception of the cases in which the law expressly provides otherwise and those in which the obligation itself
imposes such liability.’ “

2. Act of Devesa entirely unforeseen by railroad company

The act of guard Devesa in shooting passenger Gillaco (because of a personal grudge nurtured against
the latter since the Japanese occupation) was entirely unforseeable by the Manila Railroad Co. The latter had
no means to ascertain or anticipate that the two would meet, nor could it reasonably foresee every personal
rancor that might exist between each one of its many employees and any one of the thousands of eventual
passengers riding in its trains. The shooting in question was therefore “caso fortuito” within the definition of
article 1105 of the old Civil Code, being both unforeseeable and inevitable under the given circumstances;
and pursuant to established doctrine, the resulting breach of Manila Railroad’s contract of safe carriage with
the late Tomas Gillaco was excused thereby.

3. Degree of care and diligence of a common carrier

A common carrier is held to a very high degree of care and diligence in the protection of its
passengers; but, considering the vast and complex activities of modern rail transportation, to require the
railroadcompany that it should guard against all possible misunderstanding between each and every one of its
employees and every passenger that might chance to ride in its conveyances at any time, strikes as demanding
diligence beyond what human care and foresight can provide.

4. Liability of a carrier as an insurer not recognized in Philippine Jurisdiction; Civil Code of 1889
The basis of a carrier’s liability was under the old Civil Code of 1889 (which was in force in 1946,
when Gillaco was shot), and that it can be inferred from the previous jurisprudence of the Court, the Civil
Code of 1889 did not impose absolute liability (Lasam vs. Smith, supra). Although American authorities hold
carriers to be insurers of the safety of their passengers against willful assault and intentional ill-treatment on
the part of their servants, it being immaterial that the act should be one of private retribution on the part of the
servant, impelled by personal malice toward the passenger, the liability of a carrier as an insurer was not
recognized in this jurisdiction.

5. Railroad company guard had no duties to discharge in connection with the transportation of
the deceased; No breach of contract of transportation by employee of carrier
When the crime took place, the guard Devesa had no duties to discharge in connection with the
transportation of the deceased from Calamba to Manila. The stipulation of facts is clear that when Devesa
shot and killed Gillaco, Devesa was assigned to guard the Manila-San Fernando (La Union) trains, and he
was at Paco Station awaiting transportation to Tutuban, the starting point of the train that he was engaged to
guard. In fact, his tour of duty was to start at 9:00 a.m., two hours after the commission of the crime. Devesa
was therefore under no obligation to safeguard the passengers of the Calamba-Manila train, where the
deceased was riding; and the killing of Gillaco was not done in line of duty. The position of Devesa at the
time was that of another would be passenger, a stranger also awaiting transportation, and not that of an
employee assigned to discharge any of the duties that the Railroad had assumed by its contract with the
deceased. As a result, Devesa’s assault cannot be deemed in law a breach of Gillaco’s contract of
transportation by a servant or employee of the carrier.

6. Rationale why carrier is made responsible by misconduct of employees

The only good reason for making the carrier responsible for the misconduct of the servant perpetrated
in his own interest, and not in that of his employer, or otherwise within the scope of his employment, is that
the servant is clothed with the delegated authority, and charged with the duty by the carrier, to execute his
undertaking with the passenger. And it cannot be said that there is any such delegation to the employees at a
station with reference to passengers embarking at another or traveling on the train. Of course, this speaks only
of the principle which holds a carrier responsible for wrongs done to passengers by servants acting in their
own interest, and not in that of the employer. That principle is not the ordinary rule, respondent superior, by
which the employer is held responsible only for acts or omissions of the employee in the scope of his
employment; but the only reason in our opinion for a broader liability arises from the fact that the servant, in
mistreating the passenger wholly for some private purpose of his own, in the very act, violates the contractual
obligation of the employer for the performance of which he has put the employee in his place. That reason
does not exist where the employee who committed the assault was never in a position in which it became his
duty to his employer to represent him in discharging any duty of the latter towards the passenger. The
proposition that the carrier clothes every employee engaged in the transportation business with the
comprehensive duty of protecting every passenger with whom he may in any way come in contact, and
thereby makes himself liable for every assault committed by each servant, without regard to the inquiry
whether or not the passenger has come within the sphere of duty of that servant as indicated by the
employment, is regarded as not only not sustained by the authorities, but as being unsound and oppressive
both to the employer and the employee.

[90]

Maranan vs. Perez (GR L-2272, 26 June 1967)

En Banc, Bengzon JP (J): 7 concur

Facts: Rogelio Corachea, on 18 October 1960, was a passenger in a taxicab owned and operated by Pascual
Perez when he was stabbed and killed by the driver, Simeon Valenzuela. Valenzuela was prosecuted for
homicide in the CFI of Batangas. Found guilty, he was sentenced to suffer imprisonment and to indemnify the
heirs of the deceased in the sum of P6,000. Appeal from said conviction was taken to the Court of Appeals.
On 6 December 1961, while appeal was pending in the Court of Appeals, Antonia Maranan, Rogelio’s
mother, filed an action in the CFI of Batangas to recover damages from Perez and Valenzuela for the death of
her son. Perez, et. al. asserted that the deceased was killed in self-defense, since he first assaulted the driver
by stabbing him from behind. Perez claimed that the death was a caso fortuito for which the carrier was not
liable. The court, after trial, found for Maranan and awarded her P3,000 as damages against Perez. The claim
against Valenzuela was dismissed.

From this ruling, both Maranan and Perez appealed to the Supreme Court, the former asking for more
damages and the latter insisting on non-liability. Subsequently, the Court of Appeals affirmed the judgment of
conviction earlier mentioned, during the pendency of the herein appeal, and on 19 May 1964, final judgment
was entered therein.

The Supreme Court affirmed the judgment appealed from with the modification of increasing the award of
actual damages in Maranan’s favor to P6,000, plus P3,000 moral damages, with legal interest on both from
the filing of the complaint on 6 December 1961 until the whole amount is paid; no costs.

1. Gilaco case not controlling; Killing made outside scope and course of duty of guilty employee
In Gillaco vs. Manila Railroad Co., 97 Phil. 884, it was held that the carrier is under no absolute
liability for assaults of its employees upon the passengers. The attendant facts and controlling law of that case
and the present one are very different however. In the Gillaco case, the passenger was killed outside the scope
and the course of duty of the guilty employee. Herein, the killing was perpetrated by the driver of the very cab
transporting the passenger, in whose hands the carrier had entrusted the duty of executing the contract of
carriage. In other words, unlike the Gillaco case, the killing of the passenger here took place in the course of
duty of the guilty employee and when the employee was acting within the scope of his duties.

2. Gilaco case not controlling; Case decided under provisions of the Civil Code of 1889
Moreover, the Gillaco case was decided under the provisions of the Civil Code of 1889 which, unlike
the present Civil Code, did not impose upon common carriers absolute liability for the safety of passengers
against wilful assaults or negligent acts committed by their employees. The death of the passenger in the
Gillaco case was truly a fortuitous event which exempted the carrier from liability. It is true that Art. 1105 of
the old Civil Code on fortuitous events has been substantially reproduced in Article 1174 of the Civil Code of
the Philippines but both articles clearly remove from their exempting effect the case where the law expressly
provides for liability in spite of the occurrence of force majeure. And herein significantly lies the statutory
difference between the old and present Civil Codes, in the backdrop of the factual situation of the present
case, which further accounts for a different result in the Gillaco case.

3. New Civil Code expressly makes common carrier liable for intentional assaults committed by
its employees upon its passengers
Unlike the old Civil Code, the new Civil Code of the Philippines expressly makes the common carrier
liable for intentional assaults committed by its employees upon its passengers, by the wording of Article 1759
which categorically states that “Common carriers are liable for the death of or injuries to passengers although
the negligence or wilful acts of the former’s employees, although such employees may have acted beyond the
scope of their authority or in violation of the orders of the common carriers.”

4. Source of provisions on Common Carriers; Basis of carrier’s liability for assaults

The Civil Code provisions on the subject of Common Carriers are new and were taken from Anglo-
American Law. There, the basis of the carrier’s liability for assaults on passengers committed by its drivers
rests either on (1) the doctrine of respondent superior or (2) the principle that it is the carrier’s implied duty to
transport the passenger safely.

5. Doctrine of respondent superior

 Under the Doctrine of Respondent Superior, which is the minority view, the carrier is liable only
when the act of the employee is within the scope of his authority and duty. It is not sufficient that the act be
within the course of employment only.

6. Principle of Carrier’s implied duty to transport the passenger safely

Under the principle that it is the carrier’s implied duty to transport the passenger safely, upheld by the
majority and also by the later cases, it is enough that the assault happens within the course of the employee’s
duty. It is no defense for the carrier that the act was done in excess of authority or in disobedience of the
carrier’s orders. The carrier’s liability here is absolute in the sense that it practically secures the passengers
from assaults committed by its own employees.

7. Article 1759 NCC follows the rule based on the view that it is carrier’s implied duty to
transport the passenger safely; Reasons (see Texas Midland R.R. vs. Monroe, 110 Tex. 97, 216 S.W. 388,
389-390 and Haver vs. Central Railroad Co., 43 LRA 84, 85)
As can be gleaned from Article 1759, the Civil Code of the Philippines evidently follows the rule
based on the view that it is carrier’s implied duty to transport the passenger safely. At least three very cogent
reasons underlie this rule: (1) the special undertaking of the carrier requires that it furnish its passenger that
full measure of protection afforded by the exercise of the high degree of care prescribed by the law, inter alia
from violence and insults at the hands of strangers and other passengers, but above all, from the acts of the
carrier’s own servants charged with the passenger’s safety; (2) said liability of the carrier for the servant’s
violation of duty to passengers, is the result of the former’s confiding in the servant’s hands the performance
of his contract to safely transport the passenger, delegating therewith the duty of protecting the passenger with
the utmost care prescribed by law; and (3) as between the carrier and the passenger, the former must bear the
risk of wrongful acts or negligence of the carrier’s employees against passengers, since it, and not the
passengers, has power to select and remove them.

8. Carrier’s strict obligation to select its drivers

It is the carrier’s strict obligation to select its drivers and similar employees with due regard not only
to their technical competence and physical ability, but also, no less important, to their total personality,
including their patterns of behavior, moral fibers, and social attitude.

9. Action predicated on breach of contract of carriage where the cab driver was not a party
thereto
The dismissal of the claim against the driver was correct. Maranan’s action was predicated on breach
of contract of carriage and the cab driver was not a party thereto. His civil liability is covered in the criminal
case wherein he was convicted by final judgment.

10. Award of compensatory damages

In connection with the award of damages, the lower court granted only P3,000, which is the minimum
compensatory damages amount recoverable under Article 1764 in connection with Article 2206 of the Civil
Code when a breach of contract results in the passenger’s death. As has been the policy followed by the
Court, this minimal award should be increased to P6,000.

11. No award of actual damages

As to other alleged actual damages, the lower court’s finding that Maranan’s evidence thereon was
not convincing and should not be disturbed.

12. Award of moral damages

Articles 2206 and 1764 award moral damages in addition to compensatory damages, to the parents of
the passenger killed to compensate for the mental anguish they suffered. A claim therefor having been
properly made, it becomes the court’s duty to award moral damages. Maranan demands P5,000 as moral
damages; however, in the circumstances, the Court considers P3,000 moral damages, in addition to the P6,000
compensatory damages as sufficient.

[91]

Lasam vs. Smith (GR 19495, 2 February 1924)

First Division, Ostrand (J): 5 concur

Facts: On 27 February 1918, Frank Smith Jr. was of San Fernando, La Union, and engaged in the business of
carrying passengers for hire from one point to another in the Province of La Union and the surrounding
provinces. On the date mentioned, he undertook to convey Honrion Lasam and Joaquina Sanchez-Lasam
from San Fernando to Currimao, Ilocos Norte, in a Ford automobile. On leaving San Fernando, the
automobile was operated by a licensed chauffeur, but after having reached the town of San Juan, the
chauffeur allowed his assistant, Remigio Bueno, to drive the car. Bueno held to driver’s license, but had some
experience in driving, and with the exception of some slight engine trouble while passing through the town of
Luna, the car functioned well until after the crossing of the Abra River in Tagudin, when defects developed in
the steering gear so as to make accurate steering impossible, and after zigzagging for a distance of about half
a kilometer, the car left the road and went down a steep embankment. In going over the bank of the road, the
automobile was overturned and the spouses pinned down under it. Mr. Lasam escaped with a few contusions
and a “dislocated” rib, but his wife, Joaquina Sanchez, received serious injuries, among which was a
compound fracture of one of the bones in her left wrist. She also appears to have suffered a nervous
breakdown from which she had not fully recovered at the time of the trial.

The Spouses brought the action, one and a half year after the occurrence, to recover damages in the sum of
P20,000 for physical injuries sustained by them in an automobile accident. The trial court rendered a
judgment in their favor for the sum of P1,254.10, with legal interest from the date of the judgment. Both the
spouses and Smith appealed, the former maintaining that the damages awarded are insufficient while the latter
denies all liability for any damages whatever.

The Supreme Court affirmed the judgment appealed from, without costs.

1. Articles 1101 to 1107 NCC, not Article 1903, applicable

The cause of action rests on Smith’s breach of the contract of carriage and that, consequently, articles
1101-1107 of the Civil Code, and not article 1903, are applicable. Herein, the source of Smith’s legal liability
is the contract of carriage; the by entering into that contract he bound himself to carry the spouses safely and
securely to their destination; and that having failed to do so he is liable in damages unless he shows that the
failure to fulfill his obligation was due to causes mentioned in article 1105 of the Civil Code

2. Cases distinguishing extra-contractual and contractual liabilities

Upon the facts stated, the defendant’s liability, if any, is contractual, is well settled by previous
decisions of the court, beginning with the case of Rakes vs. Atlantic, Gulf & Pacific Co. (7 Phil., 359), and
the distinction between extra-contractual liability and contractual liability has been so ably and exhaustively
discussed in various other cases, that nothing further need be said upon that subject. (See Cangco vs. Manila
Railroad Co. 38 Phil., 768; Manila Railroad Co. Compania Trasatlantica and Atlantic, Gulf & Pacific Co., 38
Phil., 875; De Guia vs. Manila Electric Railroad & Light )

3. Article 1105 NCC

Article 1105 reads as “no one shall be liable for events which could not be foreseen or which, even if
foreseen, were inevitable, with the exception of the cases in which the law expressly provides otherwise and
those in which the obligation itself imposes such liability.”
4. Caso fortuito, “events which cannot be foreseen and which having been foreseen, are
inevitable”; Spanish construction
The Spanish authorities regard the language employed as an effort to define the term caso fortuito
and hold that the two expressions are synonymous. (Manresa, Comentarios al Co Civil Español, vol. 8, pp. 88
et seq.; Scaevola, Codigo Civil, vol. 19, pp. 526 et seq.)

5. Article 1105’s antecedent: Law II, Title 33, Partida 7

The antecedent to article 1105 is found in Law 11, Title 33, Partida 7, which defines caso fortuito as
“ocasion que acaese por aventura deque non se puede ante ver. E son estos, derrivamientos de casas e fuego
que se enciende so ora, e quebrantamiento de navio, fuerca de ladrones ( An event that takes place by
accident and could not have been foreseen, Examples of this are destruction of houses, unexpected fire,
shipwreck, violence of robbers )”

6. Caso fortuito defined; Escriche

Escriche defines caso fortuito as “an unexpected event such as floods, torrents, shipwrecks,
conflagrations, lightning, compulsion, insurrections, destruction of buildings by unforeseen accidents and
other occurrences of a similar nature.”

7. Caso fortuito defined; Enciclopedia Juridica Espanola

In discussing and analyzing the term caso fortuito the Enciclopedia Juridica Española says: “ In a
legal sense and, consequently, also in relation to contracts, a caso fortuito presents the following essential
characteristics: (1) The cause of the unforeseen and unexpected occurrence, or of the failure of the debtor to
comply with his obligation, must be independent of the human will. (2) It must be impossible to foresee the
event which constitutes the caso fortuito, or if it can be foreseen, it must be impossible to avoid. (3) The
occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner.
And (4) the obligor (debtor) must be free from any participation in the aggravation of the injury resulting to
the creditor.” (5 Enciclopedia Juridica Española, 309.)

8. Extraordinary circumstance independent of obligor’s will an essential element of caso fortuito

Authorities agree that some extraordinary circumstance independent of the will of the obligor, or of
his employees, is an essential element of a caso fortuito. Herein, it is at once apparent that this elements is
lacking. It is not suggested that the accident in question was due to an act of God or to adverse road
conditions which could not have been foreseen. As far as the record shows, the accident was caused either by
defects in the automobile or else through the negligence of its driver. That is not a caso fortuito.

9. Carrier of passenger not an absolute insurer against risks of travel; However, Alba vs. Sociedad
Anonima de Tranvias does not apply
Neither under the American nor Spanish law is a carrier of passengers an absolute insurer against the
risks of travel from which the passenger may protect himself by exercising ordinary care and diligence. The
case of Alba vs. Sociedad Anonima de Tranvias, Jurisprudencia Civil, vol. 102, p. 928 affords a good
illustration of the application of this principle. In that case Alba, a passenger on a street car, was standing on
the platform of the car while it was in motion. The car rounded a curve causing Alba to lose his balance and
fall off the platform, sustaining sever injuries. In an action brought by him to recover damages, the supreme
court of Spain held that inasmuch as the car at the time of the accident was travelling at a moderate rate of
speed and there was no infraction of the regulations, and the plaintiff was exposed to no greater danger than
that inherent in that particular mode of travel, the plaintiff could not recover, especially so since he should
have been on his guard against a contingency as natural as that of losing his balance to a greater or less extent
when the car rounded the curve. Herein, however, the passengers had no means of avoiding the danger or
escaping the injury.

10. Discretion of the court to moderate liability according to circumstances

 Although the expenses incurred by the spouses as a result of the accident greatly exceeded the
amount of the damages awarded, the courts have “ a discretionary power to moderate the liability according
to the circumstances” especially in determining the extent of the liability for losses or damages resulting from
negligence in the fulfillment of a contractual obligation. The Court does not think that the evidence is such as
to justify in interfering with the discretion of the court below in this respect. Herein, by far the greater part of
the damages claimed by the spouses resulted from the fracture of a bone in the left wrist of Joaquina Sanchez
and from her objections to having a decaying splinter of the bone refusal to submit to such an operation, a
series of infections ensued and which required constant and expensive medical treatment for several years.

[92], also [186]

Sweet Lines vs. CA (GR L-46340, 28 April 1983)

First Division, Melencio-Herrera (J): 5 concur

Facts: Micaela B. Quintos, Fr. Jose Bacatan SJ, Marciano Cabras and Andrea Veloso purchased first-class
tickets from Sweet Lines Inc. at the latter’s office in Cebu City. They were to board Sweet Lines’ vessel, M/V
Sweet Grace, bound for Catbalogan, Western Samar. Instead of departing at the scheduled hour of about
midnight on 8 July 1972, the vessel set sail at 3:00 A.M. of 9 July 1972 only to be towed back to Cebu due to
engine trouble, arriving there at about 4:00 P.M. on the same day. Repairs having been accomplished, the
vessel lifted anchor again on 10 July 1972 at around 8:00 A.M. Instead of docking at Catbalogan, which was
the first port of call, the vessel proceeded direct to Tacloban at around 9:00 P.M. of 10 July 1972. Quintos, et.
al. had no recourse but to disembark and board a ferryboat to Catbalogan.

Hence, a suit for damages for breach of contract of carriage was filed by Quintos, et. al., where the Trial Court
(CFI Cebu, Branch VIII) ordered Sweet Lines to pay the former to pay (1) P75,000.00 as moral damages
divided as follows: P30,000.00 for Mrs. Micaela B. Quintos, P25,000.00 for Jesuit Father Jose Bacatan;
P10,000.00 for Mrs. Andrea Veloso and P10,000.00 for Mike Cabras; (2) P30,000.00 as exemplary or
corrective damages; (3) Interest at the legal rate of 6% per annum on the moral and exemplary damages as set
forth above from the date of this decision until said damages are fully paid; (4) P5,000.00 as attorney’s fees;
and (5) The costs. The court also dismissed the counterclaim.

The decision of the trial court was affirmed by the Appellate Court. Hence, the appeal.

The Supreme Court modified the judgment appealed from to the effect that Sweet Lines was sentenced to
indemnify Quintos, et. al. in the sum of P3,000.00 each, without interest, plus P1,250.00, each, by way of
attorney’s fees and litigation expenses; with costs against Sweet Lines.

1. Article 614, Code of Commerce

Article 614 of the Code of Commerce provides that “a captain who, having agreed to make a voyage,
fails to fulfill his undertaking, without being prevented by fortuitous event or force majeure, shall indemnify
all the losses which his failure may cause, without prejudice to criminal penalties which may be proper.”

2. Article 698, Code of Commerce

Article 698 of the Code of Commerce provides that “in case of interruption of a voyage already
begun, the passengers shall only be obliged to pay the fare in proportion to the distance covered, without right
to recover damages if the interruption is due to fortuitous event or force majeure, but with a right to
indemnity, if the interruption should have been caused by the captain exclusively. If the interruption should
be caused by the disability of the vessel, and the passenger should agree to wait for her repairs, he may not be
required to pay any increased fare of passage, but his living expenses during the delay shall be for his own
account.”
3. Fortuitous event not present
The crucial factor in Articles 614 and 698 is the existence of a fortuitous event or force majeure.
Without it, the right to damages and indemnity exists against a captain who fails to fulfill his undertaking or
where the interruption has been caused by the captain exclusively. Herein, there was no fortuitous event or
force majeure which prevented the vessel from fulfilling its undertaking of taking private respondents to
Catbalogan. In the first place, mechanical defects in the carrier are not considered a caso fortuito that exempts
the carrier from responsibility.

4. Arguendo that engine failure is fortuitous event, there was no fortuitous event to bypass a port
of call
In the second place, even granting arguendo that the engine failure was a fortuitous event, it
accounted only for the delay in departure. When the vessel finally left the port of Cebu on 10 July 1972, there
was no longer any force majeure that justified by-passing a port of call. The vessel was completely repaired
the following day after it was towed back to Cebu. In fact, after docking at Tacloban City, it left the next day
for Manila to complete its voyage.

5. Reason why Catbalogan was bypassed

The reason for by-passing the port of Catbalogan was to enable the vessel to catch up with its
schedule for the next week. There were 50 passengers for Tacloban compared to 20 passengers for
Catbalogan, so that the Catbalogan phase could be scrapped without too much loss for the company.

6. Conditions in the carrier’s ticket cannot prevail over Articles 614 and 698
The carrier cannot rely on the conditions in small bold print at the back of the ticket reading: “The
passenger’s acceptance of this ticket shall be considered as an acceptance of the following conditions: (3) In
case the vessel cannot continue or complete the trip for any cause whatsoever, the carrier reserves the right to
bring the passenger to his/her destination at the expense of the carrier or to cancel the ticket and refund the
passenger the value of his/her ticket; xxx (11) The sailing schedule of the vessel for which this ticket was
issued is subject to change without previous notice.” Herein, the carrier did not comply with the same. It did
not cancel the ticket nor did it refund the value of the tickets to its affected passengers. Besides, it was not the
vessel’s sailing schedule that was involved. The passengers’ complaint is directed not at the delayed departure
the next day but at the by-passing of Catbalogan, their destination. Furthermore, the conditions relied upon
by the carrrier cannot prevail over Articles 614 and 698 of the Code of Commerce heretofore quoted.

7. Owner of vessel and shipagent civilly liable for acts of the captain
The voyage to Catbalogan was “interrupted” by the captain upon instruction of management. The
“interruption” was not due to fortuitous event or for majeure nor to disability of the vessel. Having been
caused by the captain upon instruction of management, the passengers’ right to indemnity is evident. The
owner of a vessel and the ship agent shall be civilly liable for the acts of the captain.

8. Bad faith defined

Bad faith means a breach of a known duty through some motive or interest or illwill. Self-enrichment
or fraternal interest, and not personal illwill, may have been the motive, but it is malice nevertheless.

9. Bad faith present; Findings of the lower courts as to facts conclusive upon the Supreme Court
Both the Trial Court and the Appellate Court found that there was bad faith on the part of the carrier
in that: (1) Defendants-appellants did not give notice to plaintiffs-appellees as to the change of schedule of the
vessel; (2) Knowing fully well that it would take no less than fifteen hours to effect the repairs of the
damaged engine, defendants-appellants instead made announcement of assurance that the vessel would leave
within a short period of time, and when plaintiffs-appellees wanted to leave the port and gave up the trip,
defendants- appellants’ employees would come and say, ‘we are leaving, already.’ (3) Defendants-appellants
did not offer to refund plaintiffs-appellees’ tickets nor provide them with transportation from Tacloban City to
Catbalogan.
That finding of bad faith is binding on us, since it is not the function of the Court to analyze and review
evidence on this point all over again.

10. Moral damages due; Award of the lower court excessive

Under Article 2220 of the Civil Code, moral damages are justly due in breaches of contract where the
defendant acted fraudulently or in bad faith. Herein, however, under the circumstances, the award of moral
damages is excessive and accordingly should be reduced to P3,000.00, respectively, for each of the claimants.

11. Award of attorney’s fees justified

The total award of attorney’s fees of P5,000.00 is in order considering that the case has reached the
Supreme Court.

12. Award of exemplary damages at court’s discretion

Insofar as exemplary damages are concerned, although there was bad faith, the Court was not
inclined to grant them in addition to moral damages. Exemplary damages cannot be recovered as a matter of
right; the Court decides whether or not they should be adjudicated. The objective to meet its schedule might
have been called for, but the carrier should have taken the necessary steps for the protection of its passengers
under its contract of carriage.

13. Article 2215 (2) NCC inapplicable

Article 2215(2) of the Civil Code invoked by the carrier is in-applicable herein. The harm done to
private respondents outweighs any benefits they may have derived from being transported to Tacloban
instead of being taken to Catbalogan, their destination and the vessel’s first port of call, pursuant to its normal
schedule.

[94]

Magboo vs. Bernardo (GR L-16790, 30 April 1963)

En Banc, Makalintal (J): 8 concur, 1 took no part

Facts: Urbano and Emilia Magboo are the parents of Cesar Magboo, a child of 8 years old, who lived with
them and was under their custody until his death on 24 October 1956 when he was killed in a motor vehicle
accident, the fatal vehicle being a passenger jeepney with Plate AC-1963 (56) owned by Delfin Bernardo. At
the time of the accident, said passenger jeepney was driven by Conrado Roque. The contract between Roque
and Bernardo was that Roque was to pay to Bernardo the sum of P8.00, which he paid to Bernardo, for
privilege of driving the jeepney on 24 October 1956, it being their agreement that whatever earnings Roque
could make out of the use of the jeepney in transporting passengers from one point to another in the City of
Manila would belong entirely to Roque. As a consequence of the accident and as a result of the death of Cesar
Magboo in said accident, Roque was prosecuted for homicide thru reckless imprudence before the CDI of
Manila (Criminal Case 37736), and that upon arraignment Roque pleaded guilty to the information and was
sentenced to 6 months of arresto mayor, with the accessory penalties of the law; to indemnify the heirs of the
deceased in the sum of P3,000.00, with subsidiary imprisonment in case of insolvency, and to pay the costs.
Pursuant to said judgment Roque served his sentence but he was not able to pay the indemnity because he was
insolvent.

An action was filed by the spouses Magboo against Bernardo is for enforcement of his subsidiary liability as
employer in accordance with Article 103, Revised Penal Code. The trial court (CFI of Manila) ordered
Bernardo to pay the spouses P3,000.00 and costs. Bernardo appealed to the Court of Appeals, which certified
the case to the Supreme Court on the ground that only questions of law are involved.

The Supreme Court affirmed the judgment appealed from, with costs against Bernardo.
1. Boundary system; Employer-Employee relationship exists; NLU vs. Dinglasan as cited in Doce
vs. WCC
In National Labor Union vs. Dinglasan, 52 O.G. No. 4, 1933, it was held that the features which
characterize the “boundary system” — namely, the fact that the driver does not receive a fixed wage but gets
only the excess of the amount of fares collected by him over the amount he pays to the jeep-owner, and that
the gasoline consumed by the jeep is for the account of the driver — are not sufficient to withdraw the
relationship between them from that of the employer and employee. The ruling was subsequently cited and
applied in Doce vs. Workmen’s Compensation Commission, L9417, 22 December 1958, which involved the
liability of a bus owner for injury compensation to a conductor working under the “boundary system.”

2. Principle applied in negligence cases concerning right of third parties to recover damages for
injuries sustained
The same principle applies with greater reason in negligence cases concerning the right of third
parties to recover damages for injuries sustained. In Montoya vs. Ignacio, L-5868, December 29, 1953, the
owner and operator of a passenger jeepney leased it to another, but without the approval of the Public Service
Commission. In a subsequent collision a passenger died. The Court ruled that since the lease was made
without such approval, which was required by law, the owner continued to be the operator of the vehicle in
legal contemplation and as such was responsible for the consequences incident to its operation. The same
responsibility was held to attach in a case where the injured party was not a passenger but a third person, who
sued on the theory of culpa aquiliana (Timbol vs. Osias, L-7547, April 30, 1955). There is no reason why a
different rule should be applied in a subsidiary liability case under Article 103 of the Revised Penal Code. As
in the existence of an employer-employee relationship between the owner of the vehicle and the driver.
Indeed to exempt from liability the owner of a public vehicle who operates it under the “boundary system” on
the ground that he is a mere lessor would be not only to abet flagrant violations of the Public Service Law but
also to place the riding public at the mercy of reckless and irresponsible drivers — reckless because the
measure of their earnings depends largely upon the number of trips they make and, hence, the speed at which
they drive; and irresponsible because most if not all of them are in no position to pay the damages they might
cause. (See Erezo vs. Jepte, L-9605, September 30, 1957).

3. Bernardo did not aid Roque in criminal case, cannot escape subsidiary liability as provided by
Article 103 RPC
With respect to Bernardo’s contention that he was taken unaware by the spontaneous plea of guilt
entered by Roque, and that he did not have a chance to prove the innocence of Roque, the Court holds that at
this stage, it is already too late to try the criminal case all over again. His allegation that he relied on his belief
that Roque would defend himself and they had sufficient proof to show that Roque was not guilty of the crime
charged cannot be entertained. He should have taken it to himself to aid in the defense of Roque. Having
failed to take this step and the accused having been declared guilty by final judgment of the crime of
homicide thru reckless imprudence, there appears no more way for him to escape his subsidiary liability as
provided for in Article 103 of the Revised Penal Code.

[95]

Isaac vs. AL Ammen Transportation (GR L-9671, 23 August 1957)

En Banc, Bengzon (J): 9 concur

Facts: A. L. Ammen Transportation Co., Inc. is a corporation engaged in the business of transporting
passengers by land for compensation in the Bicol provinces and one of the lines it operates is the one
connecting Legaspi City, Albay with Naga City, Camarines Sur. One of the buses which Ammen
Transportation was operating is Bus 31. On 31 May 1951, Cesar L. Isaac boarded said bus as a passenger
paying the required fare from Ligao, Albay bound for Pili, Camarines Sur, but before reaching his destination,
the bus collided with a motor vehicle of the pick-up type coming from the opposite direction, as a result of
which Isaac’s left arm was completely severed and the severed portion fell inside the bus. Isaac was rushed to
a hospital in Iriga, Camarines Sur where he was given blood transfusion to save his life. After 4 days, he was
transferred to another hospital in Tabaco, Albay, where he underwent treatment for 3 months. He was moved
later to the Orthopedic Hospital where he was operated on and stayed there for another 2 months. For these
services, he incurred expenses amounting to P623.40, excluding medical fees which were paid by Ammen
Transporation.

As an aftermath, Isaac brought an action against Ammen Transportation for damages alleging that the
collision which resulted in the loss of his left arm was mainly due to the gross incompetence and recklessness
of the driver of the bus operated by Ammen Transportation and that Ammen Transporation incurred in culpa
contractual arising from its non-compliance with its obligation to transport Isaac safely to his destination.
Ammen Transportation set up as special defense that the injury suffered by Isaac was due entirely to the fault
or negligence of the driver of the pick-up car which collided with the bus driven by its driver and to the
contributory negligence of Isaac himself. The court after trial found that the collision occurred due to the
negligence of the driver of the pick-up car and not to that of the driver of the bus it appearing that the latter
did everything he could to avoid the same but that notwithstanding his efforts, he was not able to avoid it. As
a consequence, the court dismissed the complaint, with costs against Isaac. Isaac appealed.

The Supreme Court affirmed the decision appealed from, with costs against Isaac.

1. Article 1733 NCC

Article 1733 of the Civil Code provides that “Common carriers, from the nature of their business and
for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and
for the safety of the passengers transported by them according to all the circumstances of each case. Such
extraordinary diligence in the vigilance over the goods is further expressed in articles 1734, 1735, and 1745,
Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the passengers is further set forth in
articles 1755 and 1756.”

2. Article 1755 NCC

Article 1755 of the Civil Code provides that “A common carrier is bound to carry the passengers
safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons,
with a due regard for all the circumstances.”

3. Article 1756 NCC

Article 1756 of the Civil Code provides that “In case of death of or injuries to passengers, common
carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as prescribed in articles 1733 and 1755.”

4. Rationale for extraordinary diligence requirement for a common carrier

The Code Commission, in justifying this extraordinary diligence required of a common carrier, said
“A common carrier is bound to carry the passengers safely as far as human care and foresight can provide,
using the utmost diligence of very cautious persons, with due regard for all circumstances. This extraordinary
diligence required of common carriers is calculated to protect the passengers from the tragic mishaps that
frequently occur in connection with rapid modern transportation. This high standard of care is imperatively
demanded by the preciousness of human life and by the consideration that every person must in every way be
safeguarded against all injury. “

5. Principles governing liability of a common carrier

From the legal provisions, the following restatement of the principles governing the liability of a
common carrier can be made: (1) the liability of a carrier is contractual and arises upon breach of its
obligation. There is breach if it fails to exert extraordinary diligence according to all the circumstances of
each case; (2) a carrier is obliged to carry its passenger with the utmost diligence of a very cautious person,
having due regard for all the circumstances; (3) a carrier is presumed to be at fault or to have acted
negligently in case of death of, or injury to, passengers, it being its duty to prove that it exercised
extraordinary diligence; and (4) the carrier is not an insurer against all risks of travel.

6. Facts; Bus running at moderate speed, swerved to avoid reckless pick-up car
Herein, Bus 31, immediately prior to the collision, was running at a moderate speed because it had
just stopped at the school zone of Matacong, Polangui, Albay. The pick-up car was at full speed and was
running outside of its proper lane. The driver of the bus, upon seeing the manner in which the pick-up was
then running, swerved the bus to the very extreme right of the road until its front and rear wheels have gone
over the pile of stones or gravel situated on the rampart of the road. Said driver could not move the bus farther
right and run over a greater portion of the pile, the peak of which was about 3 feet high, without endangering
the safety of his passengers. And notwithstanding all these efforts, the rear left side of the bus was hit by the
pick-up car.

7. Coolness and accuracy of judgment required in ordinary circumstances cannot be expected in

sudden emergency; Acts of a prudent man in situation done
While the position taken by Isaac, i.e. that the driver of the bus should have stopped the bus to allow
the other vehicle to pass rather than squeezing between the oncoming pick-up and the pile of gravel, appeals
more to the sense of caution that one should observe in a given situation to avoid an accident or mishap, such
however can not always be expected from one who is placed suddenly in a predicament where he is not given
enough time to take the proper course of action as he should under ordinary circumstances. One who is placed
in such a predicament cannot exercise such coolness or accuracy of judgment as is required of him under
ordinary circumstances and he cannot therefore be expected to observe the same judgment, care and
precaution as in the latter. For this reason, authorities abound where failure to observe the same degree of care
that as ordinary prudent man would exercise under ordinary circumstances when confronted with a sudden
emergency was held to be warranted and a justification to exempt the carrier from liability. Thus, it was held
that “where a carrier’s employee is confronted with a sudden emergency, the fact that he is obliged to act
quickly and without a chance for deliberation must be taken into account, and he is not held to the same
degree of care that he would otherwise be required to exercise in the absence of such emergency but must
exercise only such care as any ordinary prudent person would exercise under like circumstances and
conditions, and the failure on his part to exercise the best judgment the case renders possible does not
establish lack of care and skill on his part which renders the company, liable. “ Considering all the
circumstances, the driver of the bus has done what a prudent man could have done to avoid the collision and
this relieves the transport company from liability under the law.

8. Isaac guilty of contributory negligence

Herein, when Isaac boarded the bus in question, he seated himself on the left side thereof resting his
left arm on the window sill but with his left elbow outside the window, this being his position in the bus when
the collision took place. It is for this reason that the collision resulted in the severance of said left arm from
the body of appellant thus doing him a great damage. Had he not placed his left arm on the window sill with a
portion thereof protruding outside, perhaps the injury would have been avoided as is the case with the other
passengers. It is to be noted that Isaac was the only victim of the collision. It is apparent that Isaac is guilty of
contributory negligence.

9. No recovery due to negligence by passenger

Although contributory negligence cannot relieve the carrier of its liability but will only entitle it to a
reduction of the amount of damage caused (Article 1762, new Civil Code), this is a circumstance which
further militates against the position taken by Isaac in this case. It is the prevailing rule that it is negligence
per se for a passenger on a railroad voluntarily or inadvertently to protrude his arm, hand, elbow, or any other
part of his body through the window of a moving car beyond the outer edge of the window or outer surface of
the car, so as to come in contact with objects or obstacles near the track, and that no recovery can be had for
an injury which but for such negligence would not have been sustained.

[96]

Sanez vs. Samala

[97]

Panay Autobus vs. Pastor (GR 47933, 29 July 1942)

En Banc, Moran (J): 4 concur

Facts: Early in the morning of 11 February 1938, Concepcion Gallopin (+), with her daughter-in-law,
Carmen Areda, left Estancia, Iloilo, for the City of Iloilo on truck 408 of Panay Autobus Company, Inc.,
driven by one Felicisimo Tilos. Gallopin and Areda were seated at the extreme right of the second bench
behind the driver’s seat. In the course of transit, Gallopin stretched her right arm beyond the railing of the
bus, apparently pointing to her companion the rice fields yonder. This arm was caught and broken by another
truck driven by one Francisco Yap coming closely from the opposite direction. Whether Gallopin stretched
her right arm at the precise moment that the two buses were about to cross each other or sometime prior
thereto, and how close the two busses were to each other, the record does not disclose. Her wrist bled
profusely and notwithstanding medical treatment at the Maternity Hospital at Sara and Mission Hospital at
Jaro, Iloilo, where she was brought after the accident, she died the following day, undoubtedly as a result of
hemorrhage and severe shock.

Crisanta, Salome, and Jose, all surnamed Pastor, as heirs of the deceased, instituted in the court below an
action against Panay Autobus as owner of truck 408, seeking to recover damages in the sum of P8,200 for the
death of their mother. Panay Autobus having been absolved of the complaint, the heirs of Pastor appealed to
the Court of Appeals where the judgment of the trial court was reversed and another entered in their favor
awarding them damages in the sum of P2,000. Hence, the appeal by certiorari by Panay Autobus.

The Supreme Court reversed the judgment, and absolved Panay Autobus, without costs.

No negligence on part of Panay Autobus; Act of deceased the proximate cause of injury
Driving at an appropriate speed, almost at the middle of a six-meter highway which, at the time of the
accident, was without traffic, is not negligence. Independently of the act of the deceased in stretching her
right arm beyond the railing of the bus, the manner the bus was driven could not have produced the injury.
Petitioner’s driver at the time that the other bus was passing closely from the opposite direction, did not know
that the deceased’s arm was extended beyond the railing of the bus. He has the right to assume that all his
passengers are taking the usual precaution for their own safety. If, without such knowledge of the position of
the deceased and on the assurance of such assumption, the chauffeur drives his bus at a reasonably safe
distance from that coming from the opposite direction, and one of his passengers suffers an injury, the
negligence cannot be attributed to him. In other words, the act performed by the deceased at the time the
accident occurred must be regarded as the proximate cause of the injury.

[98]

Del Prado vs. Meralco (GR 29462, 7 March 1929)

En Banc, Street (J): 5 concur
Facts: The Manila Electric Company, is engaged in operating street cars in the City of Manila for the
conveyance of passengers; and on the morning of 18 November 1925, one Teodorico Florenciano, as
Meralco’s motorman, was in charge of car 74 running from east to west on R. Hidalgo Street, the scene of the
accident being at a point near the intersection of said street and Mendoza Street. After the car had stopped at
its appointed place for taking on and letting off passengers, just east of the intersection, it resumed its course
at a moderate speed under the guidance of the motorman. The car had proceeded only a short distance,
however, when Ignacio del Prado ran across the street to catch the car, his approach being made from the left.
The car was of the kind having entrance and exit at either end, and the movement of del Prado was so timed
that he arrived at the front entrance of the car at the moment when the car was passing. Del Prado, upon
approaching the car, raised his hand as an indication to the motorman of his desire to board the car, in
response to which the motorman eased up a little, without stopping. Upon this, del Prado seized, with his left
hand, the front perpendicular handpost, at the same time placing his left foot upon the platform. However,
before del Prado’s position had become secure, and even before his raised right foot had reached the platform,
the motorman applied the power, with the result that the car gave a slight lurch forward. This sudden impulse
to the car caused del Prado’s foot to slip, and his hand was jerked loose from the handpost. He therefore fell to
the ground, and his right foot was caught and crushed by the moving car. The next day the member had to be
amputated in the hospital.

An action was instituted in the CFI of Manila by Ignacio del Prado to recover damages in the amount of
P50,000 for personal injuries alleged to have been caused by the negligence of Meralco in the operation of
one of its street cars in the City of Manila. Upon hearing the cause the trial court awarded to del Prado the
sum of P10,000, as damages, with costs of suit. Meralco appealed.

The Supreme Court affirmed the appealed judgment with the modification that the sum to be recovered
reduced to P2,500; with costs against Meralco.

1. No obligation on the part of a street railway company to stop cars at points other than
appointed for stoppage
There is no obligation on the part of a street railway company to stop its cars to let on intending
passengers at other points than those appointed for stoppage. It would be impossible to operate a system of
street cars if a company engaged in this business were required to stop any and everywhere to take on people
who are too indolent, or who imagine themselves to be in too great a hurry, to go to the proper places for
boarding the cars.

2. Duty of the motorman of the car

Although the motorman of the car was not bound to stop to let the passenger on, it was his duty to do
no act that would have the effect of increasing the passenger’s peril while he was attempting to board the car.
The premature acceleration of the car was a breach of this duty.

3. Nature of relation between a carrier of passengers for hire and its patrons; Duty of the carrier
The relation between a carrier of passengers for hire and its patrons is of a contractual nature; and a
failure on the part of the carrier to use due care in carrying its passengers safely is a breach of duty (culpa
contractual) under articles 1101, 1103, and 1104 of the Civil Code. Furthermore, the duty that the carrier of
passengers owes to its patrons extends to persons boarding the cars as well as to those alighting therefrom.

4. Cangco vs. Manila Railroad; Culpa Contractual

The case of Cangco vs. Manila Railroad Co. (38 Phil., 768), supplies an instance of the violation of
the duty with respect to a passenger who was getting off of a train. In that case, the plaintiff stepped off of a
moving train, while it was slowing down in a station, and at a time when it was too dark for him to see clearly
where he was putting his feet. The employees of the company had carelessly left watermelons on the platform
at the place where the plaintiff alighted, with the result that his feet slipped and he fell under the car, where
his right arm was badly injured. This court held that the railroad company was liable for breach of positive
duty (culpa contractual), and the plaintiff was awarded damages in the amount of P2,500 for the loss of his
arm. In the opinion in that case the distinction is clearly drawn between a liability for negligence arising from
breach of contractual duty and that arising under articles 1902 and 1903 of the Civil Code (culpa aquiliana).

5. Relevance of distinction between Culpa Contractual and Culpa Aquiliana as to defenses

available
The distinction between the two sorts of negligence is important in this jurisdiction, for the reason
that where liability arises from a mere tort (culpa aquiliana), not involving a breach of positive obligation, an
employer, or master, may exculpate himself, under the last paragraph of article 1903 of the Civil Code, by
proving that he had exercised due diligence to prevent the damage; whereas this defense is not available if the
liability of the master arises from a breach of contractual duty (culpa contractual).

6. Training of motorman irrelevant in breach of obligation under Article 1101 of the Civil Code
Herein, the company pleaded as a special defense that it had used all the diligence of a good father of
a family to prevent the damage suffered by del Prado; and to establish this contention the company introduced
testimony showing that due care had been used in training and instructing the motorman in charge of this car
in his art. This proof is irrelevant in view of the fact that the liability involved was derived from a breach of
obligation under article 1101 of the Civil Code and related provisions.

7. Relevance of distinction between negligence arising under Article 1902 and 1101 as to
mitigation of liability
Another practical difference between liability for negligence arising under article 1902 of the Civil
Code and liability arising from negligence in the performance of a positive duty, under article 1101 and
related provisions of the Civil Code, is that, in dealing with the latter form of negligence, the court is given a
discretion to mitigate liability according to the circumstances of the case (art 1103). No such general
discretion is given by the Code in dealing with liability arising under article 1902; though possibly the same
end is reached by courts in dealing with the latter form of liability because of the latitude of the
considerations pertinent to cases arising under this article.

8. Contributory negligence a mitigating circumstance under Article 1103 Civil Code

As to the contributory negligence of del Prado, as in Rakes vs. Atlantic, Gulf and Pacific Co. (7 Phil.,
359), it is treated as a mitigating circumstance under article 1103 of the Civil Code. Herein, the negligence of
del Prado was contributory to the accident and must be considered as a mitigating circumstance.

9. Proximate cause of the accident

Del Prado’s negligence in attempting to board the moving car was not the proximate cause of the
injury. The direct and proximate cause of the injury was the act of Meralco’s motorman in putting on the
power prematurely. A person boarding a moving car must be taken to assume the risk of injury from boarding
the car under the conditions open to his view, but he cannot fairly be held to assume the risk that the
motorman, having the situation in view, will increase his peril by accelerating the speed of the car before he is
planted safely on the platform. Again, the situation is one where the negligent act of the company’s servant
succeeded the negligent act of the passenger, and the negligence of the company must be considered the
proximate cause of the injury.

10. Rule analogous to the doctrine of “the last clear chance”

The rule applicable seems to be analogous to, if not identical with that which is sometimes referred to
as the doctrine of “the last clear chance.” In accordance with this doctrine, the contributory negligence of the
party injured will not defeat the action if it be shown that the defendant might, by the exercise of reasonable
care and prudence, have avoided the consequences of the negligence of the injured party.
11. Award of damage
With respect to the effect of this injury upon del Prado’s earning power, although he lost his foot, he
is able to use an artificial member without great inconvenience and his earning capacity has probably not been
reduced by more than 30%. In view of the precedents found in the Court’s decisions with respect to the
damages that ought to be awarded for the loss of a limb, and more particularly Rakes vs. Atlantic, Gulf and
Pacific Co. (7 Phil., 359); Cangco vs. Manila Railroad Co. (38 Phil., 768); and Borromeo vs. Manila Electric
Railroad and Light Co. (44 Phil., 165), and in view of all the circumstances connected with the case, the
Court is of the opinion that del Prado will be adequately compensated by an award of P2,500.

[99]

Cangco vs. Manila Railroad (GR 12191, 14 October 1918)

En Banc, Fisher (J): 4 concur

Facts: Jose Cangco, was in the employment of the Manila Railroad Company in the capacity of clerk, with a
monthly wage of P25. He lived in the pueblo of San Mateo, Rizal, which is located upon the line of the
Manila Railroad Company; and in coming daily by train to the company’s office in the city of Manila where
he worked, he used a pass, supplied by the company, which entitled him to ride upon the company’s trains
free of charge. On 20 January 1915, Cangco was returning home by rail from his daily labors; and as the train
drew up to the station in San Mateo Cangco arose from his seat in the second class-car where he was riding
and, making his exit through the door, took his position upon the steps of the coach, seizing the upright
guardrail with his right hand for support. On the side of the train where passengers alight at the San Mateo
station there is a cement platform which begins to rise with a moderate gradient some distance away from the
company’s office and extends along in front of said office for a distance sufficient to cover the length of
several coaches. As the train slowed down another passenger, named Emilio Zuniga, also an employee of the
railroad company, got off the same car, alighting safely at the point where the platform begins to rise from the
level of the ground. When the train had proceeded a little farther Cangco stepped off also, but one or both of
his feet came in contact with a sack of watermelons with the result that his feet slipped from under him and he
fell violently on the platform. His body at once rolled from the platform and was drawn under the moving car,
where his right arm was badly crushed and lacerated. It appears that after Cangco alighted from the train the
car moved forward possibly 6 meters before it came to a full stop. The accident occurred between 7 and 8
p.m., and as the railroad station was lighted dimly by a single light located some distance away, objects on the
platform where the accident occurred were difficult to discern, especially to a person emerging from a lighted
car. Cangco was drawn from under the car in an unconscious condition, and it appeared that the injuries
which he had received were very serious. He was therefore brought at once to a certain hospital in the city of
Manila where an examination was made and his arm was amputated. The result of this operation was
unsatisfactory, and Cangco was then carried to another hospital where a second operation was performed and
the member was again amputated higher up near the shoulder. Cangco expended the sum of P790.25 in the
form of medical and surgical fees and for other expenses in connection with the process of his curation.

On 31 August 1915, Cangco instituted the proceeding in the Court of First Instance of Manila to recover
damages of the Manila Railroad, founding his action upon the negligence of the servants and employees of
Manila Railroad in placing the sacks of melons upon the platform and in leaving them so placed as to be a
menace to the security of passenger alighting from the company’s trains. Judgment was entered in favor of
Manila Railroad, and Cangco appealed.

The Supreme Court reversed the decision of the lower court, and rendered judgment Cangco for the sum of
P3,290.25, and for the costs of both instances.

1. Reason for the watermelons on the platform

 The presence of a sack of melons on the platform where Cangco alighted was due to the fact that the
customary season for harvesting these melons and a large lot had been brought to the station for shipment to
the market. They were contained in numerous tow sacks which had been piled on the platform in a row one
upon another. This row of sacks was so placed that there was a space of only about 2 feet between the sacks
of melons and the edge of the platform.

2. Employees of railroad company negligent

Employees of the railroad company were guilty of negligence in piling these sacks on the platform in
the manner above stated; that their presence caused the plaintiff to fall as he alighted from the train; and that
they therefore constituted an effective legal cause of the injuries sustained by Cangco.

3. Manila Railroad liable if action based upon breach of contract of carriage

The foundation of the legal liability of Manila Railroad is the contract of carriage, and that the
obligation to respond for the damage which Cangco has suffered arises, if at all, from the breach of that
contract by reason of the failure of Manila Railroad to exercise due care in its performance. Its liability is
direct and immediate, differing essentially, in the legal viewpoint from that presumptive responsibility for the
negligence of its servants, imposed by article 1903 of the Civil Code, which can be rebutted by proof of the
exercise of due care in their selection and supervision.

4. Article 1903 not applicable to obligations arising ex contractu but only to extra-contractual
obligation
Article 1903 of the Civil Code is not applicable to obligations arising ex contractu, but only to extra-
contractual obligations — or to use the technical form of expression, that article relates only to culpa
aquiliana and not to culpa contractual.

5. Distinction between culpa contractual and culpa aquiliana

Manresa (vol. 8, p. 67) in his commentaries upon articles 1103 and 1104 of the Civil Code, clearly
points out the distinction. In commenting upon article 1903 (vol. 8, p. 30) Manresa clearly points out the
difference between “culpa, substantive and independent, which of itself constitutes the source of an obligation
between persons not formerly connected by any legal tie” and culpa considered as an “accident in the
performance of an obligation already existing.”

6. Article 1903 of the Civil Code not applicable to acts of negligence which constitute the breach of
a contract; Rakes vs. Atlantic Gulf
The acts to which these articles [1902 and 1903 of the Civil Code] are applicable are understood to be
those not growing out of pre-existing duties of the parties to one another. But where relations already formed
give rise to duties, whether springing from contract or quasi-contract, then breaches of those duties are subject
to articles 1101, 1103 and 1104 of the same code.” (Rakes vs. Atlantic, Gulf and Pacific Co., 7 Phil. Rep.,
359 at p. 365.)

7. Liability occasioned by negligence of employees to whom they are not bound by contract not
based upon principle of respondent superior
The liability, which, under the Spanish law, is, in certain cases imposed upon employers with respect
to damages occasioned by the negligence of their employees to persons to whom they are not bound by
contract, is not based, as in the English Common Law, upon the principle of respondent superior — if it were,
the master would be liable in every case and unconditionally — but upon the principle announced in article
1902 of the Civil Code, which imposes upon all persons who by their fault or negligence, do injury to
another, the obligation of making good the damage caused.

8. Obligation to make good damage arises when unskilled servant causes injury, master
responsible for selection and direction of servant
 The obligation to make good the damage arises at the very instant that the unskillful servant, while
acting within the scope of his employment, causes the injury. The liability of the master is personal and direct.
But, if the master has not been guilty of any negligence whatever in the selection and direction of the servant,
he is not liable for the acts of the latter, whether done within the scope of his employment or not, if the
damage done by the servant does not amount to a breach of the contract between the master and the person
injured.

8. Extra-contractual culpa; Master who exercises all possible care in selection of servant incurs no
liability to third persons to whom he is bound by no contractual ties
As Manresa says (vol. 8, p. 68) the liability arising from extra-contractual culpa is always based upon
a voluntary act or omission which, without willful intent, but by mere negligence or inattention, has caused
damage to another. A master who exercises all possible care in the selection of his servant, taking into
consideration the qualifications they should possess for the discharge of the duties which it is his purpose to
confide to them, and directs them with equal diligence, thereby performs his duty to third persons to whom he
is bound by no contractual ties, and he incurs no liability whatever if, by reason of the negligence of his
servants, even within the scope of their employment, such third persons suffer damage. True it is that under
article 1903 of the Civil Code the law creates a presumption that he has been negligent in the selection or
direction of his servant, but the presumption is rebuttable and yields to proof of due care and diligence in this
respect.

9. Similar interpretation by the Supreme Court of Puerto Rico

The supreme court of Porto Rico, in interpreting identical provisions, as found in the Porto Rican
Civil Code, has held that these articles are applicable to cases of extra-contractual culpa exclusively.
(Carmona vs. Cuesta, 20 Porto Rico Reports, 215.)

10. Bahia vs. Litonjua; Presumption of negligence of master when servant cause injury by
negligence
The distinction was again made patent by this Court in its decision in the case of Bahia vs. Litonjua
and Leynes, (30 Phil. Rep., 624), which was an action brought upon the theory of the extra-contractual
liability of the defendant to respond for the damage caused by the carelessness of his employee while acting
within the scope of his employment The Court, after citing the last paragraph of article 1903 of the Civil
Code, said: “From this article two things are apparent: (1) That when an injury is caused by the negligence of
a servant or employee there instantly arises a presumption of law that there was negligence on the part of the
master or employer either in the selection of the servant or employee, or in supervision over him after the
selection, or both; and (2) that presumption is juris tantum and not juris et de jure, and consequently, may be
rebutted. It follows necessarily that if the employer shows to the satisfaction of the court that in selection and
supervision he has exercised the care and diligence of a good father of a family, the presumption is overcome
and he is relieved from liability.

11. Peculiarity of Spanish law of negligence

The theory bases the responsibility of the master ultimately on his own negligence and not on that of
his servant. This is the notable peculiarity of the Spanish law of negligence. It is, of course, in striking
contrast to the American doctrine that, in relations with strangers, the negligence of the servant is
conclusively the negligence of the master.

12. Culpa contractual; Proof of exercise of utmost diligence not a defense

The liability of masters and employers for the negligent acts or omissions of their servants or agents,
when such acts or omissions cause damages which amount to the breach of a contract, is not based upon a
mere presumption of the master’s negligence in their selection or control, and proof of exercise of the utmost
diligence and care in this regard does not relieve the master of his liability for the breach of his contract.
13. Legal obligation either extra-contractual or contractual; Fundamental distinction
Every legal obligation must of necessity be extra-contractual or contractual. Extra-contractual
obligation has its source in the breach or omission of those mutual duties which civilized society imposes
upon its members, or which arise from these relations, other than contractual, of certain members of society to
others, generally embraced in the concept of status. The legal rights of each member of society constitute the
measure of the corresponding legal duties, mainly negative in character, which the existence of those rights
imposes upon all other members of society. The breach of these general duties whether due to willful intent or
to mere inattention, if productive of injury, gives rise to an obligation to indemnify the injured party. The
fundamental distinction between obligations of this character and those which arise from contract, rests upon
the fact that in cases of non-contractual obligation it is the wrongful or negligent act or omission itself which
creates the vinculum juris, whereas in contractual relations the vinculum exists independently of the breach of
the voluntary duty assumed by the parties when entering into the contractual relation.

14. Limitation of liability in extra-contractual obligation arising from negligence; Moral

responsibility
With respect to extra-contractual obligation arising from negligence, whether of act or omission, it is
competent for the legislature to elect to limit such liability to cases in which the person upon whom such an
obligation is imposed is morally culpable or, on the contrary, for reasons of public policy, to extend that
liability, without regard to the lack of moral culpability, so as to include responsibility for the negligence of
those persons whose acts or omissions are imputable, by a legal fiction, to others who are in a position to
exercise an absolute or limited control over them. The legislature which adopted the Civil Code has elected to
limit extra contractual liability, with certain well-defined exceptions, to cases in which moral culpability can
be directly imputed to the persons to be charged. This moral responsibility may consist in having failed to
exercise due care in one’s own acts, or in having failed to exercise due care in the selection and control of
one’s agents or servants, or in the control of persons who, by reason of their status, occupy a position of
dependency with respect to the person made liable for their conduct.

15. Allegation and proof of negligent act or omission by plaintiff required when action based on
negligent act or omission, not when action based on breach of contractual undertaking
The position of a natural or juridical person who has undertaken by contract to render service to
another, is wholly different from that to which article 1903 relates. When the source of the obligation upon
which plaintiff’s cause of action depends is a negligent act or omission, the burden of proof rests upon
plaintiff to prove the negligence, if he does not his action fails. But when the facts averred show a contractual
undertaking by defendant for the benefit of plaintiff, and it is alleged that plaintiff has failed or refused to
perform the contract, it is not necessary for plaintiff to specify in his pleadings whether the breach of the
contract is due to willful fault or to negligence on the part of the defendant, or of his servants or agents. Proof
of the contract and of its nonperformance is sufficient prima facie to warrant a recovery. As a general rule, it
is logical that in case of extra-contractual culpa, a suing creditor should assume the burden of proof of its
existence, as the only fact upon which his action is based; while on the contrary, in a case of negligence
which presupposes the existence of a contractual obligation, if the creditor shows that it exists and that it has
been broken, it is not necessary for him to prove the negligence.

16. Defendant cannot invoke negligence of servants as defense in breach of contract

As it is not necessary for the plaintiff in an action for the breach of a contract to show that the breach
was due to the negligent conduct of defendant or of his servants, even though such be in fact the actual cause
of the breach, it is obvious that proof on the part of defendant that the negligence or omission of his servants
or agents caused the breach of the contract would not constitute a defense to the action. If the negligence of
servants or agents could be invoked as a means of discharging the liability arising from contract, the
anomalous result would be that persons acting through the medium of agents or servants in the performance
of their contracts, would be in a better position than those acting in person. If such a theory could be accepted,
juridical persons would enjoy practically complete immunity from damages arising from the breach of their
contracts if caused by negligent acts of omission or commission on the part of their servants, as such juridical
persons can of necessity only act through agents or servants, and it would no doubt be true in most instances
that reasonable care had been taken in the selection and direction of such servants.

17. Distinction between culpa aquiliana as source of obligation, and culpa contractual as mere
incident to performance of contract
The distinction between culpa aquiliana, as the source of an obligation, and culpa contractual as a
mere incident to the performance of a contract has frequently been recognized by the supreme court of Spain.
(Sentencias of June 27, 1894; November 20, 1896; and December 13 1896.) In the decision of 20 November
1896, it appeared that plaintiff’s action arose ex contractu, but that defendant sought to avail himself of the
provisions of article 1902 of the Civil Code as a defense. The Spanish Supreme Court rejected defendant’s
contention, saying: “These are not cases of injury caused, without any pre-existing obligation, by fault or
negligence, such as those to which article 1902 of the Civil Code relates, but of damages caused by the
defendant’s failure to carry out the undertakings imposed by the contracts. “

18. Johnson vs. David; Owner not liable for damages caused by negligence of driver
In the case of Johnson vs. David (5 Phil. Rep., 663), the court held that the owner of a carriage was
not liable for the damages caused by the negligence of his driver. In that case the court commented on the fact
that no evidence had been adduced in the trial court that the defendant had been negligent in the employment
of the driver, or that he had any knowledge of his lack of skill or carefulness.

19. Baer Senior vs. Compania Maritima; Articles 1902 and 1903 not applicable (contractual
obligation)
In the case of Baer Senior & Co.’s Successors vs. Compañia Maritima (6 Phil. Rep., 215), the
plaintiff sued the defendant for damages caused by the loss of a barge belonging to plaintiff which was
allowed to get adrift by the negligence of defendant’s servants in the course of the performance of a contract
of towage. The court held, citing Manresa (vol. 8, pp. 29, 69) that if the “obligation of the defendant grew out
of a contract made between it and the plaintiff . . . we do not think that the provisions of articles 1902 and
1903 are applicable to the case.”

20. Chapman vs. Underwood; Master not liable for negligence of driver
In the case of Chapman vs. Underwood (27 Phil. Rep., 374), plaintiff sued the defendant to recover
damages for personal injuries caused by the negligence of defendant’s chauffeur while driving defendant’s
automobile in which defendant was riding at the time. The court found that the damages were caused by the
negligence of the driver of the automobile, but held that the master was not liable, although he was present at
the time, saying: “unless the negligent acts of the driver are continued for such a length of time as to give the
owner a reasonable opportunity to observe them and to direct the driver to desist therefrom. . . . The act
complained of must be continued in the presence of the owner for such a length of time that the owner by his
acquiescence, makes the driver’s acts his own.”

21. Yamada vs. Manila Railroad; Application of Article 1903 although injury complained of
constituted a breach of duty arising out of contract of transportation
In the case of Yamada vs. Manila Railroad Co. and Rachrach Garage & Taxicab Co. (33 Phil. Rep.,
8), it is true that the court rested its conclusion as to the liability of the defendant upon article 1903, although
the facts disclosed that the injury complained of by plaintiff constituted a breach of the duty to him arising out
of the contract of transportation. The express ground of the decision in this case was that article 1903, in
dealing with the liability of a master for the negligent acts of his servants “makes the distinction between
private individuals and public enterprise;” that as to the latter the law creates a rebuttable presumption of
negligence in the selection or direction of the servants; and that in the particular case the presumption of
negligence had not been overcome.
22. Yamada vs. Manila Railroad; Where defendant liable whether breach of duty were to be
regarded as constituting culpa aquiliana or culpa contractual
In its decision in the Yamada case, the court treated plaintiff’s action as though founded in tort rather
than as based upon the breach of the contract of carriage, and an examination of the pleadings and of the
briefs shows that the questions of law were in fact discussed upon this theory. Viewed from the standpoint of
the defendant the practical result must have been the same in any event. The proof disclosed beyond doubt
that the defendant’s servant was grossly negligent and that his negligence was the proximate cause of
plaintiff’s injury. It also affirmatively appeared that defendant had been guilty of negligence in its failure to
exercise proper discretion in the direction of the servant. Defendant was therefore, liable for the injury
suffered by plaintiff, whether the breach of the duty were to be regarded as constituting culpa aquilina or
culpa contractual.

23. Essential characteristics of negligent occurs as an incident in performance of contractual

undertaking or itself as source of extra-contractual obligation are identical
As Manresa points out (vol. 8, pp. 29 and 69) whether negligence occurs as an incident in the course
of the performance of a contractual undertaking or is itself the source of an extra-contractual obligation, its
essential characteristics are identical. There is always an act or omission productive of damage due to
carelessness or inattention on the part of the defendant. Consequently, when the court holds that a defendant
is liable in damages for having failed to exercise due care, either directly, or in failing to exercise proper care
in the selection and direction of his servants, the practical result is identical in either ease.

24. Yamada vs. Manila Railroad; Proper interpretation of decision

It is not to be inferred, because the court held in the Yamada case that the defendant was liable for the
damages negligently caused by its servant to a person to whom it was bound by contract, and made reference
to the fact that the defendant was negligent in the selection and control of its servants, that in such a case the
court would have held that it would have been a good defense to the action, if presented squarely upon the
theory of the breach of the contract, for defendant to have proved that it did in fact exercise care in the
selection and control of the servant.

25. Relative spheres of contractual and extra-contractual obligations

The field of non-contractual obligation is much more broader than that of contractual obligation,
comprising, as it does, the whole extent of juridical human relations. These two fields, figuratively speaking,
concentric; that is to say, the mere fact that a person is bound to another by contract does not relieve him from
extra-contractual liability to such person. When such a contractual relation exists the obligor may break the
contract under such conditions that the same act which constitutes a breach of the contract would have
constituted the source of an extra-contractual obligation had no contract existed between the parties.

26. Contract of carriage impliedly carries duty to carry passenger in safety

The contract of Manila Railroad to transport Cangco carried with it, by implication, the duty to carry
him in safety and to provide safe means of entering and leaving its trains (Civil Code, article 1258). That
duty, being contractual, was direct and immediate, and its non-performance could not be excused by proof
that the fault was morally imputable to defendant’s servants.

27. Doctrine of comparative negligence; Rakes case

Under the doctrine of comparative negligence announced in the Rakes case (supra), if the accident
was caused by plaintiff’s own negligence, no liability is imposed upon defendant, whereas if the accident was
caused by defendant’s negligence and plaintiff’s negligence merely contributed to his injury, the damages
should be apportioned.

28. It is not negligence per se for a passenger to alight from a moving train; Experience of every-
day life
 Herein, that the train was barely moving when Cangco alighted is shown conclusively by the fact that
it came to stop within 6 meters from the place where he stepped from it. Thousands of persons alight from
trains under these conditions every day of the year, and sustain no injury where the company has kept its
platform free from dangerous obstructions. There is no reason to believe that plaintiff would have suffered
any injury whatever in alighting as he did had it not been for defendant’s negligent failure to perform its duty
to provide a safe alighting place.

29. Test to determine whether passenger has been guilty of negligence; Thompson’s work of
Negligence
As expressed in Thompson’s work on Negligence (vol. 3, sec. 3010), “the test by which to determine
whether the passenger has been guilty of negligence in attempting to alight from a moving railway train, is
that of ordinary or reasonable care. It is to be considered whether an ordinarily prudent person, of the age, sex
and condition of the passenger, would have acted as the passenger acted under the circumstances disclosed by
the evidence. This care has been defined to be, not the care which may or should be used by the prudent man
generally, but the care which a man of ordinary prudence would use under similar circumstances, to avoid
injury.” (Thompson, Commentaries on Negligence, vol. 3, sec. 3010.)

29. Test to determine whether passenger has been guilty of negligence; Picart vs. Smith
If the Court would prefer to adopt the mode of exposition used by this court in Picart vs. Smith (37
Phil. Rep., 809), it may say that the test is this; Was there anything in the circumstances surrounding the
plaintiff at the time he alighted from the train which would have admonished a person of average prudence
that to get off the train under the conditions then existing was dangerous ? If so, the plaintiff should have
desisted from alighting; and his failure so to desist was contributory negligence.

30. Circumstances to determine passenger’s negligence in present case; Cangco not negligent
The company’s platform was constructed upon a level higher than that of the roadbed and the
surrounding ground. The distance from the steps of the car to the spot where the alighting passenger would
place his feet on the platform was thus reduced, thereby decreasing the risk incident to stepping off. The
nature of the platform, constructed as it was of cement material, also assured to the passenger a stable and
even surface on which to alight. Furthermore, the plaintiff was possessed of the vigor and agility of young
manhood, and it was by no means so risky for him to get off while the train was yet moving as the same act
would have been in an aged or feeble person. In determining the question of contributory negligence in
performing such act — that is to say, whether the passenger acted prudently or recklessly — the age, sex, and
physical condition of the passenger are circumstances necessarily affecting the safety of the passenger, and
should be considered. Women, it has been observed, as a general rule, are less capable than men of alighting
with safety under such conditions, as the nature of their wearing apparel obstructs the free movement of the
limbs. Again, it may be noted that the place was perfectly familiar to Cangco, as it was his daily custom to get
on and off the train at this station. There could, therefore, be no uncertainty in his mind with regard either to
the length of the step which he was required to take or the character of the platform where he was alighting.
Cangco’s conduct, in undertaking to alight while the train was yet slightly under way, was not characterized
by imprudence and that therefore he was not guilty of contributory negligence.

31. Fair compensation for Cangco

Cangco, at the time of the accident, was earning P25 a month as a copyist clerk, and that the injuries
he has suffered have permanently disabled him from continuing that employment. Manila Railroad has not
shown that any other gainful occupation is open to Cangco. His expectancy of life, according to the standard
mortality tables, is approximately 33 years. A fair compensation for the damage suffered by him for his
permanent disability is the sum of P2,500, and that he is also entitled to recover of Manila Railroad the
additional sum of P790.25 for medical attention, hospital services, and other incidental expenditures
connected with the treatment of his injuries.
[100]

De Guia vs. Manila Electric Railroad & Light Co. (GR 14335, 28 January 1920)
First Division, Street (J): 5 concur

Facts: On 4 September 1915, near the end of the street-car line in Caloocan, Rizal, a northern suburb of the
city of Manila. It appears that, at about 8:00 p.m., Manuel de Guia, a physician residing in Caloocan, boarded
a car at the end of the line with the intention of coming to the city. At about 30 meters from the starting point
the car entered a switch, de Guia remained on the back platform holding the handle of the right-hand door.
Upon coming out of the switch, the small wheels of the rear truck left the track, ran for a short distance along
the macadam filling, which was flush with the rails, and struck a concrete post at the left of the track. The
post was shattered; and as the car stopped, de Guia was thrown against the door with some violence, receiving
bruises and possibly certain internal injuries.

De Guia filed an action against Manila Electric Railroad & Light Co. (Meralco), operator of the railcar, and
its driver for damages in light of his injuries before the Court of First Instance of the City of Manila. The trial
court found that the motorman of the derailed car was negligent in having maintained too rapid a speed. The
trial court ruled in favor of de Guia, awarding the sum of P6,100, with interest and costs, as damages incurred
by him in consequence of physical injuries sustained while riding on one of Meralco’s car. Both parties
appealed.

The Supreme Court affirmed the judgment appealed from must, with modification that the amount of the
recovery is reduced to P1,100, with legal interest from 8 November 1916; without any special pronouncement
as to costs of this instance.

1. Motor man negligent

The finding of negligence in the operation of the car must be sustained, as not being clearly contrary
to the evidence; not so much because of excessive speed as because of the distance which the car was allowed
to run with the front wheels of the rear truck derailed. An experienced and attentive motorman should have
discovered that something was wrong and would have stopped before he had driven the car over the entire
distance from the point where the wheels left the track to the place where the post was struck.

2. Company liable for motorman’s negligence; Duty of carrier

As there was negligence on the part of the motorman in driving the car, it results that the company is
liable for the damage resulting to de Guia as a consequence of that negligence. De Guia had boarded the car
as a passenger for Manila and the company undertook to convey him for hire. The relation between the
parties was, therefore, of a contractual nature, and the duty of the carrier is to be determined with reference to
the principles of contract law, that is, the company was bound to convey and deliver de Guia safely and
securely with reference to the degree of care which, under the circumstances, is required by law and custom
applicable to the case. Upon failure to comply with that obligation the company incurred the liability defined
in articles 1103-1107 of the Civil Code.

3. Defense of last paragraph of Article 1903 cannot be availed; No culpa aquiliana

From the nature of the liability, the company can not avail itself of the last paragraph of article 1903
of the Civil Code, since that provision has reference to liability incurred by negligence in the absence of
contractual relation, that is, to the culpa aquiliana of the civil law. It was therefore irrelevant for the company
to prove that the company had exercised due care in the selection and instruction of the motorman who was in
charge of its car and that he was in fact an experienced and reliable servant.

4. Court has power to moderate liability according to circumstances of the case; Article 1103 vis-à-
vis Article 1107 NCC
 Although the company must answer for the consequences of the negligence of its employee, the court
has the power to moderate liability according to the circumstances of the case (Article 1103, Civil Code). An
employer who has in fact displayed due diligence in choosing and instructing his servants is entitled to be
considered a debtor in good faith, within the meaning of article 1107 of the Code. Construing these two
provisions together, and applying them to the facts of the present case, it results that the company’s liability is
limited to such damages as might, at the time of the accident, have been reasonably foreseen as a probable
consequence of the physical injuries inflicted upon de Guia and which were in fact a necessary result of those
injuries. Both the civil and the common law are agreed upon the point that the damages ordinarily recoverable
for the breach of a contractual obligation, against a person who has acted in good faith, are such as can
reasonably be foreseen at the time the obligation is contracted.

5. Daywalt vs. Corporacion de PP. Agustinos Recoletos

In Daywalt vs. Corporacion de PP. Agustinos Recoletos (39 Phil., 687), the Court said: “The extent of
the liability for the breach of a contract must be determined in the light of the situation in existence at the time
the contract is made; and the damages ordinarily recoverable are in all events limited to such as might be
reasonably foreseen in the light of the facts then known to the contracting parties.”

6. Findings as to damages to be awarded (P900 for loss of professional earnings) not disturbed
As a result of the physical and nervous derangement resulting from the accident, Dr. De Guia was
unable properly to attend to his professional labors for three months and suspended his practice for that
period. De Guia’s customary income, as a physician, was about P300 per month. The trial judge allowed
P900, as damages for loss of professional earnings. Upon examining the evidence, the Court felt disinclined
to disturb the part of the judgment, though it must be conceded that the estimate of the trial judge on this point
was liberal enough to de Guia.

7. Findings as to additional damages to be awarded (P3,900 for position of district health officer)
speculative
Another item allowed by the trial judge consists of P3,900, which de Guia was supposed to have lost
by reason of his inability to accept a position as district health officer in Occidental Negros. The job was
supposed to be good for two years, with a salary of P1,600 per annum, and possibility of outside practice
worth P350. Accepting these suggestions as true, the damages thus incurred are too speculative to be the basis
of recovery in a civil action. This element of damages must therefore be eliminated. It goes without saying
that damage of this character could not, at the time of the accident, have been foreseen by the delinquent party
as a probable consequence of the injury inflicted — a circumstance which makes applicable article 1107 of
the Civil Code.

8. Voluminous literature as to traumatic neurosis or traumatic hysteria not taken up by Court

Herein, the opposing medical experts ventilated a considerable mass of professional learning with
reference to the nature and effects of the baffling disease known as traumatic neurosis, or traumatic hysteria
— a topic which has been the occasion of much controversy in actions of this character in the tribunals of
Europe and America. The subject is one of considerable interest from a medico-legal point of view, but the
Court deem it unnecessary to enter upon a discussion of its voluminous literature.

9. Damages cannot be assessed; Delusion was self-inflicted

In this jurisdiction damages can not be assessed in favor of the plaintiff as compensation for the
physical or mental pain which he may have endured (Marcelo vs. Velasco, 11 Phil. Rep., 287); and the
evidence relating to the injuries, both external and internal, received by him must be examined chiefly in its
bearing upon his material welfare, that is, in its results upon his earning capacity and the expenses incurred in
restoration to the usual condition of health. Herein, de Guia’s case for large damages in respect to his
supposed incapacitation for future professional practice is not made out. Immediately after the accident in
question Doctor De Guia, sensing in the situation a possibility of profit, devoted himself with great assiduity
to the promotion of this litigation; and with the aid of his own professional knowledge, supplemented by
suggestions obtained from his professional friends and associates, he enveloped himself more or less
unconsciously in an atmosphere of delusion which rendered him incapable of appreciating at their true value
the symptoms of disorder which he developed. The trial court was fully justified in rejecting the exaggerated
estimate of damages thus created.

10. Amount of expenses incurred for medical service Dr. Montes, the physician who
treated de Guia from traumatic neurosis speaks in the most general terms with respect to the times and extent
of the services rendered; and it is by no means clear that those services which were rendered many months, or
year, after the accident had in fact any necessary or legitimate relation to the injuries received by de Guia. In
view of the vagueness and uncertainty of the testimony relating to Doctor Montes’s services the Court was of
the opinion that the sum of P200, or the amount actually paid to him by de Guia, represents the extent of de
Guia’s obligation with respect to treatment for said injuries.

11. No obligation incurred by de Guia to 3 other physicians; Services gratuitous and employment
of multiple physicians for successful promotion of issue of lawsuit
With regard to the obligation supposedly incurred by de Guia to three other physicians, it does not
appear that said physicians have in fact made charges for those services with the intention of imposing
obligations on de Guia to pay for them. On the contrary it would seem that said services were gratuitously
rendered out of courtesy to de Guia as a member of the medical profession. The suggestions made on the
stand by these physicians to the effect that their services were worth the amounts stated by them are not
sufficient to prove that de Guia had incurred the obligation to pay those amounts. Further, in employing so
many physicians, de Guia must have bad in view the successful promotion of the issue of the lawsuit rather
than the bona fide purpose of effecting the cure of his injuries.

12. Medical service as a proper element of recovery

In order to constitute a proper element of recovery in an action of this character, the medical service
for which reimbursement is claimed should not only be such as to have created a legal obligation upon the
plaintiff but such as was reasonably necessary in view of his actual condition. It can not be permitted that a
litigant should retain an unusual and unnecessary number of professional experts with a view to the successful
promotion of a lawsuit and expect to recover against his adversary the entire expense thus incurred. His claim
for medical services must be limited to such expenditures as were reasonably suited to the case.

13. Written statements of examining physician are fundamentally hearsay, and are not documents
as primary evidence
Herein, it appears that four of the physicians examined as witnesses for de Guia had made written
statements at various dates certifying the results of their respective examinations into the condition of de
Guia. When these witnesses were examined in court they identified their respective signatures to these
certificates and the trial judge, over the Meralco’s objection, admitted the documents as primary evidence in
the case. This was undoubtedly erroneous. A document of this character is not primary evidence in any sense,
since it is fundamentally of a hearsay nature; and the only legitimate use to which one of these certificates
could be put, as evidence for the plaintiff, was to allow the physician who issued it to refer thereto to refresh
his memory upon details which he might have forgotten.

14. Written memorandum; Zwangizer vs. Newman

In Zwangizer vs. Newman (83 N. Y. Supp., 1071) which was also an action to recover damages for
personal injury, it appeared that a physician, who had been sent by one of the parties to examine the plaintiff
had made at the time a written memorandum of the results of the examination; and it was proposed to
introduce this document in evidence at the trial. It was excluded by the trial judge, and it was held upon
appeal that this was proper. Said the court: “There was no failure or exhaustion of the memory, and no
impeachment of the memorandum on cross- examination; and the document was clearly incompetent as
evidence in chief.”

[101] Sabena Belgian vs. CA, see [4]

[102]

Calalas vs. CA (GR 122039, 31 May 2000)

Second Division, Mendoza (J): 2 concur, 2 on leave

Facts: At 10 a.m. of 23 August 1989, Eliza Jujeurche G. Sunga, then a college freshman majoring in Physical
Education at the Siliman University, took a passenger jeepney owned and operated by Vicente Calalas. As the
jeepney was filled to capacity of about 24 passengers, Sunga was given by the conductor an “extension seat,”
a wooden stool at the back of the door at the rear end of the vehicle. On the way to Poblacion Sibulan, Negros
Occidental, the jeepney stopped to let a passenger off. As she was seated at the rear of the vehicle, Sunga
gave way to the outgoing passenger. Just as she was doing so, an Isuzu truck driven by Iglecerio Verena and
owned by Francisco Salva bumped the left rear portion of the jeepney. As a result, Sunga was injured. She
sustained a fracture of the “distal third of the left tibia-fibula with severe necrosis of the underlying skin.”
Closed reduction of the fracture, long leg circular casting, and case wedging were done under sedation. Her
confinement in the hospital lasted from August 23 to September 7, 1989. Her attending physician, Dr. Danilo
V. Oligario, an orthopedic surgeon, certified she would remain on a cast for a period of 3 months and would
have to ambulate in crutches during said period.

On 9 October 1989, Sunga filed a complaint for damages against Calalas before the RTC of Dumaguete City
(Branch 36), alleging violation of the contract of carriage by the former in failing to exercise the diligence
required of him as a common carrier. Calalas, on the other hand, filed a third-party complaint against
Francisco Salva, the owner of the Isuzu truck. The lower court rendered judgment, against Salva as third-
party defendant and absolved Calalas of liability, holding that it was the driver of the Isuzu truck who was
responsible for the accident. It took cognizance of another case (Civil Case 3490), filed by Calalas against
Salva and Verena, for quasi-delict, in which Branch 37 of the same court held Salva and his driver Verena
jointly liable to Calalas for the damage to his jeepney.

On appeal to the Court of Appeals, and on 31 March 1991, the ruling of the lower court was reversed on the
ground that Sunga’s cause of action was based on a contract of carriage, not quasi-delict, and that the common
carrier failed to exercise the diligence required under the Civil Code. The appellate court dismissed the third-
party complaint against Salva and adjudged Calalas liable for damages to Sunga. The Court ordered Calalas
tro pay Sunga (1) P50,000.00 as actual and compensatory damages; (2) P50,000.00 as moral damages; (3)
P10,000.00 as attorney’s fees; and (4) P1,000.00 as expenses of litigation; and (5) to pay the costs. Calalas’
motion for reconsideration was denied 11 September 1995. Hence, the petition for review on certiorari.

The Supreme Court affirmed the 31 March 1991 decision and the 11 September 1995 resolution of the Court
of Appeals, with the modification that the award of moral damages is deleted.

1. Res Judicata does not apply

Sunga is not bound by the ruling in Civil Case 3490, which found the driver and the owner of the
truck liable for quasi-delict, as she was never a party to that case. Further, the issues in Civil Case 3490 and in
the present case are not the same. The issue in Civil Case 3490 was whether Salva and his driver Verena were
liable for quasi-delict for the damage caused to Calalas’ jeepney. On the other hand, the issue in the present
case is whether Calalas is liable on his contract of carriage. The principle of res judicata, therefore, does not
apply.

2. Distinction between culpa aquiliana or culpa extracontractual, and culpa contractual

 Quasi-delict, also known as culpa aquiliana or culpa extra contractual, has as its source the negligence
of the tortfeasor. On the other hand, breach of contract or culpa contractual is premised upon the negligence
in the performance of a contractual obligation. In quasi-delict, the negligence or fault should be clearly
established because it is the basis of the action, whereas in breach of contract, the action can be prosecuted
merely by proving the existence of the contract and the fact that the obligor, in this case the common carrier,
failed to transport his passenger safely to his destination.

3. Common carriers presumed at fault unless they observed extraordinary diligence; Burden of
proof
In case of death or injuries to passengers, Article 1756 of the Civil Code provides that common
carriers are presumed to have been at fault or to have acted negligently unless they prove that they observed
extraordinary diligence as defined in Articles 1733 and 1755 of the Code. The provision necessarily shifts to
the common carrier the burden of proof.

4. Doctrine of proximate cause applicable only in quasi-delict, not in breach of contract

The doctrine of proximate cause is applicable only in actions for quasi-delict, not in actions involving
breach of contract. The doctrine is a device for imputing liability to a person where there is no relation
between him and another party. In such a case, the obligation is created by law itself. But, where there is a
pre-existing contractual relation between the parties, it is the parties themselves who create the obligation,
and the function of the law is merely to regulate the relation thus created. Herein, it is immaterial that the
proximate cause of the collision between the jeepney and the truck was the negligence of the truck driver.

5. Articles 1733, 1755, and 1756 NCC

Insofar as contracts of carriage are concerned, some aspects regulated by the Civil Code are those
respecting the diligence required of common carriers with regard to the safety of passengers as well as the
presumption of negligence in cases of death or injury to passengers. Article 1733 of the Civil Code provides
that “Common carriers, from the nature of their business and for reasons of public policy, are bound to
observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers
transported by them, according to all the circumstances of each case. Such extraordinary diligence in the
vigilance over the goods is further expressed in articles 1734, 1735, and 1746, Nos. 5,6, and 7, while the
extraordinary diligence for the safety of the passengers is further set forth in articles 1755 and 1756. “ On the
other hand, Article 1755 of the Civil Code provides that “ A common carrier is bound to carry the passengers
safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons,
with due regard for all the circumstances.” Article 1756 provides that “In case of death of or injuries to
passengers, common carriers are presumed to have been at fault or to have acted negligently, unless they
prove that they observed extraordinary diligence as prescribed by articles 1733 and 1755.”

6. In violation of traffic rules; Section 54 (Obstruction of Traffic)

Herein, the jeepney was not properly parked, its rear portion being exposed about 2 meters from the
broad shoulders of the highway, and facing the middle of the highway in a diagonal angle. This is a violation
of the RA 4136, as amended, or the Land Transportation and Traffic Code, which provides in Section 54
(Obstruction of Traffic) that “No person shall drive his motor vehicle in such a manner as to obstruct or
impede the passage of any vehicle, nor, while discharging or taking on passengers or loading or unloading
freight, obstruct the free passage of other vehicles on the highway. “

7. In violation of traffic rules; Section 32(a) (Exceeding registered capacity)

Herein, the driver took in more passengers than the allowed seating capacity of the jeepney, a
violation of Section 32(a) of the same law. Section 32 [a] (Exceeding registered capacity) provides that “No
person operating any motor vehicle shall allow more passengers or more freight or cargo in his vehicle than
its registered capacity.” The fact that Sunga was seated in an “extension seat” placed her in a peril greater
than that to which the other passengers were exposed.
8. Driver of jeepney did not exercise utmost diligence of very cautious persons
Upon the happening of the accident, the presumption of negligence at once arose, and it became the
duty of Calalas to prove that he had to observe extraordinary diligence in the care of his passengers. The
driver of jeepney did not carry Sunga “safely as far as human care and foresight could provide, using the
utmost diligence of very cautious persons, with due regard for all the circumstances” as required by Article
1755. Not only was Calalas unable to overcome the presumption of negligence imposed on him for the injury
sustained by Sunga, but also, the evidence shows he was actually negligent in transporting passengers.

9. Taking of “Extension seat” cannot be considered an implied assumption of risk

Sunga’s taking an “extension seat” did not amount to an implied assumption of risk. Otherwise, iIt is
akin to arguing that the injuries to the many victims of the tragedies in our seas should not be compensated
merely because those passengers assumed a greater risk of drowning by boarding an overloaded ferry.

10. Caso fortuito defined; Requirements

A caso fortuito is an event which could not be foreseen, or which, though foreseen, was inevitable.
This requires that the following requirements be present: (a) the cause of the breach is independent of the
debtor’s will; (b) the event is unforeseeable or unavoidable; (c) the event is such as to render it impossible for
the debtor to fulfill his obligation in a normal manner, and (d) the debtor did not take part in causing the
injury to the creditor. 4 Petitioner should have foreseen the danger of parking his jeepney with its body
protruding two meters into the highway.

11. Moral damages not recoverable in actions for damages based on breach of contract; Exceptions
As a general rule, moral damages are not recoverable in actions for damages predicated on a breach
of contract for it is not one of the items enumerated under Article 2219 of the Civil Code. As an exception,
such damages are recoverable: (1) in cases in which the mishap results in the death of a passenger, as
provided in Article 1764, in relation to Article 2206(3) of the Civil Code; and (2) in the cases in which the
carrier is guilty of fraud or bad faith, as provided in Article 2220.

12. No legal basis for award of moral damages; Construction as to the person and act of taking the
victim to hospital
Herein, there is no legal basis for awarding moral damages since there was no factual finding by the
appellate court that Calalas acted in bad faith in the performance of the contract of carriage. Sunga’s
contention that Calalas’ admission in open court that the driver of the jeepney failed to assist her in going to a
nearby hospital cannot be construed as an admission of bad faith. The fact that it was the driver of the Isuzu
truck (Verena) who took her to the hospital does not imply that Calalas was utterly indifferent to the plight of
his injured passenger. If at all, it is merely implied recognition by Verena that he was the one at fault for the
accident.

[103]

Jesusa Vda. De Nueca vs Manila Railroad

[104] Dangwa Transportation vs. CA,, see [30]

[105]

Light Rail Transit Authority vs. Navidad (GR 145804, 6 February 2003)
First Division, Vitug (J): 4 concur

Facts: On 14 October 1993, about half an hour past 7:00 p.m., Nicanor Navidad, then drunk, entered the
EDSA LRT station after purchasing a “token” (representing payment of the fare). While Navidad was
standing on the platform near the LRT tracks, Junelito Escartin, the security guard assigned to the area
approached Navidad. A misunderstanding or an altercation between the two apparently ensued that led to a
fist fight. No evidence, however, was adduced to indicate how the fight started or who, between the two,
delivered the first blow or how Navidad later fell on the LRT tracks. At the exact moment that Navidad fell,
an LRT train, operated by Rodolfo Roman, was coming in.Navidad was struck by the moving train, and he
was killed instantaneously.

On 8 December 1994, the widow of Nicanor, Marjorie Navidad, along with her children, filed a complaint for
damages against Junelito Escartin, Rodolfo Roman, the LRTA, the Metro Transit Organization, Inc. (Metro
Transit), and Prudent for the death of her husband. LRTA and Roman filed a counterclaim against Navidad
and a cross-claim against Escartin and Prudent. Prudent, in its answer, denied liability and averred that it had
exercised due diligence in the selection and supervision of its security guards. The LRTA and Roman
presented their evidence while Prudent and Escartin, instead of presenting evidence, filed a demurrer
contending that Navidad had failed to prove that Escartin was negligent in his assigned task. On 11 August
1998, the trial court rendered its decision, ordering Prudent Security and Escartin to jointly and severally pay
Navidad (a) (1) Actual damages of P44,830.00; (2) Compensatory damages of P443,520.00; (3) Indemnity for
the death of Nicanor Navidad in the sum of P50,000.00; (b) Moral damages of P50,000.00; (c) Attorney’s
fees of P20,000; and (d) Costs of suit. The court also dismissed the complaint against LRTA and Rodolfo
Roman for lack of merit, and the compulsory counterclaim of LRTA and Roman.

Prudent appealed to the Court of Appeals. On 27 August 2000, the appellate court promulgated its decision
exonerating Prudent from any liability for the death of Nicanor Navidad and, instead, holding the LRTA and
Roman jointly and severally liable. The appellate court modified the judgment ordering Roman and the LRTA
solidarily liable to pay Navidad (a) P44,830.00 as actual damages; (b) P50,000.00 as nominal damages; (c)
P50,000.00 as moral damages; (d) P50,000.00 as indemnity for the death of the deceased; and (e)
P20,000.00 as and for attorney’s fees. The appellate court denied LRTA’s and Roman’s motion for
reconsideration in its resolution of 10 October 2000. Hence, the appeal.

The Supreme Court affirmed the assailed decision of the appellate court with modification that (a) the award
of nominal damages is deleted and that (b) Roman is absolved from liability; without costs.

1. Common carrier burdened with duty of exercising utmost diligence

Law and jurisprudence dictate that a common carrier, both from the nature of its business and for
reasons of public policy, is burdened with the duty of exercising utmost diligence in ensuring the safety of
passengers.

2. Civil Code provisions governing liability of Common carrier; Articles 1755, 1756, 1759, and
1763
The Civil Code, governing the liability of a common carrier for death of or injury to its passengers.
(1) Article 1755 provides that “A common carrier is bound to carry the passengers safely as far as human care
and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the
circumstances.” (2) Article 1756 provides that “In case of death of or injuries to passengers, common carriers
are presumed to have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as prescribed in articles 1733 and 1755.” (3) Article 1759 provides that “Common
carriers are liable for the death of or injuries to passengers through the negligence or willful acts of the
former’s employees, although such employees may have acted beyond the scope of their authority or in
violation of the orders of the common carriers. This liability of the common carriers does not cease upon
proof that they exercised all the diligence of a good father of a family in the selection and supervision of their
employees.” (4) Article 1763 provides that “A common carrier is responsible for injuries suffered by a
passenger on account of the willful acts or negligence of other passengers or of strangers, if the common
carrier’s employees through the exercise of the diligence of a good father of a family could have prevented or
stopped the act or omission.”

3. Utmost diligence of very cautious persons; Duty to observe as long as passengers are within its
premises
The law requires common carriers to carry passengers safely using the utmost diligence of very
cautious persons with due regard for all circumstances. Such duty of a common carrier to provide safety to its
passengers so obligates it not only during the course of the trip but for so long as the passengers are within its
premises and where they ought to be in pursuance to the contract of carriage.

4. Liability of common carrier

The statutory provisions render a common carrier liable for death of or injury to passengers (a)
through the negligence or wilful acts of its employees or b) on account of wilful acts or negligence of other
passengers or of strangers if the common carrier’s employees through the exercise of due diligence could
have prevented or stopped the act or omission.

5. Presumption of negligence; Proof

In case of death or injury, a carrier is presumed to have been at fault or been negligent, and by simple
proof of injury, the passenger is relieved of the duty to still establish the fault or negligence of the carrier or of
its employees and the burden shifts upon the carrier to prove that the injury is due to an unforeseen event or to
force majeure. In the absence of satisfactory explanation by the carrier on how the accident occurred, the
presumption would be that it has been at fault, an exception from the general rule that negligence must be
proved.

6. Common carrier not relieve of responsibility when it hires its own employees or avails itself of
services of an outsider or independent firm to undertake task ensuring safety of pasengers
The foundation of LRTA’s liability is the contract of carriage and its obligation to indemnify the
victim arises from the breach of that contract by reason of its failure to exercise the high diligence required of
the common carrier. In the discharge of its commitment to ensure the safety of passengers, a carrier may
choose to hire its own employees or avail itself of the services of an outsider or an independent firm to
undertake the task. In either case, the common carrier is not relieved of its responsibilities under the contract
of carriage.

7. Premise for employer’s liability for tort

The premise for employer’s liability for tort (under the provisions of Article 2176 and related
provisions, in conjunction with Article 2180 of the Civil Code) is negligence or fault on the part of the
employee. Once such fault is established, the employer can then be made liable on the basis of the
presumption juris tantum that the employer failed to exercise diligentissimi patris familias in the selection and
supervision of its employees. The liability is primary and can only be negated by showing due diligence in
the selection and supervision of the employee. Herein, such a factual matter that has not been shown.

8. Liability for tort may arise even under a contract

A contractual obligation can be breached by tort and when the same act or omission causes the injury,
one resulting in culpa contractual and the other in culpa aquiliana, Article 2194 of the Civil Code can well
apply. In fine, a liability for tort may arise even under a contract, where tort is that which breaches the
contract. Stated differently, when an act which constitutes a breach of contract would have itself constituted
the source of a quasi-delictual liability had no contract existed between the parties, the contract can be said to
have been breached by tort, thereby allowing the rules on tort to apply.

9. Negligence of Prudent’s employee not proved; Prudent not liable

 The liability of the common carrier, on the one hand, and an independent contractor, on the other
hand, can be described as solidary. However, regrettably for LRT, as well as perhaps the surviving spouse and
heirs of the late Nicanor Navidad, there is nothing to link Prudent to the death of Nicanor Navidad, for the
reason that the negligence of its employee, Escartin, has not been duly proven.

10. Guilt of Roman of any culpability not shown; Roman not liable
There being no showing that Rodolfo Roman himself is guilty of any culpable act or omission, he
must also be absolved from liability. Needless to say, the contractual tie between the LRT and Navidad is not
itself a juridical relation between the latter and Roman; thus, Roman can be made liable only for his own fault
or negligence.

11. Purpose of nominal damages; Nominal damages cannot co-exist with compensatory damages
Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or
invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the
plaintiff for any loss suffered by him. It is an established rule that nominal damages cannot co-exist with
compensatory damages.

[106]

La Mallorca vs. CA (GR L-20761, 27 July 1966)

En Banc, Barrera (J): 8 concur, 1 concur in result

Facts: On 20 December 1953, at about noontime, the spouses Beltran, together with their minor daughters,
namely Milagros (13 years old), Raquel (about 4-1/2 years old), and Fe (over 2 years old), boarded the
Pambusco Bus 352, (TPU 757; 1953 Pampanga), owned and operated by La Mallorca, at San Fernando,
Pampanga, bound for Anao, Mexico, Pampanga. At the time, they were carrying with them 4 pieces of
baggages containing their personal belongings. The conductor of the bus who happened to be a half-brother of
Mariano Beltran, issued 3 tickets covering the full fares of the spouses and their eldest child, Milagros. No
fare was charged on Raquel and Fe, since both were below the height at which fare is charged in accordance
with La Mallorca’s rules and regulations. After about an hour’s trip, the bus reached Anao, whereat it stopped
to allow the passengers bound therefor, among whom were the spouses and their children to get off. Mariano
Beltran, then carrying some of their baggages, was the first to get down the bus, followed by his wife and his
children. Mariano led his companions to a shaded spot on the left pedestrians side of the road about 4 or 5
meters away from the vehicle. Afterwards, he returned to the bus in controversy to get his other bayong,
which he had left behind, but in so doing, his daughter Raquel followed him unnoticed by her father. While
said Mariano Beltran was on the running board of the bus waiting for the conductor to hand him his bayong
which he left under one of its seats near the door; the bus, whose motor was not shut off while unloading,
suddenly started moving forward, evidently to resume its trip, notwithstanding the fact that the conductor has
not given the driver the customary signal to start, since said conductor was still attending to the baggage left
behind by Mariano Beltran. Incidentally, when the bus was again placed into a complete stop, it had travelled
about 10 meters from the point where the Beltrans had gotten off. Sensing that the bus was again in motion,
Mariano Beltran immediately jumped from the running board without getting his bayong from the conductor.
He landed on the side of the road almost in front of the shaded place where he left his wife and children. At
that precise time, he saw people beginning to gather around the body of the child lying prostrate on the
ground, her skull, crushed, and without life. The child was none other than his daughter Raquel, who was run
over by the bus in which she rode earlier together with her parents.

For the death of the child Raquel, the Beltrans commenced the present suit against La Mallorca seeking to
recover from the latter an aggregate amount of P6,000 to cover moral damages and actual damages sustained
as a result thereof and attorney’s fees. After trial on the merits the trial court found La Mallorca liable for
breach of contract of carriage and sentenced it to pay P3,000.00 for the death of the child and P400.00 as
compensatory damages representing burial expenses and costs.

On appeal to the Court of Appeals, La Mallorca claimed that there could not be a breach of contract in the
case, for the reason that when the child met her death, she was no longer a passenger of the bus involved in
the incident and, therefore, the contract of carriage had already terminated. Although the Court of Appeals
sustained this theory, it nevertheless found La Mallorca guilty of quasi- delict and held the latter liable for
damages, for the negligence of its driver, in accordance with Article 2180 of the Civil Code. Further, the
Court of Appeals did not only find La Mallorca liable, but increased the damages awarded the Beltrans to
P6,000.00, instead of P3,000.00 granted by the trial court. Hence, the petition for review.

The Supreme Court modified the decision of the Court of Appeals by sentencing La Mallorca to pay to
Mariano Beltran, et al., the sum of P3,000.00 for the death of the child, Raquel Beltran, and the amount of
P400.00 as actual damages; without costs in this instance.

1. Relation of passenger and carrier subsisting when accident occurred

Although it is true that Mariano Beltran, his wife, and their children (including the deceased child)
had alighted from the bus at a place designated for disembarking or unloading of passengers, it was also
established that the father had to return to the vehicle (which was still at a stop) to get one of his bags or
bayong that was left under one of the seats of the bus. There can be no controversy that as far as the father is
concerned, when he returned to the bus for his bayong which was not unloaded, the relation of passenger and
carrier between him and the petitioner remained subsisting. For, the relation of carrier and passenger does not
necessarily cease where the latter, after alighting from the car, aids the carrier’s servant or employee in
removing his baggage from the car.

2. Relation of carrier and passenger does not cease until the passenger has reasonable time or
opportunity to leave the carrier’s premises
The relation of carrier and passenger does not cease at the moment the passenger alights from the
carrier’s vehicle at a place selected by the carrier at the point of destination, but continues until the passenger
has had a reasonable time or a reasonable opportunity to leave the carrier’s premises.

3. Reasonable time determined from circumstances

What is a reasonable time or a reasonable delay within the rule is to be determined from all the
circumstances. Thus, a person who, after alighting from a train, walks along the station platform is considered
still a passenger. So also, where a passenger has alighted at his destination and is proceeding by the usual way
to leave the company’s premises, but before actually doing so is halted by the report that his brother, a fellow
passenger, has been shot, and he in good faith and without intent of engaging in the difficulty, returns to
relieve his brother, he is deemed reasonably and necessarily delayed and thus continues to be a passenger
entitled as such to the protection of the railroad and company and its agents.

4. Utmost diligence of very cautious person not observed

In the circumstances, it cannot be claimed that the carrier’s agent had exercised the “utmost
diligence” of a “very cautious person” required by Article 1755 of the Civil Code to be observed by a
common carrier in the discharge of its obligation to transport safely its passengers. In the first place, the
driver, although stopping the bus, nevertheless did not put off the engine. Secondly, he started to run the bus
even before the bus conductor gave him the signal to go and while the latter was still unloading part of the
baggages of the passengers Mariano Beltran and family. The presence of said passengers near the bus was not
unreasonable and they are, therefore, to be considered still as passengers of the carrier, entitled to the
protection under their contract of carriage.
5. Alternative causes of action (Section 2, Rule 8); Carrier may be also be held liable for
negligence of its driver
Even assuming arguendo that the contract of carriage has already terminated, La Mallorca can be held
liable for the negligence of its driver, as ruled by the Court of Appeals, pursuant to Article 2180 of the Civil
Code. Paragraph 7 of the complaint is clearly an allegation for quasi-delict. The inclusion of this averment for
quasi-delict, while incompatible with the other claim under the contract of carriage, is permissible under
Section 2 of Rule 8 of the New Rules of Court, which allows a plaintiff to allege causes of action in the
alternative, be they compatible with each other or not, to the end that the real matter in controversy may be
resolved and determined.

6. Culpa sufficiently alleged; Presumption of negligence not overcome by defendant

The Beltrans sufficiently pleaded the culpa or negligence upon which the claim was predicated when
it was alleged in the complaint that the death of Raquel Beltran was caused by the negligence and want of
exercise of the utmost diligence of a very cautious person on the part of La Mallorca and their agent. This
allegation was also proved when it was established during the trial that the driver, even before receiving the
proper signal from the conductor, and while there were still persons on the running board of the bus and near
it, started to run off the vehicle. The presentation of proof of the negligence of its employee gave rise to the
presumption that the employer did not exercise the diligence of a good father of the family in the selection
and supervision of its employees. And this presumption, La Mallorca had failed to overcome. Consequently,
La Mallorca must be adjudged pecuniarily liable for the death of the child Raquel Beltran.

7. Increase of award of damages cannot be sustained

The increase of the award of damages from P3,000.00 to P6,000.00 by the Court of Appeals,
however, cannot be sustained. Generally, the appellate court can only pass upon and consider questions or
issues raised and argued in appellant’s brief. Herein, the Beltrans did not appeal from that portion of the
judgment of the trial court awarding them only P3,000.00 damages for the death of their daughter. Neither
does it appear that the Beltrans have pointed out in their brief the inadequacy of the award, or that the
inclusion of the figure P3,000.00 was merely a clerical error, in order that the matter may be treated as an
exception to the general rule.

[107]

Aboitiz Shipping Corp. vs. CA (GR 84458, 6 November 1989)

Second Division, Regalado (J): 4 concur

Facts: Anacleto Viana was only 40 years old and was in good health. His average annual income as a farmer
or a farm supervisor was 400 cavans of palay annually. His parents, Antonio and Gorgonia Viana, had been
recipient of 20 cavans of palay as support or P120.00 monthly. On 11 May 1975, Anacleto Viana boarded the
vessel M/V Antonia, owned by Aboitiz Shipping Corp., at the port at San Jose, Occidental Mindoro, bound
for Manila, having purchased a ticket (117392) in the sum of P23.10. On 12 May 1975, said vessel arrived at
Pier 4, North Harbor, Manila, and the passengers therein disembarked, a gangplank having been provided
connecting the side of the vessel to the pier. Instead of using said gangplank, Viana disembarked on the third
deck which was on the level with the pier. After said vessel had landed, the Pioneer Stevedoring Corporation
took over the exclusive control of the cargoes loaded on said vessel pursuant to the Memorandum of
Agreement dated 26 July 1975 between the Pioneer Stevedoring Corporation and Aboitiz. The crane owned
by Pioneer and operated by its crane operator Alejo Figueroa was placed alongside the vessel and 1 hour after
the passengers of said vessel had disembarked, it started operation by unloading the cargoes from said vessel.
While the crane was being operated, Viana who had already disembarked from said vessel obviously
remembering that some of his cargoes were still loaded in the vessel, went back to the vessel, and it was while
he was pointing to the crew of the said vessel to the place where his cargoes were loaded that the crane hit
him, pinning him between the side of the vessel and the crane. He was thereafter brought to the hospital
where he later expired 3 days thereafter, on 15 May 1975, the cause of his death according to the Death
Certificate being “hypostatic pneumonia secondary to traumatic fracture of the pubic bone lacerating the
urinary bladder.” For his hospitalization, medical, burial and other miscellaneous expenses, Anacleto’s wife,
Lucila C. Viana, spent a total of P9,800.00. Because of Anacleto’s death, the deceased’s parents and spouse
suffered mental anguish and extreme worry or moral damages. For the filing of the case, they had to hire a
lawyer for an agreed fee of P10,000.00.

The Vianas filed a complaint for damages against Aboitiz for breach of contract of carriage. Aboitiz, on the
other hand, filed a third-party complaint against Pioneer. In a decision rendered on 17 April 1980 by the trial
court, Aboitiz was ordered to pay the Vianas for damages incurred (the sum of P12,000.00 for the death of
Anacleto Viana; P9,800.00 as actual damages; P533,200.00 value of the 10,664 cavans of palay computed at
P50.00 per cavan; P10,000.00 as attorney’s fees; P5,000.00, value of the 100 cavans of palay as support for 5
years for deceased’s parents, Antonio and Gorgonia Viana computed at P50.00 per cavan; P7,200.00 as
support for deceased’s parents computed at P120.00 a month for 5 years pursuant to Article 2206 [2] of the
Civil Code; P20,000.00 as moral damages, and costs), and Pioneer was ordered to reimburse Aboitiz for
whatever amount the latter paid the Vianas. Both Aboitiz and Pioneer filed separate motions for
reconsideration. In an order dated 27 October 1982, the trial court absolved Pioneer from liability for failure
of the Vianas and Aboitiz to preponderantly establish a case of negligence against the crane operator. The
court thus ordered Aboitiz to pay the Vianas the damages incurred.

Not satisfied with the modified judgment of the trial court, Aboitiz appealed the same to the Court of Appeals
which affirmed the findings of the trial court except as to the amount of damages awarded to the Vianas. The
Court therein ordered Aboitiz to pay the Vianas the amount of P30,000.00 for the death of Anacleto Viana;
actual damages of P9,800.00; P160,000.00 for unearned income; P7,200.00 as support for deceased’s
parents;-P20,000.00 as moral damages; P10,000.00 as attorney’s fees; and to pay the costs. Hence, the appeal
by certiorari.

The Supreme Court denied the petition, and affirmed the judgment appealed from in toto.

1. Until when contract of carriage subsists

The rule is that the relation of carrier and passenger continues until the passenger has been landed at
the port of destination and has left the vessel owner’s dock or premises. Once created, the relationship will
not ordinarily terminate until the passenger has, after reaching his destination, safely alighted from the
carrier’s conveyance or had a reasonable opportunity to leave the carrier’s premises. All persons who remain
on the premises a reasonable time after leaving the conveyance are to be deemed passengers, and what is a
reasonable time or a reasonable delay within this rule is to be determined from all the circumstances, and
includes a reasonable time to see after his baggage and prepare for his departure. The carrier-passenger
relationship is not terminated merely by the fact that the person transported has been carried to his destination
if, for example, such person remains in the carrier’s premises to claim his baggage.

2. Doctrine in the case of La Mallorca

It has been recognized as a rule that the relation of carrier and passenger does not cease at the
moment the passenger alights from the carrier’s vehicle at a place selected by the carrier at the point of
destination, but continues until the passenger has had a reasonable time or a reasonable opportunity to leave
the carrier’s premises. And, what is a reasonable time or a reasonable delay within this rule is to be
determined from all the circumstances. Thus, a person who, after alighting from a train, walks along the
station platform is considered still a passenger. So also, where a passenger has alighted at his destination and
is proceeding by the usual way to leave the company’s premises, but before actually doing so is halted by the
report that his brother, a fellow passenger, has been shot, and he in good faith and without intent of engaging
in the difficulty, returns to relieve his brother, he is deemed reasonably and necessarily delayed and thus
continues to be a passenger entitled as such to the protection of the railroad company and its agents.
3. Determination of reasonableness of time; Existence of reasonable cause a primary factor
Reasonableness of time should be made to depend on the attending circumstances of the case, such as
the kind of common carrier, the nature of its business, the customs of the place, and so forth, and therefore
precludes a consideration of the time element per se without taking into account such other factors. In La
Mallorca, It is of no moment that there was no appreciable interregnum for the passenger therein to leave the
carrier’s premises. Herein, an interval of 1 hour had elapsed before the victim met the accident. The primary
factor to be considered is the existence of a reasonable cause as will justify the presence of the victim on or
near Aboitiz’ vessel.

4. A carrier is duty bound not only to bring its passengers safely to their destination but also to
afford them a reasonable time to claim their baggage
It is of common knowledge that, by the very nature of Aboitiz’ business as a shipper, the passengers
of vessels are allotted a longer period of time to disembark from the ship than other common carriers such as
a passenger bus. With respect to the bulk of cargoes and the number of passengers it can load, such vessels
are capable of accommodating a bigger volume of both as compared to the capacity of a regular commuter
bus. Consequently, a ship passenger will need at least an hour as is the usual practice, to disembark from the
vessel and claim his baggage whereas a bus passenger can easily get off the bus and retrieve his luggage in a
very short period of time. Verily, Aboitiz cannot categorically claim, through the bare expedient of comparing
the period of time entailed in getting the passenger’s cargoes, that the ruling in La Mallorca is inapplicable to
the present case. On the contrary, if the doctrine enunciated therein is applied to the present petition, the
victim Anacleto Viana was still a passenger at the time of the incident. When the accident occurred, the
victim was in the act of unloading his cargoes, which he had every right to do, from Aboitiz’ vessel.

5. Victim not proved to have disembarked from vessel; Victim deemed passenger at time of death
It is not definitely shown that 1 hour prior to the incident, the victim had already disembarked from
the vessel. Aboitiz failed to prove this. What is clear is that at the time the victim was taking his cargoes, the
vessel had already docked an hour earlier. In consonance with common shipping procedure as to the
minimum time of 1 hour allowed for the passengers to disembark, it may be presumed that the victim had just
gotten off the vessel when he went to retrieve his baggage. Yet, even if he had already disembarked an hour
earlier, his presence in Aboitiz’ premises was not without cause. The victim had to claim his baggage which
was possible only 1 hour after the vessel arrived since it was admittedly standard procedure in the case of
Aboitiz’ vessels that the unloading operations shall start only after that time. Consequently, under the
foregoing circumstances, the victim Anacleto Viana is still deemed a passenger of said carrier at the time of
his tragic death.

6. Common carriers bound to observe extraordinary diligence as to goods, utmost diligence of

very cautious persons as to passengers
Under the law, common carriers are, from the nature of their business and for reasons of public
policy, bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances of each case. More particularly, a common
carrier is bound to carry the passengers safely as far as human care and foresight can provide, using the
utmost diligence of very cautious persons, with a due regard for all the circumstances.

7. Common carrier presumed negligent when passenger dies or injured; Proof required of
plaintiff
Where a passenger dies or is injured, the common carrier is presumed to have been at fault or to have
acted negligently. This gives rise to an action for breach of contract of carriage where all that is required of
plaintiff is to prove the existence of the contract of carriage and its non-performance by the carrier, that is, the
failure of the carrier to carry the passenger safely to his destination, which, in the present case, necessarily
includes its failure to safeguard its passenger with extraordinary diligence while such relation subsists.
8. Burden of proof to negate presumption
The presumption is established by law that in case of a passenger’s death or injury the operator of the
vessel was at fault or negligent, having failed to exercise extraordinary diligence, and it is incumbent upon it
to rebut the same. This is in consonance with the avowed policy of the State to afford full protection to the
passengers of common carriers which can be carried out only by imposing a stringent statutory obligation
upon the latter. Concomitantly, the Supreme Court has likewise adopted a rigid posture in the application of
the law by exacting the highest degree of care and diligence from common carriers, bearing utmost in mind
the welfare of the passengers who often become hapless victims of indifferent and profit-oriented carriers.
Herein, Aboitiz failed to rebut the presumption against it.

9. Aboitiz had inadequately complied with the required degree of diligence to prevent the accident
from happening
The evidence does not show that there was a cordon of drums around the perimeter of the crane. The
fact that the alleged presence of visible warning signs in the vicinity was disputable and not indubitably
established. The victim and other passengers were not sufficiently warned that merely venturing into the area
in question was fraught with serious peril. Even assuming the existence of the supposed cordon of drums
loosely placed around the unloading area and the guard’s admonitions against entry therein, these were at
most insufficient precautions which pale into insignificance if considered vis-a-vis the gravity of the danger to
which the deceased was exposed. There is no showing that Aboitiz was extraordinarily diligent in requiring or
seeing to it that said precautionary measures were strictly and actually enforced to subserve their purpose of
preventing entry into the forbidden area.

10. Aboitiz’ negligence proximate and direct cause of victim’s death

While the victim was admittedly contributorily negligent, still Aboitiz’s failure to exercise
extraordinary diligence was the proximate and direct cause of, because it could definitely have prevented, the
former’s death.

11. Pioneer absolved of liability

No excepting circumstance being present, the Court is bound by lower court’s declaration that there
was no negligence on the part of Pioneer Stevedoring Corporation, a confirmation of the trial court’s finding
to that effect, hence the Court’s conformity to Pioneer’s being absolved of any liability. Pioneer had taken the
necessary safeguards insofar as its unloading operations were concerned, a fact which appears to have been
accepted by the Vianas by not impleading Pioneer as a defendant, and likewise inceptively by Aboitiz by
filing its third-party complaint only after 10 months from the institution of the suit against it. Parenthetically,
Pioneer is not within the ambit of the rule on extraordinary diligence required of, and the corresponding
presumption of negligence foisted on, common carriers like Aboitiz. This, of course, does not detract from
what the Court has said that no negligence can be imputed to Pioneer but, that on the contrary, the failure of
Aboitiz to exercise extraordinary diligence for the safety of its passenger is the rationale for the Court’s
finding on its liability.

[108]

Bachelor Express vs. CA (GR 85691, 31 July 1990)

Third Division, Gutierrez Jr. (J): 4 concur

Fact: On 1 August 1980, Bus 800, owned by Bachelor Express, Inc. and driven by Cresencio Rivera, came
from Davao City on its way to Cagayan de Oro City passing Butuan City. While at Tabon-Tabon, Butuan City,
the bus picked up a passenger. About 15 minutes later, a passenger at the rear portion suddenly stabbed a PC
soldier which caused commotion and panic among the passengers. When the bus stopped, passengers
Ornominio Beter and Narcisa Rautraut were found lying down the road, the former already dead as a result of
head injuries and the latter also suffering from severe injuries which caused her death later. The passenger-
assailant alighted from the bus and ran toward the bushes but was killed by the police.

Thereafter, the heirs of Ornomino Beter and Narcisa Rautraut (Ricardo Beter and Sergia Beter are the parents
of Ornominio while Teofilo Rautraut and Zotera Rautraut are the parents of Narcisa) filed a complaint for
“sum of money” against Bachelor Express, its alleged owner Samson Yasay, and the driver Rivera. After due
trial, the trial court issued an order dated 8 August 1985 dismissing the complaint.

Upon appeal however, the trial court’s decision was reversed and set aside. The appellate entered a new
judgment finding Bachelor Express, Yasay, and Rivera jointly and solidarily liable to pay the Beters and the
Rautraut the amount of P75,000.00 in loss of earnings and support, moral damages, straight death indemnity
and attorney’s fees to the heirs of Ornominio Beter; and the amount of P45,000.00 for straight death
indemnity, moral damages and attorney’s fees to the heirs of Narcisa Rautraut; with costs against Bachelor
Express, et. al. Hence, the petition for review.

The Supreme Court dismissed the petition, and affirmed the decision dated 19 May 1988 and the resolution
dated 1 August 1988 of the Court of Appeals.

1. Liability of Bachelor Express, et. al. anchored on culpa contractual

The liability, if any, of Bachelor Express, Yasay, and Rivera, is anchored on culpa contractual or
breach of contract of carriage.

2. Article 1732 NCC

Article 1732 of the Civil Code provides that “Common carriers are persons, corporations, firms or
associations engaged in the business of carrying or transporting passengers or goods or both by land, water, or
air, for compensation, offering their services to the public.”

3. Article 1733 NCC

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

4. Article 1755 NCC

Article 1755. of the Civil Code provides that “A common carrier is bound to carry the passengers
safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons,
with a due regard for all the circumstances.”

5. Article 1756 NCC

Article 1756 of the Civil Code provides that “In case of death of or injuries to passengers, common
carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as prescribed in Articles 1733 and 1755.”

6. Bachelor Express a common carrier, bound to carry passenger using utmost diligence of very
cautious persons
Bachelor Express, Inc. is a common carrier. Hence, from the nature of its business and for reasons of
public policy Bachelor Express, Inc. is bound to carry its passengers safely as far as human care and foresight
can provide using the utmost diligence of very cautious persons, with a due regard for all the circumstances.

7. Bachelor Express presumed to act negligently for death of passengers

Herein, Ornominio Beter and Narcisa Rautraut were passengers of a bus belonging to Bachelor
Express and, while passengers of the bus, suffered injuries which caused their death. Consequently, pursuant
to Article 1756 of the Civil Code, Bachelor Express is presumed to have acted negligently unless it can prove
that it had observed extraordinary diligence in accordance with Articles 1733 and 1755 of the New Civil
Code.

8. Article 1174 NCC

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

9. Article 1105 of the old Civil Code is predecessor of Article 1174 NCC
Article 1174 of the present Civil Code was substantially copied from Article 1105 of the old Civil
Code which states that “No one shall be liable for events which could not be foreseen or which, even if
foreseen, were inevitable, with the exception of the cases in which the law expressly provides otherwise and
those in which the obligation itself imposes liability.”

10. “Events” defined; Lasam vs. Smith

In the case of Lasam v. Smith (45 Phil. 657 [1924]), the Court defined “events” which cannot be
foreseen and which, having been foreseen, are inevitable in the following manner: “The Spanish authorities
regard the language employed as an effort to define the term ‘caso fortuito’ and hold that the two expressions
are synonymous. (Manresa Comentarios al Codigo Civil Español, vol. 8, pp. 88 et seq.; Scaevola, Codigo
Civil, vol. 19, pp. 526 et seq.)

11. Caso fortuito defined; Law II, Title 33, Partida 7

The antecedent to Article 1105 is found in Law II, Title 33, Partida 7, which defines caso fortuito as
‘ocasion que acaese por aventura de que non se puede ante ver. E son estos, derrivamientos de casas e fuego
que enciende a so ora, e quebrantamiento de navio, fuerca de ladrones.’ (An event that takes place by incident
and could not have been foreseen. Examples of this are destruction of houses, unexpected fire, shipwreck,
violence of robbers )

12. Caso fortuito defined; Escriche

Escriche defines caso fortuito as an unexpected event or act of God which could neither be foreseen
nor resisted, such as floods, torrents, shipwrecks, conflagrations, lightning, compulsion, insurrections,
destruction of buildings by unforeseen accidents and other occurrences of a similar nature.

13. Caso fortutio defined, characterized; Enciclopedia Juridica Espanola

In discussing and analyzing the term caso fortuito the Enciclopedia Juridica Española says: ‘In a legal
sense and, consequently, also in relation to contracts, a caso fortuito presents the following essential
characteristics: (1 ) The cause of the unforeseen and unexpected occurrence, or of the failure of the debtor to
comply with his obligation, must be independent of the human will. (2) It must be impossible to foresee the
event which constitutes the caso fortuito, or if it can be foreseen, it must be impossible to avoid. (3) The
occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner.
And (4) the obligor (debtor) must be free from any participation in the aggravation of the injury resulting to
the creditor.

14. Essential element of caso fortuito

Authorities agree that some extraordinary circumstance independent of the will of the obligor, or of
his employees, is an essential element of a caso fortuito.”

15. Proximate cause of incident; Sudden act of passenger who stabbed another passenger within
context of force majeure
 The running amuck of the passenger was the proximate cause of the incident as it triggered off a
commotion and panic among the passengers such that the passengers started running to the sole exit shoving
each other resulting in the falling off the bus by passengers Beter and Rautraut causing them fatal injuries.
The sudden act of the passenger who stabbed another passenger in the bus is within the context of force
majeure.

16. Common carrier must prove that it was not negligent in causing injuries resulting from such
accident
In order that a common carrier may be absolved from liability in case of force majeure, it is not
enough that the accident was caused by force majeure. The common carrier must still prove that it was not
negligent in causing the injuries resulting from such accident. (See Tan Chiong Sian vs. Inchausti & Co., 22
Phil 152 [1912]).

17. Batangas Laguna vs. IAC; Accident must be due to natural causes and without human
intervention
The principle in Tan Chiong Sian was reiterated in a more recent case, Batangas Laguna Tayabas Co.
v. Intermediate Appellate Court (167 SCRA 379 [1988]), wherein the Court ruled that “For their defense of
force majeure or act of God to prosper the accident must be due to natural causes and exclusively without
human intervention.”

18. Bachelor Express negligent

The negligence of the common carrier, through its employees, consisted of the lack of extraordinary
diligence required of common carriers, in exercising vigilance and utmost care of the safety of its passengers,
exemplified by the driver’s belated stop and the reckless opening of the doors of the bus while the same was
travelling at an appreciably fast speed. At the same time, the common carrier itself acknowledged, through its
administrative officer, Benjamin Granada, that the bus was commissioned to travel and take on passengers
and the public at large, while equipped with only a solitary door for a bus its size and loading capacity, in
contravention of rules and regulations provided for under the Land Transportation and Traffic Code (RA 4136
as amended.). Bachelor Express, et. al. have failed to overcome the presumption of fault and negligence
found in the law governing common carriers.

19. Defense of carrier not insurers of passengers not given merit due to failure to observe required
diligence
Bachelor Express’ argument that they “are not insurers of their passengers” deserves no merit in view
of their failure to prove that the deaths of the two passengers were exclusively due to force majeure and not to
their failure to observe extraordinary diligence in transporting safely the passengers to their destinations as
warranted by law.

20. Determination of award of damages; Article 1764 in connection with Article 2206 NCC
In accordance with Article 1764 in conjunction with Article 2206 of the Civil Code, and established
jurisprudence, several factors may be considered in determining the award of damages, namely: 1) life
expectancy (considering the state of health of the deceased and the mortality tables are deemed conclusive)
and loss of earning capacity; (2) pecuniary loss, loss of support and service; and (3) moral and mental
suffering (Alcantara, et el. v. Surro, et al., 93 Phil. 470).

21. People vs. Daniel; Factors serving as basis for amount for loss of earning capacity
In the case of People v. Daniel (No. L-66551, April 25, 1985, 136 SCRA 92, at page 104), the High
Tribunal, reiterating the rule in Villa Rey Transit, Inc. v. Court of Appeals (31 SCRA 511), stated that the
amount of loss of earning capacity is based mainly on two factors, namely, (1) the number of years on the
basis of which the damages shall be computed; and (2) the rate at which the losses sustained by the heirs
should be fixed.
22. Formula adopted in Davila vs. PAL
As the formula adopted in the case of Davila v. Philippine Air Lines, 49 SCRA 497, at the age of 30
one’s normal life expectancy is 33 1/3 years based on the American Expectancy Table of Mortality (2/3 x 80-
32). Herein, by taking into account the pace and nature of the life of a carpenter, it is reasonable to make
allowances for these circumstances and reduce the life expectancy of the deceased Ornominio Beter to 25
years (People v. Daniel). To fix the rate of losses it must be noted that Article 2206 refers to gross earnings
less necessary living expenses of the deceased, in other words, only net earnings are to be considered (People
v. Daniel, Villa Rey Transit, Inc. v. Court of Appeals).

23. Award of damages to heirs of Ornomino Beter

It is both just and reasonable, considering Ornominio Beter’s social standing and position, to fix the
deductible, living and incidental expenses at the sum of P400.00 a month, or P4,800.00 annually. As to his
income, considering the irregular nature of the work of a daily wage carpenter which is seasonal, it is safe to
assume that he shall have work for 20 days a month at P25.00 a day or P500.00 a month. Annually, his
income would amount to P6,000.00 or P150,000.00 for 25 years. Deducting therefrom his necessary
expenses, his heirs would be entitled to P30,000.00 representing loss of support and service (P150,000.00 less
P120,000.00). In addition, his heirs are entitled to P30,000.00 as straight death indemnity pursuant to Article
2206 (People v. Daniel). For damages for their moral and mental anguish, his heirs are entitled to the
reasonable sum of P10,000.00 as an exception to the general rule against moral damages in case of breach of
contract rule (Artcile 2200, Necesito v. Paras, 104 Phil. 75). As attorney’s fees, Beter’s heirs are entitled to
P5,000.00. All in all, Ricardo and Sergia Beter as heirs of their son Ornominio are entitled to an indemnity of
P75,000.00.

24. Award of damages to heirs of Narcisa Rautraut

In the case of Narcisa Rautraut, her heirs are entitled to a straight death indemnity of P30,000.00, to
moral damages in the amount of P10,000.00 and P5,000.00 as attorneys fees, or a total of P45,000.00 as total
indemnity for her death in the absence of any evidence that she had visible means of support.

[109]

Bacarro vs. Castano (HR L-34597, 5 November 1982)

First Division, Relova (J): 4 concur, 1 on leave

Facts: In the afternoon of 1 April 1960, Gerundio B. Castano boarded a jeep as a paying passenger at
Oroquieta bound for Jimenez, Misamis Occidental. It was then filled to capacity, with 12 passengers in all.
The jeep was driven by Felario Montefalcon at around 40 kilometers per hour. While approaching Sumasap
Bridge at the said speed, a cargo truck (owned by Te Tiong, alias Chinggim; and driven by Nicostrato Digal)
coming from behind, blowing its horn to signal its intention to overtake the jeep. The jeep, without changing
its speed, gave way by swerving to the right, such that both vehicles ran side by side for a distance of around
20 meters. Thereafter as the jeep was left behind, its driver was unable to return it to its former lane and
instead it obliquely or diagonally ran down an inclined terrain towards the right until it fell into a ditch
pinning down and crushing Castano’s right leg in the process.

Castano filed a case for damages against Rosita Bacarro, William Sevilla, and Felario Montefalcon.
Defendants alleged that the jeepney was sideswiped by the overtaking cargo truck. After trial, the CFI of
Misamis Oriental ordered Bacarro, et.al. to jointly and severally pay Castano the sum of (1) P973.10 for
medical treatment and hospitalization; (2)P840.20 for loss of salary during treatment; and (3) P2,000.00 for
partial permanent deformity, with costs against Bacarro, et.al.
Appeal was taken by Bacarro, et. al. to the Court of Appeals, which, on 30 September 1971, affirmed that of
the trial court. Hence, the appeal by certiorari.

The Supreme Court affirmed the decision of the Court of Appeals; with costs.

1. Contributory negligence of Montefalcon

Herein, driver Montefalcon did not slacken his speed but instead continued to run the jeep at about 40
kilometers per hour even at the time the overtaking cargo truck was running side by side for about 20 meters
and at which time he even shouted to the driver of the truck. Had Montefalcon slackened the speed of the jeep
at the time the truck was overtaking it, instead of running side by side with the cargo truck, there would have
been no contact and accident. He should have foreseen that at the speed he was running, the vehicles were
getting nearer the bridge and as the road was getting narrower the truck would be too close to the jeep and
would eventually sideswipe it. Otherwise stated, he should have slackened his jeep when he swerved it to the
right to give way to the truck because the two vehicles could not cross the bridge at the same time.

2. Jeepney driver failed to exercise extraordinary diligence, human care, foresight and utmost
diligence of a very cautious person ; Article 1763
The jeepney driver failed to exercise extraordinary diligence, human care, foresight and utmost
diligence of a very cautious person, when the diligence required pursuant to Article 1763 of the Civil Code is
only that of a good father of a family. Whether the proximate cause of the accident was the negligence of the
driver of the truck, as alleged, is immaterial. As there was a contract of carriage between Castano and
Bacarro, et. al., the Court of Appeals correctly applied Articles 1733, 1755 and 1766 of the Civil Code which
require the exercise of extraordinary diligence on the part of Montefalcon.

3. Article 1733 NCC

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

4. Article 1755 NCC

Article 1755 provides that “A common carrier is bound to carry the passengers safely as far as human
care and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all
the circumstances.”

5. Article 1766 NCC

Article 1766 provides that “In all matters not regulated by this Code, the rights and obligations of
common carriers shall be governed by the Code of Commerce and by special laws.”

6. Common carrier vested with public interest, required utmost diligence of very cautious
persons; Presumption of fault
The hazards of modern transportation demand extraordinary diligence. A common carrier is vested
with public interest. Under the new Civil Code, instead of being required to exercise mere ordinary diligence
a common carrier is exhorted to carry the passengers safely as far as human care and foresight can provide
“using the utmost diligence of very cautious persons.” (Article 1755). Once a passenger in the course of travel
is injured, or does not reach his destination safely, the carrier and driver are presumed to be at fault.

7. Sideswiping of jeepney foreseeable, not fortuitous event

The accident was not due to a fortuitous event. The alleged fortuitous event in the case, i.e. the
sideswiping of the jeepney by the cargo truck, was something which could have been avoided considering the
narrowness of Sumasap Bridge which was not wide enough to admit two vehicles. Herein, Montefalcon
contributed to the occurrence of the mishap.
[110] Pilapil vs. CA, see [80]
[111]

Laguna Tayabas Bus vs. Tiongson (GR L-22143, 30 April 1966)

En Banc, Dizon (J): 10 concur, 1 took no part

Facts: On 3 June 1958, about two kilometers past the poblacion of Bay, Laguna, Laguna Tayabas Bus Co.’s
(LTB) Bus 204, coming from San Pablo City towards Manila collided with a 7-up delivery truck coming from
the opposite direction. As a consequence the bus fell on its right side on the shoulder of the road resulting in
injuries to many of its passengers and the death of Ricardo C. Tiongson and a woman passenger. Both driver
were prosecuted for double homicide, multiple serious physical injuries and damage to property, thru reckless
imprudence, in the Court of First Instance of Laguna, but a separate action for damages for breach of contract
of carriage was filed in the Court of First Instance of Bulacan by Antonio and Felicitas J. Tiongson, as heirs
of the deceased Ricardo C. Tiongson, against LTB.

In the separate civil action (Civil Case 1760), the trial court, on 28 December 1959, found LTB’s driver to
blame for the accident and rendered judgment sentencing LTB to pay to the Tiongsons the sum of P50,000.00
by way of actual, compensatory and moral damages, and the further sum of P5,000.00 as counsel fees, with
costs against LTB. Both parties appealed to the Court of Appeals, LTB from the portion thereof holding it
liable for damages for breach of contract, and the Tiongsons from the portion determining the amount of
damages awarded to them.

In the criminal action (Criminal Case B-331), however, on 31 July 1961, the CFI of Laguna acquitted Claro
Samonte, LTB’s driver, of the offense charged on the ground of reasonable doubt.

On 28 October 1963, the Court of Appeals affirmed the decision of the CFI of Bulacan. Hence, the appeal by
certiorari.

The Supreme Court affirmed the decision appealed from, with costs.

1. General principles as to common carriers

In moving forward to a conclusion in the case, certain general principles must be borne in mind,
namely: (1) the liability of a carrier is contractual and arises upon its breach of the obligation, and there is a
breach if it fails to exercise extra-ordinary diligence according to all the circumstances of each case; (2) a
carrier is obliged to carry its passengers with the utmost diligence of a very cautious person, having due
regard for the circumstances; (3) a carrier is presumed to be at fault or to have acted negligently in case of
death of, or injury to its passengers, it being its duty to prove that it exercised extra-ordinary diligence; (4) a
carrier is not an insurer against all risks of travel (Isaac vs. A.L. Amen Transportation Co., Inc., G.R. No. L-
9671, August 28, 1957); and (5) that a carrier shall not be responsible for events which could not be foreseen,
or which, though foreseen, were inevitable (Alfaro vs. Ayson, 54 Off. Gaz. 7922).

2. Testimony of driver doubted

The testimony of Samonte is to be seriously doubted. (1) He and his conductor, Alcantara, must be
necessarily biased witnesses for they are both employed by LTB. (2) It is of common knowledge that a
delivery truck fully loaded with cases of soft drinks is a slower moving vehicle than a passenger bus. A
passenger bus is necessarily designed for speed because the travelers usually want to arrive at their
destinations within the shortest possible time, whereas soft drinks delivery trucks are built more for the safety
of its bottled cargo than for speed. (3) Samonte’s claim that when he applied the brakes of his bus when it was
then about 10 meters away from the 7-Up truck, the speed of his bus was only about 10 kilometers per hour
cannot be given full credence. He stated that after applying the brakes, his bus still moved less than 5 meters
before being hit by the 7-Up truck. If his speed had only been 10 kilometers per hour, upon the application of
the brakes, he would have stopped the bus within a much shorter distance.

3. Ramification of the sketch prepared by the Chief of Police

An examination of the sketch prepared by the chief of police of Bay, Laguna shows that the collision
between LTB’s bus and the 7-Up Truck occurred only 8 meters away from the bid depression. This short
distance would seem to indicate that LTB’s driver, Samonte, knowing exactly the location of the depression,
and anticipating that the 7-Up truck coming from the opposite direction would veer to the left of the said
depression in order to avoid the same, raced with the 7-Up truck in order that he could first pass through the
space between the depression and what was left of the asphalt pavement of the lane on which he was then
traveling, obviously for the purpose of avoiding delay. Because of this, the 7-Up truck driver who must have
intended to pass on the said space in order to avoid going through the depression, was suddenly forced into
the depression, in order to avoid a head-on collision with LTB’s bus. But unfortunately, after bumping out of
the depressions, the truck veered to the left and hit LTB’s bus on the left front side, thereby causing the bus to
overturn on its right side.

4. Testimony of disinterested eyewitness to accident more credible

The testimony of Rufo Reano, a barrio lieutenant and a disinterested eye-witness of the accident, was
credible; that, to the contrary, the testimony of Claro Samonte and Ernesto Alcantara, driver and conductor
respectively of petitioner’s bus, was improbable and biased.

5. LTB not successful discharged burden of disproving its presumptive negligence

Herein, LTB not only failed to disprove the presumption of negligence arising against it (Articles
1733, 1755 and 1756 of the New Civil Code) but that, on the contrary, its negligence had been established by
more than mere preponderance of evidence. (1) Samonte actually applied the brakes on his but too late to
avoid the accident because at that time the distance between the two vehicle was only ten meters. (2) Samonte
was well aware of the condition of the road, particularly of the existence of a depression near the place where
the two vehicle collided, because he had been driving through and along the same route for a considerable
period of time prior to the accident. (3) On 16 May 1958 or only two weeks before the fatal collision,
Samonte had been apprehended for overspeeding. (4) Certain admissions made on the witness stand by
Teotimo de Mesa, LTB’s chief clerk since 1948, sufficiently showed that the company had not exercised due
care and diligence in connection with the hiring of Samonte.

6. Moral damages due; Article 1764 in relation to Article 2206, Necesito vs. Pras
LTB’s liability for moral damages can not now be seriously questioned in view of the provisions of
Article 1764 and 2206, Nos. 1 and 3 of the New Civil Code and the ruling in Necesito et al. vs. Paras et al.,
104 Phil. 75, Resolution on motion to reconsider 11 September 1958 where it was held that the case of a
passenger who dies in the course of an accident, due to the carrier’s negligence, constitutes an exception to
the general rule as to moral damages. While under Article 2220 of the new Civil Code there can be no
recovery of moral damages for a breach of contract in the absence of fraud (malice) or bad faith, the case of a
violation of the contract or carrier leading to a passenger’s death escapes this general rule, in view of Article
1764 in connection with Article 2206 (3) of the new Civil Code.

7. Article 1764 NCC

Article 1764 of the Civil Code provides that “Damages in case comprised in this section shall be
awarded in accordance with Title XVIII of this Book, concerning Damages. Article 2206 shall also apply to
the death of a passenger caused by the breach of contract by a common carrier.”

8. Article 2206 (3) NCC

 Article 2206 (3) of the Civil Code provides that “The spouse, legitimate and illegitimate descendants
and ascendants of the deceased may demand moral damages for mental anguish by reason of the death of the
deceased.”

9. Special provision control general ones

Being a special rule limited to cases of fatal injuries, Articles 1764 and 2206 (3) prevail over the
general rule of Art. 2220. Special provision control general ones (Lichauco & Co. vs. Apostol, 44 Phil. 138;
Sancho vs. Lizarrage, 55 Phil. 601).

10. Necesito vs. Paras not in conflict with Cachero vs. Manila Taxi Cab; Application of ruling in
other cases
Under the new Civil Code, in case of accident due to a carrier’s negligence, the heirs of a deceased
passenger may recover moral damages, even though a passenger who is injured, but manages to survive, is
not entitled to them. There is, therefore, no conflict between the Court’s main decision in Necesito vs. Pras
and that of Cachero vs. Manila Taxi Cab Co., G.R. No. L-8721, May 23, 1957, where the passenger suffered
injuries, but did not lose his life. The above ruling was followed and applied in Cariaga vs. L.T.B., G.R. No.
L-11037, December 29, 1960; Bernardo vs. Luna, G.R. No. L-13328-29, September 29, 1961; and Martinez
vs. Gonzales, G.R. No. L-17570, October 30, 1962.

11. Compensatory and moral damages awarded not excessive

Herein, the deceased Ricardo C. Tiongson, at the time of his death on 3 June 1958, was only 32 years
old. He was a Bachelor of Science in Commerce (Far Eastern University 1949) and obtained employment
with the San Pablo City Branch of the People’s Bank in 1954 with a starting monthly salary of P150.00
which, after 6 months in the service, was increased to P175.00. While thus employed with the People’s Bank,
he was also administering his mother’s farm in Calamba, Laguna. He was the only son of spouses Antonio
Tiongson and Paz Cailes Tiongson, and had been married hardly 3 years when he died. The foregoing
circumstances fully justify the damages awarded in the appealed decision which are substantially in accord
with the rules of law contained in Articles 1764 and 2206, Nos. 1 and 3 of the New Civil Code.

12. Award of attorney’s fees justified

Considering the provisions of Article 2208, Nos. 2 and 11 of the New Civil Code, and the proven fact
that LTB ignored the Tiongsons’ demand for an amicable settlement of their claim, the award of attorney’s
fees seems to be completely justified (Rex Taxi Cab Co. Inc. vs. Bautista, G.R. No. L-15392, September 30,
1960; Necesito vs. Paras, supra).

[112]

Sulpicio Lines vs. CA (GR 113578, 14 July 1995)

First Division, Quiason (J): 3 concur, 1 on leave

Facts: On 23 October 1988, Tito Duran Tabuquilde and his three-year old daughter Jennifer Anne boarded
the M/V Dona Marilyn at North Harbor, Manila, bringing with them several pieces of luggage. In the
morning of 24 October 1988, the M/V Dona Marilyn, while in transit, encountered inclement weather which
caused huge waves due to Typhoon Unsang. Notwithstanding the fact that Storm Signal 2 had been raised by
the PAG- ASA authorities over Leyte as early as 5:30 P.M. of 23 October 1988 and which signal was raised to
Signal 3 by 10 P.M. of the same day, the ship captain ordered the vessel to proceed to Tacloban when
prudence dictated that he should have taken it to the nearest port for shelter, thus violating his duty to exercise
extraordinary diligence in the carrying of passengers safely to their destination. At about the same time,
Angelina Tabuquilde, mother of Jennifer Anne, contacted the Sulpicio Office to verify radio reports that the
vessel M/V Dona Marilyn was missing. Employees of said Sulpicio Lines assured her that the ship was
merely “hiding” thereby assuaging her anxiety. At around 2:00 P.M. of 24 October 1988, said vessel
capsized, throwing Tito
and Jennifer Anne, along with hundreds of passengers, into the tumultuous sea. Tito tried to keep himself and
his daughter afloat but to no avail as the waves got stronger and he was subsequently separated from his
daughter despite his efforts. He found himself on Almagro Island in Samar the next day at around 11:00 A.M.
and immediately searched for his daughter among the survivors in the island, but the search proved fruitless.
In the meantime, Angelina tried to seek the assistance of the Sulpicio Lines in Manila to no avail, the latter
refusing to entertain her and hundreds of relatives of the other passengers who waited long hours outside the
Manila office. Angelina spent sleepless nights worrying about her husband Tito and daughter Jennifer Anne
in view of the refusal of Sulpicio Lines to release a verification of the sinking of the ship. On 26 October
1988, Tito and other survivors in the Almagro Island were fetched and were brought to Tacloban Medical
Center for treatment. On 31 October 1988, Tito reported the loss of his daughter, was informed that the corpse
of a child with his daughter’s description had been found. Subsequently, Tito wrote a letter to his wife,
reporting the sad fact that Jennifer Anne was dead. Angelina suffered from shock and severe grief upon
receipt of the news. On 3 November 1988, the coffin bearing the corpse of Jennifer Anne was buried in
Tanauan, Leyte.

On 24 November 1988, a claim for damages was filed by Tito with Sulpicio Lines before the RTC of Quezon
City (Branch 85, Civil Case Q-89-3048) in connection with the death of Tito’s daughter and the loss of Tito’s
belongings worth P27,580.00. On 3 January 1991, the trial court rendered a decision in favor of Tito Duran
Tabuquilde and Angelina de Paz Tabuquilde and against Sulpicio Lines,. Inc. ordering the latter to pay
P27,580.00 as actual damages, P30,000.00 for the death of Jennifer Tabuquilde, P100,000.00 as moral
damages, P50,000.00 as exemplary damages, and P50,000.00 as attorney’s fees, and costs.

Sulpicio Lines appealed to the Court of Appeals which affirmed the decision of the trial court. Sulpicio Lines
then filed a motion for reconsideration which was denied. Hence, the petition for review on certiorari.

The Supreme Court affirmed the decision of the Court of Appeals with the modification that the award of
P27,580.00 as actual damages for the loss of the contents of the pieces of baggage is deleted and that the
award of P30,000.00 under Article 2206 in relation Article 1764 is increased to P50,000.00.

1. Duty of common carrier

A common carrier is obliged to transport its passengers to their destinations with the utmost diligence
of a very cautious person (Laguna Tayabas Bus Co. v. Tiongson, 16 SCRA 940 [1966]). Herein, the trial court
found that Sulpicio Lines failed to exercise the extraordinary diligence required of a common carrier, which
resulted in the sinking of the M/V Dona Marilyn.

2. Facts; Storm signal warnings involving Typhoon Unsang

Typhoon Unsang entered the Philippine Area of Responsibility on 21 October 1988. The rain in
Metro Manila started after lunch of 23 October 1988, and at about 5:00 p.m. Public Storm signal 1 was
hoisted over Metro Manila, signal 2 in Leyte and signal 3 in Samar. By 10:00 a.m. of 23 October 1988, Public
Storm signal 1 was already hoisted over the province of Leyte, which is the destination of M/V Dona
Marilyn. This was raised to signal 2 at 4:00 p.m. and signal 3 at 10:00 p.m. on the same date. The following
day, 24 October 1988, at 4:00 a.m. and 10:00 a.m., Storm signal 3 remained hoisted in Leyte. At 4 p.m. on 24
October 1988, Storm signal 3 remained hoisted in Leyte but was reduced to Storm signal 2.

3. Facts; Meaning of storm signal warnings

Signal 1 has maximum winds at 60 kph within 36 hours; signal 2 has maximum winds of from 60 kph
to 100 kph within a period of 24 hours; and signal 3 has maximum winds of 100 kph and above within a
period of 12 hours.

4. Facts; Frequency of issuance of storm signal warnings

 Warnings of the storm signal are issued by PAG-ASA thru DZZA, Office of Civil Defense, Philippine
Navy, Coast Guard, Radio Stations, and other offices, every 6 hours as soon as a cyclone enters the Philippine
Area of responsibility.

5. Facts; Position of the vessel vis-à-vis typhoon on 24 October 1988

At 10:30 a.m. on 24 October 1988, the vessel was estimated to be between Mindoro and Masbate,
and the center of the typhoon then was around 130 degrees longitude with maximum winds of 65 kph, with a
radius of rough to phenomenal sea at that time of 450 kms. North and 350 kms. elsewhere; 350 kms. North
center and all throughout the rest.

6. Facts; Crew of M/V Dona Marilyn took calculated risk, and later assumed greater risk
The crew of the vessel M/V Dona Marilyn took a calculated risk when it proceeded despite the
typhoon brewing somewhere in the general direction to which the vessel was going. The crew assumed a
greater risk when, instead of dropping anchor in or at the periphery of the Port of Calapan, or returning to the
port of Manila which is nearer, proceeded on its voyage on the assumption that it will be able to beat and race
with the typhoon and reach its destination before it (Unsang) passes.”

7. Findings of trial court entitled to great weight, not disturbed except for cogent reasons
Generally, the findings of fact of the trial court are entitled to great weight and not disturbed except
for cogent reasons (Gatmaitan v. Court of Appeals, 200 SCRA 37(1991]). One of the accepted reasons is
when the findings of fact are not supported by the evidence (Sandoval Shipyard, Inc. v. Clave, 94 SCRA 472
[1979]).

8. Actual or compensatory damages must be proved to allow recovery

Actual or compensatory damages, to be recovered, must be proved; otherwise, if the proof is flimsy,
no damages will be awarded (Dichoso v. Court of Appeals, 192 SCRA 169 (1990). Herein, the trial court
merely mentioned the fact of the loss and the value of the contents of the pieces of baggage without stating
the evidence on which it based its findings. There is no showing that the value of the contents of the lost
pieces of baggage was based on the bill of lading or was previously declared by Tito D. Tabuquilde before he
boarded the ship. Hence, there can be no basis to award actual damages in the amount of P27,850.00.

9. Deaths caused by crime as quasi delict entitled to actual and compensatory damages without
need of proof; Article 2206 NCC
Under Article 2206 of the Civil Code of the Philippines, only deaths caused by a crime as quasi delict
are entitled to actual and compensatory damages without the need of proof of the said damages. Said Article
provides that “the amount of damages for death caused by a crime or quasi delict shall be at least Three
Thousand Pesos, even though there may have been mitigating circumstances. “ Herein, the trial court awarded
an indemnity of P30,000.00 for the death of the daughter of Tabuquilde. The award of damages under Article
2206 has been increased to P50,000.00 (People v. Flores, 237 SCRA 653 [1994]).

10. Death caused by breach of contract of transportation entitled to actual and compensatory
damages; Article 1764
Deducing alone from Article 2206 of the Civil Code, one can conclude that damages arising from
culpa contractual are not compensable without proof of special damages sustained by the heirs of the victim.
The Civil Code, however, in Article 1764 thereof, expressly makes Article 2206 applicable “to the death of a
passenger caused by the breach of contract by a common carrier.” Accordingly, a common carrier is liable for
actual or compensatory damages under Article 2206 in relation to Article 1764 of the Civil Code for deaths of
its passengers caused by the breach of the contract of transportation.

11. Moral damages; when recoverable in culpa contractual

 With respect to the award of moral damages, the general rule is that said damages are not recoverable
in culpa contractual except when the presence of bad faith was proven.(Trans World Air Lines v. Court of
Appeals, 165 SCRA 143 [1988]). However, in breach of contract of carriage, moral damages may be
recovered when it results in the death of a passenger (Philippine Rabbit Bus Lines, Inc. v. Esguerra, 117
SCRA 741 [1982]; Vasquez v. Court of Appeals, 138 SCRA 553 [1985]).

12. Exemplary damages

With respect to the award of exemplary damages, Article 2232 of the Civil Code of the Philippines
gives the Court the discretion to grant said damages in breach of contract when the defendant acted in a
wanton, fraudulent and reckless manner (Air France v. Carrascoso, 18 SCRA 155 [1966]).

13. Institution of exemplary damages for safe and reliable carriage of people and goods by sea;
Mecenas vs. CA
In the case of Mecenas v. Court of Appeals, 180 SCRA 83 (1989), the Court ruled that “the Court will
take judicial notice of the dreadful regularity with which grievous maritime disasters occur in our waters with
massive loss of life. The bulk of our population is too poor to afford domestic air transportation. So it is that
notwithstanding the frequent sinking of passenger vessels in our waters, crowds of people continue to travel
by sea. This Court is prepared to use the instruments given to it by the law for securing the ends of law and
public policy. One of those instruments is the institution of exemplary damages; one of those ends, of special
importance in an archipelagic state like the Philippines, is the safe and reliable carriage of people and goods
by sea. “

[113a]

Fisher vs. Yangco Steamship (GR 8085, 5 November 1914)

En Banc, Carson (J): 2 concur, 2 concur in result

FC Fisher is a stockholder in the Yangco Steamship Company, the owner of a large number of steam vessels,
duly licensed to engage in the coastwise trade of the Philippine Islands. On 10 June 1912, the directors of the
company adopted a’ resolution which was thereafter ratified and affirmed by the shareholders of the company,
“expressly declaring and providing that the classes of merchandise to be carried by the company in its
business as a common carrier do not include dynamite, powder or other explosives, and expressly prohibiting
the officers, agents and servants of the company from offering to carry, accepting for carriage or carrying said
dynamite, powder or other explosives.” Thereafter the Acting Collector of Customs (JS Stanley) demanded
and required of the company the acceptance and carriage of such explosives. He has refused and suspended
the issuance of the necessary clearance documents of the vessels of the company unless and until the
company consents to accept such explosives for carriage. Fisher was advised and believed that should the
company decline to accept such explosives for carriage, the Attorney-General of the Philippine Islands
(Ignacio Villamor) and the the prosecuting attorney of the city of Manila (WH Bishop) intend to institute
proceedings under the penal provisions of sections 4, 5, and 6 of Act 98 of the Philippine Commission against
the company, its managers, agents and servants, to enforce the requirements of the Acting-Collector of
Customs as to the acceptance of such explosives for carriage. Notwithstanding the demands of Fisher, the
manager, agents and servants of the company decline and refuse to cease the carriage of such explosives, on
the ground that by reason of the severity of the penalties with which they are threatened upon failure to carry
such explosives, they cannot subject themselves to “the ruinous consequences which would inevitably result”
from failure on their part to obey the demands and requirements of the Acting Collector of Customs as to the
acceptance for carriage of explosives. Fisher believes that the Acting Collector of Customs erroneously
construes the provisions of Act 98 in holding that they require the company to accept such explosives for
carriage notwithstanding the resolution of the directors and stockholders of the company, and that if the Act
does in fact require the company to carry such explosives it is to that extent unconstitutional and void.
Fisher filed a complaint, the respondents demurred.

The Supreme Court sustained the demurrer , on the ground that the complaint does not set forth facts
sufficient to constitute a cause of action. It ordered thus that “unless an amended complaint be filed in the
meantime let judgment be entered ten days hereafter sustaining the demurrer and dismissing the complaint
with costs against the complainant, and twenty days thereafter let the record be filed in the archives of
original actions in this court.”

1. Duties and liabilities of common carriers defined and set forth in Act 98; Court bound by its
provisions
The duties and liabilities of common carriers in this jurisdiction are defined and fully set forth in Act
98 of the Philippine Commission, and, until and unless that statute be declared invalid or unconstitutional, the
Court is bound by its provisions.

2. Section 2 of Act 98
Section 2 of Act 98 provides that “It shall be unlawful for any common carrier engaged in the
transportation of passengers or property as above set forth to make or give any unnecessary or unreasonable
preference or advantage to any particular person, company, firm, corporation or locality, or any particular kind
of traffic in any respect whatsoever, or to subject any particular person, company, firm, corporation or
locality, or any particular kind of traffic, to any undue or unreasonable prejudice or discrimination
whatsoever, and such unjust preference or discrimination is also hereby prohibited and declared to be
unlawful.”

3. Section 3 of Act 98
Section 3 of Act 98 provides that “No common carrier engaged in the carriage of passengers or
property as aforesaid shall, under any pretense whatsoever, fail or refuse to receive for carriage, and as
promptly as it is able to do so without discrimination, to carry any person or property offering for carriage,
and in the order in which such persons or property are offered for carriage, nor shall any such common carrier
enter into any arrangement, contract or agreement with any other person or corporation whereby the latter is
given an exclusive or preferential privilege over any other person or persons to control or monopolize the
carriage of any class or kind of property to the exclusion or partial exclusion of any other person or persons,
and the entering into any such arrangement, contract or agreement, under any form or pretense whatsoever, is
hereby prohibited and declared to be unlawful.”

4. Section 4 of Act 98
Section 4 of Act 98 provides that “Any willful violation of the provisions of this Act by any common
carrier engaged in the transportation of passengers or property as hereinbefore set forth is hereby declared to
be punishable by a fine not exceeding five thousand dollars money of the United States, or by imprisonment
not exceeding two years, or both, within the discretion of the court.”

5. Statute valid
The validity of the Act has been questioned on various grounds, and it is vigorously contended that in
so far as it imposes any obligation on a common carrier to accept for carriage merchandise of a class which he
makes no public profession to carry, or which he has expressly or impliedly announced his intention to
decline to accept for carriage from all shippers alike, it is ultra vires, unconstitutional and void. The Court
may dismiss without extended discussion any argument or contention as to the invalidity of the statute based
on alleged absurdities inherent in its provisions or on alleged unreasonable or impossible requirements which
may be read into it by a strained construction of its terms.

6. Provision of Act prescribing “No common carrier shall, under any pretense whatsoever, fail or
refuse to receive for carriage, and to carry any person or property offering for carriage,” not to be
construed literally
 The provision of the Act which prescribes that, “No common carrier . . . shall, under any pretense
whatsoever, fail or refuse to receive for carriage, and . . . to carry any person or property offering for
carriage,” is not to be construed in its literal sense and without regard to the context, so as to impose an
imperative duty on all common carriers to accept for carriage, and to carry all and any kind of freight which
may be offered for carriage without regard to the facilities which they may have at their disposal. The
legislator could not have intended and did not intend to prescribe that a common carrier running passenger
automobiles for hire must transport coal in his machines; nor that the owner of a tank steamer, expressly
constructed in small watertight compartments for the carriage of crude oil must accept a load of cattle or of
logs in the rough; nor that any common carrier must accept and carry contraband articles, such as opium,
morphine, cocaine, or the like, the mere possession of which is declared to be a criminal offense; nor that
common carriers must accept eggs offered for transportation in paper parcels or any merchandise whatever so
defectively packed as to entail upon the company unreasonable and unnecessary care or risks.

7. Intent of the law

Read in connection with its context, this, as well as all the other mandatory and prohibitory
provisions of the statute, was clearly intended merely to forbid failures or refusals to receive persons or
property for carriage involving any “unnecessary or unreasonable preference or advantage to any particular
person, company, firm, corporation or locality, or any particular kind of traffic in any respect whatsoever,” or
which would “subject any particular person, company, firm, corporation or locality, or any particular kind of
traffic to any undue or unreasonable prejudice or discrimination whatsoever.”

8. Language of statute refutes contention as to invalidity based on alleged unreasonableness of its

mandatory provisions
The question of construing and applying the statute, in cases of alleged violations of its provisions,
always involves a consideration as to whether the acts complained of had the effect of making or giving an
“unreasonable or unnecessary preference or advantage” to any person, locality or particular kind of traffic, or
of subjecting any person, locality, or particular kind of traffic to any undue or unreasonable prejudice or
discrimination. It is very clear therefore that the language of the statute itself refutes any contention as to its
invalidity based on the alleged unreasonableness of its mandatory or prohibitory provisions.

9. Pains and penalties prescribed within province of legislator; Courts will not interfere in
absence of proof as to its excessiveness and cruelty
The Court may dismiss without much discussion the contentions as to the invalidity of the statute,
which are based on the alleged excessive severity of the penalties prescribed for violation of its provisions.
Upon general principles it is peculiarly and exclusively within the province of the legislator to prescribe the
pains and penalties which may be imposed upon persons convicted of violations of the laws in force within
his territorial jurisdiction. With the exercise of his discretion in this regard the courts have nothing to do, save
only in cases where it is alleged that excessive fines or cruel and unusual punishments have been prescribed,
and even in such cases the courts will not presume to interfere in the absence of the clearest and most
convincing argument and proof in support of such contentions. There is no ground upon which to rest a
contention that the penalties prescribed in the statute under consideration are either excessive or cruel and
unusual, in the sense in which these terms are used in the organic legislation in force in the Philippine Islands.

10. Ex parte Young (209 U. S., 123, 147, 148); Cotting vs. Godard (183 U. S., 79, 102); Mercantile
Trust Co. vs. Texas Co. (51 Fed., 529); Louisville Ry. vs. McCord (103 Fed., 216); Cons. Gas Co. vs.
Mayer (416 Fed., 150) not applicable; Different circumstances in the law’s creation and application
An examination of the general provisions of the statute, of the circumstances under which it was
enacted, the mischief which it sought to remedy and of the nature of the penalties prescribed for violations of
its terms convinces us that, unlike the statutes under consideration in the cases of Ex parte Young; Cotting vs.
Godard; Mercantile Trust Co. vs. Texas Co.; Louisville Ry. vs. McCord; Cons. Gas Co. vs. Mayer, its
enactment involved no attempt to prevent common carriers “from resorting to the courts to test the validity of
the legislation;” no “effort to prevent any inquiry” as to its validity. It imposes no arbitrary obligation upon
the company to do or to refrain from doing anything. It makes no attempt to compel such carriers to do
business at a fixed or arbitrarily designated rate, at the risk of separate criminal prosecutions for every
demand of a higher or a different rate. Its penalties can be imposed only upon proof of “unreasonable,”
“unnecessary” and “unjust” discriminations, and range from a maximum which is certainly not excessive for
willful, deliberate and contumacious violations of its provisions by a great and powerful corporation, to a
minimum which may be a merely nominal fine. With so wide a range of discretion conferred upon the courts,
there is no substantial basis for a contention on the part of any common carrier that it or its officers are
“intimidated from resorting to the courts to test the validity” of the provisions of the statute prohibiting such
“unreasonable,” “unnecessary” and “unjust” discriminations, or to test in any particular case whether a given
course of conduct does in fact involve such discrimination.

11. Court will not presume that the lower courts will abuse discretion to intimidate a common
carrier from resorting to courts to test the validity
The Court will not presume, for the purpose of declaring the statute invalid, that there is so real a
danger that the Courts of First Instance and this court on appeal will abuse the discretion thus conferred upon
the Court, as to intimidate any common carrier, acting in good faith, from resorting to the courts to test the
validity of the statute. Legislative enactments, penalizing unreasonable discriminations, unreasonable
restraints of trade, and unreasonable conduct in various forms of human activity are so familiar and have been
so frequently sustained in the courts, as to render extended discussion unnecessary to refute any contention as
to the invalidity of the statute under consideration, merely because it imposes upon the carrier the obligation
of adopting one of various courses of conduct open to it, at the risk of incurring a prescribed penalty in the
event that the course of conduct actually adopted by it should be held to have involved an unreasonable,
unnecessary or unjust discrimination.

12. Application of the test announced in Ex parte Young; Plenary power of legislature
Applying the test announced in Ex parte Young, it will be seen that the validity of the Act does not
depend upon the existence of a fact which can be determined only after investigation of a very complicated
and technical character,” and that “the jurisdiction of the legislature’” over the subject with which the statute
deals “is complete in any event.” There can be no real question as to the plenary power of the legislature to
prohibit and to penalize the making of undue, unreasonable and unjust discriminations by common carriers to
the prejudice of any person, locality or particular kind of traffic.

13. Statute does not require carrier, as condition to continue business, that he must carry anything
and everything
The statute does not “require of a carrier, as a condition to his continuing in said business, that he
must carry anything and everything,” and thereby “render useless the facilities he may have for the carriage of
certain lines of freight.” It merely forbids failures or refusals to receive persons or property for carriage which
have the effect of giving an “unreasonable or unnecessary preference or advantage” to any person, locality or
particular kind of traffic, or of subjecting any person, locality or particular kind of traffic to any undue or
unreasonable prejudice or discrimination.

14. Nothing in statute that would deprive person of his liberty

There is nothing in the statute which would deprive any person of his liberty “by requiring him to
engage in business against his will.” The prohibitions of the statute against undue, unnecessary or
unreasonable preferences and discriminations are merely the reasonable regulations which the legislator has
seen fit to prescribe for the conduct of the business in which the carrier is engaged of his own free will and
accord. In so far as the self-imposed limitations by the carrier upon the business conducted by him, in the
various examples given by counsel, do not involve an unreasonable or unnecessary discrimination the statute
would not control his action in any wise whatever. It operates only in cases involving such unreasonable or
unnecessary preferences or discriminations.
15. Nature of business of common carrier as public employment; State has power to impose just
and reasonable regulations
The nature of the business of a common carrier as a public employment is such that it is clearly
within the power of the state to impose such just and reasonable regulations thereon in the interest of the
public as the legislator’ may deem proper. Of course such regulations must not have the effect of depriving an
owner of his property without due process of law, nor of confiscating or appropriating private property
without just compensation, nor of limiting or prescribing irrevocably vested rights or privileges lawfully
acquired under a charter or franchise. But aside from such constitutional limitations, the determination of the
nature and extent of the regulations which should be prescribed rests in the hands of the legislator. Common
carriers exercise a sort of public office, and have duties to perform in which the public is interested. Their
business is, therefore, affected with a public interest, and is subject of public regulation. Indeed, this right of
regulation is so far beyond question that it is well settled that the power of the state to exercise legislative
control over railroad companies and other carriers “in all respects necessary to protect the public against
danger, injustice and oppression” may be exercised through boards of commissioners.

16. Examples of regulations controlling free exercise of carrier’s discretion in conduct of business
Regulations limiting the number of passengers that may be carried in a particular vehicle or steam
vessel, or forbidding the loading of a vessel beyond a certain point, or prescribing the number and
qualifications of the personnel in the employ of a common carrier, or forbidding unjust discrimination as to
rates, all tend to limit and restrict his liberty and to control to some degree the free exercise of his discretion
in the conduct of his business.

17. No one questions power of legislator to prescribe reasonable regulations upon property with
public interest
Since the Granger cases were decided by the Supreme Court of the United States no one questions the
power of the legislator to prescribe such reasonable regulations upon property clothed with a public interest as
he may deem expedient or necessary to protect the public against danger, injustice or oppression.

18. Right to enter public employment does not carry right to conduct business as one pleases
The right to enter the public employment as a common carrier and to offer one’s services to the public
for hire does not carry with it the right to conduct that business as one pleases, without regard to the interests
of the public and free from such reasonable and just regulations as may be prescribed for the protection of the
public from the reckless or careless indifference of the carrier as to the public welfare and for the prevention
of unjust and unreasonable discrimination of any kind whatsoever in the performance of the carrier’s duties as
a servant of the public.

19. When private property becomes clothed with public interest

Business of certain kinds, including the business of a common carrier, holds such a peculiar relation
to the public interest that there is super induced upon it the right of public regulation. When private property
is “affected with a public interest it ceases to be juris privati only.” Property becomes clothed with a public
interest when used in a manner to make it of public consequence and affect the community at large. “When,
therefore, one devotes his property to a use in which the public has an interest, he, in effect, grants to the
public an interest in that use, and must submit to be controlled by the public for the common good, to the
extent of the interest he has thus created. He may withdraw his grant by discontinuing the use, but so long as
he maintains the use he must submit to control.”

20. Power to regulate not power to destroy, limitation is not confiscation

The power to regulate is not a power to destroy, and limitation is not the equivalent of confiscation.
Under pretense of regulating fares and freight the state can not require a railroad corporation to carry persons
or property without reward. Nor can it do that which in law amounts to a taking of private property for public
use without just compensation, or without due process of law.

21. Judiciary would not interfere with regulations unless there is flagrant attack upon rights of
property
The judiciary ought not to interfere with regulations established under legislative sanction unless they
are so plainly and palpably unreasonable as to make their enforcement equivalent to the taking of property for
public use without such compensation as under all the circumstances is just both to the owner and to the
public, that is, judicial interference should never occur unless the case presents, clearly and beyond all doubt,
such a flagrant attack upon the rights of property under the guise of regulations as to compel the court to say
that the regulation in question will have the effect to deny just compensation for private property taken for the
public use.

22. Common law rules themselves are regulations

Under the common law of England it was early recognized that common carriers owe to the public
the duty of carrying indifferently for all who may employ them, and in the order in which application is made,
and without discrimination as to terms. True, they were allowed to restrict their business so as to exclude
particular classes of goods, but as to the kinds of property which the carrier was in the habit of carrying in the
prosecution of his business he was bound to serve all customers alike; and it is to be observed in passing that
these common law rules are themselves regulations controlling, limiting and prescribing the conditions under
which common carriers were permitted to conduct their business.

23. Correction of abuses precipitated adoption of statutory regulations; Examples

The correction of abuses which had grown up with the enormously increasing business of common
carriers necessitated the adoption of statutory regulations controlling the business of common carriers, and
imposing severe and drastic penalties for violations of their terms. In England, the Railway Clauses
Consolidation Act was enacted in 1845, the Railway and Canal Traffic Act in 1854, and since the passage of
those Acts much additional legislation has been adopted tending to limit and control the conduct of their
business by common carriers. In the United States, the business of common carriers has been subjected to a
great variety of statutory regulations. Among others Congress enacted “The Interstate Commerce Act” (1887
) and its amendments, and the Elkins Act as amended (1906); and most if not all of the States of the Union
have adopted similar legislation regulating the business of common carriers within their respective
jurisdictions Unending litigation has arisen under these statutes and their amendments, but nowhere has the
right of the state to prescribe just and reasonable regulations controlling and limiting the conduct of the
business of common carriers in the public interest and for the general welfare been successfully challenged,
though of course there has been wide divergence of opinion as to the reasonableness, the validity and legality
of many of the regulations actually adopted.

24. Power of Philippine legislator to prohibit and penalize unnecessary or unreasonable

discrimination by common carrier; Discrimination must be substantial
The power of the Philippine legislator to prohibit and to penalize all and any unnecessary or
unreasonable discriminations by common carriers may be maintained upon the same reasoning which
justified the enactment by the Parliament of England and the Congress of the United States of the statutes
prohibiting and penalizing the granting of certain preferences and discriminations in those countries. The
legislator having enacted a regulation prohibiting common carriers from giving unnecessary or unreasonable
preferences or advantages to any particular kind of traffic or subjecting any particular kind of traffic to any
undue or unreasonable prejudice or discrimination whatsoever, it is clear that whatever may have been the
rule at the common law, common carriers in this jurisdiction cannot lawfully decline to accept a particular
class of goods for carriage, to the prejudice of the traffic in those goods, unless it appears that for some
sufficient reason the discrimination against the traffic in such goods is reasonable and necessary. Mere whim
or prejudice will not suffice. The grounds for the discrimination must be substantial ones, such as will justify
the courts in holding the discrimination to have been reasonable and necessary under all the circumstances of
the case.

25. Whether refusal to carry explosives involves an unnecessary or unreasonable preference or

advantage to any person borne by particular circumstances of each case; Nothing in pleadings support
contention that traffic of explosive unnecessary or unreasonable
The answer to the question whether such a refusal to carry explosives involves an unnecessary or
unreasonable preference or advantage to any person, locality or particular kind of traffic or subjects any
person, locality or particular kind of traffic to an undue or unreasonable prejudice or discrimination is by no
means “self-evident,” and that it is a question of fact to be determined by the particular circumstances of each
case. Herein, it is not alleged in the complaint that “dynamite, gunpowder and other explosives” can in no
event be transported with reasonable safety on board steam vessels engaged in the business of common
carriers. It is not alleged that all, or indeed any of the Yangco Steamship’s vessels are unsuited for the
carriage of such explosives. It is not alleged that the nature of the business in which the steamship company is
engaged is such as to preclude a finding that a refusal to accept such explosives on any of its vessels would
subject the traffic in such explosives to an undue and unreasonable prejudice and discrimination.

26. Inclusions to the words “dynamite, powder or other explosives

The words “dynamite, powder or other explosives” are broad enough to include matches, and other
articles of like nature, and may fairly be held to include also kerosene oil, gasoline and similar products of a
highly inflammable and explosive character. Many of these articles of merchandise are in the nature of
necessities in any country open to modern progress and advancement.

27. Methods of transportation possible for the transport of dynamite, etc.

The Court is not fully advised as to the methods of transportation by which they are made
commercially available throughout the world, but certain it is that dynamite, gunpowder, matches, kerosene
oil and gasoline are transported on many vessels sailing the high seas. Indeed it is matter of common
knowledge that common carriers throughout the world transport enormous quantities of these explosives, on
both land and sea, and there can be little doubt that a general refusal of the common carriers in any country to
accept such explosives for carriage would involve many persons, firms and enterprises in utter ruin, and
would disastrously affect the interests of the public and the general welfare of the community.

28. Attendant circumstances determines whether refusal to carry products prejudiced or

discriminatory
In any case of a refusal to carry products which would subject any person, locality or the traffic in
such products to any prejudice or discrimination whatsoever, it would be necessary to hear evidence before
making an affirmative finding that such prejudice or discrimination was or was not unnecessary, undue or
unreasonable. The making of such a finding would involve a consideration of the suitability of the vessel for
the transportation of such products; the reasonable possibility of danger or disaster resulting from their
transportation in the form and under the conditions in which they are offered for carriage; the general nature
of the business done by the carrier and, in a word, all the attendant circumstances which might affect the
question of the reasonable necessity for the refusal by the carrier to undertake the transportation of this class
of merchandise.

29. Behavior of dynamite; Determining its hazards and transportability

The Court would not be justified in making such a holding unaided by evidence sustaining the
proposition that dynamite and gunpowder can never be carried with reasonable safety on any vessel engaged
in the business of a common carrier. It is said that dynamite is so erratic and uncontrollable in its action that it
is impossible to assert that it can be handled with safety in any given case. On the other hand it is contended
that while this may be true of some kinds of dynamite, it is a fact that dynamite can be and is manufactured so
as to eliminate any real danger from explosion during transportation. These are of course questions of fact
upon which we are not qualified to pass judgment without the assistance of expert witnesses who have made
special studies as to the chemical composition and reactions of the different kinds of dynamite, or attained a
thorough knowledge of its properties as a result of wide experience in its manufacture and transportation.

30. Violent and destructive explosions attributable to dynamite, in itself, would not justify refusal
of common carrier
The mere fact that violent and destructive explosions can be obtained by the use of dynamite under
certain conditions would not be sufficient in itself to justify the refusal of a vessel, duly licensed as a common
carrier of merchandise, to accept it for carriage, if it can be proven that in the condition in which it is offered
for carriage there is no real danger to the carrier, nor reasonable ground to fear that his vessel or those on
board his vessel will be exposed to unnecessary and unreasonable risk in transporting it, having in mind the
nature of his business as a common carrier engaged in the coastwise trade in the Philippine Islands, and his
duty as a servant of the public engaged in a public employment. So also, if by the exercise of due diligence
and the taking of reasonable precautions the danger of explosions can be practically eliminated, the carrier
would not be justified in subjecting the traffic in this commodity to prejudice or discrimination by proof that
there would be a possibility of danger from explosion when no such precautions are taken.

31. Traffic in dynamite, gunpowder and other explosives essential to the material and general
welfare of country
The traffic in dynamite, gunpowder and other explosives is vitally essential to the material and
general welfare of the people of these Islands. If dynamite, gunpowder and other explosives are to continue in
general use throughout the Philippines, they must be transported by water from port to port in the various
islands which make up the Archipelago.

32. Refusal of particular vessel to accept explosives for carriage constitutes violation of statute,
unless evidence of substantial danger of disaster is shown
The refusal by a particular vessel, engaged as a common carrier of merchandise in the coastwise trade
of the Philippine Islands, to accept any or all of these explosives for carriage would constitute a violation of
the prohibitions against discriminations penalized under the statute, unless it can be shown by affirmative
evidence that there is so real and substantial a danger of disaster necessarily involved in the carriage of any or
all of these articles of merchandise as to render such refusal a due or a necessary or a reasonable exercise of
prudence and discretion on the part of the shipowner.

33. Demurrer must be sustained

The complaint in the present case lacks the necessary allegations under the ruling, the demurrer must
be sustained on the ground that the facts alleged do not constitute a cause of action.

34. Interesting questions of procedure not passed upon as it may appear that discussion would
make it appear that facts alleged in complaint constitute a cause of action
A number of interesting questions of procedure are raised and discussed in the briefs of counsel. As
to all of these questions we expressly reserve our opinion, believing as we do that in sustaining the demurrer
on the grounds indicated in this opinion we are able to dispose of the real issue involved in the proceedings
without entering upon the discussion of the nice questions which it might have been necessary to pass upon
had it appeared that the facts alleged in the complaint constitute a cause of action.

35. Passage of Acts 2307 and 2362 noted

Since the institution of these proceedings the enactment of Acts 2307 and No. 2362 (creating a Board
of Public Utility Commissioners and for other purposes) may have materially modified the right to institute
and maintain such proceedings in this jurisdiction.

36. Basis of the Court’s decision

 The Court based its ruling on the demurrer, that is to say “That whatever may have been the rule at
the common law, common carriers in this jurisdiction cannot lawfully decline to accept a particular class of
goods for carriage, to the prejudice of the traffic in those goods, unless it appears that for some sufficient
reason the discrimination against the traffic in such goods is reasonable and necessary. Mere prejudice or
whim will not suffice. The grounds of the discrimination must be substantial ones, such as will justify the
courts in holding the discrimination to have been reasonable and necessary under all the circumstances of the
case.”

[113b]

Fisher vs. Yangco Steamship (GR 8095, 31 March 1915)

En Banc, Carson (J): 3 concur

Facts: The case has been decided by the Supreme Court on 5 November 1914, where the court sustained the
demurrer on the ground that the original complaint did not set forth facts sufficient to constitute a cause of
action. The case is before the Supreme Court once again upon a demurrer interposed by the officials of the
Philippine Government to an amended complaint filed after publication of the court’s decision sustaining the
demurrer to the original complaint. The amended complaint filed on 14 November 1914, is substantially
identical with the original complaint, except that it charges the officials, as of the date of the amended
complaint, with the unlawful exercise of authority or intent to exercise unlawful authority which should be
restrained, and substitutes the names of the officers holding the offices of Collector of Customs (JS Stanley,
acting), Attorney-General (Ignacio Villamor) and prosecuting attorney of the city of Manila (WH Bishop) for
those of the official holding those offices at the date of the filing of the original complaint.

The Supreme Court ordered that the complaint be dismissed after 20 days at the costs of FC Fisher, unless in
the meantime it is amended so as to disclose a right upon the part of Fisher to invoke the original jurisdiction
of this court without first proceeding in one of the CFIs.

1. 5 November 1914 Decision; Act 98 valid

The validity of the statute (Act 98), which was attacked by counsel of Fisher was, when rightly
construed, a valid and constitutional enactment.

2. 5 November 1914 Decision; Common carrier cannot decline to accept a particular class of
goods (e.g. dynamite, gunpowder, etc.)
Whatever may have been the rule at the common law, common carriers in this jurisdiction cannot
lawfully decline to accept a particular class of goods for carriage, to the prejudice of the traffic in those
goods, unless it appears that for some sufficient reason the discrimination against the traffic in such goods is
reasonable and necessary. Mere prejudice or whim will not suffice. The grounds of the discrimination must be
substantial ones, such as will justify the courts in holding the discrimination to have been reasonable and
necessary under all the circumstances of the case. The traffic in dynamite, gunpowder and other explosives is
vitally essential to the material and general welfare of the people of these Islands. If dynamite, gunpowder
and other explosives are to continue in general use throughout the Philippines, they must be transported by
water from port to port in the various islands which make up the Archipelago. The refusal by a particular
vessel, engaged as a common carrier of merchandise in the coastwise trade of the Philippine Islands, to accept
any or all of these explosives for carriage would constitute a violation of the prohibitions against
discriminations penalized under the statute unless it can be shown by affirmative evidence that there is so real
and substantial a danger of disaster necessarily involved in the carriage of any or all of these articles of
merchandise as to render such refusal a due or a necessary or a reasonable exercise of prudence and discretion
on the part of the ship owner.

3. 5 November 1914 Decision; Allegations of complaint does not constitute a cause of action
 Therein, the allegations of the complaint, which in substance alleged merely that the public officials
were coercing the steamship company to carry explosives upon some of their vessels, under authority of, and
in reliance upon the provisions of the Act, did not set forth facts constituting a cause of action; or in other
words, that the allegations of the complaint even if true, would not sustain a finding that the public officials
were acting “without or in excess of their jurisdiction” and lawful authority in the premises.

4. Allegations do not pose question as to validity of statute, but on the valid exercise of authority
by the officials
The allegations raise no question as to the validity or constitutionality of any statute; that the real
question which plaintiff seeks to submit to this court in original prohibition proceedings is whether the
respondent officials of the Government are correctly exercising the discretion and authority with which they
have been clothed; and that his contention in the amended complaint is not, as it was in the original
complaint, that these officials are acting without authority, and in reliance upon an invalid and
unconstitutional statute, but rather that they are exercising their authority improvidently, unwisely or
mistakenly.

5. Prohibition; Sections 226 and 516 of Code of Civil Procedure

Under the provisions of sections 226 and 516 of the Code of Civil Procedure jurisdiction in
prohibition proceedings is conferred upon the courts when the complaint alleges “the proceedings of any
inferior tribunal, corporation, board, or person, whether exercising functions judicial or ministerial, were
without or in excess of the jurisdiction of such tribunal, corporation, board or person.” Herein, it is manifest
that the allegations of the amended complaint, even if true, will not sustain the issuance of a writ of
prohibition without further amendment unless they be construed to be in effect a charge that the officials are
abusing the discretion conferred upon them in the exercise of their authority in such manner that the acts
complained of should be held to be without or in excess of their jurisdiction.

6. Doctrine in Ex Parte Young cannot be invoked to support right of action

It may well be doubted whether the doctrine of the case Ex parte Young can properly be invoked in
support of a right of action predicated upon such premises; so also, since the acts complained of in the
amended complaint are alleged to have been done at a date subsequent to the enactment of the statutes
creating the Board of Public Utility Commissioners, it may well be doubted whether the courts should
entertain prohibition proceedings seeking to restrain alleged abuses of discretion on the part of officers and
officials of the Government, and of public service corporations with regard to the rules under which such
corporations are operated, until and unless redress for the alleged wrong has been sought at the hands of the
Board.

7. Supreme Court clothed with original jurisdiction in prohibition proceedings, but jurisdiction
concurrent with CFI
Although the Supreme Court is clothed with original jurisdiction in prohibition proceedings (section
516, Act 190), this jurisdiction is concurrent with the original jurisdiction of the various Courts of First
Instance throughout the Islands, except in cases where the writ runs to restrain those courts themselves, when
of course it is exclusive.

8. Intention of legislator does not require Supreme Court to assume original jurisdiction in all
cases
It could not have been the intention of the legislator to require the Supreme Court to assume original
jurisdiction in all cases wherein the plaintiff elects to invoke it. Such a practice might result in overwhelming
the court with the duty of entertaining and deciding original proceedings which from their nature could much
better be adjudicated in the trial courts; and in unnecessarily diverting the time and attention of the court from
its important appellate functions to the settlement of controversies of no especial interest to the public at
large,
in the course of which it might become necessary to take testimony and to make findings touching
complicated and hotly contested issues of fact.

9. Court may decline to permit its original jurisdiction to be involved in prohibition proceedings;
Spelling, on Injunctions and Other Extraordinary Remedies
Unless special reasons appear therefor, the Supreme Court should decline to permit its original
jurisdiction to be involved in prohibition proceedings, and this especially when the adjudication of the issues
raised involves the taking of evidence and the making of findings touching controverted facts, which, as a
rule, can be done so much better in the first instance by a trial court than an appellate court organized as is the
Supreme Court. Spelling, on Injunctions and Other Extraordinary Remedies (vol. 2, p. 1493), in discussing
the cases in which the appellate courts in the United States permit their original jurisdiction to be invoked
where that jurisdiction is concurrent with that of some inferior court, says “Of the plan of concurrent
jurisdiction West Virginia may be taken as an illustration. The Supreme Court of Appeals of that State has
concurrent original jurisdiction with the circuit courts in cases of prohibition, but by a rule adopted by the
former court it will not take such original jurisdiction unless special reasons appear therefor.”

10. Assumption of court of jurisdiction in original complaint, denial of assumption of jurisdiction

in amended complaint
The amended complaint presents for adjudication in original prohibition proceedings in the Supreme
Court questions of a wholly different character from those submitted in the original complaint. While the
Court deemed it proper to assume jurisdiction to adjudicate and decide the issues raised by the rulings on the
original complaint, involving as they did a question as to the validity of a public statute of vital interest to
shippers and ship owners generally as also to the public at large, and presenting for determination no difficult
or complicated questions of fact; the Court declined to take jurisdiction of the matters relied upon in the
amended complaint in support of plaintiff’s prayer for the writ.

11. Action should be brought in CFI

The question of the construction and validity of the statute having been disposed of in the Court’s
ruling on the demurrer to the original complaint, it must be apparent that if the allegations of the amended
complaint are sufficient to maintain the plaintiff’s action for a writ of prohibition, a question as to which the
Court expressly reserved its opinion, the action should be brought in one of the Courts of First Instance.

[114], also [149]

Maritime Co. of the Philippines vs. CA (GR 47004, 8 March 1989)

First Division, Narvasa (J): 4 concur

Facts: Rizal Surety & Insurance Co. “was the insurer of 800 packages of PVC compound loaded on the SS
Doña Nati at Yokohama and consigned to the Acme Electrical Manufacturing Company. The SS Doña Nati
was owned by the National Development Company (NDC) whereas the Maritime Company of the Philippines
was its Agent. The goods were never delivered to the consignee (Acme Electrical, etc., supra) so that Rizal
Surety, as Insurer, paid said consignee the sum of P38,758.50. The cause of the non-delivery of the goods is
that in Nagoya Bay, while the SS Doña Nati was being piloted by a Japanese pilot, the SS Doña Nati was
rammed by M/V Yasushima Maru, causing damage to the hull of the SS Doña Nati and the resultant flooding
of the holds damaged beyond repair the goods of the consignee in question. It appeared that the M/V
Yasushima Maru was at fault in the collision.

In the CFI of Manila, Rizal Surety sued the NDC and Maritime Co. for the recovery of a sum of money paid
by it as insurer for the value of goods lost in transit on board vessel known as the SS Doña Nati. After due
proceedings and trial, the complainant was dismissed, with costs against Rizal Surety.
Rizal Surety elevated the case to the Court of Appeals. That Court found merit in its appeal. It thus rendered
judgment, setting aside that of the Trial Court and ordering NDC and Maritime Co. jointly and severally to
pay jointly and severally to Rizal Surety the sum of P38,758.50 with legal rate of interest from the filing of
the complaint. This judgment of the Appellate Tribunal was in turn appealed by Maritime Company.

The Supreme Court affirmed the Decision of the Court of Appeals subject of the petition for review, with
costs against Maritime Co.

1. Nature of the principal cause of action

The principal cause of action is not derived from a maritime collision, but rather, from a contract of
carriage, as evidenced by the bill of lading.

2. Maritime Co. is the shipagent of NDC

NDC had appointed Maritime Co., as its agent to manage and operate three vessels owned by it,
including the SS Doña Nati, for and in its behalf and account, and for a determinable period (i.e., until full
reimbursement of all moneys advanced and/or full relief from or payment of all guarantees made by Maritime
Co. for account of the vessels). Under their written agreement, Maritime Co. was bound to “provision and
victual” the SS Doña Nati and the other two vessels, and to render a complete report of the operations of the
vessels within 60 days after conclusion of each voyage; it was also authorized to appoint sub-agents at any
ports or places that it might deem necessary, remaining however responsible to the ship owner (NDC) for the
timely and satisfactory performance of said sub-agents. These facts preponderantly demonstrate the character
of Maritime Co. as ship agent under the Code of Commerce, a ship agent, accordingly to that Code, being
“the person entrusted with provisioning or representing the vessel in the port in which it may be found.”

3. Maritime Co. not a shipagent of Fuji Asano Co. Ltd.

The letterhead of the bill of lading is in 2 parts. In what may be described as the main letterhead,
Maritime Co. is indicated as “Agent” for the (1) Philippines, (2) Hongkong, (3) Japan, and the (4) U.S.
Pacific Coast-Gulf Ports. Underneath this main letterhead is a sort of secondary sub-head: “Hongkong-
Cosmos Development Company; Japan-Fuji Asano Kaiun Co., Ltd., U.S.A-North American Maritime
Agencies.” The necessary connotation is that the firms thus named are sub-agents or secondary
representatives of Maritime Co., Fuji Asano Kaiun Co., Ltd., particularly, being the representative of NDC
and Maritime Co. in Japan, as distinguished from the Maritime Co., which is described as AGENT not only in
Japan but also in other places: the Philippines, Hongkong, U.S. Pacific Coast, and the Gulf Ports. Moreover,
the bill shows on its face that it was issued ‘FOR THE MASTER’ by “Maritime Company of the Philippines,
Agent.”

4. Acme Electrical Manufacturing, Manila was the consignee of the goods

The bill of lading which states that if the goods are “consigned to the Shipper’s Order” — and the bill
is so consigned: “to the order of China Banking Corporation, Manila, or assigns” — the “Acme Electrical
Manufacturing, Manila,” shall be notified. This shows, in the context of the other documents adverted to, that
Acme was the importer and China Banking Corporation the financing agency. Further, the Commercial
Invoice of the shipper recites that it was “by order and for account of Messrs. Acme Electrical Manufacturing,
Manila” that the 800 bags of PVC compound were shipped from Yokohama to Manila. Furthermore, it was
Acme that insured the goods with Rizal Surety and the latter did insure them on the strength of the former’s
Marine Risk Note, long before the goods were lost at sea, and it was Acme, thru its broker, that claimed the
proceeds for the loss. Maritime Co.’s own certification states that the “800 packages of PVC Compound
consigned to Acme Electrical Manufacturing was ‘carried away’ to sea as a result of the accident and same
was unrecovered.

5. Rizal Surety was subrogated to Acme’s rights against shipowner and the shipagent
There is no question of the entitlement of Acme Electrical Manufacturing to the proceeds of the
insurance against loss of the goods in question, nor about the fact that it did receive such proceeds from the
Rizal Surety, as insurer, which made payment upon due ascertainment of the actuality of the loss. The legal
effect is inescapable. Rizal Surety was subrogated to Acme’s rights against the shipowner and the ship agent
arising from the loss of the goods.

6. Law of destination; Acme’s rights are to be determined by the Civil Code, not the Code of
Commerce
This conclusion derives from Article 1753 of the Civil Code to the effect that it is the “law of the
country to which the goods are to be transported (which) shall govern the liability of the common carrier for
their loss, destruction or deterioration.” It is only in “matters not regulated by the Civil Code,” according to
Article 1766, that “the rights and obligations of common carriers shall be governed by the Code of Commerce
and by special laws.” Since there are indeed specific provisions regulating the matter of such liability in the
Civil Code, these being embodied in Article 1734, as well as prescribing the period of prescription of actions,
it follows that the Code of Commerce, or the Carriage of Goods by Sea Act, has no relevancy in the
determination of the carrier’s liability in the present case.

7. COGSA merely suppletory to the Civil Code

In American President Lines v. Klepper, the Court ruled that in view of said Articles 1753 and 1756,
the provisions of the Carriage of Goods by Sea Act are merely suppletory to the Civil Code.

8. Liability of common carriers; Excepting circumstances

Under the established facts, and in accordance with Article 1734, Maritime Co. and NDC, as
“common carriers,” are liable to Acme for “the loss, destruction or deterioration of the goods,” and may be
relieved of responsibility if the loss, etc., “is due to any of the following causes only: (1) Flood, storm,
earthquakes, lightning, or other natural disaster or calamity; (2) Act of the public enemy in war, whether
international or civil; (3) Act or omission of the shipper or owner of the goods; (4) The character of the goods
or defects in the packing or in the containers; and (5) Order or act of competent public authority.” Herein,
since none of the specified absolutory causes is present, the carrier’s liability is palpable.

9. Factual conclusions of the appellate court conclusive

The appellate court found, after a review and study of evidence, that Doña Nati “did not exercise even
due diligence to avoid the collision.” In line with the familiar axiom that factual conclusions of the Court of
Appeals are conclusive and may not be reviewed, Maritime Co.’s attempt to shift the blame to the Japanese
vessel is futile. Having failed to exercise extraordinary diligence to avoid any loss of life and property, as
commanded by law, not having in fact exercised “even due diligence to avoid the collision,” it must be held
responsible for the loss of the goods in question.

[115]

Gatchalian vs. Delim (GR 56487, 21 October 1991)

Third Division, Feliciano (J): 4 concur

Facts: At noon time on 11 July 1973, Reynalda Gatchalian boarded, as a paying passenger, respondent’s
“Thames” mini-bus at a point in San Eugenio, Aringay, La Union, bound for Bauang, of the same province.
On the way, while the bus was running along the highway in Barrio Payocpoc, Bauang, La Union, “a
snapping sound” was suddenly heard at one part of the bus and, shortly thereafter, the vehicle bumped a
cement flower pot on the side of the road, went off the road, turned turtle and fell into a ditch. Several
passengers, including Gatchalian, were injured. They were promptly taken to Bethany Hospital at San
Fernando, La Union, for medical treatment. Upon medical examination, Gatchalian was found to have
sustained physical injuries on the leg, arm and forehead, specifically described as follows: lacerated wound,
forehead; abrasion, elbow, left; abrasion, knee, left; abrasion, lateral surface, leg, left. On 14 July 1973, while
injured passengers were confined in the hospital, Mrs. Adela Delim, wife of Arsenio Delim, visited them and
later paid for their hospitalization and medical expenses. She also gave Gatchalian P12.00 with which to pay
her transportation expense in going home from the hospital. However, before Mrs. Delim left, she had the
injured passengers, including Gatchalian, sign an already prepared Joint Affidavit which stated, among other
things, “that we are no longer interested to file a complaint, criminal or civil against the said driver and owner
of the said Thames, because it was an accident and the said driver and owner of the said Thames have gone to
the extent of helping us to be treated upon our injuries.”

Notwithstanding the document, Gatchalian filed with the then Court of First Instance of La Union an action
extra contractu to recover compensatory and moral damages. She alleged in the complaint that her injuries
sustained from the vehicular mishap had left her with a conspicuous white scar measuring 1 by 1/2 inches on
the forehead, generating mental suffering and an inferiority complex on her part; and that as a result, she had
to retire in seclusion and stay away from her friends. She also alleged that the scar diminished her facial
beauty and deprived her of opportunities for employment. She prayed for an award of: P10,000.00 for loss of
employment and other opportunities; P10,000.00 for the cost of plastic surgery for removal of the scar on her
forehead; P30,000.00 for moral damages; and P1,000.00 as attorney’s fees. After trial, the trial court
dismissed the complaint upon the ground that when Gatchalian signed the Joint Affidavit, she relinquished
any right of action (whether criminal or civil) that she may have had against Delim and the driver of the mini-
bus.

On appeal by petitioner, the Court of Appeals reversed the trial court’s conclusion that there had been a valid
waiver, but affirmed the dismissal of the case by denying Gatchalian’s claim for damages. Hence, the petition
for review.

The Supreme Court reversed and set aside the Decision of the Court of Appeals dated 24 October 1980, as
well as the decision of the then Court of First Instance of La Union dated 4 December 1975; and ordered
Delim to pay Gatchalian (1) P15,000.00 as actual or compensatory damages to cover the cost of plastic
surgery for the removal of the scar on petitioner’s forehead; (2) P30,000.00 as moral damages; and (3)
P1,000.00 as attorney’s fees, the aggregate amount to bear interest at the legal rate of 6% per annum counting
from the promulgation of this decision until full payment thereof Costs against Delim.

1. No valid waiver; Standards provided in Yepes vs. Samar Express

No valid waiver of her cause of action had been made by Gatchalian. The relevant language of the
Joint Affidavit provides that “we are no longer interested to file a complaint, criminal or civil against the said
driver and owner of the said Thames, because it was an accident and the said driver and owner of the said
Thames have gone to the extent of helping us to be treated upon our injuries.” A waiver, to be valid and
effective, must in the first place be couched in clear and unequivocal terms which leave no doubt as to the
intention of a person to give up a right or benefit which legally pertains to him. A waiver may not casually be
attributed to a person when the terms thereof do not explicitly and clearly evidence an intent to abandon a
right vested in such person. The degree of explicitness which the Supreme Court has required in purported
waivers is illustrated in Yepes and Susaya v. Samar Express Transit. Therein, expressing a ‘desire’ to make
the waiver is not the same as making an actual waiver of their right. A waiver must be clear and unequivocal.

2. Circumstances in signing of affidavit considered; Gatchalian may not understood fully the
import of the affidavit signed
Moreover, the circumstances under which the Joint Affidavit was signed by Gatchalian need to be
considered. Petitioner testified that she was still reeling from the effects of the vehicular accident, having
been in the hospital for only 3 days, when the purported waiver in the form of the Joint Affidavit was
presented to her for signing; that while reading the same, she experienced dizziness but that, seeing the other
passengers who had also suffered injuries sign the document, she too signed without bothering to read the
Joint Affidavit in its entirety. Considering these circumstances, there appears substantial doubt whether
Gatchalian
understood fully the import of the Joint Affidavit (prepared by or at the instance of Delim) she signed and
whether she actually intended thereby to waive any right of action against Delim.

3. Waiver must not be contrary to law, etc.

What is involved here is the liability of a common carrier for injuries sustained by passengers in
respect of whose safety a common carrier must exercise extraordinary diligence, any such purported waiver
must be construed most strictly against the common carrier. For a waiver to be valid and effective, it must not
be contrary to law, morals, public policy or good customs. To uphold a supposed waiver of any right to claim
damages by an injured passenger, under the present and similar circumstances, would be to dilute and weaken
the standard of extraordinary diligence exacted by the law from common carriers and hence to render that
standard unenforceable. Such a purported waiver is offensive to public policy.

4. Duty of exercise extraordinary diligence; Presumption of negligence; Court need not make
express finding of fault; Burden of proof
A duty to exercise extraordinary diligence in protecting the safety of its passengers is imposed upon a
common carrier. In case of death or injuries to passengers, a statutory presumption arises that the common
carrier was at fault or had acted negligently “unless it proves that it [had] observed extraordinary diligence as
prescribed in Articles 1733 and 1755.” In fact, because of this statutory presumption, it has been held that a
court need not even make an express finding of fault or negligence on the part of the common carrier in order
to hold it liable. To overcome this presumption, the common carrier must show to the court that it had
exercised extraordinary diligence to present the injuries.

5. Standard of diligence
The standard of extraordinary diligence imposed upon common carriers is considerably more
demanding than the standard of ordinary diligence, i.e., the diligence of a good paterfamilias established in
respect of the ordinary relations between members of society. A common carrier is bound to carry its
passengers safely “as far as human care and foresight can provide, using the utmost diligence of a very
cautious person, with due regard to all the circumstances”.

6. Carrier did not prove he had exercised extraordinary diligence to prevent mishap
The records before the Court are bereft of any evidence showing that Delim had exercised the
extraordinary diligence required by law. Curiously, Delim did not even attempt, during the trial before the
court a quo, to prove that he had indeed exercised the requisite extraordinary diligence. Delim did try to
exculpate himself from liability by alleging that the mishap was the result of force majeure. But allegation is
not proof and here again, Delim utterly failed to substantiate his defense of force majeure.

7. Exemption upon ground of force majeure

To exempt a common carrier from liability for death or physical injuries to passengers upon the
ground of force majeure, the carrier must clearly show not only that the efficient cause of the casualty was
entirely independent of the human will, but also that it was impossible to avoid. Any participation by the
common carrier in the occurrence of the injury will defeat the defense of force majeure.

8. Caso fortuito defined, examples; Servando vs. Philippine Steam Navigation

In Servando v. Philippine Steam Navigation Company, the Court held that “where fortuitous event or
force majeure is the immediate and proximate cause of the loss, the obligor is exempt from liability for non-
performance. The Partidas, the antecedent of Article 1174 of the Civil Code, defines “caso fortuito” as an
event that takes place by accident and could not have been foreseen. Examples of this are destruction of
houses, unexpected fire, shipwreck, violence of robbers.

9. Characteristics of Caso fortuito; Servando vs. Philippine Steam Navigation

 In its dissertation on the phrase “caso fortuito” the Encyclopedia Juridica Española says: “In legal
sense and, consequently, also in relation to contracts, a ‘caso fortuito’ presents the following essential
characteristics: (1) the cause of the unforeseen and unexpected occurrence, or of the failure of the debtor to
comply with his obligation, must be independent of the human will; (2) It must be impossible to foresee the
event which constitutes the ‘caso fortuito’, or if it can be foreseen, it must be impossible to avoid; (3) the
occurrence must be such as to render it impossible for the debtor to fulfill ms obligation in a normal manner;
and (4) the obligor must be free from any participation in the aggravation of the injury resulting to the
creditor.”

10. “Snapping sound”; Bus not checked physically and mechanically

The record yields affirmative evidence of fault or negligence on the part of the common carrier.
Shortly before the vehicle went off the road and into a ditch, a “snapping sound” was suddenly heard at one
part of the bus. One of the passengers, an old woman, cried out, “What happened?” (“Apay addan samet
nadadaelen?”). The driver replied, nonchalantly, “That is only normal” (“Ugali ti makina dayta”). The driver
did not stop to check if anything had gone wrong with the bus. Moreover, the driver’s reply necessarily
indicated that the same “snapping sound” had been heard in the bus on previous occasions. This could only
mean that the bus had not been checked physically or mechanically to determine what was causing the
“snapping sound” which had occurred so frequently that the driver had gotten accustomed to it. Such a sound
is obviously alien to a motor vehicle in good operating condition, and even a modicum of concern for life and
limb of passengers dictated that the bus be checked and repaired. The obvious continued failure of Delim to
look after the roadworthiness and safety of the bus, coupled with the driver’s refusal or neglect to stop the
mini-bus after he had heard once again the “snapping sound” and the cry of alarm from one of the passengers,
constituted wanton disregard of the physical safety of the passengers, and hence gross negligence on the part
of Delim and his driver.

11. No award for damage on the basis of loss of earning capacity

Herein, at the time of the accident, Gatchalian was no longer employed in a public school since, being
a casual employee and not a Civil Service eligible, she had been laid off her employment as a substitute
teacher was occasional and episodic, contingent upon the availability of vacancies for substitute teachers. In
view of her employment status as such, she could not be said to have in fact lost any employment after and by
reason of the accident. Gatchalian has not submitted any basis for overturning the finding of fact of the Court
of Appeals, and she may not be awarded damages on the basis of speculation or conjecture.

12. Cost of plastic surgery for removal of scar recoverable; Amount of claim not unreasonable
A person is entitled to the physical integrity of his or her body; if that integrity is violated or
diminished, actual injury is suffered for which actual or compensatory damages are due and assessable. In
Araneta, et al. vs. Areglado, et al., the Court awarded actual or compensatory damages for, among other
things, the surgical removal of the scar on the face of a young boy who had been injured in a vehicular
collision. Herein, Gatchalian is entitled to be placed as nearly as possible in the condition that she was before
the mishap. A scar, especially one on the face of the woman, resulting from the infliction of injury upon her,
is a violation of bodily integrity, giving raise to a legitimate claim for restoration to her conditio ante. If the
scar is relatively small and does not grievously disfigure the victim, the cost of surgery may be expected to be
correspondingly modest. Gatchalian estimated that the cost of having her scar surgically removed was
somewhere between P10,000.00 to P15,000.00. Upon the other hand, Dr. Fe Tayao Lasam, a witness
presented as an expert by Gatchalian, testified that the cost would probably be between P5,000.00 to
P10,000.00. In view of this testimony, and the fact that a considerable amount of time has lapsed since the
mishap in 1973 which may be expected to increase not only the cost but also very probably the difficulty of
removing the scar, the Court considered that the amount of P15,000.00 to cover the cost of such plastic
surgery is not unreasonable.

13. Award of moral damages due; Claim of attorney’s fees granted

 Moral damages may be awarded where gross negligence on the part of the common carrier is shown.
Since the common carrier and his driver had been grossly negligent in connection with the bus mishap which
had injured Gatchalian and other passengers, and recalling the aggressive maneuvers of Delim, through his
wife, to get the victims to waive their right to recover damages even as they were still hospitalized for their
injuries, Gatchalian must be held entitled to such moral damages. Considering the extent of pain and anxiety
which Gatchalian must have suffered as a result of her physical injuries including the permanent scar on her
forehead, the Court believes that the amount of P30,000.00 would be a reasonable award. Gatchalian’s claim
for P1,000.00 as attorney’s fees is in fact even more modest.

[116]

American Home Assurance vs. CA (GR 94149, 5 May 1992)

Second Division, Paras (J): 4 concur

Facts: American Home Assurance Co. and the National Marine Corporation (NMC) are foreign corporations
licensed to do business in the Philippines, the former through its branch, The American Home Assurance
Company (Philippines), Inc. and the latter through its branch, The National Marine Corporation (Manila). On
or about 19 June 1988, Cheng Hwa Pulp Corporation shipped 5,000 bales (1,000 ADMT) of bleached kraft
pulp from Haulien, Taiwan on board “SS Kaunlaran”, which is owned and operated by NMC with
Registration PID-224. The said shipment was consigned to Mayleen Paper, Inc. of Manila, which insured the
shipment with American Home Assurance Co. as evidenced by Bill of Lading HLMN-01. On 22 June 1988,
the shipment arrived in Manila and was discharged into the custody of the Marina Port Services, Inc., for
eventual delivery to the consignee-assured. However, upon delivery of the shipment to Mayleen Paper, Inc., it
was found that 122 bales had either been damaged or lost. The loss was calculated to be 4,360 kilograms with
an estimated value of P61,263.41. Mayleen Paper, Inc. then duly demanded indemnification from NMC for
the damages/losses in the shipment but, for apparently no justifiable reason, said demand was not heeded. As
the shipment was insured with American Home Assurance Co. in the amount of US $837,500.00, Mayleen
Paper, Inc. sought recovery from the former. Upon demand and submission of proper documentation,
American Home Assurance paid Mayleen Paper, Inc. the adjusted amount of P31.506.75 for the
damages/losses suffered by the shipment, hence, the former was subrogated to the rights and interests of
Mayleen Paper, Inc.

On 6 June 1989, American Home Assurance, as subrogee, then brought suit against NMC for the recovery of
the amount of P31.506.75 and 25% of the total amount due as attorney’s fees, by filing a complaint for
recovery of sum of money. NMC filed a motion to dismiss dated 7 August 1989 stating that American Home
Assurance Company had no cause of action based on Article 848 of the Code of Commerce. It contended that
based on the allegations of the complaint, the loss sustained in the case was P35,506.75 which is only 18% of
P17,420,000.00, the total value of the cargo. In its order dated 23 November 1989, the Regional Trial Court
sustained NMC’s contention. American Home Assurance then filed a motion for reconsideration of the order
of dismissal but same was denied by the court in its order dated 26 January 1990.

Instead of filing an appeal from the order of the court a quo dismissing the complaint for recovery of a sum of
money, American Home Assurance filed a petition for certiorari with the Court of Appeals to set aside the
two orders of the judge in said court. But the Court of Appeals in its decision dated 30 May 1990, dismissed
the petition as constituting plain errors of law and not grave abuse of discretion correctible by certiorari (a
Special Civil Action). If at all, the appellate court ruled that there are errors of judgment subject to correction
by certiorari as a mode of appeal but the appeal is to the Supreme Court under Section 17 of the Judiciary Act
of 1948 as amended by RA 5440. Otherwise stated, the appellate Court opined that the proper remedy is a
petition for review on certiorari with the Supreme Court on pure questions of law.
Hence, the petition for review on certiorari.
In a resolution dated 10 December 1990, the Supreme Court gave due course to the petition and required both
parties to file their respective memoranda. The Supreme Court reversed the decisions of both the Court of
Appeals and the Regional Trial Court of Manila, Branch 41, appealed from; and (2) ordered NMC to
reimburse the subrogee, American Home Assurance, the amount of P31,506.75.

1. Certiorari not the proper remedy in the case before the Court of Appeals
The Court of Appeals ruled that appeal is the proper remedy, for aside from the fact that the two
orders dismissing the complaint for lack of cause of action are final orders within the meaning of Rule 41,
Section 2 of the Rules of Court, subject petition raised questions which if at all, constitute plain errors of law
or of judgment not constituting grave abuse of discretion correctible by certiorari. Evidently, the Court of
Appeals did not err in dismissing the petition for certiorari for as ruled by the Supreme Court, an order of
dismissal whether right or wrong is a final order, hence, a proper subject of appeal, not certiorari (Marahay v.
Melicor, 181 SCRA 811 [1990]).

2. Rule may be relaxed for the broader interests of justice

However, where the fact remains that the Court of Appeals obviously in the broader interests of
justice, nevertheless proceeded to decide the petition for certiorari and ruled on specific points raised therein
in a manner akin to what would have been done on assignments of error in a regular appeal, the petition
therein was therefore disposed of on the merits and not on a dismissal due to erroneous choice of remedies or
technicalities. Hence, a review of the decision of the Court of Appeals on the merits against American Home
Assurance in this case is in order.

3. Article 848, Code of Commerce

Article 848 of the Code of Commerce provides “that claims for averages shall not be admitted if they
do not exceed 5% of the interest which the claimant may have in the vessel or in the cargo if it be gross
average and 1% of the goods damaged if particular average, deducting in both cases the expenses of appraisal,
unless there is an agreement to the contrary.”

4. Particular average defined

Particular average is a loss happening to the ship, freight, or cargo which is not shared by
contributing among all those interested, but must be borne by the owner of the subject to which it occurs.

5. General average defined

General average is a contribution by the several interests engaged in the maritime venture to make
good the loss of one of them for the voluntary sacrifice of a part of the ship or cargo to save the residue of the
property and the lives of those on board, or for extraordinary expenses necessarily incurred for the common
benefit and safety of all.

6. Law of country of destination

As resolved in National Development Co. v. C.A. (164 SCRA 593 [1988]; citing Eastern Shipping
Lines, Inc. v. I.A.C., 150 SCRA 469, 470 [1987], “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.”
(Article 1753, Civil Code). Herein, thus, for cargoes transported to the Philippines, the liability of the carrier
is governed primarily by the Civil Code and 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 (Article
1766, Civil Code).

7. Degree of diligence required of common carriers; Presumption of negligence

Under Article 1733 of 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 the goods and for
the safety of passengers transported by them according to all circumstances of each case. Thus, under Article
1735 of the same Code, in all cases other than those mentioned in Article 1734 thereof, the common carrier
shall be presumed to have been at fault or to have acted negligently, unless it proves that it has observed the
extraordinary diligence required by law.

8. Common carrier cannot limit liability for injury caused by its own negligence
Common carriers cannot limit their liability for injury or loss of goods where such injury or loss was
caused by its own negligence. Otherwise stated, the law on averages under the Code of Commerce cannot be
applied in determining liability where there is negligence.

9. Issue of negligence addressed before extent of liability applied

Under the foregoing principle and in line with the Civil Code’s mandatory requirement of
extraordinary diligence on common carriers in the care of goods placed in their stead, it is but reasonable to
conclude that the issue of negligence must first be addressed before the proper provisions of the Code of
Commerce on the extent of liability may be applied.

10. Filing of motion to dismiss due to lack of cause of action carries admission of material facts
The filing of a motion to dismiss on the ground of lack of cause of action carries with it the admission
of the material facts pleaded in the complaint (Sunbeam Convenience Foods, Inc. v. C.A., 181 SCRA 443
[1990]). Herein, upon delivery of the shipment in question at Mayleen’s warehouse in Manila, 122 bales were
found to be damaged/lost with straps cut or loose, calculated by the so-called “percentage method” at 4,360
kilograms and amounting to P61,263.41. Instead of presenting proof of the exercise of extraordinary diligence
as required by law, NMC filed its Motion to Dismiss dated 7 August 1989, hypothetically admitting the truth
of the facts alleged in the complaint to the effect that the loss or damage to the 122 bales was due to the
negligence or fault of NMC. Such being the case, it is evident that the Code of Commerce provisions on
averages cannot apply.

11. Common carriers are responsible for loss, etc. of goods; Exceptions
Article 1734 of the Civil Code provides that common carriers are responsible for loss, destruction or
deterioration of the goods, unless due to any of the causes enumerated therein. Herein, it is obvious that the
present case does not fall under any of the exceptions. Thus, American Home Assurance Company is entitled
to reimbursement of what it paid to Mayleen Paper, Inc. as insurer.

[117] Mendoza vs. PAL, see [17]

[118] Compania Maritima vs. Insurance Co. of North America; see [45]
[119]

Eastern Shipping Lines vs. Margarine-Verkaufs-Union GmbH (GR L-31087, 27 September 1979)
First Division, Teehankee (J): 5 concur

Facts: Margarine-Verkaufs- Union GmbH, a West German corporation not engaged in business in the
Philippines, was the consignee of 500 long tons of Philippine copra in bulk with a total value of
US$108,750.00 shipped from Cebu City on board Eastern Shipping Lines’ (a Philippine corporation) vessel,
the SS “EASTERN PLANET” for discharge at Hamburg, Germany. Eastern Shipping’s bill of lading for the
cargo provided that “except as otherwise stated herein and in the Charter Party, the contract shall be governed
by the laws of the Flag of the Ship carrying the goods. In case of average, same shall be adjusted according to
York-Antwerp Rules of 1950.” While the vessel was off Gibraltar, a fire broke out aboard the vessel and
caused water damage to the copra shipment in the amount of US$591.38. Eastern Shipping rejected
Margarine’s claim for payment of the damage.

Margarine filed on 18 June 1966 in the Manila CFI its complaint against Eastern Shipping as defendant for
recovery of the same and US$250.00-attorney’s fees and expenses of litigation. After trial, the lower court
rejected Eastern Shippings’s defense that it was not liable under Philippine Law for the damage which did not
exceed 5% of Margarine’s interest in the cargo and rendered judgment on 25 April 1969 ordering the Eastern
Shipping to pay to Margarinethe sum of US$591.38, with interest at the legal rate from the date of the filing
of the complaint until fully paid, plus US$250.00 as attorney’s fees and the costs of the suit. A petition for
review on questions of law was filed with the Supreme Court.

The Supreme Court affirmed the appealed judgment holding Eastern Shipping liable under the terms of its
own bill of lading for the damage suffered by Margarines copra cargo on board petitioner’s vessel, but sets
aside the award of attorney’s fees to Margarine for lack of any statement or reason in the lower court’s
judgment that would justify the award. Thus, the appealed judgment is affirmed with the modification that
the award of attorney’s fees is set aside; with costs against Eastern Shipping.

1. Article 848 of the Code of Commerce does not apply as there is the clause “agreement to the
contrary” in the bill of lading (application of the York-Antwerp Rules of 1950)
Article 848 of the Code of Commerce which would bar claims for averages not exceeding 5% of the
claimant’s interest cannot be applied for the reason that the bill of lading contains ‘an agreement to the
contrary’ for it is expressly provided in the last sentence of the first paragraph that ‘In case of average, same
shall be adjusted according to York-Antwerp Rules of 1950. The insertion of said condition is expressly
authorized by CA 65 which has adopted in toto the U.S. Carriage of Goods by Sea Act. Now, it has not been
shown that said rules limit the recovery of damage to cases within a certain percentage or proportion that said
damage may bear to claimant’s interest either in the vessel or cargo as provided in Article 848 of the Code of
Commerce. On the contrary, Rule 3 of said York-Antwerp Rules expressly states that ‘Damage done to a ship
and cargo, or either of them, by water or otherwise, including damage by breaching or scuttling a burning
ship, in extinguishing a fire on board the ship, shall be made good as general average . . .”’

2. Being a contract of adhesion, inconsistency or ambiguity construed against author (Eastern

Shipping)
There is a clear and irreconcilable inconsistency between the York-Antwerp Rules expressly adopted
by the parties as their contract under the bill of lading which sustains Margarine’s claim and the codal article
cited by Eastern Shipping which would bar the same. What is involved is a contract of adhesion as embodied
in the printed bill of lading issued by Eastern Shipping for the shipment to which Margarine as the consignee
merely adhered, having no choice in the matter, and consequently, any ambiguity therein must be construed
against Eastern Shipping as the author.

3. Award of attorney’s fees unjustified

There was no justification nor reason for the award of attorney’s fees in the text of the trial court’s
decision and should therefore be disallowed. As restated in Buan vs. Camaganacan, the general rule is that it
is contrary to sound public policy to place a penalty on the right to litigate nor should attorney’s fees be
awarded everytime a party wins a lawsuit. Hence, Article 2208 of the Civil Code provides that “in the
absence of stipulation, attorney’s fees end expenses of litigation, other than judicial costs, cannot be
recovered,” save for the eleven exceptions therein expressly provided. The present case does not fall within
any of the exceptions that would justify the award for attorney’s fees, such as gross and evident bad faith in
refusing to satisfy a plainly valid, just and demandable claim.

4. Judicial discretion to award attorney’s fees demand factual, legal or equitable justification
Even if under the broad eleventh exception of the cited article which allows the imposition of
attorney’s fees “in any other case where the court deems it just and equitable that attorney’s fees and expenses
of litigation should be recovered,” the conclusion must be borne out by findings of facts and law. What is just
and equitable in a given case is not a mere matter of feeling but of demonstration. Hence, the exercise of
judicial discretion in the award of attorney’s fees under Article 2208 (11) of the Civil Code demands a factual,
legal or equitable justification upon the basis of which the court exercises its discretion. Without such a
justification, the award is a conclusion without a premise, its basis being improperly left to speculation and
conjecture.

5. Judgment in US currency not questioned, thus is allowed

The appealed judgment ordered Eastern Shipping to pay Margarine the sum of US$591.38 with
interest at the legal rate (6% under Article 2209 of the Civil Code in force at the time of the judgment of 25
April 1969) from the filing of the complaint on 18 June 1966 until fully paid. Eastern Shipping did not appeal
from nor question this portion of the judgment requiring that it pay Margarine the damage claim with interest
in U.S. currency (with reference to the general rule of discharging obligations in Philippine currency
measured at the prevailing rate of exchange). The Court affirmed the judgment in U.S. currency in favor of
Margarine in view of Eastern Shipping’s acquiescence therein and viewed the judgment as one wherein the
lower court sentenced Eastern Shipping to pay and remit to Margarine as a non-resident foreign corporation
the amount due under the judgment in U.S. currency.

[120]

Magellan Manufacturing Marketing vs. CA [GR 95529, 22 August 1991]

Second Division, Regalado (J): 3 concur, 1 on leave

Facts: On 20 May 1980, Magellan Manufacturers Marketing Corp. (MMMC) entered into a contract with
Choju Co. of Yokohama, Japan to export 136,000 anahaw fans for and in consideration of $23,220.00. As
payment thereof, a letter of credit was issued to MMMC by the buyer. Through its president, James Cu,
MMMC then contracted F.E. Zuellig, a shipping agent, through its solicitor, one Mr. King, to ship the anahaw
fans through Orient Overseas Container Lines, Inc., (OOCL) specifying that he needed an on-board bill of
lading and that transshipment is not allowed under the letter of credit. On 30 June 1980, MMMC paid F.E.
Zuellig the freight charges and secured a copy of the bill of lading which was presented to Allied Bank. The
bank then credited the amount of US$23 ,220.00 covered by the letter of credit to appellant’s account.
However, when MMMC’s president James Cu, went back to the bank later, he was informed that the payment
was refused by the buyer allegedly because there was no on-board bill of lading, and there was a
transshipment of goods. As a result of the refusal of the buyer to accept, upon MMMC’s request, the anahaw
fans were shipped back to Manila by OOCL and FE Zuellig, for which the latter demanded from MMMC
payment of P246,043.43. MMMC abandoned the whole cargo and asked OOCL and FE Zuellig for damages.

On 20 July 1981 MMMC filed the complaint in this case praying that OOCL and FE Zuellig be ordered to
pay whatever MMMC was not able to earn from Choju Co., Ltd., amounting to P174,150.00 and other
damages like attorney’s fees since OOCL and FE Zuellig are to blame for the refusal of Choju Co., Ltd. to
accept the Anahaw fans. In answer thereto the latter alleged that the bill of lading clearly shows that there will
be a transshipment and that MMMC was well aware that MV (Pacific) Despatcher was only up to Hongkong
where the subject cargo will be transferred to another vessel for Japan. They this filed a counterclaim praying
that MMMC be ordered to pay freight charges from Japan to Manila and the demurrage’s in Japan and Manila
amounting to P298,150.93. The lower court decided the case in favor of OOCL and FE Zuellig.

On appeal to the Court of Appeals, the finding of the lower court that MMMC agreed to a transshipment of
the goods was affirmed but the finding that petitioner is liable for P298,150.93 was modified. It was reduced
to P52,102.45 which represents the freight charges and demurrage’s incurred in Japan but not for the
demurrage’s incurred in Manila. MMMC, dissatisfied with the decision moved for reconsideration. Denied, it
filed a petition for review on certiorari.

The Supreme Court affirmed the judgment of the Court of Appeals with the modification that MMMC is
likewise absolved of any liability, thus setting aside the award of P52,102.45 with legal interest granted by the
appellate court on OOCL and FE Zuellig’s counterclaim, said counterclaim being dismissed, without
pronouncement as to costs.

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

2. Transshipment exists in present case

There was transhipment, as there unmistakably appears on the face of the bill of lading the entry
“Hong Kong” in the blank space labeled “Transshipment,” which can only mean that transshipment actually
took place. This fact is further bolstered by the certification issued by F.E. Zuellig, Inc. dated 19 July 1980,
although it carefully used the term “transfer” instead of transshipment. Nonetheless, no amount of semantic
juggling can mask the fact that transshipment in truth occurred in this case.

3. A bill of lading operates both as a receipt and as a contract

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

4. Claims of mistake militates against nature of bill of lading

The claim that there was a mistake in documentation on the part of OOCL and FE Zuellig militates
against the conclusiveness of the bill of lading insofar as it reflects the terms of the contract between the
parties, as an exception to the parol evidence rule, and would therefore permit it to explain or present
evidence to vary or contradict the terms of the written agreement, that is, the bill of lading involved.

5. Receipt of bill lading without objection presumed to mean acceptance of contents as correct
and assent thereto
A shipper who receives a bill of lading without objection after an opportunity to inspect it, and
permits the carrier to act on it by proceeding with the shipment is presumed to have accepted it as correctly
stating the contract and to have assented to its terms. The acceptance of the bill without dissent raises the
presumption that all the terms therein were brought to the knowledge of the shipper and agreed to by him and,
in the absence of fraud or mistake, he is estopped from thereafter denying that he assented to such terms. This
rule applies with particular force where a shipper accepts a bill of lading with full knowledge of its contents
and acceptance under such circumstances makes it a binding contract.

6. Parol evidence rule vis-à-vis contracts

Under the parol evidence rule, the terms of a contract are rendered conclusive upon the parties, and
evidence aliunde is not admissible to vary or contradict a complete and enforceable agreement embodied in a
document, subject to well defined exceptions which do not obtain in this case. The parol evidence rule is
based on the consideration that when the parties have reduced their agreement on a particular matter into
writing, all their previous and contemporaneous agreements on the matter are merged therein. Accordingly,
evidence of a prior or contemporaneous verbal agreement is generally not admissible to vary, contradict or
defeat the operation of a valid instrument. The mistake contemplated as an exception to the parol evidence
rule is one which is a mistake of fact mutual to the parties. Furthermore, the rules on evidence, as amended,
require that in order that parol evidence may be admitted, said mistake must be put in issue by the pleadings,
such that if not raised inceptively in the complaint or in the answer, as the case may be, a party can not later
on be permitted to introduce parol evidence thereon.

7. Terms of contract in bill of lading clear and conclusive

The terms of the contract as embodied in the bill of lading are clear and thus obviates the need for any
interpretation. The intention of the parties which is the carriage of the cargo under the terms specified
thereunder and the wordings of the bill of lading do not contradict each other. The terms of the contract being
conclusive upon the parties and judging from the contemporaneous and subsequent actuations of petitioner, to
wit, personally receiving and signing the bill of lading and paying the freight charges, there is no doubt that
petitioner must necessarily be charged with full knowledge and unqualified acceptance of the terms of the bill
of lading and that it intended to be bound thereby.

8. Transshipment of freight without legal excuse is a violation of contract; No cause to suppose

shippers to be unaware of custom
It is a well-known commercial usage that transshipment of freight without legal excuse, however
competent and safe the vessel into which the transfer is made, is a violation of the contract and an
infringement of the right of the shipper, and subjects the carrier to liability if the freight is lost even by a
cause otherwise excepted. It is highly improbable to suppose that OOCL and FE Zuellig, having been
engaged in the shipping business for so long, would be unaware of such a custom of the trade as to have
undertaken such transshipment without petitioner’s consent and unnecessarily expose themselves to a
possible liability. Verily, they could only have undertaken transshipment with the shipper’s permission, as
evidenced by the signature of James Cu.

9. Knowledge of difference between bill of lading and on board bill of lading expected from those
engaged in export industry for long periods
The refusal of acceptance of the cargo of anahaw fans by Choju Co., Ltd. was also made on the
ground that the bill of lading that was issued was not an on board bill of lading, in clear violation of the terms
of the letter of credit issued in favor of MMMC. MMMC knew from the onset that its buyer, Choju Co., Ltd.,
particularly required that there be an on board bill of lading, obviously due to the guaranty afforded by such a
bill of lading over any other kind of bill of lading. The buyer could not have insisted on such a stipulation on
a pure whim or caprice, but rather because of its reliance on the safeguards to the cargo that having an on
board bill of lading ensured. Herein petitioner cannot feign ignorance of the distinction between an “or board”
and a “received for shipment” bill of lading. It is only to be expected that those long engaged in the export
industry should be familiar with business usages and customs.

10. On board bill of lading defined

An on board bill of lading is one in which it is stated that the goods have been received on board the
vessel which is to carry the goods, whereas a received for shipment bill of lading is one in which it is stated
that the goods have been received for shipment with or without specifying the vessel by which the goods are
to be shipped. Received for shipment bills of lading are issued whenever conditions are not normal and there
is insufficiency of shipping space. An on board bill of lading is issued when the goods have been actually
placed aboard the ship with every reasonable expectation that the shipment is as good as on its way. It is,
therefore, understandable that a party to a maritime contract would require an on board bill of lading because
of its apparent guaranty of certainty of shipping as well as the seaworthiness of the vessel which is to carry
the goods.

11. FE Zuellig’s certification cannot qualify bill of lading into an ob board bill of lading
 The certification of F.E. Zuellig, Inc. cannot qualify the bill of lading, as originally issued, into an on
board bill of lading as required by the terms of the letter of credit issued in favor of MMMC. For one, the
certification was issued only on 19 July 1980, way beyond the expiry date of 30 June 1980 specified in the
letter of credit for the presentation of an on board bill of lading. Thus, even assuming that by a liberal
treatment of the certification it could have the effect of converting the received for shipment bill of lading into
an on board of bill of lading, such an effect may be achieved only as of the date of its issuance, that is, on 19
July 1980 and onwards. The fact remains, though, that on the crucial date of 30 June 1980 no on board bill of
lading was presented by petitioner in compliance with the terms of the letter of credit and this default
consequently negates its entitlement to the proceeds thereof. Said certification, if allowed to operate
retroactively, would render illusory the guaranty afforded by an on board bill of lading, that is, reasonable
certainty of shipping the loaded cargo aboard the vessel specified, not to mention that it would indubitably be
stretching the concept of substantial compliance too far.

12. Claim of contract of adhesion cannot be upheld as bill of lading is clear

MMMC cannot escape liability by adverting to the bill of lading as a contract of adhesion, thus
warranting a more liberal consideration in its favor to the extent of interpreting ambiguities against OOCL
and FE Zuellig as allegedly being the parties who gave rise thereto. The bill of lading is clear on its face.
There is no occasion to speak of ambiguities or obscurities whatsoever. All of its terms and conditions are
plainly worded and commonly understood by those in the business.

13. Certain contracts of adhesion, such as bill of lading, not prohibited

It is conceded that bills of lading constitute a class of contracts of adhesion. However, as ruled in the
earlier case of Ong Yiu us. Court of Appeals, et al. and reiterated in Servando, et al. vs. Philippine Steam
Navigation Co., plane tickets as well as bills of lading are contracts not entirely prohibited. The one who
adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent.

14. Violation of letter of credit would defeat right to collect proceeds thereof
Any violation of the terms and conditions of the letter of credit as would defeat its right to collect the
proceeds thereof was, therefore, entirely of MMMC’s making for which it must bear the consequences.
Whether there was a violation of the terms and conditions of the letter of credit, or whether such violation was
the cause or motive for the rejection by MMMC’s Japanese buyer should not affect OOCL and FE Zuellig
since they were not privies to the terms and conditions of MMMC’s letter of credit and cannot therefore be
held liable for any violation thereof by any of the parties thereto.

15. Demurrage defined

Demurrage, in its strict sense, is the compensation provided for in the contract of affreightment for
the detention of the vessel beyond the time agreed on for loading and unloading. Essentially, demurrage is the
claim for damages for failure to accept delivery. In a broad sense, every improper detention of a vessel may be
considered a demurrage. Liability for demurrage, using the word in its strictly technical sense, exists only
when expressly stipulated in the contract. Using the term in its broader sense, damages in the nature of
demurrage are recoverable for a breach of the implied obligation to load or unload the cargo with reasonable
dispatch, but only by the party to whom the duty is owed and only against one who is a party to the shipping
contract. Notice of arrival of vessels or conveyances, or of their placement for purposes of unloading is often
a condition precedent to the right to collect demurrage charges.

16. Abandonment of goods releases MMMC from liability from demurrage charges
Ordinarily, the shipper is liable for freightage due to the fact that the shipment was made for its
benefit or under its direction and, correspondingly, the carrier is entitled to collect charges for its shipping
services. By virtue of the exercise of its option to abandon the goods so as to allow OOCL and FE Zuellig to
sell the same at a public auction and to apply the proceeds thereof as payment for the shipping and demurrage
charges, MMMC was released from liability for the sum of P52,102.43 since such amount represents the
shipping and demurrage charges from which it is considered to have been released due to the abandonment of
goods.

17. OOCL offered MMMC option, cannot renege of offer unilaterally

OOCL and FE Zuellig unequivocally offered MMMC, on 20 March 1981, the option of paying the
shipping and demurrage charges in order to take delivery of the goods or of abandoning the same so that the
former could sell them at public auction and thereafter apply the proceeds in payment of the shipping and
other charges. Responding thereto, in a letter dated 3 April 1981, MMMC seasonably communicated its
decision to abandon to the goods in favor of the former with the specific instruction that any excess of the
proceeds over the legal costs and charges be turned over to MMMC. Having given such option, especially
since it was accepted by MMMC, OOCL and FE Zuellig are estopped from reneging thereon. To allow either
of them to unilaterally back out on the offer and on the exercise of the option would be to countenance abuse
of rights as an order of the day, doing violence to the long entrenched principle of mutuality of contracts.

18. Grounds for abandonment of goods

In overland transportation, an unreasonable delay in the delivery of transported goods is sufficient
ground for the abandonment of goods. By analogy, this can also apply to maritime transportation. Further,
MMMC can properly abandon the goods, not only because of the unreasonable delay in its delivery but
because of the option which was categorically granted to and exercised by it as a means of settling its liability
for the cost and expenses of reshipment. Said choice having been duly communicated, the same is binding
upon the parties on legal and equitable considerations of estoppel.

[121]

Reyma Brokerage vs. Philippine Home Assurance Corp. (GR 93464, 7 October 1991)
Second Division, Sarmiento (J): 4 concur

Facts: On 2 October 1979, the vessel ‘MS Malmros Monsoon’ received onboard at Fremantle, Brisbane
Queensland, Australia from shipper Craig Mostyn & Co., Pty. Ltd. (of Brisbane, Queensland) a shipment of
2,680 cartons of hard frozen boneless beef contained in five (5) containers complete and in good order and
condition for transport to Manila in favor of the eventual consignee RFM Corp. under Bill of Lading No.
53149, dated 2 October 1979. On 13 October 1979, the MS ‘Malmros Monsoon’ arrived at Pier 3 of the Port
of Manila and discharged the shipment into the possession and custody of the arrastre operator. From Pier 3,
the shipment was transferred to the Reefer Van Area of Pier 13 and on 22 October 1979, the arrastre
contractor loaded the containers in 2 trucks and delivered them to Grech Food Industries Cold Storage in
Pasig, Rizal arriving there at 1:00 A.M., the following morning, 23 October 1979. 4 personnel of the Reyma
Brokerage, a driver and a helper in each truck made the delivery. On 23 October 1979 at 9:00 a.m., the
containers were stripped and the representative of Reyma Brokerage and consignee counted the contents of 5
containers and after an inventory of Container BROU-430656[1], it was discovered that 203 cartons were
found short out of the loaded 2,680 cartons of hard frozen boneless beef which according to the consignee
was totally attributable to the defendant as it occurred while the said container in question was in the custody
and responsibility of Reyma Brokerage. Consignee filed claim for the recovery of the missing 203 cartons but
the same was denied and consequently, consignee filed the claim with the insurer under its Marine Cargo
Insurance Policy. The consignee was paid by plaintiff the amount of P88,658.22 The payment of consignee’s
claim by the insurer had subrogated the latter to file this instant claim for the recovery of the said amount.

The trial court (RTC, NCJR, Branch 31, Manila) ruled against Reyma Brokerage, ordering the latter (1) to
pay the sum of P88,650.22 plus legal interest thereon from the date of the filing of the Complaint until the
same is fully paid; (b) to pay a sum equivalent to 25% of the entire amount as attorney’s fees; and (3) to pay
the costs of this suit.
The Court of Appeals affirmed the decision of the lower court on 29 November 1988 (CA GR CV 14550) in
toto. Hence, the petition for review on certiorari.

The Supreme Court denied the petition, with costs against Reyma Brokerage.

1. Express acknowledgment of carrier in present case

The carrier, by signifying in the bill of lading that “it is a receipt . . . for the number of packages
shown above,” had explicitly admitted that the containerized shipments had actually the number of packages
declared by the shipper in the bill of lading. This conclusion is bolstered by the stipulation printed in the bill
of lading, “unless expressly acknowledged and agreed to.” Therefore, the phrase “said to contain” also
appearing in the bill of lading must give way to this reality.

2. Express acknowledgment an exception to doctrine of US Lines case

The express acknowledgment of the carrier makes the case at bar an exception to the doctrine
enunciated in United States Lines. The rule enunciated by United States Lines applies to a situation where the
carrier of the containerized cargo simply admits the information furnished by the shipper with regard to the
goods it shipped as reflected in the bill of lading (“said to contain”) but not where the carrier of the
containerized cargo makes an explicit admission as to the weight, measurement marks, numbers, quality
contents, and value, and more so, inscribed these admissions as stipulations in the bill of lading itself, or made
them an addendum thereto, to which the carrier affixed its express acknowledgment as what happened in this
case. In its stead, the dictum that the bill of lading shall be prima facie evidence of the receipt by the carrier of
the goods as therein described governs.

3. Bill of lading both a receipt and a contract

A bill of lading operates both as a receipt and as a contract. It is a receipt for the goods shipped and a
contract to transport and deliver the same as therein stipulated. As a receipt, it recites the date and place of
shipment, describes the goods as to quantity, weight, dimensions, identification marks and condition, quality,
and value. As a contract it names the contracting parties, which include the consignee, fixes the route,
destination, and freight rates or charges, and stipulates the rights and obligations assumed by the parties.

4. Facts alleged in a party’s pleading are deemed admissions of that party and binding upon it;
Prima facie evidence
Reyma Brokerage included allegations in its answer that all the containerized shipments arrived in
Manila with the seals intact, and that it received the said sealed containers of the shipments, particularly
container BROU-4306561 which sustained the loss of 203 cartons from the arrastre operator, also with the
seals intact. It can therefore be concluded that Reyma Brokerage received all the shipments as itemized in the
bill of lading. For the rule is well-established that the

5. Burden of proof to overturn prima facie evidence

As the arrastre operator prima facie received all the shipments in the sealed containers, it has the
burden to rebut the conclusion that it received the same without shortage. Prima facie evidence is of course,
like all evidence susceptible to rebuttal; but unrebutted it remains sufficient, as a matter of law to establish the
ultimate proposition it purports to prove. It goes without saying that such evidence can only be overcome by
contrary proof and not by mere surmises and speculations. Reyma Brokerage had not overthrown this
presumption by contrary evidence, and thus the loss of the 203 cartons is attributable to it.

6. Prescription defense waived or abandoned

The defense of prescription (citing sec. 2(6), paragraph 4 of the Carriage of Goods by Sea Act which
provides that the carrier and the ship shall be discharged from all liability in respect of loss or damage unless
suit is brought within one year after delivery of the goods or the date when the goods should have been
delivered”) had been waived and/or abandoned by the petitioner. Other than the allegation of prescription in
the answer, Reyma Brokerage never pursued this matter either in the later proceedings of the trial court or in
the Court of Appeals. The petitioner cannot now be allowed to raise this issue to the Supreme Court after such
waiver or abandonment. Granting arguendo that Reyma Brokerage can still put up prescription as its defense,
nonetheless it will not prosper considering that it is not a carrier or a vessel or a charterer or the legal holder
of the bill of lading. It is the broker and the private respondent is the insurer. The prescriptive period of this
cause of action is 10 years. In the present case, 10 years have not yet lapsed from the delivery of the
shipment.

[122]

Keng Hua Paper Products vs. CA (GR 116863, 12 February 1998)

First Division, Panganiban (J): 4 concur

Facts: Sea-Land Service, a shipping company, is a foreign corporation licensed to do business in the
Philippines. On 29 June 1982, SeaLand received at its Hong Kong terminal a sealed container, Container
SEAU 67523, containing 76 bales of “unsorted waste paper” for shipment to Keng Hua Paper Products, Co.
in Manila. A bill of lading to cover the shipment was issued by Sea-Land. On 9 July 1982, the shipment was
discharged at the Manila International Container Port. Notices of arrival were transmitted to Keng Hua but the
latter failed to discharge the shipment from the container during the “free time” period or grace period. The
said shipment remained inside the Sea-Land’s container from the moment the free time period expired on 29
July 1982 until the time when the shipment was unloaded from the container on 22 November 1983, or a total
of 481 days. During the 481-day period, demurrage charges accrued. Within the same period, letters
demanding payment were sent by Sea-Land to Keng Hua who, however, refused to settle its obligation which
eventually amounted to P67,340.00. Numerous demands were made on Keng Hua but the obligation remained
unpaid.

Sea Land thereafter commenced the civil action for collection and damages. The RTC found Keng Hua liable
for demurrage, attorney’s fees and expenses of litigation.

Keng Hua appealed to the Court of Appeals, which denied the appeal and affirmed the lower court’s decision
in toto. In a subsequent resolution, it also denied Keng Hua’s motion for reconsideration. Hence, the petition
for review.

The Supreme Court affirmed the assailed Decision with the modification that the legal interest of 6% per
annum shall be computed from 28 September 1990 until its full payment before finality of judgment. The rate
of interest shall be adjusted to 12% per annum, computed from the time said judgment became final and
executory until full satisfaction. The award of attorney’s fees is deleted.

1. Nature of bill of lading

A bill of lading serves two functions. First, it is a receipt for the goods shipped. Second, it is a
contract by which three parties, namely, the shipper, the carrier, and the consignee undertake specific
responsibilities and assume stipulated obligations. A “bill of lading delivered and accepted constitutes the
contract of carriage even though not signed,” because the “(a)cceptance of a paper containing the terms of a
proposed contract generally constitutes an acceptance of the contract and of all of its terms and conditions of
which the acceptor has actual or constructive notice.” In a nutshell, the acceptance of a bill of lading by the
shipper and the consignee, with full knowledge of its contents, gives rise to the presumption that the same
was a perfected and binding contract.

2. Shipper and consignee were liable for payment of demurrer charges; Section 17 of the bill of
lading
Section 17 of the bill of lading provided that the shipper and the consignee were liable for the
payment of demurrage charges for the failure to discharge the containerized shipment beyond the grace
period
allowed by tariff rules. Section 17 of the bill of lading provided “Cooperage Fines. The shipper and
consignee shall be liable for, indemnify the carrier and ship and hold them harmless against, and the carrier
shall have a lien on the goods for, all expenses and charges for mending cooperage, baling, repairing or
reconditioning the goods, or the van, trailers or containers, and all expenses incurred in protecting, caring for
or otherwise made for the benefit of the goods, whether the goods be damaged or not, and for any payment,
expense, penalty fine, dues, duty, tax or impost, loss, damage, detention, demurrage, or liability of whatsoever
nature, sustained or incurred by or levied upon the carrier or the ship in connection with the goods or by
reason of the goods being or having been on board, or because of shipper’s failure to procure consular or
other proper permits, certificates or any papers that may be required at any port or place or shipper’s failure to
supply information or otherwise to comply with all laws, regulations and requirements of law in connection
with the goods of from any other act or omission of the shipper or consignee.” Keng Hua’s prolonged failure
to receive and discharge the cargo from the Sea-Land’s vessel constitutes a violation of the terms of the bill of
lading. It should thus be liable for demurrage to the former.

3. Keng Hua’s letter proved refusal to pick up cargo and not rejection of bill of lading; Implied
acceptance
Keng Hua “received the bill of lading immediately after the arrival of the shipment” on 8 July 1982.
Having been afforded an opportunity to examine the said document, it did not immediately object to or
dissent from any term or stipulation therein. It was only six months later, on 24 January 1983, that it sent a
letter to private respondent saying that it could not accept the shipment. Its inaction for such a long period
conveys the clear inference that it accepted the terms and conditions of the bill of lading. Moreover, said letter
spoke only of petitioner’s inability to use the delivery permit, i.e. to pick up the cargo, due to the shipper’s
failure to comply with the terms and conditions of the letter of credit, for which reason the bill of lading and
other shipping documents were returned by the “banks” to the shipper. The letter merely proved its refusal to
pick up the cargo, not its rejection of the bill of lading.

4. Apprehension of violating laws cannot defeat contractual obligation and liability

Keng Hua’s attempt to evade its obligation to receive the shipment on the pretext that this may cause
it to violate customs, tariff and central bank laws must fail. Mere apprehension of violating said laws, without
a clear demonstration that taking delivery of the shipment has become legally impossible, cannot defeat the
petitioner’s contractual obligation and liability under the bill of lading.

5. Issue raised for first time on appeal cannot be entertained

An issue raised for the first time on appeal and not raised timely in the proceedings in the lower court
is barred by estoppel. Questions raised on appeal must be within the issues framed by the parties and,
consequently, issues not raised in the trial court cannot be raised for the first time on appeal. Herein, the issue
of whether or not Keng Hua accepted the bill of lading was raised for the first time only in its memorandum
before the Supreme Court.

6. Nature of demurrage
Demurrage is merely an allowance or compensation for the delay or detention of a vessel. It is often a
matter of contract, but not necessarily so. The very circumstance that in ordinary commercial voyages, a
particular sum is deemed by the parties a fair compensation for delays, is the very reason why it is, and ought
to be, adopted as a measure of compensation, in cases ex delicto. What fairer rule can be adopted than that
which founds itself upon mercantile usage as to indemnity, and fixes a recompense upon the deliberate
consideration of all the circumstances attending the usual earnings and expenditures in common voyages? It
appears to us that an allowance, by way of demurrage, is the true measure of damages in all cases of mere
detention, for that allowance has reference to the ship’s expenses, wear and tear, and common employment.

7. Amount of Demurrage Charges supported by extant evidence

 The amount of demurrage charges in the sum of P67,340 is a factual conclusion of the trial court that
was affirmed by the Court of Appeals and, thus, binding on the Supreme Court. Besides, such factual finding
is supported by the extant evidence. The apparent discrepancy was a result of the variance of the dates when
the two demands were made. Necessarily, the longer the cargo remained unclaimed, the higher the
demurrage. Thus, while in his letter dated 24 April 1983, Sea-Land’s counsel demanded payment of only
P37,800, the additional demurrage incurred by Keng Hua due to its continued refusal to receive delivery of
the cargo ballooned to P67,340 by 22 November 1983.

8. Three contracts in a letter of credit

In a letter of credit, there are three distinct and independent contracts: (1) the contract of sale between
the buyer and the seller, (2) the contract of the buyer with the issuing bank, and (3) the letter of credit proper
in which the bank promises to pay the seller pursuant to the terms and conditions stated therein. “Few things
are more clearly settled in law than that the three contracts which make up the letter of credit arrangement are
to be maintained in a state of perpetual separation.” A transaction involving the purchase of goods may also
require, apart from a letter of credit, a contract of transportation specially when the seller and the buyer are
not in the same locale or country, and the goods purchased have to be transported to the latter.

9. Contract of carriage in bill of lading to be treated independently of contract of sale and the
contract for the issuance of credit
The contract of carriage, as stipulated in the bill of lading in the present case, must be treated
independently of the contract of sale between the seller and the buyer, and the contract for the issuance of a
letter of credit between the buyer and the issuing bank. Any discrepancy between the amount of the goods
described in the commercial invoice in the contract of sale and the amount allowed in the letter of credit will
not affect the validity and enforceability of the contract of carriage as embodied in the bill of lading. As the
bank cannot be expected to look beyond the documents presented to it by the seller pursuant to the letter of
credit, neither can the carrier be expected to go beyond the representations of the shipper in the bill of lading
and to verify their accuracy vis-a-vis the commercial invoice and the letter of credit. Thus, the discrepancy
between the amount of goods indicated in the invoice and the amount in the bill of lading cannot negate Keng
Hua’s obligation to private respondent arising from the contract of transportation.

10. Remedy of alleged overshipment lies against the shipper and not against the carrier
The contract of carriage was under the arrangement known as “Shipper’s Load And Count,” and the
shipper was solely responsible for the loading of the container while the carrier was oblivious to the contents
of the shipment. Keng Hua’s remedy in case of overshipment lies against the seller/shipper, not against the
carrier.

11. Computation of legal interest

a. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or
until the demand can be established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the computation of legal interest shall, in any case,
be on the amount finally adjudged.
b. When the judgment of the court awarding a sum of money becomes final and executory, the rate of
legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.
12. Obligation one not arising from loan or forbearance of money; Legal interest in the present case
The case involves an obligation not arising from a loan or forbearance of money; thus, pursuant to
Article 2209 of the Civil Code, the applicable interest rate is 6% per annum. Since the bill of lading did not
specify the amount of demurrage, and the sum claimed by Sea-Land increased as the days went by, the total
amount demanded cannot be deemed to have been established with reasonable certainty until the trial court
rendered its judgment. Indeed, “unliquidated damages or claims, it is said, are those which are not or cannot
be known until definitely ascertained, assessed and determined by the courts after presentation of proof.”
Consequently, the legal interest rate is 6%, to be computed from 28 September 1990, the date of the trial
court’s decision. And in accordance with the cases of PNB and Eastern Shipping, the rate of 12% per annum
shall be charged on the total then outstanding, from the time the judgment becomes final and executory until
its satisfaction.

13. Attorney’s fees denied due to lack of justification

The matter of attorney’s fees was taken up only in the dispositive portion of the trial court’s decision.
This falls short of the settled requirement that the text of the decision should state the reason for the award of
attorney’s fees, for without such justification, its award would be a “conclusion without a premise, its basis
being improperly left to speculation and conjecture.”

[123] Ong vs. CA, see [68]

[124], also [187]

Ysmael vs. Barretto (GR 28028, 25 November 1927)

En Banc, Johns (J): 6 concur

Facts: Juan Ysmael & Co. Inc., a domestic corporation, seeks to recover from Gabino Barretto, et. al.
P9,940.95, the alleged value of four cases of merchandise which it delivered to the steamship Andres on 25
October 1922, at Manila to be shipped to Surigao, but which were never delivered to Salomon Sharuff, the
consignee, or returned to Juan Ysmael & Co. Juan Ysmael made its claim of loss within 7 days after receipt
of information that 160 cases only were delivered. Its second claim was made on 29 December 1922, in
which it said that, if the claim was not paid before 3 January 1923, it would be placed in the hands of
attorneys for collection. On 3 January 1923, Gabino Barretto & Company advised Juan Ysmael that it would
not pay the claim. The original complaint was filed on 17 April 1923, or a little less than 6 months after the
shipment was made, and was later amended to include Gabino Barretto and P. E. Soon as members of the
limited partnership of Gabino Barretto & Co., Ltd. In their amended answers Barretto, et. al. make a specific
denial of all of the material allegations of the complaint, and as a special defense allege that the four cases of
merchandise in question were never delivered to them, and that under the provisions of paragraph 7 of the
printed conditions appearing on the back of the bill of lading, Juan Ysmael’s right of action is barred for the
reason that it was not brought within 60 days from the time the cause of action accrued.

The evidence was taken upon such issues, and the lower court rendered judgment for Juan Ysmael for the full
amount of its claim, from which Andres H. Limgengco and Vicente Javier appealed.

The Supreme Court affirmed the judgment of the lower court, with costs.

1. 164 cases of goods were delivered to and loaded on the steamship Andres
There is ample evidence to support the finding that the merchandise was received by Barretto & Co.
In fact it is sustained by a preponderance of the evidence. Herein, Juan Ysmael’s testimony, together with the
manifest signed by “G. Barretto, Agents,” for Andres Heras Limgengco covering the shipment of the
merchandise, wherein 165 cases of merchandise appear as belonging to Juan Ysmael and the bills of lading
signed by the second officer, Claro Galleros, for the shipment of the 165 cases, and a triplicate copy of the bill
of lading 62, on which the first officer of the steamer Andres, Francisco Masingsong, made a note that among
the merchandise discharged in Surigao were the four cases in question, clearly shows that Barretto & Co.
received from Juan Ysmael 164 cases of merchandise, and delivered at Surigao only 160 cases of such
merchandise, and that Barretto failed to deliver the said four cases in Surigao when Juan Ysmael’s
representative took delivery of the cargo at that port, and that the original figure “l” and the word “bulto”
appearing on the back of the bill of lading were changed by Galleros to read “5” and “bultos.” The said
Galleros admitted as a witness that he had the bill of lading in his possession from the time the steamer sailed
from Manila until the cargo was recounted in Surigao in the presence of the first officer, Francisco
Masingsong, Salomon Sharuff, the bodeguero and Galleros. The testimony of Claro Galleros stands
uncorroborated. The defendants, without showing any legal reason therefor, did not present as witnesses the
first officer, Francisco Masingsong, and the helmsman of the steamer Andres and the bodeguero in Surigao to
corroborate the testimony of Claro Galleros. Based upon the findings of fact of the trial court which are
sustained by the evidence, Juan Ysmael delivered to Barretto & Co. 164 cases of silk consigned and to be
delivered by Barretto & Co. to Salomon Sharuff in Surigao. Four of such cases were never delivered, and the
evidence shows that their value is the amount alleged in the complaint.

2. Contents of paragraph 7 of the bill of lading

Paragraph 7 of the bill of lading provides that “all claims for shortage or damage must be made at the
time of delivery to consignee or his agent, if the packages or containers show exterior signs of damage;
otherwise to be made in writing to the carrier within twenty-four hours from the time of delivery. Claims for
nondelivery or shipment must be presented in writing to the carrier within thirty days from the date of
accrual. Suits based upon claims arising from shortage, damage, or nondelivery of shipment shall be
instituted within sixty days from date of accrual of the right of action. Failure to make claims or to institute
judicial proceedings as herein provided shall constitute a waiver of the claim or right of action.”

3. Section 505 C, Corpus Juris Vol 10., p. 343-344

Section 505 C, Corpus Juris, vol. 10, pp. 343-344, provides “contractual Limitations As To Time For
Bringing Suit. — 1. In General. — In the absence of any express statutory prohibition, according to the great
weight of authority, it is competent for the parties to a contract of shipment to agree on a limitation of time
shorter than the statutory limitation, within which action for breach of the contract shall be brought, and such
a limitation will be enforced if reasonable, although there is some authority to the contrary. Nevertheless to be
effective such limitation must be reasonable; and it has been said that the only limitations as to the validity of
such contracts are that they must be reasonable, and that there must be prompt action on the part of the carrier
in denying its liability, to the end that the shipper may be duly apprised of the fact that suit will be necessary.
Stipulations of this character are not opposed to public policy, and do not operate as a restriction on the
common-law liability of the carrier.”

4. Ruling Case Law, volume 4, pp. 798-799

Ruling Case Law, volume 4, pp. 798-799, which reads: “(256) Stipulations Limiting Time for
Bringing Suit. — Similar in character to the stipulations just considered prescribing a certain time within
which notice of loss must be given, are the provisions frequently met with in bills of lading which require that
any action to recover for loss or damage to the article shipped should be begun within a specified period. The
parties may, if they see fit, fix by agreement a shorter time for the bringing of suit on the contract than that
provided by the statute of limitations, and if the period therein limited is reasonable, suit must be brought
within that time or the shipper’s right of action will be barred. Such a provision is prohibited by no rule of law
nor by any consideration of public policy. Nor is it at all affected by the existence within the jurisdiction of a
statutory or constitutional prohibition against carriers limiting or restricting their common law liability, since
it is held that such a stipulation does not in any way defeat the complete vestiture of the right to recover, but
merely requires the assertion of that right by action at an earlier period than would be necessary to defeat it
through the operation of the ordinary statute of limitations. But the limitation must be reasonable, and if the
period of time specified is such that under the facts of the particular case the shipper could not with
reasonable diligence be enabled to bring suit before it expired, the attempted limitation is void. Thus, a
provision that suit must be brought within thirty days after the loss or damage occurred has been held
unreasonable where it appeared that the transit might reasonably consume the whole of that time. A period of
forty days has on the other hand been held to be a reasonable limitation.”

5. Conditions in the bill of lading, being unreasonable and not printed in the triplicate copies, do
not bind shipper
Herein, assuming that the conditions came to the knowledge of Juan Ysmael, the Supreme Court of
the Philippine Islands, has held that such stipulations in the bill of lading are not reasonable, and therefore, do
not bar an action. Further, granting, without deciding, that said conditions appearing on the back of the
originals might have legal effect, the court is of the opinion that in view of the fact that said conditions are not
printed on the triplicate copies which were delivered to the plaintiff, such conditions are not binding upon
Juan Ysmael.

6. Reasonable time; Aguinaldo vs. Daza

In the case of Aguinaldo vs. Daza (G. R. No. 25961), in which the printed conditions on the bill of
lading were identical with those in the present case, the action was not commenced for more than a year after
the delivery of the goods by the plaintiff and the receipt of the bill of lading, and it was there held that
“having regard to the situation involved in this shipment, and the slowness of communication between Manila
and Catbalogan, the contractual limitation stated in this bill of lading with respect to the time for presentation
of the written claim was insufficient. The same considerations are necessarily decisive with respect to the
time required for the institution of judicial action. It results that the stipulations relied upon by the defendant-
appellee constitute no obstacle to the maintenance of the present action.”

7. Action in present case was brought within a “reasonable time”

Herein, the action was brought within a “reasonable time.” Although it is true that both Juan Ysmael
and Barreto & Co. are residents of the City of Manila, it is also true that Surigao where the goods in question
were to be delivered is one of the most distant places from Manila in the Philippine Islands. In the very nature
of things, Juan Ysmael would not want to commence its action until such time as it had made a full and
careful investigation of all of the material facts and even the law of the case, so as to determine whether or not
Barretto & Co. were liable for its loss.

8. Clause 12 of the bill of lading

Clause 12 of the bill of lading provides that “it is expressly understood that carrier shall not be liable
for loss or damage from any cause or for any reason to an amount exceeding three hundred pesos (P300)
Philippine currency for any single package of silk or other valuable cargo, nor for an amount exceeding one
hundred pesos (P100) Philippine currency for any single package of other cargo, unless the value and
contents of such packages are correctly declared in this bill of lading at the time of shipment and freight paid
in accord with the actual measurement or weight of the cargo shipped.” In fine, the clause provides that the
carrier shall not be liable for loss or damage from any cause or for any reason to an amount in excess of P300
“for any single package of silk or other valuable cargo.”

9. Silk shipments in the Philippines

It is a matter of common knowledge that large quantities of silk are imported in the Philippine
Islands, and that after being imported, they are sold by the merchants in Manila and other large seaports, and
then shipped to different points and places in the Islands. Hence, there is nothing unusual about the shipment
of silk. In truth and in fact, it is a matter of usual and ordinary business. There was no fraud or concealment in
the shipment in question.

10. Limitation of value in Clause 12 unconscionable and void as against public policy
 The ship, steamer Anders, was a common carrier and must have been operated as a public utility.
Clause 12 places a limit of P300 “for any single package of silk.” The evidence shows that 164 “cases” were
shipped, and that the value of each case was very near P2,500. In this situation, the limit of Barretto & Co.’s
liability for each case of silk “for loss or damage from any cause or for any reason” would put it in their
power to have taken the whole cargo of 164 cases of silk at a valuation of P300 for each case, or less than
1/8th of its actual value. If that rule of law should be sustained, no silk would ever be shipped from one island
to another in the Philippines. Such a limitation of value is unconscionable and void as against public policy.

11. Corpus Juris, Volume 10, p. 154; Paragraph 194.6 (Reasonableness of Limitation)
Paragraph 194. 6 (Reasonableness of Limitation) provides that “the validity of stipulations limiting
the carrier’s liability is to be determined by their reasonableness and their conformity to the sound public
policy, in accordance with which the obligations of the carrier to the public are settled. It cannot lawfully
stipulate for exemption from liability, unless such exemption is just and reasonable, and unless the contract is
freely and fairly made. No contractual limitation is reasonable which is subversive of public policy.”

12. Corpus Juris, Volume 10, p. 154; Paragraph 195.7 (What Limitations of Liability Permissible)
Paragragh 195. 7 (What Limitations of Liability Permissible) provides that “a. Negligence — (l) Rule
in America — (a) In Absence of Organic or Statutory Provisions Regulating Subject — aa. Majority Rule. —
In the absence of statute, it is settled by the weight of authority in the United States, that whatever limitations
against its common-law liability are permissible to a carrier, it cannot limit its liability for injury to or loss of
goods shipped, where such injury or loss is caused by its own negligence. This is the common law doctrine
and it makes no difference that there is no statutory prohibition against contracts of this character.”

13. Corpus Juris, Volume 10, p. 154; Paragraph 196.bb (Considerations on which Rule Based)
Paragraph 196. bb (Considerations on Which Rule Based) provides that “The rule, it is said, rests on
considerations of public policy. The undertaking is to carry the goods, and to relieve the shipper from all
liability for loss or damage arising from negligence in performing its contract is to ignore the contract itself.
The natural effect of a limitation of liability against negligence is to induce want of care on the part of the
carrier in the performance of its duty. The shipper and the common carrier are not on equal terms; the shipper
must send his freight by the common carrier, or not at all; he is therefore entirely at the mercy of the carrier,
unless protected by the higher power of the law against being forced into contracts limiting the carrier’s
liability. Such contracts are wanting in the element of voluntary assent.”

14. Corpus Juris, Volume 10, p. 154; Paragraph 197 cc (Application and Extent of Rule)
Paragraph 197 cc (Application and Extent of Rule) provides that “(aa) Negligence of Servants. —
The rule prohibiting limitation of liability for negligence is often stated as a prohibition of any contract
relieving the carrier from loss or damage caused by its own negligence or misfeasance, or that of its servants;
and it has been specifically decided in many cases that no contract limitation will relieve the carrier from
responsibility for the negligence, unskillfulness, or carelessness of its employees.”

[125] Shewaram vs. PAL, see [- after 67]

[126] St. Paul’s vs. Macondray, see [60]
[127] Macam vs. CA, see [48]
[128]

Maersk Line vs. CA (GR 94761, 17 May 1993)

Third Division, Bidin (J): 4 concur

Facts: Maersk Line is engaged in the transportation of goods by sea, doing business in the Philippines
through its general agent Compania General de Tabacos de Filipinas. Efren Castillo, on the other hand, is the
proprietor of Ethegal Laboratories, a firm engaged in the manufacture of pharmaceutical products. On 12
November 1976, Castillo ordered from Eli Lilly, Inc. of Puerto Rico through the latter’s agent in the
Philippines, Elanco Products, 600,000 empty gelatin capsules for the manufacture of his pharmaceutical
products. The capsules were placed in 6 drums of 100,000 capsules each valued at US $1,668.71. Through a
Memorandum of Shipment, the shipper Eli Lilly, Inc. of Puerto Rico advised Castillo as consignee that the
600,000 empty gelatin capsules in 6 drums of 100,000 capsules each, were already shipped on board MV
“Anders Maerskline” under Voyage 7703 for shipment to the Philippines via Oakland, California. In said
Memorandum, shipper Eli Lilly, Inc. specified the date of arrival to be 3 April 1977. For reasons unknown,
said cargo of capsules were misshipped and diverted to Richmond, Virginia, USA and then transported back
to Oakland, California. The goods finally arrived in the Philippines on 10 June 1977 or after 2 months from
the date specified in the memorandum. As a consequence, Castillo as consignee refused to take delivery of
the goods on account of its failure to arrive on time.

Castillo, alleging gross negligence and undue delay in the delivery of the goods, filed an action before the
trial court for rescission of contract with damages against Maersk Line and Eli Lilly, Inc. as defendants. Later,
Castillo moved for the dismissal of the complaint against Eli Lilly on the ground that the evidence on record
shows that the delay in the delivery of the shipment was attributable solely to Maersk Line. Acting on said
motion, the trial court dismissed the complaint against Eli Lilly; and correspondingly, the latter withdrew its
cross-claim against Maersk Line in a joint motion dated 3 December 1979. After trial, the trial court rendered
judgment dated 8 January 1982 in favor of Castillo, ordered Maersk Line, through its agent Compania
General de Tabacos de Filipinas, to pay Castillo the amount of P369,000.00 as unrealized profit; P200,000.00
as moral damages; P10,000.00 as exemplary damages; P11,680.97 as cost of credit line; and P50,000.00, as
attorney’s fees and to pay the costs of suit. The court also held that sums due to Castillo will bear the legal
rate of interest until they are fully paid from the time the case was filed.

On appeal, the appellate court rendered its decision dated 1 August 1990 affirming with modifications the
lower court’s decision; ordering Maersk Line to pay Castillo (1) compensatory damages of P11,680.97 at 6%
annual interest from filing of the complaint until fully paid, (2) moral damages of P50,000.00, (3) exemplary
damages of P20,000,00, (3) attorney’s fees, per appearance fees, and litigation expenses of P30,000.00, (4)
30% of the total damages awarded except item (3) above, and the costs of suit.

The Supreme Court affirmed the appealed decision, with the modification regarding the deletion of item 4 of
the appellate court’s decision.

1. Dismissal of Eli Lilly cross-claim against Maersk Line did not dismiss original complaint
against it
The complaint was filed originally against Eli Lilly, Inc. as shipper-supplier and Maersk Line as
carrier. Maersk Line, being an original party defendant upon whom the delayed shipment is imputed, cannot
claim that the dismissal of the complaint against Eli Lilly, Inc. inured to its benefit. Hence, the appellate court
erred in declaring that the trial court based Maersk Line’s liability on the cross-claim of Eli Lilly. As borne
out by the record, the trial court anchored its decision on Maersk Line’s delay or negligence to deliver the 6
drums of gelatin capsules within a reasonable time on the basis of which Maersk Line was held liable for
damages under Article 1170 of the New Civil Code which provides that those who in the performance of their
obligations are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor
thereof, are liable for damages.

2. Content of bills of lading

The bill of lading covering the subject shipment among others, reads “(6) GENERAL – (1) The
Carrier does not undertake that the Goods shall arrive at the port of discharge or the place of delivery at any
particular time or to meet any particular market or use and save as is provided in clause 4 the Carrier shall in
no circumstances be liable for any direct, indirect or consequential loss or damage caused by delay. If the
Carrier should nevertheless be held legally liable for any such direct or indirect or consequential loss or
damage caused by delay, such liability shall in no event exceed the freight paid for the transport covered by
this Bill of Lading.” This provision in the bill of lading has the effect of practically leaving the date of arrival
of the subject shipment on the sole determination and will of the carrier.

3. Contract of adhesion generally void, but not entirely prohibited

The provision at the back of the bill of lading, in fine print, is a contract of adhesion. Generally,
contracts of adhesion are considered void since almost all the provisions of these types of contracts are
prepared and drafted only by one party, usually the carrier. The only participation left of the other party in
such a contract is the affixing of his signature thereto, hence the term “adhesion”. Nonetheless, settled is the
rule that bills of lading are contracts not entirely prohibited. One who adheres to the contract is in reality free
to reject it in its entirety; if he adheres, he gives his consent.

4. Nature of bill of lading; Magellan Manufacturing Marketing Corp.v. CA

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

5. Delivery of shipment or cargo must be made within a reasonable time

While it is true that common carriers are not obligated by law to carry and to deliver merchandise,
and persons are not vested with the right to prompt delivery, unless such common carriers previously assume
the obligation to deliver at a given date or time, delivery of shipment or cargo should at least be made within
a reasonable time.

6. Carrier generally not an insurer of delay in transportation of goods; Saludo vs. CA

In Saludo, Jr. v. Court of Appeals (207 SCRA 498 [1992]) the Court held that “the oft-repeated rule
regarding a carrier’s liability for delay is that in the absence of a special contract, a carrier is not an insurer
against delay in transportation of goods. When a common carrier undertakes to convey goods, the law implies
a contract that they shall be delivered at destination within a reasonable time, in the absence, of any
agreement as to the time of delivery. But where a carrier has made an express contract to transport and deliver
property within a specified time, it is bound to fulfill its contract and is liable for any delay, no matter from
what cause it may have arisen. This result logically follows from the well-settled rule that where the law
creates a duty or charge, and the party is disabled from performing it without any default in himself, and has
no remedy over, then the law will excuse him, but where the party by his own contract creates a duty or
charge upon himself, he is bound to make it good notwithstanding any accident or delay by inevitable
necessity because he might have provided against it by contract. Whether or not there has been such an
undertaking on the part of the carrier is to be determined from the circumstances surrounding the case and by
application of the ordinary rules for the interpretation of contracts.”

7. Awareness of shipment’s arrival makes execution of another contract to indicate date of arrival
of shipment a superfluity
An examination of the subject bill of lading shows that the subject shipment was estimated to arrive
in Manila on 3 April 1977. While there was no special contract entered into by the parties indicating the date
of arrival of the subject shipment, Maersk Line nevertheless, was very well aware of the specific date when
the goods were expected to arrive as indicated in the bill of lading itself. In this regard, there arises no need to
execute another contract for the purpose as it would be a mere superfluity.
8. Delay in present case beyond reasonableness
Herein, a delay in the delivery of the goods spanning a period of 2 months and 7 days falls way
beyond the realm of reasonableness. Described as gelatin capsules for use in pharmaceutical products, subject
shipment was delivered to, and left in, the possession and custody of Maersk Line for transport to Manila via
Oakland, California; but through Maersk Line’s negligence was misshipped to Richmond, Virginia. Maersk
Lines’ insistence that it cannot be held liable for the delay finds no merit.

9. Award of actual and compensatory damages proper

It is settled that actual and compensatory damages require substantial proof. Herein, Castillo was able
to sufficiently prove through an invoice, certification from the issuer of the letter of credit and the
Memorandum of Shipment, the amount he paid as costs of the credit line for the subject goods. Therefore,
appellate court acted correctly in affirming the award of P11,680.97 as costs of said credit line.

10. Award of moral damages proper

As to the propriety of the award of moral damages, Article 2220 of the Civil Code provides that
moral damages may be awarded in “breaches of contract where the defendant acted fraudulently or in bad
faith.” Herein, Maersk Line never even bothered to explain the cause for the delay, i.e. more than 2 months, in
the delivery of the subject shipment. Under the circumstances of the case, Maersk Line is liable for breach of
contract of carriage through gross negligence amounting to bad faith. Thus, the award of moral damages is
therefore proper in the case.

11. Award of exemplary damages proper

Exemplary damages may be awarded to Castillo. In contracts, exemplary damages may be awarded if
the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. There was gross
negligence on the part of the petitioner mishipping the subject goods destined for Manila but was inexplicably
shipped to Richmond, Virginia, U.S.A. Gross carelessness or negligence constitutes wanton misconduct,
hence, exemplary damages may be awarded to the aggrieved party.

12. Award of attorney’s fees proper; Award of 30% of total damages unconscionable
Although attorney’s fees are generally not recoverable, a party can be held liable for such if
exemplary damages are awarded (Article 2208, New Civil Code). Herein, Castillo is entitled to reasonable
attorney’s fees since Maersk Line acted with gross negligence amounting to bad faith. However, the award of
30% of the total damages awarded, except those pertaining to attorney’s fees and litigation expenses in favor
of Castillo, are unconscionable. The same should then be deleted.

[129]

New Zealand Insurance Co. vs. IAC (GR L-66596, 28 August 1984)
Second Division, Abad Santos (J): 2 concur, 1 concur in result, 1 on leave, 1 took no part

Facts: A cargo of oats was consigned to Muller and Phipps (Manila) Ltd. The cargo was insured against all
risks by The New Zealand Insurance Co., Ltd. When the cargo was discharged several cartons which
contained the oats were in bad order. The consignee filed a claim against the insurer for the value of the
damaged goods which the latter paid in the amount of P18,148.69. The insurer as subrogee of the consignee
sued E. Razon, Inc. who was the arrastre operator. The insurer demanded reimbursement in the amount of
P17,025.87. The lower figure is due to the fact that the carrier responded for its share of the loss in the sum of
P1,121.02.
The insurer sued. The CFI Manila gave judgment in favor of the insurer. It ordered E. Razon to pay to the
insurer P17,025.87 with 6% interest from 23 April 1973, until same is paid, P1,000.00 as attorney’s fees, and
the costs.

E. Razon, Inc. appealed the adverse decision to the Court of Appeals (CA-GR CV 64002). The Intermediate
Appellate Court which succeeded the Court of Appeals reversed the decision of the trial court on the ground
of prescription, the insurer has no cause of action against E. Razon. The instant petition seeks a reversal of the
appellate court’s decision.

The Supreme Court granted the petition, set aside the decision of the Intermediate Appellate Court, and
reinstated that of the trial court; with costs against E. Razon.

1. Provision of the Revised Management Contract in issue as to prescription

A provision of the Revised Management Contract in respect of claims against the arrastre operator,
reads: “that a formal claim together with the necessary copies of the bill of lading invoice, certified packing
list, back certificate showing the rate of exchange at the time of purchase or opening of letter of credit, and
the computation arrived at covering the loss, damage, or nondelivery of such goods shall have been filed with
the CONTRACTOR within thirty (30) days from the date of filing of entry; PROVIDED FURTHER, that if
the loss, injury or damage is discovered within the last fifteen (15) days of said period of thirty (30) days, then
the formal claim shall be filed within fifteen (15) days from the date of discovery of the loss, injury or
damage.”

2. Bad Order Certificates served the purpose of a formal claim (See Fireman’s Fund vs. Manila
Port Service
The bad order certificates – which were issued by E. Razon, Inc. on March 23 and 24, 1972 – served
the purpose of a formal claim so that the claim was not filed out of time. In the case of Fireman’s Fund Ins.
Co. vs. Manila Port Service Co., et al. Justice J.B.L. Reyes, said that the significance of the request for, and
the result of, the bad order examination, which were filed and done within fifteen days from the haulage of
the goods from the vessel is that said request and result, in effect, served the purpose of a claim, which is ‘to
afford the carrier or depositary reasonable opportunity and facilities to check the validity or claims while facts
are still fresh in the minds of the person who took part in the transaction and the documents are still available.
(Consunji vs. Manila Port Service, L-15551, 29 Nov. 1960) Indeed, the examination undertaken by the
defendant’s own inspector not only gave the defendant an opportunity to check the goods but is itself a
verification of its own liability (Cf. Parsons Hardware vs. Manila Railroad Co., L-15173, May 30, 1961).”

3. E. Razon admits the insurer’s argument; Amount of liability cannot be reduced

E. Razon obliquely concedes the validity of the insurer’s argument by stating that if the petition be
given due course its liability should be in the reduced amount of P5,344.13 only and not the amount found by
the lower court. Considering that the instant petition is meritorious and the amount to be awarded is a
question of fact said amount cannot be reduced at this stage.

[130] Everett vs. CA, see [66]

[131] Maritime vs. CA, see [114]
[132] Sea Land vs. IAC, see [64]
[133] Robles vs. Santos,see [1 after 71]
[134]

Mariano Uy Chaco Sons & Co. vs. Admiral Line (GR 22134, 17 October 1924)
Second Division, Malcolm (J): 6 concur

Facts: Mariano Uy Chaco Sons & Co. alleges that upon arrival of the S. S. Satsuma at the power of Manila
on 22 June 1920, there were short-delivered one case of varnish and paint remover and 50 bales of oakum, for
the conversion of which Admiral Line is liable. Admiral Line, on the other hand, claims that the merchandise
had been delayed, had been found, and delivery thereof had been tendered and rejected.

The merchandise should have been landed on 22 June 1920. Not having been delivered either on that day or
any subsequent day before 21 May 1921, and all efforts to secure satisfaction from the carrier having failed,
the complaint was presented on the date last mentioned. It was amended on 12 July 1921. Answer in the form
of a general denial was interposed by Admiral Line on 11 August 1921. The first amended answer was filed
on 18 February 1922. Formal tender of the goods was made by Admiral Line on 7 October 1922. Efforts at
compromise having failed, Mariano Uy Chaco Sons & Co. moved on 27 April 1923, for the assignment of the
case for hearing. On 14 August 1923, Admiral Line offered its second amended answer in which the claim
now advanced was first announced, saying “That since the institution of this action, etc.” One week later, on
21 August 1923, the trial commenced. After trial, the trial court ruled in favor of Mariano Uy Chaco Sons &
Co. requiring Admiral Line to pay for the value of the case of varnish and paint remover, P22.80, for the
value of the 50 bales of oakum, P700, for the freight, P195.50, and for the insurance, P18, or a total of
P936.30, with legal interest and costs.

The Supreme Court affirmed the judgment with costs.

1. Delay in delivery vs. Conversion

Mere delay in the delivery of goods by a common carrier, no matter how long continued, is not a
conversion thereof, but is only a breach of the contract of carriage. Therefore, where a carrier fails to deliver
goods within a reasonable time, although he thereby makes himself liable for the damages incurred by reasons
of the delay, the consignee cannot refuse to accept the goods from him and recover their value, but is
compelled to receive them. The most usual element of damages for a carrier’s negligent delay in delivering
the goods of the consignee is the difference between the market value of the goods at the time when they
should have been delivered, and the time when they were delivered, to which may be added reasonable
expenses caused by the delay; but if there has been a conversion of the goods by the carrier, and the consignee
has not thereafter accepted them, he is entitled to recover the value of the goods at the time they should have
been delivered to him.

2. The nature of delay in the present case

The interval which elapsed between the date when the merchandise should have been delivered and
the presentation of the complaint was approximately 11 months. The delay which ensued between the date
when the merchandise should have been delivered and the date when it was finally tendered was close to 2
years and 4 months. The time which passed between the date when the merchandise should have been
delivered and the date when the defense of tender was set up, was over 3 years.

3. No prior case with the similar facts

No case coming either from the local forum or from foreign jurisdictions which exactly fits the facts
has been found. (But Behn, Meyer & Co., vs. Banco Español-Filipino [1908], 11 Phil., 253, and Yangco vs.
Meerkamp & Company, R. G. No. 15498, 1 can be noted.)

4. Corpus Juris, Volume 10, p. 272 as to delay and conversion

Volume 10, Corpus Juris, at page 272, is authority for this: “. . . A demand and a refusal to deliver is
sometimes essential to show a conversion. Even after demand, if the goods are tendered before suit brought,
the consignee cannot refuse to receive the goods and sue for conversion, his sole remedy being an action for
damages resulting from the delay.” Hutchinson’s Treatise on the Law of Carriers (third edition, vol. 2, p. 717)
contains this: “Though the carrier may delay ever so long, the owner cannot charge him with a conversion, or
for value of the goods, if they are safely kept, unless they have been demanded of the carrier and their
delivery refused, . . .” relying on Hamilton vs. Chicago, Milwaukee & St. Paul Railway Company ([1897]),
103 Iowa, 325).
5. Liability for conversion vs. liability for damages
Where property in the hands of a common carrier is not delivered within a reasonable time after it has
reached its destination, the carrier, in the absence of any legal exemption and after demand has been made
and delivery refused, is liable for a conversion of the property. The consignee, under such circumstances, may
elect to waive all title to the property and sue for the conversion, and after he has done so, a subsequent tender
by the carrier will not be available for it as a defense. A tender of the property, to be effectual, must have been
made within the time in which the defendant was entitled to deliver it and the plaintiff bound to receive it.
The tender made was not until long after the lapse of this period, and, not being accepted, is no bar to
plaintiff’s right to recover. When the defendant tendered the goods to plaintiff before this action was
commenced, and plaintiff refused to receive them. His action, then, was not for conversion, but for damages”

6. Present case involves conversion

A delay of more than two years in making delivery was conclusively unreasonable. A delay in
pressing a defense predicated on tender, of more than two years counted from the date when the complaint
was filed, was likewise unreasonable. The mancupation of the property by the defendant was sufficiently
complete since it was unable to turn the goods over to the plaintiff at any time before the complaint was
presented, and in fact, could not do so until a long time thereafter. Add these facts together, and the reasons
why Mariano Uy Chaco Sons & CO. can be permitted to recover on its action are self-evident. Herein,
Admiral Line was in effect guilty of conversion and must accordingly respond for the value of the property at
the time of conversion.

[-] Mendoza vs. PAL, see [117]

[135], also [160]

Standard Vacuum Oil Co. vs. Luzon Stevedoring Co. (GR L-5203, 18 April 1956)
En Banc, Bautista Angelo (J): 10 concur

Facts: Standard Vacuum Oil Co. entered into a contract with Luzon Stevedoring Co. Inc. to transport between
the ports of Manila and Nin Bay, Sagay, Iloilo, 2,916.44 barrels of bulk gasoline belonging to the former. The
gasoline was delivered in accordance with the contract but Luzon Stevedoring failed to transport it to its place
of destination. It appeared that the tugboat towing barge L-522 which was laden with gasoline, among others,
stalled due to a broken idler during the morning of 4 February 1947. The barges that tied to it broke off due to
the rough condition of the sea during the afternoon. The tugboat and the barges were dashed against rocks, the
tugboat sunk, and barge L-522 was so badly damaged that the gasoline leaked out.

Standard Vacuum Oil brought an action in the CFI of Manila to recover the sum of P75,578.60 as damages.
Luzon Stevedoring, in its answer, pleaded that its failure to deliver the gasoline was due to 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 decision finding that the disaster that had befallen the
tugboat was the result of an unavoidable accident and the loss of the gasoline was due to a fortuitous event
which was beyond the control of Luzon Stevedoring and, consequently, dismissed the case with costs against
Standard Vacuum Oil.

The Supreme Court reversed the decision appealed from; and ordered Luzon Stevedoring to pay to Standard
Vacuum Oil Co. the sum of P75,578.50, with legal interest from the date of the filing of the complaint, with
costs.

1. Luzon Stevedoring Co. not a common carrier but has earned level of a public utility; Contract
covered by Code of Commerce
 Luzon Stevedoring 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 business is
devoted to transportation. Though it is engaged in a limited contract of carriage in 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 utility. Herein, the contract between Standard Vacuum Oil and
Luzon Stevedoring comes therefore under the provisions of the Code of Commerce.

2. Article 361 of the Code of Commerce

Article 361 of the Code of Commerce provides that “the merchandise shall be transported at the risk
and venture of the shipper, if the contrary was not expressly stipulated. Therefore, all damages and
impairment suffered by the goods during the transportation, by reason of accident, force majeure, or by virtue
of the nature or defect of the articles, shall be for the account and risk of the shipper. The proof of these
accidents is incumbent on the carrier.”

3. Merchandise transported at risk of shipper unless otherwise stipulated; Damages due to force
majeure to be proven by carrier
Whenever merchandise is transported on the sea by virtue of a contract entered into between the
shipper and the carrier, the merchandise is deemed transported at the risk and venture of the shipper, if the
contrary is not stipulated, and all damages suffered by the merchandise during the transportation by reason of
accident or force majeure shall be for the account and risk of the shipper, but the proof of these accidents is
incumbent on the carrier.

4. Proof required of carrier

All a shipper has to prove in connection with sea carriage is delivery of the merchandise in good
condition and its non-delivery at the place of destination in order that the burden of proof may shift to the
carrier to prove any of the accidents above adverted to. “Shippers who are forced to ship goods on an ocean
liner or any other ship have some legal rights, and when goods are delivered on board a ship in good order
and condition, and the shipowner delivers them to the shipper in bad order and condition, it then devolves
upon the shipowner to both allege and prove that the goods were damaged by reason of some fact which
legally exempts him from liability” (Mirasol vs. Robert Dollar Co., 53 Phil., 129).

5. Tugboat “Snapper” not seaworthy

The tugboat “Snapper” was acquired by Luzon Stevedoring from the Foreign Liquidation
Commission. It was a surplus property. It was a deep-sea tugboat that had been in the service of the United
States Armed Forces prior to its purchase by the Luzon Stevedoring Co. The tugboat was put into operation
without first submitting it to an overhaul in a dry-dock. The tugboat had previously made several trips and
each time it had to obtain a special permit from the Bureau of Customs because it had never been dry-docked
and did not have complete equipment to be able to obtain a permanent permit. The special permits that were
issued by said Bureau specifically state that they were issued “pending submission of plans and load line
certificate, including test and final inspection of equipment.” When the tugboat was inspected by the Bureau
of Customs on 18 October 1946, it found it to be inadequately equipped and so the Bureau required Luzon
Stevedoring to provide it with the requisite equipment but it was never able to complete it.

6. Dry-dock facilities; No justification for Luzon Stevedoring to put unequipped tugboat in

business
Although there were then no dry-dock facilities in the Philippines, this does not mean that they could
not be obtained elsewhere. It being a surplus property, a dry-dock inspection was a must to put the tugboat in
a sea going condition. The fact that the deficiency in the equipment was due to the fact that no such
equipment was available at the time, this did not justify Luzon Stevedoring in putting such tugboat in
business even if unequipped merely to make a profit. Nor could the fact that the tugboat was given a special
permit by the Bureau of Customs to make the trip relieve Luzon Stevedoring from liability.

Transportation Law, 2004 (

311 )
7. Luzon Stevedoring negligent, did not use reasonable diligence
The fact that the tugboat was a surplus property, has not been dry-docked, and was not provided with
the requisite equipment to make it seaworthy, shows that Luzon Stevedoring did not use reasonable diligence
in putting the tugboat in such a condition as would make its use safe for operation. Where owner buys old tug,
licensed coastwise, and equips it for ocean going, it is negligence to send tug out without knowing something
of her stability and especially without stability test, where history and performance with respect to crankiness
and tenderness are matters of official record.

8. Lack of spare parts show lack of precaution and diligence

Another circumstance which shows the lack of precaution and diligence taken by Luzon Stevedoring
to make the travel of the tugboat safe, is the failure to carry on board the necessary spare parts. When the idler
was broken, the engineer of the tugboat examined 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. Vessels motored by diesel engines it is
necessary always to carry spare chains, ball bearings and chain drives. This was not done.

9. Tug liable for damage to barge’s cargo by faulty equipment

A tug engaged to tow a barge is liable for damage to the cargo of the barge caused by faulty equipment of the
tug.

10. Deficiency or incompetence in the manpower of the tugboat

Another circumstance, which shows the lack of precaution and diligence, refers to the deficiency or
incompetence in the manpower of the tugboat. According to law, a tugboat of the tonnage and powers of one
like the “Snapper” is required to have a complement composed of one first mate, one second mate, one third
mate, one chief engineer, one second engineer, and one third engineer, (section 1203, Revised Administrative
Code), but when the trip in question was undertaken, it was only 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 motor engineer, one assistant engineer, who was licensed as a bay, river,
and lake motor engineer, and one second assistant engineer, who was unlicensed. The employment of this
crew to perform functions beyond its competence and qualifications is not only risky but against the law and
if a mishap is caused, one cannot but surmise that such incompetence has something to do with the mishap.
The fact that the tugboat had undertaken several trips before with practically the same crew without any
untoward consequence, cannot furnish any justification for continuing in its employ a deficient or
incompetent personnel contrary to law and the regulations of the Bureau of Customs.

11. Seaworthiness defined

Generally, seaworthiness is that strength, durability and engineering skill made a part of 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 reasonably be expected or encountered
during her voyage without loss or damage to her particular cargo.

12. Efforts fall short of diligence and precaution required in the situtation
The efforts made by Luzon Stevedoring fall short of that diligence and precaution that are demanded
by the situation to save the tugboat and the barge it was towing from disaster. More than 24 hours had 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 Luzon Stevedoring did not have in
readiness any tugboat sufficient in tonnage and equipment to attend to the rescue. The tug “Tamban” that was
ordered to extend help was fully inadequate for that purpose. It was a small vessel that was authorized to
operate only within Manila Bay and did not even have any map of the Visayan Islands. A public utility that is
engaged in sea transportation even for a limited service with a fleet of 140 tugboats should have a competent
tug to rush for towing or repairs in the event of untoward happening overseas. If Luzon Stevedoring had only
such a tug ready for such an emergency, this disaster would not have happened. Luzon Stevedoring could
have avoided sending a poorly equipped tug which failed to do job.

13. Cause of disaster attributed to negligence or lack of precaution

While the breaking of the idler may be due to an accident, or to something unexpected, the cause of
the disaster which resulted in the loss of the gasoline can only be attributed to the negligence or lack of
precaution to avert it on the part of Luzon Stevedoring. It had enough time to effectuate the rescue if it had
only a competent tug for the purpose because the weather was good from 3:00 a.m. to 12:00 p.m. of 4
February 1947 and it was only in the afternoon that the wind began to blow with some intensity, but failed to
do so because of that shortcoming. The loss of the gasoline certainly cannot be said to be due to force majeure
or unforeseen event but to the failure of Luzon Stevedoring to extend adequate and proper help.

[136], also [205]

Tan Chiong Sian vs. Inchausti (GR 6092, 8 March 1912)

En Banc, Torres (J): 3 concur, 2 dissent

Facts: On 25 November 1908, Inchausti & Co. received in Manila from the Chinaman, Ong Bieng Sip, 205
bundles, bales or cases of goods to be conveyed by the steamer Sorsogon to the port of Gubat, Province of
Sorsogon, where they were to be transshipped to another vessel belonging to Inchausti and by the latter
transported to the pueblo of Catarman, Island of Samar, there to be delivered to the Chinese shipper with
whom Inchausti made the shipping contract. To this end 3 bills of lading were executed (38, 39, and 76). The
steamer Sorsogon, which carried the goods, arrived at the port of Gubat on 28 November 1908 and as the
lorcha Pilar, to which the merchandise was to be transshipped for its transportation to Catarman, was not yet
there, the cargo was unloaded and stored in the defendant company’s warehouses at that port. Several days
later, the lorcha Pilar arrived at Gubat and, after the cargo it carried had been unloaded, the merchandise
belonging to the Chinaman, Ong Bieng Sip, together with other goods owned by Inchausti & Co., was taken
aboard to be transported to Catarman. On 5 December 1908, however, before the Pilar could leave for its
destination, towed by the launch Texas, there arose a storm, which, coming from the Pacific, passed over
Gubat and, as a result of the strong wind and heavy sea, the lorcha was driven upon the shore and wrecked,
and its cargo, including the Chinese shipper’s 205 packages of goods, scattered on the beach. Laborers or
workmen of Inchausti, by its order, then proceeded to gather up Tan Chiong Sian’s merchandise and, as it was
impossible to preserve it after it was salved from the wreck of the lorcha, it was sold at public auction before
a notary for the sum of P1,693.67.

On 11 January 1909, the Chinaman, Tan Chiong Sian or Tan Chinto, filed a written complaint, which was
amended on 28 January 1909, and again on 27 October 1909 against Inchausti & Co. alleging that Inchausti
neither carried nor delivered his merchandise to Ong Bieng Sip, in Catarman, but unjustly and negligently
failed to do so, with the result that the said merchandise was almost totally lost, and thus claimed the value of
the merchandise which was P20,000, legal interest thereon from 25 November 1908, and the cost of the suit.
After the hearing of the case and the introduction of testimony by the parties, judgment was rendered, on 18
March 1910, in favor of Tan Chiong Sian or Tan Chinto, against Inchausti & Co., for the sum of P14,642.63,
with interest at the rate of 6% per annum from 11 January 1909, and for the costs of the trial. Inchausti & Co.
appealed from the judgment.

The Supreme Court reversed the judgment appealed from, and absolved Inchausti & Co., without special
finding as to costs; holding that Inchausti is not liable for the loss and damage of the goods shipped on the
lorcha Pilar by the Chinaman, Ong Bieng Sip, inasmuch as such loss and damage were the result of a
fortuitous event or force majeure, and there was no negligence or lack of care and diligence on the part of
Inchausti or its agents.
1. Article 1601 NCC
Article 1601 of the Civil Code prescribes that “Carriers of goods by land or by water shall be subject
with regard to the keeping and preservation of the things entrusted to them, to the same obligations as
determined for innkeepers by articles 1783 and 1784. The provisions of this article shall be understood
without prejudice to what is prescribed by the Code of Commerce with regard to transportation by sea and
land.”

2. Article 1602 NCC

Article 1602 of the Civil Code reads “Carriers are also liable for the loss of and damage to the things
which they receive, unless they prove that the loss or damage arose from a fortuitous event or force majeure.”

3. Articles 1783 NCC

Article 1783 of the Civil Code provides that “the depositum of goods made by travelers in inns or
hostelries shall also be considered a necessary one. The keepers of inns and hostelries are liable for them as
such bailees, provided that notice thereof may have been given to them or to their employees, and that the
travelers on their part take the precautions which said innkeepers or their substitutes may have advised them
concerning the care and vigilance of said goods.”

4. Article 1784 NCC

Article 1784 of the Civil Code provides that “the liability referred to in the preceding article shall
include damages to the goods of the travelers caused by servants or employees of the keepers of inns or
hostelries as well as by strangers, but not those arising from robbery or which may be caused by any other
case of force majeure.”

5. Article 361, Code of Commerce

Article 361 of the Code of Commerce provides that “Merchandise shall be transported at the risk and
venture of the shipper, unless the contrary was expressly stipulated. Therefore, all damages and impairment
suffered by the goods in transportation, by reason of accident, force majeure, or by virtue of the nature or
defect of the articles, shall be for the account and risk of the shipper. The proof of these accidents is
incumbent on the carrier.”

6. Article 362, Code of Commerce

Article 362 of the Code of Commerce provides that “the carrier, however, shall be liable for the
losses and damages arising from the causes mentioned in the foregoing article if it is proved that they
occurred on account of his negligence or because he did not take the precautions usually adopted by careful
persons, unless the shipper committed fraud in the bill of lading, stating that the goods were of a class or
quality different from what they really were. If, notwithstanding the precaution referred to in this article, the
goods transported run the risk of being lost on account of the nature or by reason of an unavoidable accident,
without there being time for the owners of the same to dispose thereof, the carrier shall proceed to their sale
placing them for this purpose at the disposal of the Judicial authority or of the officials determined by special
provisions.”

7. Article 363, Code of Commerce

Article 363 of the Code of Commerce provides that “with the exception of the cases prescribed in the
second paragraph of article 361, the carrier shall be obliged to deliver the goods transported in the same
condition in which, according to the bill of lading, they were at the time of their receipt, without any
detriment or impairment, and should he not do so, he shall be obliged to pay the value of the goods not
delivered at the point where they should have been and at the time the delivery should have taken place. If
part of the goods transported should be delivered the consignee may refuse to receive them, when he proves
that he can not make use thereof without the others.”
8. Contract between Ong Bieng Sip and Inchausti; Awareness of Ong Bieng Sip as to manner
goods are to be transported, no objection or protest was made
The contract entered into between the Chinese shipper, Ong Bieng Sip, and the firm of Inchausti &
Co., provided that transportation should be furnished from Manila to Catarman, although the merchandise
taken aboard the steamer Sorsogon was to be transshipped at Gubat to another vessel which was to convey it
from that port to Catarman; it was not stipulated in the said contract that the Sorsogon should convey the
goods to their final destination, nor that the vessel into which they were to be transshipped, should be a
steamer. The shipper, Ong Bieng Sip, therefore assented to these arrangements and made no protest when his
205 packages of merchandise were unloaded from the ship and, on account of the absence of the lorcha Pilar,
stored in the warehouses at Gubat nor did he offer any objection to the lading of his merchandise on to this
lorcha as soon as it arrived and was prepared to receive cargo; moreover, he knew that to reach the port of
Catarman with promptness and dispatch, the lorcha had to be towed by some vessel like the launch Texas,
which Inchausi had been steadily using for similar operations in those waters. Hence the shipper, Ong Bieng
Sip, made no protest or objection to the methods adopted by the agents of Inchausti for the transportation of
his goods to the port of their destination, and the record does not show that in Gubat, Inchausti possessed any
other means for the conveyance and transportation of merchandise, at least for Catarman, than the lorcha
Pilar, towed by the said launch and exposed during its passage to all sorts of accidents and perils from the
nature and seafaring qualities of a lorcha, from the circumstances then present and the winds prevailing on the
Pacific Ocean during the months of November and December.

9. Lorcha not easily managed or steered

A lorcha is not easily managed or steered when traveling, for, out at sea, it can only be moved by
wind and sails; and along the coast near the shore and in the estuaries where it customarily travels, it can only
move by poling. For this reason, in order to arrive at the pueblo of Catarman with promptness and dispatch,
the lorcha was usually towed by the launch Texas.

10. Notice of storm provided only at 10-11 a.m. of 5 December 1908

The record does not show that, from the afternoon of 4 December 1908, until the morning of the
following day, the 5th, the patron or master of the lorcha which was anchored in the cove of Gubat, received
any notice from the captain of the steamer Ton Yek, also anchored near by, of the near approach of a storm.
The said captain, Juan Domingo Alberdi, makes no reference in his sworn testimony of having given any such
notice to the patron of the lorcha, nor did the latter, Mariano Gadvilao, testify that he received such notice
from the captain of the Ton Yek or from the person in charge of the Government observatory. Gadvilao, the
patron, testified that only between 10 and 11 a.m. of 5 December, was he informed by Inchausti & Co.’s agent
in Gubat that a typhoon was approaching.

11. Lorcha provided with all proper and necessary equipment and has sufficient crew for its
management and preservation
On account of the condition of the sea, he dropped the 4 anchors that the lorcha had on board and
immediately went ashore to get another anchor and a new cable in order more securely to hold the boat in
view of the predicted storm. This testimony was corroborated by the said representative, Melchor Muñoz. So
the lorcha, when the storm broke upon it, was held fast by five anchors and was well found and provided with
all proper and necessary equipment and had a sufficient crew for its management and preservation.

12. No port adequate for shelter and refuge of vessels in cases of danger in immediate vicinity;
Lorcha cannot be compared with steamer
The patron of the lorcha testified specifically that at Gubat or in its immediate vicinity there is no port
whatever adequate for the shelter and refuge of vessels in cases of danger, and that, even though there were,
on being advised between 10 and 11 o’clock of the morning of the 5th, of the approach of a storm from the
eastern Pacific, it would have been impossible to spread any sails or weigh anchor on the lorcha without
being dragged or driven against the reefs by the force of the wind. As the craft was not provided with steam
or other
motive power, it would not have been possible for it to change its anchorage, nor move from the place where
it lay, even several hours before the notice was received by its patron. A lorcha can not be compared with a
steamer which does not need the help or assistance of any other vessel in its movements.

13. People of Gubat not aware of impending storm; Testimony of weather observer
Due importance must be given to the testimony of the weather observer, Antonio Rocha, that the
notice received from the Manila Observatory on the afternoon of December 4, with regard to a storm
traveling from the east of the Pelew Islands toward the northwest, was not made known to the people of
Gubat and that he merely left a memorandum notice on the desk of the station, intending to give explanations
thereof to any person who should request them of him. So the notice of the storm sent by the Manila
Observatory was only known to the said observer, and he did not apprise the public of the approach of the
storm until he received another notice from Manila at 20 minutes past 8 o’clock on Saturday morning,
December 5. Then he made a public announcement and advised the authorities of the storm that was coming.

14. The lorcha cannot take refuge in the Sabang River, half a mile from where it was anchored
The official chart of the port of Gubat proves that the depth of water over the bar or entrance of the
Sabang River is only one foot and a half at ordinary low tide; that the rise and fall of the tide is about 4½ feet,
the highest tide being at 2 o’clock in the afternoon of every day; and at that hour, on the 5th of December, the
hurricane had already made its appearance and the wind was blowing with all its fury and raising great waves.
The lorcha Pilar, loaded as it had been from the afternoon of December 4, even though it could have been
moved by means of poles, without being towed, evidently could not have entered the Sabang River on the
morning of the 5th, when the wind began to increase and the sea to become rough, on account of the low tide,
the shallowness of the channel, and the boat’s draft.

15. Natural phenomenon of tides taken judicial notice of, unless contrary be proven; Section 275 of
the Code of Civil Procedure
According to section 275 of the Code of Civil Procedure, the natural phenomenon of the tides,
mentioned in the official hydrographic map, which is prima facie evidence on the subject, of the hours of its
occurrence and of the conditions and circumstances of the port of Gubat, shall be judicially recognized
without the introduction of proof, unless facts to the contrary be proven, which was not done, nor was it
proven that between the hours of 10 and 11 o’clock of the morning of December 5, 1908, there did not prevail
a state of low tide in the port of Gubat.

16. Chart a prima facie evidence of particulars of general notoriety and interest
According to section 320 of the Code of Civil Procedure, such a chart is prima facie evidence of
particulars of general notoriety and interest, such as the existence of shoals of varying depths in the bar and
mouth of the Sabang River and which obstruct the entrance into the same; the distance, length, and number of
the said shoals, with other details apparently well known to the patron of the lorcha Pilar, to judge from his
testimony. Vessels of considerable draft, larger than the said lorcha, might have entered the Sabang River
some seven or nine years before, according to the testimony of the Chinaman, Antonio B. Yap Cunco, though
he did not state whether they did so at high tide; but, since 1901, or previous years, until 1908, changes may
have taken place in the bed of the river, its mouth and its bar. More shoals may have formed or those in
existence may have increased in extent by the constant action of the sea. This is the reason why the patron,
Gadvilao, who was acquainted with the conditions of the port and cove of Gubat, positively declared that the
lorcha Pilar could not, on account of her draft, enter the Sabang River, on account of low water.

17. Patron of lorcha cognizant of his duties

The patron Gadvilao, being cognizant of the duties imposed upon him by rules 14 and 15 of article
612, and others, of the Code of Commerce, remained with his sailors, during the time the hurricane was
raging, on board the lorcha from the morning of December 5 until early the following morning, the 6th,
without abandoning the boat, notwithstanding the imminent peril to which he was exposed, and kept to his
post until after the wreck and the lorcha had been dashed against the rocks. Then he solicited help from the
captain of the steamer Ton Yek, and, thanks to the relief afforded by a small boat sent by the latter officer,
Gadvilao with his crew succeeded in reaching land and immediately reported the occurrence to the
representative of Inchausti & Co. and to the public official from whom he obtained the document of protest.
By such procedure, he showed that, as a patron skilled in the exercise of his vocation, he performed the duties
imposed by law in cases of shipwreck brought about by force majeure.

18. Shipwrecks, Article 840 of the Code of Commerce

Treating of shipwrecks, article 840 of the Code of Commerce prescribes that “The losses and
damages suffered by a vessel and he cargo by reason of shipwreck or stranding shall be individually for the
account of the owners, the part of the wreck which may be saved belonging to them in the same proportion.”

19. Shipwrecks, Article 841 of the Code of Commerce

Article 841 of the same code reads: “If the wreck or stranding should arise through the malice,
negligence, or lack of skill of the captain, or because the vessel put to sea insufficiently repaired and supplied,
the owner or the freighters may demand indemnity of the captain for the damages caused to the vessel or
cargo by the accident, in accordance with the provisions contained in articles 610, 612, 614 and 621.”

20. Articles 840 and 841 are in harmony with Articles 361 and 362 of the Code of Commerce
The general rule established in Article 840 is that the loss of the vessel and of its cargo, as the result
of shipwreck, shall fall upon the respective owners thereof, save for the exceptions specified in the second of
the said articles. These legal provisions are in harmony with those of articles 361 and 362 of the Code of
Commerce, and are applicable whenever it is proved that the loss of, or damage to, the goods was the result of
a fortuitous event or of force majeure; but the carrier shall be liable for the loss or the damage arising from
the causes aforementioned, if it shall have been proven that they occurred through his own fault or negligence
or by his failure to take the same precautions usually adopted by diligent and careful persons.

21. No delay, negligence or abandonment in the shipment of Ong Bieng Sip’s merchandise
In the contract made and entered into by and between the owner of the goods and the defendant, no
term was fixed within which the said merchandise should be delivered to the former at Catarman, nor was it
proved that there was any delay in loading the goods and transporting them to their destination. From 28
November, when the steamer Sorsogon arrived at Gubat and landed the said goods belonging to Ong Bieng
Sip to await the lorcha Pilar which was to convey them to Catarman, as agreed upon, no vessel carrying
merchandise made the voyage from Gubat to the said pueblo of the Island of Samar, and with Ong Bieng
Sip’s merchandise there were also to be shipped goods belonging to Inchausti, which goods were actually
taken on board the said lorcha and suffered the same damage as those belonging to the Chinaman. So that
there was no negligence, abandonment, or delay in the shipment of Ong Bieng Sip’s merchandise, and all that
was done by the carrier, Inchausti & Co., was what it regularly and usually did in the transportation by sea
from Manila to Catarman of all classes of merchandise. No attempt has been made to prove that any course
other than the foregoing was pursued by that firm on this occasion.

22. Article 361 of the Code of Commerce; Merchandise at risk of shipper unless contrary is
expressly stipulated
According to article 361 of the Code of Commerce, merchandise shall be transported at the risk and
venture of the shipper, unless the contrary be expressly stipulated. No such stipulation appears of record,
therefore, all damages and impairment suffered by the goods in transportation, by reason of accident, force
majeure, or by virtue of the nature or defect of the articles, are for the account and risk of the shipper.

23. Article 361 of the Code of Commerce; Burden of proof of accidents upon the carrier
A final clause of this same article adds that the burden of proof of these accidents is upon the carrier.
Herein, the loss and damage of the goods shipped by the Chinaman, Ong Bieng Sip, was due to the stranding
and wreck of the lorcha Pilar in the heavy storm or hurricane; this Tan Chiong Sian did not deny, and admitted
that it took place between the afternoon of the 5th and early in the morning of the 6th of December, 1908, so
it is evident that Inchausti is exempt from the obligation imposed by the law to prove the occurrence of the
said storm, hurricane, or cyclone in the port of Gubat, and, therefore, if the said goods were lost or damaged
and could not be delivered in Catarman, it was due to a fortuitous event and a superior, irresistible natural
force, or force majeure, which completely disabled the lorcha intended for their transportation to the said port
of the Island of Samar.

24. Inchausti took precautions usually adopted by careful and diligent persons, as required by
Article 362 of the Code of Commerce
Herein, Inchausti, his agents and the patron did take the measures which they deemed necessary and
proper in order to save the lorcha and its cargo from the impending danger; accordingly, the patron, as soon
as he was informed that a storm was approaching, proceeded to clear the boat of all gear which might offer
resistance to the wind, dropped the four anchors he had, and even procured an extra anchor from the land,
together with a new cable, and cast it into the water, thereby adding, in so far as possible, to the stability and
security of the craft, in anticipation of what might occur, as presaged by the violence of the wind and the
heavy sea; and Inchausti & Company’s agent furnished the articles requested by the patron of the lorcha for
the purpose of preventing the loss of the boat; thus did they all display all the diligence and care such as
might have been employed by anyone in similar circumstances, especially the patron who was responsible for
the lorcha under his charge; nor is it possible to believe that the latter failed to adopt all the measures that
were necessary to save his own life and those of the crew and to free himself from the imminent peril of
shipwreck.

25. Wreck of lorcha due to fortuitous event; Loss cannot be attributed to Inchausti or its agents
From the moment that it is held that the loss of the said lorcha was due to force majeure, a fortuitous
event, with no conclusive proof of negligence or of the failure to take the precautions such as diligent and
careful persons usually adopt to avoid the loss of the boat and its cargo, it is neither just nor proper to attribute
the loss or damage of the goods in question to any fault, carelessness, or negligence on the part of Inchausti
and its agents and, especially, the patron of the lorcha Pilar.

26. Inchausti took all measures for he salvage of goods recoverable after the accident
Herein, subsequent to the wreck, Inchausti’s agent took all the requisite measures for the salvage of
such of the goods as could be recovered after the accident, which he did with the knowledge of the shipper,
Ong Bieng Sip, and, in effecting their sale, he endeavored to secure all possible advantage to the Chinese
shipper; in all these proceedings, he acted in obedience to the law.

[137] Martini, Ltd vs. Macondray & Co. see [54]

[138]

World Fire vs. Macondray

[139] Kui Pai vs. Dollar Steamship Line , see [44]

[140]

Heacock’s Aklam vs. Aboitiz

[141]

New Zealand Insurance vs. Chua Joy (GR L-7311, 30 September 1955)
First Division, Bautista Angelo (J): 7 concur
Facts: On 20 May 1950, the ship “Jupiter”, on her voyage 149, received on board at Carangian, Samar, in
good order and condition, 107 bundles of first class loose weight hemp weighing 8, 273 kilos, of 130.80
piculs, valued at P6, 736.20, from the Lee Teh & Co., Inc., for transportation and delivery to Manila, under a
bill of lading issued by the carrier to the shipper. The ship was owned by Adriano Choa Joy, doing business
under the name of South Sea Shipping Line, while the cargo was shipped by the branch office of Lee Teh &
Co., Inc., at Caraingian, Samar, for transportation and delivery to its main office at Manila. The cargo failed
to arrive in Manila because the vessel ran aground while entering the Laoang Bay, Samar, on 20 May 1950,
due to the negligence of its captain, Jose Molina, who, in the investigation conducted by the Marine Board of
Inquiry, was found negligent of his duties and was suspended from the office for a period of 3 months. Of the
cargo, only 7, 590 kilos, or 120 piculs of hemp, were saved and because of their damaged condition, they
were sold for the sum of P2, 040, the consignor having spent P500 for their salvage, thereby causing Lee Teh
& Co., Inc., losses in the sum of P5,196.20. The cargo was insured by the New Zealand Insurance Co., Ltd.,
and because of the damage caused to said cargo while in transit, the losses were paid by said company to the
shipper.

The carrier having refused to reimburse these damage despite demands made to that effect, the insurance
company, as subrogee of the shipper instituted the action before the CFI Manila. After the parties had
presented their evidence, the court found that, while the shipper has suffered damages because of the inability
of the carrier to transport the cargo as agreed upon, however, the liability of the carrier did not attach because
of the failure of the shipper or of the consignee to file its claim for damages within 24 hours from the receipt
of the cargo as required by law. Consequently, the court dismissed the case, with costs against the insurance
company. The company brought the case on appeal directly to the Supreme Court.

The Supreme Court reversed the decision appealed from, and entered another one ordering Chua Joy to pay
the New Zealand Insurancethe sum of P5,196.20, with legal interest from the filing of the complaint, with
costs against Chua Joy.

1. Article 366 of the Code of Commerce

Article 366 of the Code of Commerce, provides: “Within twenty-four hours following the receipt of
the merchandise, the claim against the carrier for damage or average which may be found therein upon
opening the packages, may be made, provided that the indications of the damage or average which gives rise
to the claim cannot be ascertained from the outside part of such packages, in which case the claim shall be
admitted only at time of receipt. After the periods mentioned have elapsed, or the transportation charges have
been paid, no claim shall be admitted against the carrier with regard to the condition in which the goods
transported were delivered.”

2. Article 366 CC construed

In order that the condition provided in Article 366 of the Code of Commerce may be demanded there
should be a consignment of goods, through a common carrier, by a consignor in one place to a consignee in
another place. And said article provides that the claim for damages must be made “within twenty-four hours
following the receipt of the merchandise” by the consignee from the carrier. In other words, there must be
delivery of the merchandise by the carrier to the consignee at the place of destination.

3. Carrier forfeited right to invoke conditions required by Article 366 for breaching contract
Herein, the consignor is the branch office of Lee Teh & co., Inc., at Catarman, Samar, which placed
the cargo on board the ship Jupiter, and the consignee, its main office at Manila. The cargo never reached
Manila, its destination, nor was it ever delivered to the consignee, the office of the shipper in Manila, because
the ship ran aground upon entering Laoang bay, Samar on the same day of the shipment. Such being the case,
it follows that the cargo was never received by the consignee. Moreover, under the bill of lading issued by the
carrier, it was the latter’s undertakings to bring the cargo to its destination — Manila, — and deliver it to
consignee, which undertaking was never complied with. The carrier, therefore, breached its contract, and, as
such, it forfeited its right to invoke in its favor the conditions required by article 366.

4. Article 366 CC limited to cases of claims for damages to goods actually received by the
consignee; Roldan vs. Lim Ponzo & Co. (37 PHIL 285)
Article 366 of the Commercial Code is limited to cases of claims for damages to goods actually over
by the carrier and received by the consignee, whether those damages be apparent from an examination of the
packages in which the goods are delivered, or of such character that the nature and extent of the damage is not
apparent until the packages are opened and the contents examined. It has no application in cases wherein the
goods entrusted to the carrier are not delivered by the carrier to the consignee. In such cases there can be no
question of a claim for damages suffered by the goods while in transport, since the claim for damages arises
exclusively out of the failure to make delivery.” The measures to be taken under the terms of Article 367 of
the Code when the parties are unable to arrive at an amicable settlement of claims for damages set up in
accordance with Article 366, quite clearly indicate that the necessity for the presentation of claims under the
article arises only in those cases wherein the carrier makes delivery and the consignee receives the goods in
pursuance of the terms of the contract.”

5. Carrier cannot demand fulfillment unless it complies first with its own obligation
Even if there is some disagreement as to whether the salvage of the portion of the cargo that was
saved was due to the efforts of the carrier itself or to the combined efforts of the latter and the shipper as a
result of which the salvaged cargo was placed in possession of the shipper who sold it and deducted its
proceeds from the liability of the carrier. But this discrepancy would seem to be immaterial because the law
as well as the contract contemplated delivery of the cargo to the consignee at its port of destination in order
that the benefit of the law may be availed of. The liability of the carrier must be determined in the light of the
carriage contract, and since that contact calls for reciprocal obligations, the carrier cannot demand fulfillment
of its part from the shipper or consignee unless it first complies with its own obligation. (Article 1100, old
Civil Code.)

6. Breach alone justifies liability; Identity of consignor and consignee irrelevant

Herein, the fact that the consignor is by the branch office of the company that shipped the goods, and
the consignee is the main office at Manila, is of no moment, because the duties of each party under the law
are different. Moreover, even if the consignor and the consignee be considered as one and the same party, still
the carrier cannot disclaim responsibility under its contract for the simple reason that it failed to comply with
its obligation to bring the cargo to its destination. This breach alone justifies its liability under the carriage
contract.

[142]

E. Razon vs, CA (GR L-50242, 21 May 1988)

Third Division, Gutierrez Jr. (J): 4 concur

Facts: A total of 86 cases of radio and phonograph parts from Kobe, Japan were shipped aboard the SS “Don
Jacinto II” of Northern Lines, Inc., for delivery to the consignee MGM Importers Corporation at Manila. The
total shipment was insured by Pioneer. On 14 November 1969, the shipment was discharged from the carrying
vessel into the custody of E. Razon, Inc., one of the arrastre operators in the Port of Manila, charged with the
obligation of handling, custody and delivery of all cargo discharged at the government piers of Manila. The
shipment was delivered to its consignee, MGM Importers with losses and damages valued at P21,937.75. On
12 December 1969, E. Razon certified that out of 86 cases of radio parts loaded on board the SS “DON
JACINTO II” under Bill of Lading KM-18, only 83 cases had been delivered to the consignee. Formal claims
were thus filed by MGM Importers with Northern Lines and E. Razon, as well as the Pioneer Insurance
Company. The latter indemnified the assured in the sum of P21,937.75 covering the full value of the lost
cargo.

Civil Case 81460 was filed by Pioneer Insurance as insurer-subrogee, to recover from either or both
defendants (Northern Lines Inc. and/or E. Razon Inc.), jointly and severally, the sum of P21,937.75
representing the invoice value, freight costs and other importation expenses of 3 cases of radio and
phonograph parts which were short-delivered. After hearing, the CFI of Manila rendered its decision ordering
E. Razon to indemnify Pioneer the sum of P10,899.28 with legal interest and dismissing the case against
Northern Lines, leaving the controversy against E. Razon, Inc. alone.

On 18 December 1974, E. Razon, Inc. filed its appeal with the Court of Appeals which rendered its decision
on 4 January 1978, affirming in toto the trial court’s decision. On 9 March 1979, the Court of Appeals denied
the E. Razon’s motion for reconsideration. Hence, the petition to review for certiorari.

The Supreme Court dismissed the petition, and affirmed the judgment appealed from ordering E. Razon to
pay Pioneer Insurance “the sum of P10,899.28 with legal interest from the date of filing of the complaint, 13
November 1970, until fully paid and costs.”

1. Contents of Paragraph XX of the Revised Management Contract

Paragraph or Clause XX of the Revised Management Contract, entered into with the Bureau of
Customs, reads “the CONTRACTOR shall at its own expense handle all merchandise upon or over said piers,
wharves, and other designated places and at its own expense perform all work undertaken by it hereunder
diligently and in a skillful workman like and efficient manner; that the contractor shall be solely responsible
as an independent CONTRACTOR, and hereby agrees to accept liability and to promptly pay to the
steamship company, consignee consignor, or other interested party or parties for the loss, damage, or non-
delivery of cargoes to the extent of the actual invoice value of each package which in no case shall be more
than Two Thousand Pesos (P2,000.00) for each package unless the value of the importation is otherwise
specified or communicated in writing together with the invoice value and supported by a certified packing list
to the CONTRACTOR by the interested party or parties before the arrival of the goods, as well as all
damages that may be suffered on account of loss, damage or destruction of any merchandise while in custody
or under the control of the CONTRACTOR upon any pier, wharf or other designated place under the
supervision of the Bureau, but said CONTRACTOR shall not be responsible for the condition of any package
received nor for the weight, nor for any loss, injury or damage to the said cargo before or while the goods are
being received or remain on the piers or wharves, or if the loss, injury or damage is caused by force majeure,
or other causes beyond the CONTRACTOR’s control, or capacity to prevent or remedy.”

2. Submission of documents for custom duties and arrastre charges satisfies condition of exception
to limitation of liability
Although the Revised Management Contract denotes a rule in the limited liability of E. Razon, Inc.
(i.e. it should not exceed P2,000 per package, except only in case the value of the importation is specified,
manifested or communicated in writing together with the certified packing list to the contractor before the
arrival of the goods); under the provisions of the Tariff and Customs Code, for purposes of clearing cargo
from the Bureau of Customs, the Invoice, Packing List, Bill of Lading and other documents must be
submitted for processing and computation of customs duties, arrastre charges,” satisfied the condition of
exception to the P2,000 limitation of liability of the arrastre operator. Herein, MGM Importers, upon arrival
of the shipment, declared the same for tax purposes, as well as for the assessment of arrastre charges and
other fees. For the purpose, the invoice, packing list and other shipping documents were presented to the
Bureau of Customs as well as to E. Razon for the proper assessment of the arrastre charges and other fees.
Such manifestation satisfies the condition of declaration of the actual invoices of the value of the goods
before arrival of the goods, to overcome the limitation of liability of the arrastre operator.
3. “Before arrival of the goods” construed
The provision in the management contract regarding the declaration of the actual invoice value
“before the arrival of the goods” must be understood to mean a declaration before the arrival of the goods in
the custody of the arrastre operator, whether it be done long before the landing of the shipment at port, or
immediately before turn-over thereof to the arrastre operator’s custody. What is essential is knowledge
beforehand of the extent of the risk to be undertaken by the arrastre operator, as determined by the value of
the property committed to its care that it may define its responsibility for loss or damage to such cargo and to
ascertain compensation commensurate to such risk assumed. Herein, having been duly informed of the actual
invoice value of the merchandise under its custody and having received payment of arrastre charges based
thereon, E. Razon, Inc., as arrastre operator, cannot in justice insist on a limitation of its liability, under the
contract, to less than the value of each undelivered case or package consigned to MGM Importers, Inc.

4. Purpose of stipulation requiring consignee to inform contractor or arrestre operator of actual

invoice value of goods placed in its custody
The stipulation requiring a consignee to inform the contractor or arrastre operator and give the
advance notice of the actual invoice value of the goods to be put in its custody is for the purpose of
determining its liability, that it may obtain compensation commensurable to the risk it assumes, not for the
purpose of determining the degree of care or diligence it must exercise as a depository or warehouseman.

5. Article 1163 NCC

Article 1163, vis-a-vis Article 1972 of the Civil Code on obligations of the depository provides that
“every person obliged to give something is also obliged to take care of it with the proper diligence of a good
father of a family, unless the law or stipulation of the parties requires another standard of care.”

7. Public service operator’s obligation to exercise care and diligence

With its further responsibility as a public service operator, the obligation of E. Razon to exercise care
and diligence can be no less.

[143]

Pernito Arrastre Services vs. Mendoza (GR L-53492, 29 December 1986)

Eastern Leyte Arrastre Service vs. Dacuycuy (GR L-54265)
Basio vs. Arro (GR L-54394), Leyte Integrated Port Services vs. Philippine Ports Authority (GR L-54565)
En Banc, Gutierrez Jr. (J): 7 concur, 1 reserves vote, 1 took no part

Facts: [1] In November, 1972, an Ad Hoc Committee on Waterfront Services was created by the Government
to study the problems of arrastre and stevedoring operations in various ports in the Philippines. Among the
problems pinpointed were the proliferation of the oppressive “cabo system” and the increase in the incidence
of violence and thefts in the ports. There was also recognized a need to streamline port operations, ensure the
smooth flow of water borne commerce in international and domestic trade, and promote regional development
through improved port facilities. On 23 April 1973, the Committee recommended the integration of arrastre
and stevedoring operations in each port so that ultimately only one contractor would be authorized to service
that port. On 8 May 1975, the Bureau of Customs issued Memorandum Order 28-75, providing for the merger
of all existing cargo-handling contractors in each port. To effect the gradual integration of the several arrastre
and stevedoring labor contractors then operating in the Port of Tacloban, the Bureau of Customs decided to
require the merger of the 36 existing labor contractors into 4 corporations, and then to just one. Accordingly,
4 organizations were formed, namely: (1) Tacloban Waterfront Labor and Arrastre Service Cooperative, Inc.,
or TWALSCI which absorbed Eastern Leyte Arrastre Service; (2) San Juanico Pumpboats and Motor
Launches Stevedoring and Delivery Service, Inc., (3) Sealand, Inc., and (4) Tacloban Port Services, Inc. On
23 December 1975, PD 857 took effect as a result of which the powers, duties, and jurisdiction of the Bureau
of Customs with regard to arrastre and stevedoring operations were transferred to and vested in the Philippine
Ports Authority (PPA). Pursuant to said decree, PPA was authorized among others, to “regulate the rates or
charges for port services or port related services so that, taking one year with another, such rates or charges
furnish adequate working capital and produce an adequate return on the assets of the Authority” (PPA) and
“to levy dues, rates, or charges for the use of the premises, works, appliances, facilities, or for services
provided by or belonging to the Authority or any other organization concerned with port operations.”
Pursuant to said decree, PPA imposed a 10% charge on the monthly gross earnings of the operators of arrastre
and stevedoring services. Through its Memorandum Order 21 (1977), PPA also adopted as its own, the
Bureau of Customs’ policy of integrating the operation of arrastre and stevedoring services in each port. This
policy was applied to the port of Tacloban where the 4 arrastre/stevedoring operators agreed to merge and
form the Leyte Integrated Port Services, Inc. (LIPSI). On 31 January 1978, PPA issued a temporary permit to
LIPSI, subject to several conditions.

[GR 53492] On 27 February 1978, Pernito Arrastre Services, Inc. and other arrastre operators filed with the
then CFI of Cebu an action for declaratory relief and mandamus against the PPA, assailing the validity of the
integration policy which would, in effect, authorize only one arrastre operator in each port in the Philippines
and the authority of PPA to collect 10% of the gross arrastre and stevedoring charges paid to operators. On 31
March 1978, the trial court issued a writ of injunction, prohibiting the PPA, pendente lite, from enforcing its
policy of integration in the Cebu City port and directing it to allow the arrastre operators to operate
individually and independently as arrastre and stevedoring contractors. However, with respect to the
collection of the 10% charge by PPA, the court ruled that it was going to presume its reasonableness in the
meantime since PPA was merely following the rate fixed by the Bureau of Customs.

Not satisfied with the court’s order, PPA filed a petition for certiorari before the Supreme Court as a result of
which a temporary restraining order was issued enjoining the trial court from enforcing its order. The
Supreme Court, however, subsequently allowed the trial court to proceed with the case. Consequently, the
arrastre operators filed a supplemental application for preliminary injunction seeking to stop PPA from
collecting the 10% charge. The trial court denied the arrastre operators’ supplemental application on the
ground that the reason relied upon does not appear to be indubitable. Hence, the arrastre operators filed the
petition for certiorari, GR. 53492, with the Supreme Court.

The Supreme Court, on 22 July 1980, issued a temporary restraining order enjoining the PPA from collecting
from the arrastre operators the 10% of their gross income from arrastre operations. On 14 June 1983, the
Nasipit Integrated Arrastre & Stevedoring, Inc. filed a motion for intervention asking that in view of the
restraining order issued by the Supreme Court, it should not be required to pay 10% of its gross earnings to
PPA.

[2] In the meantime, according to PPA, in the course of the operation of arrastre services by LIPSI, it noted a
number of violations of the temporary permit; such as inefficiency in providing services due to failure to
acquire the needed cargo-handling equipment; inability to render night work; permitting illegal operations by
unlicensed individual labor contractors or cabos whom LIPSI was supposed to have absorbed by the process
of merger; employment of child labor; and non-remittance of the government share of arrastre charges. As a
result, the PPA gave Lipsi several written and verbal warnings to carry out the needed reforms in its
operations. On 14 April 1978, Jose M. Asturias, the Executive Vice-President and General Manager of LIPSI
wrote PPA admitting its failure to comply with the conditions of its temporary permit. On 26 April 1979, PPA
issued Special Order 114-79 creating the Philippine Ports Authority-Tacloban Arrastre Ports Services (PPA-
TAPS) within its own Tacloban port unit and ordering a take-over by PPA-TAPS of the entire arrastre and
stevedoring services in the Port of Tacloban, effective not later than 1 June 1979. LIPSI, as well as all port
users were duly informed of the take-over by PPA-TAPS. On 1 June 1979, PPA-TAPS took over the actual
management and operations of arrastre and stevedoring services in the port of Tacloban. For this purpose.
PPA-TAPS utilized the same dock labor force that existed at the time of the cancellation of the permit of
LIPSI. According to PPA, after such take-over, the dockworkers were placed on regular payrolls; their social
security premiums were promptly paid and all illegal exactions from their pay were stopped; they were issued
free uniforms and hard hats for safety and protection; and they organized a genuine labor organization, the
Tacloban Port Service Labor Union (TAPSLU) for the protection of their rights. As a result of the take-over,
PPA sent a notice to International Copra Export Corporation (INTERCO), a corporation with a stevedoring
contract with petitioner Eastern Leyte Arrastre Service (Eastern Leyte) reiterating the fact that PPA has taken
over the cargo-handling operations in the port of Tacloban and therefore, all transactions and payments
relevant to said cargo-handling operations should be coursed through the management of the PPA at Tacloban.
Consequently, INTERCO, in turn, sent a formal letter to Eastern Leyte demanding a refund of the payments it
made for the services rendered by Eastern Leyte on June 2 and 16, 1979.

[GR 54265] On 5 July 1979, Eastern Leyte filed an action with the CFI of Leyte for injunction with
preliminary injunction, prohibition and damages seeking to restrain respondent INTERCO from making any
payment to PPA-TAPS and to prevent the latter from taking over the operations of petitioner, alleging that the
same was illegal, against public policy and an impairment of the contract executed by and between Eastern
Leyte and INTERCO. On 16 August 1979, the judge issued a writ of preliminary injunction against PPA. A
motion for reconsideration was filed by the latter alleging among others, that under PD 857, it has the
authority to take over the operation of arrastre and stevedoring services to the exclusion of all private
contractors, including Eastern Leyte. On 28 January 1980, the judge granted PPA’s motion, stating that since
there is no showing that PF 857 is unconstitutional and in view of the well known presumption of validity that
every statute has in its favor, there is no reason for not yielding to the motion of PPA to dissolve the writ of
preliminary injunction. Eastern Leyte filed a motion for reconsideration but the same was denied. Hence, it
filed the petition in GR 54265.

The Supreme Court, on 17 July 1980, issued a temporary restraining order enjoining the trial court from
further proceeding with the trial of the case and the PPA from taking over the arrastre operations of Eastern
Leyte in the port of Tacloban.

[GR L-54394] On 18 February 1980, a petition was filed by Froilan Basio and other labor contractors with
the CFI of Leyte, questioning the PPA-TAPS’ take-over of the port of Tacloban and alleging that the same
constituted an impairment of the contract between the labor contractors and the owners of motor launches and
between the labor contractors and PPA. As evidence of the latter allegation, the petitioners attached to their
petition a copy of the “Memorandum” of the Leyte-Samar Labor Union and Benigno Magpale, Inc., the
manager of the PPA-PMU of Tacloban whereby the latter agreed to remit 10% of the gross income derived
from the port users serviced by the Leyte-Samar Labor Union for the period July 1 to 31, 1979 to the labor
contractors. Initially, the trial court issued a temporary restraining order, However, instead of deciding the
petition on the merits, it called the parties to a series of conferences to find means and ways whereby the labor
contractors and the workers under them could be absorbed under the new set-up. The PPA submitted its
“Compliance,” binding itself to absorb the labor contractors and workers. It assured them that whoever would
be the winning bidder of the arrastre service, he must utilize the services of the labor force who are all
members of the waterfront union. In view of this “Compliance” submitted by PPA, the trial court dismissed
the petition and lifted the restraining order. The labor contractors filed a motion for reconsideration alleging
that the decision of the trial court had no evidence to support itself and that trial should have been conducted
because there were allegations raised by both sides which needed to be clarified and settled. They also sought
the issuance of a restraining order against the PPA. The motion, however, was denied by said court. Thus,
instead of waiting for the trial court to resolve the motion, the labor contractors filed the petition for certiorari,
GR 54394, with the Supreme Court, seeking to set aside the decision of the trial court on the ground that the
same violated the petitioners’ right to due process of law.

The Supreme Court, on 5 August 1980, the Supreme Court issued a temporary restraining order enjoining the
court from hearing the case and the PPA from taking over the work of the labor contractors.
[GR 54565] On 20 August 1980, LIPSI filed a petition for certiorari with preliminary mandatory injunction
questioning the validity and constitutionality of portions of PD 505 and PD 857 [Sec. 6(a) (v)] on the ground
that said provisions from which the PPA derives its authority to take-over the port of Leyte violate LIPSI’s
right to due process of law. In the alternative, it asked that the Court define and clarify the extent of PPA’s
authority to take-over the port services of all ports in the country as well as to grant the same to an exclusive
contractor, firm, or corporation.

The Supreme Court, on 26 August 1980, issued a resolution consolidating the four petitions. On 30
September 1980, TAPSLU filed a motion to intervene in the case of LIPSI v. PPA, et al., alleging that it has a
legal interest in the matters in issue as it constitutes the entire labor force of the stevedoring and arrastre
services turned over by the Supreme Court to LIPSI.

The Supreme Court dismissed the petitions in GRs 53492, 54265, 54394 and 54565 for lack of merit; and
dissolved the temporary restraining orders dated 17 July 1980, 22 July 1980, 5 August 1980 and 21 August
1980.

1. Arrastre operations affected with public interest; Anglo-Fil Trading vs. Lazaro
In the case of Anglo-Fil Trading Corporation v. Lazaro (124 SCRA 494, 512, 513 and 519), the Court
has already underscored the fact that the arrastre operations in the various ports in the Philippines are affected
with public interest. Therein, it was held that the “streamlining of the stevedoring activities in the various
ports of the Philippines was undertaken by PPA to implement LOI 1005-A. The public interest, public
welfare, and public policy sought to be subserved by said LOI are clearly set forth in its whereas clauses.
Clearly, there is reasonable relation between the undeniable existence of an undesirable situation and the
statutory attempt to avoid it. Public welfare, then, lies at the bottom of the enactment of said law, and the state
in order to promote the general welfare may interfere with personal liberty, with property, and with business
and occupations. The Manila South Harbor is public property owned by the State. The operations of the
premiere port of the country, including stevedoring work, are affected with public interest. Stevedoring
services are subject to regulation and control for the public good and in the interest of general welfare.”

2. State in exercise of its police power, through its agency, has power to revoke temporary permits
The State in the exercise of its police power through its agency, the PPA, has the power to revoke the
temporary permits, assuming the existence of valid temporary permits, and take over the operations of the
port of Tacloban whenever the need to promote the public interest and welfare both of the stevedoring
industry and the workers therein justifies such take over. Whatever right, if any, that the arrastre operators and
labor contractors may have acquired on the basis of the temporary permits earlier given them must yield to
the State’s valid exercise of police power.

3. Fundamental rights vis-à-vis police power; Bautista vs. Juinio

As ruled in Bautista v. Juinio (127 SCRA 329, 338), “In the interplay between such a fundamental
right and police power, especially so where the assailed governmental action deals with the use of one’s
property, the latter is accorded much leeway. That is settled law. What is more, it is good law. Due process,
therefore, cannot validly be invoked. As stressed in the cited Ermita-Malate Hotel decision (127 Phil. 306,
315), `To hold otherwise would be to unduly restrict and narrow the scope of police power which has been
properly characterized as the most essential, insistent and the least limitable of powers, extending, as it does
`to all the great public needs’ .”

4. No impairment of contract
The right to non-impairment of contract had not been violated. In the same case of Anglo-Fil Trading
Corporation v. Lazaro (supra, p. 519), the Supreme Court held that the subservience of the contract clause to
the police power enacting public regulations intended for the general welfare of the community has been
settled by the Court. Herein, the records will bear out the fact that only LIPSI has a temporary permit issued
by PPA. The rest were either merely allowed or tolerated to operate in the port of Tacloban. However, even on
the assumption that all of them were able to secure temporary permits from PPA, still, this does not vest any
property right on them and hence, cannot allege a violation of their right to non-deprivation of property
without due process of law.

5. Permits provide for privilege and not property rights; Anglo-Fil Trading vs. Lazaro
In the case of Anglo-Fil Trading Corporation v. Lazaro, the Court ruled that “all hold-over permits
were by nature temporary and subject to subsequent policy guidelines as may be implemented by PPA. Such
should have served as sufficient notice that, at any time, their authorities may be terminated. Whether or not a
PTO would be issued depended on the sound discretion of PPA and on the policies, rules and regulations that
the latter may implement in accordance with the statutory grant of power. It cannot be said that the petitioners
to have been deprived of property without due process of law because, in this respect, what was given them
was not a property right but a mere privilege and they should have taken cognizance of the fact that since they
have no vested right to operate, their permits can be withdrawn anytime the public welfare deems it best to do
so.”

6. Imposition of reasonable rates within sound discretion of the PPA

It is within the sound discretion of the PPA to impose a reasonable charge or rate on arrastre and
stevedoring operators which it deems to be most appropriate and advantageous to the government under the
circumstances. In the case of Anglo-Fil Trading Corporation v. Lazaro, the Court held that the award of PPA
to Ocean Terminal Services, Inc. (OTSI) of the stevedoring contract is not violative of the Anti-Graft Law
since said contract, for one, embodied sufficient consideration which is the payment by OTSI to the
government of 10% of its gross income.

7. Anglo-Fil Trading vs. Lazaro; Management contract not violative of anti-graft law
Therein, “the management contract is not violative of the Anti-Graft Law. It is a contract executed in
pursuance to law and the instructions of the President to carry out government objectives to promote public
interest. The act did not cause `undue injury’ to the petitioners who had no vested property rights entitled to
protection. There is no undue injury to the government nor any unwarranted benefit to OTSI considering that
the contract carried sufficient consideration for PPA which is the payment by OTSI of 10% of its gross
income, something which OTSI is loathe to pay. The rationalization and effective utilization of port facilities
is to the advantage of the Government. Furthermore, the discretion in choosing the stevedoring contractor for
the South Harbor, Port of Manila, belongs to the PPA. As long as standards are set in determining the
contractor and such standards are reasonable and related to the purpose for which they are used, the courts
should not inquire into the wisdom of PPA’s choice.”

8. 10% share of government in earnings a reasonable consideration

The 10% share of the government in the earnings from stevedoring and arrastre services a reasonable
consideration for the use of government premises, works, facilities, and services, not to mention the
supervision inherent in the upgrading and improvement of port operations, of which said services are an
integral part.

9. In industries affected with public interest, a regulated monopoly is not necessarily proscribed
In industries affected with public interest, a regulated monopoly is not necessarily proscribed, if such
is deemed necessary in order to protect and promote public interest. In the case of Philippine Ports Authority
v. Mendoza, (138 SCRA 496, 509-510), the Court ruled that “private monopolies are not necessarily
prohibited. The use of the word ‘regulate’ in the Constitution indicates that some monopolies, properly
regulated, are allowed. ‘Competition can best regulate a free economy. Like all basic beliefs, however, that
principle must accommodate hard practical experience. There are areas where for special reasons the force of
competition, when left wholly free, might operate too destructively to safeguard the public interest. Public
utilities are an instance of that consideration.’ By their very nature, certain public services or public utilities
such as those which supply water, electricity, transportation, telegraph, etc. must be given exclusive franchises
if public interest is to be served. Such exclusive franchises are not violative of the law against monopolies.

10. PPA-TAPS composed of all labor contractors and workers

In the present cases, when PPA-TAPS took over arrastre operations, it also absorbed the entire labor
force that existed at the time of the cancellation of LIPSI’s permit. Hence, it can be safely said that PPA-TAPS
is also composed of all the labor contractors and the workers under them which have been integrated to
develop and improve the planning, growth, financing, construction, maintenance and operation of ports
throughout the country and make them responsive to the needs of their individual localities.

[144]

Tan Pho vs. Dalamal (GR 45598, 26 April 1939)

En Banc, Concepcion (J): 5 concur

Facts: Enrique Aldeguer purchased on credit from Hassamal Dalamal certain merchandise valued at P583.60.
Hassamal Dalamal shipped said merchandise on the ship of Tan Phoand endorsed the bill of lading to the
Chartered Bank of China, India & Australia, which, in turn, endorsed it to the Philippine National Bank
(PNB). The said bill of lading was made to order and contains the initials of Enrique Aldeguer, “E. A.” Upon
arrival of the goods in Sorsogon, the agent of Tan Pho delivered the merchandise to Enrique Aldeguer who
presented the invoice an l signed a receipt. Dalamal upon learning that Aldeguer had received the
merchandise, made him sign a 40-day draft for the value of said merchandise. The PNB, with the consent of
Dalamal, gave Aldeguer an extension of ten days to pay the amount of the merchandise in question, and upon
the expiration of the period, Dalamal required Aldeguer to pay the merchandise.

Unable to get such payment, Dalamal brought suit on November 28, 1934, that is, after the expiration of 174
days from the delivery of the merchandise to Aldeguer. The court decided in favor of Tan Pho and against
Dalamal upon the theory that the delivery of the goods to Aldeguer constitutes nondelivery, wherefore, the
claim not having been filed within 30 days nor the action instituted within 60 days, Dalamal waived his claim
or right of action against Tan Pho.

On appeal the Court of Appeals upheld the contrary view and rendered judgment in favor of Dalamal and
against Tan Pho for the sum of P586.60, with legal interest from the filing of the complaint, and the costs of
both instances. From this decision, Tan Pho has taken the appeal on certiorari.

The Supreme Court affirmed the decision, with costs against Tan Pho.

1. Section 7 of the bill of lading

The bill of lading signed by the parties provides in part as follows “SECTION 7. Claim for
nondelivery of shipment must be presented in writing to the carrier within thirty days from the date of
accrual. Suits based upon claims arising from shortage, damage, or nondelivery of shipment shall be
instituted within sixty days from the date of accrual of the right of action. Failure to make claims, to institute
judicial proceedings as herein provided shall constitute a waiver of claim or right of action.”

2. Misdelivery, not nondelivery, occurred

Considering that the bill of lading covering the goods in question has been made to order, which
means that said goods cannot be delivered without previous payment of the value thereof, it is evident that,
the said goods having been delivered to Aldeguer without paying the price of the same, these facts constitute
misdelivery and not nondelivery, because there was in fact delivery of merchandise. Herein, Tan Pho should
not have delivered the goods to Aldeguer but to the PNB. Having made the delivery to Aldeguer, the delivery
is a case of misdelivery. If the goods have been delivered, it cannot at the same time be said that they have
not been delivered.

3. Duty of the carrier not to deliver merchandise without presentation of bill lading duly endorsed
by shipper
According to the bill of lading which was issued in to the order of the shipper, the carrier was under a
duty not to deliver the merchandise mentioned in the bill of lading except upon presentation of the bill of
lading duly endorsed by the shipper. Hence, Tan Pho having delivered the goods to Enrique Aldeguer without
the presentation by the latter of the bill of lading duly endorsed to him by the shipper, Tan Pho made a
misdelivery and violated the bill of lading, because his duty was not only to transport the goods entrusted to
him safely, but to deliver them to the person indicated in the bill of lading.

4. Signing of 40-day draft for the amounts of goods not an act of ratification of the misdelivery
The fact that Dalamal required Aldeguer to return the goods, and it has been held that when the owner
of the goods transported attempts to secure the value thereof from the person to whom they have been
delivered by mistake, he cannot be deemed to have ratified the misdelivery or to have waived his right against
the carrier.

5. Defect of not including the CA as party to present petition merely technical and not fatal
The Court of Appeals has not been made a party in the present petition. As held in Mayor vs. Blanco
(61 Phil., 547), this defect being merely technical, the same cannot be considered as a ground for denying the
petition.

[145], also [161]

Baer Senior & Co. vs. La Compania Maritima (GR 1963, 30 April 1906)
First Division, Willard (J): 4 concur

Facts: Baer Senior & Co, being the owner of the launch Mascota, which was then at Aparri, made a contract
with La Compania Maritima about 2 February 1903, by the terms of which La Compania Maritima agreed to
tow the launch from Aparri to Manila. In accordance with this agreement the launch was delivered to La
Compania Maritima at Aparri on the day named, and La Compania Maritima’s steamer Churruca left Aparri
on that day with the launch in tow. The steamer, with the launch in tow, arrived safely at Vigan. Two or three
hours after leaving Vigan the wind increased in violence, with a rough sea. The speed of the streamer was
decreased so that the tow might travel more easily. About 11:30 p.m. the lookout, who was stationed in the
stern of the steamer for the purpose of watching the launch, reported to the officer of the deck that the launch
had disappeared. The steamer was stopped and search was made the rest of the night for the launch, but
without success, and in the morning the steamer proceeded on her way to Manila.

Baer Senior & Co. brought the action to recover the value of the launch. Judgment was rendered in the trial
court in favor of Baer Senior & Co. La Compania Maritima moved for a new trial, which was denied. La
Compania Maritima has brought the case to the Supreme Court by bill of exceptions.

The Supreme Court reversed the judgment of the court below, and entered judgment for La Compania
Maritima, absolving it from the complaint, with the costs of the lower court. The court disallowed recovery
costs to either party. The court ordered that final judgment be entered in accordance with the decision after the
expiration of 20 days and the case be remanded to the lower court for proper procedure after 10 days
thereafter.

1. Article 1601 NCC

 Article 1601 NCC provides that “Carriers of goods by land or by water shall be subject with regard to
the keeping and preservation of the things intrusted to them, to the same obligations as determined for in
keepers by articles 1783 and 1784. The provisions of this article shall be understood without prejudice to
what is prescribed by the Code of Commerce with regard to transportation by sea and land.”

2. Article 1602 NCC

Article 1602 NCC provides that “Carriers are also liable for the loss of and damage to the things
which they receive, unless they prove that the loss or damage arose from a fortuitous event or force majuere.”

3. Article 618 (1), Code of Commerce

Article 618 of the Code of Commerce is in part provides that “the captain shall be civilly liable to the
agent and the latter to the third persons who may have made contracts with the former — (1) For all the
damages suffered by the vessel and its cargo by reason of want skill or negligence on his part. If a
misdemeanor with the Penal Code.”

4. Article 620, Code of Commerce

Article 620 of the Code of Commerce is in part that “the captain shall not be liable for the damages
caused to the vessel or to the cargo by reason of force majuere; but he shall always be so — no agreement to
the contrary being valid — for those arising through his own fault.”

5. La Compania Maritima not a carrier of goods in respect to launch; The J. P. Donaldson (167
US 599)
Articles 1601-1602 NCC, and Articles 618 (1) and 620 of the Code of Commerce, treat of the liability
of a carrier of goods. La Compania Maritima, however, was not a carrier of goods in respect to the launch.
While the tug is performing her contract of towing the barges they may indeed be regarded as part of herself,
in the sense that her master is bound to use due care to provide for their safety as well as her own and to avoid
collision, either of them or of herself, with other vessels. But the barges in tow are by no means put under the
control of the master of the tug to the same extent as the tug herself, and the cargo, if any, on board of her. A
general ship carrying goods for hire, whether employed in internal, in coasting, or in foreign commerce, is a
common carrier; and the ship and her owners, in the absence of a valid agreement to the contrary, are liable to
the owners of the goods carried as insurers against all losses, excepting only such irresistible causes as the act
of God and public enemies. But a tug and her owners are subject to no such liability to the owners of the
vessels towed, or of the cargoes can not maintain any action for the loss of either against the tug of her
owners, without proving negligence on her part.

6. No presumption of fault for tug operator, unlike in common carriers; Degree of caution and
skill which prudent navigators employ in similar services
An engagement to tow does not impose either an obligation to insure or the liability of common
carriers. The burden is always upon him who alleges the breach of such a contract to show either that there
has been no attempt at performance, or that there has been negligence or unskillfulness to his injury in the
performance. Unlike the case of common carriers, damage sustained by the tow does not ordinarily raise a
presumption that the tug has been in fault. The contract requires no more than that he who undertakes to tow
shall carry out his undertaking with that degree of caution and skill which prudent navigators usually employ
in similar services.

7. Source of obligation in the present case

The obligation of La Compania Maritima grew out of a contract made between it and Baer Senior &
Co., and the liability of the former is defined in articles 1101 and 1104 of the Civil Code. The provisions of
articles 1902 and 1903 are not applicable to the present case.

8. Article 1101 NCC

 Article 1101 NCC provides that “those who in fulfilling their obligations are guilty of fraud,
negligence, or delay, and those who in any manner whatsoever act in contravention of the stipulations of the
same, shall be subject to indemnify for the losses and damages caused thereby.”

9. Article 1104 NCC

Article 1104 NCC provides that “the fault or negligence of the debtor consists of the omission of the
steps which may be required by the character of the obligation, and which may pertain to the circumstances of
the persons, time, and place. Should the obligation not state what conduct is to be observe in its fulfillment,
that observed by a good father of a family shall be required.”

10. La Compania Maritima exercised due diligence

By the terms of articles 1104, La Compania Maritima was bound to exercise what is known in the
American law as ordinary diligence, taking into consideration the nature of the obligation and the
circumstances of persons, time, and place. Evidence shows that La Compania Maritima did exercise the
diligence required of it by law. The towing line was passed from the steamer to the launch, around the stern of
the launch once or twice, and one or two other lines passed entirely around the bow of the launch and under
the keel. These lines were fastened to a post in the bow of the launch, which post was used for fastening ropes
in cases of towing and for the purpose of fastening the launch to the wharf. At the time the loss occurred the
towing line did not break, but the post did, and was found fastened to the towing lines when they were pulled
on board the steamer. The captain of the steamer and the first mate, both men of experience in the matter,
testified that the lines were properly adjusted and the tow properly made fast to the steamer.

11. Incompetence of witness of contrary testimony

The only evidence to the contrary, as to the exercise of ordinary diligence, was the evidence furnished
by one witness of Baer Senior & Co., who testified that he was present when the towing lines were made fast
by the captain himself, of the steamer; that he then told the captain it should be done another way. The captain
denied this. This witness had no experience, in the matter of towing; had never had occasion to make fast a
tow to a tug, and had never seen it done, with one exception; and that when this same launch was towed from
Manila to Aparri. His evidence is sufficient to overcome the evidence of La Compania Maritima.

[-] also [204]

Lopez vs. Duruelo (GR 29166, 22 October 1928)

En Banc, Street (J): 4 concur, 1 concur in result

Facts: On 10 February 1927, Augusto Lopez, who is a resident of the municipality of Silay, Occidental
Negros, was desirous of embarking upon the interisland steamer San Jacinto in order to go to Iloilo. This boat
was at the time in the anchoring ground of the port of Silay, some half a mile distant from the port. Lopez
therefore embarked at the landing in the motor boat Jison, which was then engaged in conveying passengers
and luggage back and forth from the landing to boats at anchor, and which was owned and operated by
Albino Jison, with Juan Duruelo as patron. The engineer (maquinista) aboard on this trip was one Rodolin
Duruelo, a boy of only 16 years of age. He is alleged to have been a mere novice without experience in the
running of motor boats; and the day of the occurrence now in contemplation is said to have been the third day
of his apprenticeship in this capacity. It is alleged that the Jison, upon this trip, was grossly overladen, having
aboard 14 passengers, while its capacity was only for 8 or 9. As the motor boat approached the San Jacinto in
a perfectly quiet sea, it came too near to the stern of the ship, and as the propeller of the ship had not yet
ceased to turn, the blades of the propeller struck the motor boat and sank it at once. As the Jison sank, Lopez
was thrown into the water against the propeller, and the revolving blades inflicted various injuries upon him,
consisting of a bruise in the breast, two serious fractures of the bones of the left leg, and a compound fracture
of the left femur. As a consequence of these injuries Lopez was kept in bed in a hospital in the City of Manila
from 28 February until 19 October 1927, or approximately 8 months.
Lopez instituted an action in the CFI of Occidental Negros for the purpose of recovering damages (P120,000)
for personal injuries inflicted upon him by reason of the negligence of Duruelo and Jison. Duruelo and Jison
demurred to the complaint, and the demurrer having been sustained, Lopez elected to stand upon his
complaint, which was accordingly dismissed. Lopez appealed.

The Supreme Court reversed the judgment appealed from, overruled the demurrer, and required Jison to
answer the complaint within 5 days after notification of the return of the decision to the court of origin; with
costs against Jison.

1. Article 835 of the Code of Commerce applies only to sea-going vessels and not those engaged in
rever and bay traffic
Article 835, Code of Commerce is found in the section dealing with collisions, and the context shows
the collisions intended are collisions of sea-going vessels. Said article cannot be applied to small boats
engaged in river and bay traffic. The Third Book of the Code of Commerce, dealing with Maritime
Commerce, of which the section on Collisions forms a part, was evidently intended to define the law relative
to merchant vessels and marine shipping; and, as appears from said Code, the vessels intended in that Book
are such as are run by masters having special training, with the elaborate apparatus of crew and equipment
indicated in the Code. The word “vessel” (Spanish, “buque,” “nave”), used in the section referred to was not
intended to include all ships, craft or floating structures of every kind without limitation, and the provisions of
that section should not be held to include minor craft engaged only in river and bay traffic. Vessels which are
licensed to engage in maritime commerce, or commerce by sea, whether in foreign or coastwise trade, are no
doubt regulated by Book III of the Code of Commerce. Other vessels of a minor nature not engaged in
maritime commerce, such as river boats and those carrying passengers from ship to shore, must be governed,
as to their liability to passengers, by the provisions of the Civil Code or other appropriate special provisions
of law.

2. “Vessel” construed; Estasen, Der. Mer. Vol. IV, p. 195

The writer Estasen made comment upon the word “vessel” to the following effect: “When the
mercantile codes speak of vessels, they refer solely and exclusively to merchant ships, as they do not include
war ships, and furthermore, they almost always refer to craft which are not accessory to another as is the case
of launches, lifeboats, etc. Moreover, the mercantile laws, in making use of the words ship, vessel, boat,
embarkation, etc., refer exclusively to those which are engaged in the transportation of passengers and freight
from one port to another or from one place to another; in a word, they refer to merchant vessels and in no way
can they or should they be understood as referring to pleasure craft, yachts, pontoons, health service and
harbor police vessels, floating storehouses, warships or patrol vessels, coast guard vessels, fishing vessels,
towboats, and other craft destined to other uses, such as for instance coast and geodetic survey, those engaged
in scientific research and exploration, craft engaged in the loading and discharge of vessels from same to
shore or docks, or in transhipment and those small craft which in harbors, along shore, bays, inlets, coves and
anchorages are engaged in transporting passengers and baggage.” (Estasen, Der. Mer., vol. IV, p. 195.)

3. Yu Con vs. Ipil

In Yu Con vs. Ipil (41 Phil., 770), the court held that a small vessel used for the transportation of
merchandise by sea and for the making of voyages from one port to another of these Islands, equipped and
victualed for this purpose by its owner, is a vessel, within the purview of the Code of Commerce, for the
determination of the character and effect of the relations created between the owners of the merchandise laden
on it and its owner.

4. The Jison not a boat as contemplated in Article 835, requiring protest in case of collision
Herein, the Jison was propelled by a second-hand motor, originally used for a tractor plow; and it had a
capacity for only 8 persons. The use to which it was being put was the carrying of passengers and luggage
between the landing at Silay and ships in the harbor. This was not such a boat as is contemplated in article 835
of the Code of Commerce, requiring protest in case of collision.

5. Mercantile Law by Blanco (Spanish)

Says Blanco: “Las palabras ‘nave’ y ‘buque, en su sentido gramatical, se aplican para designar
cualquier clase de embarcaciones, grandes o pequeiias, mercantes o de guerra, significacion que no difiere
esencialmente de la juridica, con arreglo a la cual se consideran buques para los efectos del Codigo y del
Reglamento para la organizacion del Registro mercantil, no solo las embarcaciones destinadas a la
navegacion de cabotaje o altura, sino tambien los diques flotantes, pontones, dragas, ganguiles y cualquier
otro aparato flotante destinado a servicios de la industria o del comercio maritimo. Aun cuando, conforme a
este concepto legal, parece que todo aparato flotante que sirve directamente para el trasporte de cosas o
personas, o que indirectamente se relacionen con esta industria, han de sujetarse a los preceptos del Codigo
sobre propiedad, transmision, derechos, inscripciones, etc., entendemos con el Sr. Benito (obra cit.) y asi
ocurre en la practica, que no son aplicables a las pequeñas embarcaciones, que solo estan sujetas a los de la
administracion de marina para el servicio de los puQrtos o ejercicio de la industria de la pesca.” (Blanco, Der.
Mer., vol. II, pag. 22.)

6. Mercantile Law by Blanco (English Translation)

Says Blanco: “The words ‘ship’ (nave) and ‘vessel’ (buque), in their grammatical sense, are applied
to designate every kind of craft, large or small, merchant vessels or war vessels, a signification which does
not differ essentially from its juridical meaning, according to which vessels for the purposes of the Code and
Regulations for the organization of the Mercantile Registry, are considered not only those engaged in
navigation, whether coastwise or on the high seas, but also floating docks, pontoons, dredges, scows and any
other floating apparatus destined for the service of the industry or maritime commerce. Yet notwithstanding
these principles from which it would seem that any floating apparatus which serves directly for the
transportation of things or persons or which indirectly is related to this industry, ought to be subjected to the
principles of the Code with reference to ownership, transfer, rights, registration, etc., we agree with Benito
(cobra cit.) and it so happens in practice that they are not applicable to small craft which are only subject to
administrative (customs) regulations in the matter of port service and in the fishing industry.”

7. “Nave” (ship with decks and sails) clarified

The word “nave” in Spanish, which is used interchangeably with “buque” in the Code of Commerce,
means, according to the Spanish-English Dictionary compiled by Edward R. Bensley and published at Paris
in the year 1896, “Ship, a vessel with decks and sails.” Particularly significant in this definition is the use of
the word “decks,” since a deck is not a feature of the smallest types of water craft.

8. Similar case from Federal Court in the United States; The Mamie
In the Mamie (5 Fed., 813), it was held that only vessels engaged in what is ordinarily known as
maritime commerce are within the provisions of law conferring limited liability on the owner in case of
maritime disaster. In the course of the opinion in that case the author cites the analogous provisions in the
laws of foreign maritime nations, especially the provisions of the Commercial Code of France; and it is
observed that the word “vessel” in these codes is limited to ships and other sea-going vessels. “Its provisions
are not applicable,” said the court, “to vessels in inland navigation, which are especially designated by the
name of boats.” Quoting from the French author Dufour (1 Droit Mer. 121), the writer of the opinion in the
case cited further says: “Thus, as a general rule, it appears to me clearly, both by the letter and spirit of the
law, that the provisions of the Second Book of the Commercial Code [French] relate exclusively to maritime
and not to fluvial navigation; and that consequently the word ‘ship,’ when it is found in these provisions,
ought to be understood in the sense of a vessel serving the purpose of maritime navigation or seagoing vessel,
and not in the sense of a vessel devoted to the navigation of rivers.”
9. A passenger on boat not required to make protest; An individual who suffered fractures cannot
be supposed to make protest within 24 hours after occurrence
A passenger on a boat, like the Jison herein, is not required to make protest as a condition precedent
to his right of action for the injury suffered by him in the collision described in the complaint. In other words,
article 835 of the Code of Commerce does not apply. But even if said provision had been considered
applicable, a fair interpretation of the allegations of the complaint indicates, that the injuries suffered by
Lopez were of such a nature as to excuse protest; for, under article 836, it is provided that want of protest
cannot prejudice a person not in a condition to make known his wishes. An individual who has suffered a
compound fracture of the femur and received other physical injuries sufficient to keep him in a hospital for
many months, cannot be supposed to have been in a condition to make protest within 24 hours of such
occurrence.

10. Cause of action upon civil liability arising from tort

The brief states a good cause of action upon a civil liability arising from tort under articles 1902 and
1903 of the Civil Code, and the Court’s attention has not been drawn to any provision of law which would
constitute an obstacle to the maintenance of the action.

11. Case should not be dismissed on demurrer if a cause of action can be made out
A case should not be dismissed on demurrer when, under any reasonable interpretation of the
complaint, a cause of action can be made out; and the fact that a complaint is inartificially drawn or in a
certain degree lacking in precision constitutes no sufficient reason for dismissing it. In passing upon a
demurrer, every reasonable intendment is to be taken in favor of the pleader. In this connection, if a complaint
does not show a good cause of action, the action can be dismissed at a later stage of the proceedings; and even
where no objection has been previously made, the point can be raised in the Supreme Court under section 93
of the Code of Civil Procedure (Abiera vs. Orin, 8 Phil., 193). Little or no appreciable prejudice to the
defendant will therefore ordinarily result from overruling a demurrer, and no harm is done to anyone by
requiring the defendant to answer. On the contrary, grave prejudice may result to a plaintiff from the
erroneous sustaining of a demurrer, because of the delay and even expense necessary to set the matter right
upon appeal.

[-]

Philippine Refining v. Jarque [G.R. No. 41506. March 25, 1935.]

En Banc, Malcolm (J): 9 Concur

Facts: On varying dates the Philippine Refining Co., Inc., and Francisco Jarque executed three mortgages,
denominated as “chattel mortgage” on the motor vessels Pandan and Zaragoza. The first two mortgages do
not have an appended affidavit of good faith, while the third contains such. The third mortgage was
subscribed by Jarque and MN Brink (in what capacity the latter signed is not disclosed) and was not
registered in the customs house until 17 May 1932, or within the period of 30 prior to the commencement of
insolvency proceedings against Jarque. A fourth mortgage was executed by Jarque and Ramon Aboitiz on the
motorship Zaragoza and was entered in the chattel mortgage registry of the register of deeds on 12 May 1932,
or again within the 30-day period before the institution of insolvency proceedings.

A petition was filed with the CFI Cebu on 2 June 1932 in which it was prayed that Francisco Jarque be
declared an insolvent debtor, with the result that an assignment of all the properties of the insolvent debtor,
was executed in favor of Jose Corominas. The petition on the matter of Jarque’s insolvency was granted.
However, the judge declined to order the foreclosure of the mortgages, but on the contrary sustained the
special defenses of fatal defectiveness of the mortgages.

The Supreme Court affirmed the judgment, with costs against appellant.
1. Admiralty jurisdiction of court raised to warrant court to sit en banc
The case was decided by the court in banc, as a motion was presented by counsel for the appellant in
which it was asked that the case be heard and determined by the court sitting in banc because the admiralty
jurisdiction of the court was involved, and this motion was granted in regular course. On further investigation
it appears that this was an error because the mere mortgage of a ship is a contract entered into by the parties to
it without reference to navigation or perils of the sea, and does not, therefore, confer admiralty jurisdiction.
(Bogart vs. Steamboat John Jay [1854], 17 How., 399.)

2. Vessels are personal property under civil and common law

Vessels are considered personal property under the civil law. (Code of Commerce, article 585.)
Similarly under the common law, vessels are personal property. Under the common law, vessels are personal
property although occasionally referred to as a peculiar kind of personal property.

3. Chattel mortgage of a vessel, distinguished to chattel mortgage of other personality

Since the term “personal property” includes vessels, they are subject to mortgage agreeably to the
provisions of the Chattel Mortgage Law. (Act 1508, section 2.) Indeed, it has heretofore been accepted
without discussion that a mortgage on a vessel is in nature a chattel mortgage. The only difference between a
chattel mortgage of a vessel and a chattel mortgage of other personality is that it is not now necessary for a
chattel mortgage of a vessel to be noted in the registry of the register of deeds, but it is essential that a record
of documents affecting the title to a vessel be entered in the record of the Collector of Customs at the port of
entry. Otherwise a mortgage on a vessel is generally like other chattel mortgages as to its requisites and
validity.

4. Chattel mortgage of a vessel without affidavit of good faith is unenforceable against third
persons
Section 5 of the Chattel Mortgage Law deemed it a requirement to have an affidavit of good faith
appended to the mortgage and recorded therewith. The absence of the affidavit vitiates a mortgage as against
creditors and subsequent encumbrancers. As a consequence a chattel mortgage of a vessel wherein the
affidavit of good faith required by the Chattel Mortgage Law is lacking, is unenforceable against third
persons.

[146]

McMicking vs. El Banco Espanol-Filipino (GR 5029, 1 April 1909)

En Banc, Johnson (J): 4 concur

Facts: On 21 February 1907, one Sanchez and one Cue Suan as a sociedad en comandita were the owners of
certain steamship, known as the Hock-Tay. Said sociedad borrowed from El Banco Espanol-Filipino the sum
of P30,000 at 8% per annum from 21 September 1907, until paid, and gave as security for the payment of said
sum a chattel mortgage executed and delivered in accordance with Act 1508 of the Philippine Commission.
Said mortgage was duly recorded in the office of the collector of customs of the port of Manila on 27
February 1907, in the record of conveyances of titles, mortgages and hypothecations of vessels documented at
said port. Said mortgage was duly recorded in the office of the register of property of the city of Manila on 13
September 1907, in accordance with the provisions of section 4 of said Act (No. 1508). The last voyage of the
steamer Hock-Tay began on 12 September 1907, and ended on 29 September of the same year. Captain
Manuel Ayala was the one who collected from the agents “Sanchez y Cue Sang,” the wages of the crew hired
by him and who distributed the same among them, the said crew having nothing to do with the ship’s agents
whom they did not know and with whom they made no contract except through Captain Ayala. The officers
and crew of the steamer Hock-Tay, the same as all those belonging to the coastwise trade of these Islands,
were hired upon a monthly salary with food and drink. Inchausti & Co., as charterers of the steamer Hock-
Tay, paid to Manuel Ayala, during the month of September, 1907, all the expenses for subsistence, with the
exception of those corresponding to the maintenance of the officers and crew, and that the balances only refer
to the food and drink of the officers and crew. On 10 October 1907, El Banco Espanol-Filipino caused to be
delivered to the sheriff of the city of Manila the said chattel mortgage on the said steamer, Hock-Tay, together
with notice that the terms of said mortgage had been broken by the mortgagors, and requested that the sheriff
sell said mortgaged property in accordance with the provisions of section 14 of said Act. The sheriff gave
notice to said mortgagors of said request on the part of the said mortgagee (El Banco Espanol-Filipino) and
that said ship would be sold in accordance with the law. Due notice was given of the sale of said mortgaged
property (the Hock-Tay) in accordance with the provisions of said Act. The date fixed for the sale of said
property was 27 October 1907. On 27 October 1907, Manuel Ayala served upon the said sheriff a notice, in
his capacity as captain of the steamer Hock-Tay, demanding that the Sheriff should not deliver to Banco
Espanol-Filipino the sum of P4,441,92, which is the amount of the wages of the crew and expenses of
supplies now owing, and which, in accordance with the Code of Commerce, constitute preferred claims. On
27 October 1907, the steamer was sold to the highest bidder for cash for the sum of P30,000.

On 30 October 1907, the sheriff of the city of Manila filed a complaint in the Court of First Instance of the
city of Manila to request Banco Eapanol Filipino and Ayala to interplead their respective rights to the funds
acquired resulting from the auction sale. The trial court rendered a judgment on 29 September 1908, holding
that there is due Ayala from the proceeds of the sale of the vessel and in preference to the claim of the
mortgagee the said sum of P756.66; and adjudging that the judgment of 20 January 1908, be vacated and that
the sheriff of Manila, out of the proceeds of the sale of said vessel as reported by him, pay to Ayala the said
sum of P756.66, and that the balance of said proceeds less the costs of the proceeding be paid to the
mortgagee, the Banco Espanol-Flipino.

From the decision of the lower court, Ayala duly appealed.

The Supreme Court affirmed the judgment of the lower court, without any special finding as to costs.

1. Article 580 of the Code of Commerce

Article 580 provides that “In all judicial sales of vessels for the payment of creditors, the following
shall have preference in the order stated: (1) The credits in favor of the public treasury which are accounted
for by means of a judicial certificate of the competent authority. (2) The judicial costs of the proceedings,
according to an appraisement approved by the judge or court. (3) The pilotage charges, tonnage dues, and the
other sea or port charges, proven by means of proper certificates of the officers intrusted with the collection.
(4) The salaries of the caretakers and watchmen of the vessel and any other expense connected with the
preservation of said vessel, from the time of arrival until her sale, which appear to have been paid or are due
by virtue of a true account approved by the judge or court. (5) The rent of the warehouse where the rigging
and stores of the vessel have been taken care of, according to contract. (6) The salaries due the captain and
crew during their last voyage, which shall be vouched for by virtue of the liquidation made from the shipping
articles and account books of the vessel, approved by the chief of the bureau of merchant marine where there
is one, and in his absence by the counsel, or judge, or court. (7) The reimbursement for the goods of the
freight the captain may have sold in order to repair the vessel, provided the sale has been ordered by a judicial
instrument executed with the formalities required in such cases, and recorded in the certificate of the registry
of the vessel. (8) The part of the price which has not been paid the last vendor, the credits pending for the
payment of material and work in the construction of the vessel, when it has not navigated, and those arising
from the repair and equipment of the vessel and its provisioning with victuals and fuel during its last voyage.
In order that said credits may enjoy the preference contained in this number, they must appear by contracts
recorded in the commercial registry, or if they were contracted for the vessel while on a voyage and said
vessel has not returned to the port where she is registered, they must be proven with the authority required for
such cases and entered in the certificate of the record of said vessel. (9) The amounts borrowed on bottomry
bonds before the departure of the vessel, proven by means of the contracts executed according to law and
recorded in the commercial registry, the amounts borrowed during the voyage with the authority mentioned in
the foregoing number, filling the same requisites, and the insurance premium, proven by the policy of the
contract or certificate taken from the books of the broker. (10) The indemnity due the shippers for the value of
the goods shipped, which were not delivered to the consignees, or for averages suffered for which the vessel
is liable, provided either appear in a judicial or arbitration decision.”

2. Article 580, paragraph 6

By reference to paragraph 6 of said article 580, it is seen that in all judicial sales of vessels the
salaries due the captain and the crew during the last voyage shall be paid in accordance with the preferences
mentioned in said article out of the proceeds of said ship.

3. Article 646 of the Code of Commerce

Article 646 of said Code of Commerce provides that “The vessel with her engines, rigging,
equipment, and freights shall be liable for the pay earned by the crew engaged per month or for the trip, the
liquidation and payment to take place between one voyage and the other. After a new voyage has been
undertaken, credits such as the former shall lose their right of preference.”

4. Article 646 in relation to Article 580

Article 646 creates a lien upon a ship in favor of the crew engaged in the operation of the same and
this lien in favor of the crew takes certain preference in accordance with the provisions of said article 580.
The wages due the crew and expenses incurred in maintaining the ship during the last voyage constitute a lien
under the law and take preference over a lien created by giving the ship as security for money borrowed. The
crew, therefore, under article 580 of the Commercial Code, for their wages, etc., for the last voyage, have a
prior lien upon a ship, to the lien created in the present case by the chattel mortgage.

5. Liens in favor of crew in present circumstances known as legal liens

Liens in favor of the crew under these circumstances are known as legal liens and whoever buys a
ship or loans money and takes a chattel mortgage as security, takes the ship subject to such prior liens. Herein,
the said mortgage was executed and delivered in accordance with the provisions of Act 1508 of the Philippine
Commission. The ship was sold by the sheriff of the city of Manila in accordance with the provisions of
section 14 of that Act.

6. Section 14, Act 1508; Method

Section 14 provides the method of disposing of the funds received under such a sale. The method is
as follows: “The proceeds of such sale shall be applied to the payment, (1) of the cost and expenses of
keeping and sale; (2) to the payment of the demand or obligation secured by such mortgages; (3) the residue
shall be paid to persons holding subsequent mortgages in their order and (4) the balance shall be paid to the
mortgagor or person holding under him or demand.”

7. Reason for the absence of provision for using funds received in mortgaged sale of amounts due
on prior liens; Illustration
There is no provision in the law for using the funds received in the sale of mortgaged property for the
payment of amounts due on prior liens. The reason is plain why no such provision was made. It is that in no
case can such a sale or a sale based upon the second mortgage or lien upon property affect in any way prior
liens. To illustrate: Suppose that “A held a mortgage against the ship in question, executed, delivered a
recorded prior to the date of the mortgage executed, delivered, and recorded to and by El Banco Espanol-
Filipino. Certainly the sale of the ship under the mortgage in favor of the second mortgage could in no way
affect the rights which “A” held against the ship and the purchaser under the sale of the mortgage in favor of
Banco Espanol-Filipino would take the ship subject to the claim which “A” held against the same. The lien
which Manuel Ayala and the other members of his crew held against the said ship were exactly analogous to
the claims of “A” in the above illustration. Therefore the sale of the ship under the mortgage in question in no
way divested the line which the law created in favor of the said Manuel Ayala and his crew against the ship in
question.

8. Remedy of Ayala and other members of his crew

Ayala’s remedy is not against the money which was received under said sale, but against the ship by
foreclosing his lien against the same. It is true that under a sale of personal property in accordance with
section 14 of said Act, the sheriff has a right to pay the costs and expenses of keeping and sale, but the Court
is not of the opinion that this relates to the cost of keeping and maintaining the ship prior to the time when the
sheriff takes possession of it for the purpose of selling the same.

9. Two methods of sale in Code of Commerce; Article 580, and Articles 579 and 584
The Code of Commerce refers to two methods of sale: one a judicial and the other a voluntary sale.
Article 580 provides how the funds received from a judicial sale shall be distributed and for the cancellation
of liens held against the ship. But it can not be contended, even under the provisions of article 583, that the
mere fact that a ship has been sold under a judicial sale, the rights of prior lien holders, who were not parties
to the procedure under which such sale took place, were foreclosed. The rights of persons not parties to a
proceeding can not be affected thereby. Article 582 gives a certain time within which the creditors shall
present and enforce their liens when the sale is a voluntary one. Article 579 and 584 provide a method of
collecting or enforcing not only the liens created under section 580 but also for the collection of any other
kind of lien whatsoever.

10. Section 114 of Code of Procedure in Civil Actions; Action prosecuted in name of real party in
interest; Purpose
Section 114 of the Code of Procedure in Civil Actions expressly provides that every action must be
prosecuted in the name of the real party in interest. This section of the code recognizes the assignments of
rights of action and also recognizes that when one has a right of action assigned to him he is then the real
party in interest and may maintain an action upon such claim or right. The purpose of section 114 is to require
the plaintiff to be the real party in interest, or, in other words, he must be the person to whom the proceeds of
the action shall belong, and to prevent actions by persons who have no interest in the result of the same. Of
course the said section can not be construed to prohibit the maintenance of an action by one who is legally
authorized to represent the real parties in interest. Herein, Ayala was allowed to collect the amount that was
due him, as well as the amount which was due other members of the crew and which had been assigned to
him.

[147]

Ivancich vs. Odlin (GR 924, 1 May 1902)

First Division, Arellano (CJ): 5 concur

Facts: The captain of the steamer Marguerite, contrary to the conditions of a charter party between the owners
of the vessel and the Pacific Export Lumber Company, caused the vessel to deviate from her proper course, on
account of her not being in a seaworthy condition or able to perform the service for which she was delivered
by the said owners to the libellant; that the steamer was without a sufficient stock of coal, and consequently
was obliged to touch at Honolulu, where fuel was taken aboard, and that the libellant was obliged to pay the
harbor dues of the port of Honolulu and to pay for the coal purchased, and in addition the cost of stowing the
same, the amount of these expenditures and advances being $4,327.90. The loss of time occasioned by this
deviation was 5 ½ days, and that the said advances, payments, and loss of time constitute a general average
loss for their respective shares which the owners of the said steamer and the consignees of the cargo are
liable, and that the owners of the steamer refuse to contribute their share. Upon reaching Manila the owners of
the steamer obtained, through the medium of the Austrian consul, the retention, by the Quartermaster
Department of the United States Army, of the freights due the Pacific Export Lumber, thereby causing the
latter damages in the sum of $26,000. After the said steamer was discharged there were 4,000 tons of coal
remaining in the bunkers, of the value of 13 pesos a ton, for which the owners refused to pay Pacific Export
Lumber, to its damage in the sum of 4,200 Mexican pesos. Upon the arrival at this port of the said steamer,
the owners and the master thereof refused to call for a general average contribution, and refused to call upon
the consignees of the cargo to sign a general average bond, as requested by Pacific Export Lumber, thereby
damaging the latter in the sum of $500.

Pacific Export Lumber filed a libel, praying that the court “issue process against the master and against the
said vessel, and that all persons claiming any interest therein may be cited to appear and answer the complaint
above set forth, and that this honorable court fix and decree the damages and general average due, as
aforesaid, to the libellant, with the costs and attorney’s fees, and that the said vessel may be condemned and
sold to pay the same, and for such further relief as in law and justice may be proper.” The CFI of Manila
directed the attachment of the Austrian steamer Marguerite, with her tackle, furniture, and other
appurtenances, and ordered that all persons claiming any interest in the said vessel, or who could show cause
why she should not be sold as prayed for in the libel filed in the said court, be notified to appear before the
said court within the term assigned. The captain appeared by his attorneys, and moved the court to dissolve
the attachment and to dismiss the libel on the ground that the latter was a nullity. The motion was argued, and
was overruled by the court.

Action brought by the captain, Pio Ivancich, against the judge, Arthur F. Odlin, and the Pacific Export
Lumber. He sought to obtain from the Supreme Court the issue of a writ of prohibition against the judge and
against Attorney Oscar Sutro, as representative of the libellants, prohibiting the judge from continuing to take
cognizance of the case, the trial of which had been commenced, and from detaining the steamer upon an ex
parte libel, and to prohibit Attorney Sutro from continuing to prosecute the suit and seeking the detention of
the steamer without actual parties to the proceeding, as required by the provisions of chapter 6 of the Code of
Civil Procedure, and asks that both of them be prohibited from detaining the said steamer unless this be done
in accordance with the provisions of chapter 18 of the Code. The Supreme Court denied the petition for a writ
of prohibition, with the costs to Ivancich.

1. Result if case occurred in Spanish time; Articles 580 and 584 of the Code of Commerce
Had a case such as this occurred in the time of the Spanish sovereignty, there would have been no
difficulty in finding laws applicable to it, for it is certain that in the Philippines we had a complete legislation,
both substantive and adjective, under which to bring an action in rem against a vessel for the purpose of
enforcing certain liens. The substantive law is found in article 580 of the Code of Commerce. This
enumerates in the order of preference ten classes of liens, and a case such as the present would fall under the
eight class, which refers to furnishing a vessel with provisions and fuel on her last voyage — one of the liens
alleged by the plaintiff corporation in the case which gave rise to this petition for a writ. The procedural law is
to be found in article 584 of the same Code, which provides: “Vessels subject to the liens mentioned in article
580 may be attached and sold judicially in the manner provided in article 579, in any port in which they may
be found, at the instance of any creditor, subject to the exceptions enumerated in the same article.”

2. Why provisions of procedural law found in the Code of Commerce (Spanish era)
The reason why provisions of adjective law are to be found in a code which purports to be substantive
law is that the old Law of Civil Procedure of the Philippines was promulgated prior to the Code of Commerce
now in force in the Philippines, and in this Code of Commerce certain changes were made which were not to
be found in the old Code of 1829.

3. Articles 580, 584, 579 Code of Commerce, and Articles 1526 and 1527 of the Law of Civil
Procedure; Attachment proceedings in mercantile matters (Spanish Era)
At all events, the judge would have proceeded in accordance with the provisions of article 580 for the
purpose of determining the existence of the right, and for procedure would have turned to articles 584 and
579, not overlooking the provisions of articles 1526 and 1527 of the Law of Civil Procedure. These articles
refer to attachment proceedings in mercantile matters, the words “and fuel” for the provisioning of the vessel,
found in section 8 of article 580 of the Code of Commerce, being regarded an extension of section 4 of article
1526, which designates the charterers or masters of vessels as debtors liable for victuals supplied for their
equipment; and the same remark applies to section 4 of article 1527. Hence the judicial procedure for the
attachment and sale of a vessel is defined in the said articles of the Code of Commerce and the old Code of
Civil Procedure of the Philippines in force under the former Government.

4. Code of Commerce operative, Code of Civil Procedure repealed Law of Civil Procedure;
Effects on attachment
By proclamation of the commanding general of the American Army in these Islands, dated 14 August
1898, all these laws were kept in force, and although the old Law of Civil Procedure has been repealed by the
new Code of Civil Procedure enacted by the new Government, the Code of Commerce is still operative. The
result is, therefore, that in the Philippines any vessel — even though it be a foreign vessel — found in any
port of the Archipelago may be attached and sold under the substantive law which defines the right, and the
procedural law contained in the same Code by which this right is to be enforced.

5. Alleged error in procedure cannot be cured by prohibition

There is no necessity for applying any other procedure while the present one is in force. The judge
did not, act without jurisdiction when directing the attachment of the vessel in question, and has not exceeded
his jurisdiction. If the excess of the jurisdiction upon which the argument was based consists in his having
levied the attachment without the fulfillment of the necessary conditions and without following the form
prescribed by some law of procedure applicable to the case, such error is not such an excess of jurisdiction as
can be cured by prohibition, and that the captain has other means whereby this error of procedure may be
corrected or remedied.

[-]

Heath vs. Steamer San Nicolas (GR L-3066, 25 February 1907)

First Division, Willard (J): 5 concur

Facts: On 19 October 1904, H. L. Heath filed a complaint in the CFI of Manila against the steamer San
Nicolas, alleging that on 15 September 1904, the schooner Anita, owned by HL Heath, had been in collision
with the San Nicolas; that it had been damaged by the collision, and that the San Nicolas was wholly at fault.
No natural or judicial person was named as defendant in the complaint. On the same day, the court made an
order directing that the San Nicolas be seized, and that all persons who claimed any interest in her should be
summoned to appear before the court on 28 October 1904. Under this order the ship was attached and on 20
October, Esperidion G. Borja filed a document in the proceeding in which he stated that he was the owner of
the San Nicolas; that the seizure would cause him serious damages, as the steamer was ready to sail on the
same day, and he asked that the order therefore be vacated upon his giving a bond. This bond was given and
the order vacated. On 8 November, Borja made a motion to vacate the order of seizure and also presented a
demurrer to the complaint. The demurrer was overruled and the motion to vacate the order of seizure was
denied. To both of these orders Borja excepted.

On 21 November, Borja answered the complaint, denying all the allegations thereof. A trial was had and on
26 October,1905, judgment was rendered in favor of HL Heath fixing the amount of the damages suffered by
him at P4,317.61. The judgment further ordered the judgment as to the surety, Geronimo Jose, except as to
costs, will be satisfied by the delivery of the boat San Nicolas to the sheriff of the city of Manila. Borja duly
excepted to this assignment and moved for a new trial on the ground that the judgment was plainly and
manifestly against the weight of the evidence. This motion was denied and to the denial thereto Borja duly
excepted. Borja brought the case to the Supreme Court for review.
The Supreme Court reversed the 12 November 1904 order of the lower court, overruling the demurrer and
refusing to vacate the order of seizure; vacated the 26 October 1905 judgment; remanded the cause to the
lower court for further proceedings not inconsistent with the Court’s opinion; allowed no costs to either party
in the court; and ordered that after the expiration of 20 days the judgment be rendered in accordance herewith,
and 10 days thereafter the case be remanded to the court from whence it came for proper action.

1. Original jurisdiction in all actions in admiralty and maritime jurisdiction

Act 136, section 56, provides in paragraph 4 of that Court of First Instance shall have original
jurisdiction in all actions in admiralty and maritime jurisdiction, irrespective of the value of the property in
controversy or the amount of the demand.

2. The law, practice, and procedure in force in the admiralty courts of the United States were not
brought to the Philippines by the insertion of the phrase “admiralty and maritime jurisdiction,” in
section 56 of Act 136
The use of the phrase “admiralty and maritime jurisdiction” in Section 56 of Act 136 did not
introduce into the law in force in these Islands all the provisions of practice and procedure in force in similar
cases in the United States. The contrary view has been contented previously in Ivancich vs. Odlin.

3. Ivancich vs. Odlin (1 Phil. 284); Whether use of admiralty in Organic Ac ex propio vigore
brought to court all procedures in use in the maritime court of the United States
In the opinion in Ivancich vs. Odlin, it is said that the judge below held “that the word admiralty used
in paragraph 4 of section 56 of the Organic Act passed by the United States Philippine Commission ex propio
vigore brought to the court all the procedure in use in the maritime court of the United States.” The court then
that “Had a case such as this occurred in the time of the Spanish sovereignty, there would have been no
difficulty in finding laws applicable to it, for it is certain that in the Philippines we had a complete legislation,
both substantive and adjective, under which to bring an action in rem against a vessel for the purpose of
enforcing certain liens. The substantive law is found in article 580 of the Code of Commerce The
procedural law is to be found in article 584 of the same code The reason why provisions of adjective law
are to be found in a code which purports to be substantive law is that the old Law of Civil Procedure of the
Philippines was promulgated prior to the Code of Commerce now in force in the Philippines, and in this Code
of Commerce certain changes were made which were not to be found in the old code of 1829. At all events,
the judge would then have proceeded in accordance with the provisions of article 580 for the purpose of
determining the existence of the right, and for procedure would have turned to articles 584 and 579, not
overlooking the provisions of articles 1526 and 1527 of the Law of Civil Procedure Hence the judicial
procedure for the attachment and sale of the Code of Commerce and the old Code of Civil Procedure of the
Philippines in force under the former Government. By proclamation of the commanding general of the
American Army in these Islands, dated August 14, 1898, all these laws were kept in force, and although the
old Law of Civil Procedure has been repealed by the new Code of Civil Procedure enacted by the new
Government, the Code of Commerce is still operative. The result, is, therefore, that in the Philippines and
vessel, even though it be a foreign vessel, found in any port of this Archipelago may be attached and sold
under the substantive law, which defines the right, and the procedural law contained in the same code by
which this right is to be enforced. There is no necessity for applying any other procedure while that described
above is in force, as we understand it to be.”

4. View in Ivancich confirmed by legislation of the Commission on the subject

The view is confirmed by the legislation of the Commission on this subject. Act 76, enacted 24
January 1901, provided in section 1 that “admiralty jurisdiction over all maritime contracts, torts, injuries, or
offenses is hereby conferred upon the several provost courts organized and existing in the open ports of the
Philippine Islands, under authority of the Military Governor.” Section 2 provides that “the civil jurisdiction of
the provost courts in admiralty shall be exercised in the manner provided by General Orders, Numbered
Twenty-three, of the Military Governor, issued on June twenty-fourth, eighteen hundred and ninety-nine, and
its decisions shall be governed by the rules therein stated.”

5. General Order 23 (24 June 1899)

This general order provided that “these provost courts, in the exercise of the civil jurisdiction
conferred, will formulate their own procedure, which will be simple and brief. In the decisions rendered they
will be guided by the provisions of the Spanish law recognized in General Orders, Nos. 20 and 21, current
series, this office, as continuing in force in places in the Philippine Islands, under United States military
occupation, when such provision can be ascertained, and by principles of equity and justice.”

6. Civil and criminal jurisdiction in admiralty conferred upon CFI

The Spanish law, which was entirely adequate, was thus made the law of these tribunals and it
necessarily excluded the American law. Act 136, which established courts of justice, in its section 78
expressly took away from provost courts their civil jurisdiction and its section 56, paragraph 4, conferred
admiralty jurisdiction on the Court of First Instance as before stated. The criminal jurisdiction in admiralty of
these courts was taken away by Act 400, enacted 16 May 1902, which conferred it upon Courts of First
Instance.

7. Which law effective in cases of admiralty and maritime jurisdiction

Cases of admiralty and maritime jurisdiction arising must be determined by the laws in force at the
time of the transfer of sovereignty and the laws subsequently passed by the Commission or by the Congress
of the United States. From 1898 to June, 1901, those laws were found in the Code of Commerce and in the
Spanish Law of Civil procedure. For cases arising since the last named date, resort must be had to the same
Code of Commerce and to the present Code of Civil Procedure.

8. Defendant as person an indispensable prerequisite in maintenance of action

It was absolutely indispensable for the maintenance of a contentious action in the courts of justice to
have as defendant some natural or juridical person. A suit against a ship, such as is permitted in the English
and the American admiralty courts, was unknown to the Spanish Law. It is true that the Spanish Law of Civil
Procedure contained certain provisions relating to voluntary jurisdiction in matters of commerce, but none of
these provisions had any application to a contentious suit of this character. It being impossible to maintain an
action of this character against a ship as the only defendant prior to June 1901, it follows that if such an action
can now be maintained it must be by virtue of some provision found in the Code of Civil Procedure and
which is the only new law now in force relating to this matter. An examination of the provisions of that code
will show that no such action is authorized. It can not, therefore, be now maintained, and the demurrer of
Borja should have been sustained on that ground.

9. Property cannot be seized before a final judgment, except as provided by law

Before a final judgment, property can not be seized unless by virtue of some provision of law. The
Code of Civil Procedure, in its section 173 and following, authorizes such seizure in cases of receivership; in
its sections 262 and following, in cases of replevin; and in its sections 424 and following, in cases of
attachment. In the present case no attempt was made to comply with the provisions of the law relating to
seizure in any of these three cases. The order allowing such seizure without compliance with any of these
provisions was therefore erroneous and should have been set aside on motion.

10. Appropriate method of seizure depends as to facts; Absence of law or contract creating lien or
charge upon vessel
In cases of admiralty and maritime jurisdiction, the question as to which one of the three ways
pointed out by the code should be restored to must be resolved by reference to the facts of each particular
case. Article 580 of the Code of Commerce specifies the order of payment in case of the sale of a vessel. It is
said in the case of Ivancich vs. Odlin (1 Phil. Rep., 284) that the creditors named in this article have a lien
upon the ship. Where neither the law nor the contract between the parties creates any lien or charged upon the
vessel, the only way in which it can be seized before judgment is by pursuing the remedy relating to
attachment pointed out in sections 424 and following.

11. Borja’s appearance in court not voluntary

Herein, the appearance of Borja was in no sense voluntary. His vessel was seized, according to his
claim, upon the very day it was to sail. He was really forced into court for the purpose of securing the release
of it. Further, he never in any way consented to the irregular procedure adopted in the case. In the first
document which he presented he stated that the reasons alleged in the complaint were insufficient as a ground
for the special relief asked by HL Heath. The next document he presented was a motion to vacate the order of
seizure on the ground that there was no authority for its issuance, and the next document was a demurrer on
the ground that such procedure was entirely irregular. Under the circumstances, what he did can be construed
as a waiver of his right to make the objections which have been well founded.

12. The Monte A case applicable

In the case of The Monte A (12 Fed. Rep., 331) it is said that “As the owner of the vessel, however, is
a nonresident who appeared generally in the action and contested his liability upon the merits without taking
any exception to the form of remedy as he might and should have done at the commencement of the action,
and as the situation as respects him after the release of the vessel on bond is claimed to be essentially the
same as if the action had been commenced in personam, it is urged that if he is found clearly liable for the
damages alleged in the libel, a personal judgment against him ought to be rendered.” The claim made in that
case is identical with the claim made in the present case, with the important difference, however, that in this
case, the owner did immediately upon his first appearance object to the form of remedy. This point thus raised
in the case was discussed and it was decided that the judgment against the owner for damages in such an
appearance could not be sustained, and herein Borja did not waive his rights to object to the irregular
procedure. Neither the judgment nor the orders refusing to vacate the order of seizure and overruling the
demurrer can be sustained.

13. Ivancich vs. Odlin (1 Phil. 284); As to the manner of attaching property
In the case of Ivancich vs. Odlin the plaintiff was a lien-creditor. The order of seizure was sought to
be reviewed, not by an appeal from an order refusing to vacate it as in this case, but in an original suit in this
court based upon the proposition that the court below acted without jurisdiction. What was really decided in
that case is apparent from the following quotation from the opinion: “The judge did not, therefore, act without
jurisdiction when directing the attachment of the vessel in question, and has not exceeded his jurisdiction. If
the excess of jurisdiction upon which the argument was based consists in his having levied the attachment
without the fulfillment of the necessary conditions and without following the from the prescribed by some
law procedure applicable to the case, it is our opinion that this error is not such an excess of jurisdiction as
can be cured by prohibition, and the petitioner has other means whereby this error of procedure may be
corrected or remedied.” (1 Phil. Rep., 289.) In this case the defendant availed himself of those other means,
and appealed from the various orders which were rendered against him.

14. Other related cases

In the case of Fleming vs. The Lorcha Nuestra Sra. del Carmen 1 (5 Off. Gaz., 56) no objection was
made to the procedure. In other cases such as United States vs. Smith, Bell & Co., 2 No. 1876, September 30,
1905, and Philippine Shipping Co. vs. Vergara, 3 No. 1600, June 1, 1906, the action was directed against the
owner.

[148] National Dev’t Co. vs. CA, see [40]

[149] Maritime Co. vs. CA, see [114]
[-]
Manila Steamship vs. Insa Abdulhaman (GR L-9534, 29 September 1956)
En Banc, Reyes JBL (J): 8 concur

Facts: From 7:00 - 8:00 p.m. of 4 May 1948, the M/L “Consuelo V”, laden with cargoes and passengers left
the port of Zamboanga City bound for Siokon under the command of Faustino Macrohon. She was then
towing a kumpit, named “Sta. Maria Bay”. The weather was good and fair. Among her passengers were Insa
Abdulhaman, his wife Carimla Mora and their 5 children. Insa Abdulhaman and his wife paid their fare
before the voyage started. On that same night the M/S “Bowline Knot” was navigating from Maribojoc
towards Zamboanga. Between 9:30 to 10:00 p.m. the dark clouds bloated with rain began to fall and the
gushing strong wind began to blow steadily harder, lashing the waves into a choppy and roaring sea. Such
weather lasted for about an hour and then it became fair although it was showering and the visibility was good
enough. When some of the passengers of the M/L “Consuelo V” were then sleeping and some were lying
down awake, all of a sudden they felt the shocking collision of the M/L “Consuelo V” and a big motorship,
which later on was identified as the M/V “Bowline Knot”. Because the M/L “Consuelo V” capsized, her crew
and passengers, before realizing what had happened, found themselves swimming and floating on the crest of
the waves and as a result of which 9 passengers were dead and missing and all the cargoes carried on said
boat. Among the dead passengers found were Maria, Amlasa, Bidoaya and Bidalla, all surnamed Inasa, while
the body of the child Abdula Inasa of 6 years of age was never recovered. Before the collision, none of the
passengers were warned or informed of the impending danger as the collision was so sudden and unexpected.
All those rescued at sea were brought by the M/V “Bowline Knot” to Zamboanga City.

The case was begun in the CFI of Zamboanga (Civil Case 170) by Insa Abdulhaman against the Manila
Steamship Co., owner of the M/S “Bowline Knot”, and Lim Hong To, owner of the M/L “Consuelo V”, to
recover damages for the death of his 5 children and loss of personal properties on board the M/L “Consuelo
V” as a result of a maritime collision between said vessel and the M/S “Bowline Knot” on 4 May 1948, a few
kilometers distant from San Ramon Beach, Zamboanga City. <Disposition not provided in the case>

On appeal, the Court of Appeals affirmed the findings of the Board of Marine Inquiry as to the cause of the
collision, i.e. the commanding officer of the colliding vessels had both been negligent in operating their
respective vessels. Wherefore, the Court held the owners of both vessels solidarily liable to Insa Abdulhaman
for the damages caused to him by the collision, under Article 827 of the Code of Commerce; but exempted
Lim Hong To from liability by reason of the sinking and total loss of his vessel, the M/L “Consuelo V”, while
the Manila Steamship Co., owner of the M/S “Bowline Knot”, was ordered to pay all of Insa Abdulhaman’s
damages in the amount of P20,784.00 plus ½ of the costs. It is from this judgment that Manila Steamship Co.
had appealed to the Supreme Court.

The Supreme Court held that (1) That the Manila Steamship Co., owner of the M/S “Bowline Knot”, is
directly and primarily responsible in tort for the injuries caused to the plaintiff by the collision of said vessel
with the launch “Consuelo V”, through the negligence of the crews of both vessels, and it may not escape
liability on the ground that it exercised due diligence in the selection and supervision of the officers and crew
of the “Bowline Knot”; (2) That Lim Hong To, as owner of the motor launch “Consuelo V”, having caused
the same to sail without licensed officers, is liable for the injuries caused by the collision over and beyond the
value of said launch; and (3) That both vessels being at fault, the liability of Lim Hong To and Manila
Steamship Co. to the plaintiff herein is in solidum, as prescribed by Article 827 of the Code of Commerce.
The Court, thus, modified the decision of the Court of Appeals is modified, and affirmed that of the CFI, in
the sense of declaring both original defendants solidarily liable to Insa Abdulhaman in the sum of P20,784.00
and the cost of the litigation, without prejudice to the right of the one who should pay the judgment in full to
demand contribution from his co-defendant.

1. Tort in question not civil tort but a maritime tort resulting in a collision at sea, governed by
Articles 826 to 939 of the Code of Commerce
 While it is true that Insa Abdulhaman’s action against Manila Steamship is based on a tort or quasi-
delict, the tort in question is not a civil tort under the Civil Code but a maritime tort resulting in a collision at
sea, governed by Articles 826-939 of the Code of Commerce. Under Article 827 of the Code of Commerce, in
case of collision between two vessels imputable to both of them, each vessel shall suffer her own damage and
both shall be solidarily liable for the damages occasioned to their cargoes. The characteristic language of the
law in making the “vessels” solidarily liable for the damages due to the maritime collision emphasizes the
direct nature of the responsibilities on account of the collision incurred by the shipowner under maritime law,
as distinguished from the civil law and mercantile law in general. This direct responsibility is recognized in
Article 618 of the Code of Commerce under which the captain shall be civilly liable to the ship agent, and the
latter is the one liable to third persons.

2. Where shipagent liable to third persons

As pointed out in the collision case of Yueng Sheng Exchange & Trading Co. vs. Urrutia & Co., 12
Phil. 747, 753: “The responsibility involved in the present action is that derived from the management of the
vessel, which was defective on account of lack of skill, negligence, or fault, either of the captain or of the
crew, for which the captain is responsible to the agent, who in his turn is responsible to the third party
prejudiced or damaged. (Article 618, Code of Commerce).”

3. Shipowners and shipagents civilly liable for the acts of the captain and for indemnities due to
third persons
In fact, it is a general principle, well established maritime law and custom, that shipowners and ship
agents are civilly liable for the acts of the captain (Code of Commerce, Article 586) and for the indemnities
due the third persons (Article 587); so that injured parties may immediately look for reimbursement to the
owner of the ship, it being universally recognized that the ship master or captain is primarily the
representative of the owner (Standard Oil Co. vs. Lopez Castelo, 42 Phil. 256, 260). This direct liability,
moderated and limited by the owner’s right of abandonment of the vessel and earned freight (Article 587), has
been declared to exist, not only in case of breached contracts, but also in cases of tortious negligence (Yu Biao
Sontua vs. Osorio, 43 Phil. 511, 515). Where the vessel is one of freight, a public concern or public utility, its
owner or agents is liable for the tortious acts of his agents (Articles 587, 613, and 618 Code of Commerce;
and Article 1902, 1903, 1908, Civil Code). This principle has been repeatedly upheld in various decisions of
the Supreme Court.

4. Defense of due diligence of bonus paterfamilias to exempt shipowner from liability for fault
would render nugatory solidarity liability established by Article 827 Code of Commerce
To admit the defense of due diligence of a bonus paterfamilias (in the selection and vigilance of the
officers and crew) as exempting the shipowner from any liability for their faults, would render nugatory the
solidary liability established by Article 827 of the Code of Commerce for the greater protection of injured
parties. Shipowners would be able to escape liability in practically every case, considering that the
qualifications and licensing of ship masters and officers are determined by the State, and that vigilance is
practically impossible to exercise over officers and crew of vessels at sea. To compel the parties prejudiced to
look to the crew for indemnity and redress would be an illusory remedy for almost always its members are,
from captains down, mere wage earners.

5. Walter Smith Co. vs. Cadwallader Gibson Lumber not in point

The case of Walter S. Smith & Co. vs. Cadwallader Gibson Lumber Co., 55 Phil. 517, is not the point.
Said case treated of a civil tort, in that the vessel of the defendant, allegedly negligently managed by its
captain in the course of its maneuvers to moor at plaintiff’s wharf, struck the same and partially demolished
it, causing damage to plaintiff. Because the tort allegedly committed was civil, the provisions of Article 1903
of the Civil Code were correctly applied. The present case, on the other hand, involves tortious conduct
resulting in a maritime collision; wherefore, the liability of the shipowner is governed by the provisions of the
Code of Commerce and not by the Civil Code.
6. Liability of Lim Hong To cannot be limited according to the Limited Liability Rule; Lim Hong
To in violation of law
Disregarding the question whether mere inability to meet the salary demands of duly licensed masters
and engineers constitutes non-availability thereof that would excuse noncompliance with the law and
authorize operation without licensed officers under Act 3553, the fact remains that by operating with an
unlicensed master, Lim Hong To deliberately increased the risk to which the passengers and shippers of cargo
aboard the “Consuelo V” would be subjected. In his desire to reap greater benefits in the maritime trade, Lim
Hong To willfully augmented the dangers and hazards to his vessel’s unwarry passengers, who would
normally assume that the launch officers possessed the necessary skill and experience to evade the perils of
the sea. Hence, the liability of Lim Hong To can not be the identical to that of a shipowner who bears in mind
the safety of the passengers and cargo by employing duly licensed officers. To hold that Lim Hong To may
limit his liability to the value of his vessels, is to erase all difference between compliance with law and the
deliberate disregard thereof.

7. Limited Liability Rule does not apply where the injury or average is due to shipowner’s own
fault
The international rule is to the effect that the right of abandonment of vessels, as a legal limitation of
a shipowner’s liability, does not apply to cases where the injury or the average is due to shipowner’s own
fault.

8. Farina, Drecho Comercial Maritimo

Fariña (Derecho Comercial Maritimo, Vol. I, pp. 122-123), on the authority of judicial precedents
from various nations, sets the rule to be as follows: “Esta generalmente admitido que el propietario del buque
no tiene derecho a la limitacion legal de responsibilidad si los daños o averias que dan origen a la limitacion
provienen de sus propias culpas. El Convenio de Bruselas de 25 de agosto de 1924 tambien invalida la
limitacion en el caso de culpa personal en los accidentes o averías sobrevenidos (Art. 2°).”

9. Danjon, Derecho Maritimo

To the same effect, a noted French author (Danjon) states ((Derecho Maritimo, Vol. 2, p. 332): “La
limitacion de la responsabilidad maritima ha sido admitida para proteger a los armadores contra los actos
abusivos de sus encargados y no dejar su patrimonio entero a la discrecion del personal de sus buques, porque
este personal cumple sus obligaciones en condiciones especiales; pero los armadores no tienen por sobre los
demas derecho a ser amparados contra ellos mismos ni a ser protegidos contra sus propios actos.”

10. Liability of Lim Hong To must be beyond the value of his vessal
That Lim Hong To understood that he would incur greater liability than that normally borne by
shipowners, is clear from his assumption of “ full” risk and responsibility for all the consequences” of the
operation of the M/L “Consuelo V”; a responsibility expressly assumed in his letter, and imposed in his
special permit, in addition to the vessel itself being held answerable. This express assumption of “full risk and
responsibility” would be meaningless unless intended to broaden the liability of respondent Lim Hong To
beyond the value of his vessel.

[150] Heirs of Amparo de los Santos vs. CA, see [55]

[151]

Chua Yek Hong vs. IAC (GR L-74811, 30 September 1988)

Second Division, Melencio-Herrera (J): 4 concur

Facts: Chua Yek Hong is a duly licensed copra dealer based at Puerta Galera, Oriental Mindoro, while
Mariano Guno and Dominador Olit are the owners of the vessel, “M/V Luzviminda I,” a common carrier
engaged in coastwise trade from the different ports of Oriental Mindoro to the Port of Manila. In October
1977, Chua Yek Hong loaded 1,000 sacks of copra, valued at P101,227.40, on board the vessel “M/V
Luzviminda I” for shipment from Puerta Galera, Oriental Mindoro, to Manila. Said cargo, however, did not
reach Manila because somewhere between Cape Santiago and Calatagan, Batangas, the vessel capsized and
sank with all its cargo.

On 30 March 1979, Chua Yek Hong instituted before the then CFI of Oriental Mindoro, a Complaint for
damages based on breach of contract of carriage against Guno and Olit. In their Answer, Guno and Olit
averred that even assuming that the alleged cargo was truly loaded aboard their vessel, their liability had been
extinguished by reason of the total loss of said vessel. On 17 May 1983, the Trial Court rendered its Decision,
holding that the preponderance of evidence militates in favor of Chua Yek Hong and against Guno and Olit by
ordering the latter, jointly and severally, to pay Chua Yek Hong the sum of P101,227.40 representing the
value of the cargo belonging to Chua Yek Hong which was lost while in the custody of Guno and Olit;
P65,550.00 representing miscellaneous expenses of Chua Yek Hong on said lost cargo; attorney’s fees in the
amount of P5,000.00, and to pay the costs of suit.”

On appeal, the Appellate Court ruled to the contrary when it applied Article 587 of the Code of Commerce
and the doctrine in Yangco vs. Laserna (73 Phil. 330 [1941]) and held that Guno’s and Olit’s liability, as
shipowners, for the loss of the cargo is merely co-extensive with their interest in the vessel such that a total
loss thereof results in its extinction. Unsuccessful in his Motion for Reconsideration of the Decision, Chua
Yek Hong filed a petition for review on certiorari.

The Supreme Court affirmed the judgment sought to be reviewed; without costs.

1. Article 587 of the Code of Commerce

Article 587 of the Code of Commerce provides that “the shipagent shall also be civilly liable for the
indemnities in favor of third persons which may arise from the conduct of the captain in the care of the goods
which he loaded on the vessel; but he may exempt himself therefrom by abandoning the vessel with all the
equipments and the freight it may have earned during the voyage.”

2. Shipagent in Article 587 includes shipowner

The term “shipagent” as used in Article 587 of the Code of Commerce is broad enough to include the
shipowner. Pursuant to said provision, therefore, both the shipowner and shipagent are civilly and directly
liable for the indemnities in favor of third persons, which may arise from the conduct of the captain in the
care of goods transported, as well as for the safety of passengers transported.

3. Universal principle of limited liability (no vessel, no liability); Effect of abandonment

Under Article 587 of the Code of Commerce, direct liability is moderated and limited by the
shipagent’s or shipowner’s right of abandonment of the vessel and earned freight. This expresses the
universal principle of limited liability under maritime law. The most fundamental effect of abandonment is the
cessation of the responsibility of the shipagent/owner. It has thus been held that by necessary implication, the
shipagent’s or shipowner’s liability is confined to that which he is entitled as of right to abandon — “the
vessel with all her equipment and the freight it may have earned during the voyage,” and “to the insurance
thereof if any.” In other words, the shipowner’s or agent’s liability is merely co-extensive with his interest in
the vessel such that a total loss thereof results in its extinction. “No vessel, no liability” expresses in a nutshell
the limited liability rule. The total destruction of the vessel extinguishes maritime liens as there is no longer
any res to which it can attach.

4. Principle of Limited Liability; Yangco vs. Laserna

As held in Yangco vs. Laserna, “If the shipowner or agent may in any way be held civilly liable at all
for injury to or death of passengers arising from the negligence of the captain in cases of collisions or
shipwrecks, his liability is merely co-extensive with his interest in the vessel such that a total loss thereof
results in its extinction.”

5. Real and hypothecary nature of the liability of the shipowner or agent; Abueg vs. San Diego
The real and hypothecary nature of the liability of the shipowner or agent embodied in the provisions
of the Maritime Law, Book III, Code of Commerce, had its origin in the prevailing conditions of the maritime
trade and sea voyages during the medieval ages, attended by innumerable hazards and perils. To offset against
these adverse conditions and to encourage shipbuilding and maritime commerce, it was deemed necessary to
confine the liability of the owner or agent arising from the operation of a ship to the vessel, equipment, and
freight, or insurance, if any, so that if the shipowner or agent abandoned the ship, equipment, and freight, his
liability was extinguished.

6. Principle of limited liability in line with public policy; Yangco vs. Laserna
Without the principle of limited liability, a shipowner and investor in maritime commerce would run
the risk of being ruined by the bad faith or negligence of his captain, and the apprehension of this would be
fatal to the interest of navigation.

7. “Real” nature of the maritime law; Phil. Shipping Co. vs. Vergara
As evidence of this ‘real’ nature of the maritime law, there is (1) the limitation of the liability of the
agents to the actual value of the vessel and the freight money, and (2) the right to retain the cargo and the
embargo and detention of the vessel even in cases where the ordinary civil law would not allow more than a
personal action against the debtor or person liable. It will be observed that these rights are correlative, and
naturally so, because if the agent can exempt himself from liability by abandoning the vessel and freight
money, thus avoiding the possibility of risking his whole fortune in the business, it is also just that his
maritime creditor may for any reason attach the vessel itself to secure his claim without waiting for a
settlement of his rights by a final judgment, even to the prejudice of a third person.

8. Exception to limited liability rule

The limited liability rule, however, is not without exceptions, namely: (1) where the injury or death to
a passenger is due either to the fault of the shipowner, or to the concurring negligence of the shipowner and
the captain; (2) where the vessel is insured; and (3) in workmen’s compensation claims (Abueg vs. San
Diego, supra). In this case, there is nothing in the records to show that the loss of the cargo was due to the
fault of the private respondents as shipowners, or to their concurrent negligence with the captain of the vessel.

9. Civil Code provisions do not affect principle of limited liability

Considering the “real and hypothecary nature” of liability under maritime law, the provisions of the
Civil Code on common carriers would not have any effect on the principle of limited liability for shipowners
or shipagents. As held in Yangco vs. Laserna, the fact is not ignored that the ill-fated vessel engaged in
interisland trade, is a common carrier, and that the relationship between the carrier and the passengers who
died in the mishap rests on a contract of carriage. But assuming that the carrier is liable for a breach of
contract of carriage, the exclusively ‘real and hypothecary nature’ of maritime law operates to limit such
liability to the value of the vessel, or to the insurance thereon, if any. In said case it does not appear that the
vessel was insured.

10. Article 1766 NCC

Article 1766 of the Civil Code provides that “in all matters not regulated by this Code, the rights and
obligations of common carriers shall be governed by the Code of Commerce and by special laws.”

11. Applicable law

The primary law is the Civil Code (Arts. 1732-1766) and in default thereof, the Code of Commerce
and other special laws are applied. Herein, since the Civil Code contains no provisions regulating liability of
shipowners or agents in the event of total loss or destruction of the vessel, it is the provisions of the Code of
Commerce, more particularly Article 587.

12. Conclusion of the court in the present case

Herein, since the shipagent’s or shipowner’s liability is merely co-extensive with his interest in the
vessel such that a total loss thereof results in its extinction, and none of the exceptions to the rule on limited
liability being present, the liability of Guno and Olit for the loss of the cargo of copra must be deemed to have
been extinguished. There is no showing that the vessel was insured.

[152]

Commissioner vs. US Lines (GR L-16850, 30 May 1962)

En Banc, Barrera (J): 7 concur

Facts: The US Lines Company, a foreign corporation duly licensed to do business in the Philippines, under
the trade name “American Pioneer Lines”, is the operator of ocean-going vessels transporting passengers and
freight to and from the Philippines. It is also the sole agent and representative of the Pacific Far East Line,
Inc., another shipping company engaged in business in the Philippines as a common carrier by water. In the
examination of its books of accounts and other records to determine its tax liabilities for the period from 1
January 1950 to 30 September 1955, it was found that the Company also acted in behalf of the West Coast
Trans-Oceanic Steamship Lines Co., Inc., a non-resident foreign corporation, in connection with the
transportation, on board the “SS Portland Trader” belonging to the latter, on 27 November 1951 and 29 April
1952, of chrome ores from Masinloc, Zambales to the United States, from which carriage or transportation
freight revenue in the total sum of $272,470.00 was realized by the vessel’s owner, and for which the 2%
common carrier’s percentage tax imposed by Section 192 of the National Internal Revenue Code was never
paid. As a consequence, the Commissioner of Internal Revenue assessed and demanded from the Company, as
deficiency tax, (a) the sum of P6,691.36 for its own business under the name American Pioneer Lines; (b)
P5,429.00, as agent of Pacific Far East Line, Inc., and (c) P13,649.05 on the freight revenue of the West Coast
Trans-Oceanic Steamship Lines Co. from the carriage or transportation of the chrome ores; or a total of
P25,769.41. At the instance of the Company, a reinvestigation of the case was conducted and a hearing
thereon held before the Appellate Division of the Bureau of Internal Revenue. These, notwithstanding, the
Commissioner maintained his demand.

The Company filed a petition with the Court of Tax Appeals contesting the correctness of (1) the conversion
of “collect” revenues or those freight and passage receipts, commissions, and agency fees for services in the
Philippines, but payable in the United States, at the rate of P2.00375 to $1.00 and (2) the demand on the
Company of the 2% carrier’s percentage tax on the gross receipts of the West Coast Trans-Oceanic Steamship
Lines from the chrome ore shipments of 27 November 1951 and 29 April 1952. The Court of Tax Appeals, in
its decision, ruled for the Company on the first issue, using the agreed conversion rates $1.00 to P2.015 and
$1.00 to P2.02 with regard to the ‘prepaid’ freight and passage revenues, respectively, in order to arrive at the
actual amounts collected by the Company in Philippine pesos — the correct taxable gross receipts. As to the
second issue, it ruled that the 2% percentage tax under Section 192 of the Tax Code is impossible only on
owners or operators of the common carrier, and as there is no law constituting the shipping agent the
withholding agent of the taxes due from the principal, said shipping agent is not personally liable for the tax
obligations of the latter, unless the agent voluntarily assumes such obligation which, in this case, the agent
Company did not. Consequently, the Company was ordered to pay only a tax deficiency and surcharge in the
sum of P502.75. Hence, the institution of the appeal by the Commissioner of Internal Revenue.

The Supreme Court modified the decision of the Court of Tax Appeals, and remanded the records remanded
to the court a quo for the purpose directed; without costs.
1. Conversion of the “collect” freight fees
The ruling by the lower court that the conversion of the “collect” freight fees (or those earned in the
Philippines but actually paid in the United States in dollar) should be at the rate of P2.00 to $1.00 as
established by law (Sec. 48, RA 265), and not the rate of exchange of P2.00375 to $1.00, as fixed by the
Monetary Board, must be upheld. No evidence was presented rebutting the positive allegation of taxpayer,
which was sustained by the Tax Court, that the “collect” freightage fees were not remitted to the local office
of the US Lines Company (in the Philippines) nor actually converted to and received in Philippine pesos. In
other words, no foreign exchange operations were involved.

2. Commmissioner’s statement as to “collect” revenues not borne out by records

The statement made in the Commissioner’s brief that “it is uncontroverted that the Company’s dollar
earnings here representing its so-called ‘collect’ revenues were accounted for thru its bank, the National City
Bank of New York at P2.00375 to a dollar, is not borne out by the records. The Company herein received
certain amounts from its home office in the United States to meet its local expenses, and these were
withdrawn from a letter of credit in the First City Bank of New York in Manila at the rate of P2.00375 to a
dollar. But the Company asserts — and there is no evidence to the contrary — that there is no relationship
whatsoever between these funds and the freight fees collected in the United States.

3. Purpose of Section 192 of the Tax Code; Liability of shipping agent as withholding agent of
taxes due from its principal
The ruling of the Court of Tax Appeals adopts a very restrictive interpretation of Section 192 of the
Tax Code. Therein, it held that a shipping agent is not personally responsible for the payment of the tax
obligations of its principal, reasoning that there is no law constituting a shipping agent as a withholding agent
of the taxes due from its principal. If further stated that a shipping agent can only be held liable for the
payment of the common carrier’s percentage tax if such obligation is stipulated in the agency agreement, or if
the agent voluntarily assumes the tax liability. Herein, what the legal provision purports to tax is the business
of transportation, so much so that the tax is based on the gross receipts. The person liable is of course the
owner or operators, but this does not mean that he and he alone can be made actually to pay the tax. In other
words, whoever acts on his behalf and for his benefit may be held liable to pay, for and on behalf of the
carrier or operator, such percentage tax on the business.

4. Husbanding agent defined

A “husbanding agent” is the general agent of the owner in relation to the ship, with powers, among
others, to engage the vessel for general freight and the usual conditions, and settle for freight and adjust
averages with the merchant.

5. Nature of agency as per correspondence with West Coast Trans-Oceanic Steamship Lines
Thus, (1) in the letter of West Coast Trans-Oceanic Steamship Lines, dated 20 October 1951, giving
instructions to the master of its vessel “SS Portland Trader”, it referred to the Company as the “Owner’s
agents” at the loading point (Masinloc) to which the vessel had to be consigned. In line with its designation as
the “Owner’s agent” and the vessel’s consignee, the Company wrote the master of the vessel advising him
that it had secured Customs authority for the vessel to proceed to Masinloc, as well as the Export Entry
covering the loading of the ore, giving instructions how to proceed with the loading and to keep it closely
advised of all movements and daily tonnages laden. It also undertook to and did in fact prepare all the cargo
documents. The corresponding bill of lading for the cargo was prepared and signed by the Company “As
Agent for West Coast Trans-Oceanic Steamship Line” wherein it acknowledged the receipt of 9,900 long tons
of chrome, a prerogative act of a common carrier itself. Again, signing “As Agents for West Coast Trans-
Oceanic Steamship Line”, the Company transmitted the shipping documents covering the shipment of ore to
Castle Cooke, Ltd., the vessel’s agent at Honolulu. All these were in respect to the first shipment on 27
November 1951. (2) Concerning the second shipment, the letter of West Coast Trans-Oceanic Steamship
Lines, dated 21 February 1952 addressed to the Company, advising it of the second trip of “SS Portland
Trader” and stating: “We trust that you will handle the vessel at Manila and that your usual fee will apply”,
and requesting the Company to act also as supervisory agents at Saigon and Haiphong. The steamship
company, likewise, advised the master of its vessel that “its agents for Masinloc” will be the Company from
which “full assistance and information” could be obtained. Evidently accepting the designation, the Company,
representing itself as “the local agents” of the vessel, secured the entry and clearance of the vessel at the
customs. After the loading of ore at Masinloc, again the Company prepared the shipping documents and
signed the bill of lading “As Agent for the West Coast Trans-Oceanic Steamship Lines.”

6. US Lines a general agent

Whatever may be the technical functions of a “ship’s husband”, the Company herein was considered
and acted more as a general agent. The agency contract is not extant in the records. Still, from the
correspondence between the principal West Coast Trans-Oceanic Steamship Lines and the Company itself,
and with other entities regarding the shipment in question, the real nature of the agency may be gleaned.
Documents show that the Company clearly acted (as it held itself to the public and to the Government,
specifically the Bureau of Customs) as the shipowner’s local agent or the ship agent representing the
ownership of the vessel.

7. Article 595 of the Code of Commerce

As provided in Article 595 of the Code of Commerce, “the ship agent shall represent the ownership
of the vessel, and may, in his own name and in such capacity, take judicial and extrajudicial steps in matters
relating to commerce”. If the shipping agent represents the ownership of the vessel in matters relating to
commerce, then any liability arising in connection therewith may be enforced against the agent who is, as a
consequence thereof, authorized to take judicial or extra-judicial steps, either in the prosecution or defense of
the owner’s rights or interests. As a matter of fact, if a foreign shipping company has a claim against the
Government in relation to commerce, its local shipping agent, by virtue of Article 595 of the Code of
Commerce, can file such a claim in his own name. Conversely, and logically, it must be admitted, the
Government can hold the local shipping agent liable for the taxes due from his principal. This is, of course,
without prejudice to the right of the agent to seek reimbursement from his principal.

8. Agreement and the law determines the liability of the agent

Any agreement or contract to be enforceable in Philippine jurisdiction is understood to incorporate
therein the provision or provisions of law specifying the obligations of the parties under such contract. The
contract between herein Company and its principal consequently imposed upon the parties not only the rights
and duties delineated therein, but also the provisions of law such as that of the Code of Commerce.

9. Reexamination required as to amount of taxable receipts; Remand

The records, as to the amount of taxable receipts, are not clear. The Commissioner claims that there
are contradictions in and among the three sets of summaries submitted by the Company and they should not
have been considered by the trial court. On the other hand, the assessments issued by the Commissioner are,
likewise, conflicting. In the present petition, the prayer sets the tax delinquency of the Company at
P26,436.17, which is the amount demanded in his letter of demand of 6 June 1958. In his brief, the
Commissioner prays that the Company be ordered to pay the sum of P25,769.41, the amount demanded in his
letter of 28 June 1956. In view of these discrepancies, a re-examination and verification of the records is
necessary to determine the exact taxable amount on which the 2% common carrier’s percentage tax is to be
computed in accordance with the terms of the present decision.

[153]

Madrigal Shipping vs. Ogilve (GR L-8431, 30 October 1958)

En Banc, Padilla (J): 8 concur
Facts: Jesus G. Ogilvie, Salvador Ortile, Antonio C. Militar and Miguel M. Fermin were engaged by Manuel
Mascuñana, master or captain employed by Madrigal Shipping Company, Inc., to man and fetch the vessel
“S.S. Bridge” from Sasebu, Japan, as evidenced by a contract executed on 24 December 1947 in Manila. On 7
January 1948, another contract of similar terms and conditions was executed in Manila before the Consul
General of the Republic of Panama for the reason that the S.S. Bridge was registered under the laws of that
Republic. Pursuant thereto Ogilvie, et.al. were flown to Sasebu, Japan, and they manned the vessel out of the
port of Sasebu. On 16 March 1948, when the vessel reached Hongkong, Ogilvie, et.al. were dismissed and
replaced by a crew of Chinese nationality. Ogilvie, et.al. were flown back to Manila and paid their respective
salaries up to the date of their dismissal. The total sum of P12,104.50 which they seek to collect represents
salaries and subsistence allowance from 17 March 1948 to 30 September 1948 when the vessel arrived in the
port of Manila.

Ogilvie, et.al. brought an action in the CFI of Manila to collect from the Madrigal Shipping Company, Inc.,
the aggregate sum of P12,104.50 for salaries and subsistence from 19 March to 30 September 1948 (Civil
8446). Madrigal Shipping moved for the dismissal of the complaint on the ground of lack of jurisdiction over
the subject matter of the action. The Court denied the motion and directed Madrigal Shipping to answer the
complaint within 10 days from receipt of a copy of the order. As Madrigal Shipping failed to answer the
complaint as directed, upon motion of Ogilve, et. al. the Court declared it in default and set the case for
hearing on 30 September 1949. Madrigal Shipping filed a motion to set aside the order of default, which was
denied. A motion for reconsideration of the previous order was likewise denied. Madrigal Shipping filed a
petition for a writ of certiorari with preliminary injunction in the Supreme Court to annul and set aside the
order of default, which was dismissed for the reason that appeal was the proper remedy.

The trial court then proceeded to hear Ogilvie, et.al’s evidence and after the hearing it rendered judgment
dismissing the their complaint upon the sole ground that they failed to prove that Madrigal Shipping is a
corporation duly organized and existing under the laws of the Philippines. A motion was filed praying that
Ogilvie, et. all. be allowed to submit evidence to prove that Madrigal Shipping is a duly organized and
existing corporation under the laws of the Philippines, which was granted. After hearing the additional
evidence presented by Ogilvie, et.al. showing that Madrigal Shipping is an organized and existing juridical
entity under the laws of the Philippines, the trial court dismissed the complaint on the ground that the
evidence was not new but forgotten. Ogilvie, et.al. appealed to the Court of Appeals.

The judgment appealed from was reversed and Madrigal Shipping was ordered to pay Jesus G. Ogilvie the
sum of P3,226.50 and Salvador Ortile, Miguel M. Fermin and Antonio C. Militar the sum of P2,934 each.
Madrigal Shipping has brought the case to the Supreme Court by way of certiorari to have the judgment of
the Court of Appeals reviewed.

The Supreme Court denied the petition, with costs against Madrigal Shipping.

1. Section 9, Rule 27
Section 9, Rule 27, provides “No service of papers shall be necessary on a party in default except
when he files a motion to set aside the order of default, in which event he is entitled to notice of all further
proceedings, this Court held that “a defendant in default is not entitled to notice of the proceedings until the
final termination of the case, and therefore he has no right to be heard or file brief or memoranda on appeal.”

2. Lim To Co vs. Go Fay (80 Phil. 166), interpreting Section 9, Rule 27

A defendant in default loses his standing in or is considered out of Court, and consequently can not
appear in court; adduce evidence; and be heard, and for that reason he is not entitled to notice. If he is not
entitled to notice of the proceedings in the case and to be heard, he can not appeal from the judgment
rendered by the court on the merits, because he can not file a notice of appeal, and file an appeal bond and the
record on appeal, for approval by the court. The only exception provided by law is when the defendant in
default
files a motion to set aside the order of default on the grounds stated in Rule 38 “in which event he is entitled
to notice of all further proceedings.” That a defendant in default can not be heard in the suit, not only in the
trial court but also in the final hearing, that is, on appeal which is part of the proceedings in a suit, is the
ruling laid down for guidance of courts and practitioners by the Court in the case of Velez vs. Ramos, 40
Phil., 787.

3. Remedy of party declared in default

The remedy available to a party who was declared in default to regain his standing in court and be
entitled once more to notice of the proceedings is to move for the setting aside of the order of default under
section 2, Rule 38 and to appeal therefrom if denied.

4. Failure to appeal renders order of default in force; Loss of right to be served with brief
From a denial of a motion to set aside an order of default, as Madrigal Shipping’s “urgent motion to
set aside order of default,” which may be deemed to fall under section 2, Rule 38, Madrigal Shipping could
have appealed. Instead of taking an appeal from such denial, Madrigal Shipping chose to bring the matter to
the Supreme Court by a petition for a writ of certiorari with a prayer for a writ of preliminary injunction
which was correctly dismissed for the remedy was an appeal from the order denying the motion to set aside
the order of default entered against Madrigal Shipping because of mistake or excusable neglect. Not having
appealed from the order denying the motion to set aside the order of default under section 2, Rule 38, the
order of default remained in force with all the consequences that the party against whom it had been entered
must suffer. One of them is the loss of the right to be served with the brief of Ogilvie, et.al., appellants in the
Court of Appeals.

5. Contents of the contract

The pertinent provision of the contract executed on 24 December 1947 in Manila provides that “(a)
The several persons whose names are hereto subscribed, and whose descriptions are contained herein,
engaged as seamen, hereby agree to serve on board the S.S. Bridge of which M. MASCUÑANA is master, in
the several capacities expressed against their respective names, on a voyage from THE CREW WILL
ENPLANE FROM MANILA TO JAPAN. IN JAPAN THE CREW WLLL MAN THE SHIP TO MANILA.
THIS CONTRACT EXPIRES ON THE ARRIVAL OF THIS BOAT AT THE PORT OF MANILA.
EXTENSION OF THIS CONTRACT IS VALID ONLY WHEN SIGNED BY THE OFFICIAL SKIPPER.”

6. Grounds not alleged in motion to dismiss deemed waived

A motion to dismiss an action must include all the grounds available at the time of its filing, and all
grounds not so included are deemed waived, except lack of jurisdiction over the subject matter. Herein, In its
motion to dismiss the complaint, Madrigal Shipping invoked and relied solely upon lack of jurisdiction of the
court over the subject matter of the action and did not deny ownership of the S.S. Bridge nor disavow the
authority of Manuel Mascuñana, its captain, to engage the services of Ogilvie, et. al.. More, in the answer of
Madrigal Shipping attached to its “urgent motion to set aside order of default,” the averments under its special
defenses substantially admit the allegations of Ogilvie, et.al.’s complaint, i.e. that the termination of the
services of Ogilvie, et.al. as members of the crew as not due to their fault as that upon the ship’s arrival in
Hongkong it was found that repairs had to be made on her before she could proceed on her voyage to Manila.

7. Admissions to the contract of service

In the motion to dismiss the complaint Madrigal Shippingalleged that “On the date of the execution
of the service contract between the plaintiffs and the defendant (January 7, 1948), the subject vessel was in
Sasebu, Japan, . . .,” thereby implying that Madrigal Shipping in truth and in fact contracted the services of
the crew, to man its vessel. Furthermore, Moises J. Lopez, manager of the shipping company, testified that he
recalled having contracted the services of several persons to form a crew to man the S.S. Bridge belonging to
Madrigal Shipping. How could the latter now disclaim ownership of the S.S. Bridge and the authority of
Manuel Mascuñana, its captain, to engage the services of the respondents?
8. Madrigal Shipping estopped from denying existence of juridical personality
Granting that Madrigal Shipping may not be sued for lack of juridical personality, it is now estopped from
denying the existence of such personality to evade responsibility on the contract it had entered into, because it
has taken advantage of the crew’s services and has profited thereby.

9. Ground of “not new but forgotten evidence” applicable to deny a motion for new trial but not
after motion had been granted
The trial court committed an error when it refused to take into account the evidence presented by the
respondents to prove that the petitioner was a corporation duly organized and existing under the laws of the
Philippines, the documents showing that fact having been reconstituted only after the first hearing of the case,
upon the sole ground that it was not new but forgotten evidence. Such ground could be relied upon to deny a
motion for new trial, but not after the motion had been granted, for official or public documents presented to
show or prove the juridical personality or entity of a party to an action not known or available at the first
hearing could not be ignored. The trial court could not close its eyes to reality.

10. Fiction of corporate existence; Piercing the veil

Granting that it was not the Madrigal Shipping Company, Inc., that owned the S.S. Bridge but the
Madrigal & Company, a corporation with a juridical personality distinct from the former, yet as the former
was the subsidiary of the latter, and that the former was a business conduit of the latter, the fiction of
corporate existence may be disregarded and the real party ordered to pay Ogilvie, et. al. their just due.

11. Article 605 of the Code of Commerce

The services of Ogilvie, et. al. were engaged by Madrigal Shipping to man its vessel for a determinate
time or voyage, with an express stipulation that “this contract expires on the arrival of this boat at the port of
Manila.” Article 605 of the Code of Commerce provides “If the contracts of the captain and members of the
crew with the ship agent should be for a definite period or voyage, they may not be discharged until after the
fulfillment of their contracts except by reason of insubordination in serious matters, robbery, theft, habitual
drunkenness, or damage caused to the vessel or its cargo through malice or manifest or proven negligence.”
Not having been discharged for any of the causes enumerated in the provision, Ogilvie, et. al. are entitled to
the amounts they respectively seek to collect from Madrigal Shipping.

[154]

Garcia vs. Ruiz (GR 923, 16 January 1903)

First Division, Torres (J): 5 concur

Facts: On 22 August 1897, Don Domingo Garcia y Casanova took command as skipper of the merchant
steamer Irene Urbina, under a verbal contract with its owner, D. Emeterio Ruiz y Urbina, entered into in the
city of Manila, under which Garcia was to command the steamer in its voyages between the ports of Misamis
and in service as a tug; that this contract did not stipulate the time it was to continue in force or during which
the services were to be rendered. On 11 June 1898, upon Garcia’s arrival with the steamer in the port of
Lapinig, of the town of Talisayan de Misamis, the shipowner Ruiz wrote him a letter discharging him, with
none of the causes which justify the dismissal of the captain or other member of the crew were present.
Garcia claimed that Ruiz was under the obligation of paying him the salary of $100 per month which he had
been receiving until such time as Garcia could return to Manila, together with his passage money, and $60 by
way of indemnification for the damages suffered by his having been abandoned at a place where it was
impossible for him to support himself by the exercise of his calling. The claim was made to the marine
authorities where Ruiz denied the right of Garcia.

On 12 July 1898, Garcia filed a complaint in an action of lesser import praying that after the regular
procedure judgment be rendered against Ruiz, for the payment of the salary accruing in favor of Garcia from
the 11 June 1898, until such time as Garcia could return to the city of Manila, together with his passage
money, $60 damages, and the costs of the action. In support of his complaint, he attached two petitions
presented to the marine authorities, and the Ruiz’ reply. On 13 July 1898, the court ordered that service of the
complaint be had on Ruiz. Upon being notified by the justice of the peace of the said town, who delivered
him a copy of the summons and of the complaint, the defendant refused to accept the copy of the complaint or
to sign the notification. For this reason, on motion of Garcia, Ruiz having failed to appear, the latter was
declared in default and the complaint admitted as answered. The suit continued its course, and the decision
was notified by reading in open court in accordance with the provisions of articles 265 and 266, in addition to
the publication of the edicts prescribed by article 267 of the law of Civil Procedure. The parties were cited to
appear on 31 August. Only Garcia and his attorney appeared. The court in rendered judgment in accordance
with Garcia’s complaint.

On Garcia’s motion, an order was made for the attachment of the real and personal property of Ruiz in the
sum of $700. No personality having been found, a preventative annotation was by judicial mandate entered on
the books of Recorder of Property showing the attachment of a house of substantial material with an iron roof,
belonging to Ruiz, situated in the square of the town of Tagoloan of the said district. On Garcia’s motion,
personal service of the judgment rendered in the action was had on Ruiz, who thereupon filed written notice
of appeal to the former Audiencia, which appeal was allowed by an order entered on folio 61. The former
Audiencia denied Ruiz’ motion to set aside the proceedings by its decision of 15 November 1900, upon the
grounds expressed in said order.

The Supreme Court affirmed the appealed judgment, with the costs against Ruiz.

1. Ruiz fully aware of terms and facts of complaint

Herein, Ruiz was fully aware of the terms of the complaint as also of the facts therein alleged,
because the written claim filed by Garcia with the governor of the district as subdelegate of the marine
authorities, which claim was subsequently reproduced in the complaint upon the same statement of facts, was
replied to by Ruiz by a statement of the reasons for his conduct, and subsequently upon being cited and
notified to appear in the court of Misamis to answer to it in due form he refused to accept a copy of the
complaint or to sign an acknowledgment of services, thereby voluntarily becoming in default, inasmuch as he
absolutely failed to appear and did not allege that he was prevented by force majeure from doing so.

2. Admission by silence
Herein, nothing having occurred to have prevented Ruiz from appearing in the action to defend
himself against the facts alleged by Garcia. Thus, the silence of Ruiz must be taken as an admission to these
facts.

3. Principle in Article 604 Code of Commerce

The principle established by article 604 of the Code of Commerce is a legislative sanction and
recognition of Garcia’s right; nothing appearing in any way tending to deprive him of his unquestionable right
to receive his salary until his return to the port where his contract for an unlimited time was entered into, and
consequently the propriety of his claim is unquestionable. (Article 636 of the Code of Commerce.) Herein,
Garcia was entitled to receive his salary from 11 June 1898, at the rate of $100 per month, until his return to
the city of Manila, in which place the contract was entered into under which he was to command the steamer
Irene Urbina as skipper, notwithstanding the fact that Ruiz as shipowner discharged him on the day
mentioned in the month of June.

4. No exception to the limitation of right to receive salary; Judgment final

The judge of first instance in his decision limited the right of Garcia to receive his salary to the time
of the notification of the judgment, which took place on 12 September 1898. Garcia did not take any
exception to this decision. On the other hand, Garcia did nothing but appeal from the judgment rendered
against him by default. The former Audiencia denied Ruiz’ motion to set aside the proceedings by its decision
of 15 November 1900, upon the grounds expressed in said order; and the Court is thus precluded from
discussing in the decision the formal defects or errors of procedure which have thus been passed upon by a
final decision.

[155]

Yaptico vs. Anderson (GR 9366, 1 August 1916)

Second Division, Johnson (J): 3 concur, 1 concur in result

Facts: On 24 April 1912, H. C. Anderson, a pilot on duty, undertook to carry out of the river a vessel named
Yesan Maru which had been discharging coal and was going out light. Up the river was another steamer
loading with sugar and alongside at the bow hatch were two lighters, one the Soncillo, tied up against the
ship, and the Monserrat, for which this damage is claimed by Yap Tico & CO., was tied up alongside the
Soncillo. The wind was strong and that the ship had been at work about an hour or an hour and a half in
turning around and getting out of the river. There was just barely room to turn around, the river being a little
wider that the length of the ship, and as they pulled out on the anchor, which had been dropped in the river, it
was discovered that the anchor had been fouled by the anchor of the ship above. By this time the boat had
turned around with the bow down the stream headed out into the bay when this was discovered and the pilot
noticing this ordered ship’s officers to slack out the chain, which was not done. Although the first mate of the
ship was at the stern, he did not give Anderson any warning that the stern of the ship was approaching or
about to approach the lorcha in question. The ship backed into the lorcha and the propeller blades cut through
the sides the width or about nine planks on the side of the lorcha. The lorcha suck in the river.

The action was commenced on 29 July 1912 against H. C. Anderson personally and “The Iloilo Pilots’
Association” and the individual members thereof to recover damages caused to the lorcha Monserrat, which
belonged to Yap Tico & Co. On 27 August 1912, the defendants (Francisco Echevarria, Mariano Aguilar, FC
Cairns, HC Anderson, and the Iloilo Pilots’ Association) having failed to answer the petition, Yap Tico moved
for a judgment by default, which motion was granted by the lower court upon the same day. Said order or
judgment by default was, upon motion of the defendants, set aside. The lower court reached the conclusion
that the alleged damages had not been caused by the negligence of the defendants, or by any one of them, and
absolved them from all liability under the complaint. From the judgment of the lower court, Yap Tico
appealed.

The Supreme Court affirmed the judgment of the lower court, with costs.

1. Customs Administrative Circular 122 substituted by Customs marine Circular 17; Paragraph
55
In an effort to obtain a copy of the Customs Administrative Circular 122, it was discovered that said
circular has been substituted by Customs Marine Circular 17, and that said circular had been in force at the
time of the alleged accident. Many of the provisions of said Circular 122 are included in said Customs Marine
Circular 17. Paragraph 55 of said circular provides that “a pilot shall be held responsible for the direction of a
vessel from the time he assumes control thereof until he leaves it anchored free from shoal: Provided, That his
responsibility shall cease at the moment the master neglects or refuses to carry out his instructions.”

2. Examination of facts support absolution from liability

Yap Tico has failed to bring the evidence in the case and therefore the court cannot examine the
evidence. The Court can only examine the facts set out in the finding of facts made by the lower court for the
purpose of ascertaining whether or not said facts are sufficient to justify its conclusion. The lower court found
specifically that the crew of the ship failed to obey the orders of the pilot, Anderson. That being true, it must
follow that Anderson and the other defendants are not liable for damages in the present case.
[156]

Yu Con vs. Ipil (GR 10195, 29 December 1916)

En Banc, Araullo (J): 4 concur

Facts: Yu Con, a merchant and a resident of the town of San Nicolas, of the city of Cebu, engaged in the sale
of cloth and domestic articles and having a share in a shop, or small store, situated in the town of Catmon, of
said province, had several times chartered from Narciso Lauron, a banca named Maria belonging to the latter,
of which Glicerio Ipil was master and Justo Solamo, supercargo, for the transportation of certain merchandise
and some money to and from the said town and the port of Cebu. On 17 October, 1911 Yu Con chartered the
said banca from Lauron for the transportation of various merchandise from the port of Cebu to Catmon, at the
price of P45 for the round trip, which merchandise was loaded on board the said craft which was then at
anchor in front of one of the graded fills of the wharf of said port. In the afternoon of the following day, he
delivered to the other two defendants, Ipil, and Solamo, master and supercargo, respectively, of the banca, the
sum of P450, which was in a trunk belonging to Yu Con and was taken charge of by Ipil and Solamo, who
received this money from Yu Con, for the purpose of its delivery to the latter’s shop in Catmon for the
purchase of corn in this town. While the money was still in said trunk aboard the vessel, on the night of 18
October, the time scheduled for the departure of the Maria from the port of Cebu, said master and said
supercargo transferred the P450 from Yu Con’s trunk, where it was, to theirs, which was in a stateroom of the
banca, from which stateroom both the trunk and the money disappeared during that same night, and that the
investigations, made to ascertain their whereabouts, produced no result.

Yu Con brought action to enable him to recover from Ipil, Lauron, and Solamo in solidum the sum of P450
lost. Yu Conbased his action on the charge that the disappearance of said sum was due to the abandonment,
negligence, or voluntary breach, on the part of the defendants, of the duty they had in respect to the safe-
keeping of said sum.

At the termination of the trial, the court, held that the sole cause of the disappearance of the money from the
said banca was the negligence of the master and the supercargo, Ipil and Solamo, respectively, and that
Lauron was responsible for that negligence, as owner of the banca, pursuant to articles 586, 587, and 618 of
the Code of Commerce, Yu Con therefore being entitled to recover the amount lost. Judgment was rendered
on 20 April 1914, in favor of Yu Con and against Ipil, et. al. jointly and severally for the sum of P450, with
interest thereon at the rate of 6% per annum from the date of filing of the complaint, 24 October 1911, with
costs. Yu Con was absolved from the counterclaim. From this judgment Ipil, et. al. excepted and at the same
time moved for a new trial. Their motion was denied, to which ruling they also excepted, and, through the
proper bill of exceptions, entered an appeal to the Supreme Court.

The Supreme Court affirmed the judgment appealed from, with the costs of this instance against Ipil, et. al.

1. Master and supercargo gave no satisfactory explanation in regard disappearance of trunk and
money
The master and the supercargo, gave no satisfactory explanation in regard to the disappearance of the
trunk and the money therein contained, from the stateroom in which the trunk was, nor as to who stole or
might have stolen it. The master and the supercargo of the banca merely testified that they did not know who
the robbers were, for, when the robbery was committed, they were sound asleep, as they were tired, and that
he believed that the guard Simeon also fell asleep because he, too, was tired. Both of them testified that the
small window of the stateroom had been broken, and the first of them, i. e., the master, stated that all the
window-blinds had been removed from the windows, as well as part of the partition in which they were and
that the trunk in which the money was contained could have been passed through said small window, because
the Chinaman’s trunk, which differed but a little from the one stolen, could be passed through the same
opening. However, no evidence whatever was offered to prove that it might have been possible to remove the
trunk from the stateroom through the opening made by the breaking of the small window, neither was the size
of the trunk proven, so that it might be verified whether the statement made by the latter was true, viz., that it
might have been possible to remove from the stateroom through said opening the trunk in which the P450
were contained, which sum, the same as the trunk, its container, had not been found, in spite of the
investigation made for the purpose. Furthermore, it was not proven, nor is there any circumstantial evidence
to show, that the robbery in question was committed by persons not belonging to the craft.

2. Loss occurred through manifest fault and negligence of Ipil, et. al.; No force majeure
The loss or disappearance of the property of Yu Con, which, were in the possession of Ipil and
Solamo, the master and the supercargo of the banca Maria, occurred through the manifest fault and
negligence of the latter, for, not only did they fail to take the necessary precautions in order that the stateroom
containing the trunk in which they kept the money should be properly guarded by members of the crew and
put in such condition that it would be impossible to steal the trunk from it or that persons not belonging to the
vessel might force an entrance into the stateroom from the outside, but also they did not expressly station
some person inside the stateroom for the guarding and safe-keeping of the trunk, for it was not proven that the
cabin-boy Gabriel slept there, nor that the other cabin-boy, Simeon Solamo, was on guard that night. On the
contrary, it was proven that all the people on the vessel slept soundly that night; which fact cannot, in any
manner, serve them as an excuse, nor can it be accepted as an explanation of the statement that they were not
aware of what was then occurring on board. If the trunk was actually stolen by outsiders and removed through
the small window of the stateroom, a detail which also was not proven, but, on the contrary, increases their
liability, because it is very strange that none of them who were six and were around or near the stateroom,
should have heard the noise which the robbers must have made in breaking its window. All of these
circumstances, together with that of its having been impossible to know who took the trunk and the money
and the failure to recover the one or the other, make the conduct of master and supercargo and of the other
members of the crew of the banca, eminently suspicious and prevent the Court holding that the disappearance
or loss of the money was due to a fortuitous event, to force majeure, or that it was an occurrence which could
not have been foreseen, or which, if foreseen, was inevitable.

3. Manresa; Liability of Carriers

Manresa, in his Commentaries on the Civil Code (Vol. 10 p. 773), in treating of the provisions of the
said code concerning transportation by sea and by land of both persons and things, says ‘’Liability of carriers.
— In order that a thing may be transported, it must be delivered to the carrier, as the Code says. From the
time it is delivered to the carrier or shipper until it is received by the consignee, the carrier has it in his
possession, as a necessary condition for its transportation, and is obliged to preserve and guard it; wherefore it
is but natural and logical that he should be responsible for it. The Code discovers in the relation of all these
elements the factors which go to make up the conception of a trust. and, taking into account that the delivery
of the thing on the part of the shipper is unavoidable, if the transportation is to take place, esteems that, at
least in certain respects, such trusts are necessary.”

4. Ipil and Solamo depositories, are liable under Article 1770, and Articles 1601 and 1602 in
relation to Articles 1783 and 1784
Ipil and Solamo, being the depositaries of the sum in question, and they having failed to exercise for
its safe-keeping the diligence required by the nature of the obligation assumed by them and by the
circumstances of the time and the place, in pursuance of the provisions of articles 1601 and 1602, in their
relation to articles 1783 and 1784, and as prescribed in article 1770, of the Civil Code, they are liable for its
loss or misplacement and must restore it to Yu Con, together with the corresponding interest thereon as an
indemnity for the losses and damages caused him through the loss of the said sum.

5. Lauron has responsibility as to selection and supervision of Ipil and Solamo; Lauron party to
contract with Yu Con
 Narciso Lauron was the owner of the vessel in which the loss or misplacement of the P450 occurred,
of which vessel, Glicerio Ipil was master and Justo Solamo, supercargo, both of whom were appointed to, or
chosen for, the positions they held, by Lauron himself. The sum was delivered to the said master, Ipil, and the
merchandise to be transported by means of said vessel from the port of Cebu to the town of Catmon was
laden by virtue of a contract executed by and between Yucon and the owner of the vessel, Narciso Lauron.
Said vessel was engaged in the transportation of merchandise by sea and made voyages to and from the port
of Cebu to Catmon, and had been equipped and victualed for this purpose by its owner, with whom, Yu Con
contracted for the transportation of the merchandise which was to be carried from the port of Cebu to the
town of Catmon.

6. Vessel construed; Reus

The word vessel serves to designate every kind of craft by whatever particular or technical name it
may now be known or which nautical advancements may give it in the future. (Commentaries on the Code of
Commerce, in the General Review of Legislation and Jurisprudence, founded by D. Jose Reus y Garcia, Vol.
2, p. 136.)

7. Vessel construed; Escriche

According to the Dictionary of Legislation and Jurisprudence by Escriche, a vessel is any kind of
craft, considering solely the hull.

8. Ship and Vessel construed; Blanco

Blanco, the commentator on mercantile law, in referring to the grammatical meaning of the words
“ship” and “vessels,” says, in his work, that these terms designate every kind of craft, large or small, whether
belonging to the merchant marine or to the navy. And referring to their juridical meaning, he adds: “This does
not differ essentially from the grammatical meaning; the words ‘ship’ and ‘vessel’ also designate every craft,
large or small, so long as it be not an accessory of another, such as the small boat of a vessel, of greater or
less tonnage. This definition comprises both the craft intended for ocean or for coastwise navigation, as well
as the floating docks, mud lighters, dredges, dumpscows or any other floating apparatus used in the service of
an industry or in that of maritime commerce ” (Vol. 1, p. 389.)

9. Banca in present case a vessel

According to the definitions, the banca called Maria, chartered by Yu Con from Narciso Lauron, was
a “vessel”, pursuant to the meaning this word has in mercantile law, that is, in accordance with the provisions
of the Code of Commerce in force.

10. Ipil is also considered as captain; Article 609

Glicerio Ipil, the master of the said banca, Maria, must also be considered as its captain, in the legal
acceptation of this word. The same Code of Commerce in force in these Islands compares, in its article 609,
masters with captains. It is to be noted that in the Code of Commerce of Spain the denomination of arraeces is
not included in said article as equivalent to that of masters, as it is in the Code of these Islands.

11. Article 609; General Review of Legislation and Jurisprudence

Commenting on Article 609, the General Review of Legislation and Jurisprudence says: “The name
of captain or master is given, according to the kind of vessel, to the person in charge of it. The first
denomination is applied to those who govern vessels that navigate the high seas or ships of large dimensions
and importance, although they be engaged in the coastwise trade. Masters are those who command smaller
ships engaged exclusively in the coastwise trade. For the purposes of maritime commerce, the words ‘captain’
and ‘master’ have the same meaning; both being the chiefs or commanders of ships.” (Vol. 2, p. 168.)

12. Article 587 of the Code of Commerce

 Article 587 of the Code of Commerce in force provides that “The agent shall be civilly liable for the
indemnities in favor of third persons which arise from the conduct of the captain in the care of the goods
which the vessel carried; but he may exempt himself herefrom by abandoning the vessel with all her
equipments and the freight he may have earned during the trip.”

13. Article 618 of the Code of Commerce

Article 618 of the same Code also prescribes that “The captain shall be civilly liable to the agent and
the latter to the third persons who may have made contracts with the former — (1) For all the damages
suffered by the vessel and its cargo by reason of want of skill or negligence on his part, If a misdemeanor or
crime has been committed he shall be liable in accordance with the Penal Code. (2) For all the thefts
committed by the crew, reserving his right of action against the guilty parties.”

14. Article 624 of the 1829 Code of Commerce

The Code of Commerce previous to the one now in force, to wit, that of 1829, in its article 624,
provided that the agent or shipowner should not be liable for any excesses which, during the navigation,
might be committed by the captain and crew, and that, for the reason of such excesses it was only proper to
bring action against the persons and property of those found guilty.

15. Reasons for fundamental difference between provisions of old and new Code of Commerce;
Estasen
Estasen, in his work on the Institutes of Mercantile Law (Vol. 4, p. 280), makes the remarks, in
referring to the exposition of reasons presented by the Code Commission which prepared and presented for
approval the Code of Commerce now in force, in which exposition of reasons were set forth the fundamental
differences between the provisions contained in both codes. He says: “Another very important innovation
introduced by the Code is that relative to the liability for misdemeanors and crimes committed by the captain
or by members of the crew This is a matter of the greatest importance on which a variety of opinions has been
expressed by different juris-consults. The old code declares the captain civilly liable for all damage sustained
by the vessel or its cargo through lack of skill or care on his part, through violations of the law, or through
unlawful acts committed by the crew. As regards the agent or shipowner, it declares in unmistakable terms
that he shall in no wise be liable for any excesses which, during the navigation, may be committed by the
captain and the crew. Upon an examination, in the light of the principles of modern law, of the standing legal
doctrine on the nonliability of the shipowner for the unlawful acts, that is, the crimes or quasi crimes,
committed by the captain and the crew, it is observed that it cannot by maintained in the absolute and
categorical terms in which it is formulated. It is well and good that the shipowner be not held criminally liable
for such crimes or quasi crimes; but he cannot be excused from liability for the damage and harm which, in
consequence of those acts, may be suffered by the third parties who contracted with the captain, in his double
capacity of agent and subordinate of the shipowner himself. In maritime commerce, the shippers and
passengers in making contracts with the captain do so through the confidence they have in the shipowner who
appointed him; they presume that the owner made a most careful investigation before appointing him, and,
above all, they themselves are unable to make such an investigation, and even though they should do so, they
could not obtain complete security, inasmuch as the shipowner can, whenever he sees fit, appoint another
captain instead. The shipowner is in the same case with respect to the members of the crew, for, though he
does not appoint directly, yet, expressly or tacitly, he contributes to their appointment. On the other hand, if
the shipowner derives profits from the results of the choice of the captain and the crew, when the choice turns
out successful, it is also just that he should suffer the consequences of an unsuccessful appointment, by
application of the rule of natural law contained in the Partidas, viz., that he who enjoys the benefits derived
from a thing must likewise suffer the losses that ensue therefrom. Moreover, the Penal Code contains a
general principle that resolves the question under consideration, for it declares that such persons as undertake
and carry on any industry shall be civilly liable, in default of those who may be criminally liable, for the
misdemeanors and crimes committed by their subordinates in the discharge of their duties. The Code of
Commerce in force omits the declaration of non-liability contained in the old code, and clearly makes the
shipowner liable civilly for the loss suffered by those who contracted with the captain, in consequence of the
misdemeanors and crimes committed by the latter or by the members of the crew.”

16. Lauron civilly liable to Yu Con

In accordance with the provisions of the Code of Commerce in force, Narciso Lauron, as the
proprietor and owner of the craft of which Glicerio Ipil was the master and in which, through the fault and
negligence of the latter and of the supercargo Justo Solamo, there occurred the loss, theft, or robbery of the
P450 that belonged to Yu Con and were delivered to said master and supercargo, a theft which, on the other
hand, does not appear to have been committed by a person not belonging to the craft, should, for said loss or
theft, be held civilly liable to Yu Con, who executed with Lauron the contract for the transportation of the
merchandise and money between the port of Cebu and the town of Catmon, by means of the said craft.

[157]

US vs. Steamship “Islas Filipinas” (GR 8746, 30 October 1914)

En Banc, Carson (J): 2 concur, 1 concur in result, 2 dissent

Facts: The steamship Islas Filipinas arrived at the port of Manila from the foreign port of Hongkong on or
about 15 April 1912, and that she had on board 918 tins of prepared opium, weighing 210.87 kilos, which did
not appear on the ship’s manifests. The estimated value of this opium in Manila was between P35,000 and
P40,000, the streamer had on board other cargo that the opium, all of which was duly manifested as required
by law, but that portion of her cargo consisting of 918 tins of opium was not manifested and did not appear
upon any written or typewritten manifest of the cargo aboard said vessel. The steamship Islas Filipinas was
seized by the customs authorities for having on board unmanifested contraband cargo in violation of the
Customs Administrative Act; and at a hearing held at the customhouse in Manila, at which one of her owners,
together with his counsel, was present, the Insular Collector of Customs, after hearing the evidence, imposed
a fine of P1,000 upon the vessel under the provisions of section 77 of Act 355. An investigation was made by
the owners and they discharged the captain and all other members of the crew whom they believed
implicated. A criminal charge was also filed against Jose Artiaga, the captain of the ship, and Cecilio
Jimenez, another officer of the ship, charging them with the crime of illegal importation of the opium
mentioned. Said persons were duly tried, convicted and punished for said offense. (See case 8691, CFI
Manila.)

The owners of the steamship Islas Filipinas (the Fernandez Hermanos) appealed from the order of the Insular
of Customs imposing a fine upon them for violating Section 77 of Act 355. The CFI of Manila, conformed
with the decision of the Insular Collector of Customs, imposing the fine of P1,000 upon the vessel for failure
to have on board a complete manifest in the prescribed form of all the cargo. Hence, the appeal.

The Supreme Court affirmed the judgment entered in the lower court, with the costs of this instance against
Fernandez Hermanos.

1. Section 77 of Act 355, as amended

Act 355, section 77, as amended, provides “Every vessel from a foreign port or place must, under a
penalty of not exceeding one thousand pesos for failure, have on board complete written or typewritten
manifests of all her cargo.”

2. Propriety of administrative fine a matter for legislative determination

The question of the propriety of subjecting the owners of a vessel to an administrative fine for the
violation of the customs-revenue laws is a matter for legislative determination. The Philippine Legislature has
adopted this method of punishment for the infraction of certain provisions of the Customs Administrative Act.
Far more stringent laws and regulations have been adopted elsewhere. By the general maritime law, vessels
are made responsible for the unlawful acts of their masters and crews; and this extends even to forfeiture by
positive law.

3. Shipowner may be made liable for damaged caused by improper navigation of vessel; Arnould,
Marine Insurance
In his work on Marine Insurance (7th ed., vol. 1, sec. 250), Sir Joseph Arnould says: “A shipowner
may become liable to pay large sums in consequence of loss of life, injury to person, or damage to property
caused by the improper navigation of his vessel.”

4. Basis of responsibility of owners of vessels, whether agency or res as guilty thing, not important
Whether this responsibility of the owners of vessels is based on the law of agency or on the theory
that the vessel (res) is the guilty thing, is of no special importance. Experience has demonstrated that the
application of such penalties is necessary for the purpose of protecting the revenues, and the lives and
property intrusted to such common carriers.

5. Dura lex sed lex; Phile vs. The Anna

In Phile vs. The Anna (1 Dallas, U. S., 202), under a statute providing for the forfeiture of the vessel,
it is said “that the determination of this cause would certainly produce consequences of an important nature,
and either render the act of assembly upon which it is founded, a dead letter, or a productive instrument of
public revenue. In governments differently constituted, where regal pageantry, or military force, can invite or
compel respect and obedience to the law, little danger is to be apprehended from the occasional indulgence of
learned men in their ingenious and novel comments upon the sense and expressions of the legislature; but
under a democratical constitution such as ours, should the people acquire a habit of yielding to logical
subtleties and specious declamation, there is no power to control the evil that must ensue; the principles of
jurisprudence would become weak and fluctuating, and the virtue and dignity of the commonwealth would be
contaminated and eventually destroyed. Instead, therefore, of considering how to escape from the strong
expression of the Act before us, it is our duty to give it the fullest operation that is necessary for suppressing
the mischief to which the legislative attention was originally directed; and here we cordially embrace the
position of our antagonists, that the meaning of those who framed the law is the best guide to direct us in
carrying it into execution. What then was the evil complained of, at the time that this act was made? The
atrocious frauds committed upon the revenue. What was the remedy provided ? It could not be merely the
forfeiture of the smuggled goods, as the claimants insinuate, for that was imposed by an antecedent law; but
the truth is, that every other penalty having proved ineffectual, this statute was enacted expressly to super add
the forfeiture of the vessel or boat from which the goods should be clandestinely unladed.” Under the law the
vessel was liable to forfeiture in case the goods were unladen from her before due entry, whether the owners
were privy to the transaction or otherwise. “This has been repeatedly called a hard law; but the truth is, that
revenue laws are of a harsher nature than any others, and necessarily so; for, the devices of ingenious men
render it indispensable for the legislature to meet their illicit practices with severer penalties.”

6. Section 303 vis-à-vis Section 77 of Act 355

Section 303 imposes certain duties upon the master of a vessel in connection with the administration
of the customs regulations; and provides penalties in case of failure to perform them; and the vessel or its
owners are not made responsible except as provided in section 343 of the Act. Section 77 imposes the
absolute obligation, under penalty for failure, upon every vessel from a foreign port to have “on board
complete written or typewritten manifests of all her cargo, signed by the master.” Where the law requires a
manifest to be kept or delivered, it is not complied with unless the manifest is true and accurate.

7. Cargo, inclusions
The term “cargo” is not specifically defined in the Customs Administrative Act, but from the
language used in several of its provisions it is clear that the word “cargo” as used in the section under
consideration includes all goods, wares, and merchandise aboard ship which do not form part of the ship’s
stores. Thus, it cannot be said that the opium in question is not “cargo” within the meaning of the custom
laws.

8. Cargo; Black’s Law Dictionary

Black’s Law Dictionary defines the term “cargo” as follows: “The load or lading of a vessel; goods
and merchandise put on board a ship to be carried to a certain port. The lading or freight of a ship; the goods,
merchandise, or whatever is conveyed in a ship or other merchant vessel. A cargo is the loading of a ship or
other vessel, the bulk of which is to be ascertained from the capacity of the ship or vessel. The word embraces
all that the vessel is capable of carrying. The term may be applied in such a sense as to include passengers, as
well as freight, but in a technical sense it designates goods only.”

9. Cargo ex vi termini; Seamans vs. Loring

The word ‘cargo’ ex vi termini, means the goods on board of the vessel.” (Seamans vs. Loring (U.
S.), 21 Fed. Cas., 920, 924.)

10. Cargo; Flanagan vs. Demarest

“A cargo is the lading of a ship or other vessel, the bulk or dimension of which is to be ascertained
from the capacity of the ship or vessel; and, where the name of the ship or vessel is in the contract, her
capacity for carrying or the bulk of her cargo need not be stated for the word ‘cargo’ embraces all that the
vessel is capable of carrying.” (Flanagan vs. Demarest, 26 N. Y. Sup. Ct. (3 Rob.), 173, 181.)

11. Cargo; Phile vs. Anna

“The cargo is the lading of the vessel, and, though by bribery or craft, some articles might be
introduced in the hold, without the knowledge of the owners or the captain, yet everything which is put on
board the vessel is, in general, comprehended in that description.” (Phile vs. The Anna, 1 Dallas (U.S.), 202.)

12. Owners cannot be allowed to escape penalty, as such will defeat legislative intention
The present case raises a question of great importance to the practical and successful working on the
Customs Administrative Act, and its decision will determine whether section 77 of said Act is to be given
force and effect ands is to have any real value as a provision designed to prevent frauds upon the public
revenues. If the owners of vessels were allowed to escape the penalty provided for this fraud or attempt to
defraud the revenues by setting up pleas of innocence and ignorance, it is clear that the legislative intention
would be defeated.

13. Intent of the law; Phile vs. The Anna

As said in the case of Phile vs. Anna, “Then, there remains only the great point upon which the
counsel for the claimnants seem chiefly to rely, to wit, their innocence and ignorance with respect to the fraud
that has been committed. There is no evidence, indeed, that tends to show that the owners of the ship meant
to do anything unfairly; but, on the contrary, that the mate brought the goods hither with the avowed intention
to defraud them as well as the State. The question then recurs, what difference does it make, whether they
knew of it or not? Here is a positive law that directs a due entry of all goods, wares, and merchandise
imported into this State, under certain penalties, and one of them is the forfeiture of the vessel or boat from
which they are unladed It does not speak of the knowledge of any person, but seems to be studiously worded
to avoid that construction. It is not a novel law, through perhaps it is stricter now than formerly; for, in
England, it has long existed, and before the Revolution it was known in Pennsylvania. the legislature has
thought that nothing else bound to obedience. If indeed, the law was doubtful or latitudinal ,admitting one
interpretation, which would be just, and another which would be unjust, it would become us to prefer the
former. But if the policy of the legislature seems to bear hard on the subject, we are not to judge and
determine upon its propriety (that is a matter for deliberation of those who made the law), and however,
unjust it seems, we must acquiesce, or there must be a dissolution of society. It must certainty affect every
humane man to see the innocent suffer; but in society this is not strange or uncommon; and the
distinction may
property be taken between criminal and civil cases. The law never punishes any man criminally but for his
own act, yet it frequently punishes him in his pocket for the act of another.”

[158]

Ohta Development Co. vs. Steamship Pompey (GR 24658, 31 March 1926)
En Banc, Avancena (CJ): 5 concur, 1 dissents

Facts: From 1913, Ohta Development Co. was the owner of a pier situated in Talomo Bay, Davao. On the
western side of this pier were two groups of posts, three to a group, about 20 feet apart and about 2 feet from
the pier itself, which served as a protection to the pier against the impact of vessels. Between 1921 and 1922,
this pier was repaired replacing such material as was not in good condition, and driving about 150 piles of
pagatpat and 60 of molave. According to the witness Sixto Babao, the officer in charge of the forest station of
that province, pagatpat, when placed in salt water, lasts from five to six years. At about 7:00 a.m. of 23 July
1923, the steamship Pompey, in command of Captain Alfredo Galvez and possessing a certificate of public
convenience issued by the Commissioner of Public Utility in the name of “The National Coal Company,”
carrying cargo consisting principally of flour and rice for Ohta, docked alongside the said pier. The ship
docked with her bow facing towards the land; and fastened her ropes to the posts on the pier. The evidence
shows that, previously, other ships docking alongside the said pier had the bow facing towards the land and
fastened a rope to a tree situated farther west on the beach, a precaution taken to avoid the ship from getting
too close to the pier. When the Pompey docked, she did not stretch a rope to the tree on the shore, neither did
she drop her bow anchors. After being thus docked they proceeded to unload the flour and rice which was
first deposited on the pier and later transported to Ohta’s warehouse on land, where it was officially receipted
for. The work of discharging and the hauling of the cargo to the warehouse of Ohta was done without any
interference on the part of Ohta and exclusively by laborers and the crew the ship. The unloading of the cargo
on to the pier done in a hurry and their being but 15 or 20 laborers engaged in the hauling of the same to
Ohta’s warehouse, a large amount of cargo accumulated on the dock, with the result that at 11:10 a.m. the pier
sank with all the merchandise.

Brought to the trial court, the court sentenced Steamship Pompey, Alfredo Galvez, and the National Coal
Company, to pay Ohta Development the sum of P8,557.06, as damages suffered by the latter by reason of the
destruction of its pier and the loss of its merchandise then stored on said pier. Steamship Pompey, et. al.
appealed.

The Supreme Court affirmed the judgment appealed from; with costs against Steamship Pompey, et. al.

1. Current exist in the direction from west to east; Current forced ship towards the pier which
impact results in its sinking
Herein, at the time the pier sank there was a current from west to east. According to Captain Calvo,
and judging by the condition of the sea appears from one of the photographs presented in evidence, there was
a strong undercurrent. The flour which floated after the sinking of the dock drifted from west to east. The pier,
when it sank, leaned towards the east as the posts, which did not collapse completely. After sinking of the pier
the two groups of piles that served as a defense also leaned towards the east, going beyond the western line
formerly occupied by the pier; and the hull of the ship came to a stop at a point beyond where the piles of
defense formerly stood and in which a man may be seen standing on the edge of the sunken pier supporting
himself on the hull of the ship (from the photograph taken after the accident). In view of all of these
circumstances it is evident that the current forced the ship towards the pier, the impact of which caused it to
sink. The dock sank on account of the impact of the ship as a result of the strong current at the time; that the
ship was not fastened with a rope to a tree on shore and that the bow anchors had not been dropped.

2. Challenge to corporate personality without merit

 Herein, Steamship Pompey, et. al. challenged the personality of Ohta Development Co. as a duly
organized corporation. But besides the fact that there is evidence of this personality, the former cannot
challenge it after having acknowledged same when entering into the contract with the latter as such
corporation for the transportation of its merchandise.

3. Article 619, Code of Commerce

Article 619 of the Code of Commerce provides that the captain shall be answerable for the cargo from
the moment that it is delivered to him at the wharf or alongside the ship in the harbor of embarkation until
delivered on the shore or wharf of the port of discharge. Under this provision of the law it is the delivery of
the cargo at the port of discharge that terminates the captain’s responsibility as to the cargo.

4. Merchandise on dock not yet delivered

When the merchandise was lost on account of the sinking of the dock, it had not yet been delivered
and consequently it was under the responsibility of the captain. Herein, the National Coal Company, as the
operator, is responsible for the indemnities arising from the lack of skill or negligence of the captain. (Articles
587 and 618 of the Code of Commerce.)

5. Articles 587 and 837 Code of Commerce inapplicable in present case

It cannot be said the liability of the other defendants is subsidiary and limited to what the steamship
Pompey may answer for. Such argument, seemingly based upon article 587 of the Code of Commerce which
authorizes the shipowner to abandon the ship with all its tackle and freight earned during the voyage in order
to answer for his liability to third persons, is inapplicable, for the reason that there was no abandonment of the
ship. The Court does not believe that Steamship Pompey, et.al. based their contention upon article 837 which
refers to collisions, because that is not the case here.

[-] Government vs. Inchausti & Co., see [46]

[159]

Triton Insurance vs. Jose (GR 10381 and 10714, 14 January 1916)
First Division, Johnson (J): 5 concur

Facts: A certain consignment of flour for each of the firms “Connell Brothers Company” and “W. F.
Stevenson & Company,” arrived at the port of Manila on the steamship Prinz Sigismund, in the first days of
January 1914. Said firms entered into a verbal contract with Angel Jose, by which said cargoes of flour were
to be transshipped from said steamship Prinz Sigismund, to the bodegas of said firms, located on the Binondo
canal in the city of Manila. Jose, in transshipping said cargoes of flour, used the lorcha Petroning. It is not
denied that said lorcha was a new one and was duly licensed for the purpose for which it was used in the
present case. During the transshipment, the said lorcha sprung a leak; that water entered the same and the
cargoes of flour were damaged. Said cargoes of flour were placed on said lorcha. On 5 January 1914, C. B.
Nelson, a marine surveyor, examined said cargoes of flour for the insurance companies. On or about January
7 or 8, 1914, the cargoes of flour were delivered to the respective companies, “Connell Brothers Company,”
and “W. F. Stevenson & Company,” and were by them accepted, without protest. Said companies later also
paid the charges of transportation to Jose, without protest. Later, or on or about the 21st or 22d of January,
1914, a formal protest was made by each of the companies in each of said causes. Later the damage done to
said cargoes of flour was paid by the said insurance companies, to the respective owners of the same.

Those actions are now brought by the insurance companies, upon the theory that they have been subrogated to
the rights of the owners of said cargoes of flour. Upon the foregoing facts, the lower court, ruled that “without
discussing the other questions involved in the case, the court is of the opinion that under article 366 of the
Code of Commerce, and the rule laid down in the case of the Government of the Philippine Islands vs.
Inchausti & Co. (24 Phil. Rep., 315), recovery is barred, through the failure of the assignee to present a claim
for damages within twenty-four hours from the time of the delivery of the flour. The court appreciates the
force of the plaintiff’s contention, that articles 366 (supra) applies only to river and land transportation, but
the analogy between the present case and the Inchausti case is so close, that the distinction, if any, may best
be drawn by the Supreme Court itself, and not by an inferior court.”

The Supreme Court affirmed the judgment of the lower court as it is of the opinion, without a further
discussion, that the rule of law Government of the Philippine Islands vs. Inchausti & Co. announced is
applicable to the facts in the present case.

[160] Standard Vacuum Oil vs. Luzon Stevendoring, see [135]

[161] Baer Senior & Co.vs. Cia Maritima. see [145]
[162]

USA vs. Steamship Rubi (GR 9235, 17 November 1915)

En Banc, Carson (J): 2 concur, 1 concur in result, 2 dissent

Facts: On 9 February 1913, Steamer “Rubi” arrived in the city of Manila from a coastwise port but while on a
continuous voyage from the foreign port of Hongkong. At the time of her arrival in the port of Manila she
had on board concealed in an unknown place 13.380 kilos of opium and 2.620 kilos of morphine. At the same
time the steamer had other cargo which was duly manifested as required by law, and that the said opium and
morphine were not manifested. While the steamer was lying in the harbor two members of the steamer’s
crew, one known as a ‘coal passer’ and the other as a ‘donkey man,’ attempted to discharge the opium and
morphine from the vessel but in doing so delivered it to secret service agents of the Bureau of Customs.
Thereupon the steamer was seized and the Collector of Customs imposed a penalty of P500 on account of the
violation of section 77 of Act 355, the usual proceedings having been followed in imposing the penalty.

The United States and the Insular Collector of Customs applied with the Court of First Instance of Manila for
a petition for a judgment confirming the action of the Insular Collector of Customs in imposing an
administrative fine on the steamship Rubi for bringing unmanifested cargo into the port of Manila. The
Steamship Rubi was represented by Warner, Barnes & Co. (Ltd.), general agents in the Philippine Islands for
her owners. The trial judge dismissed the petition on the ground that “there was no knowledge on the part of
the master of the vessel of the opium and morphine, and so far as he was concerned it was not cargo. He
being the master of the vessel, who should make manifests of all cargo, could not manifest that which he did
not know of, and the vessel could not know more or have knowledge of more than he had, for his knowledge
was that of the vessel. Hence, the appeal.

The Supreme Court reversed the judgment entered in the court below, with the costs of this instance de oficio,
and ordered that the record should be remanded to the court below with instructions to enter the appropriate
orders in accord with the prayer of the petition.

1. US vs. Steamship Islas Filipinas in point

In the recently decided case of the United States of America and the Insular Collector of Customs vs.
The Steamship Islas Filipinas, represented by her owners Fernandez Hermanos (28 Phil. Rep., 291), wherein
the facts were very similar to those stipulated in the court below, the Court ruled adversely to most of the
contentions of the appellee in said case, at the same time sustaining contentions which are substantially
identical with those upon which the present appellants rest their appeal.

2. Distinction between US vs. Steamship Islas Filipinas and present case

In the former case, however, no real question arose as to the fact that the unmanifested cargo came
from a foreign port; and it clearly appeared that the captain of the vessel willfully, and with intent to smuggle
and to import prohibited drugs into the Philippine Islands, omitted the goods from the manifest. The present
case is to be distinguished from that case in that it is expressly stipulated that the time when and the place
where the unmanifested goods were placed on board the Rubi were unknown to the defendants, these goods
having been discovered on 9 February 1913, after the vessel, which had arrived in Manila from Hongkong on
30 January 1913, had touched, in the course of her voyage, at the ports of Mangarin, Iloilo, Cebu, and
returned to Manila a second time; and further because it does not appear that the captain, or any of the officers
of the Rubi had any knowledge of the presence of the unmanifested goods on the ship, these goods having
been brought on board surreptitiously by two members of the crew, who attempted to land them in Manila
without the knowledge and against the wishes of the owners, the captain and the other officers of the ship, and
despite their diligent efforts to prevent the smuggling of such goods into the Philippine Islands.

3. Section 77 of Act 355, as amended by Section 2 of Act 1235

The penalties were imposed by the Collector of Customs on charges of violations of the provisions of
section 77 of Act No. 355, as amended by section 2 of Act No. 1235, which is as follows: “Every vessel from
a foreign port or place must, under a penalty of not exceeding five hundred dollars for failure, have on board
complete written or typewritten manifests of all her cargo, signed by the master. All of the cargo intended to
be landed at a port in the Philippine Archipelago must be described in separate manifests for each port of call
therein. Each manifest shall include the port of departure and the port of delivery, with the marks, numbers,
quantity, and description of the packages and the names of the consignees thereof. Every vessel from a
foreign port or place must have on board complete manifests of passengers, immigrants and their baggage, in
the prescribed form, setting forth their destination and all particulars required by the immigration laws; and
every such vessel shall have prepared for presentation to the proper customs official, upon arrival in ports of
the Philippines, a complete list of all ship’s stores then on board, which must be certified thereto by the master
thereof. Every vessel entering Philippine ports from a foreign port must carry manifests as hereinbefore
provided, whether she carries cargo, passengers, or immigrants and their baggage, or not. If any such vessel
does not carry cargo, passengers, or immigrants, the manifests must show that no cargo is carried from the
port of departure to the port of destination in the Philippine Archipelago. Manifests in substantial compliance
with these requirements shall be accepted, whether in English or in the language of the nation to which the
vessel belongs. If in a language other than English, the master must furnish the number of translated copies
required by the Collector.”

4. Nothing in statute justifies inference that penalties prescribed for having on board
unmanifested goods are applicable only where it affirmatively appears that such goods have been
imported from abroad
While the penalty prescribed in section 77 of Act 355 can be incurred only by vessels “from a foreign
port or place,” there is nothing in the statute which justifies the inference that the penalties prescribed for
having on board unmanifested goods are applicable only in cases where it affirmatively appears that such
goods have been imported from abroad. Under the express terms of the statute the penalty may be imposed if
any unmanifested cargo is found on board such vessels, and there is no provision, express or implied, which
forbids its imposition in the absence of proof as to the place where or the time when such unmanifested cargo
is placed aboard the vessel.

5. If the penalty is imposed only upon production of proof that goods surreptitiously placed on
board at some foreign port would defeat purpose of the law
One of the purposes sought to be attained by penalizing the failure to manifest all cargo on board
such vessels is to prevent the smuggling into the Islands of foreign goods; but it would tend largely to defeat
this, as well as the other purposes and objects sought to be attained by the statute, if the penalty prescribed for
having on board unmanifested goods could only be imposed upon the production of affirmative proof that
such goods had been surreptitiously placed on board at some foreign port rather than upon the high seas or at
any one of various ports at which vessels from foreign ports are permitted to touch in the Philippine Islands.
In the very nature of things such proof would not be available in many if not most cases of violations of the
statute. The surreptitious or unlawful importation or smuggling of goods into the Philippine Islands is
severely penalized elsewhere in the statute, and the penalties prescribed in the section under consideration are
not imposed for that offense but for the failure of the ship and its officers to comply with the regulations
contained therein in regard to the manifesting of the cargo on board.

6. Sections 136 and 137 not in conflict with regulations in Section 77

While sections 136 and 137 are applicable to all vessels licensed for carrying on coasting trade within
the Philippine Islands, the existence of those regulations is in no wise in conflict with the regulations
contained in section 77 of the Act which require that “every vessel from a foreign port or place must, under a
penalty of not exceeding one thousand pesos for failure, have on board complete written or typewritten
manifests of all her cargo, signed by the master.” So that if a vessel from a foreign port or place engaged in a
continuous voyage is “licensed for carrying on coasting trade,” and touches at various ports within the
Islands, she is not thereby relieved from the duty of having her cargo duly manifested when she enters any
such port. In this connection it may be proper to observe that while it affirmatively appears that at the time of
the seizure the Rubi was a vessel from a foreign port or place, it does not appear whether she was or was not
licensed to engage in the coasting trade in the Philippines.

7. Cargo construed; US vs. Steamship Islas Filipinas citing Phile vs. The Anna
In the former case, United States vs. Steamship Islas Filipinas, (28 Phil. Rep., 291), the Court held
that the term “cargo” as used in section 77 of Act No. 355, as amended by section 2 of Act 1235, includes “all
goods, wares and merchandise aboard ship which do not form part of the ship’s stores,” and in support of the
ruling the Court relied in part upon the rulings in the case of Phile vs. The Anna (1 Dallas [U. S.] 202.)

8. Scope of “cargo”
The language used in US vs. Steamship Islas Filipinas, while sufficiently inclusive for the purpose of
the case then under consideration, is if anything too narrow rather than too broad if intended as a definition of
the word “cargo” as used in the first paragraph of that section. Certainly this is true if the words “goods,
wares and merchandise” are taken in the strictly technical and limited sense sometimes attributed to them in-
commercial law. Having in mind the context, and the purposes and objects sought to be obtained by the
enactment of this statute, the Court is satisfied that the word “cargo” as used in the first paragraph of section
77 refers to the “entire lading of the ship which carries it” and includes all goods, wares, merchandise, effects,
and indeed everything, of every kind or description, found on board, except such things as are used or
intended for use in connection with the management or direction of the vessel and are not intended for
delivery at any port of call, and except also, perhaps, “passengers or immigrants and their baggage.”
Manifests are required for “passengers or immigrants and their baggage,” and the word “cargo” has
sometimes been used with reference to passengers and immigrants, but in view of the apparent classification
of the kinds of manifests prescribed in the section under consideration into manifests of “cargo,” and
manifests of “passengers or immigrants and their baggage,” the Court expressly reserve its Opinion as to
whether the word “cargo” in the first paragraph of this section was intended by the legislator to include the
latter.

9. Intent and object of requirements for submission of manifest

The evident intent and object of these requirements for the submission of manifests by all vessels
from foreign ports is to impose upon the owners and officers of such vessels an imperative obligation to
submit lists of the entire lading of the ship in the prescribed form, in order to facilitate the labors of the
customs and immigration officers, and to defeat any attempt to make use of such vessels to secure the
unlawfully entry of persons or things into the Islands. No exception is made in the statute, and the recognition
of any attempt to read an exception into the statute could hardly fail to defeat the purpose of its enactment.

10. Ruling in Phile vs. Anna construed; Intent of legislator

It is true that in the case of Phile vs. The Anna, Governor Cushman (Fed. Case 5646) and in some
other cases the courts have held or intimated that it could not have been the intention of the legislator to
impose the penalty prescribed for breaches of the revenue laws under such circumstances. The Court thinks
that, on examination, it will be found that in these cases the rulings in this regard are based on the enormous
disproportion between the penalty of forfeiture of the vessel which was sought to be enforced in these cases
and the alleged mischief sought to be remedied. The reasoning on which those decisions rest is not that the
legislator could not have prescribed a penalty for any and every failure to manifest the entire cargo, but that
the legislator could not have intended to prescribe the forfeiture of the vessel as a penalty for the unintentional
omission of some trifle from the ship’s manifests, without the knowledge or consent of the owners and despite
the exercise of reasonable diligence by the ship’s officers.

11. Penalty in statute not sufficient to sustain implied exception to general provisions of the
Philippine statute
In Philippine jurisdiction, the penalty prescribed by the section under consideration is a fine of not
more than $500, so that, in the exercise of a sound discretion, the amount of the penalty imposed in each case
may be and should be proportioned to the gravity of the particular violation of the statute on account of which
it is imposed. Manifestly a penalty of this nature is not sufficient to sustain an implied exception to the
general provisions of the Philippine statute such as the courts in some cases appear to have read into certain
American statutes prescribing the forfeiture of the vessel for violations of their provisions.

12. Section 77 of Act 355 unequivocal in prescribing imposition of penalty; Section 303
There is nothing in section 77 of the Act which indicates any intention on the part of the legislator to
limit the imposition of the prescribed penalty to cases where the captain or the ship’s officers knowingly or
willfully omitted any part of the cargo from the manifests. This section in unequivocal terms prescribes the
imposition of the penalty in all cases of such omissions, and read together with section 303, which imposes
penalties or forfeitures on the master of the vessels in such cases, it cannot be doubted that the intention of the
legislator was to provide for the imposition of the prescribed penalties, whether such omissions occurred with
or without the knowledge of the owner or the officers of the vessels.

13. Section 303 of Act 355

Section 303, both by its terms and the nature of the penalties prescribed it makes very clear the
intention of the legislator to penalize omissions from the ship’s manifest, whether made with or without the
knowledge of the owners, or of the ship’s officers charged with the preparation of the required manifests.
Section 303 provides that “Except as provided by the last preceding section, if any merchandise be found on
board any vessel from a foreign port which is not included in her manifests, produced as required by this Act,
the master shall forfeit an amount equal to double the duties fixed therefor: Provided always, That if it
appears to the collector that such omissions occurred with intent to defraud the revenue, the master shall in
addition forfeit an amount equal to the value of the merchandise not manifested. and all such merchandise
belonging or consigned to the officers or crew of the vessel shall be seized and forfeited; but if such
merchandise belongs to any other person acting in good faith the same shall be released upon payment of the
regular duties and charges thereon. If any package or article named on the manifest be missing on the arrival
of the vessel, or if the merchandise on board does not otherwise agree with the manifest delivered by the
master, except as above prescribed, the master shall be liable to a penalty of not less than two hundred and
fifty dollars and not more than two thousand five hundred dollars and in addition an amount equal to the value
of the said missing merchandise as ascertained by the collector of customs, unless the collector shall be
satisfied that such deficiency or disagreement occurred without fraudulent intent, in which case said penalty
shall not be inflicted: Provided, nevertheless, That if such disagreement or deficiency is found by the collector
to be due to the carelessness, negligence, or incompetence of the master of the vessel, her owners, or agents, a
penalty of not more than the value thereof may be imposed upon the master for each package missing or
materially disagreeing in marks, character, or otherwise with the description thereof in the manifest. All
penalties inflicted under the provisions of this section shall be forthwith reported to the Insular Collector with
full particulars of the offense committed and of the previous conduct of the master in like matters.”
14. US vs. Stadacona, and U. S. vs. Missouri not applicable
In the cases of US vs. Stadacona, and U. S. vs. Missouri, it was held, under the statutes relied upon in
those cases, that where “no personal delinquency is imputable to the master,” “a sense of justice to the
master” forbids the imposition of the prescribed penalty as to him. However, in view of the express provisions
of the Philippine statute, and of the nature of the prescribed penalties, and in view also of the manifest
intention of the legislator to provide for the imposition of penalties for omissions from ship’s manifests,
whether made with or without the knowledge of the owner or ship’s officers, the Court would not be justified
in adopting and following the reasoning of the decisions in the cases of US vs. Stadacona (Fed. Case 16371)
and US vs. Missouri (Fed Case 15785).

15. Power of the legislator to prescribe penalties; US vs. Brig Malek Adhel
The power of the legislator to prescribe such penalties is clearly sustained in the opinion of the
Supreme Court of the United States in the case of United States vs. Brig Malek Adhel (43 U. S., 210).
Therein, it was said: “The next question is, whether the innocence of the owners can withdraw the ship from
the penalty of confiscation under the Act of Congress. Here, again, it may be remarked that the Act makes no
exception whatsoever, whether the aggression be with or without the cooperation of the owners. The vessel
which commits the aggression is treated as the offender, as the guilty instrument or thing to which the
forfeiture attaches, without any reference whatsoever to the character or conduct of the owner. The vessel or
boat (says the Act of Congress) from which such piratical aggression, etc., shall have been first attempted or
made shall be condemned. Nor is there anything new in a provision of this sort. It is not an uncommon course
in the admiralty, acting under the law of nations, to treat the vessel in which or by which, or by the master or
crew thereof, a wrong or offense has been done as the offender, without any regard whatsoever to the
personal misconduct or responsibility of the owner thereof. And this is done from the necessity of the case, as
the only adequate means of suppressing the offense or wrong, or insuring an indemnity to the injured party.
The doctrine also is familiarly applied to cases of smuggling and other misconduct under our revenue laws;
and has been applied to other kindred cases, such as cases arising on embargo and non-intercourse acts. In
short, the acts of the master and crew, in cases of this sort, bind the interest of the owner of the ship, whether
he be innocent or guilt; and he impliedly submits to whatever the law denounces as a forfeiture attached to the
ship by reason of their unlawful or wanton wrongs. In the case of The United States vs. The Schooner Little
Charles (1 Brock. Rep., 347, 354), a case arising under the embargo laws, the same argument which has been
addressed to us, was upon that occasion addressed to Mr. Chief Justice Marshall. The learned judge, in reply,
said: ‘This is not a proceeding against the owner; it is a proceeding against the vessel for an offense
committed by the vessel; which is not the less an offense, and does not the less subject her to forfeiture
because it was committed without the authority and against the will of the owner. It is true that inanimate
matter can commit no offense. But this body is animated and put in action by the crew, who are guided by the
master. The vessel acts and speaks by the master. She reports herself by the master. It is therefore not
unreasonable that the vessel should be affected by this report.’ The same doctrine was held by this court in the
case of The Palmyra (12 Wheat. R 1, 14) where, referring to seizures in revenue causes, it was said: ‘The
thing is here primarily considered as the offender, or rather the offense is primarily attached to the thing and
this whether the offense be malum prohibitum or malum in re. The same thing applies to proceeding in rem or
seizures in the Admiralty.’ “

16. Owner of vessel made to suffer for acts or omission of officers and crew
The doctrine is well established in pursuance of which the owner of a vessel may be made to suffer
for the acts or omissions of the officers and crew, “without any regard whatsoever to the character or
responsibility of the owner,” from “the necessity of the case, as the only adequate means of suppressing the
offense, or wrong.” In many if not in most instances of violations of the provisions of section 77 of the statute
it would be practically impossible to establish the connivance or willful participation of the master in the
surreptitious lading of his ship with unmanifested goods, unless they were of such bulk as to render the
inference of guilty knowledge irresistible. There would be but small prospects of success in the attempt to
suppress the practice of carrying unmanifested goods on vessels from foreign ports by the imposition of
penalties on the ship or the master, if the imposition of such penalties were made dependent on the production
of affirmative proof that such omissions had been made knowingly by the master or that the unmanifested
goods had been brought aboard with his connivance. Under such circumstances the legislator has seen fit to
prescribe penalties in all cases where unmanifested cargo is found on the vessel, whether it appears that such
cargo was placed on board with or without the consent or knowledge of the owners or ship’s officers and
despite the possibility of individual hardships in some instances.

17. Disciplinary control of officers on crew renders concealments of unmanifested cargo rare
It is always within the power of the ship’s officers to render it extremely difficult if not practically
impossible for members of the crew or other persons to conceal unmanifested goods on board ship. Their
disciplinary control of the ship, the crew, and indeed of every person on board, if duly exercised, should
render such concealments of unmanifested cargo rare indeed.

18. Penalty not harsh or oppressive; Discretion of Collector of Customs

The danger of real hardship or injustice arising from the imposition of harsh or oppressive penalties
under the provisions of sections 77 of the Act is substantially provided against by the discretion conferred
upon the Collector of Customs under the supervision of the courts whereby he may impose any penalty, from
an amount merely nominal up to a maximum of $500.

[163] , also [- after 170], and [190]

International Harvester Co. in Russia vs. Hamburg-American Line (GR 11515, 29 July 1918)
Second Division, Street (J): 5 concur

Facts: In the spring of 1914, International Harvester Company in Russia, an American corporation, organized
under the laws of the State of Maine, delivered to the Hamburg-American Line, at Baltimore, Maryland, to be
laden on its steamer the Bulgaria, bound from that port to Hamburg, Germany, a large consignment of
agricultural machinery, consisting of 852 boxes, crates, and parcels, all of which were to be delivered to the
order of the consignor at Vladivostock, Russia. The freight charges were then and there prepaid to the
ultimate destination. The bill of lading which was issued to International Harvester at Baltimore provided,
among other things, that the goods should be forwarded by Hamburg-American Line from Hamburg to
Vladivostock at the ship’s expense but at the risk of the owner of the goods. It was also provided that goods
thus destined for points beyond Hamburg should be subject to the terms expressed in the customary form of
bill of lading in use at the time of shipment by the carrier completing the transit. When the shipment arrived at
Hamburg the carrier company transferred the cargo to the Suevia, a ship of its own line, and issued to itself
therefor, as forwarding agent, another bill of lading in the customary form then in use in the port of Hamburg,
covering the transportation from Hamburg to Vladivostock. While the ship carrying said cargo was in the
China Sea en route to Vladivostock war broke out in Europe; and as the Suevia was a German vessel, the
master considered it necessary to take refuge in the nearest neutral port, which happened to be Manila.
Accordingly he put into this harbor on 6 August 1914, and at the date of the trial in the trial court, the ship
still remained in refuge in said port. After it became apparent that the Suevia would be detained indefinitely in
the port of Manila, International Harverster, as owner of the cargo, in January, 1915, made demand upon the
agent of Hamburg-American Line in Manila to the effect that it should forward the cargo to Vladivostock, if
not by the Suevia then by some other steamer. This Hamburg-American Line refused to do except upon the
condition that International Harvester would agree to subject said cargo to liability upon general average to
satisfy the costs and expenses of the Suevia incident to its stay in the port of Manila. To this condition
International Harvester did not assent and on the contrary thereupon demanded the immediate delivery of the
cargo to it in Manila. Hamburg-American Line replied with an offer to deliver the cargo provided the owner
would deposit with Hamburg-American Line a sum of money equivalent to 20% of the value of said cargo, as
security for the costs and expenses to be adjusted as general average. In this connection it may be stated that
the costs and expenses incurred by the Suevia from the date the ship entered the port of Manila until 30
March
1915, amounted to the sum of P63,024.50, which included port charges, repairs, and wages and maintenance
of officers and crew.

Having failed in its efforts to obtain possession of its property, International Harvester instituted an action in
the CFI of Manila upon 13 February 1915. The purpose of the proceeding is to recover the possession of the
cargo, together with damages for breach of contract and unlawful detention of the property. At the time the
action was instituted, or soon thereafter, International Harvester obtained the delivery of the property from the
Suevia by means of a writ of replevin and forwarded it to Vladivostock by another steamer. In its answer,
Hamburg-American Line denies liability for damages and asserts that it has a lien on the property for general
average. In the court below judgment was given in favor of International Harvesting, recognizing its right to
the possession of the goods and awarding damages to it in the sum of P5,421.28, the amount shown to have
been expended in forwarding the goods to Vladivostock. From this judgment Hamburg-American Line
appealed.

The Supreme Court affirmed the judgment appealed from, with costs against Hamburg-American Line.

1. Cargo not liable to general average; No common danger to ship and cargo
Herein, it is not claimed that the agricultural machinery was contraband of war; and being neutral
goods, it was not liable to forfeiture in the event of capture by the enemies of the ship’s flag. It follows that
when the master of the Suevia decided to take refuge in the port of Manila, he acted exclusively with a view
to the protection of his vessel. There was no common danger to the ship and cargo; and therefore it was not a
case for a general average. The point in dispute has already been determined by the court unfavorably.
(Compagnie de Commerce et de Navigation D’Extreme Orient vs. Hamburg Amerika Packetfacht Actien
Gesellschaft, 36 Phil., 590.)

2. Section 10, York-Antwerp Rules

The following provision contained in the York-Antwerp Rules is conclusive against Hamburg-
Amerian Line’s contention, i.e. “When a ship shall have entered a port of refuge in consequence of accident,
sacrifice, or other extraordinary circumstance which renders that necessary for the common safety, the
expense of entering such port shall be admitted as general average.”

3. Hamburg-American Line liable for expenses incident to transshipment and conveyance of

cargo to Vladivostock
Hamburg-American Line is liable for the expenses incident to the transhipment and conveyance of
the cargo to Vladivostock. The original bill of lading issued to the shipper in Baltimore contained the
provision that the goods should be forwarded from Hamburg to Vladivostock at the steamer’s expense and
this term appeared not only in the paragraph numbered 17 in the body of the bill of lading but also
conspicuously printed in the shipping directions on the face of the instrument.

4. Contents of paragraph 10, General Rules of the bill of lading

In the tenth paragraph of the General Rules contained in the bill of lading which was issued at
Hamburg upon account of the Suevia, for the forwarding of the cargo to Vladivostock, there is found the
following provision: “If on account of quarantine, threatening quarantine, ice blockade, war disturbances,
strike, lockout, boycott, or reason of a similar nature, the master is in doubt as to whether he can safely reach
the port of destination, there discharge in the usual manner, or proceed thence on his voyage unmolested he is
at liberty to discharge the goods at another place or harbour which he may consider safe, whereby his
obligations are fulfilled . . . If the goods for any reason whatsoever cannot be discharged . . . at the port of
destination, the ship is at liberty to . . . forward them by some other means to the port of destination, for ship’s
account but not at ship’s risk.”

5. Contents of addendum to Rule 10 under “Special Clauses”

 In the same bill of lading under the head “Special Clauses” is found an addendum to rule ten to the
following effect: “Special — Condition to rule X. — The forwarding of through goods to be effected as soon
as possible, but the shipowner not to be responsible for delay in the conveyance. The shipowner to have the
liberty to store the goods at the expense and risk of the owner, shipper or consignee. The shipowner further to
be entitled to forward the goods by rail from the port of discharge to the final place of destination, at his
expense, but at the risk of the owner, shipper or consignee.”

6. Outbreak of war between Germany and Russia would have absolved carrier from contract of
affreightment, if not for the latter’s terms
The outbreak of the war between Germany and Russia undoubtedly absolved Hamburg-American
Line from so much of the contract of affreightment as required Hamburg-American Line to convey the goods
to Vladivostock upon the ship on which it was embarked; and no damages could be recovered by
International Harvester of Hamburg-American Line for its failure to convey the goods to the port of
destination on that ship. But by the terms of the contract of affreightment, Hamburg-American Line was
bound to forward the cargo to Vladivostock at the steamer’s expense, not necessarily by a steamer belonging
to it; and it does not by any means follow that it is not liable for the expense incurred by the owner in
completing the unfinished portion of the voyage in another ship. Thus, Hamburg-American Line has not been
absolved by the outbreak of war from its contractual obligation to bear the expenses of forwarding the goods
to Vladivostock, even though it is immediately absolved from the duty to convey them on its own ship.

7. Election to discharge at another port not made by master

Under paragraph X of the bill of lading, the master is given the election to discharge at another port,
if war should interfere with the completion of the voyage to the port of destination. No such election has been
made by the master. On the contrary, after arrival in Manila, he refused to discharge the goods, and must be
held to have elected to retain them, leaving the obligations of the contract intact, except in so far as they were
modified, under the general principles of international law, by the fact that war existed. So far was the master
from electing to discharge the goods in the port of Manila even on the demand of the owner, that he proposed
to hold the cargo until such time as the Suevia might continue her voyage without fear of molestation from
her enemies.

8. Responsibility to forward goods recognized

In the special condition to rule X, the defendant company recognizes its responsibility with respect to
the forwarding of goods; and where it is said in paragraph X that the master’s obligations will be fulfilled by
discharge in another port, it must be understood that reference is had to the obligations incident to the carriage
of the goods on the instant voyage.

9. Stipulations exempting a shipowner from liability construed against it

Stipulations, in a bill of lading exempting a shipowner from the liability which would ordinarily
attach to him under the law are to be strictly construed against him. (Cia. de Navigacion La Flecha vs. Brauer,
168 U. S., 104.) This rule should be unhesitatingly applied in a case such as this where the bill of lading under
which the exemption is claimed was issued by Hamburg-American Line to itself.

10. Where war breaks out between country to which vessel belongs and country of port of
discharge; Carver, Carriage of Goods by Sea; Teutonia case
Where cargo has been taken aboard a ship at a foreign port and war breaks out between the country to
which the vessel belongs and the country of the port of discharge, the neutral owner of the goods cannot
complain of her not going to her destination. (Carver, Carriage of Goods by Sea, sec 239.) Where goods have
been loaded and partly carried on the agreed voyage, though the exact performance of the contract may
become legally impossible, it will not be regarded as completely at an end, if it can by any reasonable
construction be treated as still capable of being performed in substance. Thus, where a Prussian vessel,
carrying goods under charter, had been ordered to discharge at Dunkirk, and it became impossible for her to
do so, because war broke out between France and Germany, it was held in the Privy Council, that the contract
was not dissolved, and that the shipowner might still hold the goods at Dover, where he had taken the ship,
for the freight which would have been payable under the charter-party had she been ordered to that part.

11. Outbreak of war did not make contract of affreightment absolutely illegal; Company not
absolved from every duty to the shipper
The outbreak of the war between Germany and Russia did not make the contract of affreightment
absolutely illegal as between the German company and the American shipper. If war had broken out between
Germany and the United States, and refuge had been taken in some port in a neutral country, it might be said
that this contract was dissolved on both sides, and a different question would thus have been presented; but
even in that case, it could not be successfully maintained that the Germany company was wholly absolved
from every duty to the shipper.

12. Freight prepaid, but only in part earned

The freight was prepaid by the shipper from Baltimore to destination, but has been only in part
earned. The defendant company has broken the voyage by stopping at the intermediate port of Manila.
Admitting that Hamburg-American Line is absolved from the obligation to convey the cargo further on its
course, it is nevertheless clear that upon principles of equity the company should be bound to restore so much
of the freight as represents the unaccomplished portion of the voyage. If the freight had not been paid, the
most that could be claimed by Hamburg-American Line would be an amount pro rata itineris peracti, as was
conceded in the case of the Teutonia, to which reference has been already made; and now that the freight has
been prepaid, there is a clear obligation on the part of the company to refund the excess, as money paid upon
a consideration that has partially failed.

13. Break in continuity of voyage from voluntary act of master of the Suevia
The break in the continuity of the voyage was a result of the voluntary act of the master of the Suevia,
adopted with a view to the preservation of the ship; and it can not be permitted that Hamburg-American Line
should escape the consequences of that act, so far as necessary to effect an equitable adjustment of the rights
of the owner of the cargo.

14. Amount approximately representing unearned portion of the freight

There being no evidence before the Court with respect to the amount of freight which was prepaid,
nor with respect to the proportion earned and unearned, but only the fact that the owner paid out a certain
amount for transhipment to Vladivostock, it can be assumed that this amount approximately represents the
unearned portion of the freight.

15. Provisions in bill of lading as to effect of freight paid in advance applicable special case of loss,
not when ship abandons enterprise
The provision in the original bill of lading which provides that freight paid in advance will not be
returned, goods lost or not lost. There is also a somewhat similar provision in the second bill of lading issued
at Hamburg. These provisions contemplate the special case of the loss of the goods and can not be extended
to the situation which arises when the ship for purposes of its own protection abandons the enterprise.

16. Conclusion of trial court as to Hamburg-American Line’s liability correct

The Court of First Instance was correct not only in adjudging possession of the cargo to International
Harvester but also in imposing upon Hamburg-American Line liability with respect to the amount expended
by International Harvester in forwarding the goods to their destination.

17. Jurisdiction cannot be made by stipulation; Provision waived

It can not be admitted that a provision of this character (i.e. that all disputes arising under the contract
are, at the option of the defendant company, to be decided according to German law and exclusively by the
Hamburg courts) has the effect of ousting the jurisdiction of the courts of the Philippine Islands in the matter
before it. An express agreement tending to deprive a court of jurisdiction conferred on it by law is of no
effect. Besides, whatever the effect of this provision, the benefit of it was waived when Hamburg-American
Line appeared and answered generally without objecting to the jurisdiction of the court.

18. Foreign law must be pleaded and proved, else it would be presumed to be the same as those of
Philippines
When it is proposed to invoke the law of a foreign country as supplying the proper rules for the
solution of a case, the existence of such law must be pleaded and proved. Herein, Hamburg-American Line
has done neither. In such a case it is to be presumed that the law prevailing in the foreign country is the same
as that which prevails in our own.

[-]

Compagnie Franco-Indochinoise vs. Deutsch Australische Dampschiffs Gesselschaft (GR 11169, 31

March 1917)
En Banc, Carson (J): 3 concur

Facts: The steamship Esslingen is owned by Deutsch Australische Dampschiffs Gesselschaft (DADG) and
registered in Germany, sailing under the German flag. On 1 August 1914, the said steamship was in the
French port of Saigon engaged in loading a cargo of rice-meal (a food product used principally for animals)
belonging Compagnie Franco-Indochinoise (CFI), in accordance with the terms of the charter party. On said
day, the master of the said steamship received telegraphic instructions from DADG to proceed to the port of
Manila in the Philippine Islands and there await further orders, the instructions being given on account of the
threatening aspect of war between Germany and France. On said date, the master of the said steamship
delivered to CFI a letter, who similarly sent a letter to the master of the steamship. The steamship remained in
the port of Saigon and continued to load said cargo and completed the loading of the same on 4 August 1914.
On 4 August 1914, steamship left the port of Saigon for the port of Manila, a neutral port, pursuant to the
instructions from the owners. The CFI at the time of the departure of the said steamship from Saigon had full
knowledge of the intention of her master to proceed to Manila, CFI’s agents in Saigon being also the DADG’s
agents, and at the instance of the master, CFI through its agents, secured a bill of health and other necessary
clearance papers for the voyage of the steamship to Manila. War between the Republic of France and Empire
of Germany began on 3 August 1914, and has continued from that date to the present time. Neither the master
of the said steamship nor any other representative thereof or any other person sought to obtain from the
French authorities at the port of Saigon a lassez passer or clearance, or other permission to proceed from
Saigon to the ports of Liverpool, England, and Hamburg, Germany, or either of them, and that at the time of
said steamship’s leaving Saigon for Manila it was understood between CFI and DADG that the steamship
should proceed only to Hamburg and the port of Liverpool was to be left out. On 14 September 1914, and at
other times thereafter up to the time of filing of the complaint, CFI demanded delivery of the cargo of the said
steamship from the master, and that DADG’s agent has at all times been willing to deliver said cargo upon
deposit in cash of the full amount for freight from Saigon to destination as stated in the charter party,
amounting to nearly P70,000, and has refused to deliver said cargo except upon the making of such deposit,
and that CFI has at all times refused to deposit the freight charges.

An action was filed by CFI against DADG asking that a receiver be appointed to take possession of the cargo
of the German steamship Esslingen, consisting of 126,028 sacks of rice-meal and 600 wooden ventilators, and
to dispose of the same and to hold the proceeds thereof subject to the order of the court; and also praying that
a judgment be given in favor of CFI and against DADG for the delivery of the cargo, or for the value thereof,
if such delivery cannot be made, and for damages and costs. On 16 October 1914, the trial court appointed as
joint receivers HT Fox and DH Jacoby to take possession of the cargo of the Esslingen, and to sell and
dispose of the same, and to hold and deposit the proceeds of such sale subject to the further order of the court.
The receivers have sold the same for P61,154.58. After due hearing and trial, the trial court rendered
judgment in favor of CFI and against DADG for the sum 57,823.35 less any commissions of the clerk of the
court, free and clear of all liens, claims or charges asserted by DADG, with legal interest on said sum from
the date of the filing of the complaint until paid; and further, that CFI have and recover of and from DADG
the sum of P68,3760.04 as and for actual damages suffered by CFI by DADG’s breach of charter party in
evidence, with interest thereon from the date of the filing of the complaint until paid. The trial court dismissed
DADG’s cross complaint and counterclaim, with costs against DADG. Hence, the appeal.

The Supreme Court affirmed the judgment of the trial court as provides for the delivery to CFI of the sum of
P57,823.35, the net proceeds of the sale of the cargo of the Esslingen now on deposit, less commissions of the
clerk of that court, but free and clear of all liens, claims or charges asserted by DADG. The Court, however,
reversed the decision as for the recovery of P68,376.04, with interest, as and for actual damages suffered by
CFI by DADG’s breach of the charter party. As for the recovery of the legal interest upon the amount of the
proceeds of the sale of the cargo, the Court modified the decision by substituting therefor a provision for the
recovery of any interest allowances which may have accumulated in any bank or other institution wherein the
said net proceeds of the sale of the cargo may have been deposited subject to the order of the court. The Court
ordered the record to be returned to the court wherein it originated with instructions to grant a new trial,
wherein the inquiry will be limited to the determination of the amount which could have been gotten for the
cargo taken on board in Saigon, if such cargo had been offered for sale in an undamaged condition in Manila
Bay at the time when the damaged cargo was sold. Without costs in both instances.

1. Sambia case similar

From a comparison of the statement of the case with the statement of the case set forth in the opinion
in the case of Sambia (Compagnie de Commerce et de Navigation d’Extreme Orient vs. The Hamburg
Amerika Packetfacht Actien Gessellschaft, it will be seen that the controlling facts in both cases are strikingly
similar, with the exception of the facts touching the disposition of the cargoes of the two vessels by their
respective masters after they had taken refuge in the port of Manila. The Court’s rulings upon the various
contentions of counsels in the former case may, therefor, be regarded as renewed with relation to like
contentions in the present case, except only as to the contention that the shipowner should be held liable for
the damages suffered by the cargo aboard the Esslingen, while the vessel lay in Manila Bay, because of the
failure of the master to proceed with reasonable promptness to take proper measures for the disposition of this
perishable cargo by sale or otherwise, and because of his refusal to deliver it to its owner when lawful
demand was made therefor.

2. Sambia case facts

In the case of the Sambia it appeared that the vessel arrived from Saigon in Manila Bay on 8 August
1914. Two telegrams were dispatched by the local agent of the shipowner and of the master, to the duly
authorized representative of the cargo owner in Saigon, one on the day of arrival and another a week later,
advising him of the situation. These cablegrams were not delivered presumably because of the interruption of
cable communication following the outbreak of war. Later two letters were forwarded but remained
unanswered until after the master has sought and secured judicial authority to sell the cargo — the answer
when it was received being a flat refusal on the part of the Saigon representative of the cargo owner to give
any instructions or assume any responsibility. On 14 September 1914, the master of the Sambia had a survey
made of the cargo, by a qualified marine surveyor, who reported that it “showed signs of heating and being
infested with weevils” and recommended that it be sold in the interest of all concerned. On 10 September
1914, the master not having been able to get into communication with the cargo owners, or their
representative in Saigon, sought and secured judicial authority to sell the cargo. The cargo was sold under
judicial authority in accordance with the provisions of local law made and provided in such cases.

3. Master did not take measures for the protection of interests of cargo owners in present case
 In the case of the Esslingen which arrived in Manila Bay on 7 August 1914, it does not affirmatively
appear that the master took any measures whatever looking to the protection of the interests of the cargo
owners; and, on the contrary, it appears that although the duly authorized representative of the cargo owner
was in Manila, and made demand upon the master for delivery of the cargo on 14 September 1914, “and at
other times thereafter, up to the time of the filing of the complaint in this action” on 15 October 1914, the
master and the local agent of the shipowner refused to make delivery without a deposit in cash of the full
amount of freight charges agreed upon in the charter party, amounting to nearly P70,000, “to insure the
payment of whatever freight might be found due upon adjustment under the terms of the charter party;” that
not until the day following the filing of the complaint in this action, praying for damages and the appointment
of a receiver to take possession and dispose of the cargo, that is to say not until 16 October 1914, 70 days
after the arrival of the vessel in the port of refuge, and then only upon stipulation of counsel in open court,
were joint receivers appointed to sell the cargo and to hold and deposit the proceeds subject to the order of the
court.

4. Master has duty to sell perishable goods under a contract of affreightment he found himself
unable to execute
In the case of the Sambia, the Court discussed at some length the duty and the liability of the master
and the shipowner as to the disposition of her cargo after the vessel had taken refuge in Manila Bay, and the
Court held, substantially, that the master had complied with the duty resting upon him, in the absence of the
owner of the cargo, to sell this perishable cargo which had been intrusted to him under a contract of
affreightment which he found himself unable to execute.

5. Master and shipowner responsible for damages suffered by cargo while Esslinger lay in Manila
Bay
Herein, under the doctrine laid down in the case of the Sambia, the master, and therefore the
shipowner, must be held responsible for the damage suffered by the cargo aboard the Esslingen while it lay in
Manila Bay. Not only did he fail and neglect to take any measures looking to the sale of the cargo, but he
actually refused to deliver this perishable cargo to its owner upon demand, after it had lain in the hold of the
vessel for about 5 weeks, unless the cargo owner would comply with his wholly unjustifiable requirement of a
deposit of P70,000 cash, on account of freight to which he had not the shadow of a lawful claim; and he
persisted in that refusal until legal proceedings were instituted after the perishable cargo had lain in the hold
of the vessel for more than 2 months under the rays of a tropical sun, and without adequate ventilation, it
being impossible to secure such ventilation while the vessel lay at anchor.

th
6. Citation 309 of Carver’s Carriage of Goods by Sea, 5 ed.
“The master is entitled to delay for such a period as may be reasonable under the circumstances,
before deciding on the course he will adopt. He may claim a fair opportunity of carrying out the contract, and
earning the freight, whether by repairing or transhipping. (See The Blenheim [1885] 54 L. J., Adm. 81; 10 P.
D., 167; 5 Asp. M. C., 522.) Should the repair of the ship be undertaken it must be proceeded with diligently;
and if so done, the freighter will have no ground of complaint, although the consequent delay be a long one.
Unless, indeed, the cargo is perishable, and likely to be injured by the delay. Where that is the case, it ought
to be forwarded, or sold, or given up, as the case may be, without waiting for the repairs, or proper steps, if
such are possible, taken to prevent the cargo suffering by the delay. Any failure on the part of the shipowner
or master to perform his duty in these respects will be ground for an action by the owner of the cargo.
(Hansen vs. Dunn [1906], 11 Com. Ca., 100; 22 T. L. R., 458.)”

th
7. Citation 304a of Carver’s Carriage of Goods by Sea, 5 ed.
“A shipowner, or shipmaster (if communication with the shipowner is impossible) will be allowed a
reasonable time in which to decide what course he will adopt in such cases as those under discussion; time
must be allowed to him to ascertain the facts, and to balance the conflicting interests involved, of shipowner,
cargo owner, underwriters on ship, cargo, and freight. But once that time has elapsed, he is bound to act
promptly according as he has elected either to repair or abandon the voyage, or tranship. If he delays, and
owing to that delay a perishable cargo suffers damage, the shipowner will be liable for that damage; he cannot
escape that obligation by pleading the absence of definite instructions from the owners of cargo or their
underwriters, since he has control of the cargo and is entitled to elect. Thus, in Hansen vs. Dunn ([1906] 11
Com. Ca., 100; 22 T. L. R., 458) the shipowner was held liable for damage suffered by a cargo of maize,
which he had kept in the ship’s hold during an unreasonable delay in electing what course he should adopt. ‘If
instead of promptly transshipping, he preferred to negotiate for that to which he was not entitled, a pro rata
freight on discharge of the maize at Cape Town, he had no right in order to obtain that advantage to keep the
goods meanwhile where he knew that they were daily suffering damage and might thereby become
unmerchantable. If he wished, for his own advantage, to delay action, it could only be done, in common
fairness, by his incurring the expense involved in his doing his best for the goods by discharging them out of
The Closeburn’s hold.’ (Kennedy, J., 11 Com. Ca., at p. 105.)”

8. Amount of deterioration and consequent loss in value of cargo undetermined

The value of the cargo in Saigon was admittedly 307,214.44 francs or P145,600.91, and its “true and
fair value” in the condition in which it was found at the time when it was sold in Manila was expressly agreed
to be the net proceeds of the sale, that is to say, P57,823.35. But how much of this heavy loss in value was due
to the deterioration in the quality of the cargo while it lay in the hold of the vessel in Manila Bay, the Court is
unable to determine from the agreed statement of facts upon which the case was submitted. There is no
stipulation as to what this cargo of rice-meal would have brought had it been thrown on the market in Manila
in the condition in which it was when it was brought into Manila Bay, and before it began to deteriorate as a
result of its detention on board the vessel, nor is there a stipulation as to the market value in Manila of a
similar cargo of rice-meal in good condition at the time when the damaged cargo was sold. In the absence of
any evidence of record on which to base a finding as to what the cargo would have brought had it not
deteriorated in Manila Bay, the Court is wholly unable to fix the damages for which the shipowner should be
held responsible, unless the Court assume without proof a value to be set on undamaged rice-meal in Manila
which neither party included or intended to include in the agreed statement of facts upon which the case was
submitted for adjudication.

9. Shipower not liable for losses resulting from flight of vessel from Saigon, liable for amount of
deterioration of cargo in neutral port
Under the rulings in the Sambia case, the owners of the Esslingen are not liable for losses resulting
from the flight of that vessel from Saigon and the carrying of the cargo to Manila; so that if the undamaged
cargo was worth less in Manila Bay than in the port of Saigon, the loss must be borne by the cargo owner.
The measures of the damages for which the shipowner can be held responsible is the amount of the
deterioration of the cargo in Manila Bay, he being held responsible therefor, because of the master’s failure to
take prompt measures looking to the sale of this perishable cargo; and because of his wholly unjustifiable
refusal to turn it over to its owners, on demand, after the voyage contemplated in the charter party had been
abandoned.

10. New trial warranted

Since the Court must reverse so much of the judgment entered in the court below as allows damages
in the sum of P57,823.35 for the alleged breach of the contract to transport the cargo from Saigon to Dunkirk
or Hamburg, and is unable from the agreed statement of facts to fix the amount of the damages which should
be allowed because of the failure of the master, after arriving in Manila Bay, to turn over the cargo to its
owners and “to take such measures in the interests of the shipper as might reasonably be required of a prudent
man under the existing conditions,” the Court is of opinion that a new trial should be allowed on the branch of
the case.

11. Scope of new trial

 Since the Court would not hesitate to fix the amount of the damages suffered by the shipper as a
result of the deterioration of the cargo in Manila Bay at the difference between the proceeds of the sale of the
damaged cargo and the amount which could have been gotten for such a cargo of rice-meal in an undamaged
condition in Manila Bay at the time when the damaged cargo was sold, if this latter amount could be
determined from the record, it will make for the convenience of the parties and an early termination of this
litigation, to limit the scope of the inquiry on the new trial to the determination of this latter amount,
judgment to be entered, thereafter, in conformity with the doctrine of liability announced in this case.

[164]

Guzman vs. William X (GR L-3649, 24 October 1907)

First Division, Torres (J): 4 concur

Facts: On January 1904, an agent of Jose Guzman contracted with Behn, Meyer & Co., agents of the said
steamer, in the sum of P150, for the towing of the lorcha Nevada, owned by Guzman, to the port of Iloilo. On
4 January 1904, the captain of the steamer Kudat took charge of the lorcha, which was manned by a master
and four sailors, and on the following day, the 5th, at noon, the steamer left the port of Manila with the lorcha
in tow; that at about 9:30 p. m. of the same date, as the Kudat with her tow was within sight of the Island of
Cabras, between Luzon and Island of Mindoro, the port tow line broke, and that thereupon the captain of the
Kudat ordered the crew of the Nevada, as the latter neared the stern of the steamer, to come on board the
Kudat and to abandon the lorcha. As the master (arraez) protested several times against such order, the
captain insisted and threatened to cut the other tow line. In consequence of the attitude of the captain the crew
abandoned the lorcha and boarded the steamer and the captain then ordered the abandonment of the lorcha
and cast her adrift by having the tow line cut, and the steamer then proceeded on her voyage to Iloilo. Upon
arriving at the latter port, on 7 January, the master or pilot of the lorcha went to the collector of customs and
entered a protest, in which he stated that the weather was fair, the sea calm, that the moon was bright, and that
the spot where one of the tow lines broke was close to the Islands of Mindoro, Cabras, and Luban, at any of
which places the lorcha might have been left in safety. The captain of the Kudat did not enter any protest at
Iloilo in order to justify the abandonment of the lorcha nor the circumstances connected therewith.

On 19 February, 1904, Attorney A. Herrero, on behalf of Jose Guzman, filed a complaint with the CFI of
Manila against the captain and owners of the steamer Kudat. It does not appear that the captain, William X, of
the Kudat, was ever summoned to appear before the court, but Behn, Meyer & Co., on 23 March 1904 and in
answer to the complaint, denied each and all of the allegations therein contained. Upon evidence being
adduced by Guzman, Behn, Meyer & Co. moved for the dismissal of the case, and as the motion was
overruled by the court, the firm excepted thereto and afterwards produced its evidence, which was made of
record. On 19 October, judgment was rendered sentencing Behn, Meyer & Co., to pay Guzman the sum of
P9,000 and costs.

The judgment was excepted to by the firm, who moved for a new trial on the ground that the decision was
contrary to law and to the weight of the evidence, and because the findings of fact of the judgment are
contrary to the preponderance of the proofs. This motion was overruled and the firm duly excepted thereto.

The Supreme Court affirmed the judgment appealed from, with the costs against William X and Behn, Meyer
& Co.

1. Contract in present case that for hire of service, not a charter contract; Articles 652 et seq not
applicable
The contract entered into between the agent of Jose Guzman, owner of the lorcha Nevada, and the
firm of Behn, Meyer & Co., as agents and representatives of the captain and owners of the steamer Kudat, is
not a charter party. It is a contract for the hire of services by virtue of which the said firm, by means of the
said steamer, under the management of its captain, officers, and crew, engaged to tow the said lorcha from
this port of Manila to that of Iloilo for a consideration of P150. The provisions of articles 652 et seq. of the
Code of Commerce with reference to charter parties are not applicable in the case because the lorcha was not
shipped or placed on board the steamer, but, as had been agreed to, should have been towed from this port of
Iloilo.

2. Article 1101 NCC

Article 1101 of the Civil Code provides that “Those who in fulfilling their obligations are guilty of
fraud, negligence, or delay, and those who in any manner whatsoever act in contravention of the stipulations
of the same, shall be subject to indemnify for the losses and the damages caused thereby.”

3. Article 1601 NCC

Article 1601 of the Civil Code provides that “Carriers of goods by land or by water shall be subject,
with regard to the keeping and preservation of the things entrusted to them, to the same obligations as
determined for innkeepers by articles seventeen hundred and eighty three and seventeen hundred and eighty
four. The provisions of this article shall be understood without prejudice to what is prescribed by the Code of
Commerce with regard to transportation by sea and land.”

4. Captain acted with marked negligence and perfect knowledge of damage to owner
Herein, the captain who commanded the steamer Kudat failed to comply with the contract for towage
and acted for contravention of what had been stipulated therein between the owner of the lorcha in tow and
the agents who represented the owners of the steamer, and when abandoning the lorcha in mid-ocean with the
full knowledge that it would disappear and become a loss, he acted with marked negligence and a perfect
knowledge of the loss and damage he was about to cause the owner. Therefore, pursuant to the provisions of
law, the owner of the lorcha must be indemnified, the contract of towage involving the obligation to use due
diligence (art. 1104) the omission of which would imply fault or negligence on the part of the obligee,
because the lorcha Nevada was abandoned with the intent of casting her adrift to become a total loss.

5. Article 624 of the Code of Commerce

Article 624 of the Code of Commerce imposes on a captain, in case he has been wrecked or the cargo
of his vessel damaged, the duty of making the corresponding protest before the proper authority at the first
port where the vessel touches, within the twenty four-hours following his arrival. Herein, the captain of the
Kudat did not make any protest before any officer or competent authority at Iloilo stating the reasons which
compelled him to abandon the lorcha. On the other hand, the master or patron of the lost lorcha complied with
this duty imposed by law and appeared before the collector of customs of Iloilo and set forth his protest in
duplicate, wherein, upon request of the patron, a statement of what had occurred was inscribed.

6. Articles 586 of the Code of Commerce

Article 586 of the Code of Commerce provide that “The owner of a vessel and the agent shall be
civilly liable for the acts of the captain and for the obligations contracted by the latter to repair, equip, and
provision the vessel, provided the creditor proves that the amount claimed was invested therein. By agent is
understood the person entrusted with the provisioning of a vessel or who represents her in the port in which
she happens to be.”

7. Articles 587 of the Code of Commerce

Article 587 of the Code of Commerce provide that “The agent shall also be civilly liable for the
indemnities in favor of third persons which arise from the conduct of the captain in the care of the goods
which the vessel carried; but he may exempt himself therefrom by abandoning the vessel with all her
equipment’s and the freight he may have earned during the trip.”

8. Behn, Meyer & Co., as party to contract of towage, bound to indemnify owner of lorcha
 The firm Behn, Meyer & Co. contracted for the towage or conveyance by sea of the lorcha Nevada
from Manila to Iloilo, undoubtedly in their capacity of agents, charged by the owners of the steamer Kudat to
represent them in the port of Manila. The firm is the only party bound to indemnify the owner of the Nevada
in the amount of the damages sustained by him through the loss of the lorcha, considering the negligent, not
to say criminal, action of the captain, who, without any cause or reason and without any unforeseen accident
or stress of weather, willfully abandoned the lorcha, well-knowing that it would be lost, as really happened.
Behn, Meyer & Co. were unable to deny the existence of the said contract of towage, and, as a matter of fact,
they actually tried to recover the amount of the consideration for such service which had not been rendered by
the steamer Kudat, for which they were the agents.

[165]

US vs. Bacho (GR L-4091, 25 March 1908)

First Division, Carson (J): 6 concur

Facts: The information charges, in substance, that Bernabe Bacho, the chief engineer on board the steamer
Carmen which was lying at anchor near Cebu, carelessly and with reckless negligence released the screws
which held in place the manhole plate on the steamer’s boiler, without taking proper precautions to keep the
plate from falling into the boiler; that as a result the plate fell into the boiler, and plunging into the hot water
splashed some of it through the manhole so that it fell upon a Chinaman named Chan-Yan, scalding him
severely that he died the following day. Bacho was convicted of the crime of homicidio por imprudencia
temeraria (homicide resulting from reckless negligence) and sentenced to 4 months and 1 day of arresto
mayor, to pay P1,000 civil damages to the heirs of the deceased, and to the accessory and subsidiary penalties
prescribed by law in such cases. Bacho appealed.

The Supreme Court reversed the judgment of conviction and the sentence imposed upon Bacho; with the
costs in both instances de oficio.

1. Bacho as engineer was in exercise of usual and proper performance of duties

Herein, Bacho directed one of his firemen to open the manhole in the boiler on his steamer,
personally superintended the work which was done in accordance with the method usually adopted on board
steamers in Philippine waters. The manhole plate, which is so constructed that it can not be taken off, is held
in position by large screws in such manner that when the bolts on these screws in such manner that when the
bolts on these screws are loosened the plate drops into the boiler, unless it be supported by a cord or rope.
Under Bacho’s direction, the plate, which weighed about 20 pounds, was suspended on a rope kept for that
purpose. Thereafter, Bacho and the fireman went about their work in another part of the ship. From one to
three minutes, the plate fell into the boiler and splashed the hot water through the manhole on the Chinaman
Chan-Yan, who died within 24 hours from the effect of the scalds thus inflicted on his person. Except for the
fact that the plate fell into the boiler, all the evidence of record tends to prove that Bacho adopted the usual,
proper, and necessary method of procedure, and that in opening the manhole at the time and under the
conditions then existing he was in the usual and proper performance of his duties as engineer.

2. Cause of accident unknown; Nothing to indicate negligence of the accused

The evidence throws no light on the true cause of the accident. (1) It may have resulted from a hidden
defect in the rope on which the plate was suspended, for which the accused could in no wise be held
responsible. (2) It may have resulted from the slipping of one of the knots used by the fireman in trying the
ends of the rope on which the plate was suspended (although it might be the duty of a ship’s officer to
examine personally a knot tied by a subordinate, extreme diligence could not be required). (3) The fall of the
plate might have been caused by some mischievous or malicious person, and indeed there is some evidence in
the record which suggest this as the true solution of the problem. The rope showed evidences of having been
cut, from the description of the boiler and the parts about the manhole. Whatever was the cause of the fall of
the plate, there is nothing in the record to indicate that it was due to the negligence or carelessness of Bacho,
and on the contrary there is evidence to show that he exercised all the care and took all the precautions
required of him in the due performance of his duty.

3. Extreme diligence not required of ship officers

The usefulness of ship’s officers would be dangerously impaired if they were required to give their
personal attention to all petty details, and a ship’s officer might well hesitate to take command if he be held
criminally responsible for every accident resulting from the neglect of those under his command. It cannot be
contended that it was the duty of the officer to keep such a strict watch on any particular part of the engine as
to make it impossible for a malicious mischievous person to give the rope a cut with a knife, with perhaps no
other object than to annoy the engineer by letting the plate fall into the boiler, so that he would be compelled
to go in after it.

4. Accidents; Burden of proof to show negligence

In the general experience of mankind, accidents apparently unavoidable and often inexplicable are
unfortunately too frequent to permit the court to conclude that some one must be criminally liable for
negligence in every case where an accident occurs. It is the duty of the prosecution in each case to prove by
competent evidence not only the existence of criminal negligence, but that the accused was guilty thereof.

5. Opening of manhole while deceased was in vicinity does not constitute criminal negligence
The accused maintained that before opening the boiler he sent the deceased to work at another part of
the ship, and there is some evidence in support of his statement. The prosecution introduced testimony to
prove that after the accident, the accused admitted that he had forgotten that the deceased was working near
the boiler. Arguendo, the mere fact that the accused opened the manhole of the boiler while the deceased was
working in the neighborhood constituted such criminal negligence as would sustain the judgment of
conviction. The steamer was lying quietly at anchor, and the possibility that the accident by which the
deceased came to his death would occur was so remote that it would be most unreasonable to hold him
criminally responsible for failing to anticipate it.

[166], also [- after 167]

Vir-Jen Shipping and Marine Services, NLRC (GR L-58011-12, 20 July 1982)
Second Division, Barredo (J): 5 concur, 1 concur in result

Facts: Seamen Rogelio Bisula, Ruben Arroza, Juan Gacutno, Leonilo Atok, Nilo Cruz, Alvaro Andrada,
Nemesio Adug, Simplicio Bautista, Romeo Acosta, And Jose Encabo have a manning contract for a period of
1 year with Vir-Jen Shipping And Marine Services, Inc. in representation of its principal Kyoei Tanker Co.
Ltd. The terms and conditions of said contract were based on the standard contract of the National Seamen
Board (NSB). The manning contract was approved by the NSB. Aware of the problem that vessels not paying
rates imposed by the International Transport Workers Federation (ITF) would be detained or interdicted in
foreign ports controlled by the ITF, Vir-Jen and the seamen executed a side contract to the effect that should
the vessel M/T Janu be required to pay ITF rates when it calls on any ITF controlled foreign port, the seamen
would return to Vir-jen the amounts so paid to them. On 23 March 1979, the master of the vessel who is one
of the seamen involved herein sent a cable to Vir-Jen, while said vessel was enroute to Australia which is an
ITF controlled port, stating that seamen were not contented with the salary and benefits stipulated in the
manning contract, and demanded that they be given 50% increase thereof, as the ‘best and only solution to
solve ITF problem.’ Apparently, reference to ‘ITF’ in seamen’s cable made Vir-Jen apprehensive since the
vessel at that time was enroute to Australia, an ITF port, and would be interdicted and detained thereat, should
the seamen denounce the existing manning contract to the ITF and should Vir-Jen refuse or be unable to pay
the ITF rates, which represent more than 100% of what is stipulated in the manning contract. Placed under
such situation, Vir-Jen replied by cable dated 24 March 1979 to seamen. On 26 March 1979, Vir-Jen wrote a
letter to the NSB denouncing the conduct of the seamen. In view of the seamen’s conduct and breach of
contract, Vir-Jen’s principal, Kyoei Tanker Co., Ltd. terminated the manning contract in a letter dated 4 April
1979. On 6 April 1979, Vir-Jen wrote the NSB asking permission to cancel the manning contract with Vir-
Jen. On 10 April 1979, the NSB through its Executive Director Cresencio C. Dayao wrote Vir-Jen authorizing
it to cancel the manning contract. The seamen were accordingly disembarked in Japan and repatriated to
Manila.

The seamen filed a complaint with the NSB for illegal dismissal and non-payment of wages. After trial, the
NSB found that the termination of the services of the seamen before the expiration of their employment
contract was justified ‘when they demanded and in fact received from the company wages over and above the
contracted rates which in effect was an alteration and modification of a valid and existing contract.

The seamen appealed the decision to the NLRC which reversed the decision of the NSB and required Vir-Jen
to pay the wages and other monetary benefits corresponding to the unexpired portion of the manning contract
on the ground that the termination of the said contract by Vir-Jen was without valid cause. Therein, Vir-Jen
was ordered to pay the following to the complainant Seamen who have not withdrawn from the case, namely:
Capt. Rogelio H. Bisula, Ruben Arroza, Juan Gacutno, Leonilo Atok, Nilo Cruz, Alvaro Andrada, Nemesio
Adug, Simplicio Bautista, Romeo Acosta and Jose Encabo: (1) their earned wages corresponding to the
period from 16 to 19 April 1979; (2) the wages corresponding to the unexpired portion of their contracts, as
adjusted by the respondent Company effective 1 March 1979; (3) the adjusted representation allowances of
the complainant Seamen who served as officers and who have not withdrawn from the case, namely: Capt.
Rogelio Bisula, Ruben Arroza, Juan Gacutno, Leonilo Atok and Nilo Cruz; (4) their vacation pay equivalent
to ½ month’s pay after 6 months of service and another ½ month’s pay after the completion of the one-year
contract; (5) their tanker service bonus equivalent to ½ month’s pay; and (6) their earned overtime pay from 1
to 19 April 1979. The Court also directed the Secretariat of the NSB to issue within 5 days from receipt of the
Decision the necessary clearances to the suspended Seamen. Hence, the present petition for certiorari.

The Supreme Court granted the petition, set aside the decision of the NLRC complained of, and reinstating
the decision of the NSB; without costs.

1. Article 223 of the Labor Code; Appeal, Limitations of the NLRC’s reviewing authority
Article 223 of the Labor Code literally provides that “Decisions, awards, or orders of the Labor
Arbiters or compulsory arbitrators are final and executory unless appealed to the Commission by any or both
of the parties within 10 days from receipt of such awards, orders, or decisions. Such appeal may be
entertained only on any of the following grounds: (a) If there is a prima facie evidence of abuse of discretion
on the part of the Labor Arbiter or compulsory arbitrator; (b) If the decision, order, or award was secured
through fraud or coercion, including graft and corruption; (c) If made purely on questions of law; and(d) If
serious errors in the findings of facts are raised which would cause grave or irreparable damage or injury to
the appellant. To discourage frivolous or dilatory appeals, the Commission or the Labor Arbiter shall impose
reasonable penalty, including fines or censures, upon the erring parties. In all cases, the appellant shall furnish
a copy of the memorandum of appeals to the other party who shall file an answer not later than 10 days from
receipt thereof.”

2. 10 days fixed by Article 223 contemplates calendar days and not working days; Prompt
disposition of labor cases
The shortened period of ten (10) days fixed by Article 223 contemplates calendar days and not
working days. It is precisely in the interest of labor that the law has commanded that labor cases be promptly,
if not peremptorily, dispose of. Long periods for any acts to be done by the contending parties can be taken
advantage of more by management than by labor. Most labor claims are decided in their favor and
management is generally the appellant. Delay, in most instances, gives the employers more opportunity not
only to prepare even ingenious defenses, what with well-paid talented lawyers they can afford, but even to
wear out the efforts and meager resources of the workers, to the point that not infrequently the latter either
give up or compromise for less than what is due them.

3. Minister of Labor has no right to amend law

The Minister of Labor may not, under the guise of issuing implementing rules of a law as authorized
by the law itself, go beyond the clear and unmistakable language of the law and expand it at his discretion.
The Minister of Labor has no legal power to amend or alter in any material sense whatever the law itself
unequivocally specifies or fixes.

4. Seamen’s contracts not ordinary contract of employment

Seamen’s contracts of the nature in present case are not ordinary ones. There are special laws and
rules governing them precisely due to the peculiar circumstances that surround them. The employment
contract in question is unlike any ordinary contract of employment, for the reason that a manning contract
involves the interests not only of the signatories thereto, such as the local Filipino recruiting agent, the foreign
owner of the vessel, and the Filipino crew members, but also those of other Filipino seamen in general as well
as the country itself.

5. Article 12 of Labor Code

Article 12 of the Labor Code provides that it is the policy of the State not only ”to insure and regulate
the movement of workers in conformity with the national interest’ but also ‘to insure careful selection of
Filipino workers for overseas employment in order to protect the good name of the Philippines abroad. “

6. NSB; Article 20 of Labor Code

The National Seamen Board (NSB), which is the agency created to implement said state policies, is
thus empowered pursuant to Article 20 of the Labor Code “to secure the best possible terms and conditions of
employment for seamen, and to insure compliance thereof” not only on the part of the owners of the vessel
but also on the part of the crew members themselves.

7. Manning contracts to be approved by NSB; Valid grounds for termination of such contracts
Conformably to the power vested in the NSB, the law requires that all manning contracts shall be
approved by said agency. It likewise provides that “it shall be unlawful to substitute or alter any previously
approved and certified employment contract without the approval of NSB” (Section 35, Rules and
Regulations in the recruitment and placement of Filipino seamen aboard foreign going ships) and authorizes
the employer or owner of the vessel to terminate such contract for just causes (Section 32, Ibid). Among such
just causes for termination are “bad conduct and unwanted presence prejudicial to the safety of the ship”
(Guidebook for shipping employers, page 8) and material breach of said contract.

8. Reason for stringent rules governing Filipino seamen aboard foreign-going ships
The stringent rules governing Filipino seamen aboard foreign-going ships are dictated by national
interest. There are about 120,000 registered seamen with the NSB. Only about 50,000 of them are employed
and 70,000 or so are still hoping to be employed. Those Filipino seamen already employed on board foreign-
going ships should accordingly conduct themselves with utmost propriety and abide strictly with the terms
and conditions of their employment contract, and the NSB should see to that, in order that owners of foreign-
owned vessels will not only be encouraged to renew their employment contract but will moreover be induced
to hire other Filipino seamen as against other competing foreign sailors.

9. NSB; Article 20 (codal)

Article 20 of the Labor Code provides “(a) A National Seamen Board is hereby created which shall
developed and maintain a comprehensive program for Filipino seamen employed overseas. It shall have the
power and duty: (1) To provide free placement services for seamen; (2) To regulate and supervise the
activities of agents or representatives of shipping companies in the hiring of seamen for overseas
employment; and secure the best possible terms of employment for contract seamen workers and secure
compliance therewith; and (3) To maintain a complete registry of all Filipino seamen. (b) The Board shall
have original and exclusive jurisdiction over all matters or cases including money claims, involving
employer-employee relations, arising out of or by virtue of any law or contracts involving Filipino seamen for
overseas employment. The decision of the Board shall be appealable to the National Labor Relations
Commission upon the same grounds provided in Article 223 hereof. The decisions of the National Labor
Relations Commission shall be final and inappealable.”

10. Finality and unappealability of decisions of NLRC

The finality and unappealability of the decisions of the National Labor Relations Commission
conferred by provisions of the Labor Code in cases of the nature now before the Supreme Court necessarily
limits the latter’s power in the premises to the exercise of its plenary certiorari jurisdiction.

11. Seamen breached respective employment contracts

This is so for the Seamen demanded and in fact received from the Company wages over and above
their contracted rates, which in effect is an alteration or modification of a valid and subsisting contract; and
the same not having been done thru mutual consent and without the prior approval of the Board the alteration
or modification is contrary to the provisions of the New Labor Code, as amended, more particularly Art. 34
(i) thereof.

12. Article 34 (i) of the New Labor Code; Prohibited practices

Article 34 (i) states that “It shall be unlawful for any individual, entity, licensee or holder of authority:
xxx (i) To substitute or alter employment contracts approved and verified by the Department of Labor from
the time of actual signing thereof by the parties up to and including the period of expiration of the same
without the approval of the Department of Labor;’ xxx “

13. Revision of contract not done thru mutual consent of the Company
The revision of the contract was not done thru mutual consent for the Company did not voluntarily
agree to an increase of wage, but was only constrained to make a counter-proposal of 25% increase to prevent
the vessel from being interdicted and/or detained by the ITF because at the time the demand for salary
increase was made the vessel was enroute to Kwinana, Australia (via Senipah, Indonesia), a port where the
ITF is strong and militant. A perusal of the Cables coming from the Seamen addressed to the Company would
show the threatening manner by which the desire for a salary increase was manifested, contrary to their claim
that it was merely a request.

14. NSB cannot sanction rights of seamen for higher wages when consent of owner secured by
threat, etc.
While the Board recognizes the rights of the Seamen to seek higher wages provided the increase is
arrived at thru mutual consent, it could not however, sanction the same if the consent of the employer is
secured thru threats, intimidation or force. Herein, the Company was compelled to accede to the demand of
the Seamen for a salary increase to forestall the possibility of the vessel being interdicted by the ITF at
Kwinana, Australia, for in the event the vessel would be detained and/or interdicted the Company would
suffer more losses than paying the Seamen 25% increase of their salary.

15. Termination of services of seamen legal

The termination of the services of the Seamen was legal and in accordance with the provisions of
their respective employment contracts. Considering the findings of the Board that the Seamen breached their
contracts, their subsequent repatriation was justified. While it may be true that the Seamen were hired for a
definite period their services could be terminated prior to the completion of the full term thereof for a just and
valid cause. The Seamen’s breach of their employment contracts and the subsequent termination of the
Manning Agreement of Vir-jen Shipping & Marine Services, Inc. with the Kyoei Tanker, Ltd., justified the
termination of the Seamen’s services.

16. Monetary claims of seamen not valid nor meritorious

As regards the claim of the Seamen for the payment of their salaries for the unexpired portion of their
employment contracts the same should be denied. This is so because of the findings of the Board that their
dismissal was legal and for a just cause. Awards of this nature is proper only in cases where a seafarer is
illegally dismissed.

17. NLRC overstepped boundaries of reviewing authority and was overlinient

The NLRC overstepped the boundaries of its reviewing authority and was overlenient. Whether or not
the seamen had breached their contract with Vir-Jen is a factual issue, the peculiar nuances of which were
better known to the NSB, the fact-finding authority. Indeed, even if it was nothing more than the
interpretation of the cablegram sent by the seamen to Vir-Jen on 23 March 1979 that were the only question to
be resolved, that is, whether or not it carried with it or connoted a threat which naturally panicked Vir-Jen,
which, to be sure, could be a question of law, still, as the Court sees it, the conclusion of the NLRC cannot be
justified.

18. Seamen’s conduct prejudicial to vessel and material breach of existing manning contract
While employees may be free to request their employers to increase their wages, they should not use
threat of such a nature and in such a situation as to put the employer at their complete mercy and with no
choice but to accede to their demands or to face bankruptcy. This is what the seamen herein did, which is an
act of bad conduct prejudicial to the vessel, and a material breach of the existing manning contract. It has
adverse consequences that led not only to the termination of the existing manning contract but to the rejection
by Kyoei Tanker Co. Ltd. of Vir-Jen’s offer to supply crew members to three other vessels, thereby depriving
unemployed Filipino seamen of the opportunity to work on said vessels.

19. NSB; Composition and power

The NSB is not only charged directly with the administration of shipping companies in the hiring of
seamen for overseas employment by seeing to it that our seamen “secure the best possible terms of
employment for contract seamen workers and secure compliance therewith”. Its composition as of the time
this controversy arose is worth noting — for it is made up of the Minister of Labor as Chairman, the Deputy
Minister as Vice Chairman, and a representative each of the Ministries of Foreign Affairs, National Defense,
Education and Culture, the Central Bank, the Bureau of Employment Service, a worker’s organization and an
employee’s organization and the Executive Director of the Overseas Employment Development Board.
(Article 23, Labor Code) It is such a board that has to approve all contracts of Filipino seamen (Article 18,
Labor Code). And after such approval, the contract becomes unalterable, it being “unlawful” under Article 34
of the Code “for any individual, entity, licensee or holder of authority: (i) to substitute or alter employment
contracts approved and verified by Department of Labor from the time of actual signing thereof by the parties
up to and including the period of expiration of the same without the approval of the Department of Labor.” In
other words, it is not only that contracts may not be altered or modified or amended without mutual consent
of the parties thereto; it is further necessary to have the change approved by the Department, otherwise, the
guilty parties would be penalized.

20. NLRC; Power

The power of the NLRC in relation to the works and actuations of the NSB is only appellate,
according to Article 20 (b), read in relation to Article 223, principally, over questions of law, since as to
factual matters, it may exercise such appellate jurisdiction only “if errors in the findings of fact are raised
which would cause grave or irreparable damage or injury to the appellant.”

21. Seamen knew they were hired for world-wide voyages; ITF practice
 The Seamen knew from the very moment they were hired that world-wide voyages or destinations
were contemplated in their agreement. So much so that corresponding steps had to be taken to avoid
interference of or trouble about the ITF upon the ship’s arrival at ITF controlled ports. The ITF requires the
seamen working on any vessel calling at ports controlled by them to be paid the rates fixed by the ITF which
are much higher than those provided in the contracts signed here, to the extent of causing tremendous loss if
not bankruptcy of the employer.

22. General practice of having side contracts

In anticipation precisely of such peril to the employer and ultimate unemployment of the seamen, the
usual procedure undeniably known to the seamen of having two payrolls, one containing the actually agreed
rates and the other ITF rates, the latter to be shown to the ITF in order that the ship may not be detained or
interdicted in Kwinana, was followed. It is of insubstantial moment that the side agreement or addendum was
not made known to or presented as evidence before the NSB. The NSB knows that the general practice is to
have such side contracts. More importantly, the said side contracts are not meant at all to alter or modify the
contracts approved by the NSB. Rather, they are precisely purported to enforce them to the letter, making it
clearer that even if the ships have to call at ITF controlled ports, the same shall remain to be the real and
binding agreement between the parties, in intentional disregard of whatever the ITF may exact.

23. No bad faith in said side contracts

There was no bad faith in having said side contracts, the intent thereof being to put into effect the
NSB directed arrangements that would protect the ship manning industry from unjust and ruinning effects of
ITF intervention. Indeed, examining the said side agreements, it is not correct to say that the seamen were
caught unaware, or by surprise when they were advised that the ship would proceed to Kwinana, Australia,
even assuming they had been somehow informed that they would sail to the Caribbean.

24. Wallem Philippine Shipping vs. Minister of Labor (102 SCRA 835) not controlling
A careful examination of Wallem Philippine Shipping Inc. vs. The Minister of Labor, G.R. No.
50734-37, February 20, 1981 shows that the same is dissimilar to the present case. In the Wallem case, there
was an express agreement between the employer and the ITF representative, under which said employer
bound itself to pay the crew members salary rates similar to those of ITF. When the crew members in the
Wallem case demanded that they be paid ITF rates, they were merely asking their employer to comply with
what had been agreed upon With the ITF representative, which conduct on their part cannot be said to be a
violation of contract but an effort to urge performance thereof. Herein, Vir-Jen and the seamen had a side
agreement, whereby the seamen agreed to return to Vir-Jen whatever amounts petitioner would be required to
pay under ITF rates. In other words, Vir-Jen and the seamen agreed that Vir-Jen would not pay the ITF rate.
When the seamen used ITF as threat to secure increase in salary, they violated the manning contract.
Moreover, herein, Vir-Jen terminated the manning contract only after the NSB authorized it to do so, after it
found the grounds therefor to be valid. On the other hand, the termination of the manning contract in the
Wallem case was without prior authorization from the NSB.

25. Effect of reporting the wage scheme to the ITF

Reporting the wage scheme to the ITF would mean that the vessel would be interdicted and detained
in Australia unless petitioner pay the ITF rates, which represent more than 100% of what is stipulated in the
manning contract. Petitioner was thus forced to grant private respondents an increase of 25% in their basic
salary. That such grant of a 25% increase was not voluntary is shown by the fact that Vir-Jen immediately
denounced the seamen’s conduct to NSB and subsequently asked said agency authority to terminate the
manning contract.

26. NSB has better position than NLRC to appraise relevant nuances of the actuations of both
parties; NLRC decision set aside
 Since the NSB, considering its official role, is the fact-finding body, and there is no sufficient
cogency in the NLRC’s finding that there was no threat employed by the seamen on Vir-Jen, and, it appearing
further that the well prepared Manifestation and Comment of the Solicitor General supports the decision of
the NSB, which body was in a better position than the NLRC to appraise the relevant nuances of the
actuations of both parties, The decision of the NLRC under question constitutes grave abuse of discretion and
should be set aside in favor of the NSB’s decision.

27. Law protecting rights of laborer authorizes neither oppression nor self-destruction of the
employer
In El Hogar Filipino Mutual Building and Loan Association vs. Building Employees Inc., 107 Phil.
473, citing San Miguel Brewery vs. National Labor Union, 97 Phil. 378, the Court emphasized: “Much as we
should expand beyond economic orthodoxy, we hold that an employer cannot be legally compelled to
continue with the employment of a person who admittedly was guilty of misfeasance or malfeasance towards
his employer, and whose continuance in the service of the latter is patently inimical to his interest. The law in
protecting the rights of the laborer, authorizes neither the oppression nor self-destruction of the employer.”

28. Economic sabotage

Situations wherein employers are practically laid in ambush or placed in a position not unlike those in
a highjack whether in the air, land or mid-sea must be considered to be what they really are: acts of coercion,
threat and intimidation against which the victim has generally no recourse but to yield at the peril of
irreparable loss. And when such happenings affect the national economy, they must be treated to be in the
nature of economic sabotage. They should not be tolerated. This Court has to be careful not to sanction them.

[167]

Wallem Phil. Shipping vs. Minister of Labor (GR L-50734-37, 20 February 1981)
First Division, de Castro (J): 4 concur, 1 concur in result

Facts: Jaime Caunca, Antonio Cabrera, Efren Garcia, Jose Ojeda, and Rodolfo Pagwagan were hired by
Wallem Philippines Shipping Inc. sometime in May 1975 to work as seamen for a period of 10 months on
board the M/V Woermann Sanaga, a Dutch vessel owned and operated by Wallem’s European principals.
While their employment contracts were still in force, Caunca, et. al. were dismissed by their employer
(Wallem) and were discharged from the ship on charges that they instigated the International Transport
Federation (ITF) to demand the application of worldwide ITF seamen’s rates to their crew.

Caunca, et. al. were repatriated to the Philippines on 27 October 1975 and upon their arrival in Manila, they
instituted a complaint against Wallem for illegal dismissal and recovery of wages and other benefits
corresponding to the 5 months’ unexpired period of their shipboard employment contract. After the hearing
on the merits, the Hearing Officer of the Secretariat (National Seamen Board [NSB]) rendered a decision on
14 March 1977 finding Caunca, et. al. to have violated their contract of employment when they accepted
salary rates different from their contract verified and approved by the National Seamen Board. Caunca, et. al.
filed a motion for reconsideration with the Board which modified the decision of the Secretariat in an Order
of 19 December 1977 and ruled that Wallem is liable for breach of contract when it ordered the dismissal of
Caunca, et. al. and their subsequent repatriation before the expiration of their respective employment
contracts. The Chaiman of the Board (NSB) directed Wallem to pay Caunca, et. al. the unexpired portions of
their contracts and their leave pay, less the amount they received as differentials by virtue of the special
agreements entered in Rotterdam, and 10% of the total amounts recovered as attorney’s fees. Wallem sought
clarification and reconsideration of the said order and asked for a confrontation with Caunca, et. al. to
determine the specific adjudications to be made. A series of conferences were conducted by the Board. Under
the circumstances, the Board was left with no alternative but to issue an Order 3 dated April 1979 fixing the
amount due Caunca, et. al. at their 3 months’ salary equivalent without qualifications or deduction. Hence, the
petition for certiorari with preliminary injunction.

The Supreme Court set aside the decision dated 14 March 1977 of the Hearing Officer, and affirmed the
Orders dated 19 December 1977 and 3 April 1979 of the National Seamen Board in toto; with the decision
immediately executory; without costs.

1. Circumstances involving Caunca, et. al.’s employment; Contents of Joint Affidavit

The Joint Affidavit contains, among others, “ xxx (5) That aside from our basic monthly salary, we
are entitled to 2 months vacation leave, daily subsistence allowance of US$8.14 each, daily food allowance of
US$2.50, as well as overtime pay which we failed to receive because our Shipboard Employment Contract
was illegally terminated; (6) That while we were in Rotterdam, on or about July 9, 1975, representative of the
ITF boarded our vessel and talked with the Ship’s Captain; (7) That the following day, the representatives of
the ITF returned and was followed by Mr. M.S.K. Ogle who is the Company’s Administrative Manager, again
went to see the Captain; (8) That at around 7:00 in the evening all the crew members were called in the Mess
Hall, where the ITF representatives informed us that they have just entered into a “Special Agreement” with
the Wallem Shipping Management, Ltd., represented by Mr. M.S.K. Ogle, Administrative Manager, wherein
new salary rates were agreed upon and that we were going to be paid our salary differentials in view of the
new rates; (9) That in the same meeting, Mr. M.S.K. Ogle also spoke where he told that a Special Agreement
has been signed and that we will be receiving new pay rate and enjoined us to work hard and be good boys;
(10) That the same evening we received our salary differentials based on the new rates negotiated for us by
the ITF; (11) That while we were in the Port Dubai, Saudi Arabia, we were not receiving our pay, since the
Ship’s Captain refused to implement the worldwide rates and insisted on paying us the Far East Rate; (12)
That the Port Dubai is one that is within the Worldwide rates sphere; (13) That on October 22, 1975, Mr. Greg
Nacional, Operation Manager of respondent corporation, arrived in Dubai, Saudi Arabia and boarded our
ship.
(14) That on October 23, 1975, Mr. Nacional called all the crew members, including us to a meeting at the
Mess Hall and there he explained that the Company cannot accept the worldwide rate. The Special Agreement
signed by Mr. Ogle in behalf of the Company is nothing but a scrap of paper. Mr. Jaime Caunca then asked
Mr. Nacional, in view of what he was saying whether the Company will honor the Special Agreement and Mr.
Nacional answered “Yes”. That we must accept the Far East Rates which was put to a vote. Only two voted
for accepting the Far East Rates. (15) That immediately thereafter Mr. Nacional left us; (16) That same
evening, Mr. Nacional returned and threatened that he has received a cable from the Home Office that if we
do not accept the Far East Rate, our services will be terminated and there will be a change in crew. (17) That
when Mr. Nacional left, we talked amongst ourselves and decided to accept the Far East Rates; (18) That in
the meeting that evening because of the threat we informed Mr. Nacional we were accepting the Far East Rate
and he made us sign a document to that effect; (19) That we the complainants with the exception of Leopoldo
Mamaril and Efren Garcia, were not able to sign as we were at the time on work schedules, and Mr. Nacional
did not bother anymore if we signed or not; (20) That after the meeting Mr. Nacional cabled the Home Office,
informing them that we the complainants with the exception of Messrs. Mamaril and Garcia were not
accepting the Far East Rates; (21) That in the meeting of October 25, 1975, Mr. Nacional signed a document
whereby he promised to give no priority of first preference in “boarding a vessel and that we are not
blacklisted”; (22) That in spite of our having accepted the Far East Rate, our services were terminated and
advised us that there was a change in crew; (23) That on October 27, 1975, which was our scheduled flight
home, nobody attended us, not even our clearance for our group travel and consequently we were not able to
board the plane, forcing us to sleep on the floor at the airport in the evening of October 27, 1975; (24) That
the following day we went back to the hotel in Dubai which was a two hours ride from the airport, where we
were to await another flight for home via Air France; (25) That we were finally able to leave for home on
November 2, 1975 arriving here on the 3rd of November; (26) That we paid for all excess baggages; (27)
That Mr. Nacional left us stranded, since he went ahead on October 27, 1975; (28) That immediately upon
arriving in Manila, we went to respondent Company and saw Mr. Nacional, who informed us that we were not
blacklisted, however, Mr. Mckenzie, Administrative Manager did inform us that we were all blacklisted; (29)
That we were asking from the respondent Company our leave pay, which they refused to give, if we did not
agree to a US$100.00 deduction; (30) That with the exception of Messrs. Jaime Caunca, Amado Manansala
and Antonio Cabrera, we received our leave pay with the US$100.00 deduction; (31) That in view of the
written promise of Mr. Nacional in Dubai last October 23, 1975 to give us priority and preference in boarding
a vessel and that we were not blacklisted we have on several occasions approached him regarding his
promise, which up to the present he has refused to honor.

2. Findings of the Board; No proof showing seamen conspired with ITF in coercing ship
authorities to grant salary increases
In its Order of 19 December 1977 5 the Board, thru its Chairman, Minister Blas F. Ople, held that
there is no showing that the seamen conspired with the ITF in coercing the ship authorities to grant salary
increases, and the Special Agreement was signed only by Wallem Shipping and the ITF without any
participation from Caunca, et. al. who, accordingly, may not be charged as they were, by the Secretariat, with
violation of their employment contract. The Board likewise stressed that the crew members may not be
discharged until after the expiration of the contract which is for a definite period, and where the crew
members are discharged without just cause before the contract shall have been performed, they shall be
entitled to collect from the owner or agent of the vessel their unpaid salaries for the period they were engaged
to render the services, applying the case of Madrigal Shipping Co., Inc. vs. Jesus Oglivie, et al.

3. Findings and conclusion of Board sustained; Acceptance of higher salaries than contracted
rates not a basis for breach of employment contracts (Constitutional guarantee for promotion of social
welfare)
The findings and conclusion of the Board should be sustained. There is no logic in the statement
made by the Secretariat’s Hearing Officer that Caunca, et. al. are liable for breach of their employment
contracts for accepting salaries higher than their contracted rates. The latter were not signatories to the Special
Agreement, nor was there any showing that they instigated the execution thereof. Caunca, et. al. should not be
blamed for accepting higher salaries since it is but human for them to grab every opportunity which would
improve their working conditions and earning capacity. It is a basic right of all workingmen to seek greater
benefits not only for themselves but for their families as well, and this can be achieved through collective
bargaining or with the assistance of trade unions. The Constitution itself guarantees the promotion of social
welfare and protection to labor.

4. No threat against ship authorities in acceding to their demands shown; No serious misconduct
The records fail to establish clearly the commission of any threat. But even if there had been such a
threat, Caunca, et.al.’s behavior should not be censured because it is but natural for them to employ some
means of pressing their demands for Wallem, who refused to abide with the terms of the Special Agreement,
to honor and respect the same. They were only acting in the exercise of their rights, and to deprive them of
their freedom of expression is contrary to law and public policy. There is no serious misconduct to speak of
which would justify Caunca, et. al.’s dismissal just because of their firmness in their demand for the
fulfillment by Wallem of its obligation it entered into without any coercion, specially on the part of Caunca,
et. al.

5. Wallem guilty of breach of contract

It is Wallem Shipping who is guilty of breach of contract when they dismissed Caunca, et. al. without
just cause and prior to the expiration of the employment contracts.Wallem voluntarily entered into the Special
Agreement with ITF and by virtue thereof the crew men were actually given their salary differentials in view
of the new rates. It cannot be said that it was because of Caunca, et.al.’s fault that Wallem made a sudden
turn-about and refused to honor the special agreement.

[-] Vir Jen Shipping & Machine Services v. NLRC, see [166]
[168]
Abueg vs. San Diego (CA-773-775, 17 December 1946)
Also de Salvacion vs. San Diego, and Oching vs. Sand Diego
En Banc, Padilla (J): 8 concur

Facts: The M/S San Diego II and the M/S Bartolome, both belonging to Bartolome San Diego, while
engaged in fishing operations around Mindoro Island on 1 October 1941 were caught by a typhoon as a
consequence of which they were sunk and totally lost. Amado Nuñez (machinist on board M/S San Diego II),
Victoriano Salvacion (machinist on board M/S Bartolome S) and Francisco Oching (captain or patron of M/S
Bartolome
S) while acting in their capacities perished in the shipwreck. Said vessels were not covered by any insurance.

Dionisia Abueg, widow of Amado Nuñez; Marciana S. de Salvacion, widow of Victoriano Salvacion; and
Rosario R. Oching, widow of Francisco Oching, filed before the CFI of Manila an action for compensation as
provided for in the Workmen’s Compensation Act. The trial court awarded said compensation to the widows.
Hence, the appeal to the Court of Appeals. As there was no question of fact involved in the appeal, the
appellate court forwarded the record to the Supreme Court.

The appeal was pending when the Pacific War broke out, and continued pending until after liberation, because
the record of the cases was destroyed as a result of the battle waged by the forces of liberation against the
enemy. As provided by law, the record was reconstituted and the Supreme Court proceeded to dispose of the
appeal. Finding no merit in the appeal filed in the cases, the Supreme Court affirmed the judgment of the
lower court, with costs against San Diego.

1. Articles 587, 837, 643 of Code of Commerce; Limited Liability Rule

Article 587 of the Code of Commerce provides that if the vessel together with all her tackle and
freight money earned during the voyage are abandoned, the agent’s liability to third persons for tortuous acts
of the captain in the care of the goods which the ship carried is extinguished. Article 837 of the same Code
provides that in cases of collision, the shipowners’ liability is limited to the value of the vessel with all her
equipment and freight during the voyage. Article 643 of the same Code provides that if the vessels and freight
are totally lost, the agent’s liability for wages of the crew is extinguished.

2. Real and hypothecary nature of liability of the shipowner or agent; History

The real and hypothecary nature of the liability of the shipowner or agent embodied in the provisions
of the Maritime Law, Book III, Code of Commerce, had its origin in the prevailing conditions of the maritime
trade and sea voyages during the medieval ages, attended by innumerable hazards and perils. to offset against
these adverse conditions and to encourage shipbuilding and maritime commerce it was deemed necessary to
confine the liability of the owner or agent arising from the operation of a ship to the vessel, equipment, and
freight, or insurance, if any, so that if the shipowner or agent abandoned the ship, equipment, and freight, his
liability was extinguished.

3. Provisions of the Code of Commerce have no room in the application of the Workmen’s
Compensation Act
The Workmen’s Compensation Act seeks to improve, and aims at the amelioration of, the condition of
laborers and employees. It is not the liability for the damage or loss of the cargo or injury to, or death of, a
passenger by or through the misconduct of the captain or master of the ship; nor the liability for the loss of the
ship as a result of collision; nor the responsibility for w ages of the crew, but a liability created by a statute to
compensate employees and laborers in cases of injury received by or inflicted upon them, while engaged in
the performance of their work or employment, or the heirs and dependents of such laborers and employees in
the event of death caused by their employment. Such Compensation has nothing to do with the provisions of
the Code of Commerce regarding maritime commerce. It is an item in the costs of production which must be
included in the budget of any well-managed industry.
4. Distinction between the case of Francisco vs. Dy Liaco and Yangco vs. Laserna; Lis mota
In the case of Yangco vs. Laserna, the limitation of the shipowner’s liability to the value of the ship,
equipment, freight, and insurance, if any, was the lis mota. In the case of Francisco vs. Dy-Liacco, supra, the
application of the Workmen’s Compensation Act to a master or patron who perished as a result of the sinking
of the motorboat of which he was the master, was the controversy submitted to the court for decision.

5. Responsibility of an employer under the Workmen’s Compensation Act

The Workmen’s Compensation Act was enacted to abrogate the common law and our Civil Code
upon culpable acts and omissions, and that the employer need not be guilty of neglect or fault, in order that
responsibility may attach to him. The shipowner was liable to pay compensation provided for in the
Workmen’s Compensation Act, notwithstanding the fact that the motorboat was totally lost.

6. Murillo vs. Mendoza; Workmen’s Compensation Act repealed Articles 643 and 837 of the Code
of Commerce
In the case of Murillo vs. Mendoza, supra, the Court held that “The rights and responsibilities defined
in said Act must be governed by its own peculiar provisions in complete disregard of other similar provisions
of the civil as well as the mercantile law. If an accident is compensable under the Workmen’s Compensation
Act, it must be compensated even when the workman’s right is not recognized by or is in conflict with other
provisions of the Civil Code or of the Code of Commerce. The reason behind this principle is that the
Workmen’s Compensation Act was enacted by the Legislature in abrogation of the other existing laws.” The
quoted part of the decision is in answer to the contention that it was not the intention of the Legislature to
repeal articles 643 and 837 of the Code of Commerce with the enactment of the Workmen’s Compensation
Act.

7. Coastwise or interisland trade cannot have narrow meaning

San Diego contends, as a new point, that the motorboats engaged in fishing could not be deemed to
be in the coastwise and interisland trade, as contemplated in section 38 of the Workmen’s Compensation Act
(Act 3428, as amended by Act 3812), inasmuch as a craft engaged in the coastwise and interisland trade is
one that carries passengers and/or merchandise for hire between ports and places in the Philippine Islands.
The term “coastwise and interisland trade” cannot have such a narrow meaning as to confine it to the carriage
for hire of passengers and/or merchandise, on vessels between Ports and Places in the Philippines, because
while fishing is an industry, if the catch is brought to a port for sale, it is at the same time a trade.

8. San Diego’s employees covered by Workmen’s Compensation Act; Murillo vs. Mendoza
If the motor ships in question while engaged in fishing, were to be considered as not engaged in
interisland and coastwise trade, the provisions or the Code of Commerce invoked by them regarding
limitation of the shipowner’s liability or extinction thereof when the shipowner abandons the ship, cannot be
applied. Granting however, that the motor ships run and operated by the appellant were not engaged in the
coastwise and interisland trade, as contemplated in section 38 of the Workmen’s compensation Act, still the
deceased officers of the motor ships in question were industrial employees within the purview of section 39,
paragraph (d), as amended, for industrial employment “includes all employment or work at a trade,
occupation or profession exercised by an employer for the purpose of gain.” The only exceptions recognized
by the Act are agriculture, charitable institutions and domestic service. Even employees engaged in
agriculture for the operation of mechanical implements, are entitled to the benefits of the Workmen’s
Compensation Act. In Murillo vs. Mendoza, the Court held that “our Legislature has deemed it advisable to
include in the Workmen’s Compensation Act all accidents that may occur to workmen or employees in
factories, shops and other industrial and agricultural workplaces as well as in the interisland seas of the
Archipelago.”

[169]
Murillo vs. Mendoza (GR 46020, 8 December 1938)
En Banc, Imperial (J): 5 concur

Facts: Concepcion Murilllo, Antonio, Carmen, Flavio and Jose Luis Madrid are the dependents of Octavio
Madrid, now deceased, and Alfredo Mendoza is the owner and operator of the S. S. Marie, and conducts his
business under the name and style of Manila Steamship Navigation Company. On 8 July 1936, Octavio
Madrid was employed by Mendoza as first officer of the S. S. Marie, with a salary of P110 a month plus
board during the last 12 weeks immediately preceding his death or an average weekly wage of P28.29. While
the said vessel was plying off the coast of the Province of Isabela, at Palanan Point, and while Madrid was
performing his duties as first officers, the vessel was struck by a heavy typhoon, as a result of which it sank
with all the officers and members of the crew perishing in the disaster. Notice of injury and claim for
compensation was filed on time by Murillo despite which Mendoza refused and still refused to pay the
compensation due.

As widow and children of the deceased Octavio Madrid brought an action to recover from Mendoza the
compensation allegedly granted them by the Workmen’s Compensation Act by reason of the death of said
deceased. The court rendered judgment on 16 November 1937, ordering Mendoza to pay to Murillo the sum
of P3,000 with legal interest thereon from 23 November 1936, and the costs. The court, believing that the
stipulation likewise submitted for decision the other 19 cases, also ordered Mendoza, in the decision rendered
by it in this case, to pay to the other plaintiffs the sums of money claimed as compensation in the other
complaints filed by them.

Mendoza appealed from the decision so rendered, but in this appeal and in the decision rendered by the
Supreme Court, only the appeal taken in GR 46020 will be considered and decided. The reason is because in
this appeal the plaintiffs in the other cases have neither appeared nor been heard.

The Supreme Court affirmed the decision rendered by the lower court, which is the only one appealed from,
with the costs of this instance to Mendoza.

1. Rolan vs. Perez; When gross income of employer more than P20,000
In the case of Rolan vs. Perez (34 Off. Gaz., 1598), the court held that under the law, as amended, the
fact that the gross income of the employer during the year next preceding the one in which the accident
occurred was P20,000 or more, as required by law, need not be alleged or proven by the plaintiff, but that, if
being a defense of the defendant, the burden is on the latter to allege and establish it. In the above-cited case.

2. Subsection (d) of Section 39, Act 3428 (original), cited in Rolan vs. Perez
Subsection (d) of section 39 of Act No. 3428 originally read: “‘(d) “Industrial employment” in case
of private employers includes all employment or work at a trade, occupation or profession exercised by an
employer for the purpose of gain, the gross income of which in the year immediately preceding the one
during which the accident occurred was not less than forty thousand pesos, except agriculture, charitable
institutions, and domestic service.’

3. Subsection (d) of Section 39, Act 3428 (as amended by Section 13, Arc 3812), cited in Rolan vs.
Perez
As amended by section 13 of Act No. 3812, said subsection (d) is couched in this wise: “(d)
“Industrial employment” in case of private employers includes all employment or work at a trade, occupation
or profession exercised by an employer for the purpose of gain, except agriculture, charitable institutions, and
domestic service, but as to agriculture, employees for the operation of mechanical implements shall be
entitled to the benefits of this Act.”
4. Effect of omission of phrase in amended provision
When the said subsection was amended, the legislature omitted the phrase ‘the gross income of which
in the year immediately preceding the one during which the accident occurred was not less than forty
thousand pesos.’ This omission simply means that from the taking effect of the amendment, 8 December
1930, the necessity to allege and prove the amount of the gross income ceased.

5. Purpose of Section 42, Act 3428, as amended by Section 14 of Act 3812

It is true that section 42, as amended by section 14 of Act 3812, provides that when the gross income
of any trade or occupation exercised by the employer during the year next preceding the one in which the
accident occurred, is less than P20,000, the claim for compensation shall be governed by the provisions of
Act 1874; but the only purpose of this provision is to introduce a defense in favor of the employer so that, in
the event his gross income does not reach said amount, he may invoke his right to be used under the
provisions of Act No. 1874; and being a defense favorable to the defendant, upon him, and not upon the
plaintiff, rests the burden of alleging and proving it.”

6. Workmen’s Compensation Act covers maritime accidents occurring in the Philippine waters
Unlike legislations existing in the United States of America wherein, aside from the workmen’s
compensation laws adopted by the different States, the federal admiralty laws and the Longshoremen’s and
Harbor Workers’ Compensation Act are in force, the Philippine Legislature has deemed it advisable to include
in the Workmen’s Compensation Act all accidents that may occur to workmen or employees in factories,
shops and other industrial and agricultural workplaces as well as in the interisland seas of the archipelago.
The applicability of the Workmen’s Compensation Act to accidents occurring in the Philippine seas has been
discussed for the first time in the case of Enciso vs. Dy-Liacco (57 Phil., 446 et seq.), where the question was
decided affirmatively.

7. Section 38 of Act 3428, as amended by Section 12 of Act 3812; Interisland trade

Section 38 of Act No. 3428, as amended by section 12 of Act No. 3812, provides that “this Act shall
cover the liability of the employers towards employees engaged in the coastwise and interisland trade, and
also in the foreign trade when such is permissible under the laws of the United States and the Philippine
Islands.”

8. Enciso vs. Dy-Liacco; Workmen’s compensations acts enacted to abrogate common law and
Civil code relative to obligation arising from negligence
In the case of Enciso vs. Dy-Liacco, supra, this court stated that the consensus of opinion and of the
decisions of the courts of various States of the Union is that workmen’s compensation acts have been enacted
to abrogate the common law and the Civil Code relative to obligations arising from nonpunishable fault or
negligence. It has been repeatedly stated that the Workmen’s Compensation Law was enacted to abrogate the
common law and our Civil Code upon culpable acts and omissions, and that the employer need not be guilty
of neglect or fault, in order that responsibility may attach to him.

9. Enciso vs. Dy-Liacco; Diverse means of attaining purpose of compensation acts

The compensation acts, especially the pioneer enactments differ considerably, one from another, in
many essential aspects. While the purpose sought to be accomplished is the same, the legislatures of the
various states chose diverse means for its attainment. One thing is characteristic of all of the acts; the
common law doctrines of negligence are abrogated, and in place of the common law procedure is substituted
a scheme for achieving cheap, speedy justice. (28 R. C. L., p. 714.)

10. Statutes prescribing liability without fault valid; Similar laws

The compensation acts do create liability without fault, the courts have uniformly held this to be no
objection to their validity. Philippine jurisprudence affords numerous examples of liability without fault and
the deprivation of property without fault being attributable to its owner. Statutes making railroad corporations
absolutely liable, without regard to negligence, for injuries to property caused by fire escaping from their
locomotive engines, are clearly statutes creating liability without fault, yet these statues have been upheld by
all the courts of the states in which they have been upheld by all the courts of the state in which they have
been enacted, as well as by the Supreme Court of the United States. As a matter of fact, the workmen’s
compensation act does exactly the same thing as the safety appliance acts; it imposes new duties of care on
the employer - the difference being that in one case the duty is announced in definite terms, whereas in the
other it rests in implication. As expressed by the United States Supreme Court, ‘the common law bases the
employer’s liability for injuries to the employee upon the ground of negligence; but negligence is merely the
disregard of some duty imposed by law; and the nature and extent of the duty may be modified by legislation,
with corresponding change in the test of negligence.’ . . .” (28 R. C. L., pp. 752, 753.)

11. Workmen’s compensation act distinct from damages, payments made as compensation
The workmen’s compensation acts are based on a new theory of compensation distinct from the
theories of damages, payments under the acts being made as compensation, not as indemnity (74 C. J., 232;
Mobile & O. R. Co. vs. Industrial Commission of Illinois, 28 F. [2d] 228; Martin vs. Kennecott Copper
Corporation, 252 F. 207; Devine’s Case, 129 N. E., 414; Duart vs. Simmons, 121 N. E., 100; 251 U. S., 547;
Kenney vs. Boston, 111 N. E., 47; Erie R. Co. vs. Linnekogel, 248 F., 389; De Biasi vs. Normandy Water Co.,
228 F., 234; Schlickenmayer vs. City of Highland Park, 235 N. W., 156; Andrejwski vs. Wolverine Coal Co.,
148 N. W., 684; Flanigan vs. Hines, 193 P., 1077).

12. Intention of legislature in enacting Workmen’s Compensation Act

The intention of the Legislature in enacting the Workmen’s Compensation Act was to secure
workmen and their dependents against becoming objects of charity, by making a reasonable compensation for
such accidental calamities as are incidental to the employment.

13. Compensation for injuries as item in cost of production or transportation

Under such Act injuries to workmen and employees are to be considered no longer as results of fault
or negligence, but as the products of the industry in which the employee is concerned. Compensation for such
injuries is, under the theory of such statute, like any other item in the cost of production or transportation, and
ultimately charged to the consumer. The law substitutes for liability for negligence an entirely new
conception; that is, that if the injury arises out of and in the course of the employment, under the doctrine of
man’s humanity to man, the cost of compensation must be one of the elements to be liquidated and balanced
in the course of consumption. In other words, the theory of the law is that, if the industry produces an injury,
that cost of that injury shall be included in the cost of the product of the industry. Hence the provision that the
injury must arise out of and in the course of the employment (Mobile & O. R. Co. vs. Industrial Commission
of Illinois, 28 F. [2d], 228, 229).

14. Accidents compensated independently of employer’s negligence; Exceptions

Under Act 3428, as amended by Act 3812, accidents are compensated independently of whether or
not the employer has incurred fault or negligence, and the only exceptions thereto are the accidents arising
from the voluntary act of the injured person, those resulting from the drunkenness of the employee who had
the accident, and those caused by the notorious negligence thereof (section 4, Act 3428).

15. Section 2 of Act 3428, as amended by Section 1 of Act 3812

Section 2 of the Act no. 3428, as amended by section 1 of Act 3812, provides that in order that an
accident may be compensated, it is necessary that it has arisen out of and in the course of the employment.

16. “Arising out of employment” construed

A definition of the phrase arising out of the employment that has received wide favor is the one
stating that this element required by law exists when there is apparent to the rational mind, upon consideration
of all of the circumstances, a causal connection between the conditions under which the work is required to be
performed and the resulting injury (71 C. J., 648; Michigan Transit Corporation vs. Brown, 56 F. [2d], 200,
202; In re Employers’ Liability Assur. Corporation, 102 N. E., 697; Industrial Commission of Colorado vs.
Enyeart, 256 P., 314, 315; Mann vs. Glastonbury Knitting Co., 96 A., 368; 90 Conn., 116; Vincennes Bridge
Co. vs. Industrial Commission, 184 N. E., 603, 605; Triangle Auto Painting & Trimming Co. vs. Industrial
Commission, 178 N. E., 886, 889; Landon vs. Industrial Commission, 173 N. E. 49, 50; Franklin Coal &
Coke Co. vs. Industrial Commission, 152 N. E., 498, 500; Edelweiss Gardens vs. Industrial Commission, 125
N. E., 260; Texas Indemnity Ins. Co. vs. McLaury, 54 S. E. [2d], 862, 863). It is said that an accident has
arisen in the course of the employment when it has occurred within the period of the employment, at a place
where the employee may reasonably be, and while he is reasonably fulfilling the duties of his employment
(71 C. J., 659; Stakonis vs. United Advertising Co., 148 A., 334; Taylor vs. St. Paul’s Universalist Church,
145 A., 887; Flanagan vs. Webster & Webster, 142 A., 201; Larke vs. John Hancock Mut. L. Ins. Co., 97 A.,
320).

17. Determination whether death arose out of employment

In investigating whether or not the death of said official arose out of his employment, all of the
circumstances present in the case should be taken into consideration in order to be able to determine whether
or not a causal connection exists between his said death and the conditions under which he necessarily had to
fulfill his duties. The deceased was contracted and employed to direct and render services in the vessel. When
he accepted the employment, he knew that he was in duty bound to render services in good weather as well as
when the vessel encountered a storm or typhoon, and it may be stated that he must have been aware that in
case of a typhoon his services has to be rendered in a higher degree, because in such event it was part of his
duties to save the vessel.

18. Death of Madrid compensable

Taking into consideration all of these circumstances, it is clear that his death is compensable under
the law on the ground that a causal relation existed between such death and the conditions under which he had
to perform his employment. It is obvious that the typhoon was the immediate cause of the sinking of the
vessel and that there existed no causal relation between it and the employment of the deceased. It is evident,
however, that between the conditions and circumstances under which the deceased discharged his
employment and his death, there existed the causal connection which makes the accident compensable.

19. Employer not responsible from force majeure when employee not exposed to a greater danger
than usual
The doctrine is generally accepted that the employer is not responsible for accidents arising from
force majeure or an act of God, as it is usually called, when the employee has not been exposed to a greater
danger than usual. However, in the case of the deceased and in that of a sailor, it cannot be denied that upon
contracting their services to navigate in the waters of the archipelago, having to render extraordinary services
in cases of typhoon, they are exposed to greater risk than usual, in comparison with other employees working
on land.

20. Injuries resulting from exposure to special or peculiar dangers of elements compensable under
WCA
Injuries resulting from exposure to the elements are generally classed as risks to which the general
public is exposed. The rule is generally recognized that if an employee, by reason of his duties, is exposed to
a special or peculiar danger from the elements, i.e., one greater than that to which other persons in the
community are exposed, and an unexpected injury is sustained by reason of the elements, the injury
constitutes an accident arising out of and in the course of the employment within the meaning of the
workmen’s compensation acts. And this rule has been recognized and applied in later cases. (83 A. L. R.
Annotation, page 234).

21. Determining when risk incidental to and arisen out of employment

 The nature of the employment, the conditions under which it was to be and was pursued, the exposure
to probable injury from reasonably to be expected storms of similar character were all matters incident to
such a risk as was here underwritten, and therefore an injury maturing such a risk could well be said to have
been incidental to and to have arisen out of that employment.’” (Workmen’s Compensation Law, Schneider,
vol. I, pp. 1076, 1077.)

22. Similarity of accident caused by lightning and one caused by typhoon

There is similarity between an accident caused by lightning and one caused by a typhoon because
both are fortuitous events and of the so-called acts of God by reason of such similarity some cases decided by
the courts in connection with accidents caused by lightning may be cited to better illustrate the doctrine laid
down by the Court.

23. Aetna Life Insurance vs. Industrial Commission of Colorado

In the case of Aetna Life Ins. Co. vs. Industrial Commission of Colorado (254 P., 995), the Supreme
Court of said State held that the death of a farm hand, who was struck by lightning while driving a team of
horses across a hill near a wire fence, was compensable as an accident which arose out of his employment.

24. Moody vs. Tillman

In the case of Moody vs. Tillman (163 S. E., 521), the Supreme Court of Georgia held that burns
received by a workman employed to sound a turpentine still, where burns resulted from the still’s catching fire
by lightning, had arisen out of the employment and were compensable.

25. Mathis vs. Ash Grove Lime

In the case of Mathis vs. Ash Grove Lime & Portland Cement Co. (272 P., 183), the Supreme Court
of Kansas held that the death of the employee of some quarries, by lightning, while he was walking along the
railroad track on his way from one quarry to another, was compensable and that such death arose out of the
employment.

26. Lebourgeois vs. Lyon Lumber

In the cases of Lebourgeois vs. Lyon Lumber Co. (6 La. App., 216); Fontenot vs. Lyon Lumber Co.
(6 La. App., 162), and Gasca vs. Texas Pipe Line co. (2 La. App., 483), the Supreme Court of Louisiana held
that an employee killed by lightning while eating his launch near a tree at the noon hour, was killed by an
accident arising out of his employment and was compensable.

27. Article 643 of the Code of Commerce

Article 643 of the Code of Commerce provides that “If the vessel and her freight should be totally
lost, by reason of capture or wreck, all rights of the crew to demand any wages whatsoever shall be
extinguished, as well as that of the agent for the recovery of the advances made.”

28. Article 837 of the Code of Commerce

Article 837 of the Code of Commerce provides that “The civil liability contracted by the shipowners
in the cases prescribed in this section, shall be understood as limited to the value of the vessel with all her
appurtenances and all the freight earned during the voyage.”

29. Compensation in favor of workmen and employees under WCA to be paid even if it is not
recognized or in conflict with provisions of the Civil Cod and Code of Commerce
The rights and responsibilities defined in the Workmen’s Compensation Act must be governed by its
own peculiar provisions in complete disregard of other similar provisions in complete disregard of other
similar provisions of the civil as well as the mercantile law. If an accident is compensable under the
Workmen’s Compensation Act, it must be compensated even when the workman’s right is not recognized by
or is in conflict with other provisions of the Civil Code or of the Code of Commerce. The reason behind this
principle is that the Workmen’s Compensation Act was enacted by the Legislature in abrogation of the other
existing laws. Workmen’s compensation acts follow the natural and logical evolution of society and the theory
upon which they are based is that each time an employee is killed or injured, there is an economic loss which
must be made up or compensated in some way. The burden of this economic loss should be borne by the
industry rather than by society as a whole. A fund should be provided by the industry from which a fixed sum
should be set apart as every accident occurs to compensate the person injured, or his dependents, for his or
their loss (State vs. Industrial Commission, 111 N. E., 299; L. R. A. 1916D, 944).

30. Humanity and civilization demand protection for workman in every line of labor
The court is aware of the fact that the practical application of the doctrine laid down will perhaps
occasion great losses to the shipowners doing business in this country, but humanity and civilization demand
protection for the workman in every line of labor, and to fulfill this social objective and at the same time
avoid ruin, employers and shipowners should employ means to insure the stability of their business.

[170]

Macondray vs. Delgado Bros. (GR L-13118, 28 April 1960)

En Banc, Concepcion (J): 9 concur

Facts: Delgado Bros., as operator of the pier services in the Port of Manila, received 68 cartons of paint,
among other cargoes unloaded in Manila, on 17 April 1955, from MS PLEASANTVILLE, of which
Macondray & Co., Inc. is agent for transshipment to Iloilo. When the cargo was about to be loaded on board
the MV JOLO, Delgado Bros. delivered only 59 cartons and could not deliver 9 cartons forming part of the
same shipment. Shortly after the departure of the MV JOLO for Iloilo, Delgado Bros. offered 9 cartons of
paint to make up for the shortage, but these 9 cartons were not accepted by the consignee and, consequently,
had to be sold at the best possible price obtainable, thereby reducing the value of the loss of P209.98, which
Macondray, as agent of the vessel, paid to the consignee. Delgado Bros. failed and refused to pay said sum of
P209.98, despite demands made by Macondray.

Accordingly, Macondray was constrained to litigate and incur an obligation to pay attorney’s fees and
expenses of litigation in the amount of not less than P300.00 before the CFI of Manila. Delgado Bros.
answered alleging that it had effected a complete delivery of 68 cartons of paint to Macondray’s customs
representative, who accepted said delivery without protest. Soon thereafter, however, Delgado Bros. filed,
with the permission of the court, a motion to dismiss, upon the ground that it has no jurisdiction over the
subject matter of the complaint, the amount demanded therein being less than P2,000. By an order dated 28
September 1957, the lower court granted the motion and, consequently, dismissed the complaint. Macondray
appealed, upon the theory that the case at bar calls for the exercise of admiralty jurisdiction, which is within
the original exclusive authority of courts of first instance.

The Supreme Court affirmed the order appealed from, with costs against Macondray.

1. Precise scope of admiralty jurisdiction

It has been said that “the precise scope of admiralty jurisdiction is not a matter of obvious principle or
of very accurate history”; that “this jurisdiction is to be interpreted by an enlarged view of its nature and
objects”; that the “best guides as to its extent” are “the Constitution, the laws of Congress, and the decisions
of the Supreme Court”; and that “as a result of the exclusive jurisdiction of all admiralty and maritime cases,
vested” in certain courts, “the court themselves are the sole judges of the scope of such jurisdiction, subject of
course to congressional legislation.” (1 Am. Jur., 550-551.)

2. Admiralty defined (Corpus Juris Secundum)

 Corpus Juris Secundum defines admiralty as “the branch of jurisprudence regulating maritime matters
of a civil and criminal character, and in a more restricted sense is the tribunal administering maritime law by a
peculiar and distinct procedure” (2 C.J., p. 64; italics ours), and states that admiralty jurisdiction covers “all
maritime cases and only maritime cases and extends to both person and res.” (2 C.J.S., p. 65)

3. Present case does not deal with any maritime matter or with the administration and application
of any maritime law
The only issues raised in the pleadings are (1) whether or not defendant had fully discharged its
obligation to deliver the 68 cartons of paint and (2), in the negative case, the amount of indemnity due the
plaintiff therefor. The determination of these questions does not require the application of any maritime law
and cannot affect either navigation or maritime commerce.

4. Duty of Delgado Bros. similar to any other depository; Origin of goods herein immaterial
As custodian of the 68 cartons of paints it had received from the MS Pleasantville, it was Delgado
Bros.’ duty, like that of any ordinary depository, to take good care of said goods and to turn the same over to
the party entitled to its possession, subject to such qualifications as may have validly been imposed in the
contract between the parties concerned. Such duty on the part of Delgado Bros. would be the same if the final
destination of the goods were Manila, not Iloilo, and the goods had not been imported from another state. The
foreign origin of the goods is, under the attending circumstances, immaterial to the law applicable to the case
or the rights of the parties herein, or the procedure for the settlement of their dispute.

5. Where principal matters belong to jurisdiction of court of equity

In case of controversy involving both maritime and non-maritime subject matter, where the principal
matter involved belongs to the jurisdiction of a court of common law or of equity, admiralty will not take
cognizance of incidental maritime matters connected therewith but will relegate the whole controversy to the
appropriate tribunal.

[-]

Bryan vs. Eastern & Australian SS (GR 9403, 4 November 1914)

En Banc, Moreland (J): 4 concur

Facts: On or about the end of December, 1912, Allan A. Bryan, et. al. bought of Eastern & Australian SS Co.
Ltd.’’s agent in Shanghai two first-class tickets for Manila. The tickets delivered to them were in English and
bore on their face, in large print, a statement that they were issued subject to the conditions printed on the
back. At the time the tickets were delivered to Bryan in Shanghai their attention was not especially drawn to
the provisions on the back of the ticket. Bryan, et. al. put their baggage on the St. Albans (owned by Eastern
& Australian) without paying for its transportation as freight and traveled with such baggage to Manila. The
steamer arrived in Manila on the morning of 7 January 1913. Shortly after its arrival Bryan’s baggage was
taken out of the hold of the ship for the purpose of being placed on the dock alongside of which the vessel
was berthed. The baggage was placed in a sling, consisting of a single rope wound once around the trunks,
and was swung from the side of the vessel. While still several feet above the wharf, the employee of Eastern
& Australian who was operating the winch, by some act or other, permitted the baggage to drop with great
rapidity. in its passage downward it struck the side of the ship with such force as to release it from the sling
and it dropped into the water alongside of the ship. The damages are stipulated at P1,188.

Bryan filed action to recover damages in the value of P1,915.30 against Eastern & Australian, resulting from
the negligence of the shipping company in handling Bryan’s baggage, whereby it fell into the sea and was
injured or destroyed. The shipping company, while admitting the damage caused to Bryan’s baggage, denied
that it was the result of the company’s negligence and set up as a special defense the limitation of liability
established by the contract under which the shipping company undertook to transport the plaintiffs from the
city of Hongkong to Manila. The trial court ruled in favor of Bryan. The shipping company appealed.

The Supreme Court affirmed the judgment, with costs against Eastern & Australian SS.

1. Conditions at the back of the ticket

One of the conditions in the ticket, printed in legible type, was as follows:”This ticket is issued by the
company and accepted by the passenger subject to the following conditions: The company will not hold itself
responsible for any loss or damage passengers may sustain from the following causes: From advance in or
delays after advertised date of sailing, either through the performance of His Majesty’s mail service or any
other cause, from detention on the voyage, or at any of the intermediate ports, or through streamers not
meeting, or delays from accident, from perils of the sea, or from machinery, boilers or stream, or from any
act, neglect or default whatsoever of the pilot, masters, or mariners, nor from any consequences arising from
any sanitary regulations or precautions which the company’s officers or local government authorities may
deem necessary. Personal baggage. — In order to insure as far as possible the safe custody of luggage,
passengers should personally see their luggage delivered on board. Each adult saloon passenger may carry,
free of charge, but at his own risk, 20 cubic feet of luggage; and each steerage passenger 10 cubic feet, under
similar conditions (all in excess of these quantities must be paid for at the current rate of freight); but the
company will not hold itself responsible for any loss, or damage to or detention, or overcarriage of luggage,
under any circumstances whatsoever unless it has been booked and paid for as freight.”

2. Testimony of J. S. Stanley Deputy Collector of Customs

Mr. Stanley testified: “While standing at the extreme end of Pier No. 5, I witnessed a number of
trunks being lifted from the deck of the steamship St. Albans to an elevation of about 10 or 12 feet from the
deck and practically the same height above the pier. The winchman was instructed to let go. The sling
dropped suddenly and was not checked at the proper time, and the sling of trunks struck the side of the wharf,
with the result that the trunks were forced from the sling and fell into the water. It is customary to use a rope
sling or a cargo chute running from the deck to the pier. The slings vary in size but are sufficiently large to
contain a large number of trunks and are formed of ropes running in opposite directions forming a rope net. If
these trunks had been in a rope sling they would not have fallen in the water.”

3. Testimony of I. V. Chapman, chief wharfinger in charge of pier No. 5

Mr. Chapman testified: “When the steamship St. Albans came alongside the pier I took all her lines
and berthed her in a position for the gangway and hatchways to work. Immediately after the ship was made
fast I requested to be informed from the chief officer where the baggage would be discharged from; he told
me hatch No. 4; I went to No. l hatch and asked the second officer who was there in charge of the hatch where
the baggage was to be discharged from; he said, ‘Right here,’ indicating No. 4 hatch. I then told him I would
have a chute there for him right away and he answered: ‘All right.’ I immediately went into the pier and
ordered one of the foremen and the men to take a chute to No. 4 hatch. I was following with the foreman and
behind the chute when Mr. Stanley informed me that the baggage was over the side. The chute at this time
was just through the door about 75 feet from the hatch. On arriving there I saw that the sling and these trunks
were all lying in the water. The stevedore had a lot of his men over the side picking up the trunks with the
men from the pier helping.”

4. Laws involving contracts executed in English colony; Lex loci contractus

The evidence relative to the law governing contracts in Hongkong consists of the testimony of a
Hongkong barrister, learned in the law of England and her colonies, and is to the effect that, under the law in
force at the place where the contract was made, the contract was valid and enforceable, and that it is not
necessary that the attention of persons purchasing tickets from common carriers be drawn specially to the
terms thereof when printed upon a ticket which on its face shows that it is issued subject to such conditions.
The barrister also testified that under the law of England and her colonies everything was done which was
necessary to make the terms printed on the back of the tickets a part of the contract between the parties.
Herein, it is undoubted that the contract found upon the back of the tickets is a contract perfectly valid in
England and her colonies and one which would be enforced according to its terms in British jurisdictions.

5. Strict rule of construction: Stipulation in contract too broad, cannot comprehend to include
negligent acts as so holding would be contrary to law; Price and Company vs. Union Lighterage
Company
An exemption in general words not expressly relating to negligence, even though the words are wide
enough to include loss by negligence or default of carriers’ servants, must be construed as limiting the
liability of the carrier as assurer, and not as relieving him from the duty of exercising reasonable skill and
care. Unless the contract of exemption specifically refers to exemption for negligence, it will be construed as
simply exempting the carrier from his liability as insurer or from his common law liability as carrier. If it be
held the language would be broad enough to cover every possible contingency, including the negligent act of
defendant’s servant, it would run counter to the established law of England and the United States on that
subject. Thus, the reasonableness of the strict rule of construction that the courts of England and of the State
of New York apply to contracts restricting the liability of carriers with respect to their negligence is apparent
when one considers that such contracts are held to be contrary to public Policy and invalid in the Federal
courts and in most of the State courts of the Union.

6. Testimony of expert witness does not contradict rule; Court not precluded from advising itself
as to the common law of England
A critical examination of the deposition of Mr. Ernest Hamilton Sharpe, Master of Arts and Bachelor
of Civil Law of the University of Oxford, Barrister at Law of London, Shanghai and Hongkong, and King’s
Counsel at the latter colony, does not disclose anything contradictory to the rule stated. Mr. Sharpe’s
examination was confined to the question of the validity of the contract indorsed upon the ticket exempting
the shipping company from liability for damage to their baggage. In view of the accurate answers of the
learned witness to the questions put to him as to the validity of the condition in question under English law,
there is no reason to suppose that he would not have stated correctly the rule as to the construction of the
condition had his attention been directed to that point. In any event, this court is not, by reason of the opinion
expressed by an expert witness, precluded from advising itself as to the common law of England. (Sec. 302,
Code of Civil Procedure.)

[-] International Harvester v. Hamburg-American Line, see [163]

[171] Planters v. CA , seee [15]
[172]

Puromines Inc. vs. CA (GR 91228, 22 March 1993)

Second Division, Nocon (J): 4 concur

Facts: Puromines, Inc. and Makati Agro Trading, Inc. entered into a contract with Philipp Brothers Oceanic,
Inc. for the sale of prilled Urea in bulk. On 22 May 1988, the vessel M/V “Liliana Dimitrova” loaded on
board at Yuzhny, USSR a shipment of 15,500 metric tons prilled Urea in bulk complete and in good order and
condition for transport to Iloilo and Manila, to be delivered to Puromines. 3 bills of lading were issued by the
ship-agent in the Philippines, Maritime Factors Inc., namely: Bill of Lading 1 dated 12 May 1988 covering
10,000 metric tons for discharge Manila; Bill of Lading 2 of even date covering 4,000 metric tons for
unloading in Iloilo City; and Bill of Lading 3, same date, covering 1,500 metric tons likewise for discharged
in Manila. The shipment covered by Bill of Lading 2 was discharged in Iloilo City complete and in good
order and condition. However, the shipments covered by Bill of Ladings 1 and 3 were discharged in Manila
in bad order and condition, caked, hardened and lumpy, discolored and contaminated with rust and dirt.
Damages were valued at P683, 056.29 including additional discharging expenses.
Consequently, Puromines filed a complaint with the trial court for breach of contract of carriage against
Maritime Factors Inc. as ship-agent in the Philippines for the owners of the vessel MV “Liliana Dimitrova,”
while Philipp Brothers Oceanic Inc., was impleaded as charterer of the said vessel and proper party to accord
Puromines complete relief (Civil Case 89-47403). Maritime Factors, Inc. filed its Answer to the complaint,
while Philipp Bros. filed a motion to dismiss, dated 9 February 1989, on the grounds that the complaint states
no cause of action; that it was prematurely filed; and that Puromines should comply with the arbitration clause
in the sales contract. The motion to dismiss was opposed by Puromines contending the inapplicability of the
arbitration clause inasmuch as the cause of action did not arise from a violation of the terms of the sales
contract but rather for claims of cargo damages where there is no arbitration agreement. On 26 April 1989,
the trial court denied Philipp Bros.’ motion to dismiss.

Elevating the matter to the Court of Appeals, and on 16 November 1989, Puromines’s complaint was
dismissed. The appellate court found that the arbitration provision in the sales contract and/or the bills of
lading is applicable in the present case. Hence, the special civil action for certiorari and prohibition.

The Supreme Court dismissed the petition and affirmed the decision of the court a quo.

1. Arbitration clause in Sales Contract S151.8.01018 entered by Puromines with Philipp Brothers
Oceanic
The Sales Contract S151.8.01018 provided, among others, an arbitration clause which states that
“Any disputes arising under this contract shall be settled by arbitration in London in accordance with the
Arbitration Act 1950 and any statutory amendment or modification thereof. Each party is to appoint an
Arbitrator, and should they be unable to agree, the decision of an Umpire appointed by them to be final. The
Arbitrators and Umpire are all to be commercial men and resident in London. This submission may be made a
rule of the High Court of Justice in England by either party.”

2. Sales contract comprehensive enough to include claims for damages arising from carriage
The sales contract is comprehensive enough to include claims for damages arising from carriage and
delivery of the goods. As a general rule, the seller has the obligation to transmit the goods to the buyer, and
concomitant thereto, the contracting of a carrier to deliver the same.

3. Article 1523 NCC

Artiicle 1523 of the Civil Code provides that “Where in pursuance of a contract of sale, the seller in
authorized or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the
buyer or not, for the purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer,
except in the cases provided for in article 1503, first, second and third paragraphs, or unless a contrary intent
appear. Unless otherwise authorized by the buyer, the seller must take such contract with the carrier on behalf
of the buyer as may be reasonable, having regard to the nature of the goods and the other circumstances of the
case. If the seller omit so to do, and the goods are lost or damaged in course of transit, the buyer may decline
to treat the delivery to the carrier as a delivery to himself,, or may hold the seller responsible in damages.
xxx”

4. Contract provides conditions relative to delivery of goods; Relevant provisions

The disputed sales contact provides for conditions relative to the delivery of goods, such as date of
shipment, demurrage, weight as determined by the bill of lading at load port and more particularly the
following provisions: “(3) Intention is to ship in one bottom, approximately 5,000 metrics tons to Puromines
and approximately 15,000 metric tons to Makati Agro. However, Sellers to have right to ship material as
partial shipment or co-shipment in addition to above. In the event of co-shipment to a third party within
Philippines same to be discussed with and acceptable to both Puromines and Makati Agro. (4) Sellers to
appoint neutral survey for Seller’s account to conduct initial draft survey at first discharge port and final
survey at last discharge port. Surveyors results to be binding and final. In the event draft survey results show
a
quantity less than the combined Bills of Lading quantity for both Puromines and Makati Agro, Sellers to
refund the difference. In the event that draft survey results show a quantity in excess of combined Bills of
Lading of quantity of both Puromines and Makati Agro then Buyers to refund the difference. (5) It is
expressly and mutually agreed that neither Sellers nor vessel’s Owners have any liability to separate cargo or
to deliver cargo separately or to deliver minimum/maximum quantities stated on individual Bills of Lading.
At each port vessel is to discharge in accordance with Buyers local requirements and it is Buyer’s
responsibility to separate individual quantities required by each of them at each port during or after
discharged.”

5. Charter party defined; Kinds

American jurisprudence defines charter party 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. Charter or charter parties are of
two kinds. Charter of demise or bareboat and contracts of affreightment.

6. Demise or bareboat charter of the vessel

Under the demise or bareboat charter of the vessel, the charterer will generally be considered as
owner for the voyage or service stipulated. The charterer mans the vessel with his own people and becomes,
in effect, the owner pro hac vice, subject to liability to others for damages caused by negligence. To create a
demise the owner of a vessel must completely and exclusively relinquish possession, anything short of such a
complete transfer is a contract of affreightment (time or voyage charter party) or not a charter party at all.

7. Contract of affreightment
A contract of affreightment is in which the owner of the vessel leases part or all of its space to haul
goods for others. It is a contract for a special service to be rendered by the owner of the vessel and under such
contract the general owner retains the possession, command and navigation of the ship, the charterer or
freighter merely having use of the space in the vessel in return for his payment of the charter hire. If the
charter is a contract of affreightment, which leaves the general owner in possession of the ship as owner for
the voyage, the rights, responsibilities of ownership rest on the owner and the charterer is usually free from
liability to third persons in respect of the ship.

8. Responsibility to third persons for goods shipped follows vessel’s possession and employement
Responsibility to third persons for goods shipped on board a vessel follows the vessel’s possession
and employment; and if possession is transferred to the charterer by virtue of a demise, the charterer, and not
the owner, is liable as carrier on the contract of affreightment made by himself or by the master with third
persons, and is answerable for loss, damage or non-delivery of goods received for transportation. An owner
who retains possession of the ship, though the hold is the property of the charterer, remains liable as carrier
and must answer for any breach of duty as to the care, loading or unloading of the cargo.

9. Contract referred in determining liability for damages; Arbitration clause should be respected
in any case
Assuming that in the present case, the charter party is a demise or bareboat charter, then Philipp
Brothers is liable to Puromines, Inc., subject to the terms and conditions of the sales contract. On the other
hand, if the contract between Philipp Brothers and the owner of the vessel MV “Liliana Dimitrova” was
merely that of affreightment, then it cannot be held liable for the damages caused by the breach of contract of
carriage, the evidence of which is the bills of lading. In any case, whether the liability of Philipp Bros. should
be based on the same contract or that of the bill of lading, the parties are nevertheless obligated to respect the
arbitration provisions on the sales contract and/or the bill of lading. Puromines being a signatory and party to
the sales contract cannot escape from his obligation under the arbitration clause.

10. Arbitration provision in bills of lading properly discussed even if not raised as special or
affirmative defense
 The three bills of lading were attached to the complaint as and are therefore parts thereof and may be
considered as evidence although not introduced as such. Hence, it was then proper for the appellate court to
discuss the contents of the bills of lading (especially the arbitration provisions thereof), having been made
part of the record; even if they are not raised as a special or affirmative defense.

11. Arbitration valid and constitutional

Arbitration has been held valid and constitutional. Even before the enactment of RA 876, the Court
has countenanced the settlement of disputes through arbitration. The rule now is that unless the agreement is
such as absolutely to close the doors of the courts against the parties, which agreement would be void, the
courts will look with favor upon such amicable arrangements and will only interfere with great reluctance to
anticipate or nullify the action of the arbitrator.

12. Arbitration; Mindanao Portland Cement vs. McDonough Construction Co. of Florida
As pointed out in the case of Mindanao Portland Cement Corp. v. McDonough Construction
Company of Florida, the Court said that “Since there obtains herein a written provision for arbitration as
well as failure on respondent’s part to comply therewith, the court a quo rightly ordered the parties to proceed
to their arbitration in accordance with the terms of their agreement (Sec. 6 Republic Act 876). Respondent’s
arguments touching upon the merits of the dispute are improperly raised herein. They should be addressed to
the arbitrators. This proceeding is merely a summary remedy to enforce the agreement to arbitrate. The duty
of the court in this case is not to resolve the merits of the parties’ claims but only to determine if they should
proceed to arbitration or not. And although it has been ruled that a frivolous or patently baseless claim should
not be ordered to arbitration it is also recognized that the mere fact that a defense exist against a claim does
not make it frivolous or baseless.”

13. Arbitration; Bengson vs. Chan

In the case of Bengson v. Chan, the court upheld the provision of a contract which required the
parties to submit their disputes to arbitration. Therein, the court held that “the trial court sensibly said that ‘all
the causes of action alleged in the plaintiffs amended complaint are based upon the supposed violations
committed by the defendants of the ‘Contract of Construction of a Building’ and that ‘the provisions of
paragraph 15 hereof leave a very little room for doubt that the said causes of action are embraced within the
phrase ‘any and all questions, disputes or differences between the parties hereto relative to the construction of
the building,’ which must be determined by arbitration of two persons and such determination by the
arbitrators shall be ‘final, conclusive and binding upon both parties unless they to court, in which the case the
determination by arbitration is a condition precedent ‘for taking any court action. xxx We hold that the terms
of paragraph 15 clearly express the intention of the parties that all disputes between them should first be
arbitrated before court action can be taken by the aggrieved party.”

[173] Caltex v. Supicio Lines, see [1]

[174] Home Insurance v. American, see [8]
[175]

Litonjua Shipping vs. National Seamen Board (GR 51910, 10 August 1989)
Third Division, Feliciano (J): 4 concur

Facts: Litonjua is the duly appointed local crewing Managing Office of the Fairwind Shipping Corporation.
The M/V Dufton Bay is an ocean-going vessel of foreign registry owned by the R.D. Mullion Ship Broking
Agency Ltd. On 11 September 1976, while the Dufton Bay was in the port of Cebu and while under charter
by Fairwind, the vessel’s master contracted the services of, among others, Gregorio Candongo to serve as
Third Engineer for a period of 12 months with a monthly wage of US$500.00. This agreement was executed
before the Cebu Area Manning Unit of the NSB. Thereafter, Candongo boarded the vessel. On 28 December
1976, before expiration of his contract, Candongo was required to disembark at Port Kelang, Malaysia, and
was
returned to the Philippines on 5 January 1977. The cause of the discharge was described in his Seaman’s
Book as “by owner’s arrange.”

Shortly after returning to the Philippines, Candongo filed a complaint before the National Seamen Board
(NSB; NSB-1331-77), for violation of contract, against Mullion as the shipping company and Litonjua as
agent of the shipowner and of the charterer of the vessel. At the initial hearing, the NSB hearing officer held a
conference with the parties, at which conference Litonjua was represented by one of its supercargos, Edmond
Cruz. Edmond Cruz asked, in writing, that the hearing be postponed for a month upon the ground that the
employee of Litonjua in charge of the case was out of town. The hearing officer denied this request and then
declared Litonjua in default. At the hearing, Candongo testified that when he was recruited by the Captain of
the Dufton Bay, the latter was accompanied to the NSB Cebu Area Manning Unit by 2 supercargos sent by
Litonjua to Cebu, and that the 2 supercargos Edmond Cruz and Renato Litonjua assisted Candongo in the
procurement of his National Investigation and Security Agency (NISA) clearance. Messrs. Cruz and Litonjua
were also present during Canfongo’s interview by Captain Ho King Yiu of the Dufton Bay. On 17 February
1977, the hearing officer of the NSB rendered a judgment by default, ordering R.D. Mullion Shipbrokers Co.,
Ltd., and Litonjua Shipping Co., Inc., jointly and solidarily to pay Candongo the sum of $4,657.63 or its
equivalent in the Philippine currency within 10 days from receipt of the copy of the Decision the payment of
which to be coursed through the then NSB. Litonjua filed a motion for reconsideration of the hearing officer’s
decision; the motion was denied.

Litonjua filed an “Appeal and/or Motion for Reconsideration of the Default Judgment dated 9 August 1977”
with the central office of the NSB. NSB then suspended its hearing officer’s decision and lifted the order of
default against Litonjua, thereby allowing the latter to adduce evidence in its own behalf. On 26 April 1978,
the NSB then lifted the suspension of the hearing officer’s 17 February 1977 decision. Litonjua once more
moved for reconsideration. On 31 May 1979, NSB rendered a decision which affirmed its hearing officer’s
decision of 17 February 1977. Hence, the petition for certiorari.

The Supreme Court dismissed the Petition for Certiorari and affirmed the Decision of the then National
Seamen Board dated 31 May 1979; without pronouncement as to costs.

1. Grounds where Litonjua may be made liable on the contract of employment

There are 2 grounds upon which Litonjua may be held liable to Candongo on the contract of
employment. The first basis is the charter party which existed between Mullion, the shipowner, and Fairwind,
the charterer. The second and ethically more compelling basis for holding Litonjua liable on the contract of
employment of Candongo refers to that the charterer of the vessel, Fairwind, clearly benefitted from the
employment of Candongo as Third Engineer of the Dufton Bay. Litonjua assisted the Master of the vessel in
locating and recruiting Candongo as Third Engineer of the vessel as well as 10 other Filipino seamen as crew
members. In so doing, Litonjua certainly in effect represented that it was taking care of the crewing and other
requirements of a vessel chartered by its principal, Fairwind.

2. Types of charter parties

In modern maritime law and usage, there are three (3) distinguishable types of charter parties: (a) the
“bareboat” or “demise” charter; (b) the “time” charter; and (c) the “voyage” or “trip” charter.

3. Bareboat or demise charter

A bareboat or demise charter is a demise of a vessel, much as a lease of an unfurnished house is a
demise of real property. The shipowner turns over possession of his vessel to the charterer, who then
undertakes to provide a crew and victuals and supplies and fuel for her during the term of the charter. The
shipowner is not normally required by the terms of a demise charter to provide a crew, and so the charterer
gets the “bare boat”, i.e., without a crew. Sometimes, of course, the demise charter might provide that the
shipowner is to furnish a master and crew to man the vessel under the charterer’s direction, such that the
master and crew provided by the shipowner become the agents and servants or employees of the charterer,
and the charterer (and not the owner) through the agency of the master, has possession and control of the
vessel during the charter period.

4. Time charter
A time charter, like a demise charter, is a contract for the use of a vessel for a specified period of time
or for the duration of one or more specified voyages. In this case, however, the owner of a time- chartered
vessel (unlike the owner of a vessel under a demise or bare- boat charter), retains possession and control
through the master and crew who remain his employees. What the time charterer acquires is the right to
utilize the carrying capacity and facilities of the vessel and to designate her destinations during the term of the
charter.

5. Voyage or trip charter

A voyage charter, or trip charter, is simply a contract of affreightment, that is, a contract for the
carriage of goods, from one or more ports of loading to one or more ports of unloading, on one or on a series
of voyages. In a voyage charter, master and crew remain in the employ of the owner of the vessel.

6. Charterer the pro hac vice owner of the vessel in bareboat charter
It is well settled that in a demise or bare boat charter, the charterer is treated as owner pro hac vice of
the vessel, the charterer assuming in large measure the customary rights and liabilities of the shipowner in
relation to third persons who have dealt with him or with the vessel. In such case, the Master of the vessel is
the agent of the charterer and not of the shipowner. The charterer or owner pro hac vice, and not the general
owner of the vessel, is held liable for the expenses of the voyage including the wages of the seamen.

7. Presumption arising from failure of Litonjua to attach bareboat charter into the records of the
case
Litonjua did not place into the record of the case a copy of the charter party covering the M/V Dufton
Bay. It is assumed then that Litonjua was aware of the nature of a bareboat or demise charter and that if it did
not see fit to include in the record a copy of the charter party, which had been entered into by its principal, it
was because the charter party and the provisions thereof were not supportive of the position adopted by
Litonjua in the present case, position diametrically opposed to the legal consequence of a bareboat charter.
Treating Fairwind as owner pro hac vice, Litonjua having failed to show that it was not such, Litonjua, as
Philippine agent of the charterer, may be held liable on the contract of employment between the ship captain
and Candongo.

8. Equitable consequence of benefit to the charterer

The charterer of the vessel, Fairwind, clearly benefitted from the employment of Candongo as Third
Engineer of the Dufton Bay, along with 10 other Filipino crew members recruited by Captain Ho in Cebu at
the same occasion. If Candongo had not agreed to serve as such Third Engineer, the ship would not have been
able to proceed with its voyage.

9. Circumstances reinforcing equitable consequence of benefit to charterer

The equitable consequence of benefit to the charterer is, moreover, reinforced by convergence of
other circumstances of which the Court must take account. (1) There is the circumstance that only the
charterer, through Litonjua, was present in the Philippines. (2) The scope of authority or the responsibility of
Litonjua was not clearly delimited.

10. Litonjua’s commission unclear; Litonjua’s assistance in the recruitment of Candongo clear
Litonjua took the position that its commission was limited to taking care of vessels owned by
Fairwind. But the documentary authorization read into the record of the case does not make that clear at all.
The words “our ships” may well be read to refer both to vessels registered in the name of Fairwind and
vessels owned by others but chartered by Fairwind. Indeed the commercial, operating requirements of a
vessel for crew members and for supplies and provisions have no relationship to the technical characterization
of the vessel as owned by or as merely chartered by Fairwind. In any case, it is not clear from the
authorization given by Fairwind to Litonjua that vessels chartered by Fairwind (and owned by some other
companies) were not to be taken care of by Litonjua should such vessels put into a Philippine port. The
statement of account which the Dufton Bay’s Master had signed and which pertained to the salary of
Candongo had referred to a Philippine agency which would take care of disbursing or paying such account.
There is no question that the Philippine agency was the Philippine agent of the charterer Fairwind. Moreover,
there is also no question that Litonjua did assist the Master of the vessel in locating and recruiting Candongo
as Third Engineer of the vessel as well as 10 other Filipino seamen as crew members. In so doing, Litonjua
certainly in effect represented that it was taking care of the crewing and other requirements of a vessel
chartered by its principal, Fairwind.

11. Wages constitute maritime lien upon vessel; Candongo in no position to enforce said lien if
contrary holding is made
There is the circumstance that extreme hardship would result for Candongo if Litonjua, as Philippine
agent of the charterer, is not held liable to Candongo upon the contract of employment. Clearly, Candongo,
and the other Filipino crew members of the vessel, would be defenseless against a breach of their respective
contracts. While wages of crew members constitute a maritime lien upon the vessel, Candongo is in no
position to enforce that lien. If only because the vessel, being one of foreign registry and not ordinarily doing
business in the Philippines or making regular calls on Philippine ports cannot be effectively held to answer for
such claims in a Philippine forum. Upon the other hand, it seems quite clear that Litonjua, should it be held
liable to Candongo for the latter’s claims, would be better placed to secure reimbursement from its principal
Fairwind. In turn, Fairwind would be in an infinitely better position (than Candongo) to seek and obtain
recourse from Mullion, the foreign shipowner, should Fairwind feel entitled to reimbursement of the amounts
paid to Candongo through Litonjua.

12. Result compelled by equitable principles and demands of substantial justice

Candongo was properly regarded as an employee of the charterer Fairwind and that Litonjua may
beheld to answer to Candongo for the latter’s claims as the agent in the Philippines of Fairwind. This result,
far from constituting a grave abuse of discretion, is compelled by equitable principles and by the demands of
substantial justice. To hold otherwise would be to leave Candongo (and others who may find themselves in
his position) without any effective recourse for the unjust dismissal and for the breach of his contract of
employment.

[176], also [179] and [181]

Maritime Agencies & Services vs. CA (GR 77638, 12 July 1990)

Union Insurance Society of Canton, Ltd. vs. CA (GR 77674)
First Division, Cruz (J): 4 concur

Facts: Transcontinental Fertilizer Company of London chartered from Hongkong the motor vessel named
“Hongkong Island” for the shipment of 8073.35 MT (gross) bagged urea from Novorossisk, Odessa, USSR,
to the Philippines, the parties signing for this purpose a Uniform General Charter dated 9 August 1979. Of the
total shipment, 5,400.04 MT was for the account of Atlas Fertilizer Company as consignee, 3,400.04 to be
discharged in Manila and the remaining 2,000 MT in Cebu. The goods were insured by the consignee with the
Union Insurance Society of Canton, Ltd. for P6,779,214.00 against all risks. Maritime Agencies & Services,
Inc. was appointed as the charterer’s agent and Macondray Company, Inc. as the owner’s agent. The vessel
arrived in Manila on 3 October 1979, and unloaded part of the consignee’s goods, then proceeded to Cebu on
19 October 1979, to discharge the rest of the cargo. On 31 October 1979, the consignee filed a formal claim
against Maritime, copy furnished Macondray, for the amount of P87,163.54, representing C & F value of the
1,383 shortlanded bags. On 12 January 1980, the consignee filed another formal claim, this time against Viva
Customs Brokerage, for the amount of P36,030.23, representing the value of 574 bags of net unrecovered
spillage. These claims having been rejected, the consignee then went to Union, which on demand paid the
total indemnity of P113,123.86 pursuant to the insurance contract.

As subrogee of the consignee, Union then filed on 19 September 1980, a complaint for reimbursement of this
amount, with legal interest and attorney’s fees, against Hongkong Island Company, Ltd., Maritime Agencies
& Services, Inc. and/or Viva Customs Brokerage. On 20 April 1981, the complaint was amended to drop Viva
and implead Macondray Company, Inc. as a new defendant. On 4 January 1984, after trial, the trial court
rendered judgment, ordering (a) Hongkong Island Co., Ltd., and its local agent Macondray & Co., Inc. to pay
Union the sum of P87,1 63.54 plus 12% interest from 20 April 1981 until the whole amount is fully paid,
P1,000.00 as attorney’s fees and to pay ½ of the costs; and (b) Maritime Agencies & Services, Inc., to pay
Union the sum of P36,030.23, plus 12% interest from 20 April 1981 until the whole amount is fully paid,
P600.00 as attorney’s fees and to pay ½ of the costs.

Maritime Agencies & Services appealed the decision to the Court of Appeals, which rendered a decision on
28 November 1986, modifying the decision appeal from, finding the charterer Transcontinental Fertilizer Co.,
Ltd. represented by its agent Maritime Agencies & Services, Inc. liable for the amount of P87,163.54 plus
interest at 12% plus attorney’s fees of P1,000.00. Hongkong Island Cos. Ltd. represented by Macondray Co.,
Inc. were accordingly exempted from any liability. Maritime and Union filed separate motions for
reconsideration which were both denied. Hence, the petitions.

These two cases were consolidated and given due course, the parties being required to submit simultaneous
memoranda. All complied, including Hongkong Island Company, Ltd., and Macondray Company, Inc.,
although they pointed out that they were not involved in the petitions. The Supreme Court set aside the
decision of the appellate court, and reinstated that of the trial court as modified; and further holding that the
parties shall bear their respective costs.

1. Factual Findings of the trial court

In his decision dated 4 January 1984, Judge Artemon de Luna of the Regional Trial Court of Manila
held that the Court, on the basis of the evidence, finds nothing to disprove the finding of the marine and cargo
surveyors that of the 66,390 bags of urea fertilizer, 65,547 bags were “discharged ex-vessel” and there were
shortlanded” “1,383 bags,” valued at P87,163.54. This sum should be the principal and primary liability and
responsibility of the carrying vessel. Under the contract for the transportation of goods, the vessel’s
responsibility commence upon the actual delivery to, and receipt by the carrier or its authorized agent, until its
final discharge at the port of Manila.

2. Categories of charters
There are three general categories of charters, to wit, the demise or “bareboat charter,” the time
charter and the voyage charter.

3. Demise charter
A demise involves the transfer of full possession and control of the vessel for the period covered by
the contract, the charterer obtaining the right to use the vessel and carry whatever cargo it chooses, while
manning and supplying the ship as well.

4. Time charter
A time charter is a contract to use a vessel for a particular period of time, the charterer obtaining the
right to direct the movements of the vessel during the chartering period, although the owner retains
possession and control.
5. Voyage charter
A voyage charter is a contract for the hire of a vessel for one or a series of voyages usually for the
purpose of transport in goods for the charterer. The voyage charter is a contract of affreightment and is
considered a private carriage.

6. Responsibility for cargo loss in case of a voyage charter

A voyage charter being a private carriage, the parties may freely contract respecting liability for
damage to the goods and other matters. The basic principle is that “the responsibility for cargo loss falls on
the one who agreed to perform the duty involved” in accordance with the terms of most voyage charters. This
is true in the present cases where the charterer was responsible for loading, stowage and discharging at the
ports visited, while the owner was responsible for the care of the cargo during the voyage.

7. Paragraph 2 of the Uniform General Charter

Paragraph 2 of the Uniform General Charter reads “Owners are to be responsible for loss of or
damage to the goods or for delay in delivery of the goods only in case the loss, damage or delay has been
caused by the improper or negligent stowage of the goods or by personal want of due diligence on the part of
the Owners or their Manager to make the vessel in all respects seaworthy and to secure that she is properly
manned, equipped and supplied or by the personal act or default of the Owners or their Manager. And the
Owners are responsible for no loss or damage or delay arising from any other cause whatsoever, even from
the neglect or default of the Captain or crew or some other person employed by the Owners onboard or ashore
for whose acts they would, but for this clause, be responsible, or from unseaworthiness of the vessel on
loading or commencement of the voyage or at any time whatsoever. Damage caused by contact with or
leakage, smell or evaporation from other goods or by the inflammable or explosive nature or insufficient
package of other goods not to be considered as caused by improper or negligent stowage, even if in fact so
caused.”

8. Clause 17 of the Additional Clauses to Charterparty

Clause 17 of Additional Clauses to Charterparty provides that “The cargo shall be loaded, stowed and
discharged free of expense to the vessel under the Master’s supervision. However, if required at loading and
discharging ports the vessel is to give free use of winches and power to drive them gear, runners and ropes.
Also slings, as on board. Shore winchmen are to be employed and they are to be for Charterers’ or Shippers’
or Receivers’ account as the case may be. Vessel is also to give free use of sufficient light, as on board, if
required for night work. Time lost through breakdown of winches or derricks is not to count as laytime.”

9. Home Insurance vs. American Steamship Agencies; Stipulations exempting owner from
liability in charter valid
In Home Insurance Co. v. American Steamship Agencies, Inc., the trial court rejected similar
stipulations as contrary to public policy and, applying the provisions of the Civil Code on common carriers
and of the Code of Commerce on the duties of the ship captain, held the vessel liable in damages for loss of
part of the cargo it was carrying. The Supreme Court reversed, therein, declaring that “the provisions of our
Civil Code on common carriers were taken from Anglo-American law. Under American jurisprudence, a
common carrier undertaking to carry a special cargo or chartered to a special person only, becomes a private
carrier. As a private carrier, a stipulation exempting the owner from liability for the negligence of its agent is
not against public policy, and is deemed valid.

10. Civil Code provisions on common carrier should not be applied if carrier is acting as private
carrier, public not involved
The Civil Code provisions on common carriers should not be applied where the carrier is not acting
as such but as a private carrier. The stipulation in the charter party absolving the owner from liability for loss
due to the negligence of its agent would be void only if the strict public policy governing common carriers is
applied. Such policy has no force where the public at large is not involved, as in the case of a ship totally
chartered for the use of a single party.

11. Ruling cannot benefit Hongkong due to shortlanded bags; Presumption of fault in damaged
goods covered by clean bill of lading
The present ruling cannot benefit Hongkong, because there was no showing in that case that the
vessel was at fault. Herein, the trial court found that 1,383 bags were shortlanded, which could only mean that
they were damaged or lost on board the vessel before unloading of the shipment. It is not denied that the
entire cargo shipped by the charterer in Odessa was covered by a clean bill of lading. As the bags were in
good order when received in the vessel, the presumption is that they were damaged or lost during the voyage
as a result of their negligent improper stowage. For this the ship owner should be held liable.

12. Prescription of action; Filing of claim within 1 year, in accordance with COGSA
The period for filing the claim is one year, in accordance with the Carriage of Goods by Sea Act. This
was adopted and embodied by our legislature in Commonwealth Act 65 which, as a special law, prevails over
the general provisions of the Civil Code on prescription of actions.

13. Section 3(6) of Commonwealth Act 65

Section 3(6) of that Act provides that “In any event, the carrier and the ship shall be discharged from
all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or
the date when the goods should have been delivered; Provided, that if a notice of loss for damage; either
apparent or concealed, is not given as provided for in this section, that fact shall not effect or prejudice the
right of the shipper to bring suit within one year after the delivery of the goods or the date when the goods
should have been delivered.”

14. Application of the prescriptive period; Union Carbide vs. Manila Railroad
The period was applied by the Court in the case of Union Carbide, Philippines, Inc. v. Manila
Railroad Co., where it was held “Under the facts of this case, we held that the one-year period was correctly
reckoned by the trial court from December 19, 1961, when, as agreed upon by the parties and as shown in the
tally sheets, the cargo was discharged from the carrying vessel and delivered to the Manila Port Service. That
one-year period expired on December 19, 1962. Inasmuch as the action was filed on December 21, 1962, it
was barred by the statute of limitations.”

15. Application of prescriptive period; Present cases

The one-year period in the present cases should commence on 20 October 1979, when the last item
was delivered to the consignee. Union’s complaint was filed against Hongkong on 19 September 1980, but
tardily against Macondray on 20 April 1981. The consequence is that the action is considered prescribed as
far as Macondray is concerned but not against its principal, which is what matters anyway.

16. Charterer liable for damaged goods during unloading; Agent, however, cannot be made liable
for acts of disclosed principal
As regards the goods damaged or lost during unloading, the charterer is liable therefor, having
assumed this activity under the charter party “free of expense to the vessel.” The difficulty is that
Transcontinental has not been impleaded in these cases and so is beyond the Court’s jurisdiction. The liability
imposable upon it cannot be borne by Maritime which, as a mere agent, is not answerable for injury caused
by its principal. It is a well-settled principle that the agent shall be liable for the act or omission of the
principal only if the latter is undisclosed.

17. Switzerland General Insurance vs. Ramirez not applicable

The ruling in the case of Switzerland General Insurance Co., Ltd. v. Ramirez is not applicable. In that
case, the charterer represented itself on the face of the bill of lading as the carrier. The vessel owner and the
charterer did not stipulate in the Charterparty on their separate respective liabilities for the cargo. The
loss/damage to the cargo was sustained while it was still on board or under the custody of the vessel. As the
charterer was itself the carrier, it was made liable for the acts of the ship captain who was responsible for the
cargo while under the custody of the vessel. As for the charterer’s agent, the evidence showed that it
represented the vessel when it took charge of the unloading of the cargo and issued cargo receipts (or tally
sheets) in its own name. Claims against the vessel for the losses/damages sustained by that cargo were also
received and processed by it. As a result, the charterer’s agent was also considered a ship agent and so was
held to be solidarily liable with its principal. The facts in the cases at bar are different. The charterer did not
represent itself as a carrier and indeed assumed responsibility only for the unloading of the cargo, i.e, after the
goods were already outside the custody of the vessel. In supervising the unloading of the cargo and issuing
Daily Operations Report and Statement of Facts indicating and describing the day-to-day discharge of the
cargo, Maritime acted in representation of the charterer and not of the vessel. It thus cannot be considered a
ship agent. As a mere charterer’s agent, it cannot be held solidarily liable with Transcontinental for the
losses/damages to the cargo outside the custody of the vessel. Notably, Transcontinental was disclosed as the
charterer’s principal and there is no question that Maritime acted within the scope of its authority.

18. Hongkong and Macondray impleaded in GR 77674; Issues not formally raised on appeal may
be considered in the interest of justice
First of all, we note that they were formally impleaded as respondents in G.R No. 77674 and
submitted their comment and later their memorandum, where they discussed at length their position vis-a-vis
the claims of the other parties. Secondly, we reiterate the rule that even if issues are not formally and
specifically raised on appeal, they may nevertheless be considered in the interest of justice for a proper
decision of the case.

19. Unassigned error closely related to error properly assigned, or upon which a properly assigned
error depends considered; Interest of justice
Besides, an unassigned error closely related to the error properly assigned, or upon which the
determination of the question raised by the error properly assigned is dependent, will be considered by the
appellate court notwithstanding the failure to assign it as error. At any rate, the Court is clothed with ample
authority to review matters, even if they are not assigned as errors in their appeal, if it finds that their
consideration is necessary in arriving at a just decision of the case. Issues, though not specifically raised in
the pleadings in the appellate court, may, in the interest of justice, be properly considered by said court in
deciding a case, if they are questions raised in the trial court and are matters of record having some bearing on
the issue submitted which the parties failed to raise or the lower court ignored. While an assignment of error
which is required by law or rule of court has been held essential to appellate review, and only those assigned
will be considered, there are a number of cases which appear to accord to the appellate court a broad
discretionary power to waive this lack of proper assignment of errors and consider errors not assigned.

20. Liability of Macondray can no longer enforced; and Maritime cannot be held liable for acts of
known principal
The liability of Macondray can no longer be enforced because the claim against it has prescribed; and
as for Maritime, it cannot be held liable for the acts of its known principal resulting in injury to Union.

21. When interest commence

The interest must also be reduced to the legal rate of 6%, conformably to our ruling in Reformina v.
Tomol and Article 2209 of the Civil Code, and should commence, not on 20 April 1981, but on 19 September
1980, date of the filing of the original complaint.

[177] Coastwise vs. CA, see [18]

[178a]
Ouano vs. CA (GR 95900, 23 July 1992)
Second Division, Regalado (J): 3 concur

Facts: Julius C. Ouano is the registered owner and operator of the motor vessel known as M/V Don Julio
Ouano. On 8 October 1980, Ouano leased the said vessel to Florentino Rafols Jr. under a charter party. The
consideration for the letting and hiring of said vessel was P60,000.00 a month, with P30,000.00 as down
payment and the balance of P30,000.00 to be paid within 20 days after actual departure of the vessel from the
port of call. It was also expressly stipulated that the charterer should operate the vessel for his own benefit
and should not sublet or sub-charter the same without the knowledge and written consent of the owner. On 11
October 1980, Rafols contracted with Market Developers, Inc. (MADE) through its group manager, Julian O.
Chua, under an agreement denominated as a “Fixture Note” to transport 13,000 bags of cement from Iligan
City to General Santos City, consigned to Supreme Merchant Construction Supply, Inc. (SMCSI) for a
freightage of P46,150.00. Said amount was agreed to be payable to Rafols by MADE in two installments, that
is, P23,075.00 upon loading of the cement at Iligan City and the balance of P23,075.00 upon completion of
loading and receipt of the cement cargo by the consignee. The fixture note did not have the written consent of
Ouano. Rafols had on board the M/V Don Julio Ouano his sobre cargo (jefe de viaje) when it departed from
Iligan City until the cargo of cement was unloaded in General Santos City, the port of destination. On 13
October 1980, Ouano wrote a letter to MADE through its manager, Chua, “to strongly request, if not demand
to hold momentarily any payment or partial payment whatsoever due M/V Don Julio Ouano until Mr.
Florentino Rafols makes good his commitment” to petitioner. On 20 October 1980, MADE, as shipper, paid
Rafols the amount of P23,075.00 corresponding to the first installment of the freightage for the aforestated
cargo of cement. The entire cargo was thereafter unloaded at General Santos City Port and delivered to the
consignee, SMCSI, without any attempt on the part of either the captain of M/V Don Julio Ouano or the said
sobre cargo of Rafols, or even of Ouano himself who was then in General Santos City Port, to hold and keep
in deposit either the whole or part of the cement cargo to answer for freightage. Neither was there any
demand made on Rafols, et. al. for a bond to secure payment of the freightage, nor to assert in any manner the
maritime lien for unpaid freight over the cargo by giving notice thereof to the consignee SMCI. The cement
was sold in due course of trade by SMCSI to its customers in October and November 1980.

On 6 January 1981, Ouano filed a complaint in the RTC of Cebu against MADE, as shipper; SMCSI, as
consignee; and Rafols, as charterer, seeking payment of P23,000.00 representing the freight charges for the
cement cargo, aside from moral and exemplary damages in the sum of P150,000.00, attorney’s fees and
expenses of litigation. On 10 March 1981, MADE filed its answer, while Ang and Chua filed theirs on 10
February 1982 and 31 May 1982, respectively. Rafols was declared in default for failure to file his answer
despite due service of summons. On 25 May 1985, the trial court rendered a decision in favor of Ouano, (1)
ordering MADE, Chua, SMCSI, Ang (Chua Pek Giok) and Rafols, jointly and severally, to pay to Ouano the
sum of P23,075.00 corresponding to the first 50% freight installment on the latter’s vessel ‘M/V Don Julio
Ouano’ included as part of the purchase price paid by SMCSI to MADE, plus legal interest from 6 January
1981 date of filing of the original complaint; (2) sentencing MADE, Chua and Rafols, jointly and solidarily,
to pay Ouano P50,000.00 in concept, of moral and exemplary damages, and P5,000.00 attorney’s fees; and
(3) sentencing SMCSI and Ang, jointly and severally, to pay Ouano P200,000.00 attorney’s fees and expenses
of litigation, P4,000.00, including P1,000.00 incurred by Ouano for travel to General Santos City to
coordinate in serving an alias summons per sheriff’s return of service, with costs against Rafols, et.al.

On appeal, and on 30 August 1990, the Court of Appeals reversed the decision, and absolved MADE, et. al.
from the complaint; but affirmed the decision with respect to Rafols. Ouano filed a motion for reconsideration
which was denied by the Court of Appeals on 15 October 1990. Hence, the petition for review on certiorari.

The Supreme Court denied the petition and affirmed the assailed judgment of the Court of Appeals.

1. Contract binding upon contracting parties; Contract neither favor nor prejudice third person

Transportation Law, 2004 (

411 )
 It is a basic principle in civil law that, with certain exceptions not obtaining in the present case, a
contract can only bind the parties who had entered into it or their successors who assumed their personalities
or their juridical positions, and that, as a consequence, such contract can neither favor nor prejudice a third
person. Herein, the charter contract was entered into only by and between Ouano and Rafols, and MADE and
SMCSI were neither parties thereto nor were they aware of the provisions thereof.

2. Violation of charter party does not give rise to cause of action against sublessee or sub-
charterer; Owner’s recourse
The violation of the prohibition in the contract against the sublease or sub-charter of the vessel
without the vessel owner’s knowledge and written consent does not give rise to a cause of action against the
supposed sublessee or sub-charterer. The act of the charterer in sub-chartering the vessel, in spite of a
categorical prohibition may be a violation of the contract, but the owner’s right of recourse is against the
original charterer, either for rescission or fulfillment, with the payment of damages in either case.

3. Obligations of contracts limited to parties making them

The obligation of contracts is limited to the parties making them and, ordinarily, only those who are
parties to contracts are liable for their breach. Parties to a contract cannot thereby impose any liability on one
who, under its terms, is a stranger to the contract, and, in any event, in order to bind a third person
contractually, an expression of agent by such person is necessary.

4. MADE and Chua not liable for damages for quasi-delict under Article 176 NCC
MADE and Chua are not to be held liable for damages for a quasi-delict under Article 176 of the
Civil Code for having failed to obtain his consent before entering into an agreement with Rafols. The
obligation to obtain the written consent of Ouano before subleasing or sub-chartering the vessel was on
Rafols and not on MADE, hence the latter cannot be held liable for the supposed non-compliance therewith.

5. MADE and Chua not liable for damages for quasi-delict under Artice 1314 for inducing Rafols
to violate charter party
MADE and Chua could not be held guilty of inducing Rafols to violate the original charter party. (1)
There is no evidence on record to show that MADE and Chua had knowledge of the prohibition imposed in
the original charter party to sublease or sub-charter the vessel. (2) At the time the fixture note was entered
into between Rafols and MADE, a written authorization signed by the wife of Ouano in his behalf,
authorizing Rafols to execute contracts, negotiate for cargoes and receive freight payments, was shown by the
former to the latter. Although the said authorization may have been made by the wife, the same, however, can
evidently be proof of good faith on the part of MADE and Chua who merely relied thereon. (3) As stated in
the fixture note, the agreement between Rafols and MADE was for the former to transport the cement of the
latter using either the “M/V Don Julio Ouano or substitute vessel at his discretion.” Hence, the decision to use
the M/V Don Julio Ouano in transporting the cargo of MADE was solely that of Rafols.

6. Demand of second freight installment a ratification of the sub-charter contract

Herein, Ouano is deemed to have ratified the supposed sub-charter contract entered into by MADE
and Rafols when he demanded the payment of the second freight installment as provided in the agreement
and, later, received the same by virtue of the decision of the CFI of Cebu in Civil Case R-19845, an
interpleader case filed by MADE.

7. Payment not indication of bad faith or malice; Article 1240 NCC

The act of MADE in paying the first freight installment to Rafols is not an indication of bad faith or
malice. Article 1240 of the Civil Code provides that “(p)ayment shall be made to the person in whose favor
the obligation has been constituted, or his successor in interest, or any person authorized to receive it.”
Consequently, MADE, under the fixture note, was under obligation to pay the freight to Rafols.
8. Leases involved in a sublease agreement; Rights and obligations of parties
In a sublease arrangement, there are two distinct leases involved, that is, the principal lease and the
sublease. There are two juridical relationships which co-exist and are intimately related to each other, but
which are nonetheless distinct one from the other. In such arrangement, the personality of the lessee qua
lessee does not disappear; his rights and obligations vis-a-vis the lessor are not passed on to nor acquired by
the sublessee. The lessor is in the main and except only in the instances specified in the Civil Code, a stranger
to the relationship between the lessee-sublessor and the sublessee. The lessee-sublessor is not an agent of the
lessor nor is the lessor an agent of the lessee-sublessor. The sublessee has no right or authority to pay the
sublease rentals to the lessor, said rentals being due and parable to the lessee-sublessor. Herein, MADE was
under no obligation to pay Ouano since the freightage was payable to Rafols.

9. Article 1652 NCC, Sublessee subsidiary liable to lessor; No demand however was made against
sublessee
Although it is provided in Article 1652 of the Civil Code that the sublessee is subsidiarily liable to the
lessor for any rent due from the lessee, the sublessee shall not be responsible beyond the amount of rent due
from him, in accordance with the terms of the sublease, at the time of the extrajudicial demand by the lessor.
Herein, Ouano made no demand for payment from MADE. His letter dated 13 October 1980 was only a
request to hold momentarily any payment due for the use of M/V Don Julio Ouano until Rafols had made
good his obligations to him.

10. MADE could not withhold payment of freight

In the absence of any positive action on the part of Ouano, MADE could not withhold the payment of
the freight to Rafols. As stated in the fixture note, the first freight installment was due and payable upon
arrival of the assigned vessel at the port of loading. The goods were loaded in the vessel on or before 9
October 1980, hence on that date the first freight installment was already due and demandable. To further
withhold the payment of said installment would constitute a breach of MADE’s obligation under the
foregoing contract.

11. Rafols’ bouncing checks cannot be ascribable to MADE

Herein, payments were actually made after 13 October 1980 by Rafols to Ouano, to wit: (a) two
checks in the total amount of P30,000.00 dated October 13 and 21, 1980, respectively; and (b) a third
postdated check for P32,000.00 issued on 9 November 1980. The fact that the said checks bounced for
insufficient funds cannot in any way be ascribable to MADE nor can it create or affect any liability which
Ouano seeks to impute to MADE, SMCSI and their agents.

12. Kinds of charter party

A charter party may, among other classifications, be of two kinds: One is where the owner agrees to carry a
cargo which the charterer agrees to provide, and the second is where there is an entire surrender by the owner
of the vessel to the charterer, who hires the vessel as one hires a house, takes her empty, and provides the
officers and provisions, and, in short, the entire outfit. In such a contract, the charterer is substituted in place
of the owner and becomes the owner for the voyage. This second type is also known as a bareboat charter or
otherwise referred to as a demise of the vessel. In a charter party of the second kind, not only the entire
capacity of the ship is let but the ship itself, and the possession is passed to the charterer. The entire control
and management of it is given up to him. The general owner loses his lien for freight, but the lien itself is not
destroyed, the charterer is substituted in his place, in whose favor the lien continues to exist when goods are
taken on freight. The general owner, however, has no remedy for the charter of his vessel but his personal
action on the covenants of the charter party. It is a contract in which he trusts in the personal credit of the
charterer. Therefore, where the charter constitutes a demise of the ship and the charterer is the owner for the
voyage, and that is the kind of charter party involved in the present case, the general owner has no lien on the
cargo for the hire of the vessel, in the absence of an express provision therefor.
13. Lien on unpaid freight available when owner retains possession of goods
Even on the assumption that Ouano had a lien on the cargo for unpaid freight, the same was deemed
waived when the goods were unconditionally released to the consignee at the port of destination. A carrier has
such a lien only while it retains possession of the goods, so that delivery of the goods to the consignee or a
third person terminates, or constitutes a waiver of, the lien. The lien of a carrier for the payment of freight
charges is nothing more than the right to withhold the goods, and is inseparably associated with its possession
and dependent upon it.

14. Shipowner’s lien on freight not in the nature of hypothecation

The shipowner’s lien for freight is not in the nature of a hypothecation which will remain a charge
upon the goods after he has parted with possession, but is simply the right to retain them until the freight is
paid, and is therefore lost by an unconditional delivery of the goods to the consignee.

15. Article 667 of Code of Commerce as modified by Article 2241 NCC; Period where lien subsists
Under Article 667 of the Code of Commerce, the period during which the lien shall subsist is 20 days.
Parenthetically, this has been modified by the Civil Code, Article 2241 whereof provides that credits for
transportation of the goods carried, for the price of the contract and incidental expenses shall constitute a
preferred claim or lien on the goods carried until their delivery and for 30 days thereafter. During this period,
the sale of the goods may be requested, even though there and other creditors and even if the shipper or
consignee is insolvent. But, this right may not be made use of where the goods have been delivered and were
turned over to a third person without malice on the part of the third person and for a valuable consideration.

16. Overseas Factors vs. South Sea Shipping inapplicable

The case of Overseas Factors, Inc., et al. vs. South Sea Shipping Co., et al. is ineffectual and unavailing. In
said case, the cargo was still in the possession of the carrier whose officers and crew refused to unload the
same unless the balance of the freight was paid. Herein, the cargo had already been unconditionally delivered
to the consignee SMCI without protest.

[178b]

NFA vs. CA (GR 96453, 4 August 1999)

Third Division, Purisima (J): 4 concur

Facts: National Food Authority (NFA), thru its officers then, Emil Ong, Roselinda Geraldez, Ramon Sargan
and Adelina A. Yap, entered into a “Letter of Agreement for Vessel /Barge Hire” with Hongfil Shipping
Corporation (Hongfil) for the shipment of 200,000 bags of corn grains from Cagayan de Oro City to Manila.
NFA sent Hongfil a Letter of Advice that its (Hongfil) vessel should proceed to Cagayan de Oro City. On 6
February 1987, M/V DIANE/CHARLIE of Hongfil arrived in Cagayan de Oro City. Hongfil notified the
Provincial Manager of NFA in Cagayan de Oro, Eduardo A. Mercado, of its said vessel’s readiness to load
and the latter received the said notification on 9 February 1987. A certification of charging rate was then
issued by Gold City Integrated Port Services, Inc. (INPORT), the arrastre firm in Cagayan de Oro City, which
certified that it would take them (INPORT) 7 days, 8 hours and 43 minutes to load the 200,000 bags of NFA
corn grains. On 10 February 1987, loading on the vessel commenced and was terminated on 4 March 1987.
As there was a strike staged by the arrastre workers and in view of the refusal of the striking stevedores to
attend to their work, the loading of said corn grains took 21 days, 15 and 18 minutes to finish. On 6 March
1987, the NFA Provincial Manager allowed MV CHARLIE/DIANE to depart for the Port of Manila. On 11
March 1987, the vessel arrived at the Port of Manila and a certification of discharging rate was issued at the
instance of Hongfil, stating that it would take 12 days, 6 hours and 22 minutes to discharge the 200, 000 bags
of corn grains. Unfortunately, unloading only commenced on 15 March 1987 and was completed on 7 April
1987. It took a total period of 20 days, 14 hours and 33 minutes to finish the unloading, due to the
unavailability of a berthing space for M/V CHARLIE/DIANE. After the discharging was completed,
NFA paid Hongfil the
amount of P1,006,972.11 covering the shipment of corn grains. Thereafter, Hongfil sent its billing to NFA,
claiming payment for freight covering the shut-out load or deadfreight as well as demurrage, allegedly
sustained during the loading and unloading of subject shipment of corn grains.

When NFA refused to pay the amount reflected in the billing, Hongfil brought an action against NFA and its
officers for recovery of deadfreight and demurrage, before the RTC in Pasig City (Civil Case 55892, Branch
165). On 29 February 1989, after trial, the RTC handed down its decision in favor of Hongfil and against NFA
and its officers, ordering (1) the NFA to pay Hongfil (a) P242,367.30, in and as payment of the deadfreight or
unloaded cargo; and (b) P1,152,687.50, in and as payment as of demurrage claim; (2) the NFA and its officers
to pay Hongfil, jointly and severally the amount of P50,000.00, for and as attorney’s fees; and expenses of
litigation or the costs of the suit. The trial court dismissed NFA’s counterclaim for lack of merit.

On appeal, and on 29 November 1990, the Court of Appeals affirmed with modification the judgment by
deleting therefrom the award of attorney’s fees (CA GR CV 21243). Hence, the petition for review on
certiorari.

The Supreme Court affirmed the decision of the Court of Appeals with modification; ordered NFA to pay
Hongfil Shipping Corporation the amount of P242,367.30 for deadfreight; deleted the award of P1,152,687.50
for demurrage for lack of proper basis; and absolved Roselinda Geraldez, Ramon Sargan and Adelina A. Yap
of any liability to Hongfil; without pronouncement as to costs.

1. Letter of Agreement is a charter party; Classification of charter party

The subject Letter of Agreement is considered a Charter Party. A charter party is classified into (1)
“bareboat” or “demise” charter and (2) contract of affreightment. Subject contract is one of affreightment,
whereby the owner of the vessel leases part or all of its space to haul goods for others. It is a contract for
special service to be rendered by the owner of the vessel. Under such contract the ship owner retains the
possession, command and navigation of the ship, the charterer or freighter merely having use of the space in
the vessel in return for his payment of the charter hire.

2. Deadfreight defined
Under the law, the cargo not loaded is considered as deadfreight. It is the amount paid by or
recoverable from a charterer of a ship for the portion of the ship’s capacity the latter contracted for but failed
to occupy.

3. Liability for deadfreight on charterer; Article 680 Code of Commerce

Explicit and succinct is the law that the liability for deadfreight is on the charterer. The law in point is
Article 680 of the Code of Commerce, which provides that “A charterer who does not complete the full cargo
he bound himself to ship shall pay the freightage of the amount he fails to ship, if the captain does not take
other freight to complete the load of the vessel, in which case the first charterer shall pay the difference,
should there be any.”

4. “More or less” construed

The words “more or less” when used in relation to quantity or distance, are words of safety and
caution, intended to cover some slight or unimportant inaccuracy. It allows an adjustment to the demands of
circumstances which do not weaken or destroy the statements of distance and quantity when no other guides
are available. In fact, herein, there was a communication from NFA Administrator Emil Ong to Oscar
Sanchez, Manager of Hongfil Shipping Corporation, stating clearly that the vessel M/V CHARLIE/DIANE
was chartered to “load our 200,000 bags corn grains from Cagayan de Oro to Manila at P7.30 per 50 kg./bag.”
Therefrom, it can be gleaned unerringly that the charter party was to transport 200,000 bags of corn grains.

6. Deadfreight due
 As the letter of agreement covered 200,000 bags of corn grains but only 166,798 bags were unloaded
at the Port of Manila. Consequently, shut-out load or deadfreight of 33,201 bags at P7.30 per bag or
P242,367.30 should be paid by NFA to Hongfil Shipping Corporation.

7. Demurrage defined
Demurrage is the sum fixed in a charter party as a remuneration to the owner of the ship for the
detention of his vessel beyond the number of days allowed by the charter party for loading or unloading or for
sailing.

8. Liability for demurrage

Liability for demurrage, using the word in its strict technical sense, exists only when expressly
stipulated in the contract. Shipper or charterer is liable for the payment of demurrage claims when he exceeds
the period for loading or unloading as agreed upon or the agreed “laydays”. The period for such may or may
not be stipulated in the contract. A charter party may either provide for a fixed laydays or contain general or
indefinite words such as “customary quick dispatch” or “as fast as the steamer can load.”

9. Implication of “Customary Quick Dispatch”

The stipulation “Laydays (Loading and Unloading): Customary Quick Dispatch” implies that loading
and unloading of the cargo should be within a reasonable period of time. Due diligence should be exercised
according to the customs and usages of the port or ports of call. The circumstances obtaining at the time of
loading and unloading are to be taken into account in the determination of “Customary Quick Dispatch.”
What is a reasonable time depends on the existing as opposed to normal circumstances, at the port of loading
and the custom of the port.

10. Cause of delay not imputable to either of the parties

While what was certified to by the arrastre did not tally with the actual period of loading and
unloading, it appears that the cause of delay was not imputable to either of the parties. The cause of delay
during the loading was the strike staged by the crew of the arrastre operator, and the unavailability of a
berthing space for the vessel during the unloading. The lack of a berthing space was understandable under the
circumstances since the North Harbor in Manila, where the unloading took place, is a large port but there was
congestion due to the number of ships or vessels which were all waiting to dock.

11. When delay in loading or unloading deemed as demurrage

Delay in loading or unloading, to be deemed as a demurrage, runs against the charterer as soon as the
vessel is detained for an unreasonable length of time from the arrival of the vessel because no available
berthing space was provided for the vessel due to the negligence of the charterer or by reason of
circumstances caused by the fault of the charterer.

12. NFA cannot be held liable for demurrage (as per delay)
Herein, charterer NFA could not be held liable for demurrage for the delay resulting from the
aforementioned circumstances. The provision “Laydays: Customary Quick Dispatch” invoked by Hongfil is
unavailing as a basis for requiring the charterer to pay for demurrage absent convincing proof that the time for
the loading or unloading in question was beyond the “reasonable time” within the contemplation of the
charter party. Here, the delay sued upon was still within the “reasonable time” embraced in the stipulation of
“Customary Quick Dispatch.”

13. Diligence required of charter in contract of affreightment

In a contract of affreightment, the shipper or charterer merely contracts a vessel to carry its cargo
with the corresponding duty to provide for the berthing space for the loading or unloading. Charterer is
merely required to exercise ordinary diligence in ensuring that a berthing space be made available for the
vessel. The charterer does not make itself an absolute insurer against all events which cannot be foreseen or
are
inevitable. The law only requires the exercise of due diligence on the part of the charterer to scout or look for
a berthing space.

14. Literal meaning of stipulations controlling in contracts which are clear

Considering that subject contract of affreightment contains an express provision
“Demurrage/Dispatch: NONE,” the same left the parties with no other recourse but to apply the literal
meaning of such stipulation. The cardinal rule is that where, as in this case, the terms of the contract are clear
and leave no doubt over the intention of the contracting parties, the literal meaning of its stipulations is
controlling.

15. Waiver defined; “Demurrage/Dispatch: NONE” may be interpreted as a waiver of right to

claim for demurrage
Waiver is a renunciation of what has been established in favor of one or for his benefit, because he
prejudices nobody thereby; if he suffers loss, he is the one to blame. Herein, the provision
“Demurrage/Dispatch: NONE” can be interpreted as a waiver by Hongfil of the right to claim for demurrages.

16. Contract is the law binding between parties

Well-settled is the doctrine that a contract between parties which is not contrary to law, morals, good
customs, public order or public policy, is the law binding on both of them. Herein, as Hongfil freely entered
into subject charter party which providing for “Demurrage/Dispatch: NONE,” it cannot escape the inevitable
consequence of its inability to collect demurrage.

17. MAM Realty vs. NLRC; Obligations incurred by officers, as corporate agents, those of the
corporation
In the case of MAM Realty vs. NLRC, the Court held that a corporation, being a juridical entity, may
act only through its officers, directors and employees. Obligations incurred or contracted by them, acting as
such corporate agents, are not theirs but the direct accountability of the corporation they represent.

18. Exceptions where personal civil liability may attach to a corporate officer
The exceptions wherein personal civil liability may attach to a corporate officer are: (1) When
directors and trustees or, in appropriate cases, the officers of a corporation — (a) vote for or assent to patently
unlawful acts of the corporation; (b) act in bad faith or with gross negligence in directing the corporate
affairs;
(c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members, and other
persons. (2) When a director or officer has consented to the issuance of watered stocks, or who, having
knowledge thereof, did not forth with file with the corporate secretary his written objection thereto. (3) When
a director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily
liable with the corporation. (4) When a director, trustee or officer is made, by specific provision of law,
personally liable for his corporate action.”

19. Case does not fall under any of exceptions

The present case does not fall under any of such exceptions. A careful perusal of the contract litigated
upon reveals that Geraldez, et. al., as officers of NFA, did not bind themselves to be personally liable nor did
they ink any undertaking that should NFA fail to pay Hongfil’s claims, they would be personally liable.
Hongfil has not cited any provision of law under which the officers of NFA are liable under the contract
entered into. Further, there is nothing on record to show that the officers acted in bad faith or were guilty of
gross negligence, to warrant personal liability. Neither the trial court nor the Court of Appeals found of bad
faith or gross negligence on the part of the said officers of NFA.

20. Bad faith is a question of fact; What constitutes bad faith

Bad faith or negligence is a question of fact and is evidentiary. It has been held that “bad faith does
not simply mean bad judgment or negligence; it imparts a dishonest purpose or some moral obliquity and
conscious doing of wrong. It means a breach of a known duty through some motive or interest or ill-will; it
partakes of the nature of fraud.”

[179] Maritime vs. CA, see [176]

[180]

Market Developers vs. IAC (GR 74978, 8 September 1989)

First Division, Cruz (J): 4 concur

Facts: On 20 June 1978, Market Developers, Inc. (MADE) entered into a written barging and towage contract
with Gaudioso Uy for the shipment of the former’s cargo from Iligan City to Kalibo, Aklan, at the rate of
P1.45 per bag. MADE was allowed 4 lay days and agreed to pay demurrage at the rate of P5,000.00 for every
day of delay, or in excess of the stipulated allowance. On 26 June 1978, Uy sent a barge and a tugboat to
Iligan City and loading of MADE’s cargo began immediately. It is not clear who made the request, but upon
completion of the loading on 29 June 1978, the parties agreed to divert the barge to Culasi, Roxas City, with
the cargo being consigned per bill of lading to Modern Hardware in that city. This new agreement was not
reduced to writing. The shipment arrived in Roxas City on 13 July 1978, and the cargo was eventually
unloaded and duly received by the consignee. There is some dispute as to the time consumed for such
unloading. At any rate, about 6 months later, Uy demanded payment of demurrage charges in the sum of
P40,855.40 for an alleged delay of 8 days and 4/25 hours. MADE ignored this demand, and Uy filed suit.

Uy was sustained by the trial court, which ordered MADE to pay him the said amount with interest plus
P4,000.00 attorney’s fees and the cost of the suit. This decision was fully affirmed on appeal to the
Intermediate Appellate Court. Hence, the petition.

The Supreme Court granted the petition; reversed the decision of the appellate court; and dismissed Civil
Case R 18095 in the RTC of Cebu, with costs against Uy.

1. First written contract cancelled and replaced by second verbal contract

After considering the issues and the arguments of the parties, the Court finds that it was erroneous for
the trial and appellate courts to affirm that the original contract concluded on 20 June 1978, continued to
regulate the relations of the parties. What it should have held instead was that the first written contract had
been cancelled and replaced by the second verbal contract because of the change in the destination of the
cargo. Although the rates remained unchanged at P1.45 per sack of MADE’s cargo, there was a substantial
difference between Roxas City and Kalibo, Aklan, as ports of destination, that affected the continued
existence of the first contract.

2. Roxas City a busier port than Kalibo; Demurrer charges not contemplated in second contract
Roxas City is a much busier port than Kalibo, Aklan, where unloading of its cargo could have been
accomplished faster because of the lighter traffic. That is why MADE agreed to pay demurrage charges under
the original contract but not under the revised verbal agreement. Indeed, it would have been foolhardy for
MADE to assume demurrage charges in Roxas City, considering the crowded condition of the port in that
place. Such assumption should not have been lightly inferred, especially since it is based on the resurrection
of a contract already voided because of the change in the port of destination. To hold that the old agreement
was still valid and subsisting notwithstanding this substantial change was to impose upon MADE a condition
he had not, and would not have, accepted under the new agreement.

3. Article 1356 NCC

Article 1356 of the Civil Code provides that “Contracts shall be obligatory in whatever form they
may have been entered into, provided all the essential requisites for their validity are present. However, when
the law requires that a contract be in some form in order that it may be valid or enforceable, or that a contract
be proved in a certain way, that requirement is absolute and indispensable.”

4. Contract may be oral or written

The rule in Article 1356 NCC was affirmed only recently when the Court said in Tong v. Intermediate
Appellate Court that “a contract may be entered into in whatever form except where the law requires a
document or other special form as in the contracts enumerated in Article 1388 of the Civil Code. The general
rule, therefore, is that a contract may be oral or written.”

5. Contract of affreightment
A contract of affreightment is a contract with the shipowner to hire his ship or part of it, for the
carriage of goods, and generally takes the form either of a charter party or a bill of lading. Herein, the contract
executed by MADE and Uy was a contract of affreightment.

6. Article 652 Code of Commerce

Article 652 of the Code of Commerce provides that “a charter party must be drawn in duplicate and
signed by the contracting parties” and enumerates the conditions and information to be embodied in the
contract, including “the lay days and extra lay days to be allowed and the demurrage to be paid for each of
them.”

7. Article 653 Code of Commerce

Article 653 of the Code of Commerce provides that “If the cargo should be received without a charter
party having been signed, the contract shall be understood as executed in accordance with what appears in the
bill of lading, the sole evidence of title with regard to the cargo for determining the rights and obligations of
the ship agent, of the captain and of the charterer.”

8. Interpretation of Article 652 in relation to Article 653 of the Code of Commerce

While the rule in Article 652 clearly shows that a charter party must be in writing, Article 653 admits
that the charter party may be oral, in which case the terms thereof, not having been reduced to writing, shall
be those embodied in the bill of lading.

9. Oral charter parties; Compania Maritima vs. Insurance Company of North America
Conformably, the Court recognized in Compañia Maritima v. Insurance Company of North America,
the existence of a contract of affreightment entered into by telephone, where it was shown that this oral
agreement was later confirmed by a formal and written booking issued by the shipper’s branch office and
later carried out by the carrier.

10. Law and jurisprudence support the validity of a contract not reduced in writing
Law and jurisprudence support the validity of a contract not reduced in writing. There is no
justification either to incorporate in such contract the stipulation for demurrage in the original written contract
which provided for a different port of destination than that later agreed upon by the parties. It was precisely
this vital change in the second contract that rendered that first contract ineffectual. If the rate provided for in
the old written contract was maintained in the new oral contract, it was simply because the rates for Kalibo,
Aklan and Culasi, Roxas City, where the same. But the demurrage charges cannot be deemed stipulated also
in the verbal contract because the conditions in the ports of Aklan and Roxas City were, unlike the rates, not
the same. In fact, they were vastly different.

11. Parol evidence rule inapplicable; No law makes it necessary for new contract of same subject be
reduced in writing
The parol evidence rule is clearly inapplicable because that involves the verbal modification —
usually not allowed — of a written agreement admittedly still valid and subsisting. Herein, the first written
agreement had not merely been modified but actually replaced by the second verbal agreement, which is
perfectly valid even if not in writing like the first. As has been correctly held that “No principle of law makes
it necessary that a new contract upon the same subject between the same persons shall be reduced to writing
because the old contract was written. “

12. No requirement for payment of demurrage charges in the bill of lading

Regarding the bill of lading, an examination thereof will reveal that there is no condition or
requirement therein for the payment of demurrage charges. Under Article 653 of the Code of Commerce,
therefore, there was no reason to read any stipulation for demurrage into the second contract.

13. Uy’s testimony hearsay; Barge patron not presented at the trial
Even assuming that the original agreement for demurrage had been carried over in the second
contract, there is no acceptable evidence of the delay allegedly incurred by MADE in the unloading of its
cargo in Roxas City. Uy’s testimony on this matter is self-serving, let alone the fact that he admittedly was not
present at the unloading. His corroboration is hearsay. This consisted merely of the so-called statement of
facts regarding the unloading of the cargo from the barge, prepared by the barge patron, a certain Ding Julian.
This person was not presented at the trial to testify on his report and could therefore not be subjected to cross
examination.

14. Timeliness of demand for payment of demurrer charges indicate real intention of the parties
The original bill sent by Uy charged MADE only for the freight but made no mention of the
demurrage charges, inasmuch as that said bill was was made on 8 July 1978 when there was yet no
demurrage. As a matter of fact, unloading had not yet started. The unloading started on 13 July 1978. Still,
after sending MADE the billing dated 8 July 1978, Uy did not make any additional billing for demurrage
following the completion of the unloading on 24 July 1978, as alleged. It is also a matter of record that on 1
September 1978, MADE remitted to Uy a check “in full payment of our account,” which was accepted
without protest and eventually encashed by Uy. Furthermore, MADE’s sales manager testified that MADE
and Uy entered into at least one more voyage afterwards, and there was no demand made then for the
demurrage charges for the voyage to Roxas City. This claim has not been denied. Uy says he made such
demand verbally several times but offered no corroboration. It was only on 5 February 1979, that he made his
demand in writing. It took all of six months before it occurred to Uy to make a written demand for demurrage
although he says his several verbal demands had been consistently ignored.

15. Delay does not constitute laches, but reflects credibility of carrier
While the delay, standing by itself, is not long enough to constitute laches, it nevertheless clearly
reflects on the Uy’s credibility when assessed in relation to the facts narrated.

16. Carrier could have met all arguments, but erroneously relied on the judgment of the lower
courts
While Uy could have met all the arguments of MADE frontally, he elected to rely merely on the
decisions of the trial court and the appellate court, perhaps feeling smugly that he had already won. That was
his error. He misjudged those judgments. It should never be assumed that when the Supreme Court sits to
review the decisions of the lower courts, it will merely and automatically affirm them without further inquiry
on the convenient assumption that they are correct. That may be a presumption, and it is often valid, but it is
never conclusive upon the Supreme Court. Such decisions are always examined carefully and thoroughly by
the Court, in the light of the issues and arguments raised by the parties before it, and may be modified or even
reversed whenever warranted to give the deserving suitor the appropriate relief; as herein.

[181] Maritime Agencies v. CA, see [176]

[182]
Marimperio Compania Naviera vs. CA (GR L-40234, 14 December 1987)
First Division, Paras (J): 4 concur

Facts: In 1964 Philin Traders Corporation and Union Import and Export Corporation entered into a joint
business venture for the purchase of copra from Indonesia for sale in Europe. James Liu, President and
General Manager of the Union took charge of the European market and the chartering of a vessel to take the
copra to Europe. Peter Yap of Philin on the other hand, found one P.T. Karkam in Dumai, Sumatra who had
around 4,000 tons of copra for sale. Exequiel Toeg of Interocean was commissioned to look for a vessel and
he found the vessel “SS Paxoi” of Marimperio Compañia Naviera, S.A. available. Philin and Union
authorized Toeg to negotiate for its charter but with instructions to keep confidential the fact that they are the
real charterers. Consequently on 21 March 1965, in London England, a “Uniform Time Charter” for the hire
of vessel “Paxoi” was entered into by the owner, Marimperio through its agents N. & J. Vlassopulos, Ltd. and
Matthews Wrightson, Burbridge, Ltd. (Matthews), representing Interocean Shipping Corporation, which was
made to appear as charterer, although it merely acted in behalf of the real charterers. In view of the Charter,
on 30 March 1965 plaintiff Charterer cabled a firm offer to P.T. Karkam to buy the 4,000 tons of copra
for
U.S. $180.00 per ton, the same to be loaded either in April or May, 1965. The offer was accepted and
plaintiffs opened two irrevocable letters of Credit in favor of P.T. Karkam. On March 29, 1965, the Charterer
was notified by letter by Vlassopulos through Matthews that the vessel “PAXOI” had sailed from Hsinkang at
noontime on 27 March 1965 and that it had left on hire at that time and date under the Uniform Time-Charter.
The Charterer was however twice in default in its payments which were supposed to have been done in
advance. The first 15-day hire comprising the period from March 27 to April 11, 1965 was paid despite
follow-ups only on 6 April 1965 and the second 15-day hire for the period from April 12 to April 27, 1965
was paid also despite follow-ups only on 26 April 1965. On 14 April 1965 upon representation of Toeg, the
Esso Standard Oil (Hongkong) Company supplied the vessel with 400 tons of bunker oil at a cost of US
$6,982.73. Although the late payments for the charter of the vessel were received and acknowledged by
Vlassopulos without comment or protest, said agent notified Matthews, by telex on 23 April 1965 that the
shipowners in accordance with Clause 6 of the Charter Party were withdrawing the vessel from Charterer’s
service and holding said Charterer responsible for unpaid hirings and all legal claims. On 29 April 1965, the
shipowners entered into another charter agreement with another Charterer, the Nederlansche Stoomvart of
Amsterdam, the delivery date of which was around 3 May 1965 for a trip via Indonesia to Antwep/Hamburg
at an increased charter cost. Meanwhile, the original Charterer again remitted on 30 April 1965, the amount
corresponding to the 3rd 15-day hire of the vessel PAXOI, but this time the remittance was refused.

On 3 May 1965, Union and Philin filed a complaint with the Court of First Instance of Manila, Branch VIII,
against the Unknown Owners of the Vessel “SS Paxoi”, for specific performance with prayer for preliminary
attachment. Union and Philin obtained a writ of preliminary attachment of vessel “PAXOI” which was
anchored at Davao on 5 May 1969, upon the filing of the corresponding bond of P1,663,030.00. On 11 May
1965, the complaint was amended to identify the defendant as Marimperio Compañia Naviera S.A. However,
the attachment was lifted on 15 May 1969 upon Marimperio’s motion and filing of a counterbond for
P1,663,030. On 16 March 1966, Interocean Shipping Corporation filed a complaint-in-intervention to collect
what it claims to be its loss of income by way of commission and expenses in the amount of P15,000.00 and
the sum of P2,000.00 for attorney’s fees. On 22 November 1969 the CFI of Manila rendered its decision in
favor of Marimperio, and against Union and Philin, dismissing the amended complaint, and ordering the latter
on the counterclaim to pay Marimperio, jointly and severally, the amount of L8,011.38 or its equivalent in
Philippine currency of P76,303.40, at the exchange rate of P9.40 to 1 for the unearned charter hire due to the
attachment of the vessel “PAXOI” in Davao, plus premiums paid on the counterbond as of 22 April 1968 plus
the telex and cable charges and the sum of P10,000.00 as attorney’s fees and costs. The trial court dismissed
the complaint-in-intervention, ordering Interocean to pay Marimperio the sum of P10,000.00 as attorney’s
fees, and the costs. Union and Philin filed a Motion for Reconsideration and/or new trial of the decision of the
trial court on 23 December 1969. Interocean filed its motion for reconsideration and/or new trial on 7 January
1970. Acting on the two motions for reconsideration, the trial court reversed its stand in its amended decision
dated 24 January 1978. The Court rendered judgment for Union, Philin and Interocean, and ordered
Marimperio to pay the former the sum of (1) US$22,500.00 representing the remittance of Union and Philin
to Marimperio for the first 15-day hire of the vessel ‘SS PAXOI’, including overtime and an overpayment of
US$254.00; (2) US$16,000.00 corresponding to the remittance of Union and Philin to Marimperio for the
second 15-day hire of the vessel; (3) US$6,982.72 representing the cost of bunker oil, survey and watering of
the said vessel; (4) US$220,000.00 representing the unrealized profits; and (5) P100,000.00, as and for
attorney’s fees. The Court further ordered Marimperio to pay Interocean the amount of P15,450.44,
representing the latter’s commission as broker, with interest thereon at 6% per annum from the date of the
filing of the complaint-in-intervention, until fully paid, plus the sum of P2,000.00 as attorney’s fees, and to
pay the costs. The Court ordered the dismissal of the counterclaims filed by Marimperio against Union, Philin
and Interocean, as well as its motion for the award of damages in connection with the issuance of the writ of
preliminary attachment. Marimperio, filed a motion for reconsideration and/or new trial of the amended
decision on 19 February 1970. Meanwhile a new Judge was assigned to the Trial Court. On 10 September
1970 the trial court issued its order of 10 September 1970 denying Marimperio’s motion for reconsideration.

On Appeal, the Court of Appeals affirmed the amended decision of the lower court except the portion
granting commission to Interocean, which it reversed thereby dismissing the complaint-in-intervention. Its
two motions (1) for reconsideration and/or new trial and (2) for new trial having been denied by the Court of
Appeals in its Resolution of 17 February 1975 which, however, fixed the amount of attorney’s fees at
P100,000.00 instead of $100,000.00, Marimperio filed with the Supreme Court its petition for review on
certiorari on 19 March 1975.

The Supreme Court reversed and set aside the decision of the Court of Appeals affirming the amended
decision of the CFI of Manila; except for that portion of the decision dismissing the complaint-in-
intervention; and reinstated the original decision of the trial court.

1. Article 1311 NCC; To whom contract binding

According to Article 1311 of the Civil Code, a contract takes effect between the parties who made it,
and also their assigns and heirs, except in cases where the rights and obligations arising from the contract are
not transmissible by their nature, or by stipulation or by provision of law. Since a contract may be violated
only by the parties, thereto as against each other, in an action upon that contract, the real parties in interest,
either as plaintiff or as defendant, must be parties to said contract. Therefore, a party who has not taken part
in it cannot sue or be sued for performance or for cancellation thereof, unless he shows that he has a real
interest affected thereby.

2. Charter party entered between Marimperio and Interocean; Interocean sublet vessel to Union,
who in turn sublet the same to Philin
The charter party was entered into between Marimperio, through its duly authorized agent in London,
the N & J Vlassopulos, Ltd., and Interocean through the latter’s duly authorized broker, the Overseas
Steamship Co., Inc., represented by Matthews, Wrightson Burbridge Ltd., for the Charter of the “SS PAXOI.”
Interocean sublet the said vessel to Union which in turn sublet the same to Philin. It is admitted by Union and
Philin that the charterer is Interocean Even paragraph 3 of the complaint-in-intervention alleges that Union
and Philin were given the use of the vessel “pursuant to paragraph 20 of the Uniform Time Charter” which
precisely provides for the subletting of the vessel by the charterer.

3. Article 652 of the Code of Commerce

Article 652 of the Code of Commerce provides that the charter party shall contain, among others, the
name, surname, and domicile of the charterer, and if he states that he is acting by commission, that of the
person for whose account he makes the contract. It is obvious from the disclosure made in the charter party by
the authorized broker, the Overseas Steamship, that the real charterer is the Interocean Shipping Company
(which sublet the vessel to Union which in turn sublet it to Philin).
4. Nature of sub-lease; Personality of lessee does not disappear in contract of sublease
In a sub-lease, there are two leases and two distinct judicial relations although intimately connected
and related to each other, unlike in a case of assignment of lease, where the lessee transmits absolutely his
right, and his personality disappears; there only remains in the juridical relation two persons, the lessor and
the assignee who is converted into a lessee (Moreno, Philippine Law Dictionary, 2nd ed., p. 594). In other
words, in a contract of sub-lease, the personality of the lessee does not disappear; he does not transmit
absolutely his rights and obligations to the sub-lessee; and the sub-lessee generally does not have any direct
action against the owner of the premises as lessor, to require the compliance of the obligations contracted
with the plaintiff as lessee, or vice versa (10 Manresa, Spanish Civil Code, 438).

5. Instances where lessor allowed to bring action directly against sublessee (not vice versa)
There are at least two instances in the Civil Code which allow the lessor to bring an action directly
(accion directa) against the sub-lessee (use and preservation of the premises under Article 1651, and rentals
under Article 1652). In Articles 1651 and 1652, it is not the sub-lessee, but the lessor, who can bring the
action. Herein, it is clear that the sub-lessee as such cannot maintain the suit they filed with the trial court
(See
A. Maluenda and Co. v. Enriquez, 46 Phil. 916).

6. Article 1651 NCC

Article 1651 reads “Without prejudice to his obligation toward the sub-lessor, the sub-lessee is bound
to the lessor for all acts which refer to the use and preservation of the thing leased in the manner stipulated
between the lessor and the lessee.”

7. Article 1652 NCC

Article 1652 reads: “The sub-lessee is subsidiarily liable to the lessor for any rent due from the lessee.
However, the sub-lessee shall not be responsible beyond the amount of rent due from him, in accordance with
the terms of the sub-lease, at the time of the extra-judicial demand by the lessor. Payments of rent in advance
by the sub-lessee shall be deemed not to have been made, so far as the lessor’s claim is concerned, unless said
payments were effected in virtue of the custom of the place.”

8. Agency with an undisclosed principal, Article 1883 NCC

In the law of agency “with an undisclosed principal, the Civil Code in Article 1883 reads: “If an
agent acts in his own name, the principal has no right of action against the persons with whom the agent has
contracted; neither have such persons against the principal. In such case the agent is the one directly bound in
favor of the person with whom he has contracted, as if the transaction were his own, except when the contract
involves things belonging to the principal. The provisions of this article shall be understood to be without
prejudice to the actions between the principal and agent.”

9. Union and Philin not allowed to bring action against adverse party
The true charterers of the vessel were Union and Philin and they chartered the vessel through an
intermediary which upon instructions from them did not disclose their names. Article 1883 cannot help Union
and Philin, because although they were the actual principals in the charter of the vessel, the law does not
allow them to bring any action against the adverse party and vice-versa.

10. Default of charterer in payment gives shipowner right to rescind charter party extrajudicially
The default of charterer in the payment of the charter hire within the time agreed upon gives
Marimperio a right to rescind the charter party extrajudicially. Clause 6 of the Charter party specifically
provides that Marimperio has the right to withdraw the vessel from the service of the charterers, without
noting any protest and without interference of any court or any formality in the event that the charterer
defaults in the payment of hire. The payment of hire was to be made every 15 days in advance. Herein, as of
23 April 1965, when Vlassopulos notified Matthews of the withdrawal of the vessel from the Charterers’
service, the latter was already in default. Accordingly, under Clause 6 of the charter party the owners had the
right to withdraw “SS PAXOI” from the service of charterers, which withdrawal they did.

11. Contract the law between contracting parties; When contract provides for revocation
A contract is the law between the contracting parties, and when there is nothing in it which is
contrary to law, morals, good customs, public policy or public order, the validity of the contract must be
sustained. A judicial action for the rescission of a contract is not necessary where the contract provides that it
may be revoked and cancelled for violation of any of its terms and conditions.

[183]

O’Farrel vs. Meralco (GR 31222, 29 October 1929)

En Banc, Street (J): 4 concur

Facts: The Societé Francaise des Charbonnages du Tonkin is engaged in mining coal in Hongay, Tongking,
China while the Manila Electric Company (Meralco) is operating a plant for the generation of electricity in
the City of Manila. At the same time O’Farrel y Cia. (doing business under the name Malaysian Navigation
Company) was a shipping company engaged in operating freight vessels in Oriental seas. In the operation
engaged in operating freight vessels in Oriental seas. In the operation of its plant Meralco consumers large
quantities of coal, and in years past it has taken its supplies in part from the coal company in Hongay. The old
arrangement under which Meralco had been purchasing coal from said company having been found to be
unsatisfactory, for some reason or other, to Merlco, a new contract was entered into, in the month of August
1923, whereby the coal company agreed to sell and Meralco agreed to buy, in the period from 1 September
1923, to 31 August 1924, 75,000 tons of dust coal, with a margin of 10% more or less. In this contract it was
agreed that delivery should be taken by Meralco in lots of about from 2,000 to 4,000 tons at regular intervals,
as could best be arranged to suit both purchasers and sellers, the purchasers agreeing to take not less than
about 6,000 tons per month and to send not more than one steamer to be loaded at the same time. It was also
stipulated that the dust coal, the subject of the sale, should be loaded either in the stream or alongside the
wharf or quay at Hongay, at the option of the coal company, “with quick despatch, vessels taking their turn in
loading.” As neither the coal company nor Meralco was engaged in operating seagoing vessels, it became
necessary for Meralco to make arrangement with some shipping company for the service necessary to
transport the coal to Manila. This need being apparent, Gaston O’Farrel, the agent of the coal company, in
Manila, directed the attention of Meralco to the Malaysian Navigation Company, the trade-name of O’Farrel y
Cia., as operating vessels that would be available for transporting the coal. In this connection it should be
noted that O’Farrel was agent both of the coal company and the Malaysian Navigation Company. A contract
between O’Farrel and Meralco for the transportation of the coal purchased by Meralco from the coal company
was inked. The practice followed by the parties in the performance of this contract was that, upon the receipt
of information in Manila by Meralco from the coal company, advising that a cargo of coal was, or soon would
be available in Hongay, the message was turned over to O’Farrel y Cia., and the latter company made the
arrangements for the sending of a boat to Hongay. But delay in the taking on of coal occurred in Hongay,
owing to the inability of the coal company to deliver the coal to the waiting boats. The delay was due to the
fact that the cranes of the coal company at Hongay were defective and often out of order. O’Farrel’s boats
were thus frequently kept waiting in the port; and it in fact appears that altogether they were held there idle
123 days, to say nothing of the time occupied in the lading of the ships after their turn had come for taking
cargo. Upon the visits that O’Farrel’s ships made to Hongay, the coal necessary for the operation of said ships
was there taken on board with the assent of the coal company; and in the end O’Farell became indebted, to the
coal company, on account of such advances of coal, in the amount of HK$21,817.79. As a result of the
inability of O’Farrel to liquidate this claim for coal advanced it, the officers of the latter became reluctant to
send its vessels any longer to Hongay, for fear that the ships would be libeled for the coal company’s claim.
Owing to said causes, deliveries of coal to Meralco under its contract with the coal company amounted in
June 1924, only to about 41,375 tons, or some 18,625 tons less than the amount that should have been
delivered; and the only delivery thereafter made to Meralco was a shipment that came on the Sealda in the
latter part of August 1924. This boat did not belong to the Malaysian Navigation Company but was obtained
by it from another owner. Upon giving notice of the dispatch of the Sealda for coal in the latter part of August
1924, the general manager of Meralcocalled the attention of the coal company to the fact that that company
was short nearly 20,000 tons in its contractual deliveries, and in view of this fact the coal company was
advised to consider the contract closed. This step received the approval of the coal company, and contractual
relations between it and Meralco terminated. In a conversation that occurred at about this time between an
officer of Meralco and a representative of the Malaysian Navigation Company, the latter communicated to the
former the fact that it would be unable to proceed further under the contract for the transportation of coal and,
on behalf of the Malaysian Navigation Company, he acquiesced in the termination of the contract existing
between them.

An action was instituted in the CFI of Manila by O’Farrel y Cia. for the purpose of recovering from Meralco,
upon 3 causes of action, the aggregate amount of P163,990, with interest, alleged to be due to O’Farrel for
breach of contract. The three causes are : (1) O’Farrel seeks to recover the sum of P80,190, as compensation
which it would have received had all of the coal been delivered to it for transportation, as contemplated in the
contract with Meralco; (2) O’Farrel seeks to recover the sum of P73,800, being the amount represented by the
demurrage claimed by it, at the rate of P600 per day, for 123 days during which its ships were detained in
Hongay awaiting their turn to take on coal; (3) O’Farrel seeks to recover the sum of P10,000 for demurrage of
a boat at Hongay which had to sail for Saigon in ballast and without cargo.

About 4 months after the action was begun, O’Farrel y Cia. was declared insolvent, and W. J. O’donovan was
appointed assignee in insolvency. Thereafter the action was prosecuted under his direction, by authority of the
court, though the title of the case was not changed. In the course of the proceedings in the CFI, the case was
consolidated with another action instituted in the same court, against the same defendant (Meralco), by the
Societé Francaise des Charbonnages du Tonkin. Upon hearing, in the case involving O’Farrel and Merlaco,
the trial court found that the action was not well founded and absolved Meralco form the complaint with costs
against O’Farrel. From this judgment, O’Farrel appealed.

The Supreme Court affirmed the judgment appealed from, with costs against O’Farrel.

1. Contents of the contract between O’Farrell and Meralco

The substance of the contract between O’Farrell and Meralco provides that (1) The Malaysian
Navigation Co. undertakes to transport 75,000 tons of coal (10% more or less), from Hongay to Manila at the
freight rate of P4.50, per ton of 1,016 kilos, less a rebate of 1%; (2) Freight to be paid on arrival of each
shipment at Manila as per B/L; (3) Loading to be for account and risk of shippers according to customary
quick despatch subject to turn of mines; (4) For discharging at Manila the Manila Electric Co. will provide
sufficient lighters to receive the coal at ship side as fast as the ship can discharge. Demurrage, if any, to be at
the rate of P600 per day of fraction thereof; it is understood that the Manila Electric Co. will not be compelled
to pay demurrage for days when it shall have received at least 500 tons of coal.

2. O’Farrel not entitled to recover damages for breach of contract

O’Farrel is not entitled to recover damages against Meralco for breach of the contract for the
transportation of coal, for more than one reason, namely, because (1) the Malaysian Navigation Company
(O’Farrel) was unable to fulfill its contract to supply ships for the transportation of the coal and desisted
therefrom; and (2) in the end the contract was in effect cancelled by mutual consent.

3. Coal company not an agent of Meralco

The theory underlying O’Farrel’s case throughout is that the coal company was agent of Meralco in
the matters affecting the performance of the contract between O’Farrel and Meralco. There is no basis for this
contention; and, on the contrary, the position of O’Farrel as agent both of the coal company and Meralco
indicates the impropriety of considering the coal company as the agent of Meralco.

4. Meralco not chargeable for delays incurred by the coal company

The difficulty in which O’Farrel found itself was due evidently to the failure of the coal company to
make prompt deliveries of coal aboard O’Farrel’s boats at Hongay. But Meralco was in no wise chargeable
with either the causes or consequences of these delays.

5. No stipulation of demurrage incident to delay at Hongay

Upon careful inspection of the contract between O’Farrell and Meralco, that the stipulation for
demurrage at the rate of P600 per day, or fraction thereof, is found in the paragraph of the contract which
deals especially with the discharge of coal at Manila. There is no stipulation for demurrage incident to delay
at Hongay; and, on the contrary, it is stipulated, in the third paragraph of the contract, that loading at Hongay
should be “according to customary quick despatch subject to turn of mines.”

6. “Subject to turn of mines” construed

Herein, emphasis has been placed upon the words customary quick despatch and the other words
subject to turn of mines have not been taken so much into account. It appears in the proof that the vessels
desirous of landing coal at Hongay were laden according to the custom of the port, in strict rotation, except in
one instance where a Malaysian ship was given preference over, two other ships whose owners did not object.
The expression “subject to turn of mines” should be interpreted to mean that the lading of the vessels should
be subject to the output of the mines and that vessels should be subject to the output of the mines and that
vessels should take their turn in taking on the coal. It results that the lading of the coal was dependent upon
the output of the mines and the order of ships seeking cargo at the loading places.

7. Purpose of inserting “subject to turn of mines” in the contract

The expression “subject to turn of mines” was no doubt inserted in the contract in lieu of a stipulation
for demurrage. The insertion of that expression in clause 3 made the Malaysian ships dependent upon the
loading facilities of the coal company at Hongay, and relieved Meralco from any liability for demurrage by
reason of delays that might occur in the port incident to the obtaining and loading of the coal.

8. Article 656 of the Code of Commerce

Article 656 of the Code of Commerce provides that “If in the charter party the time in which the
loading and unloading is to take place is not stated, the customs of the port where these acts take place shall
be observed. After the period stipulated or the customary one has passed, and should there not be in the
freight contract an express clause fixing the indemnification for the delay, the captain shall be entitled to
demand demurrage for the usual and extra lay days which may have elapsed in loading and unloading.”

9. Stipulation as to “subject to turn of mines” makes Article 656 inapplicable

The stipulation of the contract making the loading of coal subject to the turn of mines renders article
656 inapplicable, this being a special stipulation determining the order of loading. It results that Meralco
cannot be held responsible for the delay that occurred. Such conclusion is also applicable for delay incurred
by one ship which left without cargo.

[184]

Overseas Factors Inc. vs. South Sea Shipping (GR L-12138, 27 February 1962)
En Banc, Padilla (J): 9 concur

Facts: On 3 and 9 September 1954 the National Rice and Corn Corporation (NARIC) and the Overseas
Factors, Inc. entered into two contracts whereby the latter undertook to supply the former with 5,000 metric
tons of Kangni rice at P.51 per ganta and 5,000 metric tons of Joshi rice at P.49 per ganta. On 10 September
1954 the NARIC established for its account with the Philippine National Bank (PNB_ in Manila two
irrevocable letters of credit (62655 & 62656) in the amounts of $529,125 and $508,375, in favor of the
Pakistan Development Corporation, Ltd. (PDC), Karachi, Pakistan. On 30 October 1954, S. M. Yeung,
authorized representative of the South Sea Shipping Co., Ltd., wrote to José W. Diokno, authorized
representative of the Overseas Factors, in Karachi, Pakistan, enumerating the terms and conditions of the
charter party they have agreed upon for shipment of the rice to be imported by the Overseas Factors from
Pakistan aboard the SS Ocean Trader owned by the South Sea Shipping. At the foot of the letter, José W.
Diokno affixed his signature signifying his intention to confirm the terms and conditions therein enumerated.
On the same date, 30 October 1954, S. M. Yeung, in behalf of the South Sea Shipping, and Chung Kien
Tieng, in behalf of the Overseas Factors, entered into a formal contract of charter party in Karachi, Pakistan,
incorporating the terms and conditions enumerated in the letter. On 12 November 1954 the terms and
conditions of the charter party regarding the rate and payment of freight were amended by the parties in
Hongkong. On 4 November 1954 Juan A. Magsino, in behalf of Overseas Factors entered into an agreement
with Abdulaye A. Badat, sole proprietor of Ivlom Corporation, in Karachi, Pakistan, whereby the said
corporation undertook to supply the Overseas Factors, with 5,000 metric tons of Kangni rice of the quality
and specifications enumerated in PNB Letter of Credit 62655. Badruddin H. Mavani undertook to supply the
Overseas Factors with the needed Joshi rice. On 5 November 1954 the Overseas Factors and Gertrudes
Carlos, co-financier of the former in its contract with the NARIC to supply it with the needed rice, jointly and
severally applied to the South Sea Surety & Insurance Co., Inc. to act as surety upon a bond demanded by the
South Sea Shipping in the amount of P315,000 to guarantee the payment by the charterers in Hongkong of the
freight, demurrage, dead freight and other losses that might arise. On the same date, 5 November 1954, the
Overseas Factors, as principal, and Carlos, as co-principal, and the South Sea Surety, as surety, executed a
performance bond in the amount of P315,000 in favor of the South Sea Shipping to guarantee the full
payment by the charterers at Hongkong of all freight, demurrage, dead freight and other losses that might
arise, within 14 days from the date of departure of the vessel from Karachi, Pakistan. From 16 to 23
November 1954, 2,567.6053 metric tons gross of Joshi rice and from 20 to 25 November 1954, 5,054.0662
metric tons gross of Kangni rice or a total of 7,621.6715 metric tons of rice were loaded on board the SS
Ocean Trader in Karachi, Pakistan. On 25 and 29 November the bills of lading covering the said shipments of
rice duly signed by the shipper’s agent were issued in the name of the PNB, Manila, as consignee. It appears
in the two bills of lading that the party to be notified upon arrival in Manila was the NARIC. On 25
November 1954 the SS Ocean Trader sailed from Karachi, Pakistan and arrived in Manila on 18 December
1954. The captain and crew members of the SS Ocean Trader refused to unload the cargo of rice unless the
balance of the freight and other charges due were paid by the charterers.

An action was brought on 29 December 1954 in the Court of First Instance of Manila praying the Court to
direct the captain and the crew of SS Ocean Trader to convert the amount in rupees paid by Overseas Factors
and Carlos in Karachi, Pakistan, into British sterling pounds, computed at the legal rate of exchange as
allowed by the Government of Pakistan; to deliver to Overseas Factors and Carlos the bills of lading of the
cargo of rice; to permit the unloading by Overseas Factors and Carlos of the cargo of rice from the SS Ocean
Trader pending trial of the case; to desist or refrain from interfering with such unloading upon the filing of an
additional surety bond, if necessary, in an amount that the Court may fix to answer for damages that South
Sea Shipping, A. Magsaysay, and the captain and crew of SS Ocean Trader may suffer as a result of such
injunction, and to pay the costs; and the Collector of Customs to see to it that the cargo of rice from the SS
Ocean Trader be unloaded. Overseas Factors and Carlos also prayed that the demurrages sought to be
collected by South Sea Shipping, et. al. be computed at the rate L300 and not at L700 a day; and for other just
and equitable relief (civil 24972). South Sea Shipping, et. al. answered the complaint and set up a
counterclaim of P316,364.38 for freightage, demurrage, charges for detention and other expenses of the
vessel while on detention. Overseas Factors and Carlos controverted South Sea Shipping, et. al.’s
counterclaim. The NARIC filed a complaint in intervention to protect its interest and the South Sea Surety
filed a cross-claim against Overseas Factors. After trial, the Court rendered judgment in favor of Overseas
Factors and Carlos
and against South Sea Shipping; holding therein that (1) the total amount of 369,000 Pakistan rupees received
by S. M. Yeung was in full payment of the transportation of the rice in question from Karachi to Manila, and
that the delay in the unloading of such rice in Manila was not due to Overseas Shipping and Carlos’ fault; and
(2) the claim for lien on the shipment of rice has no legal basis for the reason that the freight had already been
paid in Karachi, Pakistan, before such shipment arrived in Manila. The Court ordered the cancellation of the
injunction bond filed by Overseas Factors and Carlos as well as the performance bond executed to guaranty
the payment of freight. The Court dismissed the complaint with respect to A. Magsaysay, Inc., the Captain
and the Crew of the S.S. Ocean Trader, and the Collector of Customs of Manila, it appearing that they have
nothing to do with the controversy between Overseas Factors and South Sea Shipping. The Court dismissed
the counterclaim, and ordered South Sea Shipping to pay the costs. South Sea Shipping and A. Magsaysay
appealed.

The Supreme Court modified the judgment appealed by ordering Overseas Factors and Carlos to pay South
Sea Shipping the sums of P203,449.57, the balance of the freightage still unpaid, P6,720 as demurrage in
loading the cargo and P6,720 as demurrage for detention of the vessel, without prejudice to any amount
sought to be collected for demurrage which is to be submitted to arbitration in London, against which the
equivalent amount in Philippine currency of the sum of L12,838-0-6d or Rs119,221-5-0 as above stated is set
off; and holding that South Sea Shipping did not lose its lien on the cargo of rice, without pronouncement as
to costs. The Court dismissed the complaint and the complaint in intervention as to the other defendant
appellants, and the counterclaim against South Sea Surety, and the latter’s cross-claim.

1. Principal terms and conditions of the charter party

In the letter written by S. M. Yeung, authorized representative of the appellant shipping company, to
José W. Diokno, authorized representative of the appellees, on 30 October 1954 in Karachi, Pakistan,
summing up the principal terms and conditions of the charter party agreed upon by them, it appears that they
have agreed, among others, as follows: (1) FREIGHT: Sterling one hundred shillings (100) per metric ton
gross weight, F10 and free stowed; (2) PAYMENT OF FREIGHT: Charterers to pay full freight to the Owners
at Hongkong in British Pound Sterling upon signing of bill or bills of lading, ship lost or not lost; (3)
PERFORMANCE BOND : Charterers to arrange a performance bond in Hongkong satisfactory to the
st
Owners at Hongkong, latest before noon on the 1 November 1954 to guarantee the due performance of this
charter and full payment of all freight at Hongkong within 14 days from date of vessel’s departure from
Karachi. Charter Party Form (as adopted 1922).

2. Terms of contract of 30 October 1954

On 30 October 1954, the parties executed in Karachi, Pakistan, a formal contract of charter party in a
printed form of the uniform general charter adopted by the documentary committee of the Chamber of
Shipping of the United Kingdom, as revised in 1922. Chung Kien Tieng signed in behalf of the appellees and
Yeung Siu Man in behalf of the appellant shipping company. The pertinent terms of the contract are: (1) Rate
of Freight: Sterling One hundred Shillings (100/-) per metric ton, free in, free out and free stowed; (2)
Payment of Freight: The freight to be paid in case without discount on signing bills of lading in British Pound
Sterling transferable to the Owners at Hongkong within fourteen (14) days from the date of the vessel’s
departure from Karachi.

3. Amendment clauses
On 12 November 1954 the two clauses were amended by adding the following to the first clause, “or
according to Owners’ option of Forty Two Pesos (Pesos 42.-) per metric tons, free in, free out and free
stowed”; and the following to the second clause: “or according to Owners’ option of payment at Manila at the
rate stated in clause No. 1.”

4. Stipulation in performance bond

 In the performance bond executed and signed by Overseas Factors and Carlos in favor of South Sea
Shipping and South Sea Surety, it was stipulated that “the condition of this bond is such that if the Principal
and co- Principal shall well and duly comply with the conditions and stipulations enumerated in the above
mentioned agreement charter and contract of charter party as well as pay all freight at Hongkong within 14
days from the date of vessel’s departure from Karachi, then this obligation shall be null and void; otherwise, it
shall remain in full force and effect.”

5. Amount paid, amount due to shipping company

According South Sea Shipping, the amount due from Overseas Factors and Carlos as freightage of the
7,621.6715 metric tons of rice at 100 shillings per metric ton was £38,108-7-1d and that the latter had paid it
only £13,888-17-9d, as acknowledged by Yeung in a letter to Magsino, agent of Overseas Factors. However,
South Sea Shipping denied having received the sum of £12,838-0-6d from Overseas Factors and Carlos and
claim that the sum of 119,221-5-0 Pakistani rupees that Yeung received from Mavani could not be credited as
part payment of the freight. By the evidence presented, the sum of £12,838-0-6d (in British Pound Sterling)
due for freight on the Joshi rice shipped on board the SS Ocean Trader has not yet been paid to South Sea
Shipping by Overseas Factors and Carlos in accordance with their contract. Moreover, payment of the sum of
119,221-5-0 Pakistani rupees to Yeung made by Mavani in check was held by Kazi & Kazi merely for the
account of Overseas Factors and Carlos pending Government approval for transfer to the Office of South Sea
Shipping in Hongkong.

6. South Sea Shipping’s option to demand payment in British pounds or in Philippine currency
Under the charter party, South Sea Shipping has the option to demand payment of the freight in
British pounds sterling payable in Hongkong at the rate of 100 shillings per metric ton or P42, Philippine
currency, per metric ton. The amount due as freightage for 7,621.6715 metric tons of rice computed at P42,
Philippine currency, per metric ton, is P320,110.20. Deducting therefrom the sum of L13,888.17-9d or
P116,660.62, computed at P8.40 to £1 or P42 to £5 per metric ton, there is still due South Sea Shipping the
sum of P203,449.57, Philippine currency.

7. Clause 5 of the charter party

Clause 5 of the charter party provides “Cargo to be brought alongside in such a manner as to enable
vessel to take the goods with her own tackle and to load the full cargo in nine (9) running days free of
expense to the vessel. Charterers to procure and pay the necessary men on shore or on board the lighters to do
the work there, vessel only heaving the cargo on board. Any pieces and/or packages of cargo over two tons
weight, shall be loaded, stowed and discharged by Charterers at their risk and expense. Time shall commence
at 1 p.m. on the 30th October 1954. Time lost in waiting for berth to count as loading time.”

8. Clause 7 of the charter party

Clause 7 of the charter party provides “Four running days on demurrage at the rate of L300. —
Sterling per day or pro rata for any part of a day, payable day by day, at Hongkong to be allowed Merchants
altogether at ports of loading and discharging, L100. — per day for despatch.”

9. Clause 11 of the charter party

Clause 11 of the charter party provides “Should the cargo not be brought alongside to load (whether
in berth or not) on or before the 8th Nov. 1954. Owners have the option of cancelling this contract.”

10. Clause 20 of the charter party

Clause 20 of the charter party provides “Any dispute arising under this charter to be referred to
arbitration in London, one Arbitrator to be nominated by the Owners and the other by the Charterers, and in
case the Arbitrators shall not agree then to the decision of an Umpire to be appointed by them, the Award of
the Arbitrators or the Umpire to be final and binding upon both parties.”
11. Overseas Factors and Carlos cannot be charged for demurrage on remaining 13 days of delay
Overseas Factors and Carlos cannot be charged with L-700 a day for demurrage on the remaining 13
days of delay because they are only answerable for that much “for all detention charges” “if the ship is so
detained after loading of the cargo.” The departure of the vessel was not delayed after the cargo was finally
loaded. As a matter of fact it sailed for Manila on 25 November 1954 after it was loaded.

12. Clause 5 of the charter party

Clause 6 of the charter party provides “Cargo to be received by Merchants at their risk and expense
alongside the vessel not beyond the reach of her tackle and to be discharged in seven (7) running days, free of
expenses to the vessel. Time to commence at 1 p.m. if notice of readiness to discharge is given before noon,
and at 6 a.m. next working day if notice given during office hours after noon. Time lost in waiting for berth to
count as discharging time.”

13. South Sea Shipping entitled 4 running days on demurrage for detention; Demurrage for
remaining detention subject to arbitration in London
Because of the refusal of Overseas Factors and Carlos to pay the balance of the freight and other
charges, the captain and crew of the vessel refused to unload the cargo and the vessel was placed under
detention from 1:00 p.m. of 27 December 1954 to 6:00 a.m. of 5 January 1955. During that time the cargo
was unloaded pursuant to the order of the Court and deposited in the warehouse of the NARIC. The
unloading was finished at 6:00 a.m. of 5 January 1955 resulting in 8 days and 17 hours of detention. Under
clause 7 of the charter party, South Sea Shipping is entitled to collect from Overseas Factors and Carlos 4
running days on demurrage for detention at the rate of L300 or a total of L1,200. Computed at the rate of
exchange prevailing in January 1955, which is P5.60 to L1, South Sea Shipping should be paid the sum of
P6,720, Philippine currency. The demurrage for the remaining detention of 4 days and 17 hours and other
charges claimed by South Sea Shipping are subject to arbitration in London pursuant to clause 20 of the
charter party.

14. Article 665 of Code of Commerce, NARIC vs. Macadaeg

As held in the case of National Rice and Corn Corporation vs. Macadaeg, the fact that the freight was
already included in the purchase price paid by it to the appellees did not free the cargo of rice from the
carrier’s lien provided for in article 665 of the Code of Commerce, if the freight has not yet been fully paid by
the charterer.

15. Clause 8 of Charter party

Clause 8 of the charter party provides: “Owners shall have a lien on the cargo for freight, dead-
freight, demurrage and damages for detention. Charterers shall remain responsible for dead-freight and
demurrage (including damages for detention), incurred at port of loading. Charterers shall also remain
responsible for freight and demurrage (including damages for detention) incurred at port of discharge, but
only to such extent as the Owners have been unable to obtain payment thereof by exercising the lien on the
cargo.”

16. Clause requiring charterer to file a performance bond in favor of shipowners not a waiver of
shipowner’s or carrier’s lien on cargo
The last part of the letter, which says: “This agreement is subject to the arrangement of the
performance bond being computed before the time as specified above. Two copies of the formal Charter Party
shall be signed immediately upon confirmation of the performance bond being established at the stipulated
bank,” shows that the letter was written before the formal contract of charter party was executed by the
parties. Hence it cannot be said that the shipowners waived their lien provided for in the formal contract of
charter party.

17. Surety’s obligation in performance bond extinguished by novation

 The addendum of the charter party contract executed by the parties on 12 November 1954 in
Hongkong varying the clauses on the rate and payment of freight without the consent of the surety was a
novation of the contract. For that reason the surety’s obligation in the performance bond was extinguished.

18. Amount paid by Mayani to be set off against sum due to shipowner for freight or demurrage
The sum of Rs119,221-5-0 equivalent to £12,838-0-6d paid by Badruddin H. Mavani for the account
of Overseas Factors and Carlos to pay the freight of 2,567.6053 metric tons gross of Joshi rice and received
by S. M. Yeung as agent or representative of South Sea Shipping should be set off against the sum due the
latter for freight and demurrages, at the official rate of exchange in Karachi, Pakistan, on the day of receipt
thereof by the agent of South Sea Shipping, for aside from the fact that the latter should not be allowed to
enrich itself at the expense of Overseas Factors and Carlos, the forfeiture of the amount to be deposited with
the Chartered Bank of India, Australia and China in Karachi to the credit of South Sea Shipping, offered by
Magsino, the agent of Overseas Factors and Carlos, to pay the freight of the cargo of rice was not accepted by
S. M. Yeung, the agent of the shipowners.

19. Legal rate of interest for difference; Reckoning period

The difference after the set off in favor of any party shall bear the legal rate of interest, to wit: if in
favor of Overseas Factors and Carlos, from the date of receipt of the amount in Karachi, Pakistan, by the
agent of South Sea Shipping; or, if in favor of South Sea Shipping, from the date of the filing of its
counterclaim for the amount of freight and demurrages.

[185] Samar Mining v. Nordeutscher Lloyd, see [47]

[186] Sweet Lines v. CA, see [92]
[187] Juan Ysmael & Co. v. Barreto & Co. , see [124]
[188]

Phoenix Assurance Co. Ltd. vs. US Lines GR L-24033, 22 February 1968)

En Banc, Bengzon JP (J): 8 concur

Facts: On 29 June 1962, General Motors shipped and consigned on a CIF basis to Davao Parts and Service,
Inc. (DPS) at Davao City from New York aboard the United States Lines (US Lines)’ vessel SS “Pioneer
Moor” a cargo of truck spare parts in 25 cases and 4 crates (2 pieces unboxed), for which US Lines issued a
short form bill of lading T-1, and which shipment was insured against loss and damage with Phoenix
Assurance Co., Ltd. The short form bill of lading T-1 indicated Manila as the port of discharge and Davao
City as the place where the goods were to be transshipped, and expressly incorporated by reference the
provisions contained in the carrier’s regular long form bill of lading. The SS “Pioneer Moor” on 28 July 1962
discharged at Manila to the custody of the Manila Port Service which was then the operator of the arrastre
service at the Port of Manila, the cargo, complete but with the exception of two cases, namely, Cases 3139
and 3148 valued at P1,498.25. On 30 July 1962, the Luzon Brokerage Corporation, customs broker hired by
the US Lines, filed in behalf of the latter a provisional claim against the Manila Port Service for short-landed,
short-delivered and/or landed in bad order cargo ex-US Lines’ vessel. On 30 August 1962, the cargo, with the
exception of Crates 3139 and 3148 which were not discharged at the Manila Port, and Crates 3648 and 3649
which were discharged at the Manila Port but were lost in the custody of the Manila Port Service, was
transshipped by US Lines to Davao through a vessel of its Davao agent, Columbian Rope Company, and duly
received in good order by the DPS. DPS filed on 26 December 1962 a formal claim with the US Lines
through the latter’s agent, Columbian Rope, for the value of Crates 3139, 3148, 3648 and 3649 in the total
sum of P2,010.37. The US Lines, after proper verification, paid DPS the sum of P1,458.25, representing the
value of Crates 3139 and 3148, when it was discovered that these 2 crates had been overlanded in Honolulu,
but refused to pay for the value of Crates 3648 and 3649 for the reason that these crates had been lost while in
the custody of the Manila Port Service. The two crates (3139 and 3148) which were overlanded in Honolulu
and for which US Lines paid DPS the sum of P1,458.25, were later recovered and returned to DPS and the
latter refunded US Lines for the sum it paid. In view of US Lines ‘ refusal to pay for the two crates (3648 and
3649) which were lost while in the custody of the Manila Port Service, Ker & Company, Ltd., agent of
Phoenix Assurance in the Philippines, and insurer of DPS paid to the latter the value of said crates in the sum
of P552,12. On 25 March 1963, the US Lines, through Columbian Rope, by letter informed the DPS that it
was filing a claim for the undelivered crates with the Manila Port Service. And true to its word, it filed on 30
March 1963 a formal claim with the Manila Port Service for the value of Crates 3648 and 3649, but the latter
declined to honor the same. On 26 June 1963, US Lines, through Columbian Rope, its Davao agent, informed
the DPS, inter alia, that the Manila Port Service had not yet settled its claim, and that the 1-year period
provided by law within which to bring action against the Manila Port Service for the two crates (3648 and
3649) would expire on 28 July 1963. Phoenix Assurance, through Ker & Company, its agent in the
Philippines, wrote on 24 July 1963 the US Lines expressing its appreciation to the latter for taking action
against the Manila Port Service. In the same letter it requested for an extension of time to file suit against the
US Lines, explaining that it could not file suit against any entity (including the Manila Port Service) except
the US Lines with whom its subrogee, the DPS, was in contract.

No reply having been received by it from the US Lines, the Phoenix Assurance on 29 July 1963 filed a suit
praying that judgment be rendered against the former for the sum of P552.12, with interest at the legal rate,
plus attorney’s fees and expenses of litigation. On 16 August 1963, the US Lines filed its answer with
counterclaim, while Phoenix Assurance filed its answer to said counterclaim on 26 August 1963. After trial,
the lower court (CFI of Manila) on 31 October 1964 rendered a decision dismissing Phoenix Assurance’s
complaint. Hence, the appeal.

The Supreme Court affirmed the decision appealed from, with costs against Phoenix Assurance.

1. Bill of lading both a receipt and a contract

A bill of lading operates both as a receipt and as a contract. It is a receipt for the goods shipped and a
contract to transport and deliver the same as therein stipulated. As a receipt, it recites the date and place of
shipment, describes the goods as to quantity, weight, dimensions, identification marks and condition, quality,
and value. As a contract, it names the contracting parties, which include the consignee, fixes the route,
destination, and weight rate or charges, and stipulates the rights and obligations assumed by the parties.

2. Contents of Section 1 of Bill of Lading (Short form)

The Bill of Lading (short form) T-1 dated 29 June 1962 provides under Section 1 thereof that, “It is
agreed that the receipt, custody, carriage, delivery and transshipping of the goods are subject to the terms
appearing on the face and back hereof and also to the terms contained in the carrier’s regular long form bill of
lading, used in this service, including any clauses presently being stamped or endorsed thereon which shall be
deemed to be incorporated in this bill of lading, which shall govern the relations, whatsoever they may be,
between shipper, consignee, carrier and ship in every contingency, wheresoever and whensoever occuring and
whether the carrier be acting as such or as bailee.”

3. Contents of the Bill of Lading (regular long form)

The regular long form Bill of Lading provides, inter alia, that “The carrier shall not be liable in any
capacity whatsoever for any loss or damage to the goods while the goods are not in its actual custody. The
carrier or master, in the exercise of its or his discretion and altho’ transshipment or forwarding of the goods
may not have been contemplated or provided for herein, may at port of discharge or any other place
whatsoever transship or forward the goods or any part thereof by any means at the risk and expense of the
goods and at any time, whether before or after loading on the ship named herein and by any route, whether
within or outside the scope of the voyage or beyond the port of discharge or destination of the goods and
without notice to the shipper or consignee. The carrier or master may delay such transshipping or forwarding
for any reason, including but not limited to a waiting a vessel or other means of transportation whether by the
carrier or others. The carrier or master in making arrangements with any person for or in connection with all
transshipping or forwarding of the goods or the use of any means of transportation not used or operated by the
carrier, shall be considered solely the agent of the shipper and consignee and without any other responsibility
whatsoever or for the cost thereof . The receipt, custody, carriage and delivery of the goods by any such
person or on-carrier and all transshipping and forwarding shall be subject to all the provisions whatsoever of
such person’s or on-carrier’s form of bill of lading or agreement then in use, whether or not issued and even
though such provisions may be less favorable to the shipper or consignee in any respect than the provisions of
this bill of lading. The shipper and consignee authorize the carrier or master to arrange with any such person
or on-carrier that the lowest valuation or limitation of liability contained in the bill of lading or other
agreement of such person on on-carrier shall apply. All responsibility of the carrier in any capacity shall
altogether cease and the goods shall be deemed delivered by it and this contract of carrier shall be deemed
fully performed on actual or constructive delivery of the goods to itself as such agent of the shipper and
consignee or to any such person or on-carrier at port of discharge from ship or elsewhere in case of an earlier
transshipment. The shipper and consignee shall be liable to this carrier for and shall indemnify it against all
expense of forwarding and transshipping, including any increase in or additional freight or other charges
whatsoever. Pending or during forwarding or transshipping this carrier or the master may store the goods
ashore or afloat solely as agent of the shipper and at the risk and expense of the goods and this carrier shall
not be responsible for the acts, neglect, delay or failure to act of anyone to whom the goods are entrusted or
delivered for storage, handling, or any service incidental thereto. In case the carrier issues a bill of lading
covering transportation by a local or other carrier prior to the goods being delivered to and put into the
physical custody of the carrier, it shall not be under any responsibility or liability whatsoever for any loss or
damage to the goods occurring prior to or until the actual receipt or custody of the goods by it at the port or
place of transshipment and in arranging for the transportation to such port or place where the goods are put in
its physical custody, it acts solely as the agent of the shipper.”

4. US Lines not liable for loss of crates; Bill of Lading: Carrier not liable for goods not in its
custody
Herein, the crates were lost while in the possession and custody of the Manila Port Service. Since the
long form of Bill of Lading provides that “The carrier shall not be liable in any capacity whatsoever for any
loss or damage to the goods while the goods are not in its actual custody”, US Lines cannot be held
responsible for the loss of said crates. It is hardly fair to make US Lines accountable for a loss not due to its
acts or omissions or over which it had no control.

5. US Lines not liable for loss of crates; Bill of Lading: Carrier did not undertake delivery of
cargo in Davao City
Herein, the US Lines did not undertake to carry and deliver safely the cargo to the consignee in
Davao City. The short form Bill of Lading states in no uncertain terms that the port of discharge of the cargo
is Manila, but that the same was to be transshipped beyond the port of discharge to Davao City. Pursuant to
the terms of the long form Bill of Lading, US Lines’ responsibility as a common carrier ceased the moment
the goods were unloaded in Manila; and in the matter of transshipment, US Lines acted merely as an agent of
the shipper and consignee. Further, the cargo was not transshipped with the use of transportation used or
operated by US Lines. Although the vessel used for transshipment is owned and operated by US Lines’
Davao agent, Columbian Rope, but there is no proof that said vessel is owned or operated by US Lines.

6. Claim – that exculpation from liability do not apply when full cargo freight paid up to and
beyond point of stipulated discharge – without merit
The receipt of full cargo freight up to Davao City cannot render inoperative the provisions of the Bill
of Lading inasmuch as such a situation is not provided therein as an exception. No exceptions appear in the
Bills of Lading (short and long forms). Besides, it is for the convenience of both parties that full freight up to
Davao City had been prepaid, otherwise there would have been need to make further arrangements regarding
the transshipment of the cargo to Davao City. After all, the long form Bill of Lading provides that, “The
shipper and consignee shall be liable to this carrier for and shall indemnify it against all expense of
forwarding and transshipping, including any increase in or additional freight or other charges whatsoever.”

7. US Lines’ filing of claim with Manila Port Service not an admission of liability but in keeping
with duties as agent of the consignee
The filing of a claim by US Lines with the Manila Port Service for the value of the losses cannot be
considered an indication that it is answerable for cargo losses up to Davao City. On the contrary, it is a
convincing proof that said party was not remiss in its duties as agent of the consignee. That US Lines
captioned its claim against the Manila Port Service as “SS ‘Pioneer Moor’ Voy. 25, Reb. 1067 New
York/Davao via Manila B/L T-1 31 Packages Truck Spare Parts Cons: Davao Parts & Supply Inc.,” likewise,
is no proof that US Lines knowingly assumed liability for cargo losses up to Davao City. It merely showed
that the goods would have to be, as indeed they were, first unloaded in Manila and thereafter transshipped to
Davao City.

8. Contract is law between the contracting parties

In this jurisdiction, it is a statutory and decisional rule of law that a contract is the law between the
contracting parties, and where there is nothing in it which is contrary to law, morals, good customs, public
policy, or public order, the validity of the contract must be sustained. Herein, through the short form Bill of
Lading, incorporating by reference the terms of the regular long form bill of lading, the US Lines
acknowledged the receipt of the cargo of truck spare parts that it carried, and stated the conditions under
which it was to carry the cargo, the place where it was to be transshipped, the entity to which delivery is to be
made, and the rate of compensation for the carriage. This it delivered to the DPS as evidence of a contract
between them. By receiving the bill of lading, DPS assented to the terms of the consignment contained
therein, and became bound thereby, so far as the conditions named are reasonable in the eyes of the law. Since
neither Phoenix Assurance nor US Lines allege that any provision therein is contrary to law, morals, good
customs, public policy, or public order, the validity of the Bill of Lading must be sustained and the provisions
therein properly applied to resolve the conflict between the parties.

[189] Belgian Overseas Chartering vs. PFIC, see [36]

[190]

Telengtan Bros. & Sons. Vs. CA (GR 110581, 21 September 1994)

Second Division, Mendoza (J): 3 concur, 1 took no part

Facts: Kawasaki Kishen Kaisha, Ltd. (K-Line) is a foreign shipping company doing business in the
Philippines, its shipping agent being the Smith, Bell & Co., Inc. It is a member of the Far East Conference,
the body which fixes rates by agreement of its member-shipowners. The conference is registered with the
U.S. Federal Maritime Commission. On 8 May 1979, the Van Reekum Paper, Inc. entered into a contract of
affreightment with the K-Line for the shipment of 468 rolls of container board liners from Savannah, Georgia
to Manila. The shipment was consigned to La Suerte Cigar & Cigarette Factory. The contract of affreightment
was embodied in Bill of Lading 602 issued by the carrier to the shipper. The expenses of loading and
unloading were for the account of the consignee. The shipment was packed in 12 container vans and loaded
on board the carrier’s vessel, SS Verrazano Bridge. At Tokyo, Japan, the cargo was transhipped on two
vessels of the K-Line. 10 container vans were loaded on the SS Far East Friendship, while 2 were loaded on
the SS Hangang Glory. Shortly thereafter, the consignee (Telengtan Bros. & Sons, Inc.) received from the
shipper photocopies of the bill of lading, consular invoice and packing list, as well as notice of the estimated
time of arrival of the cargo. On 11 June 1979, the SS Far East Friendship arrived at the port of Manila. Aside
from the regular advertisements in the shipping section of the Bulletin Today announcing the arrival of its
vessels, Telengtan was notified in writing of the ship’s arrival, together with information that container
demurrage at the rate of P4.00 per linear foot per day for the first 5 days and P8.00 per linear foot per day
after the 5th day would be charged unless the consignee took delivery of the cargo within 10 days. On 21
June 1979, the other
vessel SS Hangang Glory, carrying Telengtan’s two other vans, arrived and was discharged of its contents the
next day. On the same day the shipping agent Smith, Bell & Co. released the Delivery Permit for 12
containers to the broker upon payment of freight charges on the bill of lading. The next day, the Island
Brokerage Co. presented, in behalf of Telengtan, the shipping documents to the Customs Marine Division of
the Bureau of Customs. But the latter refused to act on them because the manifest of the SS Far East
Friendship covered only 10 containers, whereas the bill of lading covered 12 containers. The broker,
therefore, sent back the manifest to the shipping agent with the request that the manifest be amended. Smith,
Bell & Co. refused on the ground that an amendment, as requested, would violate Section 1005 of the Tariff
and Customs Code relating to unmanifested cargo. Later, however, it agreed to add a footnote reading “Two
container vans carried by the SS Hangang Glory to complete the shipment of twelve containers under the bill
of lading.” On 29 June 1979 the manifest was picked up from the office of the shipping agent by an employee
of the IBC and filed with the Bureau of Customs. The manifest was approved for release on 3 July 1979. IBC
wrote Smith, Bell & Co. to make of record that entry of the shipment had been delayed by the error in the
manifest. On 11 July 1979, when the IBC tried to secure the release of the cargo, it was informed by K-Line’s
and Smith Bell & Co.’s collection agent, the CBCS Guaranteed Fast Collection Services, that the free time for
removing the containers from the container yard had expired on 26 June 1979, in the case of the SS Far East
Friendship, and on 9 July, in the case of the SS Hangang Glory, and that demurrage charges had begun to run
on 27 June 1979 with respect to the 10 containers on the SS Far East Friendship and on 10 July 1979 with
respect to the 2 containers shipped on board the SS Hangang Glory. On 13 July 1979, Telengtan paid
P47,680.00 representing the total demurrage charges on all the containers, but it was not able to obtain its
goods. On 16 July 1979 it was able to obtain the release of 2 containers and on 17 July 1979 of one more
container. It was able to obtain only a partial release of the cargo because of the breakdown of the arrastre’s
equipment at the container yard. This matter was reported by IBC in letters of complaint sent to the Philippine
Ports Authority. In addition, on 16 July 1979, Telengtan sent a letter dated 12 July 1979 to Smith, Bell & Co.,
requesting reconsideration of the demurrage charges, on the ground that the delay in claiming the goods was
due to the alleged late arrival of the shipping documents, the delay caused by the amendment of the manifest,
and the fact that 2 of the containers arrived separately from the other 10 containers. On 19 July 1979
Telengtan paid additional charges in the amount of P20,160.00 for the period July 14-19, 1979 to secure the
release of its cargo, but still Telengtan was unable to get any cargo from the remaining 9 container vans. It
was only the next day, July 20, 1979, that it was able to have 2 more containers released from the container
yard, bringing to 5 the total number of containers whose contents had been delivered to it. Subsequently,
Telengtan refused to pay any more demurrage charges on the ground that there was no agreement for their
payment in the bill of lading and that the delay in the release of the cargo was not due to its fault but to the
breakdown of the equipment at the container yard. In all, petitioner had paid demurrage charges from June 27
to July 19, 1979 in the total amount of P67,840.00. On 20 July 1979, Telengtan wrote Smith, Bell & Co. for a
refund of the demurrage charges, but the latter replied on 25 July 1979 that as member of the Far East
Conference, it could not modify the rules or authorize refunds of the stipulated tariffs.

Telengtan, therefore, filed a suit in the RTC for specific performance to compel K-Line, through its shipping
agent, the Smith, Bell & Co., to release 7 container vans consigned to it free of charge and for a refund of
P67,840.00 which it had paid, plus attorney’s fees and other expenses of litigation. Telengtan also asked for
the issuance of a writ of preliminary injunction to restrain private respondents from charging additional
demurrage. Thereafter, a writ was issued after Telengtan had posted a bond of P50,000.00 and the container
vans were released to the petitioner. On 19 March 1986, however, the RTC dismissed Telengtan’s complaint.
The RTC, therefore, ordered Telengtan to pay K-Line, through Smith Bell & Co., the sum of P36,480.00
representing demurrage charges for the detention of 7 forty-footer container vans from July 20 to August 7,
1979, with legal interest commencing on 7 August 1979 until fully paid; and the sum of P10,000.00, by way
of attorney’s fees.

On appeal, the case was affirmed with modification by the Court of Appeals, deleting the award of attorney’s
fees; with costs against Telengtan. Hence, the petition for review.
The Supreme Court set aside the decision appealed from, and rendered another one, ordering K-Line, and
Smith Bell &U Co. to pay to Telengtan the sum of P39,360.00 by way of refund, with legal interest.

1. Clause 23, Bill of lading

Clause 23 of the bill of lading provides that “the ocean carrier shall have a lien on the goods, which
shall survive delivery, for all freight, dead freight, demurrage, damages, loss, charges, expenses and any other
sums whatsoever payable or chargeable to or for the account of the Merchant under this bill of lading.”

2. Clause 29, Bill of lading

Clause 29 of the bill of lading provides that “the terms of the ocean carrier’s applicable tariff,
including tariffs covering intermodal transportation on file with the Federal Maritime Commission and the
Interstate Commission or any other regulatory body which governs a portion of the carriage of goods, are
incorporated herein.”

3. Rule 21 of the Far East Conference Tariff No. 28-FMC No. 12 Rules and Regulations
Rule 21 provides “(D) Free Time, Demurrage, and Equipment Detention at Ports in the Philippines. Note:
Philippine Customs Law prescribes all cargo discharged from vessels to be given into custody of the
Government Arrastre Contractor, appointed by Philippine Customs who undertakes delivery to the consignee.
xxx Demurrage charges on Containers with CY Cargo. (1) Free time will commence at 8:00 a.m. on the first
working calendar day following completion of discharge of the vessel. It shall expire at 12:00 p.m. (midnight)
on the tenth working calendar day, excluding Saturdays, Sundays and holidays. Work stoppage at a terminal
due to labor dispute or other force majeure as defined by the conference preventing delivery of cargo or
containers shall be excluded from the calculation of the free time for the period of the work stoppage. (2)
Demurrage charges are incurred before the container leaves the carrier’s designated CY, and shall be
applicable on the container commencing the next working calendar day following expiration of the allowable
free time until the consignee has taken delivery of the container or has fully stripped the container of its
contents in the carrier’s designated CY. Demurrage charges shall be assessed hereunder: Ordinary containers
— P4.00 per linear foot of the container per day for the first five days; P8.00 per linear foot of the container
per day, thereafter.

4. Demurrage defined; Magellan Marketing vs. CA

Demurrage, in its strict sense, is the compensation provided for in the contract of affreightment for
the detention of the vessel beyond the time agreed on for loading and unloading. Essentially, demurrage is the
claim for damages for failure to accept delivery. In a broad sense, every improper detention of a vessel may be
considered a demurrage. Liability for demurrage, using the word in its strictly technical sense, exists only
when expressly stipulated in the contract. Using the term in [its broader sense, damages in the] nature of
demurrage are recoverable for a breach of the implied obligation to load or unload the cargo with reasonable
dispatch, but only by the party to whom the duty is owed and only against one who is a party to the shipping
contract.

5. Meaning of demurrage in Clause 23 clarified by Clause 29 of the bill of lading (in relation to
Rule 21 of the Far East Conference Tariff No. 28-FMC No. 12)
Herein, Telengtan contends that the bill of lading does not provide for the payment of container
demurrage, as Clause 23 of the bill of lading only says “demurrage,” i.e., damages for the detention of
vessels, and here there is no detention of vessels. Whatever may be the merit of Telengtan’s contention as to
the meaning of the word “demurrage” in clause 23 of the bill of lading, the fact is that clause 29(a) also of the
bill of lading, in relation to Rule 21 of the Far East Conference Tariff No. 28-FMC No. 12, specifically
provides for the payment by the consignee of demurrage for the detention of containers and other equipment
after the so-called “free time.”
6. Bill of lading, both a receipt and contract
A bill of lading operates both as a receipt and a contract. As a contract, it names the contracting
parties which include the consignee, fixes the route, destination, freight rate or charges, and stipulates the
rights and obligations assumed by the parties. By receiving the bill of lading, Telengtan Bros. assented to the
terms of the consignment contained therein, and became bound thereby, so far as the conditions named are
reasonable in the eyes of the law. Since neither appellant nor appellee alleges that any provision therein is
contrary to law, morals, good customs, public policy or public order — and indeed we found none — the
validity of the Bill of Lading must be sustained and the provisions therein properly applies to resolve the
conflict between the parties.

7. Enforcement of Far East Conference and the Federal Maritime Commission is in accordance
with RA 1407, § 1
The enforcement of the rules of the Far East Conference and the Federal Maritime Commission is in
accordance with Republic Act No. 1407, § 1 of which declares that the Philippines, in common with other
maritime nations, recognizes the international character of shipping in foreign trade and existing international
practices in maritime transportation and that it is part of the national policy to cooperate with other friendly
nations in the maintenance and improvement of such practices.

8. Contract of adhesion valid; Servando v. Philippine Steam Navigation

As held in Servando v. Philippine Steam Navigation, “While it may be true that petitioner had not
signed the plane ticket, he is nevertheless bound by the provisions thereof. “Such provisions have been held to
be a part of the contract of carriage, and valid and binding upon the passenger regardless of the latter’s lack of
knowledge or assent to the regulation”. It is what is known as a contract of “adhesion,” in regards to which it
has been said that contracts of adhesion wherein one party imposes a ready made form of contract on the
other, as the plane ticket in the case at bar, are contracts not entirely prohibited. The one who adheres to the
contract is in reality free to reject it entirely; if he adheres, he gives his consent. “

9. Telengtan cannot be made liable for demurrage when delay in release of goods not due to its
fault; Modification of the manifest
Herein, Telengtan cannot be held liable for demurrage starting 27 June 1979 on the 10 containers
which arrived on the SS Far East Friendship because the delay in obtaining release of the goods was not due
to its fault. The evidence shows that because the manifest issued by K-Line, through the Smith, Bell & Co.,
stated only 10 containers, whereas the bill of lading also issued by the K-Line showed there were 12
containers, the Bureau of Customs refused to give an entry permit to Telengtan. For this reason, Telengtan’s
broker, the IBC, had to see the Smith, Bell & Co. on 22 June 1979 but the latter did not immediately do
something to correct the manifest. Smith, Bell & Co. was asked to “amend” the manifest, but it refused to do
so on the ground that this would violate the law. It was only on 29 June 1979 that it thought of adding instead
of footnote to indicate that 2 other container vans — to account for a total of 12 container vans consigned to
petitioner — had been loaded on the other vessel SS Hangang Glory.

10. Footnote not added 22 June 1979; more probable that manifest corrected 29 June 1979
Herein, there is nothing in the testimonies of witnesses of either party to support the finding that the
footnote, explaining the apparent discrepancy between the bill of lading and the manifest, was added on 22
June 1979 but that Telengtan’s representative did not return to pick up the manifest until 29 June 1979. To the
contrary, it is more probable that the manifest was corrected only on 29 June 1979, (by which time the “free
time” had already expired), because Smith, Bell & Co. did not immediately know what to do as it insisted it
could not amend the manifest and only thought of adding a footnote on 29 June 1979 upon the suggestion of
the IBC.

11. Demurrer commenced 3 July 1979 as to 10 containers, and 10 July 1979 as to other 2 containers
 29 June 1979 was a Friday. It is probable that the corrected manifest was presented to the Bureau of
Customs only on Monday, 2 July 1979 and, therefore, it was only on July 3 that it was approved. It was,
therefore, only from this date (3 July 1979) that Telengtan could have claimed its cargo and charged for any
delay in removing its cargo from the containers. With respect to the other two containers which arrived on the
SS Hangang Glory, demurrage was properly considered to have accrued on 10 July 1979 since the “free time”
expired on July 9.

12. Period of delay stopped on 13 July 1979

The period of delay, however, for all the 12 containers must be deemed to have stopped on 13 July
1979, because on this date Telengtan paid P47,680.00. If it was not able to get its cargo from the container
vans, it was because of the breakdown of the shifters or cranes. This breakdown cannot be blamed on
Telengtan since these were cranes of the arrastre service operator. It would be unjust to charge demurrage
after 13 July 1979 since the delay in emptying the containers was not due to the fault of Telengtan. Indeed,
there is no reason why Telengtan should not get its cargo after paying all demurrage charges due on 13 July
1979. If it paid P20,180.00 more in demurrage charges after said date it was only because Smith Bell & Co.
would not release the goods.

13. Liability for demurrage in the amount of P28,480; Overpayment of P39,360

Herein, Telengtan can be held liable for demurrage only for the period July 3-13, 1979 and that in
accordance with the stipulation in its bill of lading, it is liable for demurrage only in the amount P28,480.00.
There is an overpayment of P39,360.00 which should be refunded to Telengtan.

[190] Int’l Harvester v. Hamburg-American Line, see [163]

[191]

De la Riva vs. Lizarraga Hermanos (GR L-2464, 7 January 1907)

First Division, Tracey (J): 5 concur

Facts: Teodoro Carranza built at Atimonan in Tayabas two boats on the oral order of Antonio de la Riva, to
be paid for through the house of Gutierrez Hermanos at Manila, with which at the time both parties had
standing accounts, the exact price being left to be determined by their cost. From time to time moneys were
advanced Carranza by Gutierrez Hermanos, but without any charge on the books against de la Riva or any
adjustment of the accounts as between the parties, which was deferred until the business should be closed.
After some months, the boats being finished, Behn, Meyer & Co., who at that time were also de la Riva’s
correspondents at Manila, chartered of Gutierrez Hermanos the steamer Magallanes, which carried them to
Manila under a bill of landing signed by the captain, in which Teodoro Carranza was named shipper and
Behn, Meyer, and Co. consignees, delivery being directed to them, but not on their order. On some date not
shown, after the arrival of the boats at Manila, this order was indorsed by the consignees with a direction for
their delivery to de la Riva. Upon seeking them under this order, de la Riva found them in the possession of
the sheriff under an attachment in favor of Lizarraga Hermanos.

<Actual disposition of the lower court not made>. The Supreme Court reversed the judgment of the CFI with
the costs of that court, but not of this instance; ordered that after expiration of 20 days judgment be entered in
accordance herewith and 10 days thereafter the record be remanded to the court from whence it came for
proper action.

1. Carranza owned boats until their legal transfer; de la Riva failed to establish his title to the
boats
Teodoro Carranza built these boats, not as a mandatory, of de la Riva but on his own account,
retaining the ownership of them until their legal transfer. This was not affected by reason of the payments
advanced by Gutierrez Hermanos through the unjusted accounts of the parties, nor by the shipment of the
boats or the remittance of the bill of lading of Behn, Meyer & Co., who were merely the consignees of the
builder and represented him, nor yet by the indorsement of the consignees. Had the bill of lading run to their
order, then title would have passed by the indorsement of it, or had it been payable to the bearer, then in that
case by the mere delivery of it. (Code of Commerce, art. 708.) By terms, however, the freight was deliverable
to the consignees by name and their interest could be transferred only by document purporting to convey the
property. Therefore de la Riva failed to establish his title as against the sheriff under the attachment.

[-]

Banco Agricola y Pecuario v. El Dorado Trading

[192]

PC Ailment v. Macondray

[193]

Litton v. PNB

[194]

Oriental Commercial v. La Naviera Filipina

[195] National development Co, v. CA, see [40]

[196]

Philippine Home Assurance vs. CA (GR 106999, 20 June 1996)

First Division, Kapunan (J): 4 concur

Facts: Eastern Shipping Lines, Inc. (ESLI) loaded on board SS Eastern Explorer in Kobe, Japan, the
following shipment for carriage to Manila and Cebu, freight pre-paid and in good order and condition, viz: (a)
two (2) boxes internal combustion engine parts, consigned to William Lines, Inc. under Bill of Lading
042283; (b) ten (10) metric tons (334 bags) ammonium chloride, consigned to Orca’s Company under Bill of
Lading KCE-12; (c) two hundred (200) bags Glue 300, consigned to Pan Oriental Match Company under Bill
of Lading KCE-8; and (d) garments, consigned to Ding Velayo under Bills of Lading Nos. KMA-73 and
KMA-74. While the vessel was off Okinawa, Japan, a small flame was detected on the acetylene cylinder
located in the accommodation area near the engine room on the main deck level. As the crew was trying to
extinguish the fire, the acetylene cylinder suddenly exploded sending a flash of flame throughout the
accommodation area, thus causing death and severe injuries to the crew and instantly setting fire to the whole
superstructure of the vessel. The incident forced the master and the crew to abandon the ship. Thereafter, SS
Eastern Explorer was found to be a constructive total loss and its voyage was declared abandoned. Several
hours later, a tugboat under the control of Faked Salvage Co. arrived near the vessel and commenced to tow
the vessel for the port of Naha, Japan. Fire fighting operations were again conducted at the said port. After the
fire was extinguished, the cargoes which were saved were loaded to another vessel for delivery to their
original ports of destination. ESLI charged the consignees several amounts corresponding to additional freight
and salvage charges, as follows: (a) for the goods covered by Bill of Lading 042283, ESLI charged the
consignee the sum of P1,927.65, representing salvage charges assessed against the goods; (b) for the goods
covered by Bill of Lading KCE-12, ESLI charged the consignee the sum of P2,980.64 for additional freight
and P826.14 for salvage charges against the goods; (c) for the goods covered by Bill of Lading KCE-8, ESLI
charged the consignee the sum of P3,292.26 for additional freight and P4,130.68 for salvage charges against
the goods; and (d) for the goods under Bills of Lading KMA-73 and KMA-74, ESLI charged the consignee
the sum of P8,337.06 for salvage charges against the goods. The charges were all paid Philippine Home
Assurance Corporation (PHAS) under protest for and in behalf of the consignees.

PHAC, as subrogee of the consignees, thereafter filed a complaint before the RTC of Manila, Branch 39,
against ESLI to recover the sum paid under protest on the ground that the same were actually damages
directly brought about by the fault, negligence, illegal act and/or breach of contract of ESLI. The trial court
dismissed PHAC’s complaint and ruled in favor of ESLI.

On appeal to the Court of Appeals, the appellate court affirmed the trial court’s findings and conclusions.
Hence, the present petition for review.

The Supreme Court reversed and set aside the judgment appealed from, and order Eastern Shipping Lines,
Inc. to return to Philippine Home Assurance Corporation the amount it paid under protest in behalf of the
consignees herein.

1. Only questions of law allowed in petition for review; Exceptions

While it is a well-settled rule that only questions of law may be raised in a petition for review under
Rule 45 of the Rules of Court, it is equally well-settled that the same admits of the following exceptions,
namely: (a) when the conclusion is a finding grounded entirely on speculation, surmises or conjectures; (b)
when the inference made is manifestly mistaken, absurd or impossible; (c) where there is a grave abuse of
discretion; (d) when the judgment is based on a misapprehension of facts; (e) when the findings of fact are
conflicting; (f) when the Court of Appeals, in making its findings, went beyond the issues of the case and the
same is contrary to the admissions of both appellant and appellee; (g) when the findings of the Court of
Appeals are contrary to those of the trial court; (h) when the findings of fact are conclusions without citation
of specific evidence on which they are based; (i) when the facts set forth in the petition as well as in the
petitioners’ main and reply briefs are nor disputed by the respondents; and (j) when the finding of fact of the
Court of Appeals is premised on the supposed absence of evidence and is contradicted by the evidence on
record. 5 Thus, if there is a showing, as in the present case, that the findings complained of are totally devoid
of support in the records, or that they are so glaringly erroneous as to constitute grave abuse of discretion, the
same may be properly reviewed and evaluated by the Supreme Court.

2. Goods not lost nor damaged in transit by fire that razed carrier; Proper issue
Herein, the outset that the goods subject of the present controversy were neither lost nor damaged in
transit by the fire that razed the carrier. In fact, the said goods were all delivered to the consignees, even if the
transshipment took longer than necessary. What is at issue therefore is not whether or not the carrier is liable
for the loss, damage, or deterioration of the goods transported by them but who, among the carrier, consignee
or insurer of the goods, is liable for the additional charges or expenses incurred by the owner of the ship in the
salvage operations and in the transshipment of the goods via a different carrier.

3. Fire not an act of God unless caused by natural disaster or casualty not attributable to human
agency
In Philippine jurisprudence, fire may not be considered a natural disaster or calamity since it almost
always arises from some act of man or by human means. It cannot be an act of God unless caused by
lightning or a natural disaster or casualty not attributable to human agency. Herein, it is not disputed that a
small flame was detected on the acetylene cylinder and that by reason thereof, the same exploded despite
efforts to extinguish the fire. There was no showing, and none was alleged by the parties, that the fire was
caused by a natural disaster or calamity not attributable to human agency. On the contrary, there is strong
evidence indicating that the acetylene cylinder caught fire because of the fault and negligence of ESLI, its
captain and its crew.

4. Evidence of negligence; Where acetylene cylinder was stored

 The acetylene cylinder which was fully loaded should not have been stored in the accommodation
area near the engine room where the heat generated therefrom could cause the acetylene cylinder to explode
by reason of spontaneous combustion. ESLI should have easily foreseen that the acetylene cylinder,
containing highly inflammable material, was in a real danger of exploding because it was stored in close
proximity to the engine room. Further, ESLI should have known that by storing the acetylene cylinder in the
accommodation area supposed to be reserved for passengers, it unnecessarily exposed its passengers to grave
danger and injury. Curious passengers, ignorant of the danger the tank might have on humans and property,
could have handled the same or could have lighted and smoke cigarettes while repairing in the
accommodation area. The fact that the acetylene cylinder was checked, tested and examined and subsequently
certified as having complied with the safety measures and standards by qualified experts before it was loaded
in the vessel only shows to a great extent that negligence was present in the handling of the acetylene cylinder
after it was loaded and while it was on board the ship. Indeed, had ESLI and its agents not been negligent in
storing the acetylene cylinder near the engine room, then that same would not have leaked and exploded
during the voyage.

5. Statement of Facts and Marine Note of Protest: Hearsay evidence has no probative value;
Section 36, Rule 130
The documents – Statement of Facts and the Marine Note of Protest issued by Captain Tiburcio A.
Licaylicay — are hearsay evidence since Capt. Licaylicay, Master of S.S. Eastern Explorer who issued the
said documents, was not presented in court to testify to the truth of the facts he stated therein. Instead, ESLI
presented Junpei Maeda, its Branch Manager in Tokyo and Yokohama, Japan, who evidently had no personal
knowledge of the facts stated in the documents at issue. It is clear from Section 36, Rule 130 of the Rules of
Court that any evidence, whether oral or documentary, is hearsay if its probative value is not based on the
personal knowledge of the witness but on the knowledge of the witness but on the knowledge of some other
person not on the witness stand. Consequently, hearsay evidence, whether objected to or not, has no probative
value unless the proponent can show that the evidence falls within the exceptions to the hearsay evidence
rule. It is excluded because the party against whom it is presented is deprived of his right and opportunity to
cross- examine the persons to whom the statements or writings are attributed.

6. General or gross averages; Formalities under Articles 813 and 814 of the Code of Commerce
however were not complied with
As a rule, general or gross averages include all damages and expenses which are deliberately caused
in order to save the vessel, its cargo, or both at the same time, from a real and known risk. While the instant
case may technically fall within the purview of the said provision, the formalities prescribed under Article
813 and 814 of the Code of Commerce in order to incur the expenses and cause the damage corresponding to
gross average were not complied with. Consequently, ESLI’s claim for contribution from the consignees of
the cargo at the time of the occurrence of the average turns to naught.

7. Refund for additional freight and salvage charges warranted

Prescinding from the foregoing premises, the cargo consignees cannot be made liable to the carrier
for additional freight and salvage charges. Consequently, the carrier must refund to Philippine Home
Assurance the amount it paid under protest for additional freight and salvage charges in behalf of the
consignee.

[197]

A. Magsaysay Inc. vs. Agan (GR L-6393, 31 January 1955)

En Banc, Reyes A. (J): 8 concur

Facts: The S S “San Antonio”, a vessel owned and operated by A. Magsaysay Inc., left Manila on 6 October
1949, bound for Basco, Batanes, via Aparri, Cagayan, with general cargo belonging to different shippers,
among them Anastacio Agan. The vessel reached Aparri on the 10th of that month, and after a day’s stopover
in that port, weighed anchor to proceed to Basco. But while still in port, it ran aground at the mouth of the
Cagayan river, and, attempts to refloat it under its own power having failed, Magsaysay had it refloated by the
Luzon Stevedoring Co. at an agreed compensation. The stranding of Magsaysay’s vessel was due to the
sudden shifting of the sandbars at the mouth of the river which the port pilot did not anticipate. Once afloat,
the vessel returned to Manila to refuel and then proceeded to Basco, the port of destination. There the cargoes
were delivered to their respective owners or consignees, who, with the exception of Agan, made a deposit or
signed a bond to answer for their contribution to the average.

On the theory that the expenses incurred in floating the vessel constitute general average to which both ship
and cargo should contribute, Magsaysay brought the action in the CFI of Manila to make Agan pay his
contribution, which, as determined by the average adjuster, amounts to P841.40. Agan, in his answer, denies
liability for this amount, alleging, among other things, that the stranding of the vessel was due to the fault,
negligence and lack of skill of its master, that the expenses incurred in putting it afloat did not constitute
general average, and that the liquidation of the average was not made in accordance with law. After trial, the
lower court found for Magsaysay and rendered judgment against Agan for the amount of the claim, with legal
interests. From this judgment, Agan has appealed directly to the Supreme Court.

The Supreme Court reversed the decision appealed from, and dismissed Magsaysay’s complaint; with costs.

1. Law on averages
The law on averages is contained in the Code of Commerce. Under that law, averages are classified
into simple or particular and general or gross. Generally speaking, simple or particular averages include all
expenses and damages caused to the vessel or cargo which have not inured to the common benefit (Art. 809,
and are, therefore, to be borne only by the owner of the property which gave rise to the same (Art. 810); while
general or gross averages include “all the damages and expenses which are deliberately caused in order to
save the vessel, its cargo, or both at the same time, from a real and known risk” (Art. 811). Being for the
common benefit, gross averages are to be borne by the owners of the articles saved (Art. 812).

2. Expenses are of particular averages (Article 809 [2]), not general averages (not Article 811 [6])
In classifying averages into simple or particular and general or gross and defining each class, the
Code (Art. 809 and 811) at the same time enumerates certain specific cases as coming specially under one or
the other denomination. Herein, while the expenses incurred in putting Magsaysay’s vessel afloat may well
come under number 2 of article 809 — which refers to expenses suffered by the vessel “by reason of an
accident of the sea or force majeure” — and should therefore be classified as particular average, the said
expenses do not fit into any of the specific cases of general average enumerated in article 811. Number 6 of
Article 811 does mention “expenses caused in order to float a vessel,” but it specifically refers to “a vessel
intentionally stranded for the purpose of saving it” and would have no application where, as in the present
case, the stranding was not intentional.

3. Requisites for general average; Tolentino in his commentaries on the Code of Commerce
(1) There must be a common danger. This means, that both the ship and the cargo, after it has been
loaded, are subject to the same danger, whether during the voyage, or in the port of loading or unloading; that
the danger arises from accidents of the sea, dispositions of the authority, or faults of men, provided, that the
circumstance producing the peril should be ascertained and imminent - or may rationally be said to be certain
and imminent. This last requirement excludes measures undertaken against a distant peril. (2) That for the
common safety part of the vessel or of the cargo or both is sacrificed deliberately. (3) That from the expenses
or damages caused follows the successful saving of the vessel and cargo. (4) That the expenses or damages
should have been incurred or inflicted after taking proper legal steps and authority.

4. Requisite 1 not present; Safety of property, not voyage, true foundation of general average
 With respect to the first requisite, the evidence does not disclose that the expenses sought to be
recovered from defendant were incurred to save vessel and cargo from a common danger. The vessel ran
aground in fine weather inside the port at the mouth of a river, a place described as “very shallow”. It would
thus appear that vessel and cargo were at the time in no imminent danger or a danger which might “rationally
be sought to be certain and imminent.” It is conceivable that, if left indefinitely at the mercy of the elements,
they would run the risk of being destroyed, but as stated, “this last requirement excludes measures undertaken
against a distant peril.” It is the deliverance from an immediate, impending peril, by a common sacrifice, that
constitutes the essence of general average. Herein, there is no proof that the vessel had to be put afloat to save
it from an imminent danger. The vessel had to be salvaged in order to enable it “to proceed to its port of
destination.” It is the safety of the property, and not of the voyage, which constitutes the true foundation of
general average.

5. Requisite 2 not present; Cargo not in imminent peril

As to the second requisite, the expenses in question were not incurred for the common safety of
vessel and cargo, since they, or at least the cargo, were not in imminent peril. The cargo could, without need
of expensive salvage operation, have been unloaded by the owners if they had been required to do so.

6. Requisite 3; Sacrifice for benefit of vessel and not purpose of saving cargo
With respect to the third requisite, the salvage operation was a success; however, as the sacrifice was
for the benefit of the vessel — to enable it to proceed to destination — and not for the purpose of saving the
cargo, the cargo owners are not in law bound to contribute to the expenses.

7. Requisite 4 need not be proved in light of circumstances

The final requisite has not been proved, for it does not appear that the expenses in question were
incurred after following the procedure laid down in articles 813 et seq.

[-]

Austria vs. CA (GR 133323, 9 March 2000)

Second Division, Quisumbing (J): 4 concur

Facts: On 9 July 1989 at around 7:00 p.m. along the Olongapo-Gapan Road in the vicinity of barangay
Cabetican, Bacolor, Pampanga, Alberto P. Austria was driving his Ford Fiera with 10 passengers. They came
from the Manila International Airport bound to Dinalupihan, Bataan. One of the vehicle’s tire suddenly hit a
stone lying in the road, while thus cruising, which caused Austria to lose control and collide with the rear of
an improperly parked cargo truck trailer driven by Rolando M. Flores. As a result of the collision, 5
passengers (Armin Q. Manalansan, Mylene S. Gigante, Luzviminda S. Diwa, Mark S. Diwa, and Virginia
Lapid Vda. de Diwa [+]) suffered varying degrees of injuries. While trial ensued, accused truck driver Flores
remained at-large.

Austria and his co-accused was charged in an information dated 27 August 1990. The information was
amended to correctly state the name of co-accused Rolando M. Flores, which was Rolando Torres in the
original Information. The information accused Austria and Flores of the crime of reckless imprudence
resulting in Homicide and multiple physical injuries. On 21 March 1994, the trial court promulgated its
decision, finding Austria guilty beyond reasonable, sentenced him to suffer an indeterminate penalty of
imprisonment of 2 months and 1 day of arresto mayor, as minimum, to 2 years, 10 months and 20 days of
Prision Correccional, as maximum, and ordered Austria to pay the heirs of Virginia Lapid Vda. de Diwa the
amount of P50,000.00 as indemnity; P6,320.00 as and for actual expenses incurred by Luzviminda Diwa,
representing medical and funeral expenses; and cost of suit. Austria filed a motion for reconsideration dated 4
April 1994. On 10 June 1994, the court modified its decision, to the effect that the Court found Austria guilty
beyond reasonable doubt of the crime of Reckless Imprudence Resulting in Serious Physical Injuries,
sentenced him to suffer an indeterminate penalty of imprisonment of 1 month and 1 day 4 months of arresto
mayor; and ordered him to indemnify Luzviminda Diwa the amount of P1,345.75; Mark Diwa the amount of
P4,716.31; and Mylene Gigante the amount of P6,199.62 as and for actual damages incurred. The court made
no pronouncement as to his civil liability to Armin Manalansan considering that the latter filed a separate civil
action against Austria before the RTC of Bataan.

Austria timely appealed his conviction before the Court of Appeals, which affirmed, on 13 August 1997, the
lower court’s decision with modifications that a straight penalty of 1 month and 1 day of arresto mayor for the
imprisonment of the accused is imposed; and the award in favor of Mylene Gigante of P6,199.62 is deleted.
Austria’s motion for reconsideration was denied on 25 March 1998. Hence, the petition for review on
certiorari.

The Supreme Court denied the petition, and affirmed the assailed decision of the Court of Appeals; with costs
against Austria.

1. Finding of fact of the Court of Appeals binding and conclusive upon the Supreme Court
As a general rule, findings of fact of the Court of Appeals are binding and conclusive upon the
Supreme Court, and the Court will not normally disturb such factual findings unless the findings of the court
are palpably unsupported by the evidence on record or unless the judgment itself is based on misapprehension
of facts. The Court found no palpable factual error that would warrant a reversal of the appellate courts’
factual determination.

2. Factual finding of the appellate court as to Austria’s negligence

The appellate court, in determining Austria’s negligence, observed: “In his direct examination, the
appellant admitted that he saw the trailer at a distance of about 6 meters but at the same time stated that the
distance of the focus of the vehicle’s headlight in dim position was 20 meters. These inconsistent statements,
taken together with his claim on cross-examination that he saw the trailer only when he bumped it, only show
that he was driving much faster than 30 kilometers per hour. Assuming that he was driving his vehicle at that
speed of 30 kilometers per hour, appellant would have not lost control of the vehicle after it hit the stone
before the collision. Under these circumstances, the appellant did not exercise the necessary precaution
required of him. He was negligent.”

3. Negligence of Austria is immediate and proximate cause of the collision; Phoenix Construction
vs. IAC
While the Court notes similarities of the factual milieu of Phoenix to that of the present case, the
Court is unable to agree with Austria that the truck driver should be held solely liable. In Phoenix, the driver
of the improperly parked vehicle was liable and the driver of the colliding car contributorily liable. Herein,
that Austria had no opportunity to avoid the collision is of his own making and this should not relieve him of
liability. Patently, the negligence of Austria as driver of the Ford Fiera is the immediate and proximate cause
of the collision.

4. Materiality of medical certificates and receipts presented as to award of damages to the Diwas
The materiality of medical certificates and receipts presented is amply supported by evidence on
record. Herein, the award of liability by the trial court to Luzviminda Diwa and Mark Diwa was justified
because the expenses for hospitalization and treatments were incurred as a direct result of the collision caused
by the appellant’s negligence. The fact that the doctors did not testify on the medical certificates is of no
moment. Appellant’s counsel admitted their due execution and genuineness during the trial.

5. Austria convicted of reckless imprudence resulting in serious physical injuries, not simple
negligence
 The appellate court did not find Austria guilty of simple negligence, it merely affirmed the findings
of the trial court convicting the accused beyond reasonable doubt for the crime of Reckless Imprudence
resulting in Serious Physical Injuries. The appellate court only modified the trial court’s decision by imposing
the straight penalty of 1 month and 1 day of arresto mayor and deleted the award in favor of Mylene Gigante
in the amount of P6,199.62.

6. Article 365, Revised Penal Code

Article 365 of the Revised Penal Code (Imprudence and negligence) provides that “any person who,
by reckless imprudence, shall commit any act which, had it been intentional, would constitute a grave felony,
shall suffer the penalty of arresto mayor in its maximum period to prision correccional in its medium period;
if it would have constituted a less grave felony, the penalty of arresto mayor in its minimum and medium
periods shall be imposed; if it would have constituted a light felony, the penalty of arresto menor in its
maximum period shall be imposed. xxx In the imposition of these penalties, the courts shall exercise their
sound discretion, without regard to the rules prescribed in article sixty-four.”

7. Imposition of straight penalty valid; Determination of periods of penalty entirely to the

discretion of the court
The Court found nothing objectionable legally in the imposition of a straight penalty of 1 month and
1 day of arresto mayor by the appellate court against Austria. The penalty imposed is well within the limits
fixed by law and within the sound discretion of the respondent court as well. Since the determination of the
minimum and maximum periods of the penalty as provided by law is left entirely to the discretion of the
appellate court, its exercise of that discretion will not be disturbed on appeal, unless there is a clear abuse.

[198]

Smith Bell vs. CA (GR 56294, 20 May 1991)

En Banc, Feliciano (J): 14 concur

Facts: On 3 May 1970, 3:50 a.m., on the approaches to the port of Manila near Caballo Island, a collision
took place between the M/V “Don Carlos,” an inter-island vessel owned and operated by Carlos A. Go Thong
and Company (“Go Thong”), and the M/S “Yotai Maru,” a merchant vessel of Japanese registry. The “Don
Carlos” was then sailing south bound leaving the port of Manila for Cebu, while the “Yotai Maru” was
approaching the port of Manila, coming in from Kobe, Japan. The bow of the “Don Carlos” rammed the
portside (left side) of the “Yotai Maru” inflicting a 3 cm. gaping hole on her portside near Hatch 3, through
which seawater rushed in and flooded that hatch and her bottom tanks, damaging all the cargo stowed therein.
The consignees of the damaged cargo got paid by their insurance companies.

The insurance companies in turn, having been subrogated to the interests of the consignees of the damaged
cargo, commenced actions against Go Thong for damages sustained by the various shipments in the then CFI
of Manila. 2 cases were filed in the CFI of Manila. The first case, Civil Case 82567, was commenced or 13
March 1971 by Smith Bell and Company (Philippines), Inc. and Sumitomo Marine and Fire Insurance
Company Ltd., against Go Thong, in Branch 3, which was presided over by Judge Bernardo P. Fernandez.
The second case, Civil Case 82556, was filed on 15 March 1971 by Smith Bell and Company (Philippines),
Inc. and Tokyo Marine and Fire Insurance Company, Inc. against Go Thong in Branch 4, which was presided
over by then Judge, later Associate Justice of this Court, Serafin R. Cuevas. Civil Cases 82567 (Judge
Fernandez) and 82556 (Judge Cuevas) were tried under the same issues and evidence relating to the collision
between the “Don Carlos” and the “Yotai Maru” the parties in both cases having agreed that the evidence on
the collision presented in one case would be simply adopted in the other. In both cases, the Manila CFI held
that the officers and crew of the “Don Carlos” had been negligent, that such negligence was the proximate
cause of the collision and accordingly held Go Thong liable for damages to the insurance companies. Judge
Fernandez awarded the insurance companies P19,889.79 with legal interest plus P3,000.00 as attorney’s fees;
while Judge Cuevas awarded the insurance companies on two (2) claims US$68,640.00 or its equivalent in
Philippine currency plus attorney’s fees of P30,000.00, and P19,163.02 plus P5,000.00 as attorney’s fees,
respectively.

The decision of Judge Fernandez in Civil Case 82567 was appealed by Go Thong to the Court of Appeals
(CA-GR 61320-R). The decision of Judge Cuevas in Civil Case 82556 was also appealed by Go Thong to the
Court of Appeals (CA-GR 61206-R). Substantially identical assignments of errors were made by Go Thong in
the 2 appealed cases before the Court of Appeals. In CA-GR 61320-R, the Court of Appeals through Reyes,
L.B., J., rendered a Decision on 8 August 1978 affirming the Decision of Judge Fernandez. Go Thong moved
for reconsideration, without success.

Go Thong then went to the Supreme Court on Petition for Review, the Petition (GR L-48839; Carlos A. Go
Thong and Company v. Smith Bell and Company [Philippines], Inc., et al.). In its Resolution dated 6
December 1978, the Supreme Court, denied the Petition for lack of merit. Go Thong filed a Motion for
Reconsideration; the Motion was denied by the Supreme Court on 24 January 1979.

In CA-GR 61206-R, the Court of Appeals, on 26 November 1980, reversed the Cuevas Decision and held the
officers of the “Yotai Maru” at fault in the collision with the “Don Carlos,” and dismissed the insurance
companies’ complaint. Smith Bell & Co. and the Tokyo Marine & Fire Insurance Co. Inc. asked for
reconsideration, to no avail. Hence, the petition for review on certiorari.

The Supreme Court reversed and set aside the Decision of the Court of Appeals dated 26 November 1980 in
CA-GR 61206-R, and reinstated and affirmed the decision of the trial court dated 22 September 1975 in its
entirety; with costs against Go Thong.

1. Minute resolutions; Effect

That the Supreme Court denied Go Thong’s Petition for Review in a minute Resolution did not in any
way diminish the legal significance of the denial so decreed by the Court. The Supreme Court is not
compelled to adopt a definite and stringent rule on how its judgment shall be framed. It has long been settled
that the Supreme Court has discretion to decide whether a “minute resolution” should be used in lieu of a full-
blown decision in any particular case and that a minute Resolution of dismissal of a Petition for Review on
Certiorari constitutes an adjudication on the merits of the controversy or subject matter of the Petition. It has
been stressed by the Court that the grant of due course to a Petition for Review is “not a matter of right, but of
sound judicial discretion; and so there is no need to fully explain the Court’s denial. For one thing, the facts
and law are already mentioned in the Court of Appeals’ opinion.” A minute Resolution denying a Petition for
Review of a Decision of the Court of Appeals can only mean that the Supreme Court agrees with or adopts
the findings and conclusions of the Court of Appeals, in other words, that the Decision sought to be reviewed
and set aside is correct.

2. Res Judicata; Substantial identity of the parties

The parties in CA-GR. 61320-R involved Smith Bell and Company (Philippines), Inc., and Sumitomo
Marine and Fire Insurance Co., Ltd. while the present case involved Smith Bell and Co. (Philippines), Inc.
and Tokyo Marine and Fire Insurance Co., Ltd. In other words, there was a common petitioner in the 2 cases,
although the co-petitioner in one was an insurance company different from the insurance company co-
petitioner in the other case. The co-petitioner in both cases, however, was an insurance company and that both
petitioners in the 2 cases represented the same interest, i.e., the cargo owner’s interest as against the hull
interest or the interest of the shipowner. More importantly, both cases had been brought against the same
defendant, Go Thong, the owner of the vessel “Don Carlos.” In sum, CA-GR 61320-R and CA-GR 61206-R
exhibited substantial identity of parties.

3. Res Judicata; Cause of action and judgments the same

 Although the subject matters of the 2 suits were not identical, in the sense that the cargo which had
been damaged in the one case and for which indemnity was sought, was not the very same cargo which had
been damaged in the other case indemnity for which was also sought. The cause of action was, however, the
same in the 2 cases, i.e., the same right of the cargo owners to the safety and integrity of their cargo had been
violated by the same casualty, the ramming of the “Yotai Maru” by the “Don Carlos.” The judgments in both
cases were final judgments on the merits rendered by the 2 divisions of the Court of Appeals and by the
Supreme Court, the jurisdiction of which has not been questioned.

4. Res Judicata; Absence of identity of subject matter does not preclude application of res judicata
Under the circumstances, the Court believes that the absence of identity of subject matter, there being
substantial identity of parties and identity of cause of action, will not preclude the application of res judicata.

5. Res Judicata; Concepts of “bar by former judgment” and conclusiveness of judgment”;

Tingson vs. CA
In Tingson v. Court of Appeals, the Court distinguished one from the other the 2 concepts embraced
in the principle of res judicata, i.e., “bar by former judgment” and “conclusiveness of judgment:” There is no
question that where as between the first case where the judgment is rendered and the second case where such
judgment is invoked, there is identity of parties, subject-matter and cause of action, the judgment on the
merits in the first case constitutes an absolute bar to the subsequent action not only as to every matter which
was offered and received to sustain or defeat the claim or demand, but also as to any other admissible matter
which might have been offered for that purpose and to all matters that could have been adjudged in that case.
This is designated as ‘bar by former judgment.’ But where the second action between the same parties is upon
a different claim or demand, the judgment in the prior action operates as an estoppel only as to those matters
in issue or points controverted, upon the determination of which the finding or judgment was rendered. In
fine, the previous judgment is conclusive in the second case, only as those matters actually and directly
controverted and determined and not as to matters merely involved therein. This is the rule on
‘conclusiveness of judgment’ embodied in subdivision (c) of Section 49 of Rule 39 of the Revised Rules of
Court.”

6. Res Judicata; Concepts of “bar by former judgment” and conclusiveness of judgment”; Lopez
vs. Reyes
In Lopez v. Reyes, the Court elaborated further the distinction between bar by former judgment which
bars the prosecution of a second action upon the same claim, demand or cause of action, and conclusiveness
of judgment which bars the relitigation of particular facts or issues in another litigation between the same
parties on a different claim or cause of action. “The doctrine of res judicata has two aspects. The first is the
effect of a judgment as a bar to the prosecution of a second action upon the same claim, demand or cause of
action. The second aspect is that it precludes the relitigation of a particular fact or issues in another action
between the same parties on a different claim or cause of action. The general rule precluding the relitigation
of material facts or questions which were in issue and adjudicated in former action are commonly applied to
all matters essentially connected with the subject matter of the litigation. Thus, it extends to questions
‘necessarily involved in an issue, and necessarily adjudicated, or necessarily implied in the final judgment,
although no specific finding may have been made in reference thereto, and although such matters were
directly referred to in the pleadings and were not actually or formally presented. Under this rule; if the record
of the former trial shows that the judgment could not have been rendered without deciding the particular
matter, it will be considered as having settled that matter as to all future actions between the parties, and if a
judgment necessarily presupposes certain premises, they are as conclusive as the judgment itself. Reasons for
the rule are that a judgment is an adjudication on all the matters which are essential to support it, and that
every proposition assumed or decided by the court leading up to the final conclusion and upon which such
conclusion is based is as effectually passed upon as the ultimate question which is finally solved.’”

7. Decision in CA-GR 61320-R conclusive as to negligence of Don Carlos

 Herein, the issue of which vessel (“Don Carlos” or “Yotai Maru”) had been negligent, or so negligent
as to have proximately caused the collision between them, was an issue that was actually, directly and
expressly raised, controverted and litigated in CA-GR 61320-R; where it was found that “Don Carlos” to have
been negligent. That Decision was affirmed by the Supreme Court in GR L-48839 in a Resolution dated 6
December 1978. The Reyes Decision thus became final and executory approximately 2 years before the Sison
Decision was promulgated. Applying the rule of conclusiveness of judgment, the question of which vessel
had been negligent in the collision between the 2 vessels, had long been settled by the Suprme Court Court
and could no longer be relitigated in CA-GR 61206-R. Go Thong was certainly bound by the ruling or
judgment of Reyes, L.B., J. and that of the Supreme Court.

8. Compromise defined
A compromise is an agreement between 2 or more persons who, in order to forestall or put an end to
a law suit, adjust their differences by mutual consent, an adjustment which everyone of them prefers to the
hope of gaining more, balanced by the danger of losing more.

9. Compromise agreement not an admission that anything is due, not admissible in evidence
against person making the offer
By virtue of the compromise agreement, the owner of the “Yotai Maru” paid a sum of money to the
owner of the “Don Carlos.” Nowhere, however, in the compromise agreement did the owner of the “Yotai
Maru” admit or concede that the “Yotai Maru” had been at fault in the collision. The familiar rule is that “an
offer of compromise is not an admission that anything is due, and is not admissible in evidence against the
person making the offer.” An offer to compromise does not, in legal contemplation, involve an admission on
the part of a defendant that he is legally liable, nor on the part of a plaintiff that his claim or demand is
groundless or even doubtful, since the compromise is arrived at precisely with a view to avoiding further
controversy and saving the expenses of litigation. It is of the very nature of an offer of compromise that it is
made tentatively, hypothetically and in contemplation of mutual concessions.

10. Basis of rule on compromises

The above rule on compromises is anchored on public policy of the most insistent and basic kind; that
the incidence of litigation should be reduced and its duration shortened to the maximum extent feasible.

11. Administrative proceedings before the Board of Marine Inquiry; Decision of PCG remains in
effect
Herein, the decision of the Office of the President upholding the belated reversal by the Ministry of
National Defense of the PCG’S decision holding the “Don Carlos” solely liable for the collision, is so deeply
flawed as not to warrant any further examination. Upon the other hand, the basic decision of the PCG holding
the “Don Carlos” solely negligent in the collision remains in effect.

12. Rule 18 (a) of the International Rules of the Road

Rule 18 (a) of the International Rules of the Road, provides “(a) When two power-driven vessels are
meeting end on, or nearly end on, so as to involve risk of collision, each shall alter her course to starboard, so
that each may pass on the port side of the other. This Rule only applies to cases where vessels are meeting end
on or nearly end on, in such a manner as to involve risk of collision, end does not apply to two vessels which
must, if both keep on their respective course, pass clear of each other. The only cases to which it does apply
are when each of two vessels is end on, or nearly end on, to the other; in other words, to cases in which, by
day, each vessel sees the masts of the other in a line or nearly in a line with her own; and by night to cases in
which each vessel is in such a position as to see both the sidelights of the other. It does not apply, by day, to
cases in which a vessel sees another ahead crossing her own course; or, by night, to cases where the red light
of one vessel is opposed to the red light of the other or where the green light of one vessel is opposed to the
green light of the other or where a red light without a green light or a green light without a red light is seen
ahead, or where both green and red lights are seen anywhere but ahead.”
13. Factors constituting negligence on part of “Don Carlos”; Rule 18 (a) of the International Rules
of the Road
The first of the factors, which are constitutive of negligence on the part of the “Don Carlos,” was the
failure of the “Don Carlos” to comply with the requirements of Rule 18 (a) of the International Rules of the
Road (“Rules”). Herein, “Don Carlos” was overtaking another vessel, the “Don Francisco” and was then at
the starboard (right side) of the aforesaid vessel at 3.40 a.m. It was in the process of overtaking “Don
Francisco”’ that “Don Carlos” was finally brought into a situation where he was meeting end-on or nearly end
-on ‘Yotai Maru’ thus involving risk of collision. For her part, the “Yotai Maru” did comply with its
obligations under Rule 18 (a). As the “Yotai Maru” found herself on an “end-on” or a “nearly end-on”
situation vis-a-vis the “Don Carlos,” and as the distance between them was rapidly shrinking, the “Yotai
Maru” turned starboard (to its right) and at the same time gave the required signal consisting of one short
horn blast. The “Don Carlos” turned to portside (to its left), instead of turning to starboard as demanded by
Rule 18 (a). The “Don Carlos” also violated Rule 28 (c) for it failed to give the required signal of two (2)
short horn blasts meaning “I am altering my course to port.” When the “Yotai Maru” saw that the “Don
Carlos” was turning to port, the master of the “Yotai Maru” ordered the vessel turned “hard starboard” at 3:45
a.m. and stopped her engines; at about 3:46 a.m. the “Yotai Maru” went “full astern engine.” The collision
occurred at exactly 3:50 a.m.

14. Factors constituting negligence on part of “Don Carlos”; Proper lookout

The second circumstance constitutive of negligence on the part of the “Don Carlos” was its failure to
have on board that might a “proper look-out” as required by Rule I (B). Under Rule 29 of the same set of
Rules, all consequences arising from the failure of the “Don Carlos” to keep a “proper look-out” must be
borne by the “Don Carlos.”

15. Proper look out defined

A “proper look-out” is one who has been trained as such and who is given no other duty save to act as
a look-out and who is stationed where he can see and hear best and maintain good communication with the
officer in charge of the vessel, and who must, of course, be vigilant.

16. Who is not a proper look out

The ‘look-out’ should have no other duty to perform. (Chamberlain v. Ward, 21, N.O.W. 62, U.S.
548, 571). He has only one duty, that which its name implies — to keep a ‘look-out’. So a deckhand who has
other duties, is not a proper ‘look-out’ (Brooklyn Perry Co. v. U.S., 122, Fed. 696). The navigating officer is
not a sufficient ‘look-out’ (Larcen B. Myrtle, 44 Fed. 779) — Griffin on Collision, pages 277-278). Neither
the captain nor the [helmsman] in the pilothouse can be considered to be a ‘look-out’ within the meaning of
the maritime law. Nor should he be stationed in the bridge. He should be as near as practicable to the surface
of the water so as to be able to see low-lying lights (Griffin on Collision, page 273). Herein, it is hardly
probable that neither German or Leo Enriquez may qualify as ‘look-out’ in the real sense of the word. The
failure of the “Don Carlos” to recognize in a timely manner the risk of collision with the “Yotai Maru”
coming in from the opposite direction, was at least in part due to the failure of the “Don Carlos” to maintain a
proper look-out.

14. Factors constituting negligence on part of “Don Carlos”; Second Mate in command
The third factor constitutive of negligence on the part of the “Don Carlos” relates to the fact that
Second Mate Benito German was, immediately before and during the collision, in command of the “Don
Carlos,” although its captain, Captain Rivera, was very much in the said vessel at the time. There was no
explanation as to why the second mate was at the helm of the aforesaid vessel when Captain Rivera did not
appear to be under any disability at the time. The fact that second mate German was allowed to be in
command of ‘Don Carlos’ and not the chief or the sailing mate in the absence of Captain Rivera, gives rise to
no other conclusion except that said vessel had no chief mate. Worst still aside from German’s being only a
second mate, is his apparent lack of sufficient knowledge of the basic and generally established rules of
navigation (e.g. necessity of look-out). There is, therefore, every reasonable ground to believe that his
inability to grasp actual situation and the implication brought about by inadequacy of experience and
technical know-how was mainly responsible and decidedly accounted for the collision of the vessels involved
in the case.

15. No exclusive obligation upon one of the vessels to avoid the collision
By imposing an exclusive obligation upon one of the vessels, the “Yotai Maru,” to avoid the collision,
the Court of Appeals not only chose to overlook all the above facts constitutive of negligence on the part of
the “Don Carlos;” it also in effect used the very negligence on the part of the “Don Carlos;” to absolve it from
responsibility and to shift that responsibility exclusively onto the “Yotai Maru” the vessel which had observed
carefully the mandate of Rule 18 (a).

16. Urrutia vs. Baco River Plantation not applicable

The case of G. Urrutia and Company v. Baco River Plantation Company is simply inappropriate and
inapplicable. For the collision in the Urrutia case was between a sailing vessel, on the one hand, and a power-
driven vessel, on the other; the Rules, of course, imposed a special duty on the power-driven vessel to watch
the movements of a sailing vessel, the latter being necessarily much slower and much less maneuverable than
the power-driven one. Herein, both the “Don Carlos” and the “Yotai Maru” were power-driven and both were
equipped with radar; the maximum speed of the “Yotai Maru” was thirteen (13) knots while that of the “Don
Carlos” was eleven (11) knots. Moreover, as already noted, the “Yotai Maru” precisely took last minute
measures to avert collision as it saw the “Don Carlos” turning to portside: the “Yotai Maru” turned “hard
starboard” and stopped its engines and then put its engines “full astern.”

[199]

Manila vs. Atlantic Gulf and Pacific Co. (GR 4510, 19 December 1908)
En Banc, Tracey (J): 6 concur

Facts: On 20 November 1906, The city’s launch Jan, towing six small scows up the River Pasig at Santa Ana
came into collision with a large lighter, heavily laden, towed by the launch Oriente of Atlantic, Gulf & Pacific
Co. She was run aground with her frame near the port bow smashed in. The City of Manila filed an action for
damages against the company. The CFI of Manila awarded the city P1,020.50 damages for injuries to a launch
in a collision. Atlantic Gulf appealed.

The Supreme Court The judgment of the Court of First Instance is affirmed, with the costs of this instance. So
ordered.

1. Testimonies of the parties’ witnesses as to the antecedents to the collision

It is proved that the Jan carried lights; that both she and the scows she was towing were properly
manned, and according to the testimony of the city’s witnesses as soon as they saw the light ahead of the
Oriente their whistle was blown and on receiving an answering whistle, in order to avoid a shock, they veered
to starboard, leaving the channel and running into shoal water. Atlantic Gulf’s witnesses admit that they saw
the Jan and its tow with the lights thereon and blew their own whistle, but say that they did not hear any
whistle from the other launch, which kept the middle of the stream; that their boat was also put to starboard
and the launches successfully passed one another, but their scow in tow, being slow in changing direction,
struck against the Jan, and they claim that they did all in their power to avoid a collision in-view of the
difficulty of controlling the boat on their course downstream. It appears that this tow was secured to their
launch by a single cable, forking in the shape of the letter “Y” so that each end was fastened to one side of the
lighter.
2. Expert witnesses’ testimony; Boat against current quicker to mind her helm, etc.
The testimony of expert witnesses shows, and it is indeed of common knowledge, that a boat going
against the current is quicker to mind her helm than one borne along by it, and the city’s expert also testified
that whereas in ocean tows several cables were used, on the River Pasig it was customary to employ but one
in order to leave the vessel under tow greater freedom of movement and therefore better self-control.

3. No importance as to character of captain’s permit

The Court attached no importance to the character of the permit of the Oriente’s captain as a cause of
the accident.

4. Determination of location of boats not necessary

Herein, Atlantic Gulf has sought to show by witnesses that the channel was so obstructed by a boat
alongside each bank a short distance from the scene of the accident that it was impossible for the Oriente and
its tow to so maneuver as to escape the shock, but the testimony of these witnesses is not definite as to the
location of these boats at the time of the accident, nor does the consequence sought to be deduced from their
location, if proved, appear to the Court a necessary one.

5. Lack of rudder or any person to direct boat deprive control of the scow’s movement
Aboard this lighter there was no light, there was no crew, and it seems there was no rudder. The
absence of the light may not have contributed to the accident, but the lack of a rudder and of any person to
direct the boat so clearly deprived it of control of its own movements that we are satisfied that when under
tow of the forked rope it was not handily manageable. Therefore, instead of following approximately in the
wake of the launch, it struck out on a tangent thereto, thus causing the collision. In fine, the accident occurred
for the reason that the scow of the defendant was unmanageable because she was not properly provided with
helm and steersman.

[200]

Marine Trading vs. Government (GR 13422, 8 November 1918)

En Banc, Malcolm (J): 5 concur

Facts: On 10 August 1915, the Marine Trading Co. Inc. owned a launch named Active and the Government
of the Philippine Islands owned a launch named Bohol. Both launches were in use upon the Pasig River in the
city of Manila. About 8:00 a.m. of said date, in the Pasig River, below and near the bridge of Spain, the
launch Bohol was towing up the river two rudderless scows or lighters, one behind the other. The scow
nearest the launch was about 5 meters behind, was empty, and was high in the water. The second lighter was
tied to the rear of the first one, with a distance of about 2 meters intervening, was loaded, and was lower in
the water. The Active was coming down the river from Pandacan toward Manila Bay. The patron of the
Active blew one blast of his whistle, and the patron of the Bohol answered with one whistle, which indicated
that the Active had a clear way and should pass to starboard. When under the bridge of Spain, the Active
passed the Bohol and the first scow towed by it. But when the Active was about to pass the second scow, the
latter swerved to the left, and its forward left end corner struck the Active on the port side between the cabin
and the bow with such force and impact that the launch sank immediately. The Active was in good condition
and state of operation before the collision occurred. The launch was so seriously damaged by the collision and
the sinking that it took the sum of P9,677 to repair it.

Act 2630 empowered the Marine Trading to bring action in the FI of Manila to determine the responsibility
and liability for a collision between its launch Active and a scow towed by the Government launch Bohol,
and to fix the damages, if any, to which the former is entitled on account of the collision. Acting under this
authority, the Marine Trading Company began action to recover as damages from the Government of the
Philippine Islands the sum of P9,677, with interest and costs, because of the reckless and negligent acts of the
Government’s agent and employee. The Attorney-General interposed a general denial. Judgment was
rendered by the Honorable George R. Harvey, judge of first instance, for the amount prayed for by the
company, with legal interest from 25 September 1916, the date of filing the complaint, and costs of suit.

The Supreme Court affirmed the judgment appealed from, with the modification for the deletion of the
interest and costs; without special finding as to costs in this instance.

1. Applicable provisions of law

The applicable provisions of law are found in Articles 826, 827, 828, and 830 of the Code of
Commerce, and in the Philippine Marine Regulations issued by the Insular Collector of Customs. These
provisions of law and these regulations, in relation to the facts, present the issue of whether or not the
accident occurred through the negligence of the Bohol only, or whether both launches can be blamed for the
collision. If the first be the holding, then, under the law, Marine Trading Co. can recover. If the second be the
result, Marine Trading Co. cannot recover. Herein, negligence was attributable on the part of the patron of the
Bohol in operating his launch and the scow in such a way as to endanger the Active and its occupants. There
was no negligence on the part of the patron of the Active.

2. Evidence demonstrating negligence of Bohol

Negligence on the part of the Bohol is demonstrated by the following: (1) The patron of the Bohol
gave the whistle which indicated that the Active had a clear way and should pass to the starboard, and did not
give four blasts of the whistle in quick succession in order to denote danger. (2) The two scows in tow by the
Bohol were apparently not properly fastened together, as required by Section 197 of the Philippine Marine
Regulations. (3) The two launches passed each other under the bridge of Spain, and the Bohol, instead of
steering so as to avoid danger of a collision between the Active and its scows, kept its course and crowded the
Active almost against a buoy. While, in accordance with paragraph 163 of the Philippine Marine Regulations,
steam vessels towing have the right of way over steam vessels not towing this does not mean that the vessel
with a tow can usurp the entire river so as to force another vessel into the bank. In conformity with the
doctrine cited by appellant, that the preferred steamer will not be held in fault for maintaining her course and
speed, this is only true so long as it is possible for the other vessel to avoid her by the proper maneuver.

3. State never pays interest and costs until it expressly engages to do so

The State (in this jurisdiction, the Government of the Philippine Islands) never pays interest unless it
expressly engages to do so. This is especially true in case the claim is an unliquidated one. Among other
authorities, it was held in Angarica vs. Bayard ([1888], 127 U.S., 251) that “the United States are not liable to
pay interest on claims against them, in the absence of express statutory provision to that effect. It has been
established, as a general rule, in the practice of the government, that interest is not allowed on claims against
it, whether such claims originate in contract or in tort, and whether they arise in the ordinary business of
administration or under private acts of relief, passed by Congress on special application. The only recognized
exceptions are where the government stipulates to pay interest and where interest is given expressly by an Act
of Congress, either by the name of interest or by that of damages.” The rule is equally well established that
the State is not liable for costs unless the statute expressly makes it so. Therefore, Act 2630 only authorized
the court to fix the damages if any, and to enter judgment accordingly. Unless damages can be interpreted to
include interest and costs, plaintiff cannot recover the same. This appearing to be a strained interpretation, the
Court holds to the view that since the government has not stipulated to pay interest or costs, the courts should
not include these items in the judgment.

[-], also [- after 204]

A. Urrutia & Co. vs. Baco River Plantation (GR 7675, 25 March 1913)
First Division, Moreland (J): 3 concur
Facts: Nuestra Senora del Pilar, owned by A. Urrutia & Co. and the schooner Mangyan, owned by Baco
River Plantation Co., collided in the early morning of 8 April 1910, in Verde Island North Passage. The sail
vessel was sailing with a fresh breeze dead astern, her sails wing and wing. The steamer was seen by those on
board the sailing vessel some time before the actual collision, sailing erratically. The sail vessel kept her
course steady until just before the actual contract when her helmsman threw her hard to port in an effort to
avoid the collision. The movement, however, was unsuccessful and the sail vessel rammed the steamer sank
and 8 lives were lost. The sail vessel was considerably injured.

An action was brought by the owners of the steamship against the owners of the sail vessel, to recover the
value of the destroyed steamer and the damages caused by reason of its destruction, alleging as a basis
therefore the negligence of the sail vessel. Baco River Plantation denied the material allegations of the
complaint and set up a counterclaim for damages, alleging as grounds therefore that the injuries sustained by
the sail vessel were due to the gross negligence of those handling Urrutia’s steamer. Before the action was
tried, M. Garza made an application to intervene under the provisions of section 121 of the Code of Civil
Procedure, he alleging in support of his application thousand pesos’ worth of merchandise as freight, which
was lost as a result of the collision. The case turns upon the question which of the vessels was negligence in
failing to conform to the International Rules for the Prevention of Collisions at Sea. The trial court found that
those managing the steamer were guilty of gross negligence and that for that reason Urrutia could recover
nothing. The trial court also found that Baco River Plantation contributed neglect to the collision, and thus
was not likewise entitled to recover from the other any damages which may have occurred. Hence, the appeal.

The Supreme Court affirmed judgment of the trial court in so far as it finds against Urrutia and the intervener;
and reversed and cause remanded as to that portion which dismisses the counterclaim of the Baco River
Plantation Company, with instructions to the trial court to enter judgment in favor of Baco River Plantation,
and against G. Urrutia & Company, for the sum of P4,010.99, and costs. No costs on this appeal.

1. Article 20 of the International Rules for the Prevention of Collisions at Sea

Article 20 of the International Rules for the Prevention of Collisions at Sea is as follows: “If two
ships, one of which is a sailing ship and the other as steam ship, are proceeding in such directions as to
involve risk of collision, the steam ship shall keep out of the way of the sailing ship.”

2. Article 21 of the International Rules for the Prevention of Collisions at Sea

Article 21 is as follows: “Where by any of these rules one of two vessels is to keep out of the way,
the other shall keep her course and speed.”

3. Three divisions of time or zones in a collision

Generally speaking, in collisions between vessels there exist three divisions of time, or zones: The
first division covers all the time up to the moment when the risk of collision may be said to have begun.
Within this zone no rule is applicable because none is necessary. Each vessel is free to direct its course as it
deems best without reference to the movements of the other vessel. The second division covers the time
between the moment when the risk of collision begins and the moment when it has become a practical
certainty. The third division covers the time between the moment of actual contact.

4. Error in extrimis
Herein, it was during the time when the sail vessel was passing through the third zone that it changed
its course to port in order to avoid, if possible, the collision. This act may be said to have been done in
extremis, and, even if wrong, the sailing vessel is not responsible for the result.

5. Presumption against steam vessel; Volume 25 of the American and English Encyclopedia of
Law, page 926
 The rule relative to the presumption favoring sail vessels is conservatively stated in volume 25 of the
American and English Encyclopedia of Law, page 926: “Subject to the general rules of evidence in collision
cases as to the burden of proof, in the case of a collision between a steam vessel and a sail vessel, the
presumption is against the steam vessel, and she must show that she took the proper measures to avoid a
collision.”

6. Hughes, on Admiralty; Steamer must keep out of way of sail vessel

Hughes on Admiralty, page 242, declares the law thus: “A steamer must keep out of the way of a sail
vessel. In doing so she must allow the sail vessel a wide berth A steamer may take her own method of passing
a sail vessel. The mere approach of the two vessels does not bring about risk of collision. The steamer may
assume that the sail vessel will do her duty and do nothing to embarrass her. Hence the steamer may shape her
course so as to avoid the sail vessel.”

7. Hughes, on Admiralty; Error in extrimis

The rule that vessel may each assume that the other will obey the law is one of the most important in
the law of collision. Were it otherwise and were vessels required to take all sorts of measures to keep out of
the way, when they are not in each other’s way, navigation would be impossible. There is, however, one
important qualification which must be borne in mind. It is that a steamer must not approach so near a sailing
vessels, and on such a course as to alarm a man of ordinary skill and prudence. If the man on the sailing
vessel makes an improper maneuver, he is not responsible. It is what is called an ‘error in extremis.’ The
leading case on the subject is The Lucille (15 Wallace, 676). In that case a steamer and schooner were
approaching on converging courses only half a point apart, so that they would have come within thirty yards
of each other, and that in Chesapeake Bay. The court held that this was too close and condemned the
steamer.”

8. Hughes, on Admiralty; Vessel with right of way obligated to pursue her course
On page 245 the same author says “Article 21 renders it obligatory on the vessel which has the right
of way to pursue her course. She must rely on the other vessel to avoid the collision and not embarrass her by
any maneuver. All she need do is to do nothing. Then the other vessel knows what to expect and navigates
accordingly. In collisions between steam and sail vessels the steamer’s defense is almost invariably that the
sail vessel changed her course.”

9. Hughes, on Admiralty; Rules of navigation imperative

On page 255 of the same work appears the following “In The Clara Davidson (42 Feb., 763), the
court said: “But I do not find myself at liberty to ignore the inquiry whether a statutory rule of navigation was
violated by the schooner. These rules are the law of laws in cases of collision. They admit of no option or
choice. No navigator is at liberty to set up his discretion against them. If these rules were subject to the
caprice or election of master and pilots, they would be not only useless, but worse than useless. The rules are
imperative. They yield to necessity, indeed, but only to actual and obvious necessity. It is not stating the
principles too strongly to say that nothing but imperious necessity or some overpowering vis major will
excuse a sail vessel in changing her course when in the presence of a steamer in motion.’ “

10. Spencer, on Marine Collisions; “to keep out of the way” construed
Spencer on Marine Collisions, page 154, says “The duties imposed upon vessels are of a mutual
character; and where the statute directs on to give way to the other, it imposes an equal duty upon the latter to
continue to its would be for the other to refuse to yield the right of way. It is one of the conditions of the duty
‘to keep out of the way,’ that the vessel shall act intelligently, and afford reasonable evidence of her intention;
while it is doubtful what the other will do, the former should hold her course. Like all other rules for the
prevention of collisions at sea, there may be special circumstances which would warrant a ship in departing
from her course, where collision appears inevitable by pursuing it; indeed, it is no other alternative, a vessel
should hold her course when in a position required to do so by the statute.”
11. Spencer, on Marine Collisions; Duty to keep course not a privilege conferred but an obligation
imposed
On page 181 the same author says: “The duty of one vessel to keep her course is not intended by the
rules as a privilege conferred, but as a obligation imposed, in order to enable the other vessel with certainly
that the other is not doing her duty, and that the situation imperatively demands a departure form the rules. It
is the duty of the vessel required to keep out of the way to give an early and intelligible expression of her
intentions to do so; and while there is any doubt as to what her actions will be, the vessel required to hold her
course may presume that the other will act intelligently and lawfully, and she should hold her course until the
contrary appears. It is no excuse for a vessel taking a course forbidden by law that the unlawful course was
the best one.”

12. American and English Encyclopedia of law; Sail vessel justified to hold course to the last
minute possible In the American and English Encyclopedia of law (vol. 25, p. 925) the rule is
stated as follows: “But it must be a strong case which puts the sail vessel in the wrong for obeying the rule to
hold her course, for the court must clearly see, not only that a deviation from the rule would have prevented
the collision, but that the officer in charge of the sail vessel was guilty of negligence or a culpable want of
seamanship in not perceiving the necessity for a departure form the rule and acting accordingly. The sail
vessel is justified in holding her course to the last minute possible for the steamship to avoid her by making
the necessary maneuver.”

13. St John vs. Paine

In the case of St. John vs. Paine (10 How., 557), the collision was between a schooner and a steamer.
The Court held therein: “As a general rule, therefore, when meeting a sailing vessel, whether close hauled or
with the wind free, the latter has a right to keep her course, and it is the duty of the steamer to adopt such
precautions as will avoid her. By an adherence to this rule on the part of the sailing vessel the steamer with
proper lookout will be enabled, when approaching in an opposite direction, to adopt the necessary measures
to avoid the danger, and she will have a right to assume that the sailing vessel will keep her course. If the
latter fails to do this, the fault will be attributable to her, and the master of the steamer will be responsible
only for as fair exertion of the power of his vessel to avoid the collision under unexpected change of the
course of the other vessel, and the circumstances of the case.”

14. The Genesse Chief vs. Fitzhugh

The Genesee Chief vs. Fitzhugh (12 How., 443) pertains to a collision between a steamer, The
Genesee Chief, and a sail vessel. The two watched each other for some time before the collision. The sailing
vessel kept her course until in extremis when she made a wrong maneuver. The court said: “The steamboat
had the entire command of her course and a wide water, by which she might have passed the Cuba on either
side, and at a safe distance. She was going at the rate of eight miles an hour. And if proper care had been
taken on board the Genesee Chief, after the schooner was first seen, it would seem to be almost impossible
that a collision could have happened with a vessel moving so slowly and sluggishly through the water even if
she was carelessly or injudiciously managed. There was no necessity for passing so near her as to create the
hazard. The steamboat could choose its own distance. And the captain and crew of the Cuba appear to have
been watchful and attentive from the time the propeller was discovered. Nor do we deem it material to inquire
whether the order of the captain at the moment of collision was judicious or not. He saw the steamboat
coming directly upon him; her speed not diminished; nor any measures taken to avoid a collision. And if, in
the excitement and alarm of the moment, a different order might have been more fortunate, it was the fault of
the propeller to have placed him a situation where there was no time for thought; and she is responsible for
the consequences. She had the power to have passed at a safer distance, and has no right to place the schooner
in such jeopardy, that the error of a moment might cause her destruction, and endanger the lives of those on
board. And if an error was committed under such circumstances it was not a fault.”

15. The Ottawa

 In the case of The Ottawa (3 Wall., 269), the court said: “Rules of navigation are obligatory from the
time the necessity for precaution begins, and continue to be applicable as the vessels advance, so long as the
means and opportunity to avoid the danger remain; but they do not apply to a vessel required to keep her
course after the approach is so near that the collision is inevitable, and are equally inapplicable to vessels of
every description while they are yet so distant from each other that measures of precaution have not become
necessary.”

16. What rules apply in the three zones

In the first zone no rules apply. In the second the burden is on the vessel required to keep away and
void the danger. The third zone covers the period in which errors in extremis occur; and the rule is that the
vessel which has forced the privileged vessel into danger is responsible even if the privileged vessel has
committed an error within that zone.

17. Lucille vs. Respass; Duty of the sailing vessel to keep her course
The duty of the sailing vessel to keep her course is well exemplified in the leading case of the Lucille
vs. Respass (15 Wall., 676), which was a collision between a schooner and a steamer. Both vessels saw each
other in time to have avoided the collisions. “The principles of law applicable to the case are well settled.
They are not disputed by either party. In the case of The Carrol (8 Wall., 302), it is thus laid down, ‘Nautical
rules require that where a steamship and sailing vessel are approaching each other from opposite directions, or
on intersecting line, the steamship from the moment the sailing vessel is seen, shall watch with the highest
diligence her course and movements so as to be able to adopt such timely means of precaution as will
necessarily prevent the two boats from coming in contract. Fault on the part of the sailing vessel at the
moment preceding a collision does not absolve a steamer which has suffered herself and a sailing vessel to get
in such dangerous proximity as to cause inevitable alarm and confusion and collision as a consequence. The
steamer, as having committed a far greater fault in allowing such proximity to be brought about, is chargeable
with all the damages resulting from a collision.’ The rule laid down in the case of The Fannie (11 Wal., 238)
is still more applicable to the case before us. It was held that a schooner meeting a steamer approaching her
on a parallel line, with the difference of half a point in the course of the two, ought to have kept in her course;
that a steamer approaching a sailing vessel is bound to keep out of her way, and to allow her a free and
unobstructed passage. Whatever is necessary for his it is her duty to do, and avoid whatever obstructs or
endangers the sailing vessel in her course. If, therefore, the sailing vessel does not change her course so as to
embarrass the steamer, and render it difficult for her to avoid a collision, the steamer alone is answerable for
the damage of a collision, if there is one.”

18. The Sea Gull; Duties of steamers and sailing vessels

In the case of The Sea Gull (23 Wall., 165), the court said: “Steamer approaching a sail ship in such a
direction as to involve risk of collision are required to keep out of the way of the sail ship; but the sail ship is
required to keep her course unless the circumstances are such as to render a departure from the rule necessary
in order to avoid immediate danger. Vessels with sails being required to keep their course, the duty of
adopting the necessary measures of precaution to keep out of the way is devolved upon the steamer subject
only to the condition that the sail ship shall keep her course and do not act to embarrass the steamer in her
efforts to perform her duty. Doubtless the steamer may go to the right or left if she can keep out of the way,
but if not and the approach is such as to involve risk of collision she is required to slacken he speed, or, if
necessary, stop and reverse, and if she fails to perform her duty as required by the rules of navigation she is
responsible for the consequences if the sail vessel is without fault.”

19. The Sea Gull; Error in extrimis

Rules of navigation continue to be applicable as long as the means and opportunity remain to avoid
the danger, but they do not apply to a vessel required to keep her course after the wrongful approach of the
opposite vessel is so near that a collision is inevitable. Nor will an error committed by the sail vessel under
such circumstances of peril, if she is otherwise without fault, impair the right of the sail vessel to recover for
the injuries occasioned by the collision, for the plain reason that those who produce the peril and put the sail
vessel in that situation are chargeable with the error and must answer for the consequences. (Steamship Co.
vs. Rumball, 21 How., 383.) Subject to that exception the sail vessel must keep he course.

20. The Benefactor

In the case of The Benefactor (102 U. S., 214), the court laid down the following conclusions: “(1)
Upon the steamship and schooner discovering each other proceeding in such directions as to involve risk of
collision, as stated in the foregoing findings of fact, it was the right and duty of the schooner to keep her
course, and the duty of the steamship was in fault in failing to perform that duty; (2) It was also the duty of
the steamship under the circumstances stated, to pursue a course which should not needlessly put the
schooner in imminent peril; and the steamship was in fault in failing to perform that duty; (3) It was duty of
the steamship, before the time when she did so, to slacken her speed or stop, and the steamship was in fault in
failing to perform that duty; (4) If, when a collision had become imminent by reason of the fault of the
steamship, any error was committed in extremis by those in charge of the schooner, the schooner is not
responsible therefor; (5) The steamship had no right, under the circumstance stated, needlessly to place
herself in such close proximity to the schooner that the error of a moment would bring destruction; and (6)
The collision was occasioned by the fault of the steamship, and the steamship should be condemned therefor.”

21. The Badger State; Steamer prima facie at fault

In the case of The Badger State (8 Fed. Rep., 526), the court said: “Where a sailing vessel and one
propelled by steam are approaching each other bow on, the steamer must give way. In case of a collision
between such vessels, the steamer is prima facie in fault.”

22. The Gate City; Burden of avoiding collision upon the steamer
In the case of The Gate City (90 Fed. Rep., 314), the court held that “the rule requiring a sailing
vessel meeting a steamer to hold her course is a broad and general one intended to put the burden of avoiding
a collision upon the steamer; and, if the sailing vessel departs from the injunction the burden is on her to show
some reasonable excuse therefor. A disregard of the rule not demanded by a clearly existing exigency should
not be excused. Therefore, she will not held in fault for adhering to her course, although the steamer seems to
be maneuvering in an uncertain and dangerous way.”

23. Recovery of damages which reasonably and naturally flowed from the collision
There is sufficient evidence in the record to fix such damages with reasonable accuracy. It was proved
upon the trial that it would require an expenditure of P3,525 to put the sail vessel in the condition in which it
was before the injury; that it cost P245 to get the vessel to Manila after the injury; that the value of the
supplies lost was P240.99. The evidence relative to the loss of earnings is not sufficient to permit the court to
formulate any conclusion in relation thereto, even if it be considered a proper item of damage.

24. Intervenor had no legal interest in the matter in litigation

The intervener had no “legal interest in the matter in litigation, or in the success of either of the
parties, or an interest against both.” Their action was personal, involved no rights in property which extended
beyond their immediate selves, and touched no third party in any of the ramifications of those rights.

25. Philippine Shipping vs. Vergara case not applied; Limited liability rule does not apply since
vessel was insured
In the case of Philippine Shipping Co. vs. Vergara (6 Phil. Rep., 281), that, in accordance with articles
837 and 826 of the Code of Commerce, the defendant in an action cannot be held responsible in damages
when the ship causing the injury was wholly lost by reason of the accident. Such holding cannot be applied
herein for the reason that the vessel lost was insured and that defendant collected the insurance. That being
the case, the insurance money substitutes the vessel and must be used, so far as necessary, to pay the
judgment rendered in the present case.
26. Place vs. Nortwich and NY Trans. Co. not applied; Article 1186 NCC, Article 2 Code of
Commerce
In the case of Place vs. Nortwich and N. Y. Trans. Co. (118 U. S., 468), it was held that, under the
provision of the Act of Congress relative thereto, insurance money obtained by reason of the loss of a vessel
causing damages was not subject to the payment of the damages sustained by the negligence of the vessel lost
by reason of the accident in which the damages occurred. The Court does not follow that case because we are
met in this jurisdiction with article 1186 of the Civil Code, which provides that “after the obligation is
extinguished by the loss of the thing, all the actions which the debtor may have against third persons, by
reason thereof, shall pertain to the creditor,” and with article 2 of the Code of Commerce, which provides that
where the Code of Commerce is silent as to the law relating to the matters of which it treats those matters
shall be governed by the provisions of the Civil Code.

27. Article 1186 applicable to money obtained from insurance; Amount collected cannot exceed
amount of insurance received
Article 1186 is, under the Spanish jurisprudence, applicable to money obtained from the insurance of
the thing lost or destroyed, there can be no doubt. (Manresa, vol. 8, 353.) The judgment in this case is,
therefore, collectible, but the amount collected cannot exceed the amount of insurance money actually
received.

28. Reservation of J. Moreland on the applicability of Article 1186

The writer of the opinion had doubts of the applicability of article 1186, referred to; but has yielded to
the learning of the majority relative to the Roman and Spanish jurisprudence on this point.

[-], also [- after 204]

Versoza vs. Lim (GR 20145, 15 November 1923)

Second Division, Street (J): 5 concur

Facts: At about 5:00 p.m. of 9 March 1921, the coastwise steamer Ban Yek left the port of Naga on the Bicol
River, in the Province of Camarines Sur, with destination to the City of Manila. At the time of her departure
from said port the sea was approaching to high tide but the current was still running in through the Bicol
River, with the result that the Ban Yek had the current against her. As the ship approached the Malbong bend
of the Bicol River, in the Municipality of Gainza, another vessel, the Perla, was sighted coming up the river
on the way to Naga. While the boats were yet more than a kilometer apart, the Ban Yek gave two blasts with
her whistle, thus indicating an intention to pass on the left, or to her own port side. In reply to this signal the
Perla gave a single blast, thereby indicating that she disagreed with the signal given by the Ban Yek and
would maintain her position on the right, that is, would keep to the starboard. The Ban Yek made no reply to
this signal. As the Perla was navigating with the current, then running in from the sea, this vessel, under
paragraph 163 of Customs Marine Circular 53, had the right of way over the Ban Yek, and the officers of the
Perla interpreted the action of the Ban Yek in not replying to the Perla’s signal as an indication of
acquiescence of the officers of the Ban Yek in the determination of the Perla to keep to the starboard. The
river at this point is about 250 feet wide, and the courses thus being respectively pursued by the two vessels
necessarily tended to bring them into a head-on collision. When the danger of such an occurrence became
imminent, Captain Garrido of the Perla, seeing that he was shut off by the Ban Yek from passing to the right,
put his vessel to port, intending to avoid collision or minimize its impact by getting farther out into the
stream. An additional reason for this maneuver is that the captain of the Ban Yek waived his hand to Garrido,
indicating that the latter should turn his vessel towards the middle of the stream. At about the same time that
the Perla was thus deflected from her course the engine on the Ban Yek was reversed and three blasts were
given by this vessel to indicate that she was backing. When the engine is reversed, a vessel swings to the right
or left in accordance with the direction in which the blades of the propeller are set; and as the Ban Yek began
to back, her bow was thrown out into the stream, a movement which was assisted by the current of the river.
By this means the Ban Yek was brought to occupy an oblique position across the stream at the moment the
Perla was passing; and the bow of the Ban Yek crashed into the starboard bumpers of the Perla, carrying away
external parts of the ship and inflicting material damage on the hull. To effect the repairs thus made necessary
to the Perla cost her owners the sum of P17,827, including expenses of survey.

Vicente Verzosa and Ruiz, Rementeria y Compania, as owners of the coastwise vessel Perla, instituted the
action before the CFI of Manila, against Silvino Lim and Siy Cong Bieng & Company, Inc., as owner and
agent, respectively, of the vessel Ban Yek, for the purpose of recovering a sum of money alleged to be the
damages resulting to Versoza, et. al. from the collision; alleging that said collision was due to the
inexperience, carelessness and lack of skill on the part of the captain of the Ban Yek and to his failure to
observe the rules of navigation appropriate to the case. Lim, et. al. answered with a general denial, and by
way of special defense asserted, among other things, that the collision was due exclusively to the inexperience
and carelessness of the captain and officers of the steamship Perla; for which reason Lim et. al., in turn, by
way of counterclaim, prayed judgment for the damages suffered by the Ban Yek from the same collision. At
the hearing the trial judge absolved Lim, et. al. from the complaint and likewise absolved Verzosa, et.al. from
Lim, et. al.’s counterclaim. From this judgment both parties appealed.

The Supreme Court affirmed the judgment appealed from insofar as it absolves Versoza, et. al., and entered
judgment for Versoza, et. al. to recover jointly and severally from Silvino Lim and Siy Cong Bieng & Co. the
sum of P17,827.00, with interest from the date of the institution of the action, without special pronouncement
as to costs of either instance.

1. Sufficiency of the protest

Herein, within 24 hours after the arrival of the Perla at the port of Naga, Captain Garrido appeared
before Vicente Rodi, the auxiliary justice of the peace of the municipality of Naga, and made before that
officer the sworn protest. This protest is sufficient to answer all the requirements of article 835 of the Code of
Commerce. A regular justice of the peace would without doubt be competent to take a marine protest, and the
same authority must be conceded to the auxiliary justice in the absence of any showing in the record to the
effect that the justice of the peace himself was acting at the time in the municipality.

2. Auxiliary justice of the peace, also as “ex-officio notary public”; Judicial notice of situation in
Naga
In his certificate to the protest, Vicente Rode added to the appellation of auxiliary justice of the peace,
following his name, the additional designation “notary public ex-officio.” However, under subsection (c) of
section 242 of the Administrative Code, it is plain that an auxiliary justice of the peace is not an ex-officio
notary public. It results that the taking of this protest must be ascribed to the officer in his character as
auxiliary justice of the peace and not in the character of notary public ex-officio It is hardly necessary to add
that this court takes judicial notice of the fact that Naga is not a port of entry and that no customs official of
rank is there stationed who could have taken cognizance of this protest.

3. Fault attributed exclusively to the negligence and inattention of the captain and pilot in charge
of the Ban Yek
Herein, the Perla undoubtedly had the right of way, since this vessel was navigating with the current,
and the officers in charge of the Perla were correct in assuming, from the failure of the Ban Yek to respond to
the single blast of the Perla, that the officers in charge of the Ban Yek recognized that the Perla had a right of
way and acquiesced in her resolution to keep to the right.

4. Ban Yek’s excuses not convincing

Herein, the excuse urged for the Ban Yek is that this vessel is somewhat larger than the Perla and that
it was desirable for the Ban Yek to keep on the side of the long are of the curve of the river; and in this
connection it is suggested that the river is deeper on the outer edge of the bend that on the inner edge. It is
also stated that on a certain previous occasion the Ban Yek on coming out from this port had gotten stuck in
the mud in this bend by dipping too far to the right. Moreover, it is said to be the practice of ships in
navigating this stream to keep nearer the outside than to the inside of the bend. These suggestions are by no
means convincing. It appears in evidence that the river bottom here is composed of mud and silt, and as the
tide at the time of this incident was nearly at its flood, there was ample depth of water to have accommodated
the Ban Yek of she had kept to that part of the stream which it was proper for her to occupy. We may further
observe that the disparity in the size of the vessels was not such as to dominate the situation and deprive the
Perla of the right of way under the conditions stated. Blame for the collision must therefore, as already stated,
be attributed to the Ban Yek.

5. Assumption that approaching vessel will observe the regulations prescribed for navigation
No fault can be attributed to the officers navigating the Perla either in maintaining the course which
had been determined upon for that vessel in conformity with the marine regulations applicable to the case or
in deflecting the vessel towards the middle of the stream after the danger of collision became imminent.
Among rules applicable to navigation none is better founded on reason and experience than that which
requires the navigating officers of any vessel to assume that an approaching vessel will observe the
regulations prescribed for navigation (G. Urrutia & Co. vs. Baco River Plantation Co., 26 Phil., 632, 637).
Any other rule would introduce guess work into the control of ships and produce uncertainty in the operation
of the regulations.

6. Limit of right of recovery in present case

The sum of P17,827 represents the limit of Verzosa’s right of recovery. On the original complaint
recovery is sought for an additional amount of P18,000, most of which consists of damages supposed to have
been incurred from the inability of the Perla to maintain her regular schedule while laid up in the dock
undergoing repairs. The damages thus claimed, in addition to being somewhat of a speculative nature, are not
sufficiently proved to warrant the court in allowing the same.

7. Article 826 of the Code of Commerce; “Naviero” construed as “owner” alone for the purposes
of the provision
In article 826 of the Code of Commerce it is declared that the owner of any vessel shall be liable for
the indemnity due to any other vessel injured by the fault, negligence, or lack of skill of the captain of the
first. The Court says “owner,” which is the word used in the current translation of the article in the Spanish
Code of Commerce. It is to be observed, however, that the Spanish text itself uses the word naviero; and there
is some ambiguity in the use of said word in this article, owing to the fact that naviero in Spanish has several
meanings. The author of the article which appears under the word naviero in the Enciclopedia Juridica
Española tells us that in Spanish it may mean either owner, outfitter, charterer, or agent, though he says that
the fundamental and correct meaning of the word is that of “owner.” That naviero, as used in the Spanish text
of article 826, means owner is further to be inferred from article 837, which limits the civil liability expressed
in article 826 to the value of the vessel with all her appurtenances and all the freight earned during the
voyage. There would have been no propriety in limiting liability to the value of the vessel unless the owner
were understood to be the person liable. It is therefore clear that by special provision of the Code of
Commerce the owner is made responsible for the damage caused by an accident of the kind under
consideration in the present case. In more than one case the court has held the owner liable, when sued alone
(Philippine Shipping Co. vs. Garcia Vegara, 6 Phil., 281; G. Urrutia & Co. vs. Baco river Plantation Co., 26
Phil., 632).

8. Both owner and agent responsible; Article 1902 NCC, and Article 586 Code of Commerce
Herein, while Silvino Lim is liable for damages in the character of owner, it does not necessarily
follow that Siy Cong Bieng & Co., as charterer or agent (casa naviera), is exempt from liability. Both the
owner and agent can be held responsible where both are impleaded together. In Philippine Shipping Co. vs.
Garcia Vergara (6 Phil., 281), it seems to have been accepted as a matter of course that both owner and agent
of the offending vessel are liable for the damage done. The liability of the naviero, in the sense of charterer or
agent, if not expressed in article 826 of the Code of Commerce, is clearly deducible from the general doctrine
of jurisprudence stated in article 1902 of the Civil Code, and it is also recognized, but more especially as
regards contractual obligations, in article 586 of the Code of Commerce. Both the owner and agent (naviero)
should be declared to be jointly and severally liable, since the obligation which is the subject of this action
had its origin in a tortious act and did not arise from contract.

9. Article 1137 NCC no applicable

Article 1137 of the Civil Code, declaring that joint obligations shall be apportionable unless otherwise
provided, has no application to obligations arising from tort.

[-], Manila Steamship vs. Insa Abdulhaman, see [-] after [149]
[201]

Government vs. Philippine Steamship Co. (GR 18957, 16 January 1923)

En Banc, Street (J): 8 concur

Facts: At about 10 p.m. on 10 February 1920, the coastwise vessel Isabel (owned by Fernandez Hermanos),
equipped with motor and sails, left the port of Manila with primary destination to Balayan, Batangas,
carrying, among its cargo, 911 sacks of rice belonging to the Government of the Philippine Islands and
consigned to points in the south. After the boat had been under weigh for about 4 hours, and had passed the
San Nicolas Light near the entrance into Manila Bay, the watch and the mate on the bridge of the Isabel
discerned the light of another vessel, which proved to be the Antipolo (owned by Philippine Steamship Co.
Inc.), also a coastwise vessel, on its way to Manila and coming towards the Isabel. At about the same time
both the watch and mate on the bridge of the Antipolo also saw the Isabel, the two vessels being then about
one mile and a half or two miles apart. Each vessel was going approximately at the speed of 6 miles an hour,
and in about 10 minutes they had together traversed the intervening space and were in close proximity to each
other. When the mate of the Antipolo, who was then at the wheel, awoke to the danger of the situation and
saw the Isabel “almost on top of him,” to use the words of the committee on marine accidents reporting the
incident, he put his helm hard to the starboard. As chance would have it, however, the mate on the Isabel at
this critical juncture lost his wits and, in disregard of the regulations and of common prudence, at once placed
his own helm hard to port, with the result that his boat veered around directly in the path of the other vessel
and a collision became inevitable. Upon this the mate on the Antipolo fortunately stopped his engines, but the
Isabel continued with full speed ahead, and the two vessels came together near the bows. The Isabel
immediately sank, with total loss of vessel and cargo, though the members of her crew were picked up from
the water and saved.

The Government of the Philippine Islands sought to recover the sum of P14,648.25, the alleged value of 911
sacks of rice which were lost at sea on 11 February 1920. In the CFI judgment was entered for the recovery
by the Government from the Philippine Steamship Company, Inc., of the full amount claimed, with interest
from the date of filing of the complaint. From this judgment, said company appealed.

The Supreme Court affirmed the judgment appealed from; with costs against Philippine Steamship Co. Inc.

1. Negligence imputable to both vessels, though differing in character and degree with respect to
each
Negligence was imputable to both vessels, though differing somewhat in character and degree with
respect to each. The mate of the Antipolo was clearly negligent in having permitted that vessel to approach
directly towards the Isabel until the two were in dangerous proximity. For this there was no excuse whatever,
since the navigable sea at this point is wide and the incoming steamer could easily have given the outgoing
vessel a wide berth. On the other hand it is not clear that the Isabel was chargeable with negligence in keeping
on its course; for this boat had its jib sail hoisted, and may for that reason be considered to have had the right
of way.

2. Negligence chargeable to Isabel for incompetent way the vessel was handled
Negligence shortly preceding the moment of collision is undoubtedly chargeable to the Isabel, for the
incorrect and incompetent way in which this vessel was then handled. The explanation may be found in the
fact that the mate on the Isabel had been on continuous duty during the whole preceding day and night; and
being almost absolutely exhausted, he probably was either dozing or inattentive to duty at the time the other
vessel approached.

3. Responsibility rests on steamer which allowed dangerous proximity to a sailing vessel

It results that both vessels were at fault; and although the negligence on the part of the mate of the
incoming vessel preceded the negligence on the part of the mate of the outgoing vessel by an appreciable
interval of time, the first vessel cannot on that account be absolved from responsibility. Indeed, in G. Urrutia
& Co. vs. Baco River Plantation Co., supra, this court found reason for holding that the responsibility rested
exclusively on a steamer which had allowed dangerous proximity to a sailing vessel to be brought about under
somewhat similar conditions.

4. Where both vessels are to blame, both solidarily liable; When one sinks, burden falls to owner
of other ship
Where both vessels are to blame, both shall be solidarily responsible for the damage occasioned to
their cargoes. As the Isabel was a total loss and cannot sustain any part of this liability, the burden of
responding to the Government of the Philippine Islands, as owner of the rice embarked on the Isabel, must
fall wholly upon the owner of the other ship, that is, upon the defendant, the Philippine Steamship Company,
Inc.

5. Application of Article 827

The application of article 827 of the Code of Commerce is not limited by article 828 to the case
where it cannot be determined which of the two vessels was the cause of the collision. On the contrary article
828 must be considered as an extension of article 827 to an additional case. In other words, under the two
articles combined the rule of liability announced in article 827 is applicable not only to the case where both
vessels may be shown to be actually blameworthy but also to the case where it is obvious that only one was at
fault but the proof does not show which.

[202]

Picart vs. Smith (GR L-12219, 15 March 1918)

En Banc, Street (J): 6 concur, 1 reserved vote

Facts: On 12 December 1912, on the Carlatan Bridge, at San Fernando, La Union, Amado Picart was riding
on his pony over said bridge. Before he had gotten half way across, Frank Smith Jr. approached from the
opposite direction in an automobile, going at the rate of about 10 or 12 miles per hour. As Smith neared the
bridge he saw a horseman on it and blew his horn to give warning of his approach. He continued his course
and after he had taken the bridge he gave two more successive blasts, as it appeared to him that the man on
horseback before him was not observing the rule of the road. Picart saw the automobile coming and heard the
warning signals. However, being perturbed by the novelty of the apparition or the rapidity of the approach, he
pulled the pony closely up against the railing on the right side of the bridge instead of going to the left. As the
automobile approached, Smith guided it toward his left, that being the proper side of the road for the machine.
In so doing Smith assumed that the horseman would move to the other side. The pony had not as yet exhibited
fright, and the rider had made no sign for the automobile to stop. Seeing that the pony was apparently quiet,
Smith, instead of veering to the right while yet some distance away or slowing down, continued to approach
directly toward the horse without diminution of speed. When he had gotten quite near, there being then no
possibility of the horse getting across to the other side, Smith quickly turned his car sufficiently to the right to
escape hitting the horse alongside of the railing where it was then standing; but in so doing the automobile
passed in such close proximity to the animal that it became frightened and turned its body across the bridge
with its head toward the railing. In so doing, it was struck on the hock of the left hind leg by the flange of the
car and the limb was broken. The horse fell and its rider was thrown off with some violence. As a result of its
injuries the horse died. Picart received contusions which caused temporary unconsciousness and required
medical attention for several days.

Amado Picart sought to recover of Smith the sum of P31,100, as damages alleged to have been caused by an
automobile driven by the latter. The CFI of the Province of La Union absolved Smith from liability. Picart
appealed.

The Supreme Court reversed the judgment of the lower court, and rendered judgment that Picart recover of
Smith the sum of P200, with costs of both instances. The court held that the sum awarded was estimated to
include the value of the horse, medical expenses of Picart, the loss or damage occasioned to articles of his
apparel, and lawful interest on the whole to the date of this recovery; and that the other damages claimed by
Picart are remote or otherwise of such characters as not to be recoverable.

1. Automobile driver (Smith) guilty of negligence

Smith, in maneuvering his car in the manner described, was guilty of negligence such as gives rise to
a civil obligation to repair the damage done. As Smith started across the bridge, he had the right to assume
that the horse and rider would pass over to the proper side; but as he moved toward the center of the bridge it
was demonstrated to his eyes that this would not be done; and he must in a moment have perceived that it was
too late for the horse to cross with safety in front of the moving vehicle. In the nature of things this change of
situation occurred while the automobile was yet some distance away; and from this moment it was not longer
within the power of Picart to escape being run down by going to a place of greater safety. The control of the
situation had then passed entirely to Smith; and it was his duty either to bring his car to an immediate stop or,
seeing that there were no other persons on the bridge, to take the other side and pass sufficiently far away
from the horse to avoid the danger of collision. Instead of doing this, Smith ran straight on until he was
almost upon the horse. When Smith exposed the horse and rider to this danger he was negligent in the eye of
the law.

2. Test in determining negligence; Use of reasonable care and caution which an ordinary prudent
person would have used
In doing the alleged negligent act, did the actor use that reasonable care and caution which an
ordinarily prudent person would have used in the same situation? If not, then he is guilty of negligence. The
law, in effect, adopts the standard supposed to be supplied by the imaginary conduct of the discreet
paterfamilias of the Roman law. The existence of negligence in a given case is not determined by reference to
the personal judgment of the actor in the situation before him. The law considers what would be reckless,
blameworthy, or negligent in the man of ordinary intelligence and prudence and determines liability by that.

3. Nature of conduct of a prudent man

What would constitute the conduct of a prudent man in a given situation must of course be always
determined in the light of human experience and in view of the facts involved in the particular case. Abstract
speculation cannot be of much value; as reasonable men govern their conduct by the circumstances which are
before them or known to them, and hence they can be expected to take care only when there is something
before them to suggest or warn of danger. Reasonable foresight of harm is always necessary before
negligence can be held to exist. In fine, the proper criterion for determining the existence of negligence in a
given case is this: Conduct is said to be negligent when a prudent man in the position of the tortfeasor would
have foreseen that an effect harmful to another was sufficiently probable to warrant his foregoing the conduct
or guarding against its consequences.
4. Doctrine of last fair chance
Herein, it goes without saying that Picart himself was not free from fault, for he was guilty of
antecedent negligence in planting himself on the wrong side of the road. But as the law imposed on Smith the
duty to guard against the threatened harm, he was also negligent; and in such case the problem always is to
discover which agent is immediately and directly responsible. It will be noted that the negligent acts of the
two parties were not contemporaneous, since the negligence of Smith succeeded the negligence of Picart by
an appreciable interval. Under these circumstances the law is that the person who has the last fair chance to
avoid the impending harm and fails to do so is chargeable with the consequences, without reference to the
prior negligence of the other party.

5. Rakes vs. Atlantic, Gulf and Pacific Co.; Contributory negligence does not constitute a bar to
recover
In Rakes vs. Atlantic, Gulf and Pacific Co.(7 Phil. Rep., 359), the Court held that while contributory
negligence on the part of the person injured did not constitute a bar to recover, it could be received in
evidence to reduce the damages which would otherwise have been assessed wholly against the other party.

6. Rakes vs. Atlantic Gulf; Facts therein

The defendant company had there employed the plaintiff, a laborer, to assist in transporting iron rails
from a barge in Manila harbor to the company’s yards located not far away. The rails were conveyed upon
cars which were hauled along a narrow track. At a certain spot near the water’s edge the track gave way by
reason of the combined effect of the weight of the car and the insecurity of the road bed. The car was in
consequence upset; the rails slid off; and the plaintiff’s leg was caught and broken. It appeared in evidence
that the accident was due to the effects of a typhoon which had dislodged one of the supports of the track. The
court found that the defendant company was negligent in having failed to repair the bed of the track and also
that the plaintiff was, at the moment of the accident, guilty of contributory negligence in walking at the side
of the car instead of being in front or behind. It was held that while the defendant was liable to the plaintiff by
reason of its negligence in having failed to keep the track in proper repair, nevertheless the amount of the
damages should be reduced on account of the contributory negligence of the plaintiff. As will be seen the
defendant’s negligence in that case consisted in an omission only. The liability of the company arose from its
responsibility for the dangerous condition of its track.

7. Dismissal of criminal proceedings does not affect civil liability

Herein, soon after the accident occurred, Picart caused criminal proceedings to be instituted before a
justice of the peace charging Smith with the infliction of serious injuries (lesiones graves). At the preliminary
investigation, Smith was discharged by the magistrate and the proceedings were dismissed. Conceding that
the acquittal of Smith at a trial upon the merits in a criminal prosecution for the offense mentioned, it would
not constitute res adjudicata upon the question of his civil liability arising from negligence.

[203]

US vs. Smith Bell (GR 1876, 30 September 1905)

?, Johnson (J): 4 concur, 1 took no part

Facts: On 6 November 1902, at about 11:00 p.m. and near the mouth of the Pasig River, the Navy boat
Barcelo collided with a casco that was then and there being towed by the launch Alexandra. The launch
Alexandra is the property of Smith Bell & Co.

An action was filed by the United States against Smith Bell & Co. in the CFI of Manila, to recover the sum of
$1,600 for damages occasioned by the collision. The inferior court found that Smith Bell & Co. had not
complied with the rules of navigation in Manila Bay, in that it failed to display lights in accordance with such
regulations, and that, by reason of such failure, the collision and consequent damages occurred. However, the
lower court did not rule the case in favor of the United States as it has not complied with Article 835 of the
Code of Commerce. The United States appealed.

The Supreme Court affirmed the decision of the inferior court, and ordered that Smith Bell recover of the
United States his costs in the action, and at the expiration of 20 days judgment should be entered in
accordance herewith, and the cause be remanded to the court below for execution of said judgment.

1. Article 835, Code of Commerce

Article 835 provides: “The action for the recovery of loss and damages arising from collisions can not
be admitted if a sworn statement or declaration is not presented within twenty-four hours to competent
authority of the point where the collision took place, or that of the first port of arrival of the vessel.”

2. Article 835 of Code of Commerce applies to all persons engaged in traffic; Protest a
prerequisite for action for damages
Article 835 of the Commercial Code applies to all persons engaged in traffic upon the waters of the
Philippine Archipelago. Smith Bell & Co. has as much right to insist upon compliance with the provision of
the code where the damages were done to a boat operated by the Government as if such boat had been
operated by a private individual or company. This provision of the Commercial Code, requiring protest to be
made and presented to the proper authority within 24 hours after the collision, or after the arrival of the
injured boat in port, is a prerequisite to the bringing of an action for damages. By having failed to comply
with this provisions of the Commercial Code it can not maintain the action for damages.

[204 ]Lopez v. Duruelo, see [- after 145]

[-] Versoza and Ruiz v. Lim, see [- after 200]
[-]

Philippine Shipping Co. vs. Vergara (GR 1600, 1 June 1906)

Second Division, Arellano (CJ): 4 concur

Facts: The Philippine Shipping Company, the owner of the steamship Nuestra Sra. de Lourdes, claims an
indemnification of P44,000 for the loss of the said ship as a result of a collision. Ynchusti & Co. also claimed
P24,705.64 as an indemnification for the loss of the cargo of hemp and coprax carried by the said ship on her
last trip. Francisco Garcia Vergara, was the owner of the steamship Navarra, which collided with the Lourdes.
From the judgment of the trial court the Philippine Shipping Company and Vergara appealed, but the latter
has failed to prosecute his appeal by a bill of exceptions or otherwise. The only appellant who has prosecuted
the appeal, Philippine Shipping Co., now reduced its claim to P18,000, the value of the colliding vessel.

The Supreme Court held that Vergara is liable for the indemnification to which Philippine Shipping is entitled
by reason of the collision, but he is not required to pay such indemnification of the reason that the obligation
thus incurred has been extinguished on account of the loss of the thing bound for the payment thereof, and in
this respect the judgment of the court below is affirmed except in so far as it requires Philippine Shipping to
pay the costs of the action, which is not exactly proper; that after the expiration of 20 days let judgment be
entered in accordance herewith and 10 days thereafter the record be remanded to the Court of First Instance
for execution.

1. Article 837 of the Code of Commerce

Article 837 of the Code Commerce provides: “The civil liability contracted by the shipowners in the
cases prescribed in this section shall be understood as limited to the value of the vessel with all her equipment
and all the freight money earned during the voyage.” This section is a necessary consequence of the right to
abandon the vessel given to the shipowner in article 587 of the code, and it is one of the many superfluities
contained in the code. (Lorenzo Benito, “Lecciones,” 352.)

2. Article 587 of the Code of Commerce

Article 587 of the Code of Commerce provides that “the agent shall also the civilly liable for the
indemnities in favor of third persons which arise from the conduct of the captain in the care of the goods
which the vessel carried, but he may exempt himself therefrom by abandoning the vessel with all her
equipments and the freight he may have earned during the trip.”

3. Article 590 of the Code of Commerce

Article 590 of the Code of Commerce provides that “the part owners of a vessel shall be civilly liable,
in the proportion of their contribution to the common fund, for the results of the acts of the captain referred to
in article 587. Each part owner may exempt himself from this liability by the abandonment, before a notary,
of the part of the vessel belonging to him.”

4. Intent of the Code of Commerce

The “Exposicion de motivos” of the Code of Commerce contains the following: “The present code
(1829) does not determine the juridical status of the agent where such agent is not himself the owner of the
vessel. This omission is supplied by the proposed code, which provides in accordance with the principles of
maritime law that by agent it is to be understood the person intrusted with the provisioning of the vessel, or
the one who represents her in the port in which she happens to be. This person is the only one who represents
the vessel — that is to say, the only one who represents the interest of the owner of the vessel. This provision
has therefore cleared the doubt which existed as to the extent of the liability, both of the agent and for the
owner of the vessel. Such liability is limited by the proposed code to the value of the vessel and other things
appertaining thereto.”

5. Distinction between lawful obligation due lawful acts, and liability for unlawful acts
This is the difference which exist between the lawful acts and lawful obligation of the captain and the
liability which he incurs on account of any unlawful act committed by him. In the first case, the lawful acts
and obligations of the captain beneficial to the vessel may be enforced as against the agent for the reason that
such obligations arise from the contract of agency (provided, however, that the captain does not exceed his
authority), while as to any liability incurred by the captain through his unlawful acts, the ship agent is simply
subsidiarily civilly liable. This liability of the agent is limited to the vessel and it does not extend further. For
this reason the Code of Commerce makes agent liable to the extent of the value of the vessel, as to the codes
of the principal maritime nations provided, with the vessel, and not individually. Such is also the spirit of our
code.

6. Real and Hypothecary nature of maritime law (Madariaga)

That which distinguishes the maritime from the civil law and even from the mercantile law in general
is the real and hypothecary nature of the former, and the many securities of a real nature that maritime
customs from time immemorial, the laws, the codes, and the later jurisprudence, have provided for the
protection of the various and conflicting interest which are ventured and risked in maritime expeditions, such
as the interests of the vessel and of the agent, those of the owners of the cargo and consignees, those who
salvage the ship, those who make loans upon the cargo, those of the sailors and members of the crew as to
their wages, and those of a constructor as to repairs made to the vessel.

7. Evidence of “real” nature of maritime law; Way for agent to exempt self from liability
(Madariaga)
As evidence of this “real” nature of the maritime law we have (1) the limitation of the liability of the
agents to the actual value of the vessel and the freight money, and (2) the right to retain the cargo and the
embargo and detention of the vessel even cases where the ordinary civil law would not allow more than a
personal action against the debtor or person liable. It will be observed that these rights are correlative, and
naturally so, because if the agent can exempt himself from liability by abandoning the vessel and freight
money, thus avoiding the possibility of risking his whole fortune in the business, it is also just that his
maritime creditor may for any reason attach the vessel itself to secure his claim without waiting for a
settlement of his rights by a final judgment, even to the prejudice of a third person. This repeals the civil law
to such an extent that, in certain cases, where the mortgaged property is lost no personal action lies against the
owner or agent of the vessel. For instance, where the vessel is lost the sailors and members of the crew can
not recover their wages; in case of collision, the liability of the agent is limited as aforesaid, and in case of
shipwrecks, those who loan their money on the vessel and cargo lose all their rights and can not claim
reimbursement under the law.

8. Reasons why privileges cannot be done away (Madariaga)

There are two reasons why it is impossible to do away with these privileges, to wit: (1) The risk to
which the thing is exposed, and ( 2 ) the ‘real’ nature of maritime law, exclusively ‘real,’ according to which
the liability of the parties is limited to a thing to which is at mercy of the waves. If the agent is only liable
with the vessel and freight money and both may be lost through the accidents of navigation it is only just that
the maritime creditor have some means of obviating this precarious nature of his rights by detaining the ship,
his only security, before it is lost.

9. Liens that a purchaser of a vessel would be obliged to respect and recognize (Madariaga)
The liens, tacit or legal, which may exist upon the vessel and which a purchaser of the same would be
obliged to respect and recognize — in addition to those existing in favor of the State by virtue of the
privileges which are granted to it by all the laws — pilot, tonnage, and port dues and other similar charges,
the wages of the crew earned during the last voyage as provided in article 646, of the Code of Commerce,
salvage dues under article 842, the indemnification due to the captain of the vessel in case his contract is
terminated on account of the voluntary sale of the ship and the insolvency of the owner as provided in article
608, and other liabilities arising from collisions under article 837 and 838.

[-]

Chin Guan vs. Compania Maritima (GR 45070, 28 November 1938)

En Banc, Concepcion (J): 5 concur

Facts: On 3 July 1933 the agent consignee of Chin Guan in the City of Manila, Ong Ang Chuan, loaded on
the steamship Corregidor for the port of Calivo, Province of Capiz, 60 sacks of “Anchor” flour valued at
P181, belonging to Chin Guan and consigned to him. On 5 June 1933, the steamship Corregidor, under the
command of its captain, Arcadio Castisima, left the port of Manila for that of Calivo, Province of Capiz, and
other southern ports, bringing on board, with other cargo, the 60 sacks of flour aforementioned. On the night
of said date, while the Corregidor was navigating in the waters of Manila Bay, it collided with the steamship
Cebu, which is also owned by the same company. As a result of the collision, the Corregidor sank with all its
cargo. Compañía Maritima and Arcadio Castisima refused to pay Chin Guan the value of the 60 sacks of flour
in spite of Chin Guan’s demands.

An action was instituted by Chin Guan against the Compañía Marítima, owner of the steamship Cebú, which
caused the collision, to recover the value of 60 sacks of flour loaded on the Corregidor. Judgment having
been rendered against the Compania Maritima in the amount of P181 with legal interest from the filing of the
complaint. The latter appealed to the Supreme Court to have said judgment reversed.

The Supreme Court reversed the judgment appealed from without prejudice to the right of Chin Guan to
obtain payment of the value of 60 sacks of flour with legal interest from the amount of the insurance of the
Corregidor, if it was insured; otherwise, from the freights earned during the voyage; without pronouncement
as to costs.

1. Article 837 of the Code of Commerce; as held in G. Urrutia & Co. vs. Baco River Plantation
Co. While it was held in the case of Philippine Shipping Co. vs. Vergara (6 Phil. Rep., 281), that, in
accordance with articles 837 and 826 of the Code of Commerce, the defendant in an action cannot be held
responsible in damages when the ship causing the injury was wholly lost by reason of the accident, the Court
did not apply it in Urrutia vs. Baco River Plantation for the reason that the vessel lost was insured and that the
defendant collected the insurance. That being the case, the insurance money substitutes the vessel and must be
used, so far as necessary, to pay the judgment rendered in the case.

2. Shipowner not liable for damages when ship responsible for collision totally lost
In the case of G. Urrutia & Co. vs. Baco River Plantation Company, it was held that in accordance
with the provisions of article 837 and 826 of the Code of Commerce, the shipowner is not liable in damages
when the ship responsible for the collision has been totally lost. In such case, the amount of the insurance
substitutes for the value of the ship and should be applied to the payment of the judgment rendered in favor of
plaintiff. If the ship was not insured, then the freights earned shall answer for the civil liability of the
shipowner according to article 837.

[-] Urrutia & Co. v. Baco River Plantation, see [- after 200]
[205] Tan Chiong Sian v. Inchausti, see [136]
[206], also [236]

Manila Railroad vs. Macondray (GR L-12475, 21 March 1918)

First Division, Street (J): 6 concur, 2 took no part

Facts: On 6 April 1915, the steamer Seward, owned by Macondray & Co., left Saigon for the Philippines
Islands, encountering a moderately high sea. The ship was laden with a cargo of rice, the weight of which,
taken in connection with the condition of the sea, caused the vessel to spring a leak, and her master felt
compelled to return to Saigon. At this juncture the steamship Hondagua, owned by Manila Railroad Co., was
sighted, whereupon the Seward flew the international code signal “In distress; want immediate assistance.”
The Hondagua changed her course and approached the Seward, the latter in succession displaying the
following signals: “I have sprung a leak;” “I wish to be taken in tow;” “Can you spare hawser;” and “The leak
is gaining rapidly.” In response to signals from the Hondagua the Seward sent her own boat to the Hondagua
for a heaving line, by means for which a hawser was passed from the Hondagua to the Seward and the former,
with the latter in tow, then proceeded at half speed towards Saigon. Shortly afterwards, the Seward signaled
“The leak is gaining rapidly,” after which the Hondagua went full speed ahead, until the arrival of both
vessels at Cape St. James, at the mouth of the Saigon River, where they anchored. The towing occupied some
4 or 5 hours, and covered a distance of 25 or 30 miles. The Seward’s engines were kept working until within
an hour of her arrival at Cape St. James, when the water reached the engine room and put out the fires under
the main boiler, leaving only the auxiliary boiler in use.

An action was instituted by the Manila Railroad Company, upon 24 February 1916, in the CFI of Manila to
recover of Macondray & Co. the sum of P75,000, the alleged value of salvage service rendered on 6 April
1915, by the steamer Hondagua to the steamer Seward. At the hearing, judgment was rendered in favor of
Manila Railroad for the sum of P4,000. From this judgment both parties have appealed, Manila Railroad
insisting that the amount allowed by the lower court is inadequate, Macondray insisting that it is excessive.

The Supreme Court affirmed the trial court’s finding that the value of the vessel when saved was properly
fixed at P20,000. The Court also, under all the circumstances, thought that the sum of P1,000 is adequate for
the service rendered. The Supreme Court affirmed the judgment of the lower court with the modification that
the award must accordingly be reduced to the sum of P1,000, with interest at 6% per annum from 24 February
1916, and for this amount execution will issue. No special finding will be made as to costs of this instance.

1. Salvage of both ship and cargo; salvage allowance

Where a ship and its cargo are saved together, as a result of services carried on with a view to saving
both, the salvage allowance should be apportioned between the ship and cargo in the proportion of their
respective values, the same as in a case of general average; and neither is liable for the salvage due from the
other. (35 Cyc., 770; see also 24 Am. & Eng. Encyc. Law, 2d ed., p. 1219, The Alaska, 23 Fed., 597, The
Colonel Adams, 19 Fed., 795.) The salvor must always bear in mind that the interests in ship and in cargo are
only severally liable, each for its proportionate share of the salvage remuneration. If one who has salved both
ship and cargo brings before the court in his salvage action only for such an amount of reward as the court
finds to be due in respect of the value of that property which is before that court. (Kennedy on Law of Civil
Salvage, p. 186.)

2. Cargo’s share in the burden of the salvage remuneration; The Mary Pleasant
In the case of The Mary Pleasant (Swab., 224), where salvage services had been rendered to the
vessel herself and to the cargo aboard of her, the salvors proceed against the ship alone. According to Dr.
Lushington, the real difficulty is, that there is no proceeding against the cargo. The difficulty arises from the
circumstance, because “when the court considers the services rendered to the ship and cargo, it always
estimates the amount of salvage remuneration according to the value of the ship and cargo taken together. It is
contrary to all principles of justice, if a cargo has received and been benefited by the services so rendered,
that the whole burden of the salvage remuneration should fall on the ship itself.

3. Salvage charge a divisible burden between portions of cargo belonging to different owners;
besides between ship and cargo
Not only is the salvage charge a separate and divisible burden as between ship and cargo, but also as
between portions of the cargo belonging to different owners. It is true that the salvage service was in one
sense entire; but it certainly cannot be deemed entire for the purpose of founding a right against all the
claimants jointly, so as to make them all jointly responsible for the whole salvage; on the contrary, each
claimant is responsible only for the salvage properly due and chargeable on the gross proceeds or sales of his
own property pro rata. It would be made chargeable with the payment of the whole salvage, which would be
against the clearest principles of law on this subject.

4. Rule of liability same as when personal action is instituted by owners against each other
There is no common liability for the amounts due from the ship or other portions of the cargo when
the ship and cargo, or either, are brought into the custody of the court as a result of a proceeding in rem. The
rule of liability must be the same where a personal action in instituted against the owners of the one or the
other. The personal liability of each must be limited to the proportion of the salvage charge which should be
borne by his own property.

5. Liability of shipowner when ship unseaworthy; No recovery against owner of cargo when not
made a party in action
If it had been alleged and proved that the ship was unseaworthy when she put to sea or that the
necessity for the salvage service was due to the negligence of the master, or of the ship’s owner, the latter
might have been liable, at least between himself and the shipper, for the entire cost of the service, and this
possibly might have changed the character of the ship’s liability to the salvor; or, again, if the claim for
compensation had been limited to the value of the service, considered on the simple basis of work and labor
done, it would have been proper to assess the entire cost of the service against the ship owner, because the
service was rendered at the request of the master. But when the claim is put upon the basis of salvage, the
fixing of the compensation goes beyond the limits of a quantum meruit for the work and labor done and
involves the assessment of a bounty. The amount to be allowed upon a claim of this character is in part
determined upon considerations of equity and public policy; and it is not proper to make the ship, or the ship’s
owner, liable for the whole, in the absence of some statutory provision, or other positive rule of law, fixing
such liability on the ship owner. It results that, as the owner of the cargo has not been made a party, no
recovery can be had in this action in regard to the service rendered to the cargo.

6. Circumstances considered in fixing amount of compensation for salvage service

In fixing the amount of compensation to be awarded for salvage service, the principal circumstances
to be taken into consideration are: (1) The labor expended by the salvors in rendering the salvage service; (2)
The promptitude, skill, and energy displayed in rendering the service and saving the property; (3) The value
of the property employed by the salvors in rendering the service, and the danger to which such property was
exposed; (4) The risk incurred by the salvors in rescuing the property from the impending peril; (5) The value
of the property salved; and (6) The degree of danger from which the property was rescued.

7. Circumstances in the present case

Herein, the Hondagua was delayed in her voyage about 9 hours, during 5 of which she was engaged
in towing the Seward. This delay caused her to enter at Iloilo, the port of her destination, in the early hours of
the morning of the day of her arrival instead of the late afternoon of the previous day; but the unloading of her
cargo was not thereby retarded. Considered on the basis of charter party contract under which she was
considered reasonable compensation for her use, including the services of officers and crew. The service
rendered did not involve any further expenditure of labor on the part of the salvors than such as was
commonly incident to working the ship. No unusual display of skill and energy on their part was required;
and the condition of the sea was not such as to involve any special risk either to the Hondagua or her crew.
Finally, the danger from which the Seward was rescued was real, as the ship when taken in tow was
confronted by a serious peril.

8. Purpose of award of salvage service

In determining the amount of the award to be allowed in cases of this kind the aim should be to hold
out to seafaring men a fair inducement to the performance of salvage services without fixing a scale of
compensation so high as to cause vessels in need of such services to hesitate and decline to receive them
because of the ruinous cost. That the salvor is entitled, as of bounty, to something more than mere
remuneration for his own work and the risk incurred by him, is conceded; but certainly the interests of
commerce would not be promoted by the encouragement of exorbitant charges. Towage is not considered a
salvage service of high order of merit; and when the risk is inconsiderable and other conditions favorable, the
compensation to be allowed should be modest in its amount.

[207] also [- after 207]

Standard Oil Co. of New York vs. Lopez Castelo (GR 13695, 18 October 1921)
First Division, Street (J): 2 concur, 1 concur in result

Facts: By contract of charter dated 8 February 1915, Manuel Lopez Castelo, as owner, let the small
interisland steamer Batangueño for the term of 1 year to Jose Lim Chumbuque for use in the conveying of
cargo between certain ports of the Philippine Islands In this contract it was stipulated that the officers and
crew of the Batangueño should be supplied by the owner, and that the charterer should have no other control
over the captain, pilot, and engineers than to specify the voyages that they should make and to require the
owner to discipline or relieve them as soon as possible in case they should fail to perform the duties
respectively assigned to them. While the boat was being thus used by the charterer in the interisland trade, the
Standard Oil Company delivered to the agent of the boat in Manila a quantity of petroleum to be conveyed to
the port of Casiguran, in the Province of Sorsogon. For this consignment a bill of lading of the usual form was
delivered, with the stipulation that freight should be paid at the destination. Said bill of lading contained no
provision with respect to the storage of the petroleum, but it was in fact placed upon the deck of the ship and
not in the hold. While the boat was on her way to the port mentioned, and off the western coast of Sorsogon, a
violent typhoon passed over that region, and while the storm was at its height the captain was compelled for
the safety of all to jettison the entire consignment of petroleum consisting of 200 cases. When the storm
abated the ship made port, and 13 cases of the petroleum were recovered, but the remainder was wholly lost.

To recover the value of the petroleum thus jettisoned but not recovered, an action was instituted by the
Standard Oil Company against the owner of the ship in the CFI of Manila, where judgment was rendered in
favor of Standard Oil. From this judgment Lopez Castelo appealed.

The Supreme Court affirmed the judgment appealed from with modifications, and with costs.

1. Old Rule: Loss of cargo on deck, as a general rule, not considered a general average loss;
Rationale
The cargo (petroleum) was carried upon deck; and it is a general rule, both under the Spanish
Commercial Code and under the doctrines prevailing in the courts of admiralty of England and America, as
well as in other countries, that ordinarily the loss of cargo carried on deck shall not be considered a general
average loss. This is clearly expressed in Rule I of the York-Antwerp Rules, as follows: “No jettison of deck
cargo shall be made good as general average.” The reason for this rule is found in the fact that deck cargo is
in an extra hazardous position and, if on a sailing vessel, its presence is likely to obstruct the free action of the
crew in managing the ship. Moreover, especially in the case of small vessels, it renders the boat top-heavy
and thus may have to be cast overboard sooner than would be necessary if it were in the hold; and naturally it
is always the first cargo to go over in case of emergency. Indeed, in subsection 1 of article 815 of the Code of
Commerce, it is expressly declared that deck cargo shall be cast overboard before cargo stowed in the hold.

2. New Rule: Old rule made during days of sailing vessels, less weighty with reference to present
coastwise trade
The rule, denying deck cargo the right to contribution by way of general average in case of jettison,
was first made in the days of sailing vessels; and with the advent of the steamship as the principal conveyer of
cargo by sea, it has been felt that the reason for the rule has become less weighty, especially with reference to
coastwise trade; and it is now generally held that jettisoned goods carried on deck, according to the custom of
trade, by steam vessels navigating coastwise and inland waters, are entitled to contribution as a general
average loss (24 R. C. L., 1419).

3. Recognition of new rule; Article 809 (3) and Article 855 of the Code of Commerce
Recognition is given to the idea in two different articles in the Spanish Code of Commerce. In the
first it is in effect declared that, if the marine ordinances allow cargo to be laden on deck in coastwise
navigation, the damages suffered by such merchandise shall not be dealt with as particular average (art. 809
[3], Comm. Code); and in the other it is stated that merchandise laden on the upper deck of the vessel shall
contribute in the general average if it should be saved; but that there shall be no right to indemnity if it should
be lost by reason of being jettisoned for the general safety, except when the marine ordinances allow its
shipment in this manner in coastwise navigation (art 855, Comm. Code).

4. Marine Regulations require gasoline (due to its inflammable nature) to be carried on deck, not
in the hold
The Marine Regulations in force in these Islands contain provisions recognizing the right of vessels
engaged in the interisland trade to carry deck cargo; and express provision is made as to the manner in which
it shall be bestowed and protected from the elements (Phil. Mar. Reg. [1913], par. 23) . Indeed, there is one
commodity, namely, gasoline, which from its inflammable nature is not permitted to be carried in the hold of
any passenger vessel, though it may be carried on the deck if certain precautions are taken. There is no
express provision declaring that petroleum shall be carried on deck in any case; but having regard to its
inflammable nature and the known practices of the interisland boats, it cannot be denied that this commodity
also, as well as gasoline, may be lawfully carried on deck in our coastwise trade.

5. Reason for adopting more liberal rule as to deck cargo on vessels used in coastwise trade than
those upon for ordinary ocean traffic
The reason for adopting a more liberal rule with respect to deck cargo on vessels used in the
coastwise trade than upon those used for ordinary ocean borne traffic is to be found of course in the
circumstance that in the coastwise trade the boats are small and voyages are short, with the result that the
coasting vessel can use more circumspection about the condition of the weather at the time of departure; and
if threatening weather arises, she can often reach a port of safety before disaster overtakes her. Another
consideration is that the coastwise trade must as a matter of public policy be encouraged, and domestic traffic
must be permitted under such conditions as are practically possible, even if not altogether ideal.

6. “Naviero” construed
There is a discrepancy between the meaning of naviero, in article 586 of the Code of Commerce,
where the word is used in contradistinction to the term “owner of the vessel” (propietario), and in article 587
where it is used alone, and apparently in a sense broad enough to include the owner. Fundamentally the word
“naviero” must be understood to refer to the person undertaking the voyage, who in one case may be the
owner and in another the charterer. Herein, however, this is not vital to the present discussion.

7. Owner of vessel civilly liable for the acts of the captain

It is universally recognized that the captain is primarily the representative of the owner; and article
586 of the Code of Commerce expressly declares that both the owner of the vessel and the naviero, or
charterer, shall be civilly liable for the acts of the master. By the express provision of the Code, the owner of
the vessel is civilly liable for the acts of the captain; and he can only escape from this civil liability by
abandoning his property in the ship and any freight that he may have earned on the voyage (arts. 587, 588,
Code of Comm.).

8. Duty of the captain to initiate proceedings as to gross average; Captain remiss in duty in
present case
By article 852 of the Code of Commerce-the captain is required to initiate the proceedings for the
adjustment, liquidation, and distribution of any gross average to which the circumstances of the voyage may
have given origin; and it is therefore his duty to take the proper steps to protect any shipper whose goods may
have been jettisoned for the general safety. In ordinary practice this would be primarily accomplished by
requiring the consignees of other cargo, as a condition precedent to the delivery of their goods to them, to
give a sufficient bond to respond for their proportion of the general average. Herein, the captain of the vessel
did not take those steps; and the failure of the captain to take those steps gave rise to a liability for which the
owner of the ship must answer.

9. Liquidation not a condition precedent to liability of shipowner to shipper whose property has
been jettisoned
Article 852 and related provisions are intended to supply the shipowner, acting of course in the
person of the captain, with a means whereby he may escape bearing the entire burden of the loss and may
distribute it among all the persons who ought to participate in sharing it; but the making of the liquidation is
not a condition precedent to the liability of the shipowner to the shipper whose property has been jettisoned.

10. Right of shipowner or shipper to maintain action against captain; Shipper may go at once upon
the owner
If the captain does not comply with the article relating to the adjustment, liquidation, and distribution
of the general average, the next article (852) gives to those concerned — whether shipowner (naviero) or
shipper — the right to maintain an action against the captain for indemnification for the loss; but the
recognition of this right of action does not by any means involve the suppression of the right of action which
is elsewhere recognized in the shipper against the ship’s owner. The shipper may go at once upon the owner
and the latter, if so minded, may have his recourse for indemnization against his captain.

11. Shipper may go at once upon the owner

The owner of the ship ordinarily has vastly more capital embarked upon a voyage than has any
individual shipper of cargo. Moreover, the owner of the ship, in the person of the captain, has complete and
exclusive control of the crew and of the navigation of the ship, as well as of the disposition of the cargo at the
end of the voyage. It is therefore proper that any person whose property may have been cast overboard by
order of the captain should have a right of action directly against the ship’s owner for the breach of any duty
which the law may have imposed on the captain with respect to such cargo.

12. Intent of the Code

The evident intention of the Code, taken in all of its provisions, is to place the primary liability upon
the person who has actual control over the conduct of the voyage and who has most capital embarked in the
venture, namely, the owner of the ship, leaving him to obtain recourse, as it is very easy to do, from other
individuals who have been drawn into the venture as shippers.

13. Amount to be recovered

The total value of the jettisoned cargo, belonging partly to Standard Oil and partly to another shipper,
was P880.35, of which P719.95 represented the value of Standard Oil’s petroleum. Upon the apportionment
of this total loss among the different interests involved, to wit, value of ship, value of cargo, and the earned
but lost freight, it appears that the amount of the loss apportionable to Standard Oil is P11.28. Deducting this
from the value of the petroleum, the result, is the amount of P708.67, which is the amount for which judgment
should be given.

[-] G. Martini Ltd. v. Macondray & Co. , see

[54] [-] Standard Oil v. Lopez Castelo, see [207]
[208]

Jarque vs. Smith Bell (GR 32986, 11 November 1930)

En Banc Ostrand (J): 5 concur

Facts: Francisco Jarque was the owner of the motorboat Pandan and held a marine insurance policy for the
sum of P45,000 on the boat, the policy being issued by the National Union Fire Insurance Company and
according to the provisions of a “rider” attached to the policy, the insurance was against the “absolute total
loss of the vessel only.” On 31 October 1928, the ship ran into very heavy sea off the Island of Ticlin, and it
became necessary to jettison a portion of the cargo. As a result of the jettison, the National Union Fire
Insurance Company was assessed in the sum of P2,610.86 as its contribution to the general average. The
insurance company, insisting that its obligation did not extend beyond the insurance of the “absolute total loss
of the vessel only, and to pay proportionate salvage of the declared value,” refused to contribute to the
settlement of the general average.

Jarque instituted the present action, and after trial the court below rendered judgment in favor of Jarque and
ordered the National Union Fire Insurance Company to pay the former the sum of P2,610.86 as its part of the
indemnity for the general average brought about by the jettison of cargo. The insurance company appealed to
the Supreme Court.

The Supreme Court affirmed the appealed judgment with the costs against Union Fire Insurance Co.

1. Contents of the insurance contract: clause

 The insurance contract is printed in the English common form of marine policies. One of the clauses
of the document originally read as follows: “Touching the Adventures and Perils which the said National
Union Fire Insurance Company is content to bear, and to take upon them in this Voyage; they are of the Seas,
Men-of-War, Fire, Pirates, Thieves, Jettison, Letters of Mart and Countermart, Surprisals, and Takings at Sea.
Arrests, Restraints and Detainments, of all Kings, Princes and People of what Nation, Condition or Quality
soever; Barratry of the Master and Marines, and of all other Perils, Losses and Misfortunes, that have or shall
come to the Hurt, Detriment, or Damage of the said Vessel or any part thereof; and in case of any Loss or
Misfortunes, it shall be lawful for the Assured, his or their Factors, Servants, or assigns, to sue, labour and
travel for, in and about the Defence. Safeguard, and recovery of the said Vessel or any part thereof, without
Prejudice to this Insurance; to the Charges whereof the said Company, will contribute, according to the rate
and quantity of the sum herein assured. And it is agreed that this Writing or Policy of Insurance shall be of as
much force and Virtue as the surest Writing or Policy of Insurance made in LONDON.”

2. Contents of the insurance ocntract: rider

Attached to the policy over and above the said clause is a “rider” containing typewritten provisions,
among which appears in capitalized type the following clause: “AGAINST THE ABSOLUTE TOTAL LOSS
OF THE VESSEL ONLY, AND TO PAY PROPORTIONATE SALVAGE CHARGES OF THE DECLARED
VALUE.” At the bottom of the same rider following the typewritten provisions therein set forth are the
following words: “Attaching to and forming part of the National Union Fire Insurance Co., Hull Policy No.
1055.”

3. Written portion prevails over printed portion, when repugnance exists between them
In case repugnance exists between written and printed portions of a policy, the written portion
prevails, and there can be no question that as far as any inconsistency exists, the above-mentioned typed
“rider” prevails over the printed clause it covers. Section 291 of the Code of Civil Procedure provides that
“when an instrument consists partly of written words and partly of a printed form and the two are
inconsistent, the former controls the latter.”

4. Liability for contribution to general average based on quasi-contract implied by law, not to
contractual stipulations
In the absence of positive legislation to the contrary, the liability of the defendant insurance company
on its policy would, perhaps, be limited to “absolute loss of the vessel only, and to pay proportionate salvage
of the declared value.” But the policy was executed in this jurisdiction and “warranted to trade within the
waters of the Philippine Archipelago only.” Here the liability for contribution in general average is not based
on the express terms of the policy, but rests upon the theory that from the relation of the parties and for their
benefit, a quasi contract is implied by law.

5. Article 859 of the Code of Commerce; in force, mandatory

Article 859 of the Code of Commerce, still in force, provides “the underwriters of the vessel, of the
freight, and of the cargo shall be obliged to pay for the indemnity of the gross average in so far as is required
of each one of these objects respectively.” The article is mandatory in its terms, and the insurers, whether for
the vessel or for the freight or for the cargo, are bound to contribute to the indemnity of the general average.
And there is nothing unfair in that provisions; it simply places the insurer on the same footing as other
persons who have an interest in the vessel, or the cargo therein, at the time of the occurrence of the general
average and who are compelled to contribute.

6. Jettison of cargo necessary to save ship; Benefit inured to the underwriter

The ship was in grave peril and that the jettison of part of the cargo was necessary. If the cargo was in
peril to the extent of call for general average, the ship must also have been in great danger, possibly sufficient
to cause its absolute loss. The jettison was therefore as much to the benefit of the underwriter as to the owner
of the cargo. If no jettison had taken place and if the ship by reason thereof had foundered, the underwriter’s
loss would have been many times as large as the contribution now demanded.

[209]

Taxicab Operators v. The Board of Transportation [GR L-59234, 30 September 1982]

En Banc, Melencio-Herrera (p): 12 concur, 2 concur in the result

Facts: Taxicab Operators of Metro Manila, Inc. (TOMMI) is a domestic corporation composed of taxicab
operators, who are grantees of Certificates of Public Convenience to operate taxicabs within the City of
Manila and to any other place in Luzon accessible to vehicular traffic. Ace Transportation Corporation and
Felicisimo Cabigao are two of the members of TOMMI, each being an operator and grantee of such
certificate of public convenience.

On 10 October 1977, Board of Transportation (BOT) issued Memorandum Circular 77-42 which phases out
old and dilapidated taxis; refusing registration to taxi units within the National Capitol Region having year
models over 6 years old. Pursuant to the above BOT circular, Director of the Bureau of Land Transportation
(BLT) issued Implementing Circular 52, dated 15 August 1980, instructing the Regional Director, the MV
Registrars and other personnel of BLT, all within the NCR, to implement said Circular, and formulating a
schedule of phase-out of vehicles to be allowed and accepted for registration as public conveyances. In
accordance therewith, cabs of model 1971 were phase-out in registration year 1978; those of model 1972, in
1979; those of model 1973, in 1980; and those of model 1974, in 1981.

On 27 January 1981, petitioners filed a Petition with the BOT (Case 80-7553), seeking to nullify MC 77-42
or to stop its implementation; to allow the registration and operation in 1981 and subsequent years of taxicabs
of model 1974, as well as those of earlier models which were phased-out, provided that, at the time of
registration, they are roadworthy and fit for operation. On 16 February 1981, petitioners filed before the BOT
a “Manifestation and Urgent Motion”, praying for an early hearing of their petition. The case was heard on 20
February 1981. On 28 November 1981, petitioners filed before the same Board a “Manifestation and Urgent
Motion to Resolve or Decide Main Petition” praying that the case be resolved or decided not later than 10
December 1981 to enable them, in case of denial, to avail of whatever remedy they may have under the law
for the protection of their interests before their 1975 model cabs are phased-out on 1 January 1982.
Petitioners, through its President, allegedly made personal follow-ups of the case, but was later informed that
the records of the case could not be located. On 29 December 1981, the present Petition was instituted.

The Supreme Court denied the writs prayed for and dismissed the petition; without costs.

1. Procedural and Substantive Due Process; Statutory Construction: “May”

PD 101 grants to the Board of Transportation the power to fix just and reasonable standards,
classification, regulations, practices, measurements, or service to be furnished, imposed, observed, and
followed by operators of public utility motor vehicles. Section 2 of said Decree provides procedural
guidelines for said agency to follow in the exercise of its powers. Leeway was accorded the Board giving it a
wide range of choice in gathering necessary information or data in the formulation of any policy, plan or
program. It is not mandatory that it should first call a conference or require the submission of position papers
or other documents from operators or persons who may be affected, this being only one of the options open to
the Board, which is given wide discretionary authority.

2. Dispensing with a public hearing prior to issuance of Circulars not violative of procedural due
process
Dispensing with a public hearing prior to the issuance of the Circulars is not violative of procedural
due process. Previous notice and hearing as elements of due process, are constitutionally required for the
protection of life or vested property rights, as well as of liberty, when its limitation or loss takes place in
consequence of a judicial or quasi-judicial proceeding, generally dependent upon a past act or event which
has to be established or ascertained. It is not essential to the validity of general rules or regulations
promulgated to govern future conduct of a class or persons or enterprises, unless the law provides otherwise.
(Central Bank vs. Cloribel and Banco Filipino)

3. Adoption of a reasonable standard; Requirement of due process met

It is impractical to subject every taxicab to constant and recurring evaluation to determine its road-
worthiness, not to speak of the fact that it can open the door to the adoption of multiple standards, possible
collusion, and even graft and corruption. A reasonable standard must be adopted to apply to all vehicles
affected uniformly, fairly, and justly. The span of six years supplies that reasonable standard. The product of
experience shows that by that time taxis have fully depreciated, their cost recovered, and a fair return on
investment obtained. They are also generally dilapidated and no longer fit for safe and comfortable service to
the public specially considering that they are in continuous operation practically 24 hours everyday in three
shifts of eight hours per shift. With that standard of reasonableness and absence of arbitrariness, the
requirement of due process has been met.

4. Equal Protection of the Law; Substantial distinction; Rationale of initial implementation in

Metro Manila
Equal protection clause does not imply that the same treatment be accorded all and sundry. It applies
to things or persons identically or similarly situated. It permits of classification of the object or subject of the
law provided classification is reasonable or based on substantial distinction, which make for real differences,
and that it must apply equally to each member of the class. What is required under the equal protection clause
is the uniform operation by legal means so that all persons under identical or similar circumstance would be
accorded the same treatment both in privilege conferred and the liabilities imposed.The challenged Circulars
satisfy the foregoing criteria. The Circular was enforced initially in Metro Manila is that taxicabs in said
metropolis, compared to those of other places, are subjected to heavier traffic pressure and more constant use
(common knowledge). Considering that traffic conditions are not the same in every city, a substantial
distinction exists so that infringement of the equal protection clause can hardly be successfully claimed. The
implementation of the Circular outside Metro Manila was also envisioned in MC 77-42 as its provision
provides that “for an orderly implementation of this Memorandum Circular, the rules … shall immediately be
effective in Metro Manila. Its implementation outside Metro Manila shall be carried out only after the project
has been implemented in Metro Manila and only after the date has been determined by the Board.” Further,
the implementation of the Circulars in Cebu City is already being effected, with the BOT in the process of
conducting studies regarding the operation of taxicabs in other cities.

5. Rationale behind exercise of police power

The overriding consideration is the safety and comfort of the riding public from the dangers posed by
old and dilapidated taxis. The State, in the exercise of its police power, can prescribe regulations to promote
the health, morals, peace, good order, safety and general welfare of the people. It can prohibit all things
hurtful to comfort, safety and welfare of society. It may also regulate property rights. The necessities
imposed by public welfare may justify the exercise of governmental authority to regulate even if thereby
certain groups may plausibly assert that their interests are disregarded.

[210]

Napocor vs. CA (GR 113103, 13 June 1997)

Growth Link vs. CA (GR 116000)
First Division, Hermosisima Jr. (J): 3 concur, 1 on leave

Facts: Growth Link is a duly registered domestic corporation while NPC is a duly organized government
corporate entity while the individual Conrado D. del Rosario and Marcelino Ilao are officers and/or members
of the NYC Board of Directors, except that Conrado Del Rosario and Crispin T. Ubaldo are no longer
connected with NPC.

As a matter of procedure, NPC dealt only with accredited suppliers and NPC recognized Growth Link as duly
accredited. At the start in 1982 Growth Link complied with the accreditation requirements of NPC by
submitting voluminous documents like the articles of incorporation of GLI, corporate profile, appointment of
Growth Link as exclusive supplier and distributor of spare parts by foreign manufacturers, suppliers’
warranties, catalogues, company profile and other information about foreign suppliers. And, more
importantly, it did not anymore undergo the same process and subsequent biddings that Growth Link
participated in. So that the accreditation was a continuing one and not on a per transaction basis. Since 1982
when, as admitted, Growth Link was pre-qualified as NPC supplier, up to the time in 1987 when NPC refused
to do business with the former, the latter had numerous sales through public biddings with a total value of
over P60 million. Growth Link was the lowest bidder and the most advantageous bidder in several other
biddings but NPC did not issue the awards. On 13 February 1987 NPC announced its decision to stop
transacting business with Growth Link and was blacklisted due to violation of the conditions of the contract,
i.e. that Growth Link supplied second hand piston skirts, that piston rings supplied by it did not reach the
required running hours, and that Growth Link supplied exhaust valve bodies manufactured by Fuji Diesel Ltd.
which was not licensed by SEMT. Growth Link refuted the charges in several letters and was asking for
opportunity to be heard at a formal hearing on the request for reconsideration but same was not acted upon by
NPC.

Growth Link filed a petition for mandamus with preliminary injunction and damages with the trial court on 8
February 1988. The trial court resolved Growth Link’s application for preliminary mandatory injunction in an
order dated 3 June 1988 ordering that NPC, during the pendency of said motion for reconsideration and while
the same is unresolved finally by the Court, to temporarily lift the suspension of Growth Link as duly
accredited NPC supplier, cancel its name from NPC’s blacklist, and allow Growth Link to participate and/or
submit its bid proposals at NPC biddings, upon the same bond of P2,245,821.53 previously filed by Growth
Link; finding that the NPC condemned Growth Link as a blacklisted bidder and supplier without hearing and
thus deprived it of its rights without due process. Napocor’s motion for reconsideration of the order was
denied on 27 September 1988. After trial on the merits, the court a quo rendered the decision dated 10
September 1991 in favor of Growth Link. The trial court found the NPC guilty of gross evident bad faith in its
dealings with Growth Link as its duly accredited supplier. Consequently, it ordered the NPC and its officers
and members of the Board of Directors, to jointly and severally pay Growth Link (a) P230,000.00
representing the cost of the replaced piston skirts under PO 086653 plus 12% interest per annum from 9 April
1986 until fully paid; (b) P16,870.00 which was the amount deducted by NPC from Growth Link’s
outstanding collectibles, plus 12% interest per annum from 18 November 1985 until fully paid; (c)
P144,000.00 for payment of items delivered under PO 095435 plus 12% interest per annum from 13
November 1986 until fully paid; (d) P27,650.00 for payment of items delivered under PO 096345 plus 12%
interest per annum from 4 April 1987 until fully paid; (e) P182,070.00 for payment of items delivered under
PO 096626 plus 12% interest per annum from 4 April 1987 until fully paid; (f) P176,356.00 representing
unrealized commission on the cancelled Indent Order 08114 dated 24 May 1985 plus 12% interest per annum
from November 1985 until fully paid; (g) P1,249,745.00 representing unrealized commission on the Foreign
Inquiry F2c84-3/5-1027 and 1028Tr for Pielstick Engine Spares, plus 12% interest per annum from
September 1986 until fully paid; (h) P6,216,583.00 representing unrealized commissions on various items
bidded where Growth Link was the lowest bidder but which was not awarded by NPC to it, Plus 12% interest
per annum from July 1986 until fully paid; (i) P1,419,853.00 representing unpaid commission from the
disregarded lowest bid of Growth Link’s principal on NPC Foreign Inquiry FPS85-11/26-12AA, FPS85-
11/26-121AA and FPS85-11/ 6-005AA, plus 12% interest per annum from October 1987 until fully paid; (j)
P2,000,000.00 for compensatory damages suffered by Growth Link due to loss of business relationship and
standing in the Philippines and abroad; (k) P1,500,000.00 for moral and exemplary damages suffered by
Growth Link; (l) P30,000.00 plus 30% of the principal amount recoverable, as and for attorney’s fees; (m)
P40,000.00 as litigation expenses (premiums paid on the injunction bond, etc.); and (n) Costs of suit.

Refusing to concede its solidary liability for the aforegoing amounts, the NPC, and its officers and members
of its Board of Directors appealed the trial court’s decision to the Court of Appeals. The respondent Court of
Appeals in effect affirmed the trial court’s findings of gross evident bad faith on the part of NPC. But while
the appellate court affirmed the trial court’s finding of gross evident bad faith on the part of NPC, it reversed
the trial court insofar as it found NPC liable for amounts claimed by Growth Link to be unrealized
commissions properly accruing to them had the NPC recognized them as the lowest and most advantageous
bidder under several foreign inquiries. As to the awards for compensatory, moral and exemplary damages, the
Court of Appeals found valid basis therefor under the circumstances or these consolidated cases, but the
appellate court was no less struck by the enormity of the amounts awarded by the trial court as damages. Thus
it reduced the same to to P1,000,000.00 for compensatory damages and to P500,000.00 for moral and
exemplary damages. The appellate court overturned the finding that the officers and members of the Board of
Directors of the NPC should be made jointly and solidarily liable with the NPC, inasmuch as they were sued
in their official capacities. From the Decision of the Court of Appeals, both Growth Link and the NPC and its
officers and members of the Board of Directors.

The Supreme Court dismissed the instant consolidated petitions for lack of merit; without pronouncement as
to costs.

1. Issue on amount of attorney’s fees granted waived

Herein, NPC never assigned the issue of the exorbitant amount awarded to Growth Link as and by
way of attorney’s fees, as an error on appeal. Thus, insofar as the amount of the attorney’s fees granted by the
trial court is concerned, the same must be deemed no longer open to modification, much less, reduction, the
person supposedly aggrieved thereby having resonantly been silent on this issue in its appeal before the
appellate court.

2. Attorney’s fees granted may be huge by ordinary standards, remains warranted

At any rate, the Supreme Court court, in at least two (2) occasions, has allowed an award of 20% to
25% of the total indebtedness involved in the litigation. Herein, Growth Link prayed for and was awarded by
the trial court, the amount of P30,000.00 and 30% of the amount recoverable, as and by way of attorney’s
fees. While said amount may itself be huge by ordinary standards, the Court believes that the same is
warranted when tested against the criteria that serve as reglementary guide for the courts to determine the
proper amount of attorney’s fees due the winning party.

3. Grant of exemplary damages a legal justification for the award of attorney’s fees
Anent the claim of NPC that the decision of the trial court does not contain any discussion of the
basis for the award of attorney’s fees, suffice it to say that the trial court undisputedly awarded exemplary
damages, which award is itself a legal justification, under Article 2208 17 of the Civil Code, for the award of
attorney’s fees.

4. Technicalities that defeat substantial justice cannot deprive parties of statutory right to appeal
Technicalities that defeat substantial justice are, by the Supreme Court’s policy, an unpreferred basis
to deprive parties of their statutory right to appeal a decision that is fatally flawed in certain respects. Herein,
it cannot be said that the decision of the trial court should be deemed final and executory insofar as NPC’s
officers and members of the Board of Directors are concerned, because they did not appeal the trial court’s
decision. The caption of NPC’s Notice of Appeal and Motion for Reconsideration, which state, “NATIONAL
POWER CORPORATION, ET AL., Respondents.” Significantly, Growth Link’s Opposition to the Motion for
Reconsideration made reference to the NPC officers and members of the Board of Directors, in its arguments.
5. Solidarily liability of NPC and its officers and members of the Board of Directors patently
baseless
The finding of solidary liability among the NPC and its officers and members of the Board of
Directors, is patently baseless. The decision of the trial court contains no such allegation, finding or
conclusion regarding particular acts committed by said officers and members of the Board of Directors that
show them to have been individually guilty of unmistakable malice, bad faith, or ill-motive in their personal
dealings with Growth Link. In fact, it was only in the dispositive portion of the decision of the court a quo
that solidary liability as such was first mentioned.

6. Officers and board members merely nominal parties; NPC alone liable for its corporate acts as
duly authorized by its officers and directors
NPC’s officers and members of the Board of Directors were sued merely as nominal parties in their
official capacities as such. They were impleaded by Growth Link not in their personal capacities as
individuals but in their official capacities as officers and members of the Board of Directors through whom
the NPC conducts business and undertakes its operations pursuant to its avowed corporate purposes.
Therefore, as a bonafide government corporation, NPC should alone be liable for its corporate acts as duly
authorized by its officers and directors. There was nothing in Growth Link’s petition nor in the mass of
evidence proffered, that established the factual or legal basis to hold the officers and members of the Board of
Directors of the NPC jointly and severally liable with the NPC for the damages suffered by Growth Link
because of acts of gross evident bad faith on the part of the NPC as a corporate entity acting through its
officers and directors.

7. Corporation vested with separate distinct personality from those persons composing it;
Piercing the veil of corporate fiction
A corporation is invested by law with a separate personality, separate and distinct from that of the
persons composing it as well as from any other legal entity to which it may be related. A corporation is an
artificial person and can transact its business only through its officers and agents. Necessarily, somebody has
to act for it. The separate personality of the corporation may be disregarded, or the veil of corporate fiction
pierced and the individual stockholders may be personally liable to obligations of the corporation only when
the corporation is used as a cloak or cover for fraud or illegality, or to work an injustice, or where necessary to
achieve equity or when necessary for the protection of creditors.

8. Irreparable damage wrought on Growth Link’s business and reputation calls for reparation
The Court empathized with Growth Link, especially with its owner-president, Teodoro Miguel,
whose sincere testimony as to the irreparable damage wrought on his business and personal reputation by
NPC’s act of blacklisting his company, does call for some reparation in the form of substantial damages.

9. Substantial damages do not translate into excessive damages

The award of damages as ‘well as attorney’s fees lies upon the discretion of the court in the context of
the facts and circumstances of each case, and this judicial discretion is largely addressed towards tempering
any tendency to award excessive damages so much so that it stands vulnerable to and actually magnetizes,
attacks as to its being a result of passion, prejudice or corruption. Herein, P2,000,000.00 as compensatory
damages and P1,500,000.00 as moral and exemplary damages, are too much. While NPC may be accountable
for lost profits that Growth Link may have gained from its dealings with the NPC itself, NPC cannot be made
to bear the burden of answering for what other profits that Growth Link may have earned from other contracts
with other companies. NPC may have accredited Growth Link as a supplier, but it did not thereby become
Growth Link’s insurer for all and any profitable contracts that Growth Link may obtain.

10. Non-denial of allegation in the complaint results in admissions thereof; Exceptions

The general rule is that non-denial of allegations in the complaint results in admissions thereof. This
rule, however, is, just like any other rule, not absolute and correspondingly admits of exceptions. Thus, in
spite of the presence of judicial admissions in a party’s pleading, the trial court is still given leeway to
consider other evidence presented. This rule should apply with more reason when the parties had agreed to
submit an issue for resolution of the trial court on the basis of the evidence presented.

11. Admissions not necessarily evidence

Statements made in an Answer are merely statements of fact which the party filing it expects to
prove, but they are not evidence. With more reason, statements made in the complaint, or in this case, in the
Petition for Mandamus with Preliminary Mandatory Injunction and Damages, which are not directly refuted
in the Answer, are deemed admissions but neither are they evidence that will prevail over documentary
proofs.

12. Discretion of the NPC to reject any or all bids

Judicial admissions cannot prevail over the rules and regulations governing the bidding for NPC
contracts, which necessarily and inherently include the reservation by the NPC of its right to reject any or all
bids. This discretion is of such wide latitude that the courts will not generally interfere with the exercise
thereof by the government, unless it is apparent that it is used as a shield to a fraudulent award or an
unfairness or injustice is clearly shown. Herein, by its own assertion, Growth Link has been a regular bidder
for NPC contracts. It cannot deny, much less pretend ignorance of, the reserved discretion of the NPC to
accept or reject any bid. It is not NPC’s ministerial duty to make an automatic award to Growth Link even if it
was the lowest bidder. Mandamus will not lie to compel the acceptance of the bid of an unsuccessful bidder.

13. Section 393 of the National Accounting and Auditing Manual; Reservation of rights to reject
any or all bids
Section 393 (Reservation of rights to reject any or all bids)of the National Accounting and Auditing
Manual provides that “The contract will be awarded to the contractor whose proposal appears to be the most
advantageous to the Government, but the right shall be reserved to reject any or all bids, to waive any
informality in the bids received, and to accept or reject any items of any bid unless such bid is qualified by
specific limitations; also to disregard the bid of any failing bidder, known as such to the agency head or
director, or any bid which is obviously unbalanced or below what the work can be done for. The right shall
also be reserved to reject the bid of a bidder who has previously failed to perform properly or complete on
time contracts of a similar nature, or a bid of a bidder who is not in a position to perform the contract. In fine,
NAPOCOR has the right to reject any and all bids, not only of [Growth Link] but of all other bidders, as well,
if warranted.”

14. Change of theory as to unrealized commissions proceeding from facts founded on contract to
facts establishing culpability under quasi-delict
Growth Link’s claims for unrealized commissions are made proceeding not from facts founded on
contract but from facts establishing NPC’s culpability under quasi-delict. There was no such allegation in
Growth Link’s petition, no factual finding in the decision of the trial court and no error assigned before the
Court of Appeals, as to anything about NPC’s liability for unrealized commissions based on quasi-delict. The
change of theory at a belated stage of the proceedings is not surprising, because Growth Link indeed has no
perfected contract whatsoever to show in order to prove that its claims for unrealized commissions are
anything more than an attempt to collect on mere proposal-bids that may have been the lowest and most
advantageous in their class but nonetheless remain subject to the explicit reservation by the NPC of its
prerogative to reject any or all bids.

[211]

GMCR vs. Bell Telecoms [G.R. No. 126496. April 30, 1997.]
Kintanar vs. Bell Telecoms [G.R. No. 126526]
First Division, Hermosisima Jr. (J): 2 concur, 1 concur in result, 1 took no part.
Facts: On 19 October 1993, Bell Telecommunication Philippines, Inc. (BellTel) filed with the National
Telecommunications Commission (NTC) an Application for a Certificate of Public Convenience and
Necessity to Procure, Install, Operate and Maintain Nationwide Integrated Telecommunications Services and
to Charge Rates Therefor and with Further Request for the Issuance of Provisional Authority (NTC Case 93-
481). At the time of the filing of this application, private respondent BellTel had not been granted a legislative
franchise to engage in the business of telecommunications service. Since BellTel was, at that time, an
unenfranchised applicant, it was excluded in the deliberations for service area assignments for local exchange
carrier service Only GMCR, Inc., Smart Communications, Inc., Isla Communications Co., Inc. and
International Communications Corporation, among others, were beneficiaries of formal awards of service
area assignments in April and May 1994. On 25 March 1994, RA 7692 was enacted granting BellTel a
congressional franchise which gave private respondent BellTel the right, privilege and authority to carry on
the business of providing telecommunications services. On 12 July 1994, BellTel filed with the NTC a second
Application (NTC Case 94-229) praying for the issuance of a Certificate of Public Convenience and
Necessity for the installation, operation and maintenance of a combined nationwide local toll (domestic and
international) and tandem telephone exchanges and facilities using wire, wireless, microwave radio, satellites
and fiber optic cable with Public Calling Offices (PCOs) and very small aperture antennas (VSATs) under an
integrated system. In the second application, BellTel proposed to install 2,600,000 telephone lines in 10 years
using the most modern and latest state-of-the-art facilities and equipment and to provide a 100% digital local
exchange telephone network. BellTel moved to withdraw its earlier application docketed as NTC Case 93-
481. In an Order dated 11 July 1994, this earlier application was ordered withdrawn, without prejudice.
BellTel’s second application was opposed by GMCR, Inc., Smart Communications, Inc., Isla
Communications Co., Inc. and International Communications Corporation, Capitol Wireless, Inc., Eastern
Misamis Oriental Telephone Cooperative, Liberty Broadcasting Network, Inc., Midsayap Communication,
Northern Telephone, PAPTELCO, Pilipino Telephone Corporation, Philippine Global Communications, Inc.,
Philippine Long Distance Telephone Company, Philippine Telegraph and Telephone Corporation, Radio
Communications of the Philippines, Inc. and Extelcom and Telecommunications Office. On 20 December
1994, BellTel completed the presentation of its evidence-in-chief. On 21 December 1994, BellTel filed its
Formal Offer of Evidence together with all the technical, financial and legal documents in support of its
application. Pursuant to its rules, the application was referred to the Common Carriers Authorization
Department (CCAD) for study and recommendation. On 6 February 1995, the CCAD submitted to Deputy
Commissioner Fidelo Q. Dumlao, a Memorandum manifesting that “based on technical documents submitted,
BellTel’s proposal is technically feasible.” Subsequently, the chief of the Rates and Regulatory Division of
CCAD, conducted a financial evaluation of the project proposal of BellTel. On 29 March 1995, it was
declared that BellTel has the financial capability to support its proposed project at least for the initial 2 years.
Agreeing with the findings and recommendations of the CCAD, NTC Deputy Commissioners Fidelo Dumlao
and Consuelo Perez adopted the same and expressly signified their approval thereto. In view of the favorable
recommendations by the CCAD and two members of the NTC, the Legal Department thereof prepared a
working draft 10 of the order granting provisional authority to BellTel. The said working draft was initialed
by Deputy Commissioners Fidelo Q. Dumlao and Consuelo Perez but was not signed by Commissioner
Simeon Kintanar.

Anxious over the inaction of the NTC in the matter of its petition praying for the issuance of a provisional
authority, BellTel filed on 5 May 1995 an Urgent Ex-Parte Motion to Resolve Application and for the
Issuance of a Provisional Authority. No action was taken by the NTC on the aforecited motion. Thus, on 12
May 1995, BellTel filed a Second Urgent Ex-Parte Motion reiterating its earlier prayer. In an Order dated 16
May 1995, signed solely by Commissioner Simeon Kintanar, the NTC, instead of resolving the two pending
motions of BellTel, set the said motions for a hearing on 29 May 1995. On said date, however, no hearing was
conducted as the same was reset on 13 June 1995. On the latter date, BellTel filed a Motion to Promulgate
(Amending the Motion to Resolve), praying for the promulgation of the working draft of the order granting a
provisional authority to BellTel, on the ground that the said working draft had already been signed or initialed
by Deputy Commissioners Dumlao and Perez who, together, constitute a majority out of the three
commissioners composing the NTC. On 4 July 1995, the NTC denied the said motion in an Order solely
signed by Commissioner Simeon Kintanar.

On 17 July 1995, BellTel filed with the Supreme Court a Petition for Certiorari, Mandamus and Prohibition
seeking the nullification of the aforestated Order dated 4 July 1995 denying the Motion to Promulgate. On 26
July 1995, the Court issued a Resolution referring said petition to the Court of Appeals for proper
determination and resolution pursuant to Section 9, par. 1 of BP 129. On 23 September 1996, the Court of
Appeals promulgated decision, granting BellTel’s petition for a writ of Certiorari and Prohibition, setting
aside NTC Memorandum Circulars 1-1-93 and 3-1-93 for being contrary to law. BellTel’s petition for
mandamus was also granted, directing the NTC to meet and banc and to consider and act on the draft order
within 15 days. Chairman Kintanar and the opposing telecommunications companies filed their separate
petitions for review.

The Supreme Court dismissed the instant consolidated petitions for lack of merit; with costs against
petitioners.

1. NTC is a collegial body; Vote requirement

NTC is a collegial body requiring a majority vote out of the three members of the commission in
order to validly decide a case or any incident therein. Corollarily, the vote alone of the chairman of the
commission, absent the required concurring vote coming from the rest of the membership of the commission
to at least arrive at a majority decision, is not sufficient to legally render an NTC order, resolution or decision.

2. Commissioner Kintanar is not the National Telecommunications Commission

Commissioner Kintanar is not the National Telecommunications Commission. He alone does not
speak for and in behalf of the NTC. The NTC acts through a three-man body, and the three members of the
commission each has one vote to cast in every deliberation concerning a case or any incident therein that is
subject to the jurisdiction of the NTC. Having been organized by EO 146 as a three-man commission, the
NTC is a collegial body and was a collegial body even during the time when it was acting as a one-man
regime.

3. Historical milieu of the NTC: CA 146 as amended by RA 2677

On 17 November 1936, the National Assembly passed Commonwealth Act 146 which created the
Public Service Commission (PSC). While providing that the PSC shall consist of a Public Service
Commissioner and a Deputy Commissioner, the law made it clear that the PSC was not a collegial body by
stating that the Deputy Commissioner could act only on matters delegated to him by the Public Service
Commissioner. As amended by RA 2677, the Public Service Commission was transformed into and emerged
as a collegial body, composed of one Public Service Commissioner and five (5) Associate Commissioners.
The amendment provided that contested cases and all cases involving the fixing of rates shall be decided by
the Commission en banc.

4. Historical milieu of the NTC: PD 1 (Integrated Reorganization Plan)

On 24 September 1972, then President Ferdinand E. Marcos signed, into law, PD 1 adopting and
approving the Integrated Reorganization Plan which, in turn, created the Board of Communications (BOC) in
place of the PSC. This time, the new regulatory board was composed of 3 officers exercising quasi-judicial
functions. On 25 January 1978, the BOC promulgated its “Rules of Procedure and Practice” in connection
with applications and proceedings before it.

5. Historical milieu of the NTC: EO 546, merger of BOC and the Telecommunications Control
Bureau as NTC
On 23 July 1979, President Marcos issued Executive Order 546, creating the Ministries of Public
Works, and of Transportation and Communications, merged the defunct Board of Communications and the
Telecommunications Control Bureau into a single entity, the National Telecommunications Commission
(NTC). The said law was issued by then President Marcos in the exercise of his legislative powers. Sec. 16 of
EO 546 provides that “the Commission shall be composed of a Commissioner and two Deputy
Commissioners, preferably one of whom shall be a lawyer and another an economist.” The Executive Order
took effect on 24 September 1979 . However, the NTC did not promulgate any Rules of Procedure and
Practice. Consequently, the then existing Rules of Procedure and Practice promulgated by the BOC was
applied to proceedings in the NTC.

6. Historical milieu of the NTC: Opinion of Justice Secretary (Puno) entitled to great weight but
not conclusive upon the courts
The opinion of the Secretary of Justice is entitled to great weight. However, the same is not
controlling or conclusive on the courts. The Puno Opinion that the NTC is not a collegial body is not correct.
Admittedly, EO 546 does not specifically state that the NTC was a collegial body, and neither does it provide
that the NTC should meet En Banc in deciding a case or in exercising its adjudicatory or quasi-judicial
functions. But the absence of such provisions does not militate against the collegial nature of the NTC under
the context of Section 16 of EO 546 and under the Rules of Procedure and Practice applied by the NTC in its
proceedings. Under [Rule 15] of said Rules, the BOC (now the NTC), a case before the BOC may be assigned
to and heard by only a member thereof who is tasked to prepare and promulgate his Decision thereon, or
heard, En Banc, by the full membership of the BOC in which case the concurrence of at least 2 of the
membership of the BOC is necessary for a valid Decision.

7. Historical milieu of the NTC: BOC Rules are NTC Rules, Philippine Consumers Foundation vs.
NTC
While it may be true that the BOC Rules of Procedure was promulgated before the effectivity of
Executive Order 546, however, the Rules of Procedure of BOC governed the rules of practice and procedure
before the NTC when it was established under Executive Order 546. This was enunciated by the Supreme
Court in the case of ‘Philippine Consumers Foundation, Inc. versus National Telecommunications
Commission, 131 SCRA 200’ when it declared that: “The Rules of Practice and Procedure promulgated on 25
January 1978 by the Board of Communications, the immediate predecessor of NTC govern the rules of
practice and procedure before the BOC then, now NTC.”

8. Commission defined
A Commission is a body composed of several persons acting under lawful authority to perform some
public service. (City of Louisville Municipal Housing Commission versus Public Housing Administration,
261 Southwestern Reporter, 2nd, page 286). A Commission is also defined as a board or committee of
officials appointed and empowered to perform certain acts or exercise certain jurisdiction of a public nature or
service . . . (Black, Law Dictionary, page 246). There is persuasive authority that a ‘commission’ is
synonymous with ‘board’ (State Ex. Rel. Johnson versus Independent School District No. 810, Wabash
County, 109 Northwestern Reporter 2nd, page 596).

9. Statutory Construction: “And” construed

The conjunctive word ‘and’ is not without any legal significance. It is not, by any chance, a
surplusage in the law. It means ‘in addition to’ (McCaull Webster Elevator Company versus Adams, 167
Northwestern Reporter, 330, page 332). The word ‘and’, whether it is used to connect words, phrases or full
sentence[s], must be accepted as binding together and as relating to one another. From the context of Section
16 of Executive Order 546, the Commission is composed of a Commissioner and 2 deputy commissioners;
not the commissioner alone.

10. Statutory Construction: Every part of statute should be given effect

In interpreting a statute, every part thereof should be given effect on the theory that it was enacted as
an integrated law and not as a combination of dissonant provisions. As the aphorism goes, “that the thing may
rather have effect than be destroyed.” Herein, if it was the intention of President Marcos to constitute merely
a single entity, a ‘one-man’ governmental body, instead of a commission or a three-man collegial body, he
would not have constituted a commission and would not have specifically decreed that the Commission is
composed of, not the commissioner alone, but of the commissioner and the 2 deputy commissioners.

11. Use of word “deputy” does not militate against the collegiality of the NTC
Even if Executive Order 546 used the word ‘deputy’ to designate the 2 other members of the
Commission does not militate against the collegiality of the NTC. The collegiality of the NTC cannot be
disparaged by the mere nominal designation of the membership thereof. Such nominal designations are
without functional implications and are designed merely for the purpose of administrative structure or
hierarchy of the personnel of the NTC.

12. NTC Circulars 1-1-93 and 3-1-93 void

NTC Circular No. 1-1-93, Memorandum Circular No. 3-1-93, and the Order of Kintanar declaring the
NTC as a single entity or non-collegial entity, are contrary to law and thus null and void. Administrative
regulations derive their validity from the statute that they were, in the first place, intended to implement.
Memorandum Circulars 1-1-93 and 3-1-93 are on their face null and void ab initio for being unabashedly
contrary to law. The fact that implementation of these illegal regulations has resulted in the
institutionalization of the one-man rule in the NTC, is not and can never be a ratification of such an illegal
practice. At the least, these illegal regulations are an erroneous interpretation of EO 546 and in the context of
and its predecessor laws. At the most, these illegal regulations are attempts to validate the one-man rule in the
NTC as executed by persons with the selfish interest of maintaining their illusory hold of power.

13. Courts cannot refrain from duty to nullify illegal regulations

Since the questioned memorandum circulars are inherently and patently null and void for being
totally violative of the spirit and letter of EO 546 that constitutes the NTC as a collegial body, no court may
shirk from its duty of striking down such illegal regulations.

14. Only the NTC and Commissioner Kintanar are indispensable parties in the action for certiorari
In its certiorari action before the Court of Appeals, BellTel was proceeding against the NTC and
Commissioner Kintanar for the former’s adherence and defense of its one-man rule as enforced by the latter.
Thus, only the NTC and Commissioner Kintanar may be considered as indispensable parties. After all, it is
they whom BellTel seek to be chastised and corrected by the court for having acted in grave abuse of their
discretion amounting to lack or excess of jurisdiction.

15. Oppositors not absolutely necessary in an action for certiorari, as the action does not go into
merits of the case; Claim of non-joinder of indispensable parties untenable
The oppositors in NTC Case 94-229 are not absolutely necessary for the final determination of the
issue of grave abuse of discretion on the part of the NTC and of Commissioner Kintanar in his capacity as
chairman of NTC because the task of defending them primarily lies in the Office of the Solicitor General.
Furthermore, were the court to find that certiorari lies against the NTC and Commissioner Kintanar, the
oppositors’ cause could not be significantly affected by such ruling because the issue of grave abuse of
discretion goes not into the merits of the case in which the oppositors are interested but into the issue of
collegiality that requires, regardless of the merits of a case, that the same be decided on the basis of a majority
vote of at least two members of the commission. All that Court of Appeals passed upon was the question of
whether or not the NTC and Commissioner Kintanar committed grave abuse of discretion, and so the
Supreme Court must review and ascertain the correctness of the findings of the appellate court on this score,
and this score alone.

16. Mandamus does not control discretion

 Jurisprudence is settled as to the propriety of mandamus in causing a quasi-judicial agency to exercise
its discretion in a case already ripe for adjudication and long-awaiting the proper disposition. As to how this
discretion is to be exercised, however, is a realm outside the office of the special civil action of mandamus. It
is elementary legal knowledge, after all, that mandamus does not lie to control discretion. Herein, when the
Court of Appeals directed Commissioners to meet en banc and to consider and act on the working draft of the
order granting provisional authority to BellTel, said court was simply ordering the NTC to sit and meet en
banc as a collegial body, and the subject of the deliberation of the 3-man commission would be the said
working draft which embodies one course of action that may be taken on BellTel’s application for a
provisional authority. The appellate court did not order the NTC to forthwith grant said application.

17. No evidence proffered that working draft was obtained by BellTel was obtained through illegal
means
The working draft was said to have been prepared by Atty. Basilio Bolante of the Legal Department
of the NTC; initialed by the CCAD Head, Engr. Edgardo Cabarios and by Deputy Commissioners Dumlao
and Perez. No one among the aforementioned persons has renounced the working draft or declared it to be
spurious. Petitioners have not proffered a single piece of evidence to prove the charge that the working draft
of the order granting provisional authority to BellTel was obtained by the latter through illegal means. In the
ultimate, the issue of the procurement of the working draft is more apropos for a criminal or administrative
investigation than in the instant proceedings largely addressed to the resolution of a purely legal question.

[212]

Maceda vs. ERB (GR 95203-05, 18 December 1990)

Lozano vs. ERB (GR 95119-21)
En Banc, Sarmiento (J): 8 concur, 3 took no part, 1 on leave

Facts: On 10 September 1990, Caltex (Philippines), Inc., Pilipinas Shell Petroleum Corporation, and Petron
Corporation proferred separate applications with the Board for permission to increase the wholesale posted
prices of petroleum products, at P3.2697 per liter, 2.0338 per liter, and 2.00 per liter, respectively; and
meanwhile, for provisional authority to increase temporarily such wholesale posted prices pending further
proceedings. On 21 September 1990, the Board, in a joint (on three applications) Order granted provisional
relief, authorizing the applicants to a weighted average provisional increase of P1.42 per liter in the wholesale
posted prices of their various petroleum products enumerated below, refined and/or marketed by them locally.
Senator Ernesto Maceda and Oliver O. Lozano submit that the above Order had been issued with grave abuse
of discretion, tantamount to lack of jurisdiction, and correctible by certiorari.

Senator Ernesto Maceda, submits that the same was issued without proper notice and hearing in violation of
Section 3, paragraph (e), of Executive Order No. 172; that the Board, in decreeing an increase, had created a
new source for the Oil Price Stabilization Fund (OPSF), or otherwise that it had levied a tax, a power vested
in the legislature, and/or that it had “re-collected”, by an act of taxation, ad valorem taxes on oil which RA
6965 had abolished. Atty. Oliver Lozano, 5 likewise argues that the Board’s Order was issued without notice
and hearing, and hence, without due process of law. The intervenor, the Trade Union of the Philippines and
Allied Services (TUPAS/FSM)-W.F.T.U., argues on the other hand, that the increase can not be allowed since
the oil companies had not exhausted their existing oil stock which they had bought at old prices and that they
can not be allowed to charge new rates for stock purchased at such lower rates.

The Supreme Court dismissed the petitions; no costs.

1. Section 8 of Executive Order 172

Section 8 (Authority to Grant Provisional Relief) of Executive Order No. 172 provides that “the
Board may, upon the filing of an application, petition or complaint or at any stage thereafter and without prior
hearing, on the basis of supporting papers duly verified or authenticated, grant provisional relief on motion of
a party in the case or on its own initiative, without prejudice to a final decision after hearing, should the Board
find that the pleadings, together with such affidavits, documents and other evidence which may be submitted
in support of the motion, substantially support the provisional order: Provided, That the Board shall
immediately schedule and conduct a hearing thereon within thirty (30) days thereafter, upon publication and
notice to all affected parties.” Herein Senator Maceda and Atty. Lozano, in questioning the lack of a hearing,
have overlooked the provisions of the above provision. As the Order itself indicates, the authority for
provisional increase falls within the above provision.

2. Section 3 (e) of Executive Order 172 is not the applicable provision

Section 3, paragraph (e) of Executive Order 172 provides that “whenever the Board has determined
that there is a shortage of any petroleum product, or when public interest so requires, it may take such steps as
it may consider necessary, including the temporary adjustment of the levels of prices of petroleum products
and the payment to the Oil Price Stabilization Fund created under Presidential Decree No. 1956 by persons or
entities engaged in the petroleum industry of such amounts as may be determined by the Board, which will
enable the importer to recover its cost of importation.”

3. Ex parte order for provisional increase allowed

While under Executive Order 172, a hearing is indispensable, it does not preclude the Board from
ordering, ex parte, a provisional increase, as it did here, subject to its final disposition of whether or not: (1) to
make it permanent; (2) to reduce or increase it further; or (3) to deny the application. Section 37 paragraph (e)
is akin to a temporary restraining order or a writ of preliminary attachment issued by the courts, which are
given ex parte, and which are subject to the resolution of the main case.

4. Provisions do not negate each other nor operate exclusively of the other
Section 3, paragraph (e) and Section 8 do not negate each other, or otherwise, operate exclusively of
the other, in that the Board may resort to one but not to both at the same time. Section 3(e) outlines the
jurisdiction of the Board and the grounds for which it may decree a price adjustment, subject to the
requirements of notice and hearing. Pending that, however, it may order, under Section 8, an authority to
increase provisionally, without need of a hearing, subject to the final outcome of the proceeding. The Board,
of course, is not prevented from conducting a hearing on the grant of provisional authority — which is of
course, the better procedure — however, it can not be stigmatized later if it failed to conduct one.

5. Citizens’ Alliance for Consumer Protection v. Energy Regulatory Board

In the light of Section 8, the Board need not even have conducted formal hearings in these cases prior
to the granting of a provisional increase of prices. The Board, upon its own discretion and on the basis of
documents and evidence submitted, could have issued an order granting provisional relief immediately upon
filing of the applications. In this respect, the Court considers the evidence in support of the applications —
i.e., evidence showing that importation costs of petroleum products had gone up; that the peso had
depreciated in value; and that the Oil Price Stabilization Fund (OPSF) had by then been depleted — as
substantial and hence constitutive of at least prima facie basis for issuance by the Board of a provisional relief
order granting an increase in the prices of petroleum products.

6. Applications may be contested in the hearings proper

The challenged action of the Board has not been done in violation of the due process clause.
However, Senator Maceda and Atty. Lozano may contest the applications at the hearings proper.

7. RA 6965 not an insurance against “oil hike”

Republic Act 6965 operated to lower taxes on petroleum and petroleum products by imposing
specific taxes rather than ad valorem taxes thereon; it is, not, however, an insurance against an “oil hike”,
whenever
warranted, or is it a price control mechanism on petroleum and petroleum products. The statute had possibly
forestalled a larger hike, but it operated no more.

8. Proceeds deposited to OPSF not an act of taxation

The Board Order authorizing the proceeds generated by the increase to be deposited to the OPSF is
not an act of taxation. It is authorized by Presidential Decree 1956, as amended by Executive Order 137.

9. Section 8 of PD 1956, as amended by EO 137

Section 8 provides that “there is hereby created a Trust Account in the books of accounts of the
Ministry of Energy to be designated as Oil Price Stabilization Fund (OPSF) for the purpose of minimizing
frequent price changes brought about by exchange rate adjustments and/or changes in world market prices of
crude oil and imported petroleum products. The Oil Price Stabilization Fund (OPSF) may be sourced from
any of the following: (a) Any increase in the tax collection from ad valorem tax or customs duty imposed on
petroleum products subject to tax under this Decree arising from exchange rate adjustment, as may be
determined by the Minister of Finance in consultation with the Board of Energy; (b) Any increase in the tax
collection as a result of the lifting of tax exemptions of government corporations, as may be determined by
the Minister of Finance in consultation with the Board of Energy; (c) Any additional amount to be imposed
on petroleum products to augment the resources of the Fund through an appropriate Order that may be issued
by the Board of Energy requiring payment by persons or companies engaged in the business of importing,
manufacturing and/or marketing petroleum products; (d) Any resulting peso cost differentials in case the
actual peso costs paid by oil companies in the importation of crude oil and petroleum products is less than the
peso costs computed using the reference foreign exchange rates as fixed by the Board of Energy.

10. Events taken judicial notice of

The increase was not prompted alone by the increase in world oil prices arising from tension in the
Persian Gulf. What the Court gathers from the pleadings as well as events of which it takes judicial notice, is
that: (1) as of 30 June 1990, the OPSF has incurred a deficit of P6.1 Billion; (2) the exchange rate has fallen
to P28.00 to $1.00; (3) the country’s balance of payments is expected to reach $1 Billion; (4) our trade deficit
is at $2.855 Billion as of the first nine months of the year. Evidently, authorities have been unable to collect
enough taxes necessary to replenish the OPSF as provided by PD 1956, and hence, there was no available
alternative but to hike existing prices.

11. Purpose of the OPSF

The OPSF must not be understood to be a funding designed to guarantee oil firms’ profits although as
a subsidy, or a trust account, the Court has no doubt that oil firms make money from it. The OPSF was
established precisely to protect the consuming public from the erratic movement of oil prices and to preclude
oil companies from taking advantage of fluctuations occurring every so often. As a buffer mechanism, it
stabilizes domestic prices by bringing about a uniform rate rather than leaving pricing to the caprices of the
market.

12. Oil hike permanent; Findings for provisional increase however are not final
In all likelihood, an oil hike would have probably been imminent, with or without trouble in the Gulf,
although trouble would have probably aggravated it. The Court is not to be understood as having prejudged
the justness of an oil price increase amid the above premises. What the Court is saying is that it thinks that
based thereon, the Government has made out a prima facie case to justify the provisional increase in question.
Let the Court therefore make clear that these findings are not final; the burden, however, is on the petitioners’
shoulders to demonstrate the fact that the present economic picture does not warrant a permanent increase.

13. Wisdom on the increase in oil prices a political question

The increase in oil prices in question (not to mention another one impending, which the Court
understands has been under consideration by policy-makers) spells hard(er) times for the Filipino people. The
Court can not, however, debate the wisdom of policy or the logic behind it (unless it is otherwise arbitrary),
not because the Court agrees with policy, but because the Court is not the suitable forum for debate. It is a
question best judged by the political leadership which after all, determines policy, and ultimately, by the
electorate, that stands to be better for it or worse off, either in the short or long run. The Court shares the
indignation of the people over the conspiracy of events and regrets its own powerlessness, if by this Decision
it has been powerless. The constitutional scheme of things has simply left it with no choice.

[213]

Lagman vs. Manila (GR L-23305, 30 June 1966)

En Banc, Reyes JBL (J): 8 concur

Facts: Benedicto Lagman (Marco Transit) was granted a certificate of public convenience by the Public
Service Commission (by a decision, dated 20 March 1963, in PSC Case 61-7383) to operate for public service
15 auto trucks with fixed routes and regular terminal for the transportation of passengers and freight, on the
line Bocaue (Bulacan) — Parañaque (Rizal) via Meycauayan, Marilao, Obando, Polo, Malabon, Rizal), Grace
Park, Rizal Avenue, Recto Avenue, Sta. Cruz Bridge, Taft Avenue, Libertad, Pasay City and Baclaran, and
vice versa. Within Manila, the line passes thru Rizal Avenue, Plaza Goiti, McArthur Bridge, Plaza Lawton, P.
Burgos, Taft Avenue and Taft Avenue Extension. Pursuant to said certificate, petitioner, who is doing business
under the firm name and style of “Marco Transit”, began operating 12 passenger buses along his authorized
line. On 17 June 1964, the Municipal Board of the City of Manila, in pursuance to Section 18, paragraph hh,
of RA 409, as amended (otherwise known as the Revised Charter of the City of Manila) enacted Ordinance
4986, entitled “An Ordinance Rerouting Traffic On Roads and Streets Within The City of manila, and For
Other Purposes”, which the City Mayor approved, on 13 July 1964, effective upon approval thereof. On 17
August 1964, the Mayor of City of Manila, through its police agencies, began actual enforcement of said
ordinance and prevented petitioner from operating his buses, except 2 “shuttle” buses, along the line specified
in his certificate of public convenience.

Lagman originally filed, on 6 August 1964, with the Supreme Court a petition for declaratory relief seeking a
declaration of his rights under the so-called “provincial bus ban” ordinance of the City of Manila, with prayer
for writs of preliminary and permanent injunctions to restrain and enjoin said city, its officers and/or agents,
from enforcing and implementing said ordinance. At first, the Supreme Court, in its resolution dated 11
August 1964, dismissed said petition without prejudice to action, if any, in the lower court; but, upon
Lagman’s motion for reconsideration and supplemental petition to convert said petition without prejudice to
action, if any, in the lower court; but, upon Lagman’s motion for reconsideration and supplemental petition to
convert said petition into one for prohibition, on the ground, among others, that respondents have been
actually enforcing said ordinance effective 17 August 1964, the Supreme Court did not, however, issue the
writ of preliminary injunction prayed for.

The Supreme Court dismissed the instant petition for prohibition; with cost against Lagman.

1. Section 18 (hh), RA 409

Section 18 (hh) of the Revised Charter of the City of Manila provides that “the Municipal board shall
have the following legislative powers: (hh) To establish and regulate the size, speed, and operation of motor
and other public vehicles within the city; to establish bus stops and terminals; and prohibit and regulate the
entrance of provincial utility vehicles into the city, except those passing thru the city.”

2. Section 1, Ordinance 4986

Section 1 of Ordinance 4986 provides that “as a positive measure to relieve the critical traffic
congestion in the City of Manila, which has grown to alarming and emergency proportions, and in the best
interest of public welfare and convenience, the following traffic rules and regulations are hereby
promulgated:
 RULE I. DEFINITIONS;
A. Definition of Terms. — When used in this ordinance and in subsequent ordinance having reference
thereto, unless the context indicated otherwise: (a) The terms ‘provincial passenger buses’ and ‘provincial
passenger jeepneys’ shall be understood to mean those whose route (or origin-destination) lines come from or
going to points beyond Pasay City, Caloocan City and Navotas. xxx
RULE II. ENTRY POINTS AND ROUTES OF PROVINCIAL PASSENGER BUSES AND
JEEPNEYS.
1. Provincial passenger buses and jeepneys (PUB and PUJ) shall be allowed to enter Manila, but only
through the following entry points and routes, from 6:30 A.M. to 8:30 P.M. every day except Sundays and
Holidays: (a) Those coming from north shall enter the city through Rizal Avenue; turn right to Mt. Samat;
right to Dinalupihan; right to J. Abad Santos; left to Rizal Avenue towards Caloocan City; xxx (n) Those
coming from the south through Taft Avenue shall turn left at Vito Cruz; turn right to Dakora; turn right to
Harrison Boulevard; turn right to Taft Avenue; thence proceed towards Pasay City; xxx
RULE III. FLEXIBLE SHUTTLE BUS SERVICE.
1. In order that provincial commuters shall not be unduly inconvenienced as a result of the
implementation of these essential traffic control regulations, operators of provincial passenger buses shall be
allowed to provide buses to shuttle their passengers from their respective entry control points, under the
following conditions: (a) Each provincial bus company or firm shall be allowed such number of shuttle buses
proportionate to the number of units authorized it, the ratio to be determined by the Chief, Traffic Control
Bureau, based on his observations as to the actual needs of commuters and traffic volume; in no case shall the
allocation be more than one shuttle bus for every 10 authorized units, or fraction thereof. (b) No shuttle bus
shall enter Manila unless the same shall have been provided with identification stickers as required under
Rule IV hereof, which shall be furnished and allocated by the Chief, Traffic Control Bureau to each provincial
bus company or firm. (c) All such shuttle buses are not permitted to load or unload or to pick and/or drop
passengers along the way but must do so only in the following places: (1) North. (a) J. Abad Santos corner
Rizal Avenue, or vicinities. Xxx (3) South. (a) Harrison Boulevard, between Dakota and Taft Avenue. xxx

3. Section 4, Ordinance 4986

Section 4 of Ordinance 4986 provides that “any violation of the provisions of this ordinance and of
any other ordinance regulating traffic in the city, shall be punished by a fine of not less than P20.00, nor more
than P200.00 or by imprisonment for not less than five (5) days nor more than six (6) months, or both such
fine or imprisonment in the discretion of the court.”

4. Latter legislation prevails over former legislation

Republic Act 409, as amended, otherwise known as the Revised Charter of the City of Manila, is a
special law and of later enactment than Commonwealth Act 548 and the Public Service law (Commonwealth
Act 146, as amended), so that even if conflict exists between the provisions of the former act and the latter
acts, RA 409 should prevail over both Commonwealth Acts 548 and 146.

5. Special Law or provision prevails over general; Cassion vs. Banco Nacional Filipino
In Cassion vs. Banco Nacional Filipino, 89 Phil. 560, 561, it was stated that “for with or without an
express enactment it is a familiar rule of statutory construction that to the extent of any necessary repugnancy
between a general and a special law or provision, the latter will control the former without regard to the
respective dates of passage.”

6. Commonwealth Act 548 does not confer exclusive power to promulgate rules relating to use of
national roads
Commonwealth Act 548 does not confer an exclusive power or authority upon the Director of Public
Works, subject to the approval of the Secretary of Public Works and Communications, to promulgate rules
and regulations relating to the use of and traffic on national roads or streets.
7. Repeal by implication not favored; Section 18 (hh) of the Manila Charter an exception to
provisions of Commonwealth Act 548
Because repeals by implication are not favored, a special law must be taken as intended to constitute
an exception to the general law, in the absence of special circumstances forcing a contrary conclusion.” (Baga
vs. Philippine National Bank, 52 O.G. 6140) Where a special act is repugnant to or inconsistent with a prior
general act, a partial repeal of the latter act will be implied or exception grafted upon the general act.” (City of
Geneseo vs. Illinois Northern Utility Co., 39 NE 2d, p. 26). Herein, Section 18 (hh) of the Manila Charter is
deemed enacted as an exception to the provisions of Commonwealth Act No. 548

8. Situation in Commonwealth Act 548 similar to the provisions of Public Service Act
The same situation hold true with respect to the provisions of the Public Service Act. Although the
Public Service Commission is empowered, under its Section 16 (m), to amend, modify or revoke certificates
of public convenience after notice and hearing, yet there is no provision, specific or otherwise, which can be
found in Commonwealth Act 146 vesting power in the Public Service Commission to superintend, regulate,
or control the streets of respondent City or suspend its power to license or prohibit the occupancy thereof. On
the other hand, this right or authority, as hereinabove concluded, is conferred upon respondent City of Manila.
The power vested in the Public Service Commission under Section 16 (m) is, therefore, subordinate to the
authority granted to the City, under said section 18 (hh).

9. When ordinance does not encroach upon the jurisdiction of the Public Service Commission
As held in an American case: “Ordinances designating the streets within a municipality upon which
buses may operate, or prohibiting their operation in certain streets do not encroach upon the jurisdiction of the
Public Service Commission over motor bus common carriers, so long as the ordinances do not prevent or
unreasonably interfere with the utility’s operation under the certificate or franchise granted by that
Commission.” (Stuck vs. Town of Beech Grove, 163 N.E. 483; 166 N.E. 153)

10. Section 17 (j) of the Public Service Act (Commonwealth Act 146)
Section 17 (Proceedings of Commission without previous hearing) of the Public Service Act provides
that “the Commission shall have power, without previous hearing, subject to established limitations and
exceptions, and saving provisions to the contrary: xxx (j) To require any public service to comply with the
laws of the Philippines, and with any provincial resolution or municipal ordinance relating thereto, and to
conform to the duties imposed upon it thereby, or by the provisions of its own charter, whether obtained under
any general or special law of the Philippines.” The provision evidences that the powers conferred by law
upon the Public Service Commission were not designated to deny or supersede the regulatory power of local
governments over motor traffic, in the streets subject to their control.

11. Subsection ( j) refers to the laws of the Philippines, not just ordinances
Subsection (j) refers not only to ordinances but also to “the laws of the Philippines”, and it is plainly
absurd to assume that even laws relating to public services are to remain a dead letter without the placet of the
Commission; and the section makes no distinction whatever between enforcement of laws and that of
municipal ordinances. The very fact, that the Commission is empowered, but no required, to demand
compliance with apposite laws and ordinances proves that the Commission’s powers are merely
supplementary to those of state organs, such as the police, upon which the enforcement of laws primarily
rests.

12. No evidence to substantiate charge that implementation is arbitrary, oppressive and

unreasonable
The implementation of the ordinance in question cannot be validly assailed as arbitrary, oppressive
and unreasonable. Aside from the fact that there is no evidence to substitute this charge, Lagman has not been
totally banned or prohibited from operating all his buses, he having allowed to operate two (2) “shuttle” buses
within the city limits.
13. Saving clause in Section 18 (hh) cannot be availed of
Lagmamn cannot avail of the saving clause of said section 18 (hh), he having admitted that his buses
engaged in business within the city limits by picking up passengers therein; hence, they do not merely “pass
thru the city”.

[214a: 1980]

Philippine Global Communications vs. Relova (GR L-52819, 2 October 1980)

Second Division, Fernando (CJ): 5 concur, 1 on leave

Facts: Petitioner Philippine Global Communications filed on 10 May 1976 with the Board of
Telecommunications an application for authority to establish a branch or station in Cebu City “for the purpose
of rendering international telecommunications services from Cebu City to any point outside the Philippines
where it is authorized to operated.” The Solicitor General, and the private respondents Philippine Telegraph
and Telephone Corp., Capitol Wireless, and Radio Communications of the Philippines, Inc. opposed such
application. Thereafter, on 9 March 1979, the Board of Communications rendered a decision, recognizing the
right of petitioners under its legislative franchise to establish branches or stations anywhere in the Philippines,
subject to its prior approval. A joint motion for reconsideration, dated 14 June 1979, came from private
respondents, followed as could be expected by an opposition from petitioner. In a reply to such opposition,
private respondents put in issue the jurisdiction of the Board of Communications, now the National
Telecommunications Commission, to act on such application. Such motion is still pending.

On 27 August 1979, private respondents filed before Judge Benjamin Relova an action for declaratory
judgment to ascertain the scope and coverage of the legislative franchise of petitioner; it was ratified to
Branch XI, presided by respondent Judge. Hence, the certiorari and prohibition proceedings.

The Supreme Court dismissed the petition for certiorari, and set aside the restraining order issued on 6 March
1980; no pronouncement as to costs.

1. Right to establish branch or station debatable

From the very legislative franchise of Philippine Global Communications, Inc. the right to establish a
branch or station in Cebu City “for the purpose of rendering international telecommunications services” from
such city to any point outside the Philippines is say the least, debatable. The matter is far from clear, as its
franchise does not, in express terms, grant it.

2. Position of the private respondents

Since Section 1 of Republic Act No. 4617; [the franchise in question] limits ingress and egress of
Philippine Global messages or signals only thru a ‘Sole Gateway’ (Manila) or only thru ‘[any point]’ or single
location in the Philippines, therefore: a.) Philippine Global cannot establish branches or distribution systems
(direct connections to end-users) at any other point or locality within the country for the purpose of
transmitting and receiving messages between the gateway (Manila) and these branches or stations located say,
at Cebu or Davao. For that is to constitute domestic service within the context of its franchise; b.) Philippine
Global cannot even establish distribution systems in Manila other than its main office or gateway to transmit
and receive messages to or from the end users destined for external transmission; this phase of operation
(between the main office at gateway to the distribution system or individual equipment installed in the end-
users’ offices in Manila) being ‘domestic service’; c.) Assuming arguendo, that Philippine Global shall not
charge any additional fee for the extra service mentioned does not detract from the fact that the same still
constitutes ‘domestic service’ since they are rendered from one point in the Philippines to another point
within the same country.”
3. Legal question appropriate to judiciary
Fidelity to the basic concept of exhausting administrative remedies calls for the equally fundamental
principle of primary jurisdiction to be respected. The doctrine of primary jurisdiction calls for application
when there is such competence to act on the part of an administrative body. Petitioner, however, could not
dissipate the well founded doubt as to whether its legislative franchise justifies its plea to establish the branch
or station in question. Absent such clarity as to the scope and coverage of its franchise, a legal question arises
which is more appropriate for the judiciary than for an administrative agency to resolve. There is merit,
therefore, to the approach to seek judicial remedy as to whether or not the legislative franchise could be so
interpreted as to enable the National Telecommunications Commission to act on the matter. A jurisdictional
question thus arises and calls for an answer.

4. Requisite for the filing of a petition for certiorari; Panaligan vs. Adolfo
For certiorari to be available, as set forth in Panaligan v. Adolfo, requires a showing of “a capricious,
arbitrary and whimsical exercise of power, the very antithesis of the judicial prerogative in accordance with
centuries of both civil law and common law traditions.”

5. Reliance on doctrine of ripeness for judicial review not always attended with success; Arrow
Transport vs. BOT
Reliance on the doctrine of ripeness for judicial review is not always attended with success. Precisely,
in Arrow Transportation Corp. v. Board of Transportation, the mere fact that at the time the case was elevated
to the Supreme Court, a motion for reconsideration was still pending with respondent Board did not suffice to
preclude a ruling on the decisive question raised.

6. Kenneth Culp Davis on Administrative Law

A noted authority on Administrative Law, Professor Kenneth Culp Davis, was referred to as being “of
the view that the resolution of what could be a debilitating uncertainty with the conceded ability of the
judiciary to work out a solution of the problem posed is a potent argument for minimizing the emphasis laid
on its technical aspect.”

7. Jurisdiction issue; Radio Communications vs. Santiago

An excerpt from Radio Communications of the Philippines, Inc. v. Santiago, is even more persuasive
as to why the stage has been reached for the judiciary to act considering that the question raised is one of
jurisdiction. Thus: “Except for constitutional officials who can trace their competence to act to the
fundamental law itself, a public official must locate in the statute relied upon a grant of power before he can
exercise it. It need not be express. It may be implied from the wording of the law. Absent such a requisite,
however, no warrant exists for the assumption of authority. The act performed, if properly challenged, cannot
meet the test of validity. It must be set aside. So it must be in these two petitions. That is to defer to a
principle reiterated by this Court time and time again.”

[214b: 1986]

Philippine Global vs. Relova (GR L-60548, 10 November 1986)

En Banc, Feria (J): 9 concur, 1 on leave

Facts: On 10 May 1976, Philippine Global Communications Inc. (PhilGlobal) filed with the Board of
Communications (BOC), now the National Telecommunications Commission (NTC), an application for
authority to establish a branch station in Cebu City for the purpose of rendering international
telecommunication services from Cebu City to any point outside the Philippines where it is authorized to
operate. Said application was opposed by the Philippine Telegraph & Telephone Corporation (PT&T),
Capitol Wireless and Radio Communications of the Philippines Inc. (RCPI). Meanwhile, on 24 March 1977,
while PhilGlobal’s application was pending, the BOC issued Memorandum Circular 77-13 designating the
Metropolitan Manila area as the sole “gateway” (point of entrance into or exit from) for communications in
the Philippines and defining what constitutes “domestic record operations.” On 16 January 1979, the BOC
granted PhilGlobal provisional authority to establish a station in Cebu City “subject to the condition that as
soon as domestic carriers shall have upgraded their facilities, applicant shall cease its operation and interface
with domestic carriers. “ Then on 24 May 1979, the BOC granted PhilGlobal final authority to establish a
“branch/station” in Cebu City and, subject to its prior approval anywhere in the Philippines. PT&T, et. al.
filed a joint motion for reconsideration of said decision.

On 27 August 1979, pending resolution of the joint motion for reconsideration, PT&T, et. al. filed with the
lower court a petition for declaratory judgment regarding the proper construction of PhilGlobal’s franchise,
RA 4617. PhilGlobal moved to dismiss the petition but said motion was denied. It then assailed the aforesaid
order on the ground of lack of jurisdiction, but the Supreme Court sustained the lower court and held that the
suit for declaratory relief fell within the competence of the Judiciary and did not require prior action by the
administrative agency concerned under the concept of primary jurisdiction. (GR L-52819, 2 October 1980,
100 SCRA 254) After the issues were joined, the parties at the pre-trial conference agreed to submit the case
for decision on the bases of their respective pleadings and memoranda because the issues involved are legal.
On 27 April 1982, the lower court rendered the judgment declaring PhilGlobal without authority to establish,
maintain and operate, apart from its single principal station in Makati, any other branch or station within the
Philippines.. Hence, the petition for review on certiorari.

The Supreme Court reversed the decision appealed from, and rendered another declaring PhilGlobal with
authority to establish, maintain and operate, in accordance with its franchise and Memorandum Circular 08-8-
83, any other branch or station within the Philippines apart from its single principal station in Makati, Metro
Manila.

1. Judge joined as party in Special Civil Action of certiorari (Rule 65) and not in Appeal by
certiorari (Rule 45)
In the case of Metropolitan Waterworks and Sewerage System vs. The Court of Appeals and City of
Dagupan (GR L-54526, 25 August 1986), it was pointed out the common error of joining the court or judge
who rendered the decision appealed from as a party respondent in an appeal by certiorari to the Supreme
Court under Rule 45 of the Rules of Court; when correctly the only parties in an appeal by certiorari are the
appellant as petitioner and the appellee as respondent; and it is in the special civil action of certiorari under
Section 6 of Rule 65 of the Rules of Court where the court or judge is required to be joined as a party
defendant or respondent.

2. Decision based on agreement of parties to submit case for decision based on respective
pleadings proper
Herein, in its Second Supplemental Memorandum filed on 16 July 1984, PhilGlobal belatedly claims
that the declaratory judgment was improperly made, as it was based on the pleadings alone, although the
declaratory relief petition presented genuine issues of fact that required trial. Considering, however, the
agreement of the parties to submit the case for decision on the basis of their respective pleadings and
memoranda, the lower court could not be faulted for rendering judgment accordingly.

3. Decision of lower court contrary to franchise

Herein, the lower court erred in rendering the decision appealed from, inasmuch as the same is
contrary to the provisions of petitioner’s legislative franchise (R.A. No. 4617) as well as the contemporaneous
construction placed upon it by the governmental agency charged with its enforcement and the opinion of the
former Secretary of Justice.

4. Section of 1 of Philippine Global Communications, formerly RCA Communications

 Section 1 of PhilGlobal’s franchise provides that “there is hereby granted to the RCA
Communications Inc., hereinafter referred to as the Grantee, the right and privilege of constructing,
maintaining and operating communications systems by radio, wire, satellites, and other means now known to
science or which in the future may be developed for the reception and transmission of messages between any
point in the Philippines to points exterior thereto, including airplanes, airships or vessels, even though such
airplanes, airships or vessels may be located within the territorial limits of the Philippines.” RCA
Communications, Inc. was subsequently renamed Philippine Global Communications, Inc.

5. Court’s duty to apply the law; Construction applies only when application impossible or
inadequate
The first and fundamental duty of courts, in our judgment, is to apply the law. Construction and
interpretation come only after it has been demonstrated that application is impossible or inadequate without
them.

6. Legislative intent must be ascertained from consideration of statute as a whole

Legislative intent must be ascertained from a consideration of the statute as a whole. As reiterated in
the case of Aisporna vs. Court of Appeals: “the particular words, clauses and phrases should not be studied as
detached and isolated expressions, but the whole and every part of the statute must be considered in fixing the
meaning of any of its parts and in order to produce harmonious whole. A statute must be so construed as to
harmonize and give effect to all its provisions whenever possible.

7. Lower court’s interpretation confined to Section 1 and 17 of the franchise only

The lower court held that the word “any” in the above-quoted Section 1 of the law means a single
point within the Philippines where PhilGlobal at its choice, subject to approval by the proper governmental
agency, can establish and maintain a reception and communication station or system. It also held that the
establishment, maintenance and operation of franchise or stations anywhere in the Philippines or even within
Metropolitan Manila outside or apart from PhilGlobal’s principal or main station in Makati constitute
“domestic communication service” in violation of Section 17 of said law.

8. Other sections of the law provides authority for PhilGlobal to construct, etc. other stations
within Philippines; Sections 3, 4 (a), 6, and 9
A reading of other sections of the law aside from Sections 1 and 17 cited by the lower court would
lead to no other conclusion than that said law authorizes petitioner to construct, maintain and operate, apart
from its principal station in Makati, other stations or branches within the Philippines for purposes of its
international communications operations. Section 3 of the law provides that “for the purpose of carrying out
the privilege granted herein, the grantee may establish stations in such places in the Philippines as the grantee
may select and the Secretary of Public Works and Communications may approve. “ Section 4 (a) provides that
“the Secretary of Public Works and Communications shall have the power to allot to the grantee the
frequencies and wave lengths to be used thereunder and determine the stations to and from which each such
frequency and wave lengths may be used. and issue to the grantee a license for such use.” Section 6 provides
that “a special right is reserved to the Government of the Republic of the Philippines, in time of war,
insurrection, or domestic trouble, to take over and operate the said stations upon the order and direction of
any authorized department of the Government of the Philippines, such department to compensate the grantee
for the use of said stations during the period when they shall be so operated by the said Government.” Section
9 provides that “the grantee shall hold the national, provincial, and municipal governments of the Philippines,
harmless from all claims, accounts, demands, or actions arising out of accidents or injuries, whether the
property or to persons, caused by the construction or operation of the stations of the grantee.”

9. Principle of contemporaneous construction of a statute by the executive officers of the

government whose duty it is to execute it
 The principle that the contemporaneous construction of a statute by the executive officers of the
government, whose duty it is to execute it, is entitled to great respect, and should ordinarily control the
construction of the statute by the courts, is so firmly embedded in our jurisprudence that no authorities need
be cited to support it. Courts will and should respect the contemporaneous construction placed upon a statute
by the executive officers whose duty it is to enforce it, and unless such interpretation is clearly erroneous will
ordinarily be controlled thereby.

10. Construction of BOC on PhilGlobal’s franchise

In its decision of 24 May 1979 granting PhilGlobal final authority to establish a branch/station in
Cebu City, the BOC construed the legislative franchise of PhilGlobal, as follows: “It was the earlier
contention of this Board when it issued Memorandum Circular 77-13 that no international record carrier could
establish stations in any point of the country, for purposes of carrying out its international record operations
except in Metropolitan Manila Area. However, a careful review and deliberation on the stand taken by the
applicant herein as discussed in position paper it submitted to the Board on 21 February 1978 and a cursory
review of the individual franchises of each international carrier as well as of an earlier opinion expressed by
the Secretary of Justice to the Chairman of the defunct Radio Control Board has convinced the board that by
virtue of applicant’s franchise, Memorandum Circular 77-13 is not violated by authorizing applicant to
establish a branch station in Cebu City solely for its international record operations. In view thereof and in the
interest of continued efficient, adequate and satisfactory services, the Board of Communications hereby
makes final the provisional authority granted to applicant herein on 16 January 1979 not only on the grounds
stated in said order but also for reasons that subject to the approval of this Board, applicant may establish
branch stations in any point within the country for the purpose of receiving and transmitting messages to
countries outside the Philippines where it is authorized to render international telecommunications services in
accordance with its franchise and Memorandum Circular 77-13. Metropolitan Manila remains to be the ‘sole’
gateway; hence, all messages received and transmitted in the course of a carrier’s international record carrier
operation, must be coursed through said gateway.”

11. Opinion of Secretary of Justice (Opinion 146, 17 June 1954; Justice Pedro Tuazon)
The opinion of the Secretary of Justice states: “In Opinion 76 the view taken was that a message, to
fall within the purview of the franchise, once sent by a transmitter within the Philippines, cannot be received
by any station within the Philippines even for the purpose of retransmitting such message to points outside the
Philippines.” The interpretation given to the clause (“The sending of commercial wireless telegraphic
messages from points within the Philippine Islands to points exterior thereto, including airplanes, airships,
and vessels, even though such airplanes, airships, or vessels be located within the territorial limits of the
Philippine Islands, and the receiving of commercial wireless messages from such exterior points”) was too
strict and does not conform with the spirit of provision. “The franchise has reference to the destination of the
message and not to the manner of transmittal, not as to whether it should be sent to the point of destination
directly or through relays. The reservation in favor of the Philippine Government under section 4 of the
franchise of “all wireless communications between points of stations within the Philippine Islands’ is clearly
intended to refer only to domestic communications. It should be understood, however, that no extra fees or
tolls could be collected for the transmittal of messages from a relay station to the principal station in Manila.
For to do so would make it a domestic service and would bring such service in competition with the domestic
radio and telegraph service of the Bureau of Posts.”

12. Opinion of the Undersecretary of Justice (28 November 1973)

The Justice Secretary’s opinion was reiterated and reaffirmed by the Undersecretary of Justice on 28
November 1973, in answer to the query of the Acting Chairman of the Foreign Trade Zone Authority as to
whether or not Globe-Mackay Cable and Radio Corporation is “authorized under its franchise to set a relay
station inside the Foreign Trade Zone in Mariveles, Bataan, which will receive interstate communications for
onward transmission by its main station in Manila.”
13. Statutes in pari materia must be construed together
The opinions of the Secretary of Justice and Undersecretary of Justice are material because RA 4630
and 4617 are in pari materia. Statutes are said to be in pari materia when they relate to the same person or
thing, or to the same class of persons or things, or have the same purpose or object. When statutes are in pari
materia, the rule of statutory construction dictates that they should be construed together.

14. Guidelines for the government policy of designating Metropolitan Manila as international
gateway; Existing public offices of International Record Carriers were duly authorized by their
respective legislative franchises
Herein, on 25 October 1983, the National Telecommunications Commission, with the approval of the
Ministry of Transportation and Communications, issued Memorandum Circular 08-8-83 which adopted
guidelines in the implementation of the government policy of designating Metropolitan Manila as the
international gateway for purposes of domestic and international communications operations. Among the
provisions of said Memorandum Circular which are pertinent to the case at bar are the following: “(1.1) The
International Record Carriers (IRCs) shall continue to own, construct and expand, as may be required by the
service their own stations, inside plant, branches and terminals within the Metro Manila Area necessary for
them to conduct their business of providing international telecommunications service in the country in
accordance with their respective franchise and as authorized by the appropriate government regulatory
agency. (2.1) The IRCs shall not maintain public offices outside the gateway. They may, however, be allowed
to establish customer terminals with the necessary marketing and technical support outside Metro Manila.
(2.3) International telecommunications requirements of non-equipped or walk-in customers shall be served
thru the public offices of the domestic record carrier/s (DRCs). All existing public offices of IRCs may
continue operating until such time as the DRC(s) can provide the facilities required by the IRCs or an
Interconnect Agreement between the IRC(s) and DRC(s) shall have been duly approved by NTC.”

[215]

PLDT vs. NTC [G.R. No. 88404. October 18, 1990.]

En Banc, Melencio-Herrera (J): 6 concurring

Facts: On 22 June 1958, RA 2090, was enacted (An Act Granting Felix Alberto and Company, Incorporated,
a Franchise to Establish Radio Stations for Domestic and Transoceanic Telecommunications). Felix Alberto
& Co., Inc. (FACI) was the original corporate name, which was changed to ETCI with the amendment of the
Articles of Incorporation in 1964. On 13 May 1987, alleging urgent public need, ETCI filed an application
with NTC (NTC Case 87-89) for the issuance of a Certificate of Public Convenience and Necessity (CPCN)
to construct, install, establish, operate and maintain a Cellular Mobile Telephone System and an Alpha
Numeric Paging System in Metro Manila and in the Southern Luzon regions, with a prayer for provisional
authority to operate Phase A of its proposal within Metro Manila. PLDT filed an Opposition with a Motion to
Dismiss, based primarily on the grounds that (1) ETCI is not capacitated or qualified under its legislative
franchise to operate a systemwide telephone or network of telephone service such as the one proposed in its
application; (2) ETCI lacks the facilities needed and indispensable to the successful operation of the proposed
cellular mobile telephone system; (3) PLDT has itself a pending application with NTC (Case 86-86) to install
and operate a Cellular Mobile Telephone System for domestic and international service not only in Manila
but also in the provinces and that under the “prior operator” or “protection of investment” doctrine, PLDT has
the priority or preference in the operation of such service; and (4) the provisional authority, if granted, will
result in needless, uneconomical and harmful duplication, among others. In an Order, dated 12 November
1987, NTC overruled PLDT’s Opposition and declared that RA 2090 should be liberally construed as to
include among the services under said franchise the operation of a cellular mobile telephone service. After
evaluating the reconsideration sought by PLDT, the NTC, in October 1988, maintained its ruling that liberally
construed, and that ETCI’s franchise carries with it the privilege to operate and maintain a cellular mobile
telephone service.
On 12 December 1988, NTC issued an order opining that “public interest, convenience and necessity further
demand a second cellular mobile telephone service provider and finds prima facie evidence showing ETCI’s
legal, financial and technical capabilities to provide a cellular mobile service using the AMPS system,” NTC
granted ETCI provisional authority to install, operate and maintain a cellular mobile telephone system
initially in Metro Manila, Phase A only, subject to the terms and conditions set forth in the same Order. One
of the conditions prescribed (Condition 5) was that, within ninety (90) days from date of the acceptance by
ETCI of the terms and conditions of the provisional authority, ETCI and PLDT “shall enter into an
interconnection agreement for the provision of adequate interconnection facilities between applicant’s cellular
mobile telephone switch and the public switched telephone network and shall jointly submit such
interconnection agreement to the Commission for approval.” In a “Motion to Set Aside the Order” granting
provisional authority, PLDT alleged essentially that the interconnection ordered was in violation of due
process and that the grant of provisional authority was jurisdictionally and procedurally infirm. On 8 May
1989, NTC issued an order denying reconsideration and set the date for continuation of the hearings on the
main proceedings. PLDT challenged the NTC orders of 12 December 1988 and 8 May 1989 before the
Supreme Court.

On 15 June 1989, the Supreme Court dismissed the petition for its failure to comply fully with the
requirements of Circular 188. Upon satisfactory showing, however, that there was such compliance, the Court
reconsidered the order and reinstated the petition. On 27 February 1990, the Court issued a Temporary
Restraining Order, upon PLDT’s urgent manifestation, enjoining NTC to “Cease and Desist from all or any of
its on-going proceedings and ETCI from continuing any and all acts intended or related to or which will
amount to the implementation/execution of its provisional authority.” PLDT was required by the Court to post
a bond of P5 million. PLDT complied.

The Supreme Court dismissed the petition for lack of merit and lifted the Temporary Restraining Order
issued. The bond issued as a condition for the issuance of said restraining Order is declared forfeited in favor
of Express Telecommunications Co., Inc.; with cost against PLDT.

1. Abuse of discretion or lack of jurisdiction only issue in a special civil action for Certiorari and
Prohibition
Being a special civil action for Certiorari and Prohibition, the Court only need determine if NTC
acted without jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction in
granting provisional authority to ETCI under the NTC questioned Orders of 12 December 1988 and 8 May
1989.

2. NTC has jurisdiction

NTC is the regulatory agency of the national government with jurisdiction over all
telecommunications entities. It is legally clothed with authority and given ample discretion to grant a
provisional permit or authority. In fact, NTC may, on its own initiative, grant such relief even in the absence
of a motion from an applicant.

3. Section 3 (Provisional Remedy), Rule 15, Rule of Practice and Procedure before the Board of
Communications (now NTC)
“Upon the filing of an application, complaint or petition or at any stage thereafter, the Board may
grant on motion of the pleaders or on its own initiative, the relief prayed for, based on the pleading, together
with the affidavits and supporting documents attached thereto, without prejudice to a final decision after
completion of the hearing which shall be called within 30 days from grant of authority asked for.”

4. Provisionary authority properly granted

The provisional authority granted by the NTC has a definite expiry period of 18 months unless sooner
renewed, and which may be revoked, amended or revised by the NTC; and covers one of four phases. It is
also limited to Metro Manila only. The installation and operation of an alpha numeric paging system was not
authorized. The main proceedings are clearly to continue as stated in the NTC Order of 8 May 1989. Further,
the provisional authority was issued after due hearing, reception of evidence and evaluation thereof, with the
hearings attended by various oppositors, including PLDT. It was granted only after a prima facie showing that
ETCI had the necessary legal, financial and technical capabilities and that public interest, convenience and
necessity so demanded.

5. Provisional authority meaningless if grantee is not allowed to operate

Provisional authority would be meaningless if the grantee were not allowed to operate. Its lifetime is
limited and may be revoked by the NTC at any time in accordance with law. The initial expenditure of
P130M more or less, is rendered necessary even under a provisional authority to enable ETCI to prove its
capability.

6. Differences exist between a Provisional Authority and a Certificate of Public Convenience and
Necessity
Basic differences exist between a provisional authority and a Certificate of Public Convenience and
Necessity (CPCN). If what had been granted were a CPCN, it would constitute a final order or award
reviewable only by ordinary appeal to the Court of Appeals pursuant to Section 9(3) of BP 129, and not by
Certiorari before the Supreme Court.

7. The Coverage of ETCI’s Franchise (RA 2090)

RA 2090 grants ETCI (formerly FACI) “the right and privilege of constructing, installing,
establishing and operating in the entire Philippines radio stations for reception and transmission of messages
on radio stations in the foreign and domestic public fixed point-to-point and public base, aeronautical and
land mobile stations, . . . with the corresponding relay stations for the reception and transmission of wireless
messages on radiotelegraphy and/or radiotelephony “

8. Radiotelephony defined
As defined by the New International Webster Dictionary the term “radiotelephony” is defined as a
telephony carried on by aid of radiowaves without connecting wires. The International Telecommunications
Union (ITU) defines a “radiotelephone call” as a “telephone call, originating in or intended on all or part of its
route over the radio communications channels of the mobile service or of the mobile satellite service.”

9. Radiotelephony construed liberally to include cellular mobile telephone system (CMTS)

In its Order of 12 November 1987, the NTC construed the technical term “radiotelephony” liberally
as to include the operation of a cellular mobile telephone system. While under Republic Act 2090 a system-
wide telephone or network of telephone service by means of connecting wires may not have been
contemplated, it can be construed liberally that the operation of a cellular mobile telephone service which
carries messages, either voice or record, with the aid of radiowaves or a part of its route carried over radio
communication channels, is one included among the services under said franchise for which a certificate of
public convenience and necessity may be applied for.

10. Construction given by administrative agency given great weight and respect
The construction given by an administrative agency possessed of the necessary special knowledge,
expertise and experience and deserves great weight and respect. It can only be set aside by judicial
intervention on proof of gross abuse of discretion, fraud, or error of law.

11. Factual issues not subject of a special civil action for certiorari
Whether or not ETCI (previously FACI), in contravention of its franchise, started the first of its radio
telecommunication stations within 2 years from the grant of its franchise and completed the construction
within 10 years from said date; and whether or not its franchise had remained unused from the time of its
issuance, are questions of fact beyond the province of this Court, besides the well-settled procedural
consideration that factual issues are not subjects of a special civil action for Certiorari. Moreover, neither
Section 4, RA 2090 nor PD 36 should be construed as self-executing in working a forfeiture. Franchise
holders should be given an opportunity to be heard, particularly so, where ETCI does not admit any breach, in
consonance with the rudiments of fair play.

12. Legislative franchise cannot be collaterally attacked; cannot be revoked without due process of
law
PLDT’s allegation – that the ETCI franchise had lapsed into non-existence for failure of the franchise
holder to begin and complete construction of the radio system authorized under the franchise and that PD 36
(2 November 1972) which legislates the mandatory cancellation or invalidation of all franchises for the
operation of communications services, which have not been availed of or used by the party or parties in
whose name they were issued – partakes of a collateral attack on a franchise (RA 2090), which is not allowed.
A franchise is a property right and cannot be revoked or forfeited without due process of law.

13. Forfeiture by non-user proper subject of prerogative writ of quo warranto; Right to assert
belongs to the State
The determination of the right to the exercise of a franchise, or whether the right to enjoy such
privilege has been forfeited by non-user, is more properly the subject of the prerogative writ of quo warranto,
the right to assert which, as a rule, belongs to the State “upon complaint or otherwise” the reason being that
the abuse of a franchise is a public wrong and not a private injury. A forfeiture of a franchise will have to be
declared in a direct proceeding for the purpose brought by the State because a franchise is granted by law and
its unlawful exercise is primarily a concern of Government.

14. Section 10 of RA 2090

“The grantee shall not lease, transfer, grant the usufruct of, sell or assign this franchise nor the rights
and privileges acquired thereunder to any person, firm, company, corporation or other commercial or legal
entity nor merge with any other person, company or corporation organized for the same purpose, without the
approval of the Congress of the Philippines first had. . . . . “ The foregoing provision is directed to the
“grantee” of the franchise, which is the corporation itself and refers to a sale, lease, or assignment of that
franchise. It does not include the transfer or sale of shares of stock of a corporation by the latter’s
stockholders.

15. Section 20 (h) of CA 146, as amended by CA 454; Acts requiring the approval of the
Commission
Subject to established limitations and exceptions and saving provisions to the contrary, it shall be
unlawful for any public service or for the owner, lessee or operator thereof, without the approval and
authorization of the Commission previously had xxx xxx xxx (h) To sell or register in its books the transfer
or sale of shares of its capital stock, if the result of that sale in itself or in connection with another previous
sale, shall be to vest in the transferee more than forty per centum of the subscribed capital of said public
service. Any transfer made in violation of this provision shall be void and of no effect and shall not be
registered in the books of the public service corporation. Nothing herein contained shall be construed to
prevent the holding of shares lawfully acquired.

16. Sales of shares of stock of a public utility governed by Section 20h of the Public Service Act (CA
146)
The sale of shares of stock of a public utility is governed by another law, i.e., Section 20(h) of the
Public Service Act (Commonwealth Act 146). Pursuant thereto, the Public Service Commission (now the
NTC) is the government agency vested with the authority to approve the transfer of more than 40% of the
subscribed capital stock of a telecommunications company to a single transferee. Transfers of shares of a
public utility corporation need only NTC approval, not Congressional authorization.
17. Grant of provisional authority deemed approval of series of transfers of shares in ETCI
The approval of the NTC may be deemed to have been met when it authorized the issuance of the
provisional authority to ETCI. There was full disclosure before the NTC of the transfers that transpired
starting in 1964 until 1987. In fact, the NTC Order of 12 November 1987 required ETCI to submit its
“present capital and ownership structure.” Further, ETCI even filed a Motion before the NTC, dated 8
December 1987, or more than a year prior to the grant of provisional authority, seeking approval of the
increase in its capital stock from P960,000.00 to P40M, and the stock transfers made by its stockholders.

18. Distinction between shares of stock and sale of franchise itself; Corporation has separate and
distinct personality from its stockholders
A distinction should be made between shares of stock, which are owned by stockholders, the sale of
which requires only NTC approval, and the franchise itself which is owned by the corporation as the grantee
thereof, the sale or transfer of which requires Congressional sanction. Since stockholders own the shares of
stock, they may dispose of the same as they see fit. They may not, however, transfer or assign the property of
a corporation, like its franchise. In other words, even if the original stockholders had transferred their shares
to another group of shareholders, the franchise granted to the corporation subsists as long as the corporation,
as an entity, continues to exist. The franchise is not thereby invalidated by the transfer of the shares. A
corporation has a personality separate and distinct from that of each stockholder. It has the right of continuity
or perpetual succession.

19. PLDT cannot justifiably refuse to interconnect, pursuant to RA 6849

RA 6849, or the Municipal Telephone Act of 1989, approved on 8 February 1990, mandates
interconnection providing as it does that “all domestic telecommunications carriers or utilities . . . shall be
interconnected to the public switch telephone network.” Such regulation of the use and ownership of
telecommunications systems is in the exercise of the plenary police power of the State for the promotion of
the general welfare.

20. Constitutional mandate as to the use of property (Section 6, Article XII)

Section 6, Article XII, of the 1987 Constitution provides that “the use of property bears a social
function, and all economic agents shall contribute to the common good. Individuals and private groups,
including corporations, cooperatives, and similar collective organizations, shall have the right to own,
establish, and operate economic enterprises, subject to the duty of the State to promote distributive justice and
to intervene when the common good so demands.”

21. NTC merely exercised delegated authority when it decreed interconnection

The interconnection which has been required of PLDT is a form of “intervention” with property
rights dictated by “the objective of government to promote the rapid expansion of telecommunications
services in all areas of the Philippines, . . . to maximize the use of telecommunications facilities available, . . .
in recognition of the vital role of communications in nation building . . . and to ensure that all users of the
public telecommunications service have access to all other users of the service wherever they may be within
the Philippines at an acceptable standard of service and at reasonable cost” (DOTC Circular 90-248).
Undoubtedly, the encompassing objective is the common good. The NTC, as the regulatory agency of the
State, merely exercised its delegated authority to regulate the use of telecommunications networks when it
decreed interconnection.

22. Interconnection; Sections 1 and 5 of Ministry Circular 82-81 (6 December 1982)

Section 1 of Ministry Circular 82-81 provides “that the government encourages the provision and
operation of public mobile telephone service within local sub-base stations, particularly, in the highly
commercialized areas.” Section 5 on the other hand provides “that, in the event the authority to operate said
service be granted to other applicants, other than the franchise holder, the franchise operator shall be under
obligation to enter into an agreement with the domestic telephone network, under an interconnection
agreement.”

22. Interconnection; DOTC Circular 87-188 (1987)

Department of Transportation and Communication (DOTC) Circular No. 87-188, issued in 1987, also
decrees that “all public communications carriers shall interconnect their facilities pursuant to comparatively
efficient interconnection (CEI) as defined by the NTC in the interest of economic efficiency.”

23. DOTC Circular 90-248 (14 June 1990); Policy on Interconnection and Revenue Sharing by
Public Communications Carriers
The sharing of revenue was an additional feature considered in DOTC Circular 90-248. The circular
provides that “It is the objective of government to promote the rapid expansion of telecommunications
services in all areas of the Philippines. There is s need to maximize the use of telecommunications facilities
available and encourage investment in telecommunications infrastructure by suitably qualified service
providers. In recognition of the vital role of communications in nation building, there is a need to ensure that
all users of the public telecommunications service have access to all other users of the service wherever they
may be within the Philippines at an acceptable standard of service and at reasonable cost. Thus, all facilities
offering public telecommunication services shall be interconnected into the nationwide telecommunications
network/s; the interconnection of networks shall be effected in a fair and non-discriminatory manner and
within the shortest timeframe practicable; and the precise points of interface between service operators shall
be as defined by the NTC; and the apportionment of costs and division of revenues resulting from
interconnection of telecommunications networks shall be as approved and/or prescribed by the NTC.”

24. Other interconnection-related circulars: DOTC Circular 7-13-90 (12 July 1990)
The NTC, on 12 July 1990, issued Memorandum Circular 7-13-90 prescribing the “Rules and
Regulations Governing the Interconnection of Local Telephone Exchanges and Public Calling Offices with
the Nationwide Telecommunications Network/s, the Sharing of Revenue Derived Therefrom, and for Other
Purposes.”

25. Interconnection allows parties to discuss and agree terms; Negotiations provides right to be
heard
The NTC order to interconnect allows the parties themselves to discuss and agree upon the specific
terms and conditions of the interconnection agreement instead of the NTC itself laying down the standards of
interconnection which it can very well impose. Thus it is that PLDT cannot justifiably claim denial of due
process. It has been heard. It will continue to be heard in the main proceedings. It will surely be heard in the
negotiations concerning the interconnection agreement.

26. Purpose of interconnection

What interconnection seeks to accomplish is to enable the system to reach out to the greatest number
of people possible in line with governmental policies laid down. Cellular phones can access PLDT units and
vice versa in as wide an area as attainable. With the broader reach, public interest and convenience will be
better served. The interconnection sought by ETCI is by no means a “parasitic dependence” on PLDT. The
ETCI system can operate on its own even without interconnection, but it will be limited to its own
subscribers. To be sure, ETCI could provide no mean competition, and eat into PLDT’s own toll revenue, but
all for the eventual benefit of all that the system can reach.

27. Ultimate Considerations to which public utilities must yield

The decisive considerations are public need, public interest, and the common good. Those were the
overriding factors which motivated NTC in granting provisional authority to ETCI. Article II, Section 24 of
the 1987 Constitution, recognizes the vital role of communication and information in nation building. It is
likewise a State policy to provide the environment for the emergence of communications structures suitable to
the balanced flow of information into, out of, and across the country (Article XVI, Section 10, ibid.). A
modern and dependable communications network rendering efficient and reasonably priced services is also
indispensable for accelerated economic recovery and development. To these public and national interests,
public utility companies must bow and yield.

28. Free competition in industry answer to improvement in telecommunication industry; No public

utility has a constitutional right to a monopoly position
Free competition in the industry may also provide the answer to a much-desired improvement in the
quality and delivery of this type of public utility, to improved technology, fast and handy mobile service, and
reduced user dissatisfaction. After all, neither PLDT nor any other public utility has a constitutional right to a
monopoly position in view of the Constitutional proscription that no franchise certificate or authorization
shall be exclusive in character or shall last longer than 50 years (ibid., Section 11; Article XIV, Section 5,
1973 Constitution; Article XIV, Section 8, 1935 Constitution). Additionally, the State is empowered to decide
whether public interest demands that monopolies be regulated or prohibited (1987 Constitution, Article XII,
Section 19).

[216]

RCPI vs. Rodriguez (GR 83768, 28 February 1990)

Third Division, Gutierrez Jr. (J): 4 concur

Facts: On 8 September 1978, Rufus B. Rodriguez, as President of the World Association of Law Students
(WALS), sent two cablegrams overseas through RCPI, one addressed to Mohamed Elsir Taha in Khartoum,
Sudan Socialist Union, and the other to Diane Merger in Athens, Georgia, United States. The cablegrams
were, in turn, relayed to GLOBE for transmission to their foreign destinations. The telegram to Taha advised
him of Rodriguez’s pending arrival in Khartoum on 18 September 1978, while the telegram to Merger
advised her of the scheduled WALS conference in Khartoum. Rodriguez left the Philippines on 15 September
1978. On 18 September 1978, he arrived in Khartoum, Sudan at 9:30 p.m. Nobody was at the airport to meet
him. Due to the lateness of the hour, he was forced to sleep at the airport. He lined up 5 chairs together and
lay down with his luggages near him. Because of the non-receipt of the cablegram, Taha was not able to meet
him. Worse all preparations for the international conference had to be cancelled. Furthermore, Fernando
Barros, the Vice-President, arrived the next day from Chile, followed by the other officers from other
countries except Diane Merger, the organization’s secretary. It turned out that the wire sent by Rodriguez to
Merger was delivered to the address on the message but the person who delivered it was told that the
addressee was no longer staying there. This fact was not accordingly reported to Rodriguez in Metro Manila.
The undelivered cablegram was not returned by the correspondent abroad to Globe for disposition in the
Philippines.

On 8 December 1978, Rodriguez filed a complaint for compensatory damages in the amount of P45,147.00,
moral damages in the amount of P200,000.00, and exemplary damages in the amount of P50,000.00 against
RCPI and GLOBE. On 17 March 1980, the then Presiding Judge Lino L. Añover of the CFI Rizal rendered a
decision, holding RCPI and GLOBE solidarily liable to pay Rodriguez the total sim of P213,148 by way of
damages (broken down as [a] P100,000.00 as moral damages; [b] P50,000.00 as exemplary damages; [c]
P43,148.00 as actual damages; and [d] P20,000.00 as attorney’s fees by way of damages) and to pay the costs
of the suit.

Upon appeal, the Court of Appeals affirmed the lower court’s decision. A motion for reconsideration was
denied. Hence, the petition for review on certiorari. The title of the case includes Globe Mackay but the
petition proper and the name on counsel show that only RCPI comes to the Supreme Court through the
petition. Globe Mackay did not join as petitioner and its counsel Atty. Romulo P. Atencia did not sign the
petition.
The Supreme Court partially granted the petition; modified the questioned decision of the appellate court;
reduced the award directing RCPI to pay P100,000.00 moral damages to P10,000.00; deleted the award
ordering it to pay exemplary damages and attorney’s fees; and affirmed the questioned decision in all other
respects; with costs against RCPI.

1. RCPI without facilities in foreign countries, course all international communications thru
Globe Mackay
RCPI is a domestic corporation engaged in the business of receiving and transmitting messages. RCPI
does not have facilities for foreign countries, hence it has a contract to course all international
communications thru Globe Mackay. On the other hand, Globe Mackay has an inter-connecting agreement
with RCPI under which the latter’s international messages are coursed thru Globe Mackay in the same way
that local and domestic messages received by Globe Mackay are coursed thru RCPI.

2. RCPI reneged on its obligation, liable for damages

Rodriguez and RCPI entered into a contract whereby for a fee RCPI undertook to send Rodriguez’
messages overseas. When, therefore, Rodriguez paid RCPI to deliver his messages overseas by telegram,
RCPI obligated itself to transmit the messages to the addressee. Clearly, RCPI reneged on its obligation when
it failed to deliver the messages or to inform the sender about the non-delivery, thus making it liable for
damages.

3. RCPI cannot escape liability by passing blame to Globe Mackay

RCPI cannot escape liability for damages by passing off the blame for negligence to Globe Mackay.
It has an inter-connecting agreement with Globe Mackay. RCPI receives messages for overseas destinations
and conducts its business to transmit foreign messages only through Globe Mackay. To allow it to escape
liability for damages by attributing sole negligence to Globe Mackay for the expedient reason that it had
already delivered the messages to the latter would deprive the general public availing of the services of RCPI
of an effective and adequate remedy. It cannot simply wash its hands of all responsibility.

4. RCPI’s attempt to pass the blame on Rodriguez not supported by records

Herein, RCPI blamed Rodriguez for the non-delivery of the two telegrams. Regarding the telegram
addressed to Elsir Taha, RCPI avers that it has an incomplete address as it did not include P.O. Box 1850 per
instruction of Taha in an earlier cable asking for Rodriguez to reply via telex. Such attempt to pass the total
blame for the non-delivery of the telegram intended for Taha to Rodriguez is not supported by the records.
The evidence clearly demonstrates that an earlier cablegram dated 27 July 1978 similarly addressed to Taha,
Africa, Youth Committee, Khartoum, SSU and without P.O. Box 1850 was received by Taha. This is
conclusively shown by a cable addressed by Taha to Rodriguez acknowledging the receipt of the July 27
cablegram. Evidence was also introduced to show that the Africa Youth Committee is a very important office
in Khartoum, Sudan and the building that houses it is a very popular building known to the people.

5. Due diligence requirements of the public utility

Considering the public utility nature of RCPI’s business and its contractual obligation to transmit
messages, it should exercise due diligence to ascertain that messages are delivered to the persons at the given
address and should provide a system whereby in cases of undelivered messages the sender is given notice of
non-delivery. Messages sent by cable or wireless means are usually more important and urgent than those
which can wait for the mail. Therefore, arguments about the alleged negligence on the part of Rodriguez in
not verifying the address of Diane Merger before sending the telegram and also the alleged negligence on the
part of Merger for not leaving a forwarding address do not deserve much consideration.

6. Article 2217 NCC; Moral damages

 For recovery of damages, Article 2217 of the New Civil Code applies. It is provided therein that:
“Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation,
wounded feeling, moral shock, social humiliation, and similar injury. Though incapable of pecuniary
computation, moral damages may be recovered if they are the proximate result of the defendant’s wrongful
act or omission.”

7. RCPI’s failure to deliver telegrams resulted in suffering

RCPI’s failure to deliver the two questioned telegrams resulted in the suffering that Rodriguez had to
undergo. Rodriguez suffered a certain degree of mental anguish, fear and anxiety considering his experience
at the airport of a foreign country. His suffering was caused by the non-appearance of Taha who did not
receive the telegram sent by him due to the gross negligence of RCPI. There is moreover, the dismay arising
from the fact, that after so much preparation and travel on the part of Rodriguez, his pains were all for
nothing. Hence, RCPI is liable for moral damages.

8. Moral damages excessive and unconscionable, must be reduced; Prudenciado v. Alliance

Transport System
In the case of Prudenciado v. Alliance Transport System, Inc. (148 SCRA 440 [1987]), it was held
that trial courts are given discretion to determine the amount of moral damages and that the Court of Appeals
can only modify or change the amount awarded when they are palpably and scandalously excessive ‘so as to
indicate that it was the result of passion, prejudice or corruption on the part of the trial court’s. But in more
recent cases where the awards of moral and exemplary damages are far too excessive compared to the actual
losses sustained by the aggrieved party, this Court ruled that they should be reduced to more reasonable
amounts.

9. Reduction of amount of moral damages; San Andres vs. CA

In the case of San Andres v. Court of Appeals (116 SCRA 85 [1982]), it was ruled that while the
amount of moral damages is a matter left largely to the sound discretion of a court, the same when found
excessive should be reduced to more reasonable amounts, considering the attendant facts and circumstances.
Moral damages, though incapable of pecuniary estimation, are in the category of an award designed to
compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer.

10. Reduction of amount of moral damages; Siguenza vs. CA

In a much later case (Siguenza v. Court of Appeals, 137 SCRA 578-579 [1985]), the Supreme Court,
reiterating the above ruling, reduced the awards of moral and exemplary damages which were far too
excessive compared to the actual losses sustained by the aggrieved parties and where the records show that
the injury suffered was not serious or gross and, therefore, out of proportion to the amount of damages
generously awarded by the trial court.

11. Purpose of moral damages; Award of moral damages must be proportionate to suffering
inflicted
Moral damages are emphatically not intended to enrich a complainant at the expense of a defendant.
They are awarded only to enable the injured party to obtain means, diversion or amusements that will serve to
alleviate the moral suffering he has undergone, by reason of the defendants’ culpable action. The award of
moral damages must be proportionate to the suffering inflicted.

12. Telegram not an adequate preparation; Nothing in records as to distinction earned by WALS
Anybody who has been involved in international conferences and meetings knows that a telegram is
not adequate preparation. Considering the lackaidaisical attitude of public utility employees in the Philippines
and presumably in Africa, the head of an international student organization cannot simply send a telegram and
nonchalantly assume that every preparation will proceed as he anticipates it. The planning expertise and
degree of thoroughness incumbent upon conference organizers is missing from the records. There is nothing
in the records pointing to a certain degree of distinction earned by World Association of Law Students
(WALS) which would warrant substantial damages because of a failed meeting.

13. Award of moral damages warranted

Award for damages are warranted. People depend on telecommunications companies in times of deep
emotional stress or pressing financial needs. Knowing that messages about the illnesses or deaths of loved
ones, births or marriages in a family, important business transactions, and notices of conferences or meetings
as in this case, are coursed through the petitioner and similar corporations, it is incumbent upon them to
exercise a greater amount of care and concern than that shown in this case. Every reasonable effort to inform
senders of the non-delivery of messages should be undertaken. Herein, RCPI does not seem to be particularly
concerned about its responsibility. The amount of P10,000.00 as moral damages would be reasonable
considering the facts and circumstances surrounding RCPI’s liability.

14. Exemplary damages not proper

The award of exemplary damages is not proper considering that there is no showing that RCPI acted
in “a wanton, fraudulent, reckless, oppressive, or malevolent manner.” (Article 2232, New Civil Code).

15. Actual damages; Facts not sufficiently controverted by RCPI

Rodriguez was awarded the total amount of P43,148.00 as actual or compensatory damages broken
down as follows: (a) P10,000.00 for the preparation of the trip; (b) P20,000.00 for plane fare; (c) P5,000.00
for his stay in transit in Pakistan; (d) P4,000.00 for hotel bills in Khartoum; (e) P78.00 for the telegraphic toll,
and P70.00 for the cost of the cablegram sent to Diane Merger. The trial court rejected the expenses allegedly
incurred by Rodriguez for a dinner he tendered for the officers, organizers and students at Khartoum for
insufficiency of evidence. RCPI does not controvert the amounts. Instead, RCPI concentrates its opposition to
the award of actual damages on the argument that Rodriguez’ expenses were actually paid by the organization
and the Sudanese government. RCPI, however, fails to substantiate its allegations with clear proof. On the
other hand, what is evident on record is that due to the non-receipt of the telegram which would have
confirmed the scheduled conference on 20 September 1978, Taha cancelled all preparations and stopped the
soliciting of funds for the conference which would have included the expenses of Rodriguez. As a result of
the cancellation of the conference, triggered by the non-delivery of the telegrams, the officers were
constrained to schedule another meeting in Santiago, Chile in April 1979. The Supreme Court found no
reason to disturb the findings of the trial court affirmed by the appellate court as these were not sufficiently
controverted by RCPI.

16. Award of attorney’s fees improper; When award stated only in dispositive portion of decision,
must be disallowed on appeal
In Abrogar v. Intermediate Appellate Court (157 SCRA 57 [1988]), the Court had occasion to state
that the reason for the award of attorney’s fees must be stated in the text of the court’s decision, otherwise, if
it is stated only in the dispositive portion of the decision, the same must be disallowed on appeal. Herein, the
award of attorney’s fees was improper because there was no allegation in the complaint with respect to
attorney’s fees; Rodriguez did not present any evidence to prove attorney’s fees and the decision failed to
explain why attorney’s fees are being awarded. The trial court failed to justify the payment of attorney’s fees
by RCPI, therefore, the award of attorney’s fees as part of its liability should be disallowed and deleted.

[217]

Telefast Communications vs. Castro (GR 73867, 29 February 1988)

Second Division, Padilla (J): 3 concur

Facts: On 2 November 1956, Consolacion Bravo-Castro, wife of Ignacio Castro, Sr. and mother of Sofia
Castro-Crouch, Ignacio Castro Jr., Aurora Castro, Salvador Castro, Mario Castro, Conrado Castro, Esmeralda
Castro-Floro, Agerico Castro, Rolando Castro, Virgilio Castro and Gloria Castro, passed away in Lingayen,
Pangasinan. On the same day, her daughter Sofia C. Crouch, who was then vacationing in the Philippines,
addressed a telegram to Ignacio Castro, Sr. at 685 Wanda, Scottsburg, Indiana, USA, 47170 announcing
Consolacion’s death. The telegram was accepted by Telefast in its Dagupan office, for transmission, after
payment of the required fees or charges. The telegram never reached its addressee. Consolacion was interred
with only her daughter Sofia in attendance. Neither the husband nor any of the other children of the deceased,
then all residing in the United States, returned for the burial. When Sofia returned to the United States, she
discovered that the wire she had caused Telefast to send, had not been received.

The Castros brought action for damages arising from Telefast’s breach of contract. The case was filed in the
CFI Pangasinan (Civil Case 15356). The trial court, after trial, ordered Telefast to pay the Castros damages
with interest at 6% per annum ([1] Sofia C. Crouch, P31.92 and P16,000.00 as compensatory damages and
P20,000.00 as moral damages; [2] Ignacio Castro Sr., P20,000.00 as moral damages; [3] Ignacio Castro Jr.,
P20,000.00 as moral damages; [4] Aurora Castro, P10,000.00 moral damages; [5] Salvador Castro,
P10,000.00 moral damages; [6] Mario Castro, P10,000.00 moral damages; [7] Conrado Castro, P10,000
moral damages; [8] Esmeralda C. Floro, P20,000.00 moral damages; [9] Agerico Castro, P10,000.00 moral
damages; [10] Rolando Castro, P10,000.00 moral damages; [11] Virgilio Castro, P10,000.00 moral damages;
and [12] Gloria Castro, P10,000.00 moral damages). The Court also ordered Telefast to pay P5,000.00
attorney’s fees, exemplary damages in the amount of P1,000.00 to each of the Castros and costs.

On appeal by Telefast, the Intermediate Appellate Court affirmed the trial court’s decision but eliminated the
award of P16,000.00 as compensatory damages to Sofia C. Crouch and the award of Pl,000.00 to each of the
Castros as exemplary damages. The award of P20,000.00 as moral damages to each of Sofia C. Crouch,
Ignacio Castro, Jr. and Esmeralda C. Floro was also reduced to P10,000.00 for each. Teledast appealed from
the judgment of the appellate court, contending that the award of moral damages should be eliminated as
Telefast’s negligent act was not motivated by “fraud, malice or recklessness.”

The Supreme Court denied the petition, and modified the decision appealed from so that Telefast was held
liable to the Castros in the amounts of (1) P10,000.00 as moral damages, to each of the Castros; (2) P1,000.00
as exemplary damages, to each of the Castros; (3) P16,000.00 as compensatory damages, to Sofia C. Crouch;
(4) P5,000.00 as attorney’s fees; and (5) Costs of suit.

1. Articles 1170 and 2176 of the Civil Code; Telefast liable for damages
Art. 1170 of the Civil Code provides that “those who in the performance of their obligations are
guilty of fraud, negligence or delay, and those who in any manner contravene the tenor thereof, are liable for
damages.” Art. 2176 also provides that “whoever by act or omission causes damage to another, there being
fault or negligence, is obliged to pay for the damage done.” Herein, Sofia C. Crouch entered into a contract
whereby, for a fee, Telefast undertook to send her message overseas by telegram. This, Telefast did not do,
despite performance by Crouch of her obligation by paying the required charges. Telefast was therefore guilty
of contravening its obligation to Castro and is thus liable for damages.

2. Liability not limited to actual or quantified damages

The liability is not limited to actual or quantified damages. To sustain Telefast’s contrary position in
this regard would result in an inequitous situation where Telefast will only be held liable for the actual cost of
a telegram fixed 30 years ago.

3. Article 2217 of the Civil Code applicable

Art. 2217 of the Civil Code is applicable to the case. It states: “Moral damages include physical
suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock,
social humiliation, and similar injury. Though incapable of pecuniary computation, moral damages may be
recovered if they are the proximate results of the defendant’s wrongful act or omission.” Herein, Telefast’s
act or omission, which amounted to gross negligence, was precisely the cause of the suffering the Castros had
to undergo. No one can seriously dispute the shock, the mental anguish and the sorrow that the overseas
children must have suffered upon learning of the death of their mother after she had already been interred,
without being given the opportunity to even make a choice on whether they wanted to pay her their last
respects. There is no doubt that these emotional sufferings were proximately caused by appellant’s omission
and substantive law provides for the justification for the award of moral damages.

4. Award of compensatory damages justified

The Court sustained the trial court’s award of P16,000.00 as compensatory damages to Crouch
representing the expenses she incurred when she came to the Philippines from the United States to testify
before the trial court. Had Telefast not been remiss in performing its obligation, there would have been no
need for this suit or for Mrs. Crouch’s testimony.

5. Award of exemplary damages justified

The award of exemplary damages by the trial court is likewise justified and, therefore, sustained in
the amount of P1,000.00 for each of the Castros, as a warning to all telegram companies to observe due
diligence in transmitting the messages of their customers.

[218]

RCPI vs. CA (GR 79578, 13 March 1991)

Second Division, Sarmiento (J): 4 concur

Facts: On 24 January 1983, spouses Minerva Timan and Flores Timan sent a telegram of condolence to their
cousins, Mr. and Mrs. Hilario Midoranda, at Trinidad, Calbayog City, through Radio Communications of the
Philippines, Inc. (RCPI) at Cubao, Quezon City, to convey their deepest sympathy for the recent death of the
mother-in-law of Hilario Midoranda. The condolence telegram was correctly transmitted as far as the written
text was concerned. However, the condolence message as communicated and delivered to the addressees was
typewritten on a “Happy Birthday” card and placed inside a “Christmasgram” envelope. Believing that the
transmittal to the addressees of the telegram in that nonsuch manner was done intentionally and with gross
breach of contract resulting to ridicule, contempt, and humiliation of the spouses Timan and the addressees,
including their friends and relatives, the spouses Timan demanded an explanation.

Unsatisfied with RCPI’s explanations in its letters, dated March 9 and April 20, 1983, the Timans filed a
complaint for damages. The trial court, on 14 February 1985 rendered judgment in favor of the spouses
Timans, ordering RCPI to pay the spouses Timans the amount of P30,848.05 representing actual and
compensatory damages; P10,000.00 as moral damages and P5,000.00 as exemplary damages; attorney’s fees
in the sum of P5,000.00; and costs.

The decision of the trial court was affirmed in toto by the Court of Appeals. Hence, the petition for review.

The Supreme Court affirmed the decision appealed from in toto; with costs against RCPI.

1. Telecommunication company engaged in business affecting public interest; Degree of diligence

RCPI, a corporation dealing in telecommunications and offering its services to the public, is engaged
in a business affected with public interest. As such, it is bound to exercise that degree of diligence expected of
it in the performance of its obligation.

2. Corporation can only act through its employees; Acts of employees are also the corporation’s
RCPI is a domestic corporation engaged in the business of receiving and transmitting messages.
Everytime a person transmits a message through the facilities of the petitioner, a contract is entered into.
Upon receipt of the rate or fee fixed, the petitioner undertakes to transmit the message accurately. As a
corporation, it can act only through its employees. Hence the acts of its employees in receiving and
transmitting messages are the acts of the corporation. To hold that the corporation is not liable directly for the
acts of its employees in the pursuit of its business is to deprive the general public availing of the services of
the corporation of an effective and adequate remedy.

3. Telegram in ordinary or social form

Anyone who avails of the facilities of a telegram company can choose to send his message in the
ordinary form or in a social form. In the ordinary form, the text of the message is typed on plain newsprint
paper. On the other hand, a social telegram is placed in a special form with the proper decorations and
embellishments to suit the occasion and the message and delivered in an envelope matching the purpose of
the occasion and the words and intent of the message. The sender pays a higher amount for the social
telegram than for one in the ordinary form.

4. RCPI committed breach of contract, gross negligence; RCPI callous and liable for damages for
wanton misconduct
Herein, when RCPI typed the spouses’ message of condolence in a birthday card and delivered the
same in a colorful Christmasgram envelope, it committed a breach of contract as well as gross negligence. Its
excuse that it had run out of social condolence cards and envelopes is flimsy and unacceptable. It could not
have been faulted had it delivered the message in the ordinary form and reimbursed the difference in the cost
to the spouses. But by transmitting it unfittingly — through other special forms clearly, albeit outwardly,
portraying the opposite feelings of joy and happiness and thanksgiving — RCPI only exacerbated the
sorrowful situation of the addressees and the senders. It bears stress that this botchery exposed not only
RCPI’s gross negligence but also its callousness and disregard for the sentiments of its clientele, which
tantamount to wanton misconduct, for which it must be held liable for damages.

5. RCPI liable for Mr. Timan’s confinement in hospital

Herein, when the Timans’ telegraphic message reached their cousin, it became the joke of the
Midorandas’ friends, relatives, and associates who thought, and rightly so, that the unpardonable mix-up was
a mockery of the death of the mother-in-law of the senders’ cousin. Thus it was not unexpected that because
of this unusual incident, which caused much embarrassment and distress to Minerva Timan, he suffered
nervousness and hypertension resulting in his confinement for three days starting from 4 April 1983 at the
Capitol Medical Center in Quezon City.

6. Supreme Court is not a trier of facts

RCPI insists that there is no causal relation of the illness suffered by Mr. Timan with the foul-up
caused by the petitioner. But that is a question of fact. The findings of fact of the trial court and the appellate
court concur in favor of the spouses Timans. The Supreme Court is bound by such findings — that is the
general rule well-established by a long line of cases. Nothing has been shown to convince us to justify the
relaxation of this rule in RCPI’s favor. On the contrary, these factual findings are supported by substantial
evidence on record.

7. Moral and exemplary damages; RCPI committed acts of bad faith, fraud or malice
In contracts and quasi-contracts, exemplary damages may be awarded if the defendant acted in a
wanton, fraudulent, reckless, oppressive or malevolent manner. There was gross negligence in transmitting
the wrong telegram makes the telecommunication company liable. Gross carelessness or negligence
constitutes wanton misconduct. Herein, RCPI did not comply with its contract as intended by the parties and
instead of transmitting the condolence message in an ordinary form, in accordance with its guidelines, placed
the condolence message expressing sadness and sorrow in forms conveying joy and happiness. Under the
circumstances, RCPI’s plea of good faith predicated on such exhaustion of social condolence forms cannot be
accepted. Gross negligence or carelessness can be attributed to RCPI in not supplying its various stations with
such sufficient and adequate social condolence forms when it held out to the public sometime in January
1983, the availability of such social condolence forms and accepted for a fee the transmission of messages on
said forms. Knowing that there are no such forms as testified to by its Material Control Manager Mateo
Atienza, and entering into a contract for the transmission of messages in such forms, RCPI committed acts of
bad faith, fraud or malice.

8. Punitive damages may be recovered

Punitive damages may be recovered for wilful or wantonly negligent acts in respect of messages,
even though those acts are neither authorized nor ratified. Thus, punitive damages have been recovered for
mistakes in the transmission of telegrams. Herein, RCPI’s argument that it can not be held liable for
exemplary damages, being penal or punitive in character, is without merit.

9. Court’s warning to RCPI

By merely reviewing the number of cases that has reached the Supreme Court in which RCPI was
time and again held liable for the same causes — breach of contract and gross negligence — the ineluctable
conclusion is that it has not in any way reformed nor improved its services to the public. It must do so now or
else next time the Court may be constrained to adjudge stricter sanctions.

[220]

Zulueta vs. Pan American World Airways (GR L-28589, 8 January 1973); Resolution
Second Division, Concepcion (J): 6 concur, 1 voted for modification, 2 took no part

Facts: Rafael Zulueta, et. al. and Pan American World Airways Inc. have moved for the reconsideration of
the decision of the Supreme Court promulgated on 29 February 1972. Zulueta maintained that the decision
appealed from should be affirmed in toto. The carrier, in turn, prays that the decision of the Supreme Court be
“set aside with or without a new trial, and that the complaint be dismissed, with costs; or, in the alternative,
that the amount of the award embodied therein be considerably reduced.” Subsequently to the filing of its
motion for reconsideration, the carrier filed a “petition to annul proceedings and/or to order the dismissal of
Zulueta’s complaint,” upon the ground that Zulueta’s complaint actually seeks the recovery of only P5,502.85
as actual damages, because, for the purpose of determining the jurisdiction of the lower court, the unspecified
sums representing items of alleged damages, may not be considered, under the settled doctrines of the
Supreme Court, and the jurisdiction of the CFI when the complaint in the present case was filed on 30
September 1965 was limited to cases in which the demand, exclusive of interest, or the value of the property
in controversy amounts to more than P10,000 and the mere fact that the complaint also prays for unspecified
moral damages and attorney’s fees, does not bring the action within the jurisdiction of the lower court.

The Supreme Court denied the motions for reconsideration.

1. Claim for moral damages not susceptible of pecuniary estimation

A claim for moral damages is one not susceptible of pecuniary estimation. In fact, Article 2217 of the
Civil Code of the Philippines explicitly provides that “though incapable of pecuniary computation, moral
damages may be recovered if they are the proximate result of the defendant’s wrongful act or omission.”
Hence, “no proof pecuniary loss necessary” — pursuant to Article 2216 of the same Code — “in order that
moral damages may be adjudicated.” And “the assessment of such damages is left to the discretion of the
court” — said article adds — “according to the circumstances of each case.” Hence, the complaint is,
therefore, within the original jurisdiction of courts of first instance, which includes “all civil actions in which
the subject of the litigation is not capable of pecuniary estimation.”

2. Counterclaim may cure alleged defect as to amount necessary to determine jurisdiction of the
case
 There is no need to consider the jurisdictional controversy as to the amount sued to be recovered
because the counterclaim interposed establishes the jurisdiction of the Court. The Courts have said that when
the jurisdictional amount is in question, the tendering of a counterclaim in an amount which in itself, or added
to the amount claimed in the petition, makes up a sum equal to the amount necessary to the jurisdiction of this
court, jurisdiction is established, whatever may be the state of the plaintiff’s complaint. Herein, n its answer
to Zulueta’s original and amended complaints, Pan Am had set up a counterclaim in the aggregate sum of
P12,000, which is, also, within the original Jurisdiction of said courts, thereby curing the alleged defect if any,
in Zulueta’s complaint.

3. Similar case as to jurisdiction; Ago v. Buslon

Therein, petitioner’s counterclaim for P37,000.00 was, also, within the exclusive original jurisdiction
of the latter courts, and there are ample precedents to the effect that “although the original claim involves less
than the jurisdictional amount, jurisdiction can be sustained if the counterclaim (of the compulsory type)” —
such as the one set up by petitioner herein, based upon the damages allegedly suffered by him in consequence
of the filing of said complaint — “exceeds the jurisdictional amount.”

4. Pan Am estopped from questioning jurisdiction

Herein, having not only failed to question the jurisdiction of the trial court — either in that court or in
the Supreme Court, before the rendition of the latter’s decision, and even subsequently thereto, by filing
motion for reconsideration and seeking the reliefs therein prayed for — but, also, urged both courts to
exercise jurisdiction over the merits of the case, Pan Am is now estopped from impugning said jurisdiction.

5. Factual findings of the trial court

The Trial Judge, who had the decided advantage of observing the behaviour of the witnesses in the
course of the trial, and found those of Zulueta worthy of credence, not the evidence for Pan Am.

6. Res gestae; Bomb scare scenario disputed

Herein, the defense theorized to the effect that Zulueta was off-loaded because of a bomb-scare
allegedly arising from his delay in boarding the aircraft and subsequent refusal to open his bags for
inspection. In his written report, made in transit from Wake to Manila — or immediately after the occurrence
and before the legal implications or consequences thereof could have been the object of mature deliberation,
so that it could, in a way, be considered as part of the res gestae — Capt. Zentner stated that Zulueta had been
off-loaded “due to drinking” and “belligerent attitude,” thereby belying the story of the defense about said
alleged bomb-scare, and confirming the view that said Pan Am’s agent had acted out of resentment because
his ego had been hurt by Mr. Zulueta’s adamant refusal to be bullied by him. Indeed, had there been an iota of
truth in said story of the defense, Capt. Zentner would have caused every one of the passengers to be frisked
or searched and the luggage of all of them examined before resuming the flight from Wake Island. His failure
to do so merely makes the artificious nature of Pan Am’s version more manifest. Indeed, the fact that Mrs.
Zulueta and Miss Zulueta were on board the plane shows beyond doubt that Mr. Zulueta could not possibly
have intended to blow it up.

7. Reason for Zulueta’s delay in arriving for the flight; Statement that Zulueta relieved himself at
secluded place in the beach verifiable
Herein, although Mr. Zulueta had to look for a secluded place in the beach to relieve himself, beyond
the view of others, Pan Am’s airport manager, whom Mr. Zulueta informed about it, soon after the departure
of the plane, could have forthwith checked the veracity of Mr. Zulueta’s statement by asking him to indicate
the specific place where he had been in the beach and then proceeding thereto for purposes of verification.

8. Zulueta’s delay in arriving for the flight; Passenger not knowledgeable on how many toilets the
plane has
 The passenger of a plane seldom knows how many toilets it has. As a general rule, his knowledge is
limited to the toilets for the class — first class or tourist class — in which he is. Then, too, it takes several
minutes for the passengers of big aircrafts, like those flying from the U.S. to the Philippines, to deplane.
Besides, the speed with which a given passenger may do so depends, largely, upon the location of his seat in
relation to the exit door. He cannot go over the heads of those nearer than he thereby.

9. Zulueta’s delay in arriving for the flight; Zulueta may have performed acts within the one-
hour period
Herein, Mr. Zulueta may have stayed in the toilet terminal for some time, expecting one of the
commodes therein to be vacated soon enough, before deciding to go elsewhere to look for a place suitable to
his purpose. But he had to walk, first, from the plane to the terminal building and, then, after vainly waiting
therein for a while, cover a distance of about 400 yards therefrom to the beach, and seek there a place not
visible by the people in the plane and in the terminal, inasmuch as the terrain at Wake Island is flat. What is
more, he must have had to take off part, at least, of his clothing, because, without the facilities of a toilet, he
had to wash himself and, then, dry himself up before he could be properly attired and walk back the 400 yards
that separated him from the terminal building and/or the plane. Considering, in addition to the foregoing, the
fact that he was not feeling well, at that time, the Court is not prepared to hold that it could not have taken
him around an hour to perform the acts narrated by him.

10. Altercations between Zulueta and Capt. Zentner existing at the ramp leading to the plane; No
opportunity for Zulueta to explain his prior whereabouts
Herein, the record shows that, even before Mr. Zulueta had reached the ramp leading to the plane,
Capt. Zentner was already remonstrating at him in an intemperate and arrogant tone and attitude (“What do
you think you are?), thereby impelling Mr. Zulueta to answer back in the same vein. As a consequence, there
immediately ensued an altercation in the course of which each apparently tried to show that he could not be
cowed by the other. Then came the order of Capt. Zentner to off-load all of the Zuluetas, including Mrs.
Zulueta and the minor Miss Zulueta, as well as their luggage, their overcoats and other effects handcarried by
them; but, Mr. Zulueta requested that the ladies be allowed to continue the trip. Meanwhile, it had taken time
to locate his 4 pieces of luggage. As a matter of fact, only 3 of them were found, and the fourth eventually
remained in the plane. In short, the issue between Capt. Zentner and Mr. Zulueta had been limited to
determining whether the latter would allow himself to he browbeaten by the former. In the heat of the
altercation, nobody had inquired about the cause of Mr. Zulueta’s delay in returning to the plane, apart from
the fact that it was rather embarrassing for him to explain, in the presence and within the hearing of the
passengers and the crew, then assembled around them, why he had gone to the beach and why it had taken
him some time to answer there a call of nature, instead of doing so in the terminal building.

11. Cases, as to damages, cited by Pan Am not in point

Previous cases to passengers of airlines, , cited by Pan Am, are not in point. Said cases against
airlines referred to passengers who were merely constrained to take a tourist class accommodation, despite the
fact that they had first class tickets, and that although, in one of such cases, there was proof that the airline
involved had acted as it did to give preference to a “white” passenger, this motive was not disclosed until the
trial in court. Herein, Rafael Zulueta was “off-loaded” at Wake Island, for having dared to retort to Pan Am’s
agent in a tone and manner matching, if not befitting his intemperate language and arrogant attitude. As a
consequence, Capt. Zentner’s attempt to humiliate Rafael Zulueta had boomeranged against him (Zentner), in
the presence of the other passengers and the crew. It was, also, in their presence that Pan Am’s agent had
referred to the Zuluetas as “monkeys,” a racial insult not made openly and publicly in the previous cases
against airlines.

12. Zulueta not offloaded to protect safety of aircraft; Evidence supporting vindictive motive
Herein, Mr. Zulueta was off-loaded, not to protect the safety of the aircraft and its passengers, but to
retaliate and punish him for the embarrassment and loss of face thus suffered by Pan Am’s agent. This

Transportation Law, 2004 (

511 )
vindictive motive is made more manifest by the note delivered to Mr. Zulueta by Pan Am’s airport manager at
Wake Island, Mr. Sitton, stating that the former’s stay therein would be “for a minimum of one week,” during
which he would be charged $13.30 per day. This reference to a “minimum of one week” revealed the
intention to keep him there stranded that long, for no other plane, headed for Manila, was expected within
said period of time, although Mr. Zulueta managed to board, days later, a plane that brought him to Hawaii,
whence he flew back to the Philippines, via Japan.

13. Cases, as to libel and slander, cited by Pan Am not in point; Existence of contract of carriage
Herein, neither may criminal cases, nor the cases for libel and slander cited by Pan Am, be equated
with the present case. Indeed, in ordinary criminal cases, the award for damages is, in actual practice, of
purely academic value, for the convicts generally belong to the poorest class of society. There is, moreover, a
fundamental difference between said cases and the present one. The Zuluetas had a contract of carriage with
Pan Am.

14. Contract of carriage; Duties of the common carrier

The Zuluetas had a contract of carriage with Pan Am, as a common carrier, pursuant to which the
latter was bound, for a substantial monetary consideration paid by the former, not merely to transport them to
Manila, but, also, to do so with “extraordinary diligence” or “utmost diligence.” The responsibility of the
common carrier, under said contract, as regards the passenger’s safety, is of such a nature, affecting as it does
public interest, that it “cannot be dispensed with” or even “lessened by stipulation, by the posting of notices,
by statements on tickets, or otherwise.” Pan Am did not only fail to comply with its obligation to transport
Mr. Zulueta to Manila, but, also, acted in a manner calculated to humiliate him, to chastise him, to make him
suffer, to cause to him the greatest possible inconvenience, by leaving him in a desolate island, in the
expectation that he would be stranded there for a “minimum of one week” and, in addition thereto, charged
therefor $13.30 a day.

15. Rationale behind exemplary damages; Lopez vs. Pan Am

The rationale behind exemplary or corrective damages is, as the name implies, to provide an example
or correction for public good. Pan Am, having breached its contracts in bad faith, the court, may award
exemplary damages in addition to moral damages (Articles 2229, 2232, New Civil Code; Lopez vs. Pan Am)
It is obvious, herein, that in off-loading Zulueta at Wake Island, under the circumstances adverted to, Pan
Am’s agents had acted with malice aforethought and evident bad faith. If “gross negligence” warrants the
award of exemplary damages, with more reason is its imposition justified when the act performed is
deliberate, malicious and tainted with bad faith.

16. Exemplary damages; NWA vs. Cuenca

In NWA v. Cuenca, the Supreme Court declared that an award for exemplary damages was justified
by the fact that the airline’s “agent had acted in a wanton, reckless and oppressive manner” in compelling
Cuenca, upon arrival at Okinawa, to transfer, over his objection, from the first class, where he was
accommodated from Manila to Okinawa, to the tourist class, in his trip to Japan, “under threat of otherwise
leaving him in Okinawa,” despite the fact that he had paid in full the first class fare and was issued in Manila
a first class ticket.

17. Rotea vs. Halili not in point

The case of Rotea vs. Halili involved the subsidiary civil liability of an employer arising from
criminal acts of his employee, and “exemplary damages may be imposed when the crime was committed with
one or more aggravating circumstances.” Accordingly, the Rotea case is not in point, for the present case
involves a breach of contract, as well as a quasi-delict.

18. Palisoc vs. Brilliantes not in point

 Neither may the case of Palisoc v. Brillantes, be equated with the present case. The Palisoc case dealt
with the liability of school officials for damages arising from the death of a student (Palisoc) due to fist blows
given by another student (Daffon), in the course of a quarrel between them, while in a laboratory room of the
Manila Technical Institute. In an action for damages, the head thereof and the teacher in charge of said
laboratory were held jointly and severally liable with the student who caused said death, for failure of the
school to provide “adequate supervision over the activities of the students in the school premises,” to protect
them “from harm, whether at the hands of fellow students or other parties.” The amount of damages awarded
in the Palisoc case is not and cannot serve as the measure of the damages recoverable in the present case, the
latter having been caused directly and intentionally by an employee or agent of the defendant, whereas the
student who killed the young Palisoc was in no wise an agent of the school. Herein, upon her arrival in the
Philippines, Mrs. Zulueta reported her husband’s predicament to Pan Am’s local manager and asked him to
forthwith have him (Mr. Zulueta) brought to Manila, which Pan Am’s manager refused to do, thereby
impliedly ratifying the off-loading of Mr. Zulueta at Wake Island.

19. Article 2180 NCC; Palisoc case

Article 2180 of the Civil Code, reads “The obligation imposed by article 2176 is demandable not only
for one’s own acts or omissions, but also for those of persons for whom one is responsible. xxx Lastly,
teachers or heads of establishments of arts and trades shall be liable for damages caused by their pupils and
students or apprentices, so long as they remain in their custody.

20. Zulueta would have violated contract if he did not arrive on time, and if the plane has taken off
The argument that – Mr. Zulueta was bound to be present at the time scheduled for the departure of
Pan Am’s plane and that he had, consequently, violated said contract when he did not show up at such time –
might have had some weight had Pan Am’s plane taken off before Mr. Zulueta had shown up. But the fact is
that he was ready, willing and able to board the plane about 2 hours before it actually took off, and that he was
deliberately and maliciously off-loaded on account of his altercation with Capt. Zentner. Although Mr.
Zulueta was delayed some 20 to 30 minutes, the arrival or departure of planes is often delayed for much
longer periods of time. Followed to its logical conclusion, the argument adduced by the defense suggests that
airlines should be held liable for damages due to the inconvenience and anxiety, aside from actual damages,
suffered by many passengers either in their haste to arrive at the airport on scheduled time just to find that
their plane will not take off until later, or by reason of the late arrival of the aircraft at its destination.

21. Rationale why jurisdiction of lower court being questioned by Pan Am

Apart from Zulueta’s claim for actual damages, the amount of which is not contested, the Zuluetas
did not ask any specific sum by way of exemplary and moral damages, as we]l as attorney’s fees, and left the
amount thereof to the “sound discretion” of the lower court. This, precisely, is the reason why PANAM, now,
alleges — without justification — that the lower court had no jurisdiction over the subject matter of the
present case.

22. Article 2208 NCC; Attorney’s fees

Article 2208 of our Civil Code expressly authorizes the award of attorney’s fees “when exemplary
damages are awarded,” as well as “in any other case where the court deems it just and equitable that
attorney’s fees be recovered.” Considering the “exceptional” circumstances obtaining therein – particularly
the bad faith with which Pan Am’s agent had acted, the place where and the conditions under which Rafael
Zulueta was left at Wake Island, the absolute refusal of defendant’s manager in Manila to take any step
whatsoever to alleviate Mr. Zulueta’s predicament at Wake and have him brought to Manila (which, under
their contract of carriage, was Pan Am’s obligation to discharge with “extraordinary” or “utmost” diligence)
and, the “racial” factor that had, likewise, tainted the decision of Pan Am’s agent, Capt. Zentner, to off-load
him at Wake Island – the Court deem it just and equitable in the present case to grant award of attorney’s fees.

23. Evidence justifying sum awarded as attorney’s fees

 As regards the evidence necessary to justify the sum of P75,000 awarded as attorney’s fees in the
present case, suffice it to say that the quantity and quality of the services rendered by Zulueta’s counsel
appearing on record, apart from the nature of the case and the amount involved therein as well as his prestige
as one of the most distinguished members of the legal profession in the Philippines, of which judicial
cognizance may be taken, amply justify said award, which is a little over 10% of the damages (P700,000)
collectible by Zulueta herein. Indeed, the attorney’s fees in this case is proportionally much less than that
adjudged in Lopez v. PANAM 16 which the judgment rendered for attorney’s fees (P50,000) was almost 20%
of the damages (P275,000) recovered by the Lopezes therein.

24. Payment effective while compromise agreement with Mrs. Zulueta ineffective insofar as the
conjugal partnership is concerned
The payment is effective, insofar as it is deductible from the award, and, because it is due (or part of
the amount due) from Pan Am, with or without its compromise agreement with Mrs. Zulueta. What is
ineffective is the compromise agreement, insofar as the conjugal partnership is concerned.

25. Article 113 not applicable; Rationale of the court in requiring deduction of P50,000 from
aggregate award
Article 113 of the Civil Code (the husband must be joined in all suits by or against the wife except:[2]
If they have in fact been separated for at least one year) refers to suits in which the wife is the principal or real
party in interest, not to the present case, “in which the husband is the main party in interest, both as the person
principally aggrieved and as administrator of the conjugal partnership, he having acted in this capacity in
entering into the contract of carriage with PANAM and paid the amount due to the latter, under the contract,
with funds of the conjugal partnership,” to which the amounts recoverable for breach of said contract,
accordingly, belong. The damages suffered by Mrs. Zulueta were mainly an incident of the humiliation to
which her husband had been subjected. The Court ordered that said sum of P50,000 paid by PANAM to Mrs.
Zulueta be deducted from the aggregate award in favor of the Zuluetas for the simple reason that upon
liquidation of the conjugal partnership, as provided by law, said amount would have to be reckoned with,
either as part of her share in the partnership, or as part of the support which might have been or may be due to
her as wife of Rafael Zulueta. It would surely be inane to sentence Pan Am to pay the P700,000 due to the
Zuluetas and to direct Mrs. Zulueta to return said P50,000 to Pan Am.

26. Mrs. Zulueta not allowed to waive share in conjugal partnership before dissolution thereof
For obvious reasons of public policy, Mrs. Zulueta is not allowed by law to waive her share in the
conjugal partnership, before the dissolution thereof. She cannot even acquire any property by gratuitous title,
without the husband’s consent, except from her ascendants, descendants, parents-in-law, and collateral
relatives within the fourth degree.

27. Compromise agreement; Law does not favor settlement when spouses are contrary parties in a
common cause
Although the law favors and encourages the settlement of litigations by compromise agreement
between the contending parties, it certainly does not favor a settlement with one of the spouses, both of whom
are plaintiffs or defendants in a common cause, such as the defense of the rights of the conjugal partnership,
when the effect, even if indirect, of the compromise is to jeopardize “the solidarity of the family” — which
the law seeks to protect — by creating an additional cause for the misunderstanding that had arisen between
such spouses during the litigation, and thus rendering more difficult a reconciliation between them.

28. Presumption that purpose of trip, and money paid thereon, are conjugal; Award conjugal
Herein, there was no individual or specific award in favor of Mrs. Zulueta or any of the Zuluetas; but
that the award was made in their favor collectively. In the absence of proof, the presumption is that the
purpose of the trip was for the common benefit of the Zuluetas and that the money had come from the
conjugal funds, for, unless there is proof to the contrary, it is presumed “that things have happened according
to the ordinary course of nature and the ordinary habits of life.” In fact Manresa maintains that they are
deemed conjugal, when the source of the money used therefor is not established, even if the purchase had
been made by the wife. And this is the rule obtaining in the Philippines. Even property registered, under the
Torrens system, in the name of one of the spouses, or in that of the wife only, if acquired during the marriage,
is presumed to belong to the conjugal partnership, unless there is competent proof to the contrary.

29. Conjugal partnership property; Article 153 NCC

Article 153 of the Civil Code provides that “The following are conjugal partnership property: (1) That
which is acquired by onerous title during the marriage at the expense of the common fund, whether the
acquisition be for the partnership, or for only one of the spouses; (2) That which is obtained by the industry,
or work, or as salary of the spouses, or of either of them; (3) The fruits, rents or interests received or due
during the marriage, coming from the common property or from the exclusive property of each spouse.”

30. Award of damages part of Article 153 (1) NCC

Considering that the damages in question have arisen from, inter alia, a breach of the Zuluetas’
contract of carriage with Pan Am, for which the Zuluetas paid their fare with funds presumably belonging to
the conjugal partnership, the Court holds that said damages fall under paragraph (1) of said Article 153, the
right thereto having been “acquired by onerous title during the marriage.”

31. Article 148 NCC

Article 148 of the Civil Code provides that “The following shall be the exclusive property of each
spouse: (1) That which is brought to the marriage as his or her own; (2) That which each acquires, during the
marriage, by lucrative title; (3) That which is acquired by right of redemption or by exchange with other
property belonging to only one of the spouses; (4) That which is purchased with exclusive money of the wife
or of the husband.”

32. Damages herein not under provisions forming “Paraphernal property”; Chapter 3, Title VI, of
Book I, NCC
The damages involved in the present case do not come under any of these provisions or of the other
provisions forming part of Chapter 3, Title VI, of Book I of the Civil Code, which chapter is entitled
“Paraphernal Property.” What is more, if “that which is acquired by right of redemption or by exchange with
other property belonging to only one of the spouses,” and “that which is purchased with exclusive money of
the wife or of the husband,” 24 belong exclusively to such wife or husband, it follows necessarily that that
which is acquired with money of the conjugal partnership belongs thereto or forms part thereof.

33. Maramba vs. Lozano, Perez vs. Lantin not in point

The rulings in Maramba v. Lozano, and Perez v. Lantin, it was merely held that the presumption
under Article 160 of our Civil Code — to the effect that all property of the marriage belong to the conjugal
partnership — does not apply unless it is shown that it was acquired during marriage. In the present case, the
contract of carriage was concededly entered into, and the damages claimed by the Zuluetas were incurred,
during marriage. Hence, the rights accruing from said contract, including those resulting from breach thereof
by Pan Am, are presumed to belong to the conjugal partnership of Mr. and Mrs. Zulueta. The fact that such
breach of contract was coupled, also, with a quasi-delict constitutes an aggravating circumstances and can not
possibly have the effect of depriving the conjugal partnership of such property rights.

34. Lack of proof as that right of redemption pertains to wife alone

Herein, Pan Am insists that the use of conjugal funds to redeem property does not make the property
redeemed conjugal if the right of redemption pertained to the wife. In the absence, however, of proof that
such right of redemption pertains to the wife — and there is no proof that the contract of carriage with
PANAM or the money paid therefor belongs to Mrs. Zulueta — the property involved, or the rights arising
therefrom, must be presumed, therefore, to form part of the conjugal partnership.
35. Lilius vs. Manila Railroad; Injuries suffered by the wife
It is true that in Lilius v. Manila Railroad Co., it was held that the “patrimonial and moral damages”
awarded to a young and beautiful woman by reason of a scar — in consequence of an injury resulting from an
automobile accident — which disfigured her face and fractured her left leg, as well as caused a permanent
deformity, are her paraphernal property.

36. Passage from Colin y Capitant; Injuries suffered by the wife

“No esta resuelta expresamente en la legislacion española la cuestin de si las indemnizaciones
debidas por accidentes del trabajo tienen la consideracion de gananciales o son bienes particulares de los
conyuges. Inclinan a la solucion de que estas indemnizaciones deben ser consideradas como gananciales, el
hecho de que la sociedad pierde la capacidad de trabajo con el accidente, que a ella le pertenece, puesto que
de la sociedad son los frutos de ese trabajo; en cambio, la consideracion de que de igual manera que los
bienes que sustituyen a los que cada conyuge lleva al matrimonio como propios tienen el caracter de propios,
hace pensar que las indemnizaciones que vengan a suplir la capacidad de trabajo aportada por cada conyuge a
la sociedad, deben ser juridicamente reputadas como bienes propios del conyuge que haya sufrido el
accidente. As! se llega a la misma solicion aportada por la jurisprudencia francesca.” 28

37. Opinion in Colin y Capitant not decisive as it comments on the French Civil Code, which differs
from the Spanish law (where the Philippine Civil Code is derived) in the treatment of property
relations between husband and wife
Colin y Capitant were commenting on the French Civil Code; that their comment referred to
indemnities due in consequence of “accidentes del trabajo” resulting in physical injuries sustained by one the
spouses (which Mrs. Zulueta has not suffered); and that said commentators admit that the question whether or
not said damages are paraphernal property or belong to the conjugal partnership is not settled under the
Spanish law. Besides, the French law and jurisprudence — to which the comments of Planiol and Ripert,
likewise, refer — are inapposite to the question under consideration, because they differ basically from the
Spanish law in the treatment of the property relations between husband and wife. Indeed, our Civil Code, lie
the Spanish Civil Code, favors the system of conjugal partnership of gains. Accordingly, the former provides
that “in the absence of marriage settlements, or when the same are void, the system of relative community or
conjugal partnership of gains shall govern the property relations between” the spouses. Hence, “all property
of the marriage is presumed to belong to the conjugal partnership, unless it be proved that it pertains
exclusively to the husband or to the wife.” No similar rules are found in the French Civil Code.

38. Capitulaciones matriomiales; Manresa

The conjugal partnership exists only when so stipulated in the “capitulaciones matrimoniales” or by
way of exception. In the language of Manresa: “Prescindimos de los preceptos de los Codigos de Francia,
Italia, Holanda, Portugal, Alemania y Suiza, porsue solo excepcionalmente, o cuando asi se pacta en las
capitulaciones, admiten el sistema de gananciales.”

[221]

Lopez vs. Pan American World Airways (GR L-22415, 30 March 1966)
En Banc, Bengzon JP (J): 9 concur, 1 on leave

Facts: Reservations for first class accommodations in Flight 2 of Pan American World Airways from Tokyo
to San Francisco on 24 May 1960 were made with PAN AM on 29 March 1960, by “Your Travel Guide”
agency, specifically, by Delfin Faustino, for then Senator Fernando Lopez, his wife Maria J. Lopez, his son-
in-law Alfredo Montelibano, Jr., and his daughter Mrs. Alfredo Montelibano, Jr. (Milagros Lopez
Montelibano). PAN AM’s San Francisco head office confirmed the reservations on 31 March 1960. First class
tickets for the abovementioned flight were subsequently issued by PAN AM on May 21 and 23, 1960, in favor
of Senator Lopez and his party. The total fare of P9,444 for all of them was fully paid before the tickets were
issued. As scheduled Senator Lopez and party left Manila by Northwest Airlines on 24 May 1960, arriving in
Tokyo at 5:30 P.M. of that day. As soon as they arrived Senator Lopez requested Minister Busuego of the
Philippine Embassy to contact PAN AM’s Tokyo office regarding their first class accommodations for that
evening’s flight. For the given reason that the first class seats therein were all booked up, however, PAN
AM’s Tokyo office informed Minister Busuego that PAN AM could not accommodate Senator Lopez and
party in that trip as first class passengers. Senator Lopez thereupon gave their first class tickets to Minister
Busuego for him to show the same to PAN AM’s Tokyo office, but the latter firmly reiterated that there was
no accommodation for them in the first class, stating that they could not go in that flight unless they took the
tourist class therein. Due to pressing engagements awaiting Senator Lopez and his wife in the United States
— he had to attend a business conference in San Francisco the next day and she had to undergo a medical
check-up in Mayo Clinic, Rochester, Minnesota, on 28 May 1960 and needed three days rest before that in
San Francisco — Senator Lopez and party were constrained to take PAN AM’s flight from Tokyo to San
Francisco as tourist passengers. Senator Lopez however made it clear, as indicated in his letter to PAN AM’s
Tokyo office on that date, that they did so “under protest” and without prejudice to further action against the
airline.

Facts pertaining to bad faith (Defendant’s evidence): The first class reservations of Senator Lopez
and party were made on 29 March 1960 together with those of four members of the Rufino family,
for a total of 8 seats, as shown in their joint reservation card. Subsequently, on 30 March 1960, two
other Rufinos secured reservations and were given a separate reservation card. A new reservation
card consisting of two pages was then made for the original group of eight passengers, namely,
Senator Lopez and party and four members of the Rufino family, the first page referring to 2 Lopez ,
2 Montelibanos and 1 Rufino and the second page referring to 3 Rufinos. On 18 April 1960 “Your
Travel Guide” agency cancelled the reservations of the Rufinos. A telex message was thereupon sent
on that date to PAN AM’s head office at San Francisco by Mariano Herranz, PAN AM’s reservations
employee at its office in Escolta, Manila. In said message, however, Herranz mistakenly cancelled all
the seats that had been reserved, that is, including those of Senator Lopez and party. The next day —
April 1960 — Herranz discovered his mistake, upon seeing the reservation card newly prepared by
his co-employee Pedro Asensi for Senator Lopez and party to the exclusion of the Rufinos. It was
then that Herranz sent another telex wire to the San Francisco head office, stating his error and
asking for the reinstatement of the 4 first class seats reserved for Senator Lopez and party. San
Francisco head office replied on April 22, 1960 that Senator Lopez and party are waitlisted and that
said office is unable to reinstate them. Since the flight involved was still more than a month away and
confident that reinstatement would be made, Herranz forgot the matter and told no one about it
except his co- employee, either Armando Davila or Pedro Asensi or both of them. Subsequently, on
27 April 1960, Armando Davila, PAN AM’s reservations employee working in the same Escolta
office as Herranz, phoned PAN AM’s ticket sellers at its other office in the Manila Hotel, and
confirmed the reservations of Senator Lopez and party. PAN AM’s reservations supervisor, Alberto
Jose, discovered Herranz’s mistake after “Your Travel Guide” phoned on 18 May 1960 to state that
Senator Lopez and party were going to depart as scheduled. Accordingly, Jose sent a telex wire on
that date to PAN AM’s head office at San Francisco to report the error and asked said office to
continue holding the reservations of Senator Lopez and party. Said message was reiterated by Jose in
his telex wire of 19 May 1960. San Francisco head office replied on 19 May 1960 that it regrets
being unable to confirm Senator Lopez and party for the reason that the flight was solidly booked.
Jose sent a third telex wire on 20 May 1960 addressed to PAN AM’s offices at San Francisco, New
York (Idlewild Airport), Tokyo and Hongkong, asking all-out assistance towards restoring the
cancelled spaces and for report of cancellations at their end. San Francisco head office reiterated on
20 May 1960 that it could not reinstate the spaces and referred Jose to the Tokyo and Hongkong
offices. Also on May 20 the Tokyo office of PAN AM wired Jose stating it will do everything
possible. Expecting that some cancellations of bookings would be made before the flight time,
Jose decided to withhold from
 Senator Lopez and party, or their agent, the information that their reservations had been cancelled.
Armando Davila having previously confirmed Senator Lopez and party’s first class reservations to
PAN AM’s ticket sellers at its Manila Hotel office, the latter sold and issued in their favor the
corresponding first class tickets on the 21st and 23rd of May, 1960.

Suit for damages was thereafter filed by Senator Lopez and party against PAN AM on 2 June 1960 in the CFI
of Rizal. Alleging breach of contracts in bad faith by Pan Am, the Lopezes asked for P500,000 actual and
moral damages, P100,000 exemplary damages P25,000 attorney’s fees, plus costs. PAN AM filed its answer
on 22 June 1960, asserting that its failure to provide first class accommodations to plaintiffs was due to
honest error of its employees. It also interposed a counterclaim for attorney’s fees of P25,000. After trial, the
CFI rendered its decision on 13 November 1963, which ordered Pan Am to pay the Lopezes the following (a)
P100,000.00 as moral damages: (b) P20,000.00 as exemplary damage; (c) P25,000.00 as attorney’s fees, and
the costs of the action.

The Lopezes however, on 21 November 1963, moved for reconsideration of said judgment, asking that moral
damages be increased to P400,000 and that 6% interest per annum on the amount of the award be granted.
Pan Am opposed the same. Acting thereon the trial court issued an order on 14 December 1963, ordering Pan
Am to pay the Lopezes (a) P150,000.00 as moral damages; (b) P25,000.00 as exemplary damages; with legal
interest on both from the date of the filing of the complaint until paid; and (c) P25,000.00 as attorney’s fees,
and the costs of the action.” It is from said judgment, as thus reconsidered, that both parties have appealed.
PanAm takes issue with the finding of the court a quo that it acted in bad faith in the breach of said contracts.
The Lopezes, on the other hand, raise questions on the amount of damages awarded in their favor, seeking
that the same be increased to a total of P650,000.

The Supreme Court modified the judgments appealed from so as to award in favor of the Lopezes and against
Pan Am: (1) P200,000.00 as moral damages, divided among the Lopezes, thus: P100,000.00 for Senate
President Pro Tempore Fernando Lopez; P50,000.00 for his wife Maria J. Lopez P25,000.00 for his son-in-
law Alfredo Montelibano, Jr. and P25,000.00 for his daughter Mrs. Alfredo Montelibano, Jr.; (2) P75,000.00
as exemplary or corrective damages; (3) interest at the legal rate of 6% per annum on the moral and
exemplary damages afore-stated, from 14 December 1963, the date of the amended decision of the court a
quo, until said damages are fully paid; (4) P50,000.00 as attorney’s fees; and (5) the costs. The Court
dismissed the counterclaim.

1. Bad faith defined

For bad faith means a breach of a known duty through some motive of interest or ill will. Self-
enrichment or fraternal interest, and not personal ill will, may well have been the motive, but it is malice
nevertheless.

2. Admission of bad faith

It is admitted that Pan Am, through its agents, by its own evidence, first cancelled the Lopezes’
reservations by mistake and thereafter deliberately and intentionally withheld from the latter or their travel
agent the fact of said cancellation, letting them go on believing that their first class reservations stood valid
and confirmed. In so misleading the Lopezes into purchasing first class tickets in the conviction that they had
confirmed reservations for the same, when in fact they had none, Pan Am wilfully and knowingly placed
itself into the position of having to breach its contracts with the Lopezes should there be no last-minute
cancellation by other passengers before flight time. Such actuation of Pan Am may indeed have been
prompted by nothing more than the promotion of its self- interest in holding on to Senator Lopez and party as
passengers in its flight and foreclosing on their chances to seek the services of other airlines that may have
been able to afford them first class accommodations. All the same, in legal contemplation such conduct
already amounts to action in bad faith.
3. Other facts highlighting bad faith
At the time the Lopezes bought their tickets, defendant, therefore, in breach of its known duty, made
the Lopezes believe that their reservations had not been cancelled. An additional indication of this is the fact
that upon the face of the two tickets of record, namely, the ticket issued to Alfredo Montelibano, Jr. on 21
May 1960 and that issued to Mrs. Alfredo Montelibano, Jr., on 23 May 1960, the reservation status is stated
as “OK”. Such willful non-disclosure of the cancellation or pretense that the reservations for the Lopezes
stood, and not simply the erroneous cancellation itself, is the factor to which is attributable the breach of the
resulting contracts. As if to further emphasize its bad faith on the matter, Pan Am subsequently promoted the
employee who cancelled the Lopezes’ reservations and told them nothing about it. The record shows that said
employee, Mariano Herranz, was not subjected to investigation and suspension by defendant but instead was
given a reward in the form of an increase of salary in June of the following year.

4. Arguendo, mistakes; Negligence so gross and reckless amounts to malice or bad faith
At any rate, granting all the mistakes advanced by Pan Am, there would at least be negligence so
gross and reckless as to amount to malice or bad faith. Firstly, notwithstanding entries in the reservation cards
that the reservations cancelled are those of the Rufinos only, Herranz made the mistake, after reading said
entries, of sending a wire cancelling all the reservations, including those of Senator Lopez and party.
Secondly, after sending a wire to San Francisco head office on 19 April 1960 stating his error and asking for
reinstatement, Herranz simply forgot about the matter. Notwithstanding the reply of San Francisco head office
in 22 April 1960 that it cannot reinstate Senator Lopez and party, it was assumed and taken for granted that
reinstatement would be made. Thirdly, Armando Davila confirmed the Lopezes’ reservation in a phone call on
27 April 1960 to Pan Am’s ticket sellers, when at the time it appeared in the Lopezes’ reservation card that
they were only wait-listed passengers. Fourthly, Pan Am’s ticket sellers issued the Lopezes’ tickets on May
21 and 23, 1960, without first checking their reservations just before issuing said tickets. And, finally, not one
among Pan Am’s agents notified Senator Lopez and party that their reservations had been cancelled, a
precaution that could have averted their entering with Pan Am into contracts that the latter had already placed
beyond its power to perform.

5. What is admitted in the course of the trial does not need to be proved
There being a clear admission in defendant’s evidence of facts amounting to bad faith on its part in
regard to the breach of its contracts with the Lopezes, it becomes unnecessary to further discuss the evidence
adduced by the Lopezes to establish Pan Am’s bad faith. For what is admitted in the course of the trial does
not need to be proved (Sec. 2, Rule 129, Rules of Court).

6. Rules and principles as to damages and attorney’s fees

First, moral damages are recoverable in breach of contracts where the defendant acted fraudulently or
in bad faith (Art. 2220, New Civil Code). Second, in addition to moral damages, exemplary or corrective
damages may be imposed by way of example or correction for the public good, in breach of contract where
the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner (Articles 2229, 2232,
New Civil Code). And, third, a written contract for an attorney’s services shall control the amount to be paid
therefor unless found by the court to be unconscionable or unreasonable (Sec. 24, Rule 138, Rules of Court).

7. Moral damages
As a proximate result of Pan Am’s breach in bad faith of its contracts with the Lopezes’ the latter
suffered social humiliation, wounded feelings, serious anxiety and mental anguish. It may not be humiliating
to travel as tourist passengers; it is humiliating to be compelled to travel as such, contrary to what is rightfully
to be expected from the contractual undertaking.

8. Moral damages; Humiliation in relation to status (Senator Lopez)

Senator Lopez was then Senate President Pro Tempore. International carriers like Pan Am know the
prestige of such an office. For the Senate is not only the Upper Chamber of the Philippine Congress, but the
nation’s treaty-ratifying body. It may also be mentioned that in his Office Senator Lopez was in a position to
preside in impeachment cases should the Senate sit as impeachment Tribunal. And he was former Vice-
President of the Philippines. Senator Lopez was going to the United States to attend a private business
conference of the Binalbangan-Isabela Sugar Company; but his aforesaid rank and position were by no means
left behind, and in fact he had a second engagement awaiting him in the United States; a banquet tendered by
Filipino friends in his honor as Senate President Pro Tempore. For the moral damages sustained by him,
therefore, an award of P100,000,000 is appropriate.

9. Moral damages; Physical discomfort (Mrs. Maria Lopez)

Mrs. Maria J. Lopez, as wife of Senator Lopez, shared his prestige and therefore his humiliation. In
addition, she suffered physical discomfort during the 13-hour trip (5 hours from Tokyo to Honolulu and 8
hours from Honolulu to San Francisco). Although Senator Lopez stated that “she was quite well,” he
obviously meant relatively well, since the rest of his statement is that two months before, she was attacked by
severe flu and lost 10 pounds of weight and that she was advised by Dr. Sison to go to the United States as
soon as possible for medical check-up and relaxation. In fact, Senator Lopez stated, as shown a few pages
after in the transcript of his testimony, that Mrs. Lopez was sick when she left the Philippines. It is not hard to
see that in her condition then a physical discomfort sustained for thirteen hours may well be considered a
physical suffering. And even without regard to the noise and trepidation inside the plane, the fact that the
seating spaces in the tourist class are quite narrower than in first class, there being six seats to a row in the
former as against four to a row in the latter, and that in tourist class there is very little space for reclining in
view of the closer distance between rows, will suffice to show that the aforesaid passenger indeed
experienced physical suffering during the trip. Added to this, of course, was the painful thought that she was
deprived by PanAm, ater having paid for and expected the same,f the most suitable place for her, the first
class, where evidently the best of everything would have been given her, the best seat, service, food and
treatment. Such difference in comfort between first class and tourist class is too obvious to be recounted, is in
fact the reason for the former’s existence, and is recognized by the airline in charging a higher fare for it and
by the passengers in paying said higher rate. Accordingly, considering the totality of her suffering and
humiliation, an award to Mrs. Maria J. Lopez of P50,000.00 for moral damages will be reasonable.

10. Moral damages; Shared prestige (Mr. & Mrs. Montelibano)

Mr. and Mrs. Alfredo Montelibano, Jr., were traveling as immediate members of the family of
Senator Lopez. They formed part of the Senator’s party as shown also by the reservation cards of PAN AM.
As such they likewise shared his prestige and humiliation. Although Pan Am contends that a few weeks
before the flight they had asked their reservations to be changed from first class to tourist class, which did not
materialize, the same does not mean they suffered no shame in having to take tourist class during the flight.
For by that time they had already been made to pay for first class seats and therefore to expect first class
accommodations. As stated, it is one thing to take the tourist class by free choice; a far different thing to be
compelled to take it notwithstanding having paid for first class seats. As noted in their motion for
reconsideration filed in the court a quo, they were satisfied with P25,000.00 each for said persons. For their
social humiliation, therefore, the award to them of P25,000.00 is reasonable.

11. Rationale behind exemplary or corrective damages; Pan Am liable for exemplary or corrective
damages
The rationale behind exemplary or corrective damages is, as the name implies, to provide an example
or correction for public good. Pan Am having breached its contracts in bad faith, the court may award
exemplary damages in addition to moral damages (Articles 2229, 2232, New Civil Code). In view of its
nature, it should be imposed in such an amount as to sufficiently and effectively deter similar breach of
contracts in the future by Pan Am or other airlines. In this light, we find it just to award P75,000.00 as
exemplary or corrective damages.
12. Attorney’s fees due; Written contract controls amount to be paid unless unconscionable or
unreasonable
As to attorney’s fees, the record shows a written contract of services executed on 1 June 1960
whereunder the Lopezes engaged the services of their counsel, Atty. Vicente J, Francisco, and agreed to pay
the sum of P25,000.00 as attorney’s fees upon the termination of the case in the CFI, and an additional sum of
P25,000.00 in the event the case is appealed to the Supreme Court. A written contract for attorney’s services
shall control the amount to be paid therefor unless found by the court to be unconscionable or unreasonable.

13. Attorney’s fees due; Professional standing of lawyer and extent of services rendered by him
A consideration of the subject matter of the present controversy, of the professional standing of the
attorney for the Lopezes, and of the extent of the services rendered by him, shows that said amount provided
for in the written agreement is reasonable. Said lawyer, whose prominence in the legal profession is well
known, studied the case, prepared and filed the complaint, conferred with witnesses, analyzed documentary
evidence, personally appeared at the trial of the case in 22 days, during a period of 3 years, prepared 4 sets of
cross-interrogatories for deposition taking, prepared several memoranda and the motion for reconsideration,
filed a joint record on appeal with Pan Am, filed a brief for the Lopezes as appellants consisting of 45 printed
pages and a brief for the Lopezes as appellees consisting of 265 printed pages. The reasonableness of the
amount is clear because Pan Am’s counsel likewise valued at P50,000.00 the proper compensation for his
services rendered to Pan Am in the trial court and on appeal.

14. Determination of the amounts justified

The amount of damages awarded in this appeal has been determined by adequately considering the
official, political, social, and financial standing of the offended parties on one hand, and the business and
financial position of the offender on the other. Further considering the present rate of exchange and the terms
at which the amount of damages awarded would approximately be in U.S. dollars, the Court is all the more of
the view that said award is proper and reasonable.

[222]

Pan American World Airways vs. IAC (GR L-70462, 11 August 1988)
Third Division, Cortes (J): 3 concur, 1 on leave

Facts: On 25 April 1978, Rene V. Pangan, president and general manager of the Sotang Bastos and Archer
Productions, while in San Francisco, California and Primo Quesada of Prime Films, San Francisco,
California, entered into an agreement whereby the former, for and in consideration of the amount of US
$2,500.00 per picture, bound himself to supply the latter with three films. ‘Ang Mabait, Masungit at ang
Pangit,’ ‘Big Happening with Chikiting and Iking,’ and ‘Kambal Dragon’ for exhibition in the United States.
It was also their agreement that Pangan, et. al. would provide the necessary promotional and advertising
materials for said films on or before 30 May 1978. On his way home to the Philippines, Pangan visited Guam
where he contacted Leo Slutchnick of the Hafa Adai Organization. Pangan likewise entered into a verbal
agreement with Slutchnick for the exhibition of two of the films a at the Hafa Adai Theater in Guam on 30
May 1978 for the consideration of P7,000.00 per picture. Pangan undertook to provide the necessary
promotional and advertising materials for said films on or before the exhibition date on 30 May 1978. By
virtue of the agreements, Pangan caused the preparation of the requisite promotional handbills and still
pictures for which he paid the total sum of P12,900.00. Likewise in preparation for his trip abroad to comply
with his contracts, Pangan purchased 14 clutch bags, 4 capiz lamps and 4 barong tagalog, with a total value of
P4,400.00. On 18 May 1978, Pangan obtained from Pan Am’s Manila Office, through the Your Travel Guide,
an economy class airplane ticket 0269207406324 for passage from Manila to Guam on Pan Am’s Flight 842
of 27 May 1978, upon payment by Pangan of the regular fare. The Your Travel Guide is a tour and travel
office owned and managed by plaintiffs witness Mila de la Rama. On 27 May 1978, two hours before
departure time Pangan was at Pan Am’s ticket counter at the Manila International Airport and presented his
ticket and checked in his two luggages, for which he was given baggage claim tickets 963633 and 963649.
The two luggages contained the promotional and advertising materials, the clutch bags, barong tagalog and
his personal belongings. Subsequently, Pangan was informed that his name was not in the manifest and so he
could not take Flight 842 in the economy class. Since there was no space in the economy class, Pangan took
the first class because he wanted to be on time in Guam to comply with his commitment, paying an additional
sum of $112.00. When Pangan arrived in Guam on the date of 27 May 1978, his two luggages did not arrive
with his flight, as a consequence of which his agreements with Slutchnick and Quesada for the exhibition of
the films in Guam and in the United States were cancelled. Thereafter, he filed a written claim for his missing
luggages. Upon arrival in the Philippines, Pangan contacted his lawyer, who made the necessary
representations to protest as to the treatment which he received from the employees of Pan Am and the loss of
his two luggages. Pan Am assured Pangan that his grievances would be investigated and given its immediate
consideration.

Due to Pan Am’s failure to communicate with Pangan about the action taken on his protests, a complaint was
filed by Pangan. The CFI found Pan Am liable and (1) ordered Pan Am to pay Pangan, et. al. the sum of
P83,000.00, for actual damages, with interest thereon at the rate of 14% per annum from 6 December 1978,
when the complaint was filed, until the same is fully paid, plus the further sum of P10,000.00 as attorney’s
fees; (2) ordered Pan Am to pay Pangan the sum of P8,123.34, for additional actual damages, with interest
thereon at the rate of 14% per annum from 6 December 1978, until the same is fully paid; (3) dismissed the
counterclaim interposed by Pan-Am; and (4) ordered Pan-Am to pay the costs of suit.

On appeal, the then Intermediate Appellate Court affirmed the trial court decision. Hence, the petition for
review.

The Supreme Court granted the Petition, set aside the Decision of the Intermediate Appellate Court, and
rendered a new judgment ordering Pan Am to pay Pangan damages in the amount of US$600.00 or its
equivalent in Philippine currency at the time of actual payment.

1. Pertinent Condition of Carriage printed at the back of the ticket

The pertinent Condition of Carriage printed at the back of the plane ticket reads: “(8) BAGGAGE
LIABILITY . . . The total liability of the Carrier for lost or damage baggage of the passenger is LIMITED TO
P100.00 for each ticket unless a passenger declares a higher valuation in excess of P100.00, but not in excess,
however, of a total valuation of P1,000.00 and additional charges are paid pursuant to Carrier’s tariffs.”

2. Ong Yiu case applicable

In the case of Ong Yiu v. Court of Appeals [G.R. No. L-40597, June 29, 1979, 91 SCRA 223), the
Court sustained the validity of a printed stipulation at the back of an airline ticket limiting the liability of the
carrier for lost baggage to a specified amount and ruled that the carrier’s liability was limited to said amount
since the passenger did not declare a higher value, much less pay additional charges. The ruling in Ong Yiu
squarely applicable to the instant case. Herein, on the basis of the stipulations printed at the back of the ticket,
Pan Am’s liability for the lost baggage of Pangan is limited to $600.00 ($20.00 x 30 kilos) as the latter did not
declare a higher value for his baggage and pay the corresponding additional charges. Pangan did not declare
any higher value for his luggage, much less did he pay any additional transportation charge.

3. Provisions in plane ticket a contract of adhesion; Contracts of adhesion not entirely prohibited
While it may be true that Pangan had not signed the plane ticket (Article 1750), he is nevertheless
bound by the provisions thereof. Such provisions have been held to be a part of the contract of carriage, and
valid and binding upon the passenger regardless of the latter’s lack of knowledge or assent to the regulation.
It is what is known as a contract of “adhesion,” in regards which it has been said that contracts of adhesion
wherein one party imposes a ready made form of contract on the other, as the plane ticket, are contracts not
entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he
gives his consent. And as held in Randolph v. American Airlines (103 Ohio App. 172, 144 N.E. 2d 878) and
Rosenchein v. Trans World Airlines, Inc. (349 S.W. 2d 483), “a contract limiting liability upon an agreed
valuation does not offend against the policy of the law forbidding one from contracting against his own
negligence.”

4. Shewaram case not applicable

The ruling in Shewaram v. Philippine Air Lines, Inc. [G.R. No. L-20099, July 2, 1966, 17 SCRA
606], where the Court held that the stipulation limiting the carrier’s liability to a specified amount was
invalid, finds no application in the instant case, as the ruling in said case was premised on the finding that the
conditions printed at the back of the ticket were so small and hard to read that they would not warrant the
presumption that the passenger was aware of the conditions and that he had freely and fairly agreed thereto.
Herein, similar facts that would make the case fall under the exception have not been alleged, much less
shown to exist.

5. Clarification of the Northwest Airlines case which was relied upon by the Court of Appeals
The Court of Appeal’s reliance on a quotation from Northwest Airlines, Inc. v. Cuenca [G.R. No. L-
22425, August 31, 1965, 14 SCRA 1063] to sustain the view that “to apply the Warsaw Convention which
limits a carrier’s liability to US$9.07 per pound or US$20.00 per kilo in cases of contractual breach of
carriage is against public policy” is utterly misplaced. The Court never intended to, and in fact never did, rule
against the validity of provisions of the Warsaw Convention. Consequently, by no stretch of the imagination
may said quotation from Northwest be considered as supportive of the appellate court’s statement that the
provisions of the Warsaw Convention limited a carrier’s liability are against public policy.

6. Pan Am not liable for lost profits when film showing contracts were cancelled; Mendoza vs.
PAL
The Court finds itself unable to agree with the decision of the trial court, and affirmed by the Court of
Appeals, awarding Pangan damages as and for lost profits when their contracts to show the films in Guam and
San Francisco, California were cancelled. The rule laid down in Mendoza v. Philippine Air Lines, Inc. [90
Phil. 836 (1952)] cannot be any clearer: “Under Art. 1107 of the Civil Code, a debtor in good faith may be
held liable only for damages that were foreseen or might have been foreseen at the time the contract of
transportation was entered into.” Herein, in the absence of a showing that Pan Am’s attention was called to
the special circumstances requiring prompt delivery of Pangan’s luggages, Pan Am cannot be held liable for
the cancellation of Pangan’s contracts as it could not have foreseen such an eventuality when it accepted the
luggages for transit.

7. Requisite for liability for special damages; Chapman vs. Fargo, L.R.A. (1918 F, p. 1049)
Before defendant could be held to special damages such as the present alleged loss of profits on
account of delay or failure of delivery it must have appeared that he had notice at the time of delivery to him
of the particular circumstances attending the shipment and which probably would lead to such special loss if
he defaulted. Or, as the rule has been stated in another form in order to impose on the defaulting party further
liability than for damages naturally and directly i.e., in the ordinary course of things arising from a breach of
contract such unusual or extraordinary damages must have been brought within the contemplation of the
parties as the probable result of breach at the time of or prior to contracting. Generally notice then of any
special circumstances which will show that the damages to be anticipated from a breach would be enhanced
has been held sufficient far this effect. The attention of the common carrier must be called to the nature of the
articles shipped, the purpose of shipment, and the desire to rush the shipment.

8. Proximate cause of the cancellation of the contracts

The evidence reveals that the proximate cause of the cancellation of the contracts was Pangan’s
failure to deliver the promotional and advertising materials on the dates agreed upon. For this, Pan Am cannot
be held liable. Pangan had not declared the value of the two luggages he had checked in and paid additional
charges. Neither was Pan Am privy to Pangan’s contracts nor was its attention called to the condition therein
requiring delivery of the promotional and advertising materials on or before a certain date.

9. Award of attorney’s fees lost support

With the Court’s holding that Pan Am’s liability is limited to the amount stated in the ticket, the
award of attorney’s fees, which is grounded on the alleged unjustified refusal of petitioner to satisfy Pangan’s
just and valid claim, loses support and must be set aside.

[223]

Luna vs. CA (GR 100374-75, 27 November 1992)

First Division, Bellosillo (J): 3 concur

Facts: On 19 May 1989, at around 8:00 a.m., Rufino Luna, Rodolfo Alonso and Porfirio Rodriguez boarded
Flight 020 of Northwest Airlines bound for Seoul, South Korea, to attend the 4-day Rotary International
Convention from the 21st to the 24th of May 1992. They checked in 1 piece of luggage each. After boarding,
however, due to engine trouble, they were asked to disembark and transfer to a Korean Airlines plane
scheduled to depart 4 hours later. They were assured that their baggage would be with them in the same flight.
When they arrived in Seoul, they discovered that their personal belongings were nowhere to be found;
instead, they were allegedly flown to Seattle, USA. It was not until 4 days later, and only after repeated
representations with Northwest Airlines personnel at the airport in Korea were they able to retrieve their
luggage. By then the Convention, which they were hardly able to attend, was almost over. Rufino Y. Luna and
Rodolfo J. Alonso assert that on 6 June 1989, or 13 days after they recovered their luggage, they sent a
written claim to the carrier’s office along Roxas Blvd., Ermita, Manila. Porfirio Rodriguez, on his part,
asseverates that he filed his claim on 13 June 1989. However, the carrier, in a letter of 21 June 1989,
disowned any liability for the delay and averred that it exerted “its best efforts to carry the passenger and
baggage with reasonable dispatch.”

On 14 July 1989, Luna and Alonso jointly filed a complaint for breach of contract with damages before the
RTC of Pasig, Metro Manila (Civil Case 58390, Branch 69), while Rodriguez filed his own complaint with
the RTC of Valenzuela, Metro Manila (Civil Case 3194-V-89, Branch 172). However, upon motion of the
carrier, both complaints were dismissed for lack of cause of action due to Luna, et.al.’s failure to state in their
respective complaints that they filed a prior claim with the carrier within the prescribed period.

Luna and Alonso then filed a petition for certiorari before the Court of Appeals to set aside the order of Judge
Cristina M. Estrada granting the carrier’s motion to dismiss, while Rodriguez proceeded directly to the
Supreme Court on Certiorari for the same purpose. However, in the Court’s resolution of 26 February 1990,
the Supreme Court referred Rodriguez’ petition to the Court of Appeals. On 26 March 1991, the Third
Division of the Court of Appeals, applying the provisions of the Warsaw Convention and ruling that certiorari
was not a substitute for a lost appeal, dismissed the petition of Luna and Alonso, and on 7 June 1991 denied
their motion for reconsideration. Meanwhile, on 28 February 1991 the Seventh Division of the Court of
Appeals, ruling that the questioned order of the trial court had already become final, similarly rejected the
petition of Rodriguez, and on 6 June 1991 denied his motion for reconsideration. Hence, the joint petition for
review on certiorari.

The Supreme Court reversed and set aside the assailed decisions and resolutions of the Court of Appeals; and
reinstated given due course until terminated the complaints for breach of contract of carriage with damages in
Civil Case 3194-V-89 and Civil Case 58390 dismissed by Judges Teresita D. Capulong and Cristina M.
Estrada, respectively; without costs.

1. Technicalities should be disregarded if only to render to the parties that which is their due
 Northwest Airlines failed to deliver the baggages of Luna, Alonso, and Rodriguez at the designated
time and place. For this, all that carrier could say was that it exerted all efforts to comply with this condition
of the contract. Hence, it is evident that the former suffered some special specie of injury for which they
should rightly be compensated. The carrier cannot be allowed to escape liability by seeking refuge in the
argument that the trial courts’ orders have attained finality due to the former’s failure to move for
reconsideration or to file a timely appeal therefrom. Technicalities should be disregarded if only to render to
the respective parties that which is their due.

2. Certiorari not substitute to a lapsed appeal; Relaxation of the rule

Although certiorari cannot be a substitute for a lapsed appeal, where a rigid application of that rule
will result in a manifest failure or miscarriage of justice, the rule may be relaxed. Considering the broader and
primordial interests of justice, particularly when there is grave abuse of discretion, thus impelling occasional
departure from the general rule that the extraordinary writ of certiorari cannot substitute for a lost appeal, the
appellate court may legally entertain the special civil action for certiorari.

3. Warsaw Convention has force and effect in the Philippines; Convention does not operate as an
exclusive enumeration of carrier’s liability and the extent thereof; Convention does not preclude Civil
Code and other laws
The Warsaw Convention was a treaty commitment voluntarily assumed by the Philippine
government; consequently, it has the force and effect of law in this country. But, in the same token, the
Warsaw Convention does not operate as an exclusive enumeration of the instances for declaring an airline
liable for breach of contract of carriage or as an absolute limit of the extent of that liability. The Convention
merely declares the carrier liable for damages in the enumerated cases, if the conditions therein specified are
present. For sure, it does not regulate the liability, much less exempt, the carrier for violating the rights of
others which must simply be respected in accordance with their contracts of carriage. The application of the
Convention must not therefore be construed to preclude the operation of the Civil Code and other pertinent
laws. In fact, in Alitalia v. IAC, the Court awarded Dr. Felipa Pablo nominal damages, the provisions of the
Convention notwithstanding.

4. Carrier still liable for breach of other relative laws which provide a different period of filing of
claim
The alleged failure of Luna, Alonzo and Rodriguez to file a claim with the common carrier as
mandated by the provisions of the Warsaw Convention should not be a ground for the summary dismissal of
their complaints since the carrier may still be held liable for breach of other relevant laws which may provide
a different period or procedure for filing a claim. Considering that Luna, et. al. indeed filed a claim which the
carrier admitted having received on 21 June 1989, their demand may have very well been filed within the
period prescribed by those applicable laws.

5. Article 25 of the Convention does not exclude other provisions of the Convention
Article 25 of the Convention does not operate to exclude the other provisions of the Convention if
damage is caused by the common carrier’s willful misconduct. Article 25 refers only to the monetary ceiling
on damages found in Article 22 should damage be caused by carrier’s willful misconduct. Hence, only the
provisions of Article 22 limiting the carrier’s liability and imposing a monetary ceiling in case of willful
misconduct on its part that the carrier cannot invoke.

6. Willful misconduct, how shown

The failure of the carrier to deliver their luggage at the designated time and place does not amount
ipso facto to willful misconduct. For willful misconduct to exist, there must be a showing that the acts
complained of were impelled by an intention to violate the law, or were in persistent disregard of one’s rights.
It must be evidenced by a flagrantly or shamefully wrong or improper conduct.
[224]

Santos vs. Northwest Orient Airlines (GR 101538, 23 June 1992)

En Banc, Cruz (J): 13 concur

Facts: Augusto Benedicto Santos III is a minor and a resident of the Philippines. Northwest Orient Airlines
(NOA) is a foreign corporation with principal office in Minnesota, U.S.A., and licensed to do business and
maintain a branch office in the Philippines. On 21 October 1986, Santos purchased from NOA a round-trip
ticket in San Francisco, U.S.A., for his flight from San Francisco to Manila via Tokyo and back. The
scheduled departure date from Tokyo was 20 December 1986. No date was specified for his return to San
Francisco. On 19 December 1986, Santos checked in at the NOA counter in the San Francisco airport for his
scheduled departure to Manila. Despite a previous confirmation and re-confirmation, he was informed that he
had no reservation for his flight from Tokyo to Manila. He therefore had to be wait-listed.

On 12 March 1987, Santos, represented by his father and legal guardian Augusto Benedicto Santos, sued
NOA for damages in the RTC Makati. On 13 April 1987, NOA moved to dismiss the complaint on the ground
of lack of jurisdiction. On 1 February 1988, the lower court granted the motion and dismissed the case.

Santos appealed to the Court of Appeals, which affirmed the decision of the lower court. On 26 June 1991,
Santos filed a motion for reconsideration, but the same was denied. Santos then came to the Supreme Court.

The Supreme Court denied the petition, with costs against Santos.

1. Article 28 (1) of the Warsaw Convention

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

2. Warsaw Convention has force and effect in the Philippines; History of adoption
The Republic of the Philippines is a party to the Convention for the Unification of Certain Rules
Relating to International Transportation by Air, otherwise known as the Warsaw Convention. It took effect on
13 February 1933. The Convention was concurred in by the Senate, through its Resolution 19, on 16 May
1950. The Philippine instrument of accession was signed by President Elpidio Quirino on 13 October 1950,
and was deposited with the Polish government on 9 November 1950. The Convention became applicable to
the Philippines on 9 February 1951. On 23 September 1955, President Ramon Magsaysay issued
Proclamation 201, declaring our formal adherence thereto, to the end that the same and every article and
clause thereof may be observed and fulfilled in good faith by the Republic of the Philippines and the citizens
thereof. The Convention is thus a treaty commitment voluntarily assumed by the Philippine government and,
as such, has the force and effect of law in this country.

3. Requisites of a judicial inquiry over a constitutional question

Courts will assume jurisdiction over a constitutional question only if it is shown that the essential
requisites of a judicial inquiry into such a question are first satisfied. Thus, there must be an actual case or
controversy involving a conflict of legal rights susceptible of judicial determination; the constitutional
question must have been opportunely raised by the proper party and the resolution of the question is
unavoidably necessary to the decision of the case itself.

4. Judicial desistance to decide constitutional question; Separation of powers

Courts generally avoid having to decide constitutional question. This attitude is based on the doctrine
of separation of powers, which enjoins upon the departments of the government a becoming respect for each
other’s acts. Therefore, where the case can be decided on other grounds, there will be no necessity of
resolving the constitutional issue.

5. Presumption that a joint legislative-executive act is carefully studied

The treaty which is the subject matter of this petition was a joint legislative-executive act. The
presumption is that it was first carefully studied and determined to be constitutional before it was adopted and
given the force of law in this country.

6. Doctrine of rebus sic stantibus

According to Jessup, “this doctrine constitutes an attempt to formulate a legal principle which would
justify non-performance of a treaty obligation if the conditions with relation to which the parties contracted
have changed so materially and so unexpectedly as to create a situation in which the exaction of performance
would be unreasonable.” The key element of this doctrine is the vital change in the condition of the
contracting parties that they could not have foreseen at the time the treaty was concluded.

7. Intent of the Warsaw drafters; Day v. Trans World Airlines, Inc.

As observed in Day vs. Trans World Airlines, the Warsaw drafters wished to create a system of
liability rules that would cover all the hazards of air travel. The Warsaw delegates knew that, in the years to
come, civil aviation would change in ways that they could not foresee. They wished to design a system of air
law that would be both durable and flexible enough to keep pace with these changes. The ever-changing
needs of the system of civil aviation can be served within the framework they created.

8. Circumstance that airline industry is in infancy when Convention was drafter does not warrant
rejection of treaty
Althought, it is true that at the time the Warsaw Convention was drafted, the airline industry was still
in its infancy; that circumstance alone is not sufficient justification for the rejection of the treaty at this time.
Changes were, realistically, not entirely unforeseen although they were expected in a general sense only.

9. Article 41 of the Warsaw Convention; Anticipation of developments

Article 41 of the Convention provides that “any High Contracting Party shall be entitled not earlier
than two years after the coming into force of this convention to call for the assembling of a new international
conference in order to consider any improvements which may be made in this convention. To this end, it will
communicate with the Government of the French Republic which will take the necessary measures to make
preparations for such conference.”

10. Rejection of treaty necessitates formal act of rejection

The treaty has not been rejected by the Philippine government. The doctrine of rebus sic stantibus
does not operate automatically to render the treaty inoperative. There is a necessity for a formal act of
rejection, usually made by the head of State, with a statement of the reasons why compliance with the treaty
is no longer required.

11. Article 39 of the Warsaw Convention; Manner in which the treaty is to be denounced
The treaty may be denounced even without an expressed justification for this action. Such
denunciation is authorized under its Article 39, viz: (1) Any one of the High Contracting Parties may
denounce this convention by a notification addressed to the Government of the Republic of Poland, which
shall at once inform the Government of each of the High Contracting Parties. (2) Denunciation shall take
effect six months after the notification of denunciation, and shall operate only as regards the party which shall
have proceeded to denunciation.

12. Rejection of a treaty not a function of the Court; Scope of powers of the Judiciary
 Rejection of the treaty, whether on the ground of rebus sic stantibus or pursuant to Article 39, is not a
function of the courts but of the other branches of government. This is a political act. The conclusion and
renunciation of treaties is the prerogative of the political departments and may not be usurped by the judiciary.
The courts are concerned only with the interpretation and application of laws and treaties in force and not
with their wisdom or efficacy.

13. Constitutional guaranty of access to courts refer only to courts with appropriate jurisdiction;
Doctrine of incorporation
The constitutional guaranty of access to courts refers only to courts with appropriate jurisdiction as
defined by law. It does not mean that a person can go to any court for redress of his grievances regardless of
the nature or value of his claim. If the petitioner is barred from filing his complaint before our courts, it is
because they are not vested with the appropriate jurisdiction under the Warsaw Convention, which is part of
the law of our land.

14. International transportation defined; Article 1 (2)

International transportation is defined in paragraph (2) of Article 1, which provides “For the purposes
of this convention, the expression “international transportation” shall mean any transportation in which,
according to the contract made by the parties, the place of departure and the place of destination, whether or
not there be a break in the transportation or a transshipment, are situated [either] within the territories of two
High Contracting Parties.”

15. Nature of transportation determined by contract of parties, i.e. ticket

Whether the transportation is “international” is determined by the contract of the parties, which in the
case of passengers is the ticket. When the contract of carriage provides for the transportation of the passenger
between certain designated terminals “within the territories of two High Contracting Parties,” the provisions
of the Convention automatically apply and exclusively govern the rights and liabilities of the airline and its
passenger. Herein, since the flight involved is international, the same being from the United States to the
Philippines and back to the United States, it is subject to the provisions of the Warsaw Convention, including
Article 28(1), which enumerates the four places where an action for damages may be brought.

16. Distinction between venue and jurisdiction

Venue and jurisdiction are entirely distinct matters. Jurisdiction may not be conferred by consent or
waiver upon a court which otherwise would have no jurisdiction over the subject-matter of an action; but the
venue of an action as fixed by statute may be changed by the consent of the parties and an objection that the
plaintiff brought his suit in the wrong county may be waived by the failure of the defendant to make a timely
objection. In either case, the court may render a valid judgment. Rules as to jurisdiction can never be left to
the consent or agreement of the parties, whether or not a prohibition exists against their alteration.

17. Article 18 (1) is a jurisdiction and not a venue provision

A number of reasons tends to support the characterization of Article 28(1) as a jurisdiction and not a
venue provision. First, the wording of Article 32, which indicates the places where the action for damage
“must” be brought, underscores the mandatory nature of Article 28(1). Second, this characterization is
consistent with one of the objectives of the Convention, which is to “regulate in a uniform manner the
conditions of international transportation by air.” Third, the Convention does not contain any provision
prescribing rules of jurisdiction other than Article 28(1), which means that the phrase “rules as to
jurisdiction” used in Article 32 must refer only to Article 28(1). In fact, the last sentence of Article 32
specifically deals with the exclusive enumeration in Article 28(1) as “jurisdictions,” which, as such, cannot be
left to the will of the parties regardless of the time when the damage occurred.

18. Jurisdiction takes dual concept when matter is governed by the Warsaw Convention
 Where the matter is governed by the Warsaw Convention, jurisdiction takes on a dual concept.
Jurisdiction in the international sense must be established in accordance with Article 28(1) of the Warsaw
Convention, following which the jurisdiction of a particular court must be established pursuant to the
applicable domestic law. Only after the question of which court has jurisdiction is determined will the issue of
venue be taken up. This second question shall be governed by the law of the court to which the case is
submitted.

19. Article 32 of the Warsaw Convention

Article 32 provides that “any clause contained in the contract and all special agreements entered into
before the damage occurred by which the parties purport to infringe the rules laid down by this convention,
whether by deciding the law to be applied, or by altering the rules as to jurisdiction, shall be null and void.
Nevertheless for the transportation of goods, arbitration clauses shall be allowed, subject to this convention, if
the arbitration is to take place within one of the jurisdictions referred to in the first paragraph of Article 28.”

20. Motion to dismiss on the ground of lack of jurisdiction did not affect improper venue as a
ground to dismiss
Examination of Article 28(1) in relation to Article 32 does not support the conclusion that in moving
to dismiss on the ground of lack of jurisdiction, Northwest has waived improper venue as a ground to dismiss.
Herein, Santos’ claim that NOA waived venue as a ground of its motion to dismiss is not correct. True it is
that NOA averred in its MOTION TO DISMISS that the ground thereof is “the Court has no subject matter
jurisdiction to entertain the Complaint” which SANTOS considers as equivalent to “lack of jurisdiction over
the subject matter . . .” However, the gist of NOA’s argument in its motion is that the Philippines is not the
proper place where SANTOS could file the action — meaning that the venue of the action is improperly laid.
Even assuming then that the specified ground of the motion is erroneous, the fact is the proper ground of the
motion — improper venue — has been discussed therein.

21. Waiver not taken lightly; Doubt resolve to non-waiver

Waiver cannot be lightly inferred. In case of doubt, it must be resolved in favor of non-waiver if there
are special circumstances justifying this conclusion. As observed in Javier vs. Intermediate Court of Appeals,
“Legally, of course, the lack of proper venue was deemed waived by the petitioners when they failed to
invoke it in their original motion to dismiss. Even so, the motivation of the private respondent should have
been taken into account by both the trial judge and the respondent court in arriving at their decisions.”

22. Aanestad vs. Air Canada; Place of Destination construed

The only conclusion that can be reached in Aanestad vs. Air Canada is that “the place of destination”
as used in the Warsaw Convention is considered by both the Canadian C.T.C. and the United States C.A.B. to
describe at least two “places of destination,” viz., the “place of destination” of a particular flight either an
“outward destination” from the “point of origin” or from the “outward point of destination” to any place in
Canada. Therein, the place of destination under Article 28 and Article 1 of the Warsaw Convention of the
flight on which Mrs. Silverberg was killed, was Los Angeles according to the ticket, which was the contract
between the parties and the suit is properly filed in this Court which has jurisdiction.

23. Butz vs. British Airways; Place of Destination in a trip consisting of several parts is ultimate
destination
In Butz v. British Airways, the United States District Court (Eastern District of Pennsylvania) said
that “although the authorities which addressed this precise issue are not extensive, both the cases and the
commentators are almost unanimous in concluding that the “place of destination” referred to in the Warsaw
Convention “in a trip consisting of several parts is the ultimate destination that is accorded treaty
jurisdiction.”

24. Place of destination determined by the contract of carriage

 The place of destination, within the meaning of the Warsaw Convention, is determined by the terms
of the contract of carriage or, specifically, the ticket between the passenger and the carrier. Whether the return
portion of the ticket is characterized as an option or a contract, the carrier was legally bound to transport the
passenger back to the place of origin within the prescribed time and the passenger for her part agreed to pay
the fare and, in fact, did pay the fare. Thus there was mutuality of obligation and a binding contract of
carriage. The fact that the passenger could forego her rights under the contract does not make it any less a
binding contract. Certainly, if the parties did not contemplate the return leg of the journey, the passenger
would not have paid for it and the carrier would not have issued a round trip ticket. Herein, examination of
Santos’ ticket shows that his ultimate destination is San Francisco. Although the date of the return flight was
left open, the contract of carriage between the parties indicates that NOA was bound to transport Santos to
San Francisco from Manila. Manila should therefore be considered merely an agreed stopping place and not
the destination.

25. Butz and Aanestadd case not controlling; Court’s discretion

On the claim that the Butz case could not have overruled the Aanestad case because these decisions
are from different jurisdictions; it is neither here nor there. In fact, neither of these cases is controlling on this
Court. If the Butz case was preferred, it is because the Court, in exercising uts own freedom of choice,
decided that it represents the better, and correct, interpretation of Article 28(1).

26. Article 1 (2); Distinction between destination and agreed stopping place
Article 1(2) also draws a distinction between a “destination” and an “agreed stopping place.” It is the
“destination” and not an “agreed stopping place” that controls for purposes of ascertaining jurisdiction under
the Convention. The contract is a single undivided operation, beginning with the place of departure and
ending with the ultimate destination. The use of the singular in this expression indicates the understanding of
the parties to the Convention that every contract of carriage has one place of departure and one place of
destination. An intermediate place where the carriage may be broken is not regarded he a “place of
destination.”

27. Domicile of a corporation; Compagnie Nationale Air France vs. Giliberto

The domicile of a corporation is customarily regarded as the place where it is incorporated, and the
courts have given the meaning to the term as it is used in article 28(1) of the Convention. Moreover, the
structure of article 28(1), viewed as a whole, is also incompatible with the claim that the domicile of a
corporation includes any country where the airline carries on its business on “a regular and substantial basis.”
The article, in stating that places of business are among the bases of the jurisdiction, sets out two places
where an action for damages may be brought: the country where the carrier’s principal place of business is
located, and the country in which it has a place of business through which the particular contract in question
was made, that is, where the ticket was bought.

28. French law not intended to govern the meaning of Warsaw terms
It cannot be said that Internal French law is to be “applied” in the choice of law sense, to determine
the meaning and scope of the Convention’s terms. Of course, French legal usage must be considered in
arriving at an accurate English translation of the French. But when an accurate English translation is made
and agreed upon the inquiry not meaning does not then revert to a quest for a past or present French law to be
“applied” for revelation of the proper scope of the terms. It does not follow from the fact that the treaty is
written in French that in interpreting it, the parties forever chained to French law, either as it existed when the
treaty was written or in its present state of development. There is no suggestion in the treaty that French law
was intended to govern the meaning of Warsaw’s terms, nor any indication has been found to this effect in its
legislative history or from the study of its application and interpretation by other courts. Indeed, analysis of
the cases indicates that the courts, in interpreting and applying the Warsaw Convention, have not considered
themselves bound to apply French law simply because the Convention is written in French.
29. Where action may be brought; Article 28 (1)
The domicile of the carrier is only one of the places where the complaint is allowed to be filed under
Article 28(1). By specifying the three other places, to wit, the principal place of business of the carrier, its
place of business where the contract was made, and the place of destination, the article clearly meant that
these three other places were not comprehended in the term “domicile.”

30. Reason for the phrase “however founded”; Husserl vs. Swiss Air Transport Company
The reason for the use of the phrase “however founded,” is two-fold: to accommodate all of the
multifarious bases on which a claim might be founded in different countries, whether under code law or
common law, whether under contract or tort, etc.; and to include all bases on which a claim seeking relief for
an injury might be founded in any one country. In other words, any relief available is subject to the conditions
and limitations established by the Warsaw System, regardless of the particular cause of action which forms
the basis on which a plaintiff could seek relief.

31. Article 25 (1) of the Warsaw Convention

Article 25 (1) provides that “the carrier shall not be entitled to avail himself of the provisions of this
Convention which exclude or limit his liability, if the damage is caused by his willful misconduct or by such
default on his part as, in accordance which the law of the court to which the case is submitted, is considered to
be equivalent to willful misconduct.”

31. Allegation of willful misconduct resulting in a tort is insufficient to exclude the case from the
comprehension of the Warsaw Convention; Articles 22 and 25 (1) in relation to Article 28 (1).
The allegation of willful misconduct resulting in a tort is insufficient to exclude the case from the
comprehension of the Warsaw Convention. It is understood under Article 25 (1) that the court called upon to
determine the applicability of the limitation provision must first be vested with the appropriate jurisdiction.
Article 28(1) is the provision in the Convention which defines that jurisdiction. Article 22 merely fixes the
monetary ceiling for the liability of the carrier in cases covered by the Convention. If the carrier is indeed
guilty of willful misconduct, it can avail itself of the limitations set forth in said article. But this can be done
only if the action has first been commenced properly under the rules on jurisdiction set forth in Article 28 (1).

32. Article 24 NCC; Jurisdiction precedes application

Article 24 of the Civil Code states that “In all contractual property or other relations, when one of the
parties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental weakness,
tender age or other handicap, the courts must be vigilant for his protection.” Application of the article is
misplaced, as the provision assumes that the court is vested with jurisdiction to rule in favor of the
disadvantaged minor.

33. Concerns in various countries in similar cases resulted in adoption of an amendment to Article
28 (1) through the Guatemala Protocol
A number of countries have signified their concern over the problem of citizens being denied access
to their own courts because of the restrictive provision of Article 28(1) of the Warsaw Convention. Among
these is the United States, which has proposed an amendment that would enable the passenger to sue in his
own domicile if the carrier does business in that jurisdiction. The reason for this proposal is explained thus
“In the event a US citizen temporarily residing abroad purchases a Rome to New York to Rome ticket on a
foreign air carrier which is generally subject to the jurisdiction of the US, Article 28 would prevent that
person from suing the carrier in the US in a ‘Warsaw Case’ even though such a suit could be brought in the
absence of the Convention.”

34. Guatemala Protocol amending the Warsaw Convention ineffective as it has not been ratified by
required minimum number of contracting parties
 The proposal was incorporated in the Guatemala Protocol amending the Warsaw Convention, which
was adopted at Guatemala City on 8 March 1971. But it is still ineffective because it has not yet been ratified
by the required minimum number of contracting parties. Herein, pending such ratification, Santos will still
have to file his complaint only in any of the four places designated by Article 28(1) of the Warsaw
Convention. The proposed amendment bolsters the ruling of the Court that a citizen does not necessarily have
the right to sue in his own courts simply because the airline has a place of business in his country.

35. Mere fact of litigation in American court does not necessarily mean he will litigate in vain
While the Court can only sympathize with the petitioner, who must prosecute his claims in the United
States rather than in his own country at less inconvenience, it may not be amiss to observe at this point that
the mere fact that he will have to litigate in the American courts does not necessarily mean he will litigate in
vain. The judicial system of that country is known for its sense of fairness and, generally, its strict adherence
to the rule of law.

[225]

Tan vs. Northwestern Airlines (GR 135802, 3 March 2000)

First Division, Pardo (J): 4 concur

Facts: On 31 May 1994, Priscilla L. Tan and Connie Tan boarded Northwest Airlines Flight 29 in Chicago,
USA bound for the Philippines, with a stop-over at Detroit, USA. They arrived at the Ninoy Aquino
International Airport (NAIA) on 1 June 1994 at about 10:40 p.m. Upon their arrival, Tan and her companion
Connie Tan found that their baggages were missing. They returned to the airport in the evening of the
following day and they were informed that their baggages might still be in another plane in Tokyo, Japan. On
3 June 1994, they recovered their baggages and discovered that some of its contents were destroyed and
soiled. Claiming that they “suffered mental anguish, sleepless nights and great damage” because of
Northwest’s failure to inform them in advance that their baggages would not be loaded on the same flight
they boarded and because of their delayed arrival, they demanded from Northwest Airlines compensation for
the damages they suffered. On 15 June 1994 and 22 June 1994, Tan sent demand letters to Northwest
Airlines, but the latter did not respond. Hence, the filing of the case with the RTC.

After due trial, on 10 June 1996, the trial court rendered decision finding Northwest Airlines, Inc. liable for
damages (P15,000 as actual damages, P100,000 as moral damages, P50,000 as exemplary damages, P30,000
as and for attorney’s fees and Costs).

Northwest Airlines, Inc. appealed from the trial court’s decision to the Court of Appeals contending that the
court a quo erred in finding it guilty of breach of contract of carriage and of willful misconduct and awarded
damages which had no basis in fact or were otherwise excessive. On 30 September 1998, the Court of
Appeals promulgated its decision partially granting the appeal by deleting the award of moral and exemplary
damages and reducing the attorney’s fees to P10,000; without pronouncement as to costs. Hence, the appeal.

The Supreme Court denied the petition for lack of merit, and affirmed the decision of the Court of Appeals
deleting, however, the award of attorney’s fees.

1. No willful misconduct to allow award of moral and exemplary damages

For willful misconduct to exist there must be a showing that the acts complained of were impelled by
an intention to violate the law, or were in persistent disregard of one’s rights. It must be evidenced by a
flagrantly or shamefully wrong or improper conduct. There was nothing in the conduct of Northwest Airlines
which showed that they were motivated by malice or bad faith in loading her baggages on another plane. Due
to weight and balance restrictions, as a safety measure, the airline had to transport the baggages on a different
flight, but with the same expected date and time of arrival in the Philippines. Northwest Airlines was not
guilty of willful misconduct.

2. No malice; Airline did not act in bad faith

It is admitted that Northwest Airlines failed to deliver Tan’s luggages on time. However, there was no
showing of malice in such failure. By its concern for safety, the airline had to ship the baggages in another
flight with the same date of arrival. The Airline did not act in bad faith. Bad faith does not simply connote
bad judgment or negligence, it imports a dishonest purpose or some moral obliquity and conscious doing of a
wrong, a breach of known duty through some motive or interest or ill-will that partakes of the nature of
fraud.”

3. Liability arising from breach of contract of carriage, without fraud or bad faith, does not
include moral and exemplary damages
Where in breaching the contract of carriage the defendant airline is not shown to have acted
fraudulently or in bad faith, liability for damages is limited to the natural and probable consequences of the
breach of obligation which the parties had foreseen or could have reasonably foreseen. In that case, such
liability does not include moral and exemplary damages.

[226]

American Airlines vs. CA (GR 116044-45, 9 March 2000)

Third Division, Gonzaga-Reyes (J): 4 concur

Facts: Democrito Mendoza purchased from Singapore Airlines in Manila conjunction tickets for Manila-
Singapore-Athens-Larnaca-Rome-Turin-Zurich-Geneva-Copenhagen-New York. American Airlines was not a
participating airline in any of the segments in the itinerary under the said conjunction tickets. In Geneva,
Mendoza decided to forego his trip to Copenhagen and to go straight to New York and in the absence of a
direct flight under his conjunction tickets from Geneva to New York, Mendoza on 7 June 1989 exchanged the
unused portion of the conjunction ticket for a one-way ticket from Geneva to New York from American
Airlines. American Airlines issued its own ticket to Mendoza in Geneva and claimed the value of the unused
portion of the conjunction ticket from the IATA clearing house in Geneva.

In September 1989, Mendoza filed an action for damages before the RTC Cebu for the alleged embarrassment
and mental anguish he suffered at the Geneva Airport when American Airlines ‘s security officers prevented
him from boarding the plane, detained him for about an hour and allowed him to board the plane only after all
the other passengers have boarded. American Airlines filed a motion to dismiss for lack of jurisdiction of
Philippine courts to entertain the said proceedings under Art. 28 (1) of the Warsaw Convention. The trial court
denied the motion, holding that the suit may be brought in the Philippines under the pool partnership
agreement among the IATA members, which include Singapore Airlines and American Airlines, wherein the
members act as agents of each other in the issuance of tickets to those who may need their services; and that
the contract of carriage perfected in Manila between Mendoza and Singapore Airlines binds American
Airlines as an agent of Singapore Airlines and considering that American Airlines has a place of business in
Manila, the third option of the plaintiff under the Warsaw Convention.

The order of denial was elevated to the Court of Appeals which affirmed the ruling of the trial court. Hence
the petition for review. In SP 30946, American Airlines assailed the trial court’s order denying its motion to
dismiss the action for damages filed by Mendoza for lack of jurisdiction under section 28 (1) of the Warsaw
Convention; and in SP 31452 American Airlines challenges the validity of the trial court’s order striking off
the record the deposition of its security officer taken in Geneva, Switzerland for failure of the said security
officer to answer the cross interrogatories propounded by Mendoza.
The Supreme Court affirmed the judgment of the appellate court in CA-GR SP 30946, and ordered the case
remanded to the court of origin for further proceedings. The Supreme Court set aside the decision of the
appellate court in CA-GR SP 31452 is set aside. The deposition of American Airlines’ security officer is
reinstated as part of the evidence.

1. Warsaw Convention; Purpose and applicability

The Warsaw Convention to which the Republic of the Philippines is a party and which has the force
and effect of law in this country applies to all international transportation of persons, baggage or goods
performed by an aircraft gratuitously or for hire. As enumerated in the Preamble of the Convention, one of the
objectives is “to regulate in a uniform manner the conditions of international transportation by air”. Herein,
the contract of carriage entered into by Mendoza with Singapore Airlines, and subsequently with American
Airlines, to transport him to nine cities in different countries with New York as the final destination is a
contract of international transportation and the provisions of the Convention automatically apply and
exclusively govern the rights and liabilities of the airline and its passengers. This includes section 28 (1)
which enumerates the four places where an action for damages may be brought.

2. Article 28 (1) of the Warsaw Convention; Where action for damages may be brought
Article 28 (1) of the Warsaw Convention states that “an action for damages must be brought at the
option of the plaintiff, in the territory of one of the High Contracting Parties, either before the court of the
domicile of the carrier or of his principal place of business or where he has a place of business through which
the contract has been made, or before the court at the place of destination.”

3. Geneva not the proper venue

Herein, American Airlines issued the ticket in Geneva which was neither the domicile nor the
principal place of business of American Airlines nor Mendoza’s place of destination.

4. Article 1 (3) of the Warsaw Convention; Transportation performed by successive carriers

considered undivided
Article 1(3) of the Warsaw Convention which states that “transportation to be performed by several
successive carriers shall be deemed, for the purposes of this convention, to be one undivided transportation, if
it has been regarded by the parties as a single operation, whether it has been agreed upon under the form of a
single contract or a series of contracts, and it shall not lose its international character merely because one
contract or series of contracts is to be performed entirely within the territory subject of the sovereignty,
suzerainty, mandate or authority of the same High Contracting Party.”

5. Purpose of Article 1 (3) of the Warsaw Convention

The evident purpose underlying Article 1 (3) of the Warsaw Convention is to promote international
air travel by facilitating the procurement of a series of contracts for air transportation through a single
principal and obligating different airlines to be bound by one contract of transportation.

6. Overview of general pool partnership agreement between IATA members

Members of the IATA are under a general pool partnership agreement wherein they act as agent of
each other in the issuance of tickets to contracted passengers to boost ticket sales worldwide and at the same
time provide passengers easy access to airlines which are otherwise inaccessible in some parts of the world.
Booking and reservation among airline members are allowed even by telephone and it has become an
accepted practice among them. 12 A member airline which enters into a contract of carriage consisting of a
series of trips to be performed by different carriers is authorized to receive the fare for the whole trip and
through the required process of interline settlement of accounts by way of the IATA clearing house an airline
is duly compensated for the segment of the trip serviced.
7. American Airlines tacitly recognized its commitment in IATA, and assumed obligation of
original carrier
Herein, when American Airlines accepted the unused portion of the conjunction tickets, entered it in
the IATA clearing house and undertook to transport Mendoza over the route covered by the unused portion of
the conjunction tickets, i.e., Geneva to New York, American Airlines tacitly recognized its commitment under
the IATA pool arrangement to act as agent of the principal contracting airline, Singapore Airlines, as to the
segment of the trip American Airlines agreed to undertake. As such, American Airlines thereby assumed the
obligation to take the place of the carrier originally designated in the original conjunction ticket.

8. Issuance of new ticket not decisive of the carrier’s liability

American Airlines’ argument that it is not a designated carrier in the original conjunction tickets and
that it issued its own ticket is not decisive of its liability. The new ticket was simply a replacement for the
unused portion of the conjunction ticket, both tickets being for the same amount of US$ 2,760 and having the
same points of departure and destination. By constituting itself as an agent of the principal carrier American
Airlines’ undertaking should be taken as part of a single operation under the contract of carriage executed by
Mendoza and Singapore Airlines in Manila.

9. Court in Manila has jurisdiction; Issue of venue in Cebu waived

The third option of the plaintiff under Art 28 (1) of the Warsaw Convention e.g., to sue in the place of
business of the carrier wherein the contract was made, is therefore, Manila, and Philippine courts are clothed
with jurisdiction over this case. It must be noted, however, that while the case was filed in Cebu and not in
Manila the issue of venue is no longer an issue as American Airlines is deemed to have waived it when it
presented evidence before the trial court.

10. Deposition of the Security Officer in Geneva should be reinstated as part of the evidence
The subsequent appearance of the said security officer before the Philippine consul in Geneva on 19
September 1994 and the answer to the cross-interrogatories propounded by Mendoza was transmitted to the
trial court by the Philippine consul in Geneva on 23 September 1994 should be deemed as full compliance
with the requisites of the right of Mendoza to cross-examine American Airlines’ witness. The deposition filed
by American Airlines should be reinstated as part of the evidence and considered together with the answer to
the cross-interrogatories.

[-]

Yu Eng Cho vs. Pan American World Airways (GR 123560, 27 March 2000)
First Division, Puno (J): 3 concur, 1 took no part

Facts: Yu Eng Cho is the owner of Young Hardware Co. and Achilles Marketing. In connection with this
business, he travels from time to time to Malaysia, Taipei and Hongkong. On 10 July 1976, Yu Eng Cho and
Francisco Tao Yu bought plane tickets from Claudia Tagunicar who represented herself to be an agent of
Tourist World Services, Inc. (TWSI). The destinations were Hongkong, Tokyo, San Francisco, USA, for the
amount of P25,000.00 per computation of said Tagunicar. The purpose of this trip is to go to Fairfield, New
Jersey, U.S.A. to buy 2 lines of infrared heating system processing textured plastic article. On said date, only
the passage from Manila to Hongkong, then to Tokyo, were confirmed. [PAA] Flight 002 from Tokyo to San
Francisco was on “RQ” status, meaning “on request”. Per instruction of defendant Claudia Tagunicar,
plaintiffs returned after a few days for the confirmation of the Tokyo-San Francisco segment of the trip. After
calling up Canilao of TWSI, Tagunicar told the Yus that their flight was now confirmed all the way.
Thereafter, she attached the confirmation stickers on the plane tickets. A few days before the scheduled flight,
their son, Adrian Yu, called the Pan Am office to verify the status of the flight. According to said Adrian Yu, a
personnel of Pan Am told him over the phone that the Yus’ booking[s] are confirmed. On 23 July 1978, the
Yus left for Hongkong and stayed there for 5 days. They left Hongkong for Tokyo on 28 July 1978. Upon
their arrival in Tokyo, they called up Pan-Am office for reconfirmation of their flight to San Francisco. Said
office, however, informed them that their names are not in the manifest. Since they were supposed to leave on
29 July 1978, and could not remain in Japan for more than 72 hours, they were constrained to agree to accept
airline tickets for Taipei instead, per advise of JAL officials. This is the only option left to them because
Northwest Airlines was then on strike, hence, there was no chance for them to obtain airline seats to the
United States within 72 hours. They paid for these tickets. Upon reaching Taipei, there were no flights
available for them, thus, they were forced to return back to Manila on 3 August 1978, instead of proceeding to
the United States. Japan Air Lines (JAL) refunded them the difference of the price for Tokyo-Taipei [and]
Tokyo-San Francisco in the total amount of P2,602.00. In view of their failure to reach Fairfield, New Jersey,
Radiant Heat Enterprises, Inc. cancelled Yu Eng Cho’s option to buy the 2 lines of infra-red heating system.
The agreement was for him to inspect the equipment and make final arrangements with the said company not
later than 7 August 1978. From this business transaction, Yu Eng Cho expected to realize a profit of
P300,000.00 to P400,000.00.

A complaint for damages was filed by Yu Eng Cho, et. al. against Pan American World Airways, Inc. (Pan
Am), Tourist World Services, Inc. (TWSI), Julieta Canilao (Canilao), and Claudia Tagunicar (Tagunicar) for
expenses allegedly incurred such as costs of tickets and hotel accommodations when Yu Eng Cho, et. al. were
compelled to stay in Hongkong and then in Tokyo by reason of the non-confirmation of their booking with
Pan-Am. In a Decision dated 14 November 1991, the RTC Manila, Branch 3, held PAN AM, TWSI, and
Tagunicar, except Julieta Canilao, jointly and severally liable to pay Yu Eng Cho, et. al. the sum of
P200,000.00 as actual damages, minus P2,602.00 already refunded; P200,000.00 as moral damages;
P100,000.00 as exemplary damages; an amount equivalent to 20% of the award for and as attorney’s fees,
plus the sum of P30,000.00 as litigation expenses.

Only Pan Am and Tagunicar appealed to the Court of Appeals. On 31 August 1995, the appellate court
rendered judgment modifying the amount of damages awarded, holding Tagunicar solely liable therefor, and
absolving Pan Am and TWSI from any and all liability, thus setting aside the decision of the RTC and
entering a new one declaring Tagunicar solely liable for (1) Moral damages in the amount of P50,000.00;
(2)Exemplary damages in the amount of P25,000.00; and (3) Attorney’s fees in the amount of P10,000.00
plus costs of suit; deleting the award of actual damages. The motion for reconsideration was denied 11
January 1998. Hence, the petition for review.

The Supreme Court affirmed the decision appealed; with costs against Yu Eng Cho, et. al.

1. Nicos Industrial Corp. vs. CA; Economy of words in rendering ruling

The standards of an ideal decision set in Nicos Industrial Corporation, et al. vs. Court of Appeals, et
al., as “that which, with welcome economy of words, arrives at the factual findings, reaches the legal
conclusions, renders its ruling and, having done so, ends.”

2. One-paragraph generalization by trial court did not substantiate the factual and legal basis of
its conclusion
A careful scrutiny of the decision rendered by the trial court will show that after narrating the
evidence of the parties, it proceeded to dispose of the case with a one-paragraph generalization, to wit: “On
the basis of the foregoing facts, the Court is constrained to conclude that defendant Pan-Am is the principal,
and defendants TWSI and Tagunicar, its authorized agent and sub-agent, respectively. Consequently,
defendants Pan-Am, TWSI and Claudia Tagunicar should be held jointly and severally liable to plaintiffs for
damages. Defendant Julieta Canilao, who acted in her official capacity as Office Manager of defendant TWSI
should not be held personally liable.” The trial court’s finding of facts is but a summary of the testimonies of
the witnesses and the documentary evidence presented by the parties. It did not distinctly and clearly set forth,
nor substantiate, the factual and legal bases for holding respondents TWSI, Pan Am and Tagunicar jointly and
severally liable.
3. Del Mundo vs. CA; Decisions must still distinctly and clearly express, at least in minimum
essence, its factual and legal bases
In Del Mundo vs. CA, et al. where the trial court, after summarizing the conflicting asseverations of
the parties, disposed of the kernel issue in just two (2) paragraphs, it was held that “it is understandable that
courts, with their heavy dockets and time constraints, often find themselves with little to spare in the
preparation of decisions to the extent most desirable. We have thus pointed out that judges might learn to
synthesize and to simplify their pronouncements. Nevertheless, concisely written such as they may be,
decisions must still distinctly and clearly express, at least in minimum essence, its factual and legal bases.”

4. Constitutional requirement that decisions must be clearly based on facts and law
Nothing less than Section 14 of Article VIII of the Constitution requires that “no decision shall be
rendered by any court without expressing therein clearly and distinctly the facts and the law on which it is
based.” This is demanded by the due process clause of the Constitution. Herein, the decision of the trial court
leaves much to be desired both in form and substance.

5. Contract of agency; Elements

By the contract of agency, a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter. The elements of agency are:
(1) consent, express or implied, of the parties to establish the relationship; (2) the object is the execution of a
juridical act in relation to a third person; (3) the agent acts as a representative and not for himself; (4) the
agent acts within the scope of his authority.

6. Dealings with assumed agent

Persons dealing with an assumed agent are bound at their peril, if they would hold the principal
liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to establish it.

7. Affidavit has weak probative value, inferior to testimony given in Court

Affidavits, being taken ex parte, are almost always incomplete and often inaccurate, sometimes from
partial suggestion, or for want of suggestion and inquiries. Their infirmity as a species of evidence is a matter
of judicial experience and are thus considered inferior to the testimony given in court. Further, affidavits are
not complete reproductions of what the declarant has in mind because they are generally prepared by the
administering officer and the affiant simply signs them after the same have been read to her. In case of
conflict between statements in the affidavit and testimonial declarations, the latter command greater weight.

8. Circumstances puts in doubt whether the affidavit was executed voluntarily

The circumstances under which said affidavit was prepared put in doubt the claim that it was
executed voluntarily by Tagunicar. It appears that the affidavit was prepared and was based on the answers
which Tagunicar gave to the questions propounded to her by Atty. Acebedo, Yu Eng Cho’s lawyer. They
never told her that the affidavit would be used in a case to be filed against her. They even assured her that she
would not be included as defendant if she agreed to execute the affidavit. Tagunicar was prevailed upon by Yu
Eng Cho’s son and their lawyer to sign the affidavit despite her objection to the statement therein that she was
an agent of TWSI. They assured her that “it is immaterial” and that “if we file a suit against you we cannot
get anything from you.” This purported admission of Tagunicar cannot be used by Yu Eng Cho to prove their
agency relationship.

9. Existence of agency relationship cannot be established solely by the affidavit; Burdenof proof
At any rate, even if such affidavit is to be given any probative value, the existence of the agency
relationship cannot be established on its sole basis. The declarations of the agent alone are generally
insufficient to establish the fact or extent of his authority. In addition, as between the negative allegation of
Canilao and Tagunicar that neither is an agent nor principal of the other, and the affirmative allegation of Yu
Eng Cho that an agency relationship exists, it is the latter who have the burden of evidence to prove their
allegation, failing in which, their claim must necessarily fail.

10. Tagunicar not an authorized agent or representative of Pan Am or TWSI

Tagunicar categorically denied in open court that she is a duly authorized agent of TWSI, and
declared that she is an independent travel agent. Thus, Tagunicar is an independent travel solicitor and is not a
duly authorized agent or representative of either Pan Am or TWSI. Their business transactions are not
sufficient to consider Pan Am as the principal, and Tagunicar and TWSI as its agent and sub-agent,
respectively. Tagunicar was not authorized to confirm the bookings of, nor issue validation stickers to Yu Eng
Cho, et. al. and hence, Pan Am and TWSI cannot be held responsible for her actions.

11. Tagunicar’s transaction with TWSI simply a contract of sale

The documents – the Ticket Sales Report, submitted by TWSI to Pan Am reflecting the commissions
received by TWSI as an agent of Pan Am, a listing of the routes taken by passengers who were audited to
TWSI’s sales report, and a receipt issued by by TWSI covering the payment made by Tagunicar for the tickets
she bought from TWSI – cannot justify the deduction that Tagunicar was paid a commission either by TWSI
or Pan Am. On the contrary, Tagunicar testified that when she pays TWSI, she already deducts in advance her
commission and merely gives the net amount to TWSI. From all sides of the legal prism, the transaction is
simply a contract of sale wherein Tagunicar buys airline tickets from TWSI and then sells it at a premium to
her clients.

12. Motive of Yu Eng Cho in suing Pan Am

The real motive of Yu Eng Cho in suing Pan Am appears in its Amended Complaint that TWSI,
Canilao and Tagunicar may not be financially capable of paying the former the amounts sought to be
recovered, and in such event, Pan Am, being their ultimate principal, is primarily and/or subsidiarily liable to
pay said amounts to them. This lends credence to Tagunicar’s testimony that she was persuaded to execute an
affidavit implicating Pan AM because the former knew they would not be able to get anything of value from
her.

13. Lack of protest in Japan supports conclusion that suit is meritless

In the past, the Court has warned that it will not tolerate an abuse of the judicial process by
passengers in order to pry on international airlines for damage awards, like “trophies in a safari.” The
meritless suit against Pan Am becomes more glaring with Yu Eng Cho, et. al.’s inaction after they were
bumped off in Tokyo. If they were of the honest belief that Pan Am was responsible for the misfortune which
beset them, there is no evidence to show that they lodged a protest with Pan Am’s Tokyo office immediately
after they were refused passage for the flight to San Francisco, or even upon their arrival in Manila. It grinds
against the grain of human experience that Yu Eng Cho did not insist that they be allowed to board,
considering that it was then doubly difficult to get seats because of the ongoing Northwest Airlines strike. It is
also perplexing that they readily accepted whatever the Tokyo office had to offer as an alternative.
Inexplicably too, no demand letter was sent to TWSI and Canilao. Nor was a demand letter sent to Pan Am.
To say the least, the motive of Yu Eng Cho in suing Pan Am is suspect.

14. Law presumes good faith; Mere refusal to passenger’s wishes does not translate into damages
in absence of bad faith
It is not sufficient to prove that Pan Am did not allow Yu Eng Cho to board to justify the latter’s
claim for damages. Mere refusal to accede to the passenger’s wishes does not necessarily translate into
damages in the absence of bad faith. The settled rule is that the law presumes good faith such that any person
who seeks to be awarded damages due to acts of another has the burden of proving that the latter acted in bad
faith or with ill motive. The evidence presented by Yu Eng Cho was insufficient to overcome the presumption
of good faith. They have failed to show any wanton, malevolent or reckless misconduct imputable to
respondent Pan
Am in its refusal to accommodate petitioners in its Tokyo-San Francisco flight. Pan Am could not have acted
in bad faith because they did not have confirmed tickets and more importantly, they were not in the passenger
manifest.

15. Cases where the Court held airline liable for damages for having acted in and faith
(1) In Ortigas Jr. v. Lufthansa German Airlines Inc., the Court ruled that there was a valid and binding
contract between the airline and its passenger after finding that validating sticker on the passenger’s ticket had
the letters “O.K.” appearing in the ‘Res. Status’ box which means “space confirmed” and that the ticket is
confirmed or validated. (2) In Pan American World Airways Inc. v. IAC, et al. where a would-be-passenger
had the necessary ticket, baggage claim and clearance from immigration all clearly showing that she was a
confirmed passenger and included in the passenger manifest and yet was denied accommodation in said
flight, the Court awarded damages. (3) In Armovit, et al. v. CA, et al., the Court upheld the award of damages
made against an airline for gross negligence committed in the issuance of tickets with erroneous entries as to
the time of flight. (4) In Alitalia Airways v. CA, et al., the Court held that when airline issues a ticket to a
passenger confirmed on a particular flight, on a certain date, a contract of carriage arises, and the passenger
has every right to expect that he would fly on that flight and on that date. If he does not, then the carrier opens
itself to a suit for breach of contract of carriage. (5) An award of damages was held proper in the case of
Zalamea, et al. v. CA, et al. where a confirmed passenger included in the manifest was denied accommodation
in such flight.

16. RQ means “Request”, not confirmed; Sarreal Sr. cs. Japan Airlines Co.
In Sarreal, Sr. v. Japan Airlines Co., Ltd., the airline was held not liable for damages where the
passenger was not allowed to board the plane because his ticket had not been confirmed. The stub on the
passenger’s ticket showed among other coded items, under the column “status” the letters “RQ” — which was
understood to mean “Request.” Clearly, this does not mean a confirmation but only a request. It would have
been different if what was written on the stub were the letter “ok” in which case the petitioner would have
been assured of a seat on said flight. The passenger thus was more of a wait-listed passenger than a regularly
booked passenger. Herein, Yu Eng Cho’s ticket were on “RQ” status. They were not confirmed passengers
and their names were not listed in the passenger manifest. In other words, this is not a case where Pan Am
bound itself to transport Yu Eng Cho and thereafter reneged on its obligation. Hence, the airline cannot be
held liable for damages.

17. Evidence that tickets were never confirmed

Evidence show that the tickets were never confirmed for good reasons: (1) The persistent calls made
by Tagunicar to Canilao, and those made by Yu Eng Cho at the Manila, Hongkong and Tokyo offices of Pan
Am, are eloquent indications that Yu Eng Cho knew that their tickets have not been confirmed. (2) The
validation stickers which Tagunicar attached to the tickets were those intended for the exclusive use of airline
companies. As she had no authority to use them, the validation stickers are not valid and binding. (3) The
names of Yu Eng Cho did not appear in the passenger manifest. (4) Tagunicar showed that the status of the
San Francisco-New York segment was “Ok”, meaning it was confirmed, but that the status of the Tokyo-San
Francisco segment was still “on request”. (5) Canilao testified that on the day that Yu Eng Cho were to depart
for Hongkong, Tagunicar called her from the airport asking for confirmation of the Tokyo-San Francisco
flight, and that when she told Tagunicar that she should not have allowed Yu Eng Cho to leave because their
tickets have not been confirmed, Tagunicar merely said “Bahala na.” This was never controverted nor refuted
by Tagunicar. (6) To prove that it really did not confirm the bookings, Canilao pointed out that the validation
stickers which Tagunicar attached to the tickets had IATA 2-82-0770 stamped on it, whereas the IATA
number of TWSI is 28-30770.

18. Modifications as to the amount of damages due to equity

Tagunicar should be liable for having acted in bad faith in misrepresenting to Yu Eng Cho that their
tickets have been confirmed. Her culpability, however, was properly mitigated. Yu Eng Cho testified that he
repeatedly tried to follow up on the confirmation of their tickets with Pan Am because he doubted the
confirmation made by Tagunicar. This is clear proof that they knew that they might be bumped off at Tokyo
when they decided to proceed with the trip. Aware of this risk, they exerted efforts to confirm their tickets in
Manila, then in Hongkong, and finally in Tokyo. Resultantly, the modification as to the amount of damages
awarded is just and equitable under the circumstances.

[228]

Rizal Surety & Insurance vs. Macondray & Co. (GR L-24064, 29 February 1968)
En Banc, Concepcion (CJ): 9 concur

Facts: Rizal Surety & Insurance Co. seeks to recover from Macondray & Co., Inc., as authorized agent,
Manila, of Barber Steamship Lines, Inc., which operates the vessel “SS Tai Ping,” the sum of P2,020.00,
representing the maximum value recoverable — under the corresponding bill of lading — of some machinery
parts shipped, on board said vessel, at New York, and consigned to Edwardson Manufacturing Corporation, in
Manila, but not discharged by the vessel in Manila, in view of which Rizal Surety had to pay, pursuant to its
contract of insurance with the consignee, the value of said effects to the latter. In its answer, Macondray set up
the defense of prescription, which the lower court sustained. Hence, the dismissal of the complaint by the CFI
Manila, with costs.

Rizal Surety appealed directly to the Supreme Court. The Supreme Court affirmed the decision appealed
from, with costs against Rizal Surety.

1. Section 3, Title I, of the Carriage of Goods by Sea Act

The penultimate paragraph of subparagraph 6 reads “in any event the carrier and the ship shall be
discharged from all liability in respect to loss or damages unless suit is brought within one year after delivery
of the goods or the date when the goods should have been delivered: Provided, That if a notice of loss or
damage, either apparent or concealed, is not given as provided for in this section, that fact shall not affect or
prejudice the right of the shipper to bring suit within one year after the delivery of the goods or the date when
the goods should have been delivered.”

2. Section 3, Title I, COGSA, contemplates cases of damage, and even loss

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

3. COGSA rules on statute of limitations to be applied as it is the one stipulated in bill of lading
Philippine statute of limitations of action cannot be applied to the present case because the
corresponding bill of lading — which is the contract and, hence, the law between the parties — expressly
stipulates that it is “subject to the Provisions of the Carriage by Sea Act of the U.S. of America, approved 16
April 1936, which shall be deemed to be incorporated” therein.
4. Reckoning period for prescription
Inasmuch as the “SS Tai Ping” arrived at the Port of Manila on 2 November 1962 and left it on 4
November 1962, it was on the latter date that the carrier had the last opportunity to deliver the goods; that the
period of one year within which the carrier could be sued commenced to run, therefore, from 5 November
1962 and expired on 4 November 1963; and that said period has expired before the action was commenced on
10 February 1964.

[229]

The American Insurance Co. vs. Compania Maritima (GR L-24515, 18 November 1967)
En Banc, Makalintal (J): 9 concur

Facts: On 11 August 1962, a certain cargo insured with the American Insurance Company (AIC) was shipped
in New York, USA aboard “M/S TOREADOR”, of which the general agent in the Philippines is Macondray
& Co. Inc.. The cargo, with an invoice value of $3,539.61 CIF Cebu, was consigned to the order of the
importer Atlas Consolidated Mining and Development Corporation. Inasmuch as the final port of call of the
“M/S TOREADOR” was Manila, the carrier, in accepting the cargo at the point of shipment, agreed to
transship the same, after its discharge in Manila, aboard an inter-island vessel to its destination in Cebu. On
18 September 1962 the “M/S TOREADOR” arrived at the port of Manila and on the same date discharged the
cargo in question. Pursuant to the arrangement the cargo was subsequently loaded aboard the “SS SIQUIJOR,
an inter- island vessel. The shipment was finally discharged in Cebu on 24 September 1962. When the
consignee took delivery of the shipment it was found to be short of 2 pieces of tractor parts worth $2,834.88,
or P11,063.12 at the exchange rate of P3.9025. AIC paid the insured value of the lost merchandise to the
consignee. To recover the said sum of P11,063.12, AIC, as subrogee of the consignee’s rights, filed on 24
September 1963 a complaint against the Compañia Maritima and the Visayan Cebu Terminal Co., Inc. as
alternative defendants. The former was sued as operator and owner of “SS SIQUIJOR” and the latter as
operator of the arrastre service at the port of Cebu, charged with the care and custody of all cargo discharged
there. In view of Maritima’s allegation in its answer that the lost merchandise had not actually been delivered
to it, AIC filed on 6 November 1964 a motion to admit its amended complaint impleading Macondray and
Luzon Brokerage Corporation as additional defendants and eliminating the Visayan Cebu Terminal Co., Inc.
The amended complaint was admitted on 14 November 1964. On 23 December 1964 Macondray moved to
dismiss the amended complaint against it on the ground that AIC’s action had already prescribed under the
provisions of the Carriage of Goods by Sea Act. The motion to dismiss was granted and AIC interposed the
present appeal from the order of dismissal.

The Supreme Court affirmed the order affirmed from, with costs.

1. Section 3 (6), COGSA

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

2. Action based on the contract of carriage up to final port of destination

The action is based on the contract of carriage up to the final port of destination, which was Cebu
City, for which the corresponding freight had been prepaid (Bill of Lading No. 13). The use of the term
“forwarding agent of the shipper” (Clause 11 of the bill of lading) is not decisive of the issue.

3. Provisions of bill of lading evidencing nature of contract of carriage

The following provisions of the bill of lading are the ones directly in point: (1) “This bill of lading
shall have effect subject to the provisions of the Carriage of Goods by Sea Act of the United States of
America. approved April 16, 1936, which shall be deemed to be incorporated herein and nothing herein
contained shall be deemed a surrender by the Carrier of any of its rights or immunities or an increase of any
of its responsibilities or liabilities under said Act. The provisions stated in said Act (except as may be
otherwise specifically provided herein) shall govern before the goods are loaded on and after they are
discharged from the ship and throughout the entire time the goods are in the custody of the carrier. . . “ and
“(19) In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage
unless suit is brought within one year after delivery of the goods or the date when the goods should have been
delivered.”

4. Transshipment of cargo not a separate transaction entered into by Macondray; Transaction

remains to covered by COGSA
The transshipment of the cargo from Manila to Cebu was not a separate transaction from that
originally entered into by Macondray, as general agent for the “M/S TOREADOR”. It was part of
Macondray’s obligation under the contract of carriage and the fact that the transshipment was made via an
inter-island vessel did not operate to remove the transaction from the operation of the Carriage of Goods by
Sea Act. (See Go Chang & Co., Inc. vs. Aboitiz & Co., Inc., 98 Phil. 197).

[230]

Mitsui vs. CA (GR 119571, 11 March 1998)

Second Division, Mendoza (J): 4 concur

Facts: Mitsui O.S.K. Lines Ltd. is a foreign corporation represented in the Philippines by its agent,
Magsaysay Agencies. It entered into a contract of carriage through Meister Transport, Inc., an international
freight forwarder, with Lavine Loungewear Manufacturing Corporation to transport goods of the latter from
Manila to Le Havre, France. Mitsui undertook to deliver the goods to France 28 days from initial loading. On
24 July 1991, Mitsui’s vessel loaded Lavine’s container van for carriage at the said port of origin. However,
in Kaoshiung, Taiwan the goods were not transshipped immediately, with the result that the shipment arrived
in Le Havre only on 14 November 1991. The consignee allegedly paid only half the value of the said goods
on the ground that they did not arrive in France until the “off season” in that country. The remaining half was
allegedly charged to the account of Lavine which in turn demanded payment from Mitsui through its agent.

As Mitsui denied Lavine’s claim, the latter filed a case in the RTC on 14 April 1992. In the original
complaint, Lavine impleaded as defendants Meister Transport, Inc. and Magsaysay Agencies, Inc., the latter
as agent of Mitsui O.S.K. Lines Ltd. On 20 May 1993, it amended its complaint by impleading Mitsui as
defendant in lieu of its agent. The parties to the case thus became Lavine as plaintiff, on one side, and Meister
and Mitsui as represented by Magsaysay Agencies, Inc., as defendants on the other. Mitsui filed a motion to
dismiss alleging that the claim against it had prescribed under the Carriage of Goods by Sea Act. The trial
court denied Mitsui’s motion as well as its subsequent motion for reconsideration.

On petition for certiorari, and on 25 January 1995, the Court of Appeals sustained the trial court’s orders.
Mistui’s motion for reconsideration was likewise denied 22 March 1995. Hence, the petition for review.

The Supreme Court affirmed the decision of the Court of Appeals.

1. §3(6) of the Carriage of Goods by Sea Act (COGSA)

Section 3 (6) provides “unless notice of loss or damage and the general nature of such loss or damage
be given in writing to the carrier or his agent at the port of discharge or at the time of the removal of the
goods into the custody of the person entitled to delivery thereof under the contract of carriage, such removal
shall be prima facie evidence of the delivery by the carrier of the goods as described in the bill of lading. If
the loss or damage is not apparent, the notice must be given within three days of the delivery. Said notice of
loss or damage may be endorsed upon the receipt for the goods given by the person taking delivery thereof.
The
notice in writing need not be given if the state of the goods has at the time of their receipt been the subject of
joint survey or inspection. In any event the carrier and the ship shall be discharged from all liability in respect
of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods
should have been delivered: Provided, that, if a notice of loss or damage, either apparent or concealed, is not
given as provided for in this section, that fact shall not affect or prejudice the right of the shipper to bring suit
within one year after the delivery of the goods or the date when the goods should have been delivered. In the
case of any actual or apprehended loss or damage, the carrier and the receiver shall give all reasonable
facilities to each other for inspecting and tallying the goods.”

2. “Loss” construed; No loss when goods simply misdelivered; Ang vs. American Steamship
Agencies
In Ang v. American Steamship Agencies, Inc., the question was whether an action for the value of
goods which had been delivered to a party other than the consignee is for “loss or damage” within the
meaning of §3(6) of the COGSA. It was held that there was no loss because the goods had simply been
misdelivered. “Loss” refers to the deterioration or disappearance of goods. As defined in the Civil Code and
as applied to Section 3(6), paragraph 4 of the Carriage of Goods by Sea Act, “loss” contemplates merely a
situation where no delivery at all was made by the shipper of the goods because the same had perished, gone
out of commerce, or disappeared in such a way that their existence is unknown or they cannot be recovered.

3. Deterioration of goods due to delay constitutes “loss” or “damage”; 1 year prescription under
§3(6), COGSA
Conformably with the concept of what constitutes “loss” or “damage,” the deterioration of goods due
to delay in their transportation constitutes “loss” or “damage” within the meaning of 3(6), so that as suit was
not brought within one year the action was barred. Whatever damage or injury is suffered by the goods while
in transit would result in loss or damage to either the shipper or the consignee. As long as it is claimed,
therefore, that the losses or damages suffered by the shipper or consignee were due to the arrival of the goods
in damaged or deteriorated condition, the action is still basically one for damage to the goods, and must be
filed within the period of one year from delivery or receipt, under the provision of the Carriage of Goods by
Sea Act.

4. Rationale for the 1 year period of limitation

The one-year period of limitation is designed to meet the exigencies of maritime hazards. In a case
where the goods shipped were neither lost nor damaged in transit but were, on the contrary, delivered in port
to someone who claimed to be entitled thereto, the situation is different, and the special need for the short
period of limitation in cases of loss or damage caused by maritime perils does not obtain.

5. Damage due to other causes not covered by COGSA

Damages suffered by him as a result of the delay in the shipment of his cargo are not covered by the
prescriptive provision of the Carriage of Goods by Sea Act, if such damages were due, not to the deterioration
and decay of the goods while in transit, but to other causes independent of the condition of the cargo upon
arrival, like a drop in their market value. Herein, there is neither deterioration nor disappearance nor
destruction of goods caused by the carrier’s breach of contract. Whatever reduction there may have been in
the value of the goods is not due to their deterioration or disappearance because they had been damaged in
transit.

6. Issue not about liability for handling of goods but liability under the contract of carriage; 10
year prescription according to general laws
What is in issue in the petition is not the liability of Mistui for its handling of goods as provided by
3(6) of the COGSA, but its liability under its contract of carriage with Lavine as covered by laws of more
general application. The question before the trial court is not the particular sense of “damages” as it refers to
the physical loss or damage of a shipper’s goods as specifically covered by §3(6) of COGSA but Mitsui’s
potential liability for the damages it has caused in the general sense and, as such, the matter is governed by
the Civil Code, the Code of Commerce and COGSA, for the breach of its contract of carriage with Lavine.
The suit is not for “loss or damage” to goods contemplated in §3(6), the question of prescription of action is
governed not by the COGSA but by Article 1144 of the Civil Code which provides for a prescriptive period
of ten years.

[231]

Mayer Steel Pipe vs. CA (GR 124050, 19 June 1997)

Second Division, Puno (J): 4 concur

Facts: In 1983, Hongkong Government Supplies Department (Hongkong) contracted Mayer Steel Pipe
Corporation (Mayer) to manufacture and supply various steel pipes and fittings. From August to October
1983, Mayer shipped the pipes and fittings to Hongkong as evidenced by Invoice MSPC-1014, MSPC-1015,
MSPC-1025, MSPC-1020, MSPC-1017 and MSPC-1022. Prior to the shipping, Mayer insured the pipes and
fittings against all risks with South Sea Surety and Insurance Co., Inc. (South Sea) and Charter Insurance
Corp. (Charter). The pipes and fittings covered by Invoice MSPC-1014, 1015 and 1025 with a total amount of
US$212,772.09 were insured with South Sea, while those covered by Invoice 1020, 1017 and 1022 with a
total amount of US$149,470.00 were insured with Charter. Mayer and Hongkong jointly appointed Industrial
Inspection (International) Inc. as third-party inspector to examine whether the pipes and fittings are
manufactured in accordance with the specifications in the contract. Industrial Inspection certified all the pipes
and fittings to be in good order condition before they were loaded in the vessel. Nonetheless, when the goods
reached Hongkong, it was discovered that a substantial portion thereof was damaged. Hongkong and Mayer
filed a claim against Sourth Sea and Charter for indemnity under the insurance contract. Charter paid
Hongkong the amount of HK$64,904.75. Hongkong and Mayer demanded payment of the balance of
HK$299,345.30 representing the cost of repair of the damaged pipes. South Sea and Charter refused to pay
because the insurance surveyor’s report allegedly showed that the damage is a factory defect.

On 17 April 1986, Hongkong and Mayer filed an action against South Sea and Charter to recover the sum of
HK$299,345.30. The trial court ruled in favor of the former. It found that the damage to the goods is not due
to manufacturing defects. It also noted that the insurance contracts executed by Mayer with South Sea and
Charter are “all risks” policies which insure against all causes of conceivable loss or damage. The only
exceptions are those excluded in the policy, or those sustained due to fraud or intentional misconduct on the
part of the insured. Thus, the court ordered South Sea and Charter to pay in solidum the sum equivalent in
Philippine currency of HK$299,345.30 with legal rate of interest as of the filing of the complaint;
P100,000.00 as and for attorney’s fees; and costs of suit.

South Sea and Charter elevated the case to the Court of Appeals. The appellate court affirmed the finding of
the trial court that the damage is not due to factory defect and that it was covered by the “all risks” insurance
policies issued by South Sea and Charter to Mayer. However, it set aside the decision of the trial court and
dismissed the complaint on the ground of prescription. Hence, the petition for review on certiorari filed by
Mayer and Hongkong.

The Supreme Court granted the petition, set aside the 14 December 1995 decision and the 22 February 1996
resolution of the Court of Appeals, and reinstated the decision of the RTC; without costs.

1. Section 3 (6) of COGSA

Section 3(6) of the Carriage of Goods by Sea Act provides that “the carrier and the ship shall be
discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery
of the goods or the date when the goods should have been delivered.”
2. Section 3 (6) of COGSA applies to carriers and not to insurers; Insurers covered by Insurance
Code
Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and the ship shall be
discharged from all liability for loss or damage to the goods if no suit is filed within one year after delivery of
the goods or the date when they should have been delivered. Under this provision, only the carrier’s liability
is extinguished if no suit is brought within one year. But the liability of the insurer is not extinguished because
the insurer’s liability is based not on the contract of carriage but on the contract of insurance. A close reading
of the law reveals that the Carriage of Goods by Sea Act governs the relationship between the carrier on the
one hand and the shipper, the consignee and/or the insurer on the other hand. It defines the obligations of the
carrier under the contract of carriage. It does not, however, affect the relationship between the shipper and the
insurer. The latter case is governed by the Insurance Code.

3. Filipino Merchants Insurance Co. vs. Alejandro different from case at bar
The Filipino Merchants case is different from the case at bar. In Filipino Merchants, it was the insurer
which filed a claim against the carrier for reimbursement of the amount it paid to the shipper. In the case at
bar, it was the shipper which filed a claim against the insurer. The basis of the shipper’s claim is the “all
risks” insurance policies issued by South Sea and Charter to Mayer.

4. Proper application of ruling in Filipino Merchants

The ruling in Filipino Merchants should apply only to suits against the carrier filed either by the
shipper, the consignee or the insurer. When the court said in Filipino Merchants that Section 3(6) of the
Carriage of Goods by Sea Act applies to the insurer, it meant that the insurer, like the shipper, may no longer
file a claim against the carrier beyond the one-year period provided in the law. But it does not mean that the
shipper may no longer file a claim against the insurer because the basis of the insurer’s liability is the
insurance contract. An insurance contract is a contract whereby one party, for a consideration known as the
premium, agrees to indemnify another for loss or damage which he may suffer from a specified peril.

5. Nature of an “all risks” insurance policy; Prescription as per Article 1144 NCC
An “all risks” insurance policy covers all kinds of loss other than those due to willful and fraudulent
act of the insured. Herein, South Sea and Charter issued the “all risks” policies to Mayer, they bound
themselves to indemnify the latter in case of loss or damage to the goods insured. Such obligation prescribes
in ten years, in accordance with Article 1144 of the New Civil Code.

[234] Shewaram vs. PAL, see [- after 67]

[235]

Barrios vs. Go Thong (GR L-17192, 30 March 1963)

En Banc, Barrera (J): 10 concur

Facts: Honorio M. Barrios was, on May 1 and 2, 1958, captain and/or master of the MV Henry I of the
William Lines Incorporated, of Cebu City, plying between and to and from Cebu City and other southern
cities and ports, among which are Dumaguete City, Zamboanga City, and Davao City. At about 8:00 p.m. of 1
May 1958, Barrios in his capacity as such captain and/or master of the aforesaid MV Henry I, received or
otherwise intercepted an S.O.S. distress signal by blinkers from the MV Alfredo, owned and/or operated by
Carlos A. Go Thong & Company. Acting on and/or answering the S.O.S. call, Barrios, also in his capacity as
captain and/or master of the MV Henry I, which was then sailing or navigating from Dumaguete City, altered
the course of said vessel, and steered and headed towards the beckoning MV Don Alfredo, which Barrios
found to be in trouble, due to engine failure and the loss of her propeller, for which reason, it was drifting
slowly southward from Negros Island towards Borneo in the open China Sea, at the mercy of a moderate
easterly wind. At about 8:25 p.m. on the same day, the MV Henry, under the command of Barrios, succeeded
in getting near the MV Don Alfredo — in fact as near as 7 seven meters from the latter ship — and with the
consent and knowledge of the captain and/or master of the MV Don Alfredo, Barrios caused the latter vessel
to be tied to, or well-secured and connected with tow lines from the MV Henry I; and in that manner, position
and situation, the latter had the MV Don Alfredo in tow and proceeded towards the direction of Dumaguete
City, as evidenced by a written certificate to this effect executed and accomplished by the Master, the Chief
Engineer, the Chief Officer, and the Second Engineer of the MV Don Alfredo, who were then on board the
latter ship at the time of the occurrence stated above. At about 5:10 a.m., 2 May 1958, or after almost 9 hours
during the night, with the MV Don Alfredo still in tow by the MV Henry I, and while both vessels were
approaching the vicinity of Apo Island off Zamboanga town, Negros Oriental, the MV Lux, a sister ship of
the MV Don Alfredo, was sighted heading towards the direction of the aforesaid two vessels, reaching then
15 minutes later, or at about 5:25 a.m. Thereupon, at the request and instance of the captain and/or master of
the MV Don Alfredo, Barrios caused the tow lines to be released, thereby also releasing the MV Don Alfredo.

Barrios concludes that they establish an impending sea peril from which salvage of a ship worth more than
P100 000.00, plus life and cargo was done, while Go Thong insists that the facts made out no such case, but
that what merely happened was only mere towage from which Barrios cannot claim any compensation or
remuneration independently of the shipping company that owned the vessel commanded by him. Brought to
the CFI of Manila (Civil Case 37219), the court therein dismissed the case; with cost against Barrios. Barrios
interposed an appeal.

The Supreme Court affirmed the decision of the lower court in all respects, with costs against Barrios.

1. Section 1, Salvage Law

Section 1 of the Salvage Law (Act No. 2616), provides that “when in case of shipwreck, the vessel or
its cargo shall be beyond the control of the crew, or shall have been abandoned by them, and picked up and
conveyed to a safe place by other persons, the latter shall be entitled to a reward for the salvage. Those who,
not being included in the above paragraph, assist in saving a vessel or its cargo from shipwreck, shall be
entitled to a like reward.”

2. Salvage defined
According to Section 1, Act 2616, those who assist in saving a vessel or its cargo from shipwreck,
shall be entitled to a reward (salvage). “Salvage” has been defined as “the compensation allowed to persons
by whose assistance a ship or her cargo has been saved, in whole or in part, from impending peril on the sea,
or in recovering such property from actual loss, as in case of shipwreck, derelict, or recapture.”

3. Elements for a valid salvage claim; Erlanger & Galinger case

In the Erlanger & Galinger case, it was held that three elements are necessary to a valid salvage
claim, namely, (1) a marine peril, (2) service voluntarily rendered when not required as an existing duty or
from a special contract, and (3) success in whole or in part, or that the service rendered contributed to such
success.

4. No marine peril to justify valid salvage claim

There was no marine peril to justify a valid salvage claim by Barrios against Go Thong. It appears
that although Go Thong’s vessel in question was, on the night of 1 May 1958, in a helpless condition due to
engine failure, it did not drift too far from the place where it was. The weather was fair, clear, and good. The
waves were small and too slight, so much so, that there were only ripples on the sea, which was quite smooth.
During the towing of the vessel on the same night, there was moonlight. Although said vessel was drifting
towards the open sea, there was no danger of its foundering or being stranded, as it was far from any island or
rocks. In case of danger of stranding, its anchor could be released, to prevent such occurrence. There was no
danger that Go Thong’s vessel would sink in view of the smoothness of the sea and the fairness of the
weather. That there was absence of danger is shown by the fact that said vessel or its crew did not even find it
necessary to lower its launch and two motor boats, in order to evacuate its passengers aboard. Neither did
they
find occasion to jettison the vessel’s cargo as a safety measure. Neither the passengers nor the cargo were in
danger of perishing. All that the vessel’s crew members could not do was to move the vessel on its own
power. That did not make the vessel a quasi-derelict.

5. Contract of towage perfected even without written agreement

Tug which put line aboard liberty ship which was not in danger or peril but which had reduced its
engine speed because of hot grounds, and assisted ship over bar and, thereafter, dropped towline and stood by
while ship proceeded to dock under own power, was entitled, in absence of written agreement as to amount to
be paid for services, to payment for towage services, and not for salvage services. Herein, in consenting to
Barrios’ offer to tow the vessel, Go Thong (through the captain of its vessel MV Don Alfredo) thereby
impliedly entered into a juridical relation of “towage” with the owner of the vessel MV Henry I, captained by
Barrios, the William Lines.

6. Only owner entitled to remuneration in towage

If the contract thus created is one for towage, then only the owner of the towing vessel, to the
exclusion of the crew of the said vessel, may be entitled to remuneration.The courts have to draw a distinct
line between salvage and towage; for the reason that a reward ought sometimes to be given to the crew of the
salvage vessel and to other participants in salvage services, and such reward should not be given if the
services were held to be merely towage. The master and members of the crew of a tug were not entitled to
participate in payment by liberty ship for services rendered by tug which were towage services and not
salvage services. The distinction between salvage and towage is of importance to the crew of the salvaging
ship, for the following reasons: If the contract for towage is in fact towage, then the crew does not have any
interest or rights in the remuneration pursuant to the contract. But if the owners of the respective vessels are
of a salvage nature, the crew of the salvaging ship is entitled to salvage, and can look to the salved vessel for
its share.

7. Owner expressly waived claim for compensation, captain not entitled therefore
As the vessel-owner, William Lines, had expressly waived its claim for compensation for the towage
service rendered to Go Thong, it is clear that Barrios, whose right if at all depends upon and not separate from
the interest of his employer, is not entitled to payment for such towage service.

8. Equity cannot be resorted if there is an express provision of law

Barrios cannot invoke equity in support of his claim for compensation against Go Thong. There being
an express provision of law (Art. 2142, Civil Code) applicable to the relationship created in the case, i.e. that
of a quasi-contract of towage where the crew is not entitled to compensation separate from that of the vessel,
there is no occasion to resort to equitable considerations.

[236] Manila Railroad vs. Macondray, see [206]

[237]

Wallace vs. Pujalte Co. (GR 10019, 29 March 1916)

Second Division, Moreland (J): 3 concur, 1 concur in result

Facts: On 4 August, 1913, the schooner Kodiak was lost off the coast of Mindoro, having been blown on her
side by heavy winds. She was deserted by the officers and crew. In this condition she was floating at the
mercy of the elements for 3 or 4 days. On 7 August, the report of her loss reached the Collector of Customs of
the Philippine Islands who steamers and vessel plying in Philippine water, declaring the Kodiak a derelict and
a danger to navigation. As soon as the circular letter was received by Miguel Pujalte and Miguel Ossorio they
chartered the coast guard cutter Mindoro and proceeded to search for the lost schooner. On 8 August they left
the port of Manila carrying on board Captain Jose Muñoz and some men, who were to take charge of, and
direct, the salvage operations. Two days later the Kodiak was located, floating abandoned on her side, with all
her sails unfurled and under water. Immediately a boat, with Captain Jose Muñoz and his men, was lowered
from the coast guard cutter and, in the midst of a heavy sea and strong wind, they succeeded in making fast a
rope to the stern of the Kodiak. They towed her into the port of Pola, reaching that port a day or two later,
they being obliged to proceed very slowly not only on account of the heavy sea but also by reason of the fact
that the Kodiak was full of water. Once in Pola Bay men were left in charge of the vessel while Captain Jose
Muñoz went back to Manila on the Mindoro, and reported to his employers. They immediately chartered the
steamer Lakandula to carry workmen and to tow a lighter called the Paquita with salvage materials and
implements to Pola Bay. They also dispatched the steamer Maria Luisa Y. to assist in the salvage work. On 12
August 1913 Thomas A. Wallace’s agent delivered to Pujalte a letter offering to pay for the services rendered
in salving the vessel, but not to further expenses.

An action of replevin was begun by the owner (Wallace) to recover possession of the Kodiak which had been
deserted by its captain and crew by reason of its having been capsized by a gale and which had been found,
taken possession of and towed into port by Miguel Pujalte and Miguel Ossorio who, at the time the action was
begun, were engaged in completing the salvage of the vessel. Miguel Pujalte and Miguel Ossorio set up their
rights on the vessel as salvors and contend that they were entitled to the possession of the vessel until the
salvage operations were completed and that, if possession were taken from them before that time, they were
entitled to the same compensation as they would been if Wallace had allowed them to complete the work. On
the evidence the trial court ordered the vessel delivered to Wallace, but as a condition of such delivery
Wallace was required to pay the Miguel Pujalte and Miguel Ossorio the sum of P5,500 “on or before the first
day of April, 1914, and in case payment thereof is not made as stated the defendants shall have judgment for
the possession of the vessel for the purpose of disposing of it to satisfy their lien for salvage upon it.” From
this judgment Wallace appealed.

The Supreme Court affirmed the judgment appealed from, with costs against Wallace.

1. Uncontroverted facts in the case

(1) Kodiak capsized off the coast of Mindoro during a storm and that she was deserted by her officers
and crew and left floating on her side with sails unfurled and under water. (2) The Bureau of Navigation of
the Philippine Islands declared the vessel a derelict and dangerous to navigation and notified the public of the
coast that she was floating as a derelict somewhere off the coast of Mindoro. (3) Expenditures were incurred
by Pujalte and Ossorio in their attempt to salve the vessel.

2. Parties defendant; Verbal order in making Ossorio a party defendant assumed

Pujalte & Co. filed an answer saying that it had nothing to do with the salvage operations and has
taken no part therein, and that it had no interest whatever in the litigation. Miguel Pujalte filed an answer
setting out the facts and asking that they be allowed proper compensation and the expenses incurred in the
salvage of the Kodiak he acted jointly with one Miguel Ossorio who was interested equally with himself and
asked that he be made a party defendant. While there appears in the bill of exceptions no order making
Miguel Ossorio a party and there is in the record no answer filed by him, it is evident that he was considered a
party defendant, inasmuch as the court all through the decision speaks of Miguel Pujalte and Miguel Ossorio
as the defendants and renders a judgment in their favor jointly. While it does not appear in the record that a
written order was made and entered making Ossorio a party defendant, the Court must assume that at least a
verbal order to that effect was made and that the answer of Miguel Pujalte served also as the answer of
Miguel Ossorio. This assumption is necessary in view of the attitude of the trial court which throughout the
case treats Ossorio as a party defendant equally with Pujalte.

3. Vessel a derilict
Vessel in question was a derelict. It had capsized and was lying on its side, its mast and sails
submerged and with every indication that it might founder at any moment; it had been deserted by its officers
and crew with no intention on their part to return; it was a menage to navigation and in that condition
furnished a proper subject for seizure by any person who desired to salve it or remove it from the routes of
maritime traffic. It was taken possession of by the defendants under somewhat perilous circumstances and
removed to a place of safety against a heavy sea. After its arrival at a place of safety but before it had been
righted and floated the Wallace’s agent served the letter upon Pujalte and Co.

4. Letter does not produce any legal effect

Whatever might be said with regard to the effect of the letter on the relations between the parties if it
stood alone in the record it is unnecessary to say. It is not a demand for the possession of the Kodiak in the
sense in which that word is generally used. It is merely an offer to do certain things. The Court does not care
to determine the precise effect of this offer from a legal point of view since it appears that the circumstances
under which it was presented prevent it from producing any effect in the case.

5. Effect of notice nullified by attitude of Wallace’s agent

Miguel Pujalte testified that Martinez, who presented the offer to him, required an answer thereto at
once or at most within 10 minutes. Pujalte informed him that it was impossible for him to make a statement to
him at that time of the expenses which had been incurred as many of the bills had not been paid”, and that it
would be impossible to furnish him the information which the letter required within the time specified by
Martinez. Pujalte stated to him that he would acknowledge receipt of the letter but he could not furnish the
information which Martinez demanded within the time specified. This testimony is not denied by Martinez
although he was a witness for Wallace and testified in the case. Whatever effect the notice in question might
have produced was nullified by the attitude of Wallace’s agent who signed and served the notice they
requiring that Pujalte comply on the spot with the provisions thereof, particularly those relating to furnishing
a statement of the expenses and the value of the services which had been rendered up to the time of the
service of the notice. To fulfill this requirement was at the time clearly impossible and Pujalte cannot be held
responsible for their not doing so. It is clear that the attitude of Martinez was in effect a declaration either that
if Pujalte did not immediately comply with the terms thereof the offer would be withdrawn or that the
delivery thereof to Pujalte was on condition that the comply with Martinez’s verbal request. At the very least
the attitude of Martinez was such as to leave us in doubt as to just what happened.

6. Findings of fact of lower court, as to the expenses, respected

As to the claim that the expenses incurred by Pujalte in salving the Kodiak were excessive and made
intentionally so by Pujalte is not sustained by the record in a manner which requires or would justify us in
disturbing the judgment of the trial court in that respect. While there is some evidence tending to show that
some of the expenses were unnecessary there is other evidence to the contrary and the Court is satisfied that
under all the circumstances of the case the judgment of the trial court is supported by a preponderance of the
evidence. It appears from all the facts and circumstances of the case that Pujalte acted in good faith; that they
kept the expenses within reasonable bound; that they acted with dispatch and performed their work, generally
speaking, in a workmanlike manner.

7. Allowance not excessive as ship valued above monetary claim

As to the amount of compensation, it cannot be said that it is excessive. The ship was in a bad way
and would very probably have been lost but for the prompt action by Pujalte or the equally prompt action
some other salvor. Taking into consideration the expenses which the salvors incurred which amounted to
nearly P5,000, the allowance of the amount of P5,500 is not excessive as the ship was worth P10,000
according to Wallace, while other witnesses placed the value from P11,000 to P12,000.

[238]

Atlantic Gulf & Pacific Co. vs. Uchida Kisen Kaisha (GR 15871, 7 November 1921)
Second Division, Johnson (J): 4 concur
Facts: On 21 October 1918, while the steamship Kyodo Maru was discharging a cargo of coal, the property
of Vicente Madrigal, in the harbor of Manila, inside the breakwater, one of the lighters alongside said vessel
sank. In swinging with the tide, the Kyodo Maru came violently in contact with this submerged lighter, the
result being that her hull was perforated. The said steamer began to sink during the morning of October 22
and touched the bottom of the harbor at 10 a.m. She continued to sink deeper into the mud until, on October
23, the forward half of the vessel was entirely submerged, while the stern half was still afloat. The depth of
the water in that part of the harbor where the vessel was moored at the time of the accident is about 21 feet at
low tide. The depth of the vessel from deck to keel is about 35 feet. The value of the vessel at the time of the
accident was about P1,300,000, Philippine currency. On the afternoon of October 23, the Atlantic Gulf &
Pacific Company of Manila and Simmie & Grilk, at the request of the captain and agents of the ship, took
possession of the sinking vessel as salvors and commenced salvage operation at once. At that time they had
submitted two propositions to the captain and agents of the ship as to compensation for the salvage services to
be performed: one for P150,000 in case of success and reimbursement of expenses in case of failure, and
another for P300,000 “no cure no pay.” Atlantic Gulf and Simmie were informed that the propositions would
be transmitted to the owners of the vessel in Japan for acceptance or rejection, but they were requested to
continue work in the meantime, upon the understanding that if no special contract should be made they would
be compensated as salvors. The vessel was floated on October 30 and the salvage operations ended the
following day. On the afternoon of October 30, Atlantic Gulf and Simmie were informed in writing that the
head office of the steamship company in Japan had, by cable, rejected both of the propositions, and that it was
proposed to settle with them on the basis of the reasonable value of their services as salvors. Atlantic Gulf and
Simmie then made demand for payment of P150,000. Uchida Kisen Kaisha and Mitsui Bussan Kaisha (not
including Madrigal) offered to pay P75,000. Atlantic Gulf and Simmie then made a counter offer of
P125,000. This was rejected.

Atlantic Guld and Simmie then brought the present action for the recovery of a salvage award of P300,000;
but, in their trial brief, they reduced this demand to P297,443.40. During the pendency of the negotiations
regarding the value of the salvage services, it was agreed that the vessel should be freed from any lien which
Atlantic Gulf and Simmie might have upon her as salvors, in consideration of the agreement of Mitsui Bussan
Kaisha to respond in solidum with the owner of the vessel, Uchida Kisen Kaisha, for whatever might be
found due the salvors upon final judgment. Judgment was rendered in favor of Atlantic Gulf and Simmie and
against the Uchida Kisen Kaisha and Mitsui Bussan Kaisha in solidum for the sum of P140,000 and for costs.
The action was dismissed as regards Vicente Madrigal, the owner of the cargo. From that judgment Altantic
Gulf and Simmie and Uchida Kisen Kaisha and Mitsui Bussan Kaisha appealed to the Supreme Court.

The Supreme Court modified the judgment appealed from, ordered decreed that Atlantic Gulf and Simmie
have and recover the sum of P98,000, Philippine currency, from Uchida Kisen Kaisha and Mitsui Bussan
Kaisha, jointly and severally, and the sum of P2,000, Philippine currency, from Vicente Madrigal, without any
finding as to costs.

1. Elements involved in compensation; Charges exorbitant

The question of compensation involves two elements: (a) The actual expenses incurred in the salvage
operation, and (b) the reward for services rendered by the plaintiffs as salvors. Attached to Atlantic Gulf’s and
Simmie’s complaint is a statement of the expenses alleged to have been incurred by them, aggregating the
sum of P63,074.45. Uchida Kisen Kaisha and Mitsui Bussan Kaisha, in their brief, vigorously challenge the
reasonableness of these charges, alleging that they “are palpably, grossly and sinfully exaggerated.” Suffice it
to say that after a perusal of the luminous briefs of the eminent counsel for both parties, in relation with the
evidence adduced during the trial of the cause, most of the charges for expenses made by Atlantic Gulf and
Simmie are really exorbitant. Considering all of the facts and circumstances of the case, and specially the
inflated war prices of materials at the time the salvage in question was performed, the sum of P50,000 would
be a very reasonable allowance to Altantic Gulf and Simmie for their cash outlay and the rental value of their
equipment.
2. Section 10, Act 2616; Determination of the reward for salvage
Section 10 of Act 2616, which prescribes the rule for determining the reward for salvage, provides
that “in a case coming under the last preceding section, as well as in the absence of an agreement, the reward
for salvage or assistance shall be fixed by the Court of First Instance of the province where the things
salvaged are found, taking into account principally the expenditures made to recover or save the vessel or the
cargo or both, the zeal demonstrated, the time employed, the services rendered, the excessive expenses
occasioned, the number of persons who aided, the danger to which they and their vessels were exposed, as
well as that which menaced the things recovered or salvaged, and the value of such things after deducting the
expenses.”

3. Heath vs. Steamer San Nicolas; “Admiralty and maritme jurisdiction”

In the case of Heath vs. The Steamer San Nicolas (7 Phil., 532), the court held that “the phrase
‘admiralty and maritime jurisdiction’ found in Act 136, section 56, paragraph 4, did not put in force in these
Islands the law, practice, and procedure in force in admiralty courts in the United States.”

4. Urrutia vs. Pasig Steamship; Resort to customs in absence of general principles of law
In the case of G. Urrutia & Co. vs. Pasig Steamer & Lighter Co. (22 Phil., 330, decided 22 March
1912, four years prior to the passage of Act 2616), the court said: “There being no express legislation exactly
applicable to cases of salvage, nor legal principles thereto relating established by the courts, pursuant to the
second paragraph of article 6 of the Civil Code, we must fall back upon the customs of the place, and, in the
absence thereof, general principles of law.”

5. US vs. Bull; Act not expressly disapproved by Congress valid unless covered by Congressional
legislation or forbidden by organic law
In the case of the United States vs. Bull (15 Phil., 7), the court held that “an Act of the legislative
authority of the Philippine Government which has not been expressly disapproved by Congress is valid unless
its subject-matter has been covered by Congressional legislation, or its enactment forbidden by some
provision of the organic law.” It is not even suggested that the Act in question (No. 2616) has been expressly
disapproved by Congress. The Court’s attention has not been called to any Act of Congress, applicable to the
Philippine Islands, relating to the subject-matter of said Act 2616, nor is the Court aware of the existence of
any such Act.

6. Act 2616 did not affect the admiralty jurisdiction of the SC and the CFI
Whether the provision in the Philippine Bill and the Jones Law “that the admiralty jurisdiction of the
Supreme Court and Courts of First Instance shall not be changed except by act of Congress,” should be
construed as forbidding the Philippine Legislature from enacting such a law as Act 2616, relating to salvage
— a matter pertaining to admiralty, depends upon whether or not Act 2616 did in any way change the
admiralty jurisdiction of the Supreme Court and the Courts of First Instance, as provided by Act 136. Even
granting that the phrase “admiralty jurisdiction” used in Philippine organic law applies not only to the power
to hear and decide but to the maritime law as a body, still the Court is unable to say that Act 2616 has effected
any change in the admiralty jurisdiction of the Supreme Court and the Courts of First Instance. Even granting
that the rules prescribed by Section 11 of Act 2616 are different from the American maritime law, as decided
in the San Nicolas case, the phrase “admiralty and maritime jurisdiction” found in Act 136 did not put in
force in these Islands the law, practice, and procedure in force in the admiralty courts in the United States.
The American maritime law not being necessarily in force in these Islands, it is clear that Act 2616 of the
Philippine Legislature could not and did not affect the same. Following the decision in the Bull case, Act
2616 is valid until expressly disapproved by Congress.

7. Facts to be taken into account in determining reward for salvage

 In determining the reward for the salvage in question, the following facts should be taken into
account: (1) That the salvage operations in question were performed in Manila Bay, inside the breakwater,
where the depth of the water was only about 21 feet at low tide; (2) that those operations lasted 8 days —
from noon of October 23 to October 31 — although the salvors appear to have rendered services until 8
November; (3) that the vessel salved and its cargo were never in danger of total loss, although it is admitted
that if the vessel had sunk and listed, the expenses of recovering the same would have been considerable; (4)
that the salvage operation was comparatively simple, consisting merely of using pumps to prevent the vessel
from sinking any further, while the salvors were building a cofferdam around the submerged forehatch
preparatory to pumping her out; (5) that there was no danger to the lives and property of the salvors in view of
the proximity to the shore of the place where the work was performed; (6) that the value of the equipment
used, including the launches employed to maintain the ferry service, was about P300,000; (7) that Atlantic
Gulf’s and Simmie’s outlay, together with the reasonable rental value of their equipment, was, as we have
heretofore estimated, the sum of P50,000; (8) that the Kyodo Maru was, at the time she was salved, valued at
P1,300,000; (9) that the captain of said vessel was in a hurry to get her out because he had to meet a new
charter in Japan; and (10) that Atlantic Gulf and Simmie accomplished the salvage with energy and
promptitude, to the entire satisfaction of the captain and agents of the vessel.

8. Sufficient compensation; In relation with Erlanger, MRR, and Urrutia cases

Considering all of the foregoing facts in relation with the award heretofore made by the court in the
salvage cases of Erlanger & Galinger vs. Swedish East Asiatic Co., Ltd. (34 Phil., 178), Manila Railroad Co.
vs. Macondray & Co. (37 Phil., 850), and G. Urrutia & Co. vs. Pasig Steamer & Lighter Co. (22 Phil., 330),
the sum of P50,000 would be an equitably liberal net compensation to Atlantic Gulf and Simmie as salvors of
the Kyodo Maru. This, together with the sum of P50,000 which should be allowed them for their expenses
and the reasonable rental value of their equipment, makes a total award to the plaintiffs of the sum of
P100,000. This amount is a sufficient compensation for the outlay and effort of the salvors, and that the same
is liberal enough to constitute an inducement to others to render like services in similar emergencies in the
future.

9. Madrigal benefited from salvage, should share a proportionate amount

Although the removal of the 573 tons of coal from the vessel was merely incidental to, and
necessitated by, the raising of said vessel, it cannot be said that “such removal did not operate in any way to
benefit the cargo, nor save it from any risk or damage.” Had the vessel completely sunk and listed, extreme
difficulty would no doubt have been encountered in removing the coal in question from her hold, thus
occasioning considerable expense and loss to Madrigal. It is also undeniable that part of Altantic Gulf’s and
Simmie’s expenses were incurred in carrying such coal to the shore. It is but just, then, that Madrigal should
share a proportionate amount of the award.

10. Valuation of Madrigal’s share

Considering that the removal of said coal from the sinking vessel was merely incidental to salving
her; and considering that only 573 tons of such cargo were actually taken from the ship, it being no longer
necessary to touch the rest for the purpose of raising her, full justice would be done to all the parties
concerned by taking the value of the said 573 tons of coal in relation with the value of the ship, and thus
apportion the salvage award between their respective owners. The said 573 tons of coal, at P45 a ton, are
worth P25,785, which is approximately 2 per cent of the value of the ship (which is estimated at P1,300,000) .
Madrigal, thus, should be made to pay 2 per cent of the award of P100,000, or the sum of P2,000.

[239]

Erlanger & Galinger vs. Swedish East Asiatic (GR 10051, 9 March 1916)
First Division, Per Curiam (p): 5 concur
Facts: The steamship Nippon loaded principally with copra and with some other general merchandise sailed
from Manila on 7 May 1913, bound for Singapore. The steamship Nippon went aground on Scarborough Reef
about 4:30 p.m. of 8 May 1913. Scarborough Reef is about 120 to 130 miles from the nearest point on the
Island of Luzon. On 9 May 1913, the chief officer, Weston, and 9 members of the crew left the Nippon and
succeeded in reaching the coast of Luzon at Santa Cruz, Zambales, on the morning of 12 May 1913. On 12
May 1913, at 12:30 p.m. the chief officer sent a telegram to Helm, the Director of the Bureau of Navigation at
Manila. At 1.30 p. m., the Government of the Philippine Islands ordered the coast guard cutter Mindoro with
life-saving appliances to the scene of the wreck of the Nippon. At 3 p. m. the steamship Manchuria sailed
from manila for Hongkong and was requested to pass by Scarborough Reef. The Manchuria arrived at
Scarborough Reef some time before the arrival of the Mindoro on 13 May 1913, and took on board the
captain and the remainder of the crew. The Manchuria was still near Scarborough Reef when the Mindoro
arrived. The captain of the Manchuria informed the captain of the Mindoro that the captain and crew of the
Nippon were on board the Manchuria and were proceeding to Hongkong. The captain and crew of Nippon,
which assistance was declined. The Mindoro proceeded to the Nippon and removed the balance of the
baggage of the officers and crew, which was found upon the deck. The Mindoro proceeded to Santa Cruz,
Zambales, where the chief officer, Weston, and the 9 members of the crew were taken on board and brought to
Manila, arriving there on 14 May 1913. On 13 May 1913, Dixon, captain of the Manchuria sent the message
that “All rescued from the Nippon. Stranded on extreme north end of shoal. Vessel stranded May 9. She is full
of water fore and aft and is badly ashore. Ship abandoned. Proceed Hongkong.” The captain of the Nippon
saw the above message before it was sent. On 14 May 1913, Erlanger & Galinger applied to the Director of
Navigation for a charter of a coast guard cutter, for the purpose of proceeding to “the stranded and abandoned
steamer Nippon.” The coast guard cutter Mindoro was chartered to Erlanger & Galinger and started on its
return to the S.S. Nippon on 14 May 1913. Erlanger & Galinger took possession of the Nippon on or about 17
May 1913, and continued in possession until about 1July 1914, when the last of the cargo was shipped to
Manila. The Nippon was floated and towed to Olongapo, where temporary repairs were made, and then
brought to Manila. The Manchuria arrived at Hongkong on the evening of 14 May 1913. When the captain
and crew left the Nippon and went on board the Manchuria, they took with them the chronometer, the ship’s
register, the ship’s articles, the ship’s log, and as much of the crew’s baggage as a small boat could carry. The
balance of the baggage of the crew was packed and left on the deck of the Nippon and was later removed to
the Mindoro, without protest on the part of the captain of the Nippon. The cargo was brought to the port of
Manila and the values for the (1) Copra (approximately 1317 tons) valued at, less cost of sale by Collector of
Customs were valued at P142,657.05; (2) General cargo-sold at customhouse at P5,939.68; (3) Agar-agar at
P5,635.00; (4) Gamphor at P 1,850.00; (5) Curios at P150.00, respectively; totaling P156,231.73. The ship
was valued at P250,000. The Erlanger & Galinger’s claim against the ship was settled for (L)15,000 or about
P145,800.

On 5 August 1913, Erlanger & Galinger brought an action against the insurance companies and underwriters,
who represented the cargo salved from the Nippon, to have the amount of salvage, to which Erlanger &
Galinger were entitled, determined. The case came on for trial before the Honorable A. S. Crossfield. The
Oelwerke Teutonia, a corporation, appeared as claimant of the copra. The New Zealand Insurance Company
appeared as insurer and assignee of 1,000 case of bean oil and two cases of bamboo lacquer work; and The
Thames and Mersey Marine Insurance Company appeared as a reinsurer to the extent of P6,500 on the cargo
of copra. The court adjudged the case in favor of Erlanger & Galinger for ½ of the net proceeds of sales
amounting to P74,298.36 and ½ of the interest accruing thereon, and against Carl Maeckler for the sum of
P925, and against the New Zealand Insurance Company (Ltd.) for the of P2,800, and against whomever the
two cases marked R — W, Copenhagen, were delivered to, and for the sum of P2,370.68, out of the proceeds
of the sale of 1,000 cases of vegetable oil, and in favor of the ‘Oelwerke Teutonia’ for the sum of P71,328.53,
now deposited with the Hongkong & Shanghai Banking Corporation, together with ½ of the interest thereon.”
No costs were taxed.
The Oelwerke Teutonia, The New Zealand Insurance Company (Ltd.). and Erlanger & Galinger appealed
from the decision.

The Supreme Court ordered and decreed that the judgment of the lower court be modified, and that a
judgment be entered against the “Oerlwerke Teutonia and New Zealand Insurance Co. and in favor of
Erlanger & Galinger (against Oelwerke Teutonia for the sum of P41,721.55; against The New Zealand
Insurance Co. in the sum of P1,127). The Court further ordered and decreed that the amount of the judgment
rendered be paid out of the money which is under the control of the CFI of Manila; without any finding as to
costs.

1. General rules governing salvage services and salvage awards; Laws of Oleron (1226)
In the Laws of Oleron, which were promulgated sometime before the year 1226, at article IV, states
“If a vessel, departing with her lading from Bordeaux, or any other place, happens in the course of her
voyage, to be rendered unfit to proceed therein, and the mariners save as much of the lading as possibly they
can; if the merchants require their goods of the master, he may deliver them if he pleases, they paying the
freight in proportion to the part of the voyage that is performed, and the costs of the salvage. But if the master
can readily repair his vessel, he may do it; or if he pleases, he may freight another ship to perform his voyage.
And if he has promised the people who help him to save the ship the third, or the half part of the goods saved
for the danger they ran, the judicatures of the country should consider the pains and trouble they have been at,
and reward them accordingly, without any regard to the promises made them by the parties concerned in the
time of their distress.”

2. Salvage defined
In general, salvage may be defined as a service which one person renders to the owner of a ship
which the owner or those entrusted with the are unable to protect and secure.

3. Salvage defined; Flanders on Maritime Law

Salvage is founded on the equity of remunerating private and individual services performed in saying,
in whole or in part, a ship or its cargo from impending peril, or recovering them after actual loss. It is a
compensation for actual services rendered to the property charged with it, and is allowed for meritorious
conduct of the salvor, and in consideration of a benefit conferred upon the person whose property he has
saved. A claim for salvage rests on the principle that, unless the property be in fact saved by those who claim
the compensation, it can not be allowed, however benevolent their intention and however heroic their
conduct.

4. Salvage defined; Williamson vs. the Alphonso

In the case of Williamson vs. The Alphonso, it was held that “the relief of property from an
impending peril of the sea, by the voluntary exertions of those who are under no legal obligation to render
assistance, and the consequent ultimate safety of the property, constitute a case of salvage. It may be a case of
more or less merit, according to the degree of peril in which the property was, and the danger and difficulty or
relieving it; but these circumstances affect the degree of the service and not its nature.”

5. Salvage defined; Blackwall vs. Saucelito Tug Co.

In Blackwall vs. Saucelito Tug Company, the court said “Salvage is the compensation allowed to
persons by whose assistance a ship or her cargo has been saved, in whole or in part, from impending peril on
the sea, or in recovering such property from actual loss, as in case of shipwreck, derelict, or recapture.”

6. Elements necessary to a valid salvage claim; Mayflower vs. the Sabine

Three elements are necessary to a valid salvage claim: (1) A marine peril. (2) Service voluntarily
rendered when not required as an existing duty or from a special contract. (3) Success, in whole or in part, or
that the service rendered contributed to such success.
7. Derelict defined; Abbott’s law of merchant ships and seamen
A derelict is defined as “A ship or her cargo which is abandoned and deserted at sea by those who
were in charge of it, without any hope of recovering it (sine spe recuperandi), or without any intention of
returning to it (sine animo revertendi). Whether property is to be adjudged derelict is determined by
ascertaining what was the intention and expectation of those in charge of it when they quitted it. If those in
charge left within the intention of returning, or of procuring assistance, the property is not derelict, but if they
quitted the property with the intention of finally leaving it, it is derelict, and a change of their intention and an
attempt to return will not change of their intention and an attempt to return will not change its nature.

8. Ship was abandoned, salvage was commenced

Herein, at the time Erlanger & Galinger commenced the attempt to salve what was possible of the S.
S. Nippon and cargo, it was justified, from all the conditions existing, in believing that it had abandoned and
in taking possession, even though the master of the vessel intended when he left it, to return and attempt
salvage. Such intention, if it existed, does not appear to have been very firmly fixed, considering the leisurely
manner in which the master proceeded after he reached the Port of Hongkong. Captain Eggert did not make
any determined effort to arrange for the salvage of the Nippon. Capt. Eggert had over two days in which to
arrange for salvage operations and he did nothing, while Erlanger & Galinger, who were strangers and had no
interest, sent out a salvage expedition in 24 hours after they discovered that the ship was wrecked. The
evidence proves that the Nippon was in peril; that the captain left in order to protect his life and the lives of
the crew; that the animo revertendi was slight. The argument of the defendant-appellant to the effect that the
ship was in no danger is a bit out of place in view of the statement of the captain that she would sink with the
first gale, coupled with the fact that a typhoon was the cause of her stranding.

9. Cases where claim for salvage was allowed; Bee case

In The Bee (Fed. Cas. No. 1219; 3 Fed. Cas., 41), the facts were as follows: The Bee sailed from
Boston to Nova Scotia. Three days after leaving port a gale was encountered which forced her to run into a
cove on the north side of Grand Manan Island, where an anchor was let out. The ship was somewhat injured
from the force of the storm. The master and the crew stayed on board for 24 hours and then went ashore to
procure assistance. The island was very sparsely settled. They met on shore a number of men (the libelants) to
whom they explained the predicament and position of the ship. These men immediately went to the ship,
boarded her, and took possession. After the master had been ashore about five hours he returned to the ship
and found the libelants in possession. The owners contended that the master was excluded from the ship
wrongfully and therefore the libelants could not claim salvage.

10. Justification of award of salvage in the Bee case

When a vessel is found at sea, deserted, and has been abandoned by the master and crew without the
intention of returning and resuming the possession, she is, in the sense of the law, derelict, and the finder who
takes the possession with the intention of saving her, gains a right of possession, which he can maintain
against the true owner. The owner does not, indeed, renounce his right of property. This is not presumed to be
his intention, nor does the finder acquire any such right. But the owner does abandon temporarily his right of
possession, which is transferred to the finder, who becomes bound to preserve the property with good faith,
and bring it to a place of safety for the owner’s use; and he acquires a right to be paid for his services a
reasonable and proper compensation, out of the property itself. He is not bound to part with the possession
until this is paid, or it is taken into the custody of the law, preparatory to the amount of salvage being legally
ascertained. Should the salvors meet with the owner after an abandonment, and he should tender his
assistance in saving and securing the property, surely this ought not, without good reasons, to be refused, as
this would be no bar to the right of salvage, and should it be unreasonably rejected it might affect the
judgment of a court materially, as to the amount proper to be allowed. Still, the right possession is in the
salvor. But when the owner, or the master and crew who represent him, leave a vessel temporarily, without
any intention of a final abandonment, but with the intent to return and resume the possession, she is not
considered as a legal derelict, nor is the right of possession lost by such temporary absence for the purpose of
obtaining assistance, although no individual may be remaining on board for the purpose of retaining the
possession. Property is not, in the sense of the law, derelict and the possession left vacant for the finder, until
the spes recuperandi is gone, and the animus revertendi is finally given up. (The Aquila, 1 C. Rob. Adm., 41.)
But when a man finds property thus temporarily left to the mercy of the elements, whether from necessity or
any other cause, though not finally abandoned and legally derelict, and he takes possession of it with the bona
fide intention of saying if for the owner, he will not be treated as a trespasser. On the contrary, if by his
exertions he contributes materially to the preservation of the property, he will entitle himself to a
remuneration according to the merits of his service as a salvor.”

11. Cases where claim for salvage was allowed; In the John Gilpin
In The John Gilpin (Fed. Cas. No. 7345; 13 Fed. Cas., 675) the ship John Gilpin, attempting to leave
New York harbor in a winter storm, was driven ashore. The ship’s crew sent for help and in the meantime put
forth every effort to get her off. Help arrived toward evening, but accomplished nothing. The master and crew
went ashore. The same night the libelants went out to the ship with equipment and started working. It was
contended that the master had gone ashore for assistance. He returned the next morning with a tug and some
men and demanded possession, which was refused. Salvage was allowed.

12. Justification of award of salvage in the John Gilpin case

The libelants, in the exercise of their calling as wreckers, coming to a vessel in that plight, would be
guilty of a dereliction of duty if they failed to employ all their means for the instantaneous preservation of
property so circumstanced. This may not be strictly and technically a case of derelict, if really the master of
the brig had gone to the city to obtain the necessary help to save the cargo and brig, intending at the time, to
return with all practicable dispatch. It appears he came to the wreck by 8 or 9 a. m. the following day, in a
steam-tug, with men to assist in saving the cargo. The animus revertendi et recuperandi may thus far have
continued with the master, but this mental hope or purpose must be regarded inoperative and unavailing as an
actual occupancy of the vessel, or manifestation to others of a continuing possession. She was absolutely
deserted for 12 or 14 hours in a condition when her instant destruction was menaced, and the lives of those
who should attempt to remain by her would be considered in highest jeopardy. She was quite derelict; and
being thus found by the libelants, the possession they took of her was lawful. Possession being thus taken
when the vessel was, in fact, abandoned and quite derelict, under peril of instant destruction, the libelants had
a right to retain it until the salvage was completed, and no other person could interfere against them forcibly,
provided they were able to effect the purpose, and were conducting the business with fidelity and vigor.

13. Cases where claim for salvage was allowed; In The Shawmut
In The Shawmut (155 Fed. Rep., 476) the court allowed salvage upon the following facts: The four-
masted schooner Myrthle Tunnel sailed from Brunswick bound for New York The first day out a hurricane
struck her and tore the sails away and carried off the deck load. She was badly damaged and leaking. The
master of the Myrthle Tunnel requested towage by the steamship Mae to the port of Charleston. The Mae, on
account of her own damaged condition, was unable to tow but she took the master and crew of the Myrthle
Tunnel off and landed them at Charleston. The owners notified and they started an expedition out in search.
Before this expedition reached her, the steamship Shawmut sighted the Myrthle Tunnel, and, finding that she
was abandoned and waterlogged, took her in tow and succeeded in taking her to Charleston. The owners of
the Myrthle Tunnel contended that she was not derelict, because the master had gone ashore to procure
assistance.

14. Justification of award of salvage in The Shawmut case

The first question that arises is whether the Myrthle Tunnel is a derelict. Prima facie a vessel found at
sea in a situation of peril, with no one aboard of her, is a derelict; but where the master and crew leave such
vessel temporarily, without any intention of final abandonment, for the purpose of obtaining assistance, and
with the intent to return and resume possession, she is not technically a derelict. It is not of substantial
importance to decide that question. She was what may be called a quasi-derelict; abandoned, helpless, her
sails gone, entirely without power in herself to save herself from a situation not of imminent but of
considerable peril; lying about midway between the Gulf Stream and the shore, and about 30 miles from
either. An east wind would have driven her upon one, and a west wind into the other, where she would have
become a total loss. Lying in the pathway of commerce, with nothing aboard to indicate an intention to return
and resume possession, it was a highly meritorious act upon the part of the Shawmut to take possession of
her, and the award must be governed by the rules which govern in case of derelicts; the amount of it to be
modified in some degree in the interest of the owners in consideration of their prompt, intelligent, and
praiseworthy efforts to resume possession of her, wherein they incurred considerable expense.”

15. Doctrine in the cases of Bee, The John Gilpin, and The Shawmut
The first of these cases was decided in 1836 and the last in 1907. They indicate that the abandonment
of a vessel by all on board, when the vessel is in peril, will justify third parties in taking possession with the
bona fide intention of saving the vessel and its cargo for its owners. The mental hope of the master and the
crew will in no way affect the possession nor the right to salvage.

16. Manila is base for operations

As to whether Manila or Hongkong should be used as a base for operations, Capt. Robinson, who was
the only one of the experts who had had any experience in handling wet copra, unqualifiedly approved Manila
as a base for operations. Further, Lebreton, a stevedore, testified that he would have gotten some of his
materials from Hongkong but that he would have freighted the salved cargo to Manila. All other things being
equal, the fact that Hongkong is 40 sailing hours from Scarborough Reef while Manila is less than 24 sailing
hours would make Manila by far the more logical base.

17. Testimony of the witnesses as to the proper method used; Only Capt. Robinson has experience
in class of work, i.e. handling of the wet copra
Herein, Erlanger & Galinger sent men into the hold of the ship and sacked the copra and brought it to
Manila where it was sold. Some of the witnesses contended that other methods should have been used. They
testified that “grabs” or “clam shells” would have brought better results, but none of these witnesses had had
any experience in unloading wet copra. Capt. Robinson was the only witness called who had had any
experience in this class of work. He testified that the only way all the copra could be gotten out was by sacks
or by canvas slings; that “grabs” would be of no use because of the inability to work with them between
decks. The copra was in three layers. The top layer was dry, the middle layer was submerged every time the
tide rose, and the lower layer was submerged all of the time. It was manifestly impossible to keep these layers
separate by using “grabs” or “clam shells.” The fact that wet copra is exceedingly difficult to handle, on
account of the gases which arise from it, is also of prime importance in weighing the testimony of the
defendant’s witnesses, because none of them had ever had experience with wet copra.

18. Difficulty to induce laborers to work with wet copra not attributable to lack of care or diligence
Herein, Erlanger & Galinger commenced the actual work of salving the ship and cargo on 18 May
1913. The last of the cargo was brought to Manila the latter part of June. The last of the dry copra was
brought to Manila on June 5. The estimates of the experts with regard to the time necessary to remove the
cargo ranged from 8 to 20 days. The greater portion of the cargo was brought in by Erlanger & Galinger
within 15 days. The delay after June 5 was due to the difficulty in inducing laborers to work with wet copra.
This difficulty would have arisen with any set of salvors and cannot be attributed to a lack of care or diligence
on the part of Erlanger & Galinger.

19. Salvage conducted with skill, diligence, and efficiency

While Erlanger & Galinger entered upon the salvage proceedings without proper means and not being
adapted by their business to conduct their work, and while it may appear that possibly the salvage might have
been conducted in a better manner and have accomplished somewhat better results in the saving of the copra
cargo, yet it appears that they quickly remedied their lack of means and corrected the conduct of the work so
that it accomplished fairly good results. It does not appear from the evidence that anyone then or subsequently
suggested or found any other course which might have been pursued and which would have brought better
results. Herein, Erlanger & Galinger were diligent in commencing the work and were careful and efficient in
its pursuit and conclusion.

20. Proper view as to compensation as salvage

Compensation as salvage is not viewed by the admiralty courts merely as pay on the principle of
quantum meruit or as a remuneration pro opere et labore, but as a reward given for perilous services,
voluntarily rendered, and as an inducement to mariners to embark in such dangerous enterprises to save life
and property.

21. Expenses incurred by Erlanger & Galinger must be borne by them, should have been spent not
more than the reasonable share of the proceeds would amount to under any circumstances
The contention, that expenses incurred should be deducted from the entire amount of the salved
property and the remainder be divided as a reward for the services rendered, has no basis in law of salvage
compensation. The expenses incurred by Erlanger & Galinger must be borne by them. It is true that the award
should be liberal enough to cover the expenses and give an extra amount as a reward for the services rendered
but the expenses are used in no other way as a basis for the final award. A part of the risk that Erlanger &
Galinger incurred was that the goods salved would not pay them for the amount expended in salving them.
Erlanger & Galinger knew this risk and they should not have spent more money than their reasonable share of
the proceeds would amount to under any circumstances.

22. Salvor considered a joint owner; The case of Carl Schurz (Case No. 2414; 5 Fed. Cas., 84)
A salvor, in the view of the maritime law, has an interest in the property; it is called a lien, but it
never goes, in the absence of a contract expressly made, upon the idea of a debt due by the owner to the
salvor for services rendered, as at common law, but upon the principle that the service creates a property in
the thing saved. He is, to all intents and purposes, a joint owner, and if the property is lost he must bear his
share like other joint owners.

23. Libelant and owners mutually bear their respective share of the loss in value by the sale
The libelant and the owners must mutually bear their respective share of the loss in value by the sale.
If the libelant has been unfortunate and has spent his time and money in saving a property not worth the
expenditure he made, or if, having saved enough to compensate him, it is lost by the uncertainties of a judicial
sale for partition, so to speak, it is a misfortune not uncommon to all who seek gain by adventurous
speculations in values. The libelant says in his testimony that he relied entirely on his rights as a salvor. This
being so he knew the risk he ran and it was his own folly to expend more money in the service than his
reasonable share would have been worth under all circumstances and contingencies. He can rely neither on
the common law idea of an implied contract to pay for work on and about one’s property what the work is
reasonably worth with a lien attached by possession for satisfaction, nor upon any motion of an implied
maritime contract for the services, with a maritime lien to secure it, as in the case of repairs, or supplies
furnished a needy vessel, or the like. In such a case the owner would lose all if the property did not satisfy the
debt, when fairly sold. But this doctrine has no place in the maritime law of salvage. It does not proceed upon
any theory of an implied obligation, either of the owner or the res, to pay a quantum meruit, nor actual
expenses incurred, but rather on that of a reasonable compensation or reward, as the case may be, to one who
has rescued the res from danger of total loss. If he gets the whole, the property had as well been lost entirely,
so far as the owner is concerned. The public policy of encouragement for such service does not, of itself,
furnish sufficient support for a rule which would exclude the owner from all benefit to be derived from the
service.
24. Mistakes in the valuation of cargo borne by salvors; In Williams vs. The Adolphe (Fed. Cas. No.
17712; 29 Fed. Cas., 1350)
The claim of the libelants is for salvage, the services rendered were salvage services and the owners
are to receive their property again, after paying salvage for the services rendered them. What service would it
be to them to take their property under circumstances calling for the whole of it by way of indemnity? The
mistake of the captain and the supercargo, and part owner of the Triton as to the value of the property on
board the Adolphe, should not operate to the injury of the owners thereof; the salvors must bear the
consequences of their own mistake, taking such a proportion only of the property salved, as by the law of the
admiralty should be awarded them.

25. Reservation of reasonable proportion for the owner; In The Edwards (12 Fed. Rep., 508, 509)
It is true that in rendering a salvage service the salvor assumes the risks of failure, and his salvage
depends upon his success and the amount of property saved; yet when there is enough to fully compensate
him for time and labor, and leave an reasonable proportion for the owner, he should certainly be awarded that,
if the amount will allow no more.”

26. The doctrine of salvage requires that the service ‘must be productive of some benefit to the
owners of the property salved
In The L. W. Perry (71 Fed. Rep., 745, 746), without regard to the element of reward which is
intended by the salvage allowance, it is manifest that remuneration pro opere et labore would be placed in
excess of the fund here, if such basis were allowable. While salvage is of the nature of a reward for
meritorious service, and for determination of its amount the interests of the public and the encouragement of
others to undertake like service are taken into consideration, as well as the risk incurred, and the value of the
property saved, and where the proceeds for division are small, the proportion of allowance to the salvor may
be enlarged to answer these purposes, nevertheless, the doctrine of salvage requires, as a prerequisite to any
allowance, that the service ‘must be productive of some benefit to the owners of the property salved; for,
however meritorious the exertions of alleged salvors may be, if they are not attended with benefit to the
owners, they can not be compensated as such.” The claim of the libelant can only be supported as one for
salvage. It does not constitute a personal demand, upon quantum meruit, against the owners, but gives an
interest in the property saved, which entitles the salvor to a liberal share of the proceeds. One of the grounds
for liberality in salvage awards is the risk assumed by the salvor, — that he can have no recompense for
service or expense unless he is successful in the rescue of property, and that his reward must be within the
measure of his success. He obtains an interest in the property, and in its proceeds when sold, but accompanied
by the same risk of any misfortune or depreciation which may occur to reduce its value. In other words, he
can only have a portion, in any event; and the fact that his exertions were meritorious and that their actual
value, or the expense actually incurred, exceeded the amount produced by the service, cannot operate to
absorb the entire proceeds against the established rules of salvage.

27. Courts have a wide descretion in settling the award; In The Job H. Jackson (161 Fed. Rep.,
1015, 1018)
Courts have a wide descretion in settling the award. The award is now determined by the particular
facts and the degree of merit. There is no fixed rule for salvage allowance. The old rule in cases of a derelict
was 50 per cent of the property salved; but under modern decisions and practice, it may be less, or it may be
more. The allowance rests in the sound discretion of the court or judge, who hears the case, hears the
witnesses testify, looks into their eyes, and is acquainted with the environments of the rescue An
allowance for salvage should not be weighed in golden scales, but should be made as a reward for meritorious
voluntary services, rendered at a time when danger of loss is imminent, as a reward for such services so
rendered, and for the purpose of encouraging others in like services.

28. Old rule of 50% of the derelict abandoned; In The Lamington (86 Fed. Rep., 675, 678)
 While it appears most clearly that, since the old hard and fast rule of ’50 per cent of a derelict’ was
abandoned, the award is determined by a consideration of the peculiar facts of each case, it is none the less
true that the admiralty courts have always been careful not only to encourage salving enterprises by liberality,
when possible, but also to recognize that it is, after all, a speculation in which desert and reward not always
balance.

29. Award is largely in the discretion of the trial court and it is rare that the appellate court will
disturb the finding
Appellate courts rarely reduce salvage awards, unless there has been some violation of just principles,
or some clear or palpable mistake. They are reluctant to disturb such award, solely on the ground that the
subordinate court gave too large a sum, unless they are clearly satisfied that the court below made an
exorbitant estimate of the services. It is equally true that, when the law gives a party a right to appeal, he has
the right to demand the conscientious judgment of the appellate court on every question arising in the case,
and the allowance of salvage originally decreased has, in many cases, been increased or diminished in the
appellate court, even where it did not violate any of the just principles which should regulate the subject, but
was unreasonably excessive or inadequate. Although the amount to be awarded as salvage rests, as it is said,
in the discretion of the court awarding it, appellate courts will look to see if that discretion has been exercised
by the court of first instance in the spirit of those decisions which higher tribunals have recognized and
enforced, and will readjust the amount if the decree below does not follow in the path of authority, even
though no principle has been violated or mistake made.

30. Distinction in the proportion of award as to the property salved; Cases

The dry copra and the agar-agar was salved with much more ease than the wet copra. The courts
have, almost universally, made a distinction in the proportion of award as to the property salved. (1) In The
America (1 Fed. Cas., 596), decided in 1836, the award was as follows: 25 per cent on cargo salved dry; 50
per cent on cargo salved damaged; 60 per cent on cargo salved by diving. (2) In The Ajax (1 Fed. Cas., 252),
decided in 1836, the award was as follows: 33 per cent on the dry; 50 per cent on the wet; 50 per cent on
ship’s materials. (3) In The Nathaniel Kimball (Fed. Cas. No. 10033), decided in 1853, the award was as
follows: 30 per cent on dry cargo; 50 per cent on wet, salved by diving and working under water. (4) In The
Brewster (Fed. Cas. No. 1852), decided in 1848, the award was as follows: 33 per cent, and as to some cargo
where diving was necessary, 60 per cent. (5) In The Mulhouse (Fed. Cas. No. 9910), decided in 1859, the
award was as follows: 25 per cent salving dry deck cotton; 45 per cent salving cotton submerged between
decks; 55 per cent salving cotton by diving. (6) In The John Wesley (Fed. Cas. NO. 7433), decided in 1866,
the award was as follows: 15 per cent; on damaged cotton a slightly higher per cent. (7) In The Northwester
(Fed. Cas. NO. 10333), decided in 1873, the award was as follows: 20 per cent on cotton dry; 33 1/3 per cent
on cotton wet and burnt; 40 per cent on materials; 50 per cent on property salved by diving. (8) In Baker vs.
Cargo etc. of The Slobodna (35 Fed. Rep., 537), decided in 1887, the award was as follows: 25 per cent on
dry cotton; 33 1/3 per cent on wet cotton; 45 per cent on materials. (9) In the cases in which the full award of
50 per cent was allowed the court usually made the comment: “services highly meritorious service,” “with
great labor and difficulty,” or similar remarks.

31. Property involved in the salvage, in the present case

In the salvage operations conducted by Erlanger & Galinger, the following property was involved (1)
the steamship Nippon, valued at P250,000.00; (2) copra, net valued, salved at P 142,657.05; (3) agar-agar, net
value, salved at P 5,635.00; (4) general cargo at P 5,939.68; (5) camphor, net value, salved at P 1,850.00; and
(6) curios, net value, salved at (P) 150.00.

32. Agreement between the parties, in the present case

Erlanger & Galinger and the owners of the ship have heretofore, by mutual agreement, settled the
question of the amount of salvage of the ship. Erlanger & Galinger received for that part of their services the
sum of (L)15000, or about P145,800. No appeal was taken from the judgment of the lower court concerning
the amount of salvage allowed by it for the general cargo, the camphor, nor the curios salved.

33. Amount of salvage for the copra and the agar-agar

After a careful study of the entire record and taking into account the amount which Erlanger &
Galinger has received, the Court has arrived at the conclusion that in equity and justice that Erlanger &
Galinger should receive for their services the following amounts: (a) 40 per cent of the net value of the wet
copra salved; (b) 25 per cent of the net value of the dry copra salved; and (c) 20 per cent of the net value of
the agar-agar salved. The net value of the wet copra salved amounted to P40,381.94; 40 per cent of that
amount would be P16,152.78. Therefore, the net value of the dry copra salved amounted to P102,275.11; 25
per cent of that amount would be P25,568.77. In ascertaining the net value of the copra salved, the expenses
incurred by the Collector of Customs in the sale of the copra, amounting to P4,080.01, has been deducted
from the total amount of the copra salved in the proportion of 2.5 to 1. Dividing the expense in that proportion
we have deducted from the amount of the dry copra salved the sum of P2,914.39, and from the amount of the
wet copra salved, the sum of P1,165.62. The net value of the agar-agar salved amounted to P5,636; 20 per
cent of that amount would be P1,127.

[240]

Pestano vs. Sumayang (GR 139875, 4 December 2000)

Third Division, Panganiban (J): 3 concur

Facts: At around 2:00 p.m. of 9 August 1986, Ananias Sumayang was riding a motorcycle along the national
highway in Ilihan, Tabagon, Cebu. Riding with him was his friend Manuel Romagos. As they came upon a
junction where the highway connected with the road leading to Tabagon, they were hit by a passenger bus
driven by Gregorio Pestaño and owned by Metro Cebu Autobus Corp., which had tried to overtake them,
sending the motorcycle and its passengers hurtling upon the pavement. Both Ananias Sumayang and Manuel
Romagos were rushed to the hospital in Sogod, where Sumayang was pronounced dead on arrival. Romagos
was transferred to the Cebu Doctors’ Hospital, but he succumbed to his injuries the day after.

Apart from the institution of criminal charges against Pestaño, Teotimo and Paz Sumayang, as heirs of
Ananias Sumayang, filed a civil action for damages (Civil Case CEB-6108) against Pestaño, as driver of the
passenger bus that rammed the deceased’s motorcycle, Metro Cebu, as owner and operator of the said bus,
and Perla Compania de Seguros, as insurer of Metro Cebu. On 9 November 1987, upon motion of Pestaño,
Judge Pedro C. Son ordered the consolidation of the said case with Criminal Case 10624, pending in Branch
16 of the same Court, involving the criminal prosecution of Pestaño for double homicide thru reckless
imprudence. Joint trial of the two cases thereafter ensued. In judgment, the lower court found Pestano and
Metro Cebu liable to the Sumayangs, in the amounts of P30,000.00 for death indemnity, P829,079 for loss of
earning capacity of the deceased Ananias Sumayang, and P36,000.00 for necessary interment expenses. The
liability of Perla Compania de Seguros, however, was limited only to the amount stipulated in the insurance
policy, which was P12,000 for death indemnity and P4,500.00 for burial expenses. Pestano and Metro Cebu
appealed.

The Court of Appeals (CA-GR CV 30289), on 21 April 1999, denied the appeal, and affirmed the decision of
the lower court with the modification regarding the indemnity for the death of the victim (i.e. raised to
P50,000). The motion for reconsideration subsequently filed was denied 6 August 1999. Hence, the Petition
for review on certiorari (Rule 45).

The Supreme Court denied the petition, and affirmed the assailed Decision and Resolution; with cost against
Pestano and Metro Cebu.
1. Factual findings of the Court of Appeals, affirming those of the trial court, are conclusive upon
the Supreme Court
Factual findings of the CA affirming those of the trial court are conclusive and binding on the
Supreme Court. Herein, Pestano and Metro Cebu were raising a question of fact based on Pestaño’s testimony
contradicting that of Eyewitness Ignacio Neis and on the location of the dents on the bumper and the grill.
The CA agreed with the trial court that the vehicular collision was caused by Pestaño’s negligence when he
attempted to overtake the motorcycle. As a professional driver operating a public transport bus, he should
have anticipated that overtaking at a junction was a perilous maneuver and should thus have exercised
extreme caution. Pestano and Metro Cebu failed to demonstrate that this case falls under any of the
recognized exceptions to this rule.

2. Issue of negligence basically factual

The issue of negligence is basically factual and, in quasi-delicts, crucial in the award of damages.

3. Articles 2180 and 2176 of the Civil Code; Bonus pater familias; Employer presumed negligent
in selection and supervision of employees, are responsible for damages caused by their employees
Under Articles 2180 and 2176 of the Civil Code, owners and managers are responsible for damages
caused by their employees. When an injury is caused by the negligence of a servant or an employee, the
master or employer is presumed to be negligent either in the selection or in the supervision of that employee.
This presumption may be overcome only by satisfactorily showing that the employer exercised the care and
the diligence of a good father of a family in the selection and the supervision of its employee.

4. Defective speedometer shows laxity of Metro Cebu in the supervision of employees and conduct
of business
Allowing Pestaño to ply his route with a defective speedometer showed laxity on the part of Metro
Cebu in the operation of its business and in the supervision of its employees. The negligence alluded is in its
supervision over its driver, not in that which directly caused the accident. The fact that Pestaño was able to
use a bus with a faulty speedometer shows that Metro Cebu was remiss in the supervision of its employees
and in the proper care of its vehicles. It had thus failed to conduct its business with the diligence required by
law.

5. Article 2206 NCC; Indemnity for death has been fixed to P50,000
The indemnity for death caused by a quasi-delict used to be pegged at P3,000, based on Article 2206
of the Civil Code. However, the amount has been gradually increased through the years because of the
declining value of our currency. At present, prevailing jurisprudence fixes the amount at P50,000.

6. Computation of loss of earning capacity based on life expectancy of deceased, not of heir;
Factors
The Court has consistently computed the loss of earning capacity based on the life expectancy of the
deceased, and not on that of the heir. Even Villa Rey Transit case did likewise. The award for loss of earning
capacity is based on two factors: (1) the number of years on which the computation of damages is based and
(2) the rate at which the loss sustained by the heirs is fixed. The first factor refers to the life expectancy,
which takes into consideration the nature of the victim’s work, lifestyle, age and state of health prior to the
accident. The second refers to the victim’s earning capacity minus the necessary living expenses. Stated
otherwise, the amount recoverable is that portion of the earnings of the deceased which the beneficiary would
have received
— the net earnings of the deceased.