G.R. No.
122191 October 8, 1998 Plaintiff learned that, through the intercession of the Saudi Arabian
SAUDI ARABIAN AIRLINES, petitioner,
vs.
COURT OF APPEALS, MILAGROS P. MORADA and HON. RODOLFO A. ORTIZ, in
his capacity as Presiding Judge of Branch 89, Regional Trial Court of Quezon
City, respondents.
QUISUMBING, J.:
This petition for certiorari pursuant to Rule 45 of the Rules of Court seeks to annul
and set aside the Resolution1 dated September 27, 1995 and the Decision2 dated
April 10, 1996 of the Court of Appeals3 in CA-G.R. SP No. 36533,4 and the
Orders5 dated August 29, 1994 6 and February 2, 19957 that were issued by the trial
court in Civil Case No. Q-93-18394.8
The pertinent antecedent facts which gave rise to the instant petition, as stated in the
questioned Decision9, are as follows:
On January 21, 1988 defendant SAUDIA hired plaintiff as a Flight
Attendant for its airlines based in Jeddah, Saudi Arabia. . . .
On April 27, 1990, while on a lay-over in Jakarta, Indonesia, plaintiff
went to a disco dance with fellow crew members Thamer Al-
Gazzawi and Allah Al-Gazzawi, both Saudi nationals. Because it
was almost morning when they returned to their hotels, they agreed
to have breakfast together at the room of Thamer. When they were
in te (sic) room, Allah left on some pretext. Shortly after he did,
Thamer attempted to rape plaintiff. Fortunately, a roomboy and
several security personnel heard her cries for help and rescued her.
Later, the Indonesian police came and arrested Thamer and Allah
Al-Gazzawi, the latter as an accomplice.
When plaintiff returned to Jeddah a few days later, several SAUDIA
officials interrogated her about the Jakarta incident. They then
requested her to go back to Jakarta to help arrange the release of
Thamer and Allah. In Jakarta, SAUDIA Legal Officer Sirah Akkad
and base manager Baharini negotiated with the police for the
immediate release of the detained crew members but did not
succeed because plaintiff refused to cooperate. She was afraid that
she might be tricked into something she did not want because of
her inability to understand the local dialect. She also declined to
sign a blank paper and a document written in the local dialect.
Eventually, SAUDIA allowed plaintiff to return to Jeddah but barred
her from the Jakarta flights.
1|Transportation (Carriage of goods)
government, the Indonesian authorities agreed to deport Thamer
and Allah after two weeks of detention. Eventually, they were again
put in service by defendant SAUDI (sic). In September 1990,
defendant SAUDIA transferred plaintiff to Manila.
On January 14, 1992, just when plaintiff thought that the Jakarta
incident was already behind her, her superiors requested her to see
Mr. Ali Meniewy, Chief Legal Officer of SAUDIA, in Jeddah, Saudi
Arabia. When she saw him, he brought her to the police station
where the police took her passport and questioned her about the
Jakarta incident. Miniewy simply stood by as the police put
pressure on her to make a statement dropping the case against
Thamer and Allah. Not until she agreed to do so did the police
return her passport and allowed her to catch the afternoon flight out
of Jeddah.
One year and a half later or on lune 16, 1993, in Riyadh, Saudi
Arabia, a few minutes before the departure of her flight to Manila,
plaintiff was not allowed to board the plane and instead ordered to
take a later flight to Jeddah to see Mr. Miniewy, the Chief Legal
Officer of SAUDIA. When she did, a certain Khalid of the SAUDIA
office brought her to a Saudi court where she was asked to sign a
document written in Arabic. They told her that this was necessary to
close the case against Thamer and Allah. As it turned out, plaintiff
signed a notice to her to appear before the court on June 27, 1993.
Plaintiff then returned to Manila.
Shortly afterwards, defendant SAUDIA summoned plaintiff to report
to Jeddah once again and see Miniewy on June 27, 1993 for further
investigation. Plaintiff did so after receiving assurance from
SAUDIA's Manila manager, Aslam Saleemi, that the investigation
was routinary and that it posed no danger to her.
In Jeddah, a SAUDIA legal officer brought plaintiff to the same
Saudi court on June 27, 1993. Nothing happened then but on June
28, 1993, a Saudi judge interrogated plaintiff through an interpreter
about the Jakarta incident. After one hour of interrogation, they let
her go. At the airport, however, just as her plane was about to take
off, a SAUDIA officer told her that the airline had forbidden her to
take flight. At the Inflight Service Office where she was told to go,
the secretary of Mr. Yahya Saddick took away her passport and
told her to remain in Jeddah, at the crew quarters, until further
orders.
On July 3, 1993 a SAUDIA legal officer again escorted plaintiff to
the same court where the judge, to her astonishment and shock,
rendered a decision, translated to her in English, sentencing her to
five months imprisonment and to 286 lashes. Only then did she
realize that the Saudi court had tried her, together with Thamer and
 Allah, for what happened in Jakarta. The court found plaintiff guilty
of (1) adultery; (2) going to a disco, dancing and listening to the
music in violation of Islamic laws; and (3) socializing with the male
crew, in contravention of Islamic tradition. 10
Facing conviction, private respondent sought the help of her employer, petitioner
SAUDIA. Unfortunately, she was denied any assistance. She then asked the
Philippine Embassy in Jeddah to help her while her case is on appeal. Meanwhile, to
pay for her upkeep, she worked on the domestic flight of SAUDIA, while Thamer and
Allah continued to serve in the international
flights. 11
Because she was wrongfully convicted, the Prince of Makkah dismissed the case
against her and allowed her to leave Saudi Arabia. Shortly before her return to
Manila, 12 she was terminated from the service by SAUDIA, without her being
informed of the cause.
On November 23, 1993, Morada filed a Complaint 13 for damages against SAUDIA,
and Khaled Al-Balawi ("Al-Balawi"), its country manager.
On January 19, 1994, SAUDIA filed an Omnibus Motion To Dismiss 14 which raised
the following grounds, to wit: (1) that the Complaint states no cause of action against
Saudia; (2) that defendant Al-Balawi is not a real party in interest; (3) that the claim or
demand set forth in the Complaint has been waived, abandoned or otherwise
extinguished; and (4) that the trial court has no jurisdiction to try the case.
On February 10, 1994, Morada filed her Opposition (To Motion to Dismiss) 15. Saudia
filed a reply 16 thereto on March 3, 1994.
On June 23, 1994, Morada filed an Amended Complaint 17 wherein Al-Balawi was
dropped as party defendant. On August 11, 1994, Saudia filed its Manifestation and
Motion to Dismiss Amended Complaint 18.
The trial court issued an Order 19 dated August 29, 1994 denying the Motion to
Dismiss Amended Complaint filed by Saudia.
From the Order of respondent Judge 20 denying the Motion to Dismiss, SAUDIA filed
on September 20, 1994, its Motion for Reconsideration 21 of the Order dated August
29, 1994. It alleged that the trial court has no jurisdiction to hear and try the case on
the basis of Article 21 of the Civil Code, since the proper law applicable is the law of
the Kingdom of Saudi Arabia. On October 14, 1994, Morada filed her
Opposition 22 (To Defendant's Motion for Reconsideration).
In the Reply 23 filed with the trial court on October 24, 1994, SAUDIA alleged that
since its Motion for Reconsideration raised lack of jurisdiction as its cause of action,
the Omnibus Motion Rule does not apply, even if that ground is raised for the first
time on appeal. Additionally, SAUDIA alleged that the Philippines does not have any
2|Transportation (Carriage of goods)
substantial interest in the prosecution of the instant case, and hence, without
jurisdiction to adjudicate the same.
Respondent Judge subsequently issued another Order 24 dated February 2, 1995,
denying SAUDIA's Motion for Reconsideration. The pertinent portion of the assailed
Order reads as follows:
Acting on the Motion for Reconsideration of defendant Saudi
Arabian Airlines filed, thru counsel, on September 20, 1994, and
the Opposition thereto of the plaintiff filed, thru counsel, on October
14, 1994, as well as the Reply therewith of defendant Saudi
Arabian Airlines filed, thru counsel, on October 24, 1994,
considering that a perusal of the plaintiffs Amended Complaint,
which is one for the recovery of actual, moral and exemplary
damages plus attorney's fees, upon the basis of the applicable
Philippine law, Article 21 of the New Civil Code of the Philippines,
is, clearly, within the jurisdiction of this Court as regards the subject
matter, and there being nothing new of substance which might
cause the reversal or modification of the order sought to be
reconsidered, the motion for reconsideration of the defendant, is
DENIED.
SO ORDERED. 25
Consequently, on February 20, 1995, SAUDIA filed its Petition for  Certiorari and
Prohibition with Prayer for Issuance of Writ of Preliminary Injunction and/or
Temporary Restraining Order 26 with the Court of Appeals.
Respondent Court of Appeals promulgated a Resolution with Temporary Restraining
Order 27 dated February 23, 1995, prohibiting the respondent Judge from further
conducting any proceeding, unless otherwise directed, in the interim.
In another Resolution 28 promulgated on September 27, 1995, now assailed, the
appellate court denied SAUDIA's Petition for the Issuance of a Writ of Preliminary
Injunction dated February 18, 1995, to wit:
The Petition for the Issuance of a Writ of Preliminary Injunction is
hereby DENIED, after considering the Answer, with Prayer to Deny
Writ of Preliminary Injunction (Rollo, p. 135) the Reply and
Rejoinder, it appearing that herein petitioner is not clearly entitled
thereto (Unciano Paramedical College, et. Al., v. Court of Appeals,
et. Al., 100335, April 7, 1993, Second Division).
SO ORDERED.
On October 20, 1995, SAUDIA filed with this Honorable Court the instant
Petition 29 for Review with Prayer for Temporary Restraining Order dated October 13,
1995.
However, during the pendency of the instant Petition, respondent Court of Appeals
rendered the Decision 30 dated April 10, 1996, now also assailed. It ruled that the
Philippines is an appropriate forum considering that the Amended Complaint's basis
for recovery of damages is Article 21 of the Civil Code, and thus, clearly within the
jurisdiction of respondent Court. It further held that  certiorari is not the proper remedy
in a denial of a Motion to Dismiss, inasmuch as the petitioner should have proceeded
to trial, and in case of an adverse ruling, find recourse in an appeal.
On May 7, 1996, SAUDIA filed its Supplemental Petition for Review with Prayer for
Temporary Restraining Order 31 dated April 30, 1996, given due course by this Court.
After both parties submitted their Memoranda, 32 the instant case is now deemed
submitted for decision.
Petitioner SAUDIA raised the following issues:
I GOVERN.
The trial court has no jurisdiction to hear and try Civil Case No. Q-
93-18394 based on Article 21 of the New Civil Code since the
proper law applicable is the law of the Kingdom of Saudi Arabia
inasmuch as this case involves what is known in private
international law as a "conflicts problem". Otherwise, the Republic
of the Philippines will sit in judgment of the acts done by another
sovereign state which is abhorred.
II
Leave of court before filing a supplemental pleading is not a
jurisdictional requirement. Besides, the matter as to absence of
leave of court is now moot and academic when this Honorable
Court required the respondents to comment on petitioner's April 30,
1996 Supplemental Petition For Review With Prayer For A
Temporary Restraining Order Within Ten (10) Days From Notice
Thereof. Further, the Revised Rules of Court should be construed
with liberality pursuant to Section 2, Rule 1 thereof.
III
Petitioner received on April 22, 1996 the April 10, 1996 decision in
CA-G.R. SP NO. 36533 entitled "Saudi Arabian Airlines v. Hon.
Rodolfo A. Ortiz, et al." and filed its April 30, 1996 Supplemental
Petition For Review With Prayer For A Temporary Restraining
Order on May 7, 1996 at 10:29 a.m. or within the 15-day
reglementary period as provided for under Section 1, Rule 45 of the
Revised Rules of Court. Therefore, the decision in CA-G.R. SP NO.
36533 has not yet become final and executory and this Honorable
Court can take cognizance of this case. 33
3|Transportation (Carriage of goods)
From the foregoing factual and procedural antecedents, the following issues emerge
for our resolution:
I.
WHETHER RESPONDENT APPELLATE COURT ERRED IN
HOLDING THAT THE REGIONAL TRIAL COURT OF QUEZON
CITY HAS JURISDICTION TO HEAR AND TRY CIVIL CASE NO.
Q-93-18394 ENTITLED "MILAGROS P. MORADA V. SAUDI
ARABIAN AIRLINES".
II.
WHETHER RESPONDENT APPELLATE COURT ERRED IN
RULING THAT IN THIS CASE PHILIPPINE LAW SHOULD
Petitioner SAUDIA claims that before us is a conflict of laws that must be settled at
the outset. It maintains that private respondent's claim for alleged abuse of rights
occurred in the Kingdom of Saudi Arabia. It alleges that the existence of a foreign
element qualifies the instant case for the application of the law of the Kingdom of
Saudi Arabia, by virtue of the  lex loci delicti commissi rule. 34
On the other hand, private respondent contends that since her Amended Complaint is
based on Articles 19 35 and 21 36 of the Civil Code, then the instant case is properly a
matter of domestic law. 37
Under the factual antecedents obtaining in this case, there is no dispute that the
interplay of events occurred in two states, the Philippines and Saudi Arabia.
As stated by private respondent in her Amended Complaint 38 dated June 23, 1994:
2. Defendant SAUDI ARABIAN AIRLINES or SAUDIA is a foreign
airlines corporation doing business in the Philippines. It may be
served with summons and other court processes at Travel Wide
Associated Sales (Phils.). Inc., 3rd Floor, Cougar Building, 114
Valero St., Salcedo Village, Makati, Metro Manila.
x x x           x x x          x x x
6. Plaintiff learned that, through the intercession of the Saudi
Arabian government, the Indonesian authorities agreed to deport
Thamer and Allah after two weeks of detention. Eventually, they
were again put in service by defendant SAUDIA. In September
1990, defendant SAUDIA transferred plaintiff to Manila.
 7. On January 14, 1992, just when plaintiff thought that the Jakarta
incident was already behind her, her superiors reauested her to
see MR. Ali Meniewy, Chief Legal Officer of SAUDIA in Jeddah,
Saudi Arabia. When she saw him, he brought her to the police
station where the police took her passport and questioned her
about the Jakarta incident. Miniewy simply stood by as the police
put pressure on her to make a statement dropping the case against
Thamer and Allah. Not until she agreed to do so did the police
return her passport and allowed her to catch the afternoon flight out
of Jeddah.
8. One year and a half later or on June 16, 1993, in Riyadh, Saudi
Arabia, a few minutes before the departure of her flight to Manila,
plaintiff was not allowed to board the plane and instead ordered to
take a later flight to Jeddah to see Mr. Meniewy, the Chief Legal
Officer of SAUDIA. When she did, a certain Khalid of the SAUDIA
office brought her to a Saudi court where she was asked to sigh a
document written in Arabic. They told her that this was necessary to
close the case against Thamer and Allah. As it turned out, plaintiff
signed a notice to her to appear before the court on June 27,
1993. Plaintiff then returned to Manila.
9. Shortly afterwards, defendant SAUDIA summoned plaintiff to
report to Jeddah once again and see Miniewy on June 27, 1993 for
further investigation. Plaintiff did so after receiving assurance from
SAUDIA's Manila manger, Aslam Saleemi, that the investigation
was routinary and that it posed no danger to her.
10. In Jeddah, a SAUDIA legal officer brought plaintiff to the same
Saudi court on June 27, 1993. Nothing happened then but on June
28, 1993, a Saudi judge interrogated plaintiff through an interpreter
about the Jakarta incident. After one hour of interrogation, they let
her go. At the airport, however, just as her plane was about to take
off, a SAUDIA officer told her that the airline had forbidden her to
take that flight. At the Inflight Service Office where she was told to
go, the secretary of Mr. Yahya Saddick took away her passport and
told her to remain in Jeddah, at the crew quarters, until further
orders.
11. On July 3, 1993 a SAUDIA legal officer again escorted plaintiff
to the same court where the judge, to her astonishment and shock,
rendered a decision, translated to her in English, sentencing her to
five months imprisonment and to 286 lashes. Only then did she
realize that the Saudi court had tried her, together with Thamer and
Allah, for what happened in Jakarta. The court found plaintiff guilty
of (1) adultery; (2) going to a disco, dancing, and listening to the
music in violation of Islamic laws; (3) socializing with the male crew,
in contravention of Islamic tradition.
4|Transportation (Carriage of goods)
12. Because SAUDIA refused to lend her a hand in the case,
plaintiff sought the help of the Philippines Embassy in Jeddah. The
latter helped her pursue an appeal from the decision of the court.
To pay for her upkeep, she worked on the domestic flights of
defendant SAUDIA while, ironically, Thamer and Allah freely served
the international flights. 39
Where the factual antecedents satisfactorily establish the existence of a foreign
element, we agree with petitioner that the problem herein could present a "conflicts"
case.
A factual situation that cuts across territorial lines and is affected by the diverse laws
of two or more states is said to contain a "foreign element". The presence of a foreign
element is inevitable since social and economic affairs of individuals and associations
are rarely confined to the geographic limits of their birth or conception. 40
The forms in which this foreign element may appear are many. 41 The foreign element
may simply consist in the fact that one of the parties to a contract is an alien or has a
foreign domicile, or that a contract between nationals of one State involves properties
situated in another State. In other cases, the foreign element may assume a complex
form. 42
In the instant case, the foreign element consisted in the fact that private respondent
Morada is a resident Philippine national, and that petitioner SAUDIA is a resident
foreign corporation. Also, by virtue of the employment of Morada with the petitioner
Saudia as a flight stewardess, events did transpire during her many occasions of
travel across national borders, particularly from Manila, Philippines to Jeddah, Saudi
Arabia, and vice versa, that caused a "conflicts" situation to arise.
We thus find private respondent's assertion that the case is purely domestic,
imprecise. A conflicts problem presents itself here, and the question of
jurisdiction 43 confronts the court  a quo.
After a careful study of the private respondent's Amended Complaint, 44 and the
Comment thereon, we note that she aptly predicated her cause of action on Articles
19 and 21 of the New Civil Code.
On one hand, Article 19 of the New Civil Code provides:
Art. 19. 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.
On the other hand, Article 21 of the New Civil Code provides:
Art. 21. Any person who willfully causes loss or injury to another in
a manner that is contrary to morals, good customs or public policy
shall compensate the latter for damages.
Thus, in Philippine National Bank (PNB) vs. Court of Appeals, 45 this Court held that:
The aforecited provisions on human relations were intended to
expand the concept of torts in this jurisdiction by granting adequate
legal remedy for the untold number of moral wrongs which is
impossible for human foresight to specifically provide in the
statutes.
Although Article 19 merely declares a principle of law, Article 21 gives flesh to its
provisions. Thus, we agree with private respondent's assertion that violations of
Articles 19 and 21 are actionable, with judicially enforceable remedies in the
municipal forum.
Based on the allegations 46 in the Amended Complaint, read in the light of the Rules
of Court on jurisdiction 47 we find that the Regional Trial Court (RTC) of Quezon City
possesses jurisdiction over the subject matter of the suit. 48 Its authority to try and
hear the case is provided for under Section 1 of Republic Act No. 7691, to wit:
Sec. 1. Section 19 of Batas Pambansa Blg. 129, otherwise known
as the "Judiciary Reorganization Act of 1980", is hereby amended
to read as follows:
Sec. 19. Jurisdiction in Civil Cases. — Regional Trial Courts shall
exercise exclusive jurisdiction:
x x x           x x x          x x x
(8) In all other cases in which demand, exclusive
of interest, damages of whatever kind, attorney's
fees, litigation expenses, and cots or the value of
the property in controversy exceeds One hundred
thousand pesos (P100,000.00) or, in such other
cases in Metro Manila, where the demand,
exclusive of the above-mentioned items exceeds
Two hundred Thousand pesos (P200,000.00).
(Emphasis ours)
x x x           x x x          x x x
And following Section 2 (b), Rule 4 of the Revised Rules of Court — the venue,
Quezon City, is appropriate:
Sec. 2 Venue in Courts of First Instance. — [Now Regional Trial
Court]
(a) xxx xxx xxx
5|Transportation (Carriage of goods)
(b) Personal actions. — All other actions may be commenced and
tried where the defendant or any of the defendants resides or may
be found, or where the plaintiff or any of the plaintiff resides, at the
election of the plaintiff.
Pragmatic considerations, including the convenience of the parties, also weigh
heavily in favor of the RTC Quezon City assuming jurisdiction. Paramount is the
private interest of the litigant. Enforceability of a judgment if one is obtained is quite
obvious. Relative advantages and obstacles to a fair trial are equally important.
Plaintiff may not, by choice of an inconvenient forum, "vex", "harass", or "oppress" the
defendant, e.g. by inflicting upon him needless expense or disturbance. But unless
the balance is strongly in favor of the defendant, the plaintiffs choice of forum should
rarely be disturbed. 49
Weighing the relative claims of the parties, the court a quo found it best to hear the
case in the Philippines. Had it refused to take cognizance of the case, it would be
forcing plaintiff (private respondent now) to seek remedial action elsewhere,  i.e. in the
Kingdom of Saudi Arabia where she no longer maintains substantial connections.
That would have caused a fundamental unfairness to her.
Moreover, by hearing the case in the Philippines no unnecessary difficulties and
inconvenience have been shown by either of the parties. The choice of forum of the
plaintiff (now private respondent) should be upheld.
Similarly, the trial court also possesses jurisdiction over the persons of the parties
herein. By filing her Complaint and Amended Complaint with the trial court, private
respondent has voluntary submitted herself to the jurisdiction of the court.
The records show that petitioner SAUDIA has filed several motions 50 praying for the
dismissal of Morada's Amended Complaint. SAUDIA also filed an Answer In Ex
Abundante Cautelam dated February 20, 1995. What is very patent and explicit from
the motions filed, is that SAUDIA prayed for other reliefs under the premises.
Undeniably, petitioner SAUDIA has effectively submitted to the trial court's jurisdiction
by praying for the dismissal of the Amended Complaint on grounds other than lack of
jurisdiction.
As held by this Court in Republic vs. Ker and Company, Ltd.: 51
We observe that the motion to dismiss filed on April 14, 1962, aside
from disputing the lower court's jurisdiction over defendant's
person, prayed for dismissal of the complaint on the ground that
plaintiff's cause of action has prescribed. By interposing such
second ground in its motion to dismiss, Ker and Co., Ltd. availed of
an affirmative defense on the basis of which it prayed the court to
resolve controversy in its favor. For the court to validly decide the
said plea of defendant Ker & Co., Ltd., it necessarily had to acquire
jurisdiction upon the latter's person, who, being the proponent of
the affirmative defense, should be deemed to have abandoned its
 special appearance and voluntarily submitted itself to the
jurisdiction of the court.
Similarly, the case of De Midgely vs. Ferandos, held that;
When the appearance is by motion for the purpose of objecting to
the jurisdiction of the court over the person, it must be for the sole
and separate purpose of objecting to the jurisdiction of the court. If
his motion is for any other purpose than to object to the jurisdiction
of the court over his person, he thereby submits himself to the
jurisdiction of the court. A special appearance by motion made for
the purpose of objecting to the jurisdiction of the court over the
person will be held to be a general appearance, if the party in said
motion should, for example, ask for a dismissal of the action upon
the further ground that the court had no jurisdiction over the subject
matter. 52
Clearly, petitioner had submitted to the jurisdiction of the Regional Trial Court of
Quezon City. Thus, we find that the trial court has jurisdiction over the case and that
its exercise thereof, justified.
As to the choice of applicable law, we note that choice-of-law problems seek to
answer two important questions: (1) What legal system should control a given
situation where some of the significant facts occurred in two or more states; and (2) to
what extent should the chosen legal system regulate the situation. 53
Several theories have been propounded in order to identify the legal system that
should ultimately control. Although ideally, all choice-of-law theories should
intrinsically advance both notions of justice and predictability, they do not always do
so. The forum is then faced with the problem of deciding which of these two important
values should be stressed. 54
Before a choice can be made, it is necessary for us to determine under what category
a certain set of facts or rules fall. This process is known as "characterization", or the
"doctrine of qualification". It is the "process of deciding whether or not the facts relate
to the kind of question specified in a conflicts rule." 55 The purpose of
"characterization" is to enable the forum to select the proper law. 56
Our starting point of analysis here is not a legal relation, but a factual situation, event,
or operative fact. 57 An essential element of conflict rules is the indication of a "test" or
"connecting factor" or "point of contact". Choice-of-law rules invariably consist of a
factual relationship (such as property right, contract claim) and a connecting factor or
point of contact, such as the  situs of the  res, the place of celebration, the place of
performance, or the place of wrongdoing. 58
Note that one or more circumstances may be present to serve as the possible test for
the determination of the applicable law. 59 These "test factors" or "points of contact" or
"connecting factors" could be any of the following:
6|Transportation (Carriage of goods)
(1) The nationality of a person, his domicile, his residence, his
place of sojourn, or his origin;
(2) the seat of a legal or juridical person, such as a corporation;
(3) the situs of a thing, that is, the place where a thing is, or is
deemed to be situated. In particular, the lex situs is decisive when
real rights are involved;
(4) the place where an act has been done, the locus actus, such as
the place where a contract has been made, a marriage celebrated,
a will signed or a tort committed. The lex loci actus is particularly
important in contracts and torts;
(5) the place where an act is intended to come into effect, e.g., the
place of performance of contractual duties, or the place where a
power of attorney is to be exercised;
(6) the intention of the contracting parties as to the law that should
govern their agreement, the  lex loci intentionis;
(7) the place where judicial or administrative proceedings are
instituted or done. The  lex fori — the law of the forum — is
particularly important because, as we have seen earlier, matters of
"procedure" not going to the substance of the claim involved are
governed by it; and because the lex fori applies whenever the
content of the otherwise applicable foreign law is excluded from
application in a given case for the reason that it falls under one of
the exceptions to the applications of foreign law; and
(8) the flag of a ship, which in many cases is decisive of practically
all legal relationships of the ship and of its master or owner as
such. It also covers contractual relationships particularly contracts
of affreightment. 60 (Emphasis ours.)
After a careful study of the pleadings on record, including allegations in the Amended
Complaint deemed admitted for purposes of the motion to dismiss, we are convinced
that there is reasonable basis for private respondent's assertion that although she
was already working in Manila, petitioner brought her to Jeddah on the pretense that
she would merely testify in an investigation of the charges she made against the two
SAUDIA crew members for the attack on her person while they were in Jakarta. As it
turned out, she was the one made to face trial for very serious charges, including
adultery and violation of Islamic laws and tradition.
There is likewise logical basis on record for the claim that the "handing over" or
"turning over" of the person of private respondent to Jeddah officials, petitioner may
have acted beyond its duties as employer. Petitioner's purported act contributed to
and amplified or even proximately caused additional humiliation, misery and suffering
of private respondent. Petitioner thereby allegedly facilitated the arrest, detention and
prosecution of private respondent under the guise of petitioner's authority as
employer, taking advantage of the trust, confidence and faith she reposed upon it. As
purportedly found by the Prince of Makkah, the alleged conviction and imprisonment
of private respondent was wrongful. But these capped the injury or harm allegedly
inflicted upon her person and reputation, for which petitioner could be liable as
claimed, to provide compensation or redress for the wrongs done, once duly proven.
Considering that the complaint in the court a quo is one involving torts, the
"connecting factor" or "point of contact" could be the place or places where the
tortious conduct or lex loci actus occurred. And applying the torts principle in a
conflicts case, we find that the Philippines could be said as a situs of the tort (the
place where the alleged tortious conduct took place). This is because it is in the
Philippines where petitioner allegedly deceived private respondent, a Filipina residing
and working here. According to her, she had honestly believed that petitioner would,
in the exercise of its rights and in the performance of its duties, "act with justice, give
her due and observe honesty and good faith." Instead, petitioner failed to protect her,
she claimed. That certain acts or parts of the injury allegedly occurred in another
country is of no moment. For in our view what is important here is the place where the
over-all harm or the totality of the alleged injury to the person, reputation, social
standing and human rights of complainant, had lodged, according to the plaintiff
below (herein private respondent). All told, it is not without basis to identify the
Philippines as the situs of the alleged tort.
Moreover, with the widespread criticism of the traditional rule of  lex loci delicti
commissi, modern theories and rules on tort liability 61 have been advanced to offer
fresh judicial approaches to arrive at just results. In keeping abreast with the modern
theories on tort liability, we find here an occasion to apply the "State of the most
significant relationship" rule, which in our view should be appropriate to apply now,
given the factual context of this case.
In applying said principle to determine the State which has the most significant
relationship, the following contacts are to be taken into account and evaluated
according to their relative importance with respect to the particular issue: (a) the place
where the injury occurred; (b) the place where the conduct causing the injury
occurred; (c) the domicile, residence, nationality, place of incorporation and place of
business of the parties, and (d) the place where the relationship, if any, between the
parties is centered. 62
As already discussed, there is basis for the claim that over-all injury occurred and
lodged in the Philippines. There is likewise no question that private respondent is a
resident Filipina national, working with petitioner, a resident foreign corporation
engaged here in the business of international air carriage. Thus, the "relationship"
between the parties was centered here, although it should be stressed that this suit is
not based on mere labor law violations. From the record, the claim that the
Philippines has the most significant contact with the matter in this dispute, 63 raised by
private respondent as plaintiff below against defendant (herein petitioner), in our view,
has been properly established.
7|Transportation (Carriage of goods)
Prescinding from this premise that the Philippines is the situs of the tort complained of
and the place "having the most interest in the problem", we find, by way of
recapitulation, that the Philippine law on tort liability should have paramount
application to and control in the resolution of the legal issues arising out of this case.
Further, we hold that the respondent Regional Trial Court has jurisdiction over the
parties and the subject matter of the complaint; the appropriate venue is in Quezon
City, which could properly apply Philippine law. Moreover, we find untenable
petitioner's insistence that "[s]ince private respondent instituted this suit, she has the
burden of pleading and proving the applicable Saudi law on the matter." 64 As aptly
said by private respondent, she has "no obligation to plead and prove the law of the
Kingdom of Saudi Arabia since her cause of action is based on Articles 19 and 21" of
the Civil Code of the Philippines. In her Amended Complaint and subsequent
pleadings, she never alleged that Saudi law should govern this case. 65 And as
correctly held by the respondent appellate court, "considering that it was the petitioner
who was invoking the applicability of the law of Saudi Arabia, then the burden was on
it [petitioner] to plead and to establish what the law of Saudi Arabia is". 66
Lastly, no error could be imputed to the respondent appellate court in upholding the
trial court's denial of defendant's (herein petitioner's) motion to dismiss the case. Not
only was jurisdiction in order and venue properly laid, but appeal after trial was
obviously available, and expeditious trial itself indicated by the nature of the case at
hand. Indubitably, the Philippines is the state intimately concerned with the ultimate
outcome of the case below, not just for the benefit of all the litigants, but also for the
vindication of the country's system of law and justice in a transnational setting. With
these guidelines in mind, the trial court must proceed to try and adjudge the case in
the light of relevant Philippine law, with due consideration of the foreign element or
elements involved. Nothing said herein, of course, should be construed as prejudging
the results of the case in any manner whatsoever.
WHEREFORE, the instant petition for  certiorari is hereby DISMISSED. Civil Case No.
Q-93-18394 entitled "Milagros P. Morada vs. Saudi Arabia Airlines" is hereby
REMANDED to Regional Trial Court of Quezon City, Branch 89 for further
proceedings.
SO ORDERED.
G.R. No. 125948 December 29, 1998
FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner,
vs.
COURT OF APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS CITY
and ADORACION C. ARELLANO, in her official capacity as City Treasurer of
Batangas, respondents.
MARTINEZ, J.:
This petition for review on certiorari assails the Decision of the Court of
Appeals dated November 29, 1995, in CA-G.R. SP No. 36801, affirming the
decision of the Regional Trial Court of Batangas City, Branch 84, in Civil Case
No. 4293, which dismissed petitioners' complaint for a business tax refund
imposed by the City of Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as
amended, to contract, install and operate oil pipelines. The original pipeline
concession was granted in 19671 and renewed by the Energy Regulatory Board
in 1992. 2
Sometime in January 1995, petitioner 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 respondent City Treasurer required petitioner to pay a local tax
based on its gross receipts for the fiscal year 1993 pursuant to the Local
Government Code3. The respondent 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, petitioner
paid the tax under protest in the amount of P239,019.01 for the first quarter of
1993.
On January 20, 1994, petitioner filed a letter-protest addressed to the
respondent City Treasurer, the pertinent portion of which reads:
Please note that our Company (FPIC) is a pipeline operator
with a government concession granted under the Petroleum
Act. It is engaged in the business of transporting petroleum
products from the Batangas refineries, via pipeline, to Sucat
and JTF Pandacan Terminals. As such, our Company is
exempt from paying tax on gross receipts under Section 133 of
the Local Government Code of 1991 . . . .
Moreover, Transportation contractors are not included in the
enumeration of contractors under Section 131, Paragraph (h)
of the Local Government Code. Therefore, the authority to
impose tax "on contractors and other independent
contractors" under Section 143, Paragraph (e) of the Local
Government Code does not include the power to levy on
transportation contractors.
The imposition and assessment cannot be categorized as a
mere fee authorized under Section 147 of the Local
Government Code. The said section limits the imposition of
fees and charges on business to such amounts as may be
commensurate to the cost of regulation, inspection, and
licensing. Hence, assuming arguendo that FPIC is liable for the
license fee, the imposition thereof based on gross receipts is
violative of the aforecited provision. The amount of
P956,076.04 (P239,019.01 per quarter) is not commensurate to
8|Transportation (Carriage of goods)
the cost of regulation, inspection and licensing. The fee is
already a revenue raising measure, and not a mere regulatory
imposition.4
On March 8, 1994, the respondent 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. 5
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City
a complaint6 for tax refund with prayer for writ of preliminary injunction against
respondents City of Batangas and Adoracion Arellano in her capacity as City
Treasurer. In its complaint, petitioner alleged,  inter alia, that: (1) the imposition
and collection of the business tax on its gross receipts violates Section 133 of
the Local Government Code; (2) the authority of cities to impose and collect a
tax on the gross receipts of "contractors and independent contractors" under
Sec. 141 (e) and 151 does not include the authority to collect such taxes on
transportation contractors for, as defined under Sec. 131 (h), the term
"contractors" excludes transportation contractors; and, (3) the City Treasurer
illegally and erroneously imposed and collected the said tax, thus meriting the
immediate refund of the tax paid.7
Traversing the complaint, the respondents argued that petitioner cannot be
exempt from taxes under Section 133 (j) of the Local Government Code as said
exemption applies only to "transportation contractors and persons engaged in
the transportation by hire and common carriers by air, land and water."
Respondents assert that pipelines are not included in the term "common
carrier" which refers solely to ordinary carriers such as trucks, trains, ships
and the like. Respondents further posit that the term "common carrier" under
the said code pertains to the mode or manner by which a product is delivered
to its destination.8
On October 3, 1994, the trial court rendered a decision dismissing the
complaint, ruling in this wise:
. . . Plaintiff is either a contractor or other independent
contractor.
. . . the exemption to tax claimed by the plaintiff has become
unclear. It is a rule that tax exemptions are to be strictly
construed against the taxpayer, taxes being the lifeblood of
the government. Exemption may therefore be granted only by
clear and unequivocal provisions of law.
Plaintiff claims that it is a grantee of a pipeline concession
under Republic Act 387. (Exhibit A) whose concession was
lately renewed by the Energy Regulatory Board (Exhibit B). Yet
neither said law nor the deed of concession grant any tax
exemption upon the plaintiff.
 Even the Local Government Code imposes a tax on franchise
holders under Sec. 137 of the Local Tax Code. Such being the
situation obtained in this case (exemption being unclear and
equivocal) resort to distinctions or other considerations may
be of help:
1. That the exemption
granted under Sec. 133 (j)
encompasses only common
carriers so as not to
overburden the riding public
or commuters with
taxes. Plaintiff  is not a
common carrier, but a
special carrier extending its
services and facilities to a
single specific or "special
customer" under a "special
contract."
2. The Local Tax Code of
1992 was basically enacted
to give more and effective
local autonomy to local
governments than the
previous enactments, to
make them economically and
financially viable to serve the
people and discharge their
functions with a concomitant
obligation to accept certain
devolution of powers, . . . So,
consistent with this policy
even franchise grantees are
taxed (Sec. 137) and
contractors are also taxed
under Sec. 143 (e) and 151 of
the Code.9
Petitioner assailed the aforesaid decision before this Court via  a petition for
review. On February 27, 1995, we referred the case to the respondent Court of
Appeals for consideration and adjudication. 10 On November 29, 1995, the
respondent court rendered a decision 11 affirming the trial court's dismissal of
petitioner's complaint. Petitioner's motion for reconsideration was denied on
July 18, 1996. 12
Hence, this petition. At first, the petition was denied due course in a Resolution
dated November 11, 1996. 13 Petitioner moved for a reconsideration which was
granted by this Court in a Resolution 14 of January 22, 1997. Thus, the petition
was reinstated.
9|Transportation (Carriage of goods)
Petitioner claims that the respondent Court of Appeals erred in holding that (1)
the petitioner is not a common carrier or a transportation contractor, and (2) the
exemption sought for by petitioner is not clear under the law.
There is merit in the petition.
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.
Art. 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."
The test for determining whether a party is a common carrier of goods is:
1. 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;
2. He must undertake to
carry goods of the kind to
which his business is
confined;
3. He must undertake to
carry by the method by
which his business is
conducted and over his
established roads; and
4. The transportation must
be for hire. 15
Based on the above definitions and requirements, there is no doubt that
petitioner 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. The fact that petitioner has a limited clientele does not exclude
it from the definition of a common carrier. In De Guzman vs. Court of
Appeals  16 we ruled that:
The above article (Art. 1732, 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.
So understood, the concept of "common
carrier" under Article 1732 may be seen to
coincide neatly with the notion of "public
service," under the Public Service Act
(Commonwealth Act No. 1416, as amended)
which at least partially supplements the law
on common carriers set forth in the Civil
Code. Under Section 13, paragraph (b) of the
Public Service Act, "public service" includes:
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,
10|Transportation (Carriage of goods)
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.
(Emphasis Supplied)
Also, respondent's argument that the term "common carrier" as used in Section
133 (j) of the Local Government Code refers only to common carriers
transporting goods and passengers through moving vehicles or vessels either
by land, sea or water, is erroneous.
As correctly pointed out by petitioner, 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. 17
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is
considered a "common carrier." Thus, Article 86 thereof provides that:
Art. 86. 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 obligated 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
charge without discrimination such rates as
may have been approved by the Secretary of
Agriculture and Natural Resources.
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. (Emphasis Supplied)
The Bureau of Internal Revenue likewise considers the petitioner a "common
carrier." In BIR Ruling No. 069-83, it declared:
. . . 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.
From the foregoing disquisition, there is no doubt that petitioner is a "common
carrier" and, therefore, exempt from the business tax as provided for in Section
133 (j), of the Local Government Code, to wit:
Sec. 133. 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:
x x x           x x x          x x x
(j) Taxes on
the gross
receipts of
transportati
on
contractors
and persons
engaged in
the
transportati
on of
passengers
or freight by
hire and
common
carriers by
air, land or
water,
except as
11|Transportation (Carriage of goods)
provided in
this Code.
The deliberations conducted in the House of Representatives on the Local
Government Code of 1991 are illuminating:
MR. AQUINO (A). Thank you, Mr. Speaker.
Mr. Speaker, we would like to proceed to page
95, line
1. It states: "SEC. 121 [now Sec. 131].
Common Limitations on the Taxing Powers of
Local Government Units." . . .
MR. AQUINO (A.). Thank you Mr. Speaker.
Still on page 95, subparagraph 5, on taxes on
the business of transportation. This appears
to be one of those being deemed to be
exempted from the taxing powers of the local
government units. May we know the reason
why the transportation business is being
excluded from the taxing powers of the local
government units?
MR. JAVIER (E.). Mr. Speaker, there is an
exception contained in Section 121 (now Sec.
131), line 16, paragraph 5. It states that local
government units may not impose taxes on
the business of transportation, except as
otherwise provided in this code.
Now, Mr. Speaker, if the Gentleman would
care to go to page 98 of Book II, one can see
there that provinces have the power to
impose a tax on business enjoying a
franchise at the rate of not more than one-half
of 1 percent of the gross annual receipts. So,
transportation contractors who are enjoying a
franchise would be subject to tax by the
province. That is the exception, Mr. Speaker.
What we want to guard against here, Mr.
Speaker, is the imposition of taxes by local
government units on the carrier business.
Local government units may impose taxes on
top of what is already being imposed by the
 National Internal Revenue Code which is the
so-called "common carriers tax." We do not
want a duplication of this tax, so we just
provided for an exception under Section 125
[now Sec. 137] that a province may impose
this tax at a specific rate.
MR. AQUINO (A.). Thank you for that
clarification, Mr. Speaker. . . . 18
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the
October 9, 2002 Decision2 and the December 29, 2003 Resolution3 of the Court of
Appeals (CA) in CA-GR CV No. 66028. The challenged Decision disposed as follows:
"WHEREFORE, the appeal is GRANTED. The December 7, 1999 decision of the
Regional Trial Court of Manila, Branch 42 in Civil Case No. 92-63159 is
hereby REVERSED and SET ASIDE. [Petitioner] is ordered to pay the [herein
respondent] the value of the lost cargo in the amount of ₱565,000.00. Costs against
the [herein petitioner]."4

It is clear that the legislative intent in excluding from the taxing power of the The assailed Resolution denied reconsideration.
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 Facts

Petitioner is already paying three (3%) percent common carrier's tax on its
gross sales/earnings under the National Internal Revenue Code. 19 To tax
petitioner again on its gross receipts in its transportation of petroleum
business would defeat the purpose of the Local Government Code.
WHEREFORE, the petition is hereby GRANTED. The decision of the respondent
Court of Appeals dated November 29, 1995 in CA-G.R. SP No. 36801 is
REVERSED and SET ASIDE.
SO ORDERED.
Ilian Silica Mining entered into a contract of carriage with Lea Mer Industries, Inc., for
the shipment of 900 metric tons of silica sand valued at ₱565,000.5 Consigned to
Vulcan Industrial and Mining Corporation, the cargo was to be transported from
Palawan to Manila. On October 25, 1991, the silica sand was placed on board Judy
VII, a barge leased by Lea Mer.6 During the voyage, the vessel sank, resulting in the
loss of the cargo.7
Malayan Insurance Co., Inc., as insurer, paid Vulcan the value of the lost cargo.8 To
recover the amount paid and in the exercise of its right of subrogation, Malayan
demanded reimbursement from Lea Mer, which refused to comply. Consequently,
Malayan instituted a Complaint with the Regional Trial Court (RTC) of Manila on
September 4, 1992, for the collection of ₱565,000 representing the amount that
respondent had paid Vulcan.9

On October 7, 1999, the trial court dismissed the Complaint, upon finding that the
cause of the loss was a fortuitous event.10 The RTC noted that the vessel had sunk
G.R. No. 161745 September 30, 2005 because of the bad weather condition brought about by Typhoon Trining. The court
ruled that petitioner had no advance knowledge of the incoming typhoon, and that the
LEA MER INDUSTRIES, INC., Petitioners, vessel had been cleared by the Philippine Coast Guard to travel from Palawan to
vs. Manila.11
MALAYAN INSURANCE CO., INC.,* Respondent.
Ruling of the Court of Appeals
DECISION
Reversing the trial court, the CA held that the vessel was not seaworthy when it sailed
PANGANIBAN, J.: for Manila. Thus, the loss of the cargo was occasioned by petitioner’s fault, not by a
fortuitous event.12
ommon carriers are bound to observe extraordinary diligence in their vigilance over
the goods entrusted to them, as required by the nature of their business and for Hence, this recourse.13
reasons of public policy. Consequently, the law presumes that common carriers are at
fault or negligent for any loss or damage to the goods that they transport. In the The Issues
present case, the evidence submitted by petitioner to overcome this presumption was
sorely insufficient. Petitioner states the issues in this wise:

The Case
12|Transportation (Carriage of goods)
"A. Whether or not the survey report of the cargo surveyor, Jesus Cortez, who had
not been presented as a witness of the said report during the trial of this case before
the lower court can be admitted in evidence to prove the alleged facts cited in the said
report.
"B. Whether or not the respondent, Court of Appeals, had validly or legally reversed
the finding of fact of the Regional Trial Court which clearly and unequivocally held that
the loss of the cargo subject of this case was caused by fortuitous event for which
herein petitioner could not be held liable.
"C. Whether or not the respondent, Court of Appeals, had committed serious error
and grave abuse of discretion in disregarding the testimony of the witness from the
MARINA, Engr. Jacinto Lazo y Villegal, to the effect that the vessel ‘Judy VII’ was
seaworthy at the time of incident and further in disregarding the testimony of the
PAG-ASA weather specialist, Ms. Rosa Barba y Saliente, to the effect that typhoon
‘Trining’ did not hit Metro Manila or Palawan."14
In the main, the issues are as follows: (1) whether petitioner is liable for the loss of the
cargo, and (2) whether the survey report of Jesus Cortez is admissible in evidence.
The Court’s Ruling
The Petition has no merit.
First Issue:
Liability for Loss of Cargo
Question of Fact
The resolution of the present case hinges on whether the loss of the cargo was due to
a fortuitous event. This issue involves primarily a question of fact, notwithstanding
petitioner’s claim that it pertains only to a question of law. As a general rule, questions
of fact may not be raised in a petition for review.15 The present case serves as an
exception to this rule, because the factual findings of the appellate and the trial courts
vary.16 This Court meticulously reviewed the records, but found no reason to reverse
the CA.
Rule on Common Carriers
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 -- when this service is offered to the public for compensation.17 Petitioner is clearly
a common carrier, because it offers to the public its business of transporting goods
through its vessels.18
13|Transportation (Carriage of goods)
Thus, the Court corrects the trial court’s finding that petitioner became a private
carrier when Vulcan chartered it.19 Charter parties are classified as contracts of
demise (or bareboat) and affreightment, which are distinguished as follows:
"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, 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 at all."20
The distinction is significant, because a demise or bareboat charter indicates a
business undertaking that is private in character. 21 Consequently, the rights and
obligations of the parties to a contract of private carriage are governed principally by
their stipulations, not by the law on common carriers.22
The Contract in the present case was one of affreightment, as shown by the fact that
it was petitioner’s crew that manned the tugboat M/V Ayalit and controlled the
barge Judy VII.23 Necessarily, petitioner was a common carrier, and the pertinent law
governs the present factual circumstances.
Extraordinary Diligence Required
Common carriers are bound to observe extraordinary diligence in their vigilance over
the goods and the safety of the passengers they transport, as required by the nature
of their business and for reasons of public policy.24 Extraordinary diligence requires
rendering service with the greatest skill and foresight to avoid damage and
destruction to the goods entrusted for carriage and delivery.25
Common carriers are presumed to have been at fault or to have acted negligently for
loss or damage to the goods that they have transported.26 This presumption can be
rebutted only by proof that they observed extraordinary diligence, or that the loss or
damage was occasioned by any of the following causes:27
"(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
"(2) Act of the public enemy in war, whether international or civil;
"(3) Act or omission of the shipper or owner of the goods;
"(4) The character of the goods or defects in the packing or in the containers;
"(5) Order or act of competent public authority."28
Rule on Fortuitous Events
Article 1174 of the Civil Code provides that "no person shall be responsible for a
fortuitous event which could not be foreseen, or which, though foreseen, was
inevitable." Thus, if the loss or damage was due to such an event, a common carrier
is exempted from liability.
Jurisprudence defines the elements of a "fortuitous event" as follows: (a) the cause of
the unforeseen and unexpected occurrence, or the failure of the debtors to comply
with their obligations, must have been independent of human will; (b) the event that
constituted the caso fortuito  must have been impossible to foresee  or, if foreseeable,
impossible to avoid; (c) the occurrence must have been such as to render it
impossible for the debtors to fulfill their obligation in a normal manner; and (d) the
obligor must have been free from any participation in the aggravation of the resulting
injury to the creditor.29
To excuse the common carrier fully of any liability, the fortuitous event must have
been the proximate and only cause of the loss.30 Moreover, it should have exercised
due diligence to prevent or minimize the loss before, during and after the occurrence
of the fortuitous event.31
Loss in the Instant Case
There is no controversy regarding the loss of the cargo in the present case. As the
common carrier, petitioner bore the burden of proving that it had exercised
extraordinary diligence to avoid the loss, or that the loss had been occasioned by a
fortuitous event -- an exempting circumstance.
It was precisely this circumstance that petitioner cited to escape liability. Lea Mer
claimed that the loss of the cargo was due to the bad weather condition brought about
by Typhoon Trining.32 Evidence was presented to show that petitioner had not been
informed of the incoming typhoon, and that the Philippine Coast Guard had given it
clearance to begin the voyage.33 On October 25, 1991, the date on which the voyage
commenced and the barge sank, Typhoon Trining was allegedly far from Palawan,
where the storm warning was only "Signal No. 1."34
The evidence presented by petitioner in support of its defense of fortuitous event was
sorely insufficient. As required by the pertinent law, it was not enough for the common
carrier to show that there was an unforeseen or unexpected occurrence. It had to
show that it was free from any fault -- a fact it miserably failed to prove.
First, petitioner presented no evidence that it had attempted to minimize or prevent
the loss before, during or after the alleged fortuitous event.35 Its witness, Joey A.
Draper, testified that he could no longer remember whether anything had been done
to minimize loss when water started entering the barge.36 This fact was confirmed
during his cross-examination, as shown by the following brief exchange:
"Atty. Baldovino, Jr.:
14|Transportation (Carriage of goods)
Other than be[a]ching the barge Judy VII, were there other precautionary measure[s]
exercised by you and the crew of Judy VII so as to prevent the los[s] or sinking of
barge Judy VII?
xxxxxxxxx
Atty. Baldovino, Jr.:
Your Honor, what I am asking [relates to the] action taken by the officers and crew of
tugboat Ayalit and barge Judy VII x x x to prevent the sinking of barge Judy VII?
xxxxxxxxx
Court:
Mr. witness, did the captain of that tugboat give any instruction on how to save the
barge Judy VII?
Joey Draper:
I can no longer remember sir, because that happened [a] long time ago."37
Second, the alleged fortuitous event was not the sole and proximate cause of the
loss. There is a preponderance of evidence that the barge was not seaworthy when it
sailed for Manila.38 Respondent was able to prove that, in the hull of the barge, there
were holes that might have caused or aggravated the sinking.39 Because the
presumption of negligence or fault applied to petitioner, it was incumbent upon it to
show that there were no holes; or, if there were, that they did not aggravate the
sinking.
Petitioner offered no evidence to rebut the existence of the holes. Its witness,
Domingo A. Luna, testified that the barge was in "tip-top" or excellent condition,40 but
that he had not personally inspected it when it left Palawan.41
The submission of the Philippine Coast Guard’s Certificate of Inspection of Judy VII,
dated July 31, 1991, did not conclusively prove that the barge was seaworthy.42 The
regularity of the issuance of the Certificate is disputably presumed.43 It could be
contradicted by competent evidence, which respondent offered. Moreover, this
evidence did not necessarily take into account the actual condition of
the vessel at the time of the commencement of the voyage.44
Second Issue:
Admissibility of the Survey Report
Petitioner claims that the Survey Report45 prepared by Jesus Cortez, the cargo
surveyor, should not have been admitted in evidence. The Court partly agrees.
Because he did not testify during the trial,46 then the Report that he had prepared was
hearsay and therefore inadmissible for the purpose of proving the truth of its contents.
The Survey Report Not the Sole Evidence
The facts reveal that Cortez’s Survey Report was used in the testimonies of
respondent’s witnesses -- Charlie M. Soriano; and Federico S. Manlapig, a cargo
marine surveyor and the vice-president of Toplis and Harding Company.47 Soriano
testified that the Survey Report had been used in preparing the final Adjustment
Report conducted by their company.48 The final Report showed that the barge was
not seaworthy because of the existence of the holes. Manlapig testified that he had
prepared that Report after taking into account the findings of the surveyor, as well as
the pictures and the sketches of the place where the sinking occurred.49 Evidently, the
existence of the holes was proved by the testimonies of the witnesses, not merely by
Cortez’ Survey Report.
Rule on Independently
Relevant Statement
That witnesses must be examined and presented during the trial,50 and that their
testimonies must be confined to personal knowledge is required by the rules on
evidence, from which we quote:
"Section 36. Testimony generally confined to personal knowledge; hearsay excluded.
–A witness can testify only to those facts which he knows of his personal knowledge;
that is, which are derived from his own perception, except as otherwise provided in
these rules."51
On this basis, the trial court correctly refused to admit Jesus Cortez’s Affidavit, which
respondent had offered as evidence.52 Well-settled is the rule that, unless the affiant
is presented as a witness, an affidavit is considered hearsay.53
An exception to the foregoing rule is that on "independently relevant statements."  A
report made by a person is admissible if it is intended to prove the tenor, not the truth,
of the statements.54 Independent of the truth or the falsity of the statement given in
the report, the fact that it has been made is relevant. Here, the hearsay rule does not
apply.55
In the instant case, the challenged Survey Report prepared by Cortez was admitted
only as part of the testimonies of respondent’s witnesses. The referral to Cortez’s
Report was in relation to Manlapig’s final Adjustment Report. Evidently, it was the
existence of the Survey Report that was testified to. The admissibility of that Report
as part of the testimonies of the witnesses was correctly ruled upon by the trial court.
At any rate, even without the Survey Report, petitioner has already failed to overcome
the presumption of fault that applies to common carriers.
15|Transportation (Carriage of goods)
WHEREFORE, the Petition is DENIED and the assailed Decision and Resolution
are AFFIRMED. Costs against petitioner.
SO ORDERED.
G.R. No. 168402             August 6, 2008
ABOITIZ SHIPPING CORPORATION, petitioner,
vs.
INSURANCE COMPANY OF NORTH AMERICA, respondent.
DECISION
REYES, R.T., J.:
THE RIGHT of subrogation attaches upon payment by the insurer of the insurance
claims by the assured. As subrogee, the insurer steps into the shoes of the assured
and may exercise only those rights that the assured may have against the wrongdoer
who caused the damage.
Before Us is a petition for review on certiorari of the Decision1 of the Court of Appeals
(CA) which reversed the Decision2 of the Regional Trial Court (RTC). The CA ordered
petitioner Aboitiz Shipping Corporation to pay the sum of P280,176.92 plus interest
and attorney's fees in favor of respondent Insurance Company of North America
(ICNA).
The Facts
Culled from the records, the facts are as follows:
On June 20, 1993, MSAS Cargo International Limited and/or Associated and/or
Subsidiary Companies (MSAS) procured a marine insurance policy from respondent
ICNA UK Limited of London. The insurance was for a transshipment of certain
wooden work tools and workbenches purchased for the consignee Science Teaching
Improvement Project (STIP), Ecotech Center, Sudlon Lahug, Cebu City,
Philippines.3 ICNA issued an "all-risk" open marine policy,4 stating:
This Company, in consideration of a premium as agreed and subject to the
terms and conditions printed hereon, does insure for MSAS Cargo
International Limited &/or Associated &/or Subsidiary Companies on behalf
of the title holder: - Loss, if any, payable to the Assured or order.5
The cargo, packed inside one container van, was shipped "freight prepaid" from
Hamburg, Germany on board M/S Katsuragi. A clean bill of lading6 was issued by
Hapag-Lloyd which stated the consignee to be STIP, Ecotech Center, Sudlon Lahug,
Cebu City.
The container van was then off-loaded at Singapore and transshipped on board M/S
Vigour Singapore. On July 18, 1993, the ship arrived and docked at the Manila
International Container Port where the container van was again off-loaded. On July
26, 1993, the cargo was received by petitioner Aboitiz Shipping Corporation (Aboitiz)
through its duly authorized booking representative, Aboitiz Transport System. The bill
of lading7 issued by Aboitiz contained the notation "grounded outside warehouse."
The container van was stripped and transferred to another crate/container van without
any notation on the condition of the cargo on the Stuffing/Stripping Report.8 On
August 1, 1993, the container van was loaded on board petitioner's vessel, MV Super
Concarrier I. The vessel left Manila en route to Cebu City on August 2, 1993.
On August 3, 1993, the shipment arrived in Cebu City and discharged onto a
receiving apron of the Cebu International Port. It was then brought to the Cebu
Bonded Warehousing Corporation pending clearance from the Customs authorities.
In the Stripping Report9 dated August 5, 1993, petitioner's checker noted that the
crates were slightly broken or cracked at the bottom.
On August 11, 1993, the cargo was withdrawn by the representative of the consignee,
Science Teaching Improvement Project (STIP) and delivered to Don Bosco Technical
High School, Punta Princesa, Cebu City. It was received by Mr. Bernhard Willig. On
August 13, 1993, Mayo B. Perez, then Claims Head of petitioner, received a
telephone call from Willig informing him that the cargo sustained water damage.
Perez, upon receiving the call, immediately went to the bonded warehouse and
checked the condition of the container and other cargoes stuffed in the same
container. He found that the container van and other cargoes stuffed there were
completely dry and showed no sign of wetness.10
Perez found that except for the bottom of the crate which was slightly broken, the
crate itself appeared to be completely dry and had no water marks. But he confirmed
that the tools which were stored inside the crate were already corroded. He further
explained that the "grounded outside warehouse" notation in the bill of lading referred
only to the container van bearing the cargo.11
In a letter dated August 15, 1993, Willig informed Aboitiz of the damage noticed upon
opening of the cargo.12 The letter stated that the crate was broken at its bottom part
such that the contents were exposed. The work tools and workbenches were found to
have been completely soaked in water with most of the packing cartons already
disintegrating. The crate was properly sealed off from the inside with tarpaper sheets.
On the outside, galvanized metal bands were nailed onto all the edges. The letter
concluded that apparently, the damage was caused by water entering through the
broken parts of the crate.
The consignee contacted the Philippine office of ICNA for insurance claims. On
August 21, 1993, the Claimsmen Adjustment Corporation (CAC) conducted an ocular
inspection and survey of the damage. CAC reported to ICNA that the goods sustained
16|Transportation (Carriage of goods)
water damage, molds, and corrosion which were discovered upon delivery to
consignee.13
On September 21, 1993, the consignee filed a formal claim14 with Aboitiz in the
amount of P276,540.00 for the damaged condition of the following goods:
ten (10) wooden workbenches
three (3) carbide-tipped saw blades
one (1) set of ball-bearing guides
one (1) set of overarm router bits
twenty (20) rolls of sandpaper for stroke sander
In a Supplemental Report dated October 20, 1993,15 CAC reported to ICNA that
based on official weather report from the Philippine Atmospheric, Geophysical and
Astronomical Services Administration, it would appear that heavy rains on July 28 and
29, 1993 caused water damage to the shipment. CAC noted that the shipment was
placed outside the warehouse of Pier No. 4, North Harbor, Manila when it was
delivered on July 26, 1993. The shipment was placed outside the warehouse as can
be gleaned from the bill of lading issued by Aboitiz which contained the notation
"grounded outside warehouse." It was only on July 31, 1993 when the shipment was
stuffed inside another container van for shipment to Cebu.
Aboitiz refused to settle the claim. On October 4, 1993, ICNA paid the amount
of P280,176.92 to consignee. A subrogation receipt was duly signed by Willig. ICNA
formally advised Aboitiz of the claim and subrogation receipt executed in its favor.
Despite follow-ups, however, no reply was received from Aboitiz.
RTC Disposition
ICNA filed a civil complaint against Aboitiz for collection of actual damages in the sum
of P280,176.92, plus interest and attorney's fees.16 ICNA alleged that the damage
sustained by the shipment was exclusively and solely brought about by the fault and
negligence of Aboitiz when the shipment was left grounded outside its warehouse
prior to delivery.
Aboitiz disavowed any liability and asserted that the claim had no factual and legal
bases. It countered that the complaint stated no cause of action, plaintiff ICNA had no
personality to institute the suit, the cause of action was barred, and the suit was
premature there being no claim made upon Aboitiz.
On November 14, 2003, the RTC rendered judgment against ICNA. The dispositive
portion of the decision17 states:
 WHEREFORE, premises considered, the court holds that plaintiff is not
entitled to the relief claimed in the complaint for being baseless and without
merit. The complaint is hereby DISMISSED. The defendant's counterclaims
are, likewise, DISMISSED for lack of basis.18
The RTC ruled that ICNA failed to prove that it is the real party-in-interest to pursue
the claim against Aboitiz. The trial court noted that Marine Policy No. 87GB 4475 was
issued by ICNA UK Limited with address at Cigna House, 8 Lime Street, London
EC3M 7NA. However, complainant ICNA Phils. did not present any evidence to show
that ICNA UK is its predecessor-in-interest, or that ICNA UK assigned the insurance
policy to ICNA Phils. Moreover, ICNA Phils.' claim that it had been subrogated to the
rights of the consignee must fail because the subrogation receipt had no probative
value for being hearsay evidence. The RTC reasoned:
While it is clear that Marine Policy No. 87GB 4475 was issued by Insurance
Company of North America (U.K.) Limited (ICNA UK) with address at Cigna
House, 8 Lime Street, London EC3M 7NA, no evidence has been adduced
which would show that ICNA UK is the same as or the predecessor-in-
interest of plaintiff Insurance Company of North America ICNA with office
address at Cigna-Monarch Bldg., dela Rosa cor. Herrera Sts., Legaspi
Village, Makati, Metro Manila or that ICNA UK assigned the Marine Policy to
ICNA. Second, the assured in the Marine Policy appears to be MSAS Cargo
International Limited &/or Associated &/or Subsidiary Companies. Plaintiff's
witness, Francisco B. Francisco, claims that the signature below the name
MSAS Cargo International is an endorsement of the marine policy in favor of
Science Teaching Improvement Project. Plaintiff's witness, however, failed
to identify whose signature it was and plaintiff did not present on the witness
stand or took (sic) the deposition of the person who made that signature.
Hence, the claim that there was an endorsement of the marine policy has no
probative value as it is hearsay.
Plaintiff, further, claims that it has been subrogated to the rights and interest
of Science Teaching Improvement Project as shown by the Subrogation
Form (Exhibit "K") allegedly signed by a representative of Science Teaching
Improvement Project. Such representative, however, was not presented on
the witness stand. Hence, the Subrogation Form is self-serving and has no
probative value.19 (Emphasis supplied)
The trial court also found that ICNA failed to produce evidence that it was a foreign
corporation duly licensed to do business in the Philippines. Thus, it lacked the
capacity to sue before Philippine Courts, to wit:
Prescinding from the foregoing, plaintiff alleged in its complaint that it is
a foreign insurance company duly authorized to do business in the
Philippines. This allegation was, however, denied by the defendant. In fact,
in the Pre-Trial Order of 12 March 1996, one of the issues defined by the
court is whether or not the plaintiff has legal capacity to sue and be
sued. Under Philippine law, the condition is that a foreign insurance
company must obtain licenses/authority to do business in the Philippines.
These licenses/authority are obtained from the Securities and Exchange
17|Transportation (Carriage of goods)
Commission, the Board of Investments and the Insurance Commission. If it
fails to obtain these licenses/authority, such foreign corporation doing
business in the Philippines cannot sue before Philippine courts.
Mentholatum Co., Inc. v. Mangaliman, 72 Phil. 524. (Emphasis supplied)
CA Disposition
ICNA appealed to the CA. It contended that the trial court failed to consider that its
cause of action is anchored on the right of subrogation under Article 2207 of the Civil
Code. ICNA said it is one and the same as the ICNA UK Limited as made known in
the dorsal portion of the Open Policy.20
On the other hand, Aboitiz reiterated that ICNA lacked a cause of action. It argued
that the formal claim was not filed within the period required under Article 366 of the
Code of Commerce; that ICNA had no right of subrogation because the subrogation
receipt should have been signed by MSAS, the assured in the open policy, and not
Willig, who is merely the representative of the consignee.
On March 29, 2005, the CA reversed and set aside the RTC ruling, disposing as
follows:
WHEREFORE, premises considered, the present appeal is hereby
GRANTED. The appealed decision of the Regional Trial Court of Makati City
in Civil Case No. 94-1590 is hereby REVERSED and SET ASIDE. A new
judgment is hereby rendered ordering defendant-appellee Aboitiz Shipping
Corporation to pay the plaintiff-appellant Insurance Company of North
America the sum of P280,176.92 with interest thereon at the legal rate from
the date of the institution of this case until fully paid, and attorney's fees in
the sum of P50,000, plus the costs of suit.21
The CA opined that the right of subrogation accrues simply upon payment by the
insurance company of the insurance claim. As subrogee, ICNA is entitled to
reimbursement from Aboitiz, even assuming that it is an unlicensed foreign
corporation. The CA ruled:
At any rate, We find the ground invoked for the dismissal of the complaint as
legally untenable. Even assuming arguendo that the plaintiff-insurer in this
case is an unlicensed foreign corporation, such circumstance will not bar it
from claiming reimbursement from the defendant carrier by virtue of
subrogation under the contract of insurance and as recognized by Philippine
courts. x x x
xxxx
Plaintiff insurer, whether the foreign company or its duly authorized
Agent/Representative in the country, as subrogee of the claim of the insured
under the subject marine policy, is therefore the real party in interest to bring
 this suit and recover the full amount of loss of the subject cargo shipped by it
from Manila to the consignee in Cebu City. x x x22
The CA ruled that the presumption that the carrier was at fault or that it acted
negligently was not overcome by any countervailing evidence. Hence, the trial court
erred in dismissing the complaint and in not finding that based on the evidence on
record and relevant provisions of law, Aboitiz is liable for the loss or damage
sustained by the subject cargo.
Issues
The following issues are up for Our consideration:
(1) THE HONORABLE COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR IN RULING THAT ICNA HAS A CAUSE OF ACTION
AGAINST ABOITIZ BY VIRTUE OF THE RIGHT OF SUBROGATION BUT
WITHOUT CONSIDERING THE ISSUE CONSISTENTLY RAISED BY
ABOITIZ THAT THE FORMAL CLAIM OF STIP WAS NOT MADE WITHIN
THE PERIOD PRESCRIBED BY ARTICLE 366 OF THE CODE OF
COMMERCE; AND, MORE SO, THAT THE CLAIM WAS MADE BY A
WRONG CLAIMANT.
(2) THE HONORABLE COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR IN RULING THAT THE SUIT FOR
REIMBURSEMENT AGAINST ABOITIZ WAS PROPERLY FILED BY ICNA
AS THE LATTER WAS AN AUTHORIZED AGENT OF THE INSURANCE
COMPANY OF NORTH AMERICA (U.K.) ("ICNA UK").
(3) THE HONORABLE COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR IN RULING THAT THERE WAS PROPER
INDORSEMENT OF THE INSURANCE POLICY FROM THE ORIGINAL
ASSURED MSAS CARGO INTERNATIONAL LIMITED ("MSAS") IN FAVOR
OF THE CONSIGNEE STIP, AND THAT THE SUBROGATION RECEIPT
ISSUED BY STIP IN FAVOR OF ICNA IS VALID NOTWITHSTANDING THE
FACT THAT IT HAS NO PROBATIVE VALUE AND IS MERELY HEARSAY
AND A SELF-SERVING DOCUMENT FOR FAILURE OF ICNA TO
PRESENT A REPRESENTATIVE OF STIP TO IDENTIFY AND
AUTHENTICATE THE SAME.
(4) THE HONORABLE COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR IN RULING THAT THE EXTENT AND KIND OF
DAMAGE SUSTAINED BY THE SUBJECT CARGO WAS CAUSED BY THE
FAULT OR NEGLIGENCE OF ABOITIZ.23 (Underscoring supplied)
Elsewise stated, the controversy rotates on three (3) central questions: (a) Is
respondent ICNA the real party-in-interest that possesses the right of subrogation to
claim reimbursement from petitioner Aboitiz? (b) Was there a timely filing of the notice
of claim as required under Article 366 of the Code of Commerce? (c) If so, can
petitioner be held liable on the claim for damages?
18|Transportation (Carriage of goods)
Our Ruling
We answer the triple questions in the affirmative.
A foreign corporation not licensed to do business in the Philippines is not
absolutely incapacitated from filing a suit in local courts. Only when that foreign
corporation is "transacting" or "doing business" in the country will a license be
necessary before it can institute suits.24 It may, however, bring suits on isolated
business transactions, which is not prohibited under Philippine law.25 Thus, this Court
has held that a foreign insurance company may sue in Philippine courts upon the
marine insurance policies issued by it abroad to cover international-bound cargoes
shipped by a Philippine carrier, even if it has no license to do business in this country.
It is the act of engaging in business without the prescribed license, and not the lack of
license per se, which bars a foreign corporation from access to our courts.26
In any case, We uphold the CA observation that while it was the ICNA UK Limited
which issued the subject marine policy, the present suit was filed by the said
company's authorized agent in Manila. It was the domestic corporation that brought
the suit and not the foreign company. Its authority is expressly provided for in the
open policy which includes the ICNA office in the Philippines as one of the foreign
company's agents.
As found by the CA, the RTC erred when it ruled that there was no proper
indorsement of the insurance policy by MSAS, the shipper, in favor of STIP of Don
Bosco Technical High School, the consignee.
The terms of the Open Policy authorize the filing of any claim on the insured goods, to
be brought against ICNA UK, the company who issued the insurance, or against any
of its listed agents worldwide.27 MSAS accepted said provision when it signed and
accepted the policy. The acceptance operated as an acceptance of the authority of
the agents. Hence, a formal indorsement of the policy to the agent in the Philippines
was unnecessary for the latter to exercise the rights of the insurer.
Likewise, the Open Policy expressly provides that:
The Company, in consideration of a premium as agreed and subject to the
terms and conditions printed hereon, does insure MSAS Cargo International
Limited &/or Associates &/or Subsidiary Companies in behalf of the title
holder: - Loss, if any, payable to the Assured or Order.
The policy benefits any subsequent assignee, or holder, including the consignee, who
may file claims on behalf of the assured. This is in keeping with Section 57 of the
Insurance Code which states:
A policy may be so framed that it will inure to the benefit of whosoever,
during the continuance of the risk, may become the owner of the interest
insured. (Emphasis added)
Respondent's cause of action is founded on it being subrogated to the rights of
the consignee of the damaged shipment. The right of subrogation springs from
Article 2207 of the Civil Code, which states:
Article 2207. 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. (Emphasis
added)
As this Court held in the case of Pan Malayan Insurance Corporation v. Court of
Appeals,28 payment by the insurer to the assured operates as an equitable
assignment of all remedies the assured may have against the third party who caused
the damage. Subrogation 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 of
the insurance claim by the insurer.29
Upon payment to the consignee of indemnity for damage to the insured goods,
ICNA's entitlement to subrogation equipped it with a cause of action against petitioner
in case of a contractual breach or negligence.30 This right of subrogation, however,
has its limitations. First, both the insurer and the consignee are bound by the
contractual stipulations under the bill of lading.31 Second, the insurer can be
subrogated only to the rights as the insured may have against the wrongdoer. If by its
own acts after receiving payment from the insurer, the insured releases the
wrongdoer who caused the loss from liability, the insurer loses its claim against the
latter.32
The giving of notice of loss or injury is a condition precedent to the action for
loss or injury or the right to enforce the carrier's liability. Circumstances
peculiar to this case lead Us to conclude that the notice requirement was
complied with. As held in the case of Philippine American General Insurance Co.,
Inc. v. Sweet Lines, Inc.,33 this notice requirement protects the carrier by affording it
an opportunity to make an investigation of the claim while the matter is still fresh and
easily investigated. It is meant to safeguard the carrier from false and fraudulent
claims.
Under the Code of Commerce, the notice of claim must be made within twenty four
(24) hours from receipt of the cargo if the damage is not apparent from the outside of
the package. For damages that are visible from the outside of the package, the claim
must be made immediately. The law provides:
Article 366. Within twenty four hours following the receipt of the
merchandise, the claim against the carrier for damages or average which
may be found therein upon opening the packages, may be made, provided
that the indications of the damage or average which give rise to the claim
cannot be ascertained from the outside part of such packages, in which
case the claim shall be admitted only at the time of receipt.
19|Transportation (Carriage of goods)
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. (Emphasis
supplied)
The periods above, as well as the manner of giving notice may be modified in the
terms of the bill of lading, which is the contract between the parties. Notably, neither
of the parties in this case presented the terms for giving notices of claim under the bill
of lading issued by petitioner for the goods.
The shipment was delivered on August 11, 1993. Although the letter informing the
carrier of the damage was dated August 15, 1993, that letter, together with the notice
of claim, was received by petitioner only on September 21, 1993. But petitioner
admits that even before it received the written notice of claim, Mr. Mayo B. Perez,
Claims Head of the company, was informed by telephone sometime in August 13,
1993. Mr. Perez then immediately went to the warehouse and to the delivery site to
inspect the goods in behalf of petitioner.34
In the case of Philippine Charter Insurance Corporation (PCIC) v. Chemoil Lighterage
Corporation,35 the notice was allegedly made by the consignee through telephone.
The claim for damages was denied. This Court ruled that such a notice did not
comply with the notice requirement under the law. There was no evidence presented
that the notice was timely given. Neither was there evidence presented that the notice
was relayed to the responsible authority of the carrier.
As adverted to earlier, there are peculiar circumstances in the instant case that
constrain Us to rule differently from the PCIC case, albeit this ruling is being
made pro hac vice, not to be made a precedent for other cases.
Stipulations requiring notice of loss or claim for damage as a condition precedent to
the right of recovery from a carrier must be given a reasonable and practical
construction, adapted to the circumstances of the case under adjudication, and their
application is limited to cases falling fairly within their object and purpose.36
Bernhard Willig, the representative of consignee who received the shipment, relayed
the information that the delivered goods were discovered to have sustained water
damage to no less than the Claims Head of petitioner, Mayo B. Perez. Immediately,
Perez was able to investigate the claims himself and he confirmed that the goods
were, indeed, already corroded.
Provisions specifying a time to give notice of damage to common carriers are
ordinarily to be given a reasonable and practical, rather than a strict
construction.37 We give due consideration to the fact that the final destination of the
damaged cargo was a school institution where authorities are bound by rules and
regulations governing their actions. Understandably, when the goods were delivered,
the necessary clearance had to be made before the package was opened. Upon
opening and discovery of the damaged condition of the goods, a report to this effect
had to pass through the proper channels before it could be finalized and endorsed by
the institution to the claims department of the shipping company.
The call to petitioner was made two days from delivery, a reasonable period
considering that the goods could not have corroded instantly overnight such that it
could only have sustained the damage during transit. Moreover, petitioner was able to
immediately inspect the damage while the matter was still fresh. In so doing, the main
objective of the prescribed time period was fulfilled. Thus, there was substantial
compliance with the notice requirement in this case.
To recapitulate, We have found that respondent, as subrogee of the consignee, is the
real party in interest to institute the claim for damages against petitioner; and pro hac
vice, that a valid notice of claim was made by respondent.
We now discuss petitioner's liability for the damages sustained by the shipment. The
rule as stated in Article 1735 of the Civil Code is that in cases where 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 required by law.38 Extraordinary diligence is that extreme
measure of care and caution which persons of unusual prudence and circumspection
use for securing and preserving their own property rights.39 This standard is intended
to grant favor to the shipper who is at the mercy of the common carrier once the
goods have been entrusted to the latter for shipment.40
Here, the shipment delivered to the consignee sustained water damage. We agree
with the findings of the CA that petitioner failed to overturn this presumption:
x x x upon delivery of the cargo to the consignee Don Bosco Technical High
School by a representative from Trabajo Arrastre, and the crates opened, it
was discovered that the workbenches and work tools suffered damage due
to "wettage" although by then they were already physically dry. Appellee
carrier having failed to discharge the burden of proving that it exercised
extraordinary diligence in the vigilance over such goods it contracted for
carriage, the presumption of fault or negligence on its part from the time the
goods were unconditionally placed in its possession (July 26, 1993) up to
the time the same were delivered to the consignee (August 11, 1993),
therefore stands. The presumption that the carrier was at fault or that it acted
negligently was not overcome by any countervailing evidence. x x
x41 (Emphasis added)
The shipment arrived in the port of Manila and was received by petitioner for carriage
on July 26, 1993. On the same day, it was stripped from the container van. Five days
later, on July 31, 1993, it was re-stuffed inside another container van. On August 1,
1993, it was loaded onto another vessel bound for Cebu. During the period between
July 26 to 31, 1993, the shipment was outside a container van and kept in storage by
petitioner.
The bill of lading issued by petitioner on July 31, 1993 contains the notation
"grounded outside warehouse," suggesting that from July 26 to 31, the goods were
kept outside the warehouse. And since evidence showed that rain fell over Manila
during the same period, We can conclude that this was when the shipment sustained
water damage.
20|Transportation (Carriage of goods)
To prove the exercise of extraordinary diligence, petitioner must do more than merely
show the possibility that some other party could be responsible for the damage. It
must prove that it used "all reasonable means to ascertain the nature and
characteristic of the goods tendered for transport and that it exercised due care in
handling them.42 Extraordinary diligence must include safeguarding the shipment from
damage coming from natural elements such as rainfall.
Aside from denying that the "grounded outside warehouse" notation referred not to
the crate for shipment but only to the carrier van, petitioner failed to mention where
exactly the goods were stored during the period in question. It failed to show that the
crate was properly stored indoors during the time when it exercised custody before
shipment to Cebu. As amply explained by the CA:
On the other hand, the supplemental report submitted by the surveyor has
confirmed that it was rainwater that seeped into the cargo based on official
data from the PAGASA that there was, indeed, rainfall in the Port Area of
Manila from July 26 to 31, 1993. The Surveyor specifically noted that the
subject cargo was under the custody of appellee carrier from the time it was
delivered by the shipper on July 26, 1993 until it was stuffed inside Container
No. ACCU-213798-4 on July 31, 1993. No other inevitable conclusion can
be deduced from the foregoing established facts that damage from
"wettage" suffered by the subject cargo was caused by the negligence of
appellee carrier in grounding the shipment outside causing rainwater to seep
into the cargoes.
Appellee's witness, Mr. Mayo tried to disavow any responsibility for causing
"wettage" to the subject goods by claiming that the notation "GROUNDED
OUTSIDE WHSE." actually refers to the container and not the contents
thereof or the cargoes. And yet it presented no evidence to explain where
did they place or store the subject goods from the time it accepted the same
for shipment on July 26, 1993 up to the time the goods were stripped or
transferred from the container van to another container and loaded into the
vessel M/V Supercon Carrier I on August 1, 1993 and left Manila for Cebu
City on August 2, 1993. x x x If the subject cargo was not grounded outside
prior to shipment to Cebu City, appellee provided no explanation as to where
said cargo was stored from July 26, 1993 to July 31, 1993. What the records
showed is that the subject cargo was stripped from the container van of the
shipper and transferred to the container on August 1, 1993 and finally loaded
into the appellee's vessel bound for Cebu City on August 2, 1993. The
Stuffing/Stripping Report (Exhibit "D") at the Manila port did not indicate any
such defect or damage, but when the container was stripped upon arrival in
Cebu City port after being discharged from appellee's vessel, it was noted
that only one (1) slab was slightly broken at the bottom allegedly hit by a
forklift blade (Exhibit "F").43 (Emphasis added)
Petitioner is thus liable for the water damage sustained by the goods due to its failure
to satisfactorily prove that it exercised the extraordinary diligence required of common
carriers.
WHEREFORE, the petition is DENIED and the appealed Decision AFFIRMED.
SO ORDERED.
[G.R. NO. 165647 : March 26, 2009]
PHILIPPINES FIRST INSURANCE CO., INC., Petitioner, v. WALLEM PHILS.
SHIPPING, INC., UNKNOWN OWNER AND/OR UNKNOWN CHARTERER OF THE
VESSEL M/S "OFFSHORE MASTER" AND "SHANGHAI FAREAST SHIP
BUSINESS COMPANY," Respondents.
DECISION
TINGA, J.:
Before us is a Rule 45 petition1 which seeks the reversal of the Decision2 and
Resolution3 of the Court of Appeals in CA-G.R. No. 61885. The Court of Appeals
reversed the Decision4 of the Regional Trial Court (RTC) of Manila, Branch 55 in Civil
Case No. 96-80298, dismissing the complaint for sum of money.
The facts of the case follow.5
On or about 2 October 1995, Anhui Chemicals Import & Export Corporation loaded on
board M/S Offshore Master a shipment consisting of 10,000 bags of sodium sulphate
anhydrous 99 PCT Min. (shipment), complete and in good order for transportation to
and delivery at the port of Manila for consignee, L.G. Atkimson Import-Export, Inc.
(consignee), covered by a Clean Bill of Lading. The Bill of Lading reflects the gross
weight of the total cargo at 500,200 kilograms.6 The Owner and/or Charterer of M/V
Offshore Master is unknown while the shipper of the shipment is Shanghai Fareast
Ship Business Company. Both are foreign firms doing business in the Philippines,
thru its local ship agent, respondent Wallem Philippines Shipping, Inc. (Wallem).7
On or about 16 October 1995, the shipment arrived at the port of Manila on board the
vessel M/S Offshore Master from which it was subsequently discharged. It was
disclosed during the discharge of the shipment from the carrier that 2,426 poly bags
(bags) were in bad order and condition, having sustained various degrees of spillages
and losses. This is evidenced by the Turn Over Survey of Bad Order Cargoes (turn-
over survey) of the arrastre operator, Asian Terminals, Inc. (arrastre operator).8 The
bad state of the bags is also evinced by the arrastre operator's Request for Bad Order
Survey.9
Asia Star Freight Services, Inc. undertook the delivery of the subject shipment from
the pier to the consignee's warehouse in Quezon City,10 while the final inspection was
conducted jointly by the consignee's representative and the cargo surveyor. During
the unloading, it was found and noted that the bags had been discharged in damaged
and bad order condition. Upon inspection, it was discovered that 63,065.00 kilograms
21|Transportation (Carriage of goods)
of the shipment had sustained unrecovered spillages, while 58,235.00 kilograms had
been exposed and contaminated, resulting in losses due to depreciation and
downgrading.11
On 29 April 1996, the consignee filed a formal claim with Wallem for the value of the
damaged shipment, to no avail. Since the shipment was insured with petitioner
Philippines First Insurance Co., Inc. against all risks in the amount
of P2,470,213.50,12 the consignee filed a formal claim13 with petitioner for the damage
and losses sustained by the shipment. After evaluating the invoices, the turn-over
survey, the bad order certificate and other documents,14 petitioner found the claim to
be in order and compensable under the marine insurance policy. Consequently,
petitioner paid the consignee the sum of P397,879.69 and the latter signed a
subrogation receipt.
Petitioner, in the exercise of its right of subrogation, sent a demand letter to Wallem
for the recovery of the amount paid by petitioner to the consignee. However, despite
receipt of the letter, Wallem did not settle nor even send a response to petitioner's
claim.15
Consequently, petitioner instituted an action before the RTC for damages against
respondents for the recovery of P397,879.69 representing the actual damages
suffered by petitioner plus legal interest thereon computed from the time of the filing
of the complaint until fully paid and attorney's fees equivalent to 25% of the principal
claim plus costs of suit.
In a decision16 dated 3 November 1998, the RTC ordered respondents to pay
petitioner P397,879.69 with 6% interest plus attorney's fees and costs of the suit. It
attributed the damage and losses sustained by the shipment to the arrastre operator's
mishandling in the discharge of the shipment. Citing Eastern Shipping Lines, Inc. v.
Court of Appeals,17 the RTC held the shipping company and the arrastre operator
solidarily liable since both the arrastre operator and the carrier are charged with and
obligated to deliver the goods in good order condition to the consignee. It also ruled
that the ship functioned as a common carrier and was obliged to observe the degree
of care required of a common carrier in handling cargoes. Further, it held that a notice
of loss or damage in writing is not required in this case because said goods already
underwent a joint inspection or survey at the time of receipt thereof by the consignee,
which dispensed with the notice requirement.
The Court of Appeals reversed and set aside the RTC's decision.18 According to the
appellate court, there is no solidary liability between the carrier and the arrastre
operator because it was clearly established by the court a quo that the damage and
losses of the shipment were attributed to the mishandling by the arrastre operator in
the discharge of the shipment. The appellate court ruled that the instant case falls
under an exception recognized in Eastern
Shipping Lines.19 Hence, the arrastre operator was held solely liable to the consignee.
Petitioner raises the following issues:
1. Whether or not the Court of Appeals erred in not holding that as a common carrier,
the carrier's duties extend to the obligation to safely discharge the cargo from the
vessel;
2. Whether or not the carrier should be held liable for the cost of the damaged
shipment;
3. Whether or not Wallem's failure to answer the extra judicial demand by petitioner
for the cost of the lost/damaged shipment is an implied admission of the former's
liability for said goods;
4. Whether or not the courts below erred in giving credence to the testimony of Mr.
Talens.
It is beyond question that respondent's vessel is a common carrier.20 Thus, the
standards for determining the existence or absence of the respondent's liability will be
gauged on the degree of diligence required of a common carrier. Moreover, as the
shipment was an exercise of international trade, the provisions of the Carriage of
Goods
by Sea Act21 (COGSA), together with the Civil Code and the Code of Commerce,
shall apply.22
The first and second issues raised in the petition will be resolved concurrently since
they are interrelated.
It is undisputed that the shipment was damaged prior to its receipt by the insured
consignee. The damage to the shipment was documented by the turn-over
survey23 and Request for Bad Order Survey.24 The turn-over survey, in particular,
expressly stipulates that 2,426 bags of the shipment were received by the arrastre
operator in damaged condition. With these documents, petitioner insists that the
shipment incurred damage or losses while still in the care and responsibility of
Wallem and before it was turned over and delivered to the arrastre operator.
The trial court, however, found through the testimony of Mr. Maximino Velasquez
Talens, a cargo surveyor of Oceanica Cargo Marine Surveyors Corporation, that the
losses and damage to the cargo were caused by the mishandling of the arrastre
operator. Specifically, that the torn cargo bags resulted from the use of steel
hooks/spikes in piling the cargo bags to the pallet board and in pushing the bags by
the stevedores of the arrastre operator to the tug boats then to the ports.25 The
appellate court affirmed the finding of mishandling in the discharge of cargo and it
served as its basis for exculpating respondents from liability, rationalizing that with the
fault of the arrastre operator in the unloading of the cargo established it should bear
sole liability for the cost of the damaged/lost cargo.
While it is established that damage or losses were incurred by the
shipment during the unloading, it is disputed who should be liable for the damage
22|Transportation (Carriage of goods)
incurred at that point of transport. To address this issue, the pertinent laws and
jurisprudence are examined.
Common carriers, from the nature of their business and for reasons of public policy,
are bound to observe extraordinary diligence in the vigilance over the goods
transported by them.26 Subject to certain exceptions enumerated under Article
173427 of the Civil Code, common carriers are responsible for the loss, destruction, or
deterioration of the goods. The extraordinary responsibility of the common carrier
lasts from the time the goods are unconditionally placed in the possession of, and
received by the carrier for transportation until the same are delivered, actually or
constructively, by the carrier to the consignee, or to the person who has a right to
receive them.28
For marine vessels, Article 619 of the Code of Commerce provides that the ship
captain is liable for the cargo from the time it is turned over to him at the dock or
afloat alongside the vessel at the port of loading, until he delivers it on the shore or on
the discharging wharf at the port of unloading, unless agreed otherwise. In Standard
Oil Co. of New York v. Lopez Castelo,29 the Court interpreted the ship captain's
liability as ultimately that of the shipowner by regarding the captain as the
representative of the ship owner.
Lastly, Section 2 of the COGSA provides that under every contract of carriage of
goods by sea, the carrier in relation to the loading, handling, stowage, carriage,
custody, care, and discharge of such goods, shall be subject to the responsibilities
and liabilities and entitled to the rights and immunities set forth in the Act.30 Section 3
(2) thereof then states that among the carriers' responsibilities are to properly and
carefully load, handle, stow, carry, keep, care for, and discharge the goods carried.
The above doctrines are in fact expressly incorporated in the bill of lading between
the shipper Shanghai Fareast Business Co., and the consignee, to wit:
4. PERIOD OF RESPONSIBILITY. The responsibility of the carrier shall commence
from the time when the goods are loaded on board the vessel and shall cease when
they are discharged from the vessel.
The Carrier shall not be liable of loss of or damage to the goods before loading and
after discharging from the vessel, howsoever such loss or damage arises.31
On the other hand, the functions of an arrastre operator involve the handling of cargo
deposited on the wharf or between the establishment of the consignee or shipper and
the ship's tackle.32 Being the custodian of the goods discharged from a vessel, an
arrastre operator's duty is to take good care of the goods and to turn them over to the
party entitled to their possession.33
Handling cargo is mainly the arrastre operator's principal work so its drivers/operators
or employees should observe the standards and measures necessary to prevent
losses and damage to shipments under its custody.34
In Fireman's Fund Insurance Co. v. Metro Port Service, Inc.35 the Court explained the A Yes, sir.
relationship and responsibility of an arrastre operator to a consignee of a cargo, to
quote: Q And, who hired the services of the stevedores?cralawred

The legal relationship between the consignee and the arrastre operator is akin to that A The checker of the vessel of Wallem, sir.41
of a depositor and warehouseman. The relationship between the consignee and the
common carrier is similar to that of the consignee and the arrastre operator. Since it is
the duty of the ARRASTRE to take good care of the goods that are in its custody and xxx
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 Q Mr. Witness, during the discharging operation of this cargo, where was the master
with and obligated to deliver the goods in good condition to the consignee.(Emphasis of the vessel?cralawred
supplied) (Citations omitted) chanroblesvirtuallawlibrary
A On board the vessel, supervising, sir.
The liability of the arrastre operator was reiterated in Eastern Shipping Lines, Inc. v.
Court of Appeals36 with the clarification that the arrastre operator and the carrier are Q And, observed the discharging operation?cralawred
not always and necessarily solidarily liable as the facts of a case may vary the rule.

A Yes, sir.
Thus, in this case the appellate court is correct insofar as it ruled that an arrastre
operator and a carrier may not be held solidarily liable at all times. But the precise
question is which entity had custody of the shipment during its unloading from the Q And, what did the master of the vessel do when the cargo was being unloaded from
vessel?cralawred the vessel?cralawred

The aforementioned Section 3(2) of the COGSA states that among the carriers' A He would report to the head checker, sir.
responsibilities are to properly and carefully load, care for and discharge the goods
carried. The bill of lading covering the subject shipment likewise stipulates that the Q He did not send the stevedores to what manner in the discharging of the cargo
carrier's liability for loss or damage to the goods ceases after its discharge from the from the vessel?cralawred
vessel. Article 619 of the Code of Commerce holds a ship captain liable for the cargo
from the time it is turned over to him until its delivery at the port of unloading.
A And head checker po and siyang nagpapatakbo ng trabaho sa loob ng barko, sir.42

In a case decided by a U.S. Circuit Court, Nichimen Company v. M./V. Farland,37 it

xxx
was ruled that like the duty of seaworthiness, the duty of care of the cargo is non-
delegable,38 and the carrier is accordingly responsible for the acts of the master, the
crew, the stevedore, and his other agents. It has also been held that it is ordinarily the Q Is he [the head checker] an employee of the company?cralawred
duty of the master of a vessel to unload the cargo and place it in readiness for
delivery to the consignee, and there is an implied obligation that this shall be A He is a contractor/checker of Wallem Philippines, sir.43
accomplished with sound machinery, competent hands, and in such manner that no
unnecessary injury shall be done thereto.39 And the fact that a consignee is required
Moreover, the liability of Wallem is highlighted by Mr. Talen's notes in the Bad Order
to furnish persons to assist in unloading a shipment may not relieve the carrier of its
Inspection, to wit:
duty as to such unloading.40

"The bad order torn bags, was due to stevedores['] utilizing steel hooks/spikes in
The exercise of the carrier's custody and responsibility over the subject shipment
piling the cargo to [the] pallet board at the vessel's cargo holds and at the pier
during the unloading actually transpired in the instant case during the unloading of the
designated area before and after discharged that cause the bags to torn
shipment as testified by Mr. Talens, the cargo surveyor, to quote:
[sic]."44 (Emphasis supplied)cralawlibrary

Atty. Repol:
The records are replete with evidence which show that the damage to the bags
happened before and after their discharge45 and it was caused by the stevedores of
- Do you agree with me that Wallem Philippines is a shipping [company]?cralawred the arrastre operator who were then under the supervision of Wallem.ςηαñrοblεš
νιr†υαl lαω lιbrαrÿ

23|Transportation (Carriage of goods)

It is settled in maritime law jurisprudence that cargoes while being unloaded generally
remain under the custody of the carrier. In the instant case, the damage or losses
were incurred during the discharge of the shipment while under the supervision of the
carrier. Consequently, the carrier is liable for the damage or losses caused to the
shipment. As the cost of the actual damage to the subject shipment has long been
settled, the trial court's finding of actual damages in the amount of P397,879.69 has
to be sustained.
On the credibility of Mr. Talens which is the fourth issue, the general rule in assessing
credibility of witnesses is well-settled:
x x x the trial court's evaluation as to the credibility of witnesses is viewed as correct
and entitled to the highest respect because it is more competent to so conclude,
having had the opportunity to observe the witnesses' demeanor and deportment on
the stand, and the manner in which they gave their testimonies. The trial judge
therefore can better determine if such witnesses were telling the truth, being in the
ideal position to weigh conflicting testimonies. Therefore, unless the trial judge plainly
overlooked certain facts of substance and value which, if considered, might affect the
result of the case, his assessment on credibility must be respected.46
Contrary to petitioner's stance on the third issue, Wallem's failure to respond to its
demand letter does not constitute an implied admission of liability. To borrow the
words of Mr. Justice Oliver Wendell Holmes, thus:
A man cannot make evidence for himself by writing a letter containing the statements
that he wishes to prove. He does not make the letter evidence by sending it to the
party against whom he wishes to prove the facts [stated therein]. He no more can
impose a duty to answer a charge than he can impose a duty to pay by sending
goods. Therefore a failure to answer such adverse assertions in the absence of
further circumstances making an answer requisite or natural has no effect as an
admission.47
With respect to the attorney's fees, it is evident that petitioner was compelled to
litigate this matter to protect its interest. The RTC's award of P20,000.00 as attorney's
fees is reasonable.
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals dated
22 June 2004 and its Resolution dated 11 October 2004 are REVERSED and SET
ASIDE. Wallem is ordered to pay petitioner the sum of P397,879.69, with interest
thereon at 6% per annum from the filing of the complaint on 7 October 1996 until the
judgment becomes final and executory. Thereafter, an interest rate of 12% per annum
shall be imposed.48 Respondents are also ordered to pay petitioner the amount
of P20,000.00 for and as attorney's fees, together with the costs of the suit.
SO ORDERED.
24|Transportation (Carriage of goods)
[G.R. No. 97412. July 12, 1994.]
EASTERN SHIPPING INES, INC., Petitioner, v. HON. COURT OF APPEALS AND
MERCANTILE INSURANCE COMPANY, INC., Respondents.
1. CIVIL LAW; COMMON CARRIERS; TIME FRAME WITHIN WHICH DILIGNCE
REQUIRED IN SHIPMENT OF GOODS LAST. — 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 v. Court of Appeals, 161 SCRA 646; Kui Bai v. Dollar
Steamship Lines, 52 Phil. 863).
2. ID.; ID.; ID.; PRESUMPTION OF CARRIER’S FAULT ON LOST OR DAMAGED
GOODS SHIPPED; CASE AT BAR NOT AN EXCEPTION. — 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 v. Court of Appeals, 139 SCRA 87; Metro Port Service v. 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 of the Civil Code,
are exclusive, not one of which can be applied to this case.
3. ID.; DAMAGES; INTEREST AWARDED AS A CONCEPT THEREOF; RATE AND
ACCRUAL THEREOF, HOW DETERMINED. — 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 (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 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.
DECISION
VITUG, J.:
The issues, albeit not completely novel, are: (a) whether or not a claim for damage
sustained on a shipment of goods can be a solidary, or joint and several, liability of
the common carrier, the arrastre operator and the customs broker; (b) whether the
payment of legal interest on an award of loss or damage is to be computed from the
time the complaint is filed or from the date the decision appealed from is rendered;
and (c) whether the applicable rate of interest, referred to above, is twelve percent
(12%) or six percent (6%).
The findings of the court a quo, adopted by the Court of Appeals, on the antecedent
and undisputed facts that have led to the controversy are hereunder reproduced:
"This is an action against defendants shipping company, arrastre operator and
broker-forwarded for damages sustained by a shipment while in defendants’ custody,
filed by the insurer-subrogee who paid the consignee the value of such
losses/damages.
"On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama,
Japan for delivery vessel `SS EASTERN COMET’ owned by defendant Eastern
Shipping Lines under Bill of Lading No. YMA-8 (Exh. B). The shipment was insured
under plaintiff’s Marine Insurance Policy No. 81/01177 for P36,382,466.38.
"Upon arrival of the shipment in Manila on December 12, 1981, it was discharged
unto the custody of defendant Metro Port Services, Inc. The latter excepted to one
drum, said to be in bad order, which damage was unknown to plaintiff.
"On January 7, 1982 defendant Allied Brokerage Corporation received the shipment
from defendant Metro Port Service, Inc., one drum opened and without seal (per
‘Request for Bad Order Survey.’ (Exh. D).
"On January 8 and 14, 1982, defendant Allied Brokerage Corporation 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 (per ‘Bad
Order Waybill’ No. 10649, Exh. E).
"Plaintiff contended that due to the losses/damage sustained by said drum, the
consignee suffered losses totaling P19,032.95, due to the fault and negligence of
25|Transportation (Carriage of goods)
defendants. Claims were presented against defendants who failed and refused to pay
the same (Exhs. H, I, J, K, L).
"As a consequence of the losses sustained, plaintiff 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 defendants
(per ‘Form of Subrogation,’ ‘Release’ and Philbanking check, Exhs. M, N, and O)."
(pp. 85-86, Rollo.)
There were, to be sure, other factual issues that confronted both courts. Here, the
appellate court said:
"Defendants filed their respective answers, traversing the material allegations of the
compliant contending that: As for defendant Eastern Shipping it alleged that the
shipment was discharged in good order from the vessel unto the custody of Metro
Port Service so that any damage/losses incurred after the shipment was incurred
after the shipment was turned over to the latter, is no longer its liability (p. 17,
Record); Metroport averred that although subject shipment was discharged unto its
custody, portion of the same was already in bad order (p. 11, Record); Allied
Brokerage alleged that plaintiff has no cause of action against it, not having negligent
or at fault for the shipment was already in damage and bad order condition when
received by it, but nonetheless, it still exercised extra ordinary care and diligence in
he handling/delivery of the cargo to consignee in the same condition shipment was
received by it.
"From the evidence that court found the following:
"‘The issues are:
‘1. Whether or not the shipment sustained losses/damages;
‘2. Whether or not these losses/damages were sustained while in the custody of
defendants (in whose respective custody, if determinable);chanrobles.com.ph : virtual
law library
‘3. Whether or not defendant(s) should be held liable for the losses/damages (see
plaintiff’s pre-Trial Brief, Records, p. 34; Allied’s pre-Trial Brief, adopting plaintiff’s
Records, p. 38).’
‘As to the first issue, there can be no doubt that the shipment sustained
losses/damages. The two drums were shipped in good order and condition, as clearly
shown by the Bill of Lading and Commercial Invoice which do not indicate any
damages drum that was shipped (Exhs. B and C). But when on December 12, 1981
the shipment was delivered to defendant Metro Port Service, Inc., it excepted to one
drum in bad order.
‘Correspondingly, as to the second issue, it follows that the losses/damages were
sustained while in the respective and/or successive custody and possession of
defendants carrier (Eastern), arrastre operator (Metro Port) and broker (Allied
Brokerage). This becomes evident when the Marine Cargo Survey Report (Exh. G),
with its ‘Additional Survey Notes,’ are considered. In the latter notes, it is stated that
when the shipment was ‘landed on vessel’ to dock of Pier # 15, South Harbor, Manila
on December 12, 1981,’ it was observed that ‘one (1) fiber drum (was) in damaged
condition, covered by the vessel’s Agent’s Bad order Tally Sheet No. 86427.’ The
report further states that when defendant Allied Brokerage withdrew the shipment,
from defendant arrastre operator’s custody on January 7, 1982, one drum was found
opened without seal, cello bag partly torn but contents intact. Net unrecovered
spillages was 15 kgs. The report went on to state that when the drums reached the
consignee, one drum was found with adulterated/faked contents. It is obvious,
therefore, that these losses/damages occurred before the shipment reached the
consignee while under the successive custodies of defendants. Under Art. 1737 of
the New Civil Code, the common carrier’s duty to observe extraordinary diligence in
the vigilance of goods remains in full force and effect even if the goods are
temporarily unloaded and stored in transit in the warehouse of the carrier at the place
of destination, until the consignee has been advised and has had reasonable
opportunity to remove or dispose of the goods (Art. 1738, NCC). Defendant Eastern
Shipping’s own exhibit, the ‘Turn-Over Survey of Bad Order Cargoes’ (Exhs. 3-
Eastern) states that on December 12, 1981 one drum was found ‘open.’
"and thus held:
‘WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:
A. Ordering defendants to pay plaintiff, jointly and severally:chanrob1es virtual 1aw
library
1. 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);
2. P3,000.00 as attorney’s fees, and
3. Costs.
B. Dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied
Brokerage Corporation.
26|Transportation (Carriage of goods)
SO ORDERED.’ (p. 207, Record).
"Dissatisfied, defendant’s recourse to US.
"The appeal is devoid of merit.
"After a careful scrunity of the evidence on record. We find that the conclusion drawn
therefrom is correct. As there is sufficient evidence that the shipment sustained
damage while in the successive possession of appellants, and therefore they are
liable to the appellee, as subrogee for the amount it paid to the consignee." (pp. 87-
89, Rollo.)
The Court of Appeal thus affirmed in toto the judgment of the court a quo.
In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and
grave abuse of discretion on the part of the appellate court when —
I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE
ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE
RESPONDENT AS GRANTED IN THE QUESTIONED DECISION;
II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE
RESPONDENT SHOULD COMMENCE FROM THE DATE OF THE FILING OF THE
COMPLAINT AT THE RATE OF TWELVE PERCENT PER ANNUM INSTEAD OF
FROM THE DATE OF THE DECISION OF THE TRIAL COURT AND ONLY AT THE
RATE OF SIX PERCENT PER ANNUM, PRIVATE RESPONDENT’S CLAIM BEING
INDISPUTABLY UNLIQUIDATED.
The petition is, in part, granted.
In this decision, we have begun by saying that the questions raised by petitioner
carrier are not all that novel. Indeed, we do have a fairly good number of previous
decisions this Court can merely tack to.
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 v. Court of Appeals, 161 SCRA 646; Kui
Bai v. Dollar Steamship Lines, 52 Phil. 863).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 v. Court of Appeals,
139 SCRA 87; Metro Port Service v. 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 this case.
The question of charging both the carrier and the arrastre operator with the obligation
of properly delivering the goods to the consignee has, too, been passed upon by the
Court. In Fireman’s Fund Insurance v. Metro Port Services (182 SCRA 455), we have
explained in holding the carrier and the arrastre operator liable in solidum, thus:
"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."
We do not, of course, imply by the above pronouncement 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. The instant petition has been brought solely by Eastern Shipping Lines which,
being the carrier and not having been able to rebut the presumption of fault, is, in any
event, to be held liable in this particular case. A factual finding of both the court a quo
and the appellate court, we take note, is that "there is sufficient evidence that the
shipment sustained damage while in the successive possession of appellants" (the
herein petitioner among them). Accordingly, the liability imposed on Eastern Shipping
Lines, Inc., the sole petitioner in this case, is inevitable regardless of whether there
are others solidarily liable with it.
It is over the issue of legal interest adjudged by the appellate court that deserves
more than just a passing remark.
Let us first see a chronological recitation of the major rulings of this Court:
The early case of Malayan Insurance Co., Inc., v. Manila Port Service, 2 decided 3 on
15 may 1969, involved a suit for recovery of money arising out of short deliveries and
pilferage of goods. In this case, appellee Malayan Insurance (the plaintiff in the lower
court) averred in its complaint that the total amount of its claim for the value of the
undelivered goods amounted to P3,947.20. This demand, however, was neither
established in its totality nor definitely ascertained. In the stipulation of facts later
entered into by the parties, in lieu of proof, the amount of P1,447.51 was agreed
upon. The trial court rendered judgment ordering the appellants (defendants) Manila
Port Service and Manila Railroad Company to pay appellee Malayan Insurance the
sum of P1,447.51 with legal interest thereon from the date the complaint was filed on
28 December 1962 until full payment thereof. The appellants then assailed, inter alia,
the award of legal interest. In sustaining the appellants, this Court ruled:
"Interest upon an obligation which calls for the payment of money, absent a
stipulation, is the legal rate. Such interest normally is allowable from the date of
demand, judicial or extrajudicial. The trial court opted for judicial demand as the
starting point.
27|Transportation (Carriage of goods)
"But then upon the provisions of Article 2213 of the Civil Code, interest ‘cannot be
recovered upon unliquidated claims or damages, except when the demand can be
established with reasonable certainty.’ And as was held by this Court in Rivera v.
Perez 4 , L-6998, February 29, 1956, if the suit were for damages, ‘unliquidated and
not known until definitely ascertained, assessed and determined by the courts after
proof (Montilla c. Corporacion de P. P. Agustinos, 25 Phil. 447; Lichauco v. Guzman,
38 Phil. 302),’ then, interest ‘should be from the date of the decision.’" (Emphasis
supplied).
The case of Reformina v. Tomol, 5 rendered on 11 October 1985, was for "Recovery
of Damages for Injury to Person and Loss of Property." After trial, the lower court
decreed:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party
defendants and against the defendants and third party plaintiffs as follows:
"Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay
jointly and severally the following persons:
"(a) . . .
"x x x
"(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00
which is the value of the boat F B Pacita III together with its accessories, fishing gear
and equipment minus P80,000.00 which is the value of the insurance recovered and
the amount of P10,000.00 a month as the estimated monthly loss suffered by them as
a result of the fire of May 6, 1969 up to the time they are actually paid or already the
total sum of P370,000.00 as of June 4, 1972 with legal interest from the filing of the
complaint until paid and to pay attorney’s fees of P5,000.00 with costs against
defendants and third party plaintiffs." (Emphasis supplied.)
On appeal of the Court of Appeals, the latter modified the amount of damages
awarded but sustained the trial court in adjudging legal interest from the filing of the
complaint until fully paid. When the appellate court’s decision became final, the case
was remanded to the lower court for execution, and this was when the trial court
issued its assailed resolution which applied the 6% interest per annum prescribed in
Article 2209 of the Civil Code. In their petition for review on certiorari, the petitioners
contended that Central Bank Circular No. 416, providing thus —
"By virtue of the authority granted to it under Section 1 of Act 2655, as amended,
Monetary Board in its Resolution No. 1622 dated July 29, 1974, has prescribed that
the rate of interest for the loan, or forbearance of any money, goods, or credits and
the rate allowed in judgments, in the absence of express contract as to such rate of
interest, shall be twelve (12%) percent per annum. This Circular shall take effect
immediately." (Emphasis found in the text) —
should have, instead, been applied. This Court 6 ruled:
"The judgments spoken of and referred to are judgments in litigations involving loans
or forbearance of any money, goods or credits. any other kind of monetary judgment
which has nothing to do with, nor involving loans or forbearance of any money, goods
or credits does not fall within the coverage of the said law for it is not within the ambit
of the authority granted to the Central Bank.
"x x x
"Coming to the case at bar, the decision herein sought to be executed is one
rendered in an Action for Damages for injury to persons and loss of property and
does not involve any loan, much less forbearances of any money, goods or credits.
As correctly argued by the private respondents, the law applicable to the said case is
Article 2209 of the New Civil Code which reads —
‘ARTICLE 2209. If the obligation consists in the payment of a sum of money, and the
debtor incurs in delay, the indemnity for damages, there being no stipulation to the
contrary, shall be the payment of interest agreed upon, and in the absence of
stipulation, the legal interest which is six percent per annum.’"
The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz, 7
promulgated on 28 July 1986. The case was for damages occasioned by an injury to
person and loss of property. The trial court awarded private respondent Pedro
Manabat actual and compensatory damages in the amount of P72,500.00 with legal
interest thereon from the filing of the complaint until fully paid. Relying on the
Reformina v. Tomol case, this Court 8 modified the interest award from 12% to 6%
interest per annum but sustained the time computation thereof, i.e., from the filing of
the complaint until fully paid.
In Nakpil and Sons v. Court of Appeals, 9 the trial court, in an action for the recovery
of damages arising from the collapse of a building, ordered inter alia, the "defendant
United Construction Co., Inc. (one of the petitioners) . . . to pay the plaintiff, . . ., the
sum of P989,335.68 with interest at the legal rate from November 29, 1968, the date
of the filing of the complaint until full payment . . . ." Save from the modification of the
amount granted by the lower court, the Court of Appeals sustained the trial court’s
decision. When taken to this Court for review, the case, on 03 October 1986, was
decided, thus:
"WHEREFORE, the decision appealed from is hereby MODIFIED and considering the
special and environmental circumstances of this case, we deem it reasonable to
28|Transportation (Carriage of goods)
render a decision imposing, as We do hereby impose, upon the defendant and the
third-party defendants (with the exception of Roman Ozaeta) a solidary (Art. 1723,
Civil Code, Supra. p. 10) indemnity in favor of the Philippine Bar Association of FIVE
MILLION (P5,000,000.00) Pesos to cover all damages (with the exception of
attorney’s fees) occasioned by the loss of the building and an additional ONE
HUNDRED THOUSAND (P100,000.00) Pesos as and for attorney’s fees, the total
sum being payable upon the finality of this decision. Upon failure to pay on such
finality, twelve (12%) per cent interest per annum shall be imposed upon
aforementioned amounts from finality until paid. Solidary costs against the defendant
and third-party defendants (except Roman Ozaeta)." (Emphasis supplied).
A motion for reconsideration was filed by United Construction, contending that "the
interest of twelve (12%) per cent per annum imposed on the total amount of the
monetary award was in contravention of law." The Court 10 ruled out the applicability
of the Reformina and Philippine Rabbit Bus Lines cases and, in its resolution of 15
April 1988, it explained:
"There should be no dispute that the imposition of 12% interest pursuant to Central
Bank Circular No. 416 . . . is applicable only in the following: (1) loans; (2)
forbearance of any money, goods or credit; and (3) rate allowed in judgments
(judgments spoken of refer to judgments involving loans or forbearance of any
money, goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-
161 [1986]; Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the
instant case, there is neither a loan or a forbearance, but then no interest is actually
imposed provided the sums referred to in the judgment are paid upon the finality of
the judgment. It is delay in the payment of such final judgment, that will cause the
imposition of the interest.
"It will be noted that in the cases already adverted to, the rate of interest is imposed
on the total sum, from the filing of the complaint until paid; in other words, as part of
the judgment for damages. Clearly, they are not applicable to the instant case."
(Emphasis supplied)
The subsequent case of American Express International, Inc., v. International
Appellate Court 11 was a petition for review on certiorari from the decision, dated 27
February 1985, of the then Intermediate Appellate Court reducing the amount of
moral and exemplary damages awarded by the trial court, to P240,000.00 and
P100,000.00, respectively, and its resolution, dated 29 April 1985, restoring the
amount of damages awarded by the trial court, i.e., P2,000,000,00 as moral damages
and P400,000.00 as exemplary damages with interest thereon at 12% per annum
from notice of judgment, plus costs of suit. In a decision of 09 November 1988, this
Court, while recognizing the right of the private respondent to recover damages, held
the award, however, for moral damages by the trial court, later sustained by the IAC,
to be inconceivably large. The Court 12 thus set aside the decision of the appellate
court and rendered a new one, "ordering the petitioner to pay private respondent the
sum of One Hundred Thousand (P100,000.00) Pesos as moral damages, with six
(6%) percent interest thereon computed from the finality of this decision until paid."
(Emphasis supplied).
Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz 13
which arose from a breach of employment contract. For having been illegally
dismissed, the petitioner was awarded by the trial court moral and exemplary
damages without, however, providing any legal interest thereon. When the decision
was appealed to the Court of Appeals, the latter held:
"WHEREFORE, except as modified hereinabove the decision of the CFI of Negros
Oriental dated October 31, 1972 is affirmed in all respects, with the modification that
defendants-appellants, except defendant-appellant Merton Munn, are ordered to pay,
jointly and severally, the amounts stated in the dispositive portion of the decision,
including the sum of P1,400.00 in concept of compensatory damages, with interest at
the legal rate from the date of the filing of the complaint until fully paid." (Emphasis
supplied)
The petition for review to this Court was denied. The records were thereupon
transmitted to the trial court, and an entry of judgment was made. The writ of
execution issued by the trial court directed that only compensatory damages should
earn interest at 6% per annum from the date of the filing of the complaint. Ascribing
grave abuse of discretion on the part of the trial judge, a petition for certiorari assailed
the said order. This court said:
". . ., it is to be noted that the Court of Appeals ordered the payment of interest ‘at the
legal rate’ from the time of the filing of the complaint. . . . Said circular [Central Bank
Circular No. 416] does not apply to actions based on a breach of employment
contract like the case at bar." (Emphasis supplied)
The Court reiterated that the 6% interest per annum on the damages should be
computed from the time the complaint was filed until the amount is fully paid.
Quite recently, the Court had another occasion to rule on the matter. National Power
Corporation v. Angas, 14 decided on 08 May 1992, involved the expropriation of
certain parcels of land. After conducting a hearing on the complaints for eminent
domain, the trial court ordered the petitioner to pay the private respondents certain
sums of money as just compensation for their lands so expropriated "with legal
interest thereon . . . until fully paid." Again, in applying the 6% legal interest per
annum under the Civil Code, the Court 15 declared:
". . ., (T)he transaction involved is clearly not a loan or forbearance of money, goods
or credits but expropriation of certain parcels of land for a public purpose, the
payment of which is without stipulation regarding interest, and the interest adjudged
by the trial court is in the nature of indemnity for damages. The legal interest required
to be paid on the amount of just compensation for the properties expropriated is
manifestly in the form of indemnity for damages for the delay in the payment thereof.
Therefore, since the kind of interest involved in the joint judgment of the lower court
sought to be enforced in this case is interest by way of damages, and not by way of
earnings from loans, etc. Art. 2209 of the Civil Code shall apply."
29|Transportation (Carriage of goods)
Concededly, there have been seeming variances in the above holdings. The cases
can perhaps be classified into two groups according to the similarity of the issues
involved and the corresponding rulings rendered by the court. The" first group" would
consist 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). In the "second group" would be 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).
In the" first group," 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.
The "second group," did not alter the pronounced rule on the application of the 6% or
12% interest per annum, 17 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 ostensible discord is not difficult to explain. 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.
Nonetheless, it may not be unwise, by way of clarification and reconciliation, to
suggest the following rules of thumb for future guidance.
I. 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. 19 The provisions under Title XVIII on "Damages" of the Civil Code govern
in determining the measure of reoverable damages. 20
II. 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. 21 Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. 22 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 23 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 24 at the rate of 6% per annum. 25 No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established
with reasonable certainty. 26 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 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.chanrobles virtualawlibrary
chanrobles.com:chanrobles.com.ph
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.
WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED
with the MODIFICATION that the legal interest to be paid is SIX PERCENT(6%) on
the amount due computed from the decision, dated 03 February 1988, of the court a
quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be
imposed on such amount upon finality of this decision until the payment thereof.
SO ORDERED.
G.R. No. 149019 August 15, 2006
30|Transportation (Carriage of goods)
DELSAN TRANSPORT LINES, INC., Petitioner,
vs.
AMERICAN HOME ASSURANCE CORPORATION, Respondent.
DECISION
GARCIA, J.:
By this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner
Delsan Transport Lines, Inc. (Delsan hereafter) assails and seeks to set aside the
Decision, 1 dated July 16, 2001, of the Court of Appeals (CA) in CA-G.R. CV No.
40951 affirming an earlier decision of the Regional Trial Court (RTC) of Manila,
Branch IX, in two separate complaints for damages docketed as Civil Case No. 85-
29357 and Civil Case No. 85-30559.
The facts:
Delsan is a domestic corporation which owns and operates the vessel MT Larusan.
On the other hand, respondent American Home Assurance Corporation (AHAC for
brevity) is a foreign insurance company duly licensed to do business in the
Philippines through its agent, the American-International Underwriters, Inc. (Phils.). It
is engaged, among others, in insuring cargoes for transportation within the
Philippines.
On August 5, 1984, Delsan received on board MT Larusan a shipment consisting of
1,986.627 k/l Automotive Diesel Oil (diesel oil) at the Bataan Refinery Corporation for
transportation and delivery to the bulk depot in Bacolod City of Caltex Phils., Inc.
(Caltex), pursuant to a Contract of Afreightment. The shipment was insured by
respondent AHAC against all risks under Inland Floater Policy No. AH-IF64-
1011549P and Marine Risk Note No. 34-5093-6.
On August 7, 1984, the shipment arrived in Bacolod City. Immediately thereafter,
unloading operations commenced. The discharging of the diesel oil started at about
1:30 PM of the same day. However, at about 10:30 PM, the discharging had to be
stopped on account of the discovery that the port bow mooring of the vessel was
intentionally cut or stolen by unknown persons. Because there was nothing holding it,
the vessel drifted westward, dragged and stretched the flexible rubber hose attached
to the riser, broke the elbow into pieces, severed completely the rubber hose
connected to the tanker from the main delivery line at sea bed level and ultimately
caused the diesel oil to spill into the sea. To avoid further spillage, the vessel’s crew
tried water flushing to clear the line of the diesel oil but to no avail. In the meantime,
the shore tender, who was waiting for the completion of the water flushing, was
surprised when the tanker signaled a "red light" which meant stop pumping. Unaware
of what happened, the shore tender, thinking that the vessel would, at any time,
resume pumping, did not shut the storage tank gate valve. As all the gate valves
remained open, the diesel oil that was earlier discharged from the vessel into the
shore tank backflowed. Due to non-availability of a pump boat, the vessel could not
send somebody ashore to inform the people at the depot about what happened. After
almost an hour, a gauger and an assistant surveyor from the Caltex’s Bulk Depot
Office boarded the vessel. It was only then that they found out what had happened.
Thereafter, the duo immediately went ashore to see to it that the shore tank gate
valve was closed. The loss of diesel oil due to spillage was placed at 113.788 k/l
while some 435,081 k/l thereof backflowed from the shore tank.
As a result of spillage and backflow of diesel oil, Caltex sought recovery of the loss
from Delsan, but the latter refused to pay. As insurer, AHAC paid Caltex the sum
of P479,262.57 for spillage, pursuant to Marine Risk Note No. 34-5093-6,
and P1,939,575.37 for backflow of the diesel oil pursuant to Inland Floater Policy No.
AH-1F64-1011549P.
On February 19, 1985, AHAC, as Caltex’s subrogee, instituted Civil Case No. 85-
29357 against Delsan before the Manila RTC, Branch 9, for loss caused by the
spillage. It likewise prayed that it be indemnified for damages suffered in the amount
of P652,432.57 plus legal interest thereon.
Also, on May 5, 1985, in the Manila RTC, Branch 31, AHAC instituted Civil Case No.
85-30559 against Delsan for the loss caused by the backflow. It likewise prayed that it
be awarded the amount of P1,939,575.37 for damages and reasonable attorney’s
fees. As counterclaim in both cases, AHAC prayed for attorney’s fees in the amount
of P200,000.00 and P500.00 for every court appearance.
Since the cause of action in both cases arose out of the same incident and involved
the same issues, the two were consolidated and assigned to Branch 9 of the court.
On August 31, 1989, the trial court rendered its decision 2 in favor of AHAC holding
Delsan liable for the loss of the cargo for its negligence in its duty as a common
carrier. Dispositively, the decision reads:
WHEREFORE, judgment is hereby rendered:
A). In Civil Case No. 85-30559:
(1) Ordering the defendant (petitioner Delsan) to pay plaintiff (respondent AHAC) the
sum of P1,939,575.37 with interest thereon at the legal rate from November 21, 1984
until fully paid and satisfied; and
(2) Ordering defendant to pay plaintiff the sum of P10,000.00 as and for attorney’s
fees.
For lack of merit, the counterclaim is hereby dismissed.
B). In Civil Case No. 85-29357:
(1) Ordering defendant to pay plaintiff the sum of P479,262.57 with interest thereon at
the legal rate from February 6, 1985 until fully paid and satisfied;
31|Transportation (Carriage of goods)
(2) Ordering defendant to pay plaintiff the sum of P5,000.00 as and for attorney’s
fees.
For lack of merit, the counterclaim is hereby dismissed.
Costs against the defendant.
SO ORDERED.
In time, Delsan appealed to the CA whereat its recourse was docketed as CA-G.R.
CV No. 40951.
In the herein challenged decision, 3 the CA affirmed the findings of the trial court. In
so ruling, the CA declared that Delsan failed to exercise the extraordinary diligence of
a good father of a family in the handling of its cargo. Applying Article 1736 4 of the
Civil Code, the CA ruled that since the discharging of the diesel oil into Caltex bulk
depot had not been completed at the time the losses occurred, there was no reason
to imply that there was actual delivery of the cargo to Caltex, the consignee. We
quote the fallo of the CA decision:
WHEREFORE, premises considered, the appealed Decision of the Regional Trial
Court of Manila, Branch 09 in Civil Case Nos. 85-29357 and 85-30559 is hereby
AFFIRMED with a modification that attorney’s fees awarded in Civil Case Nos. 85-
29357 and 85-30559 are hereby DELETED.
SO ORDERED.
Delsan is now before the Court raising substantially the same issues proffered before
the CA.
Principally, Delsan insists that the CA committed reversible error in ruling that Article
1734 of the Civil Code cannot exculpate it from liability for the loss of the subject
cargo and in not applying the rule on contributory negligence against Caltex, the
shipper-owner of the cargo, and in not taking into consideration the fact that the loss
due to backflow occurred when the diesel oil was already completely delivered to
Caltex.
We are not persuaded.
In resolving this appeal, the Court reiterates the oft-stated doctrine that factual
findings of the CA, affirmatory of those of the trial court, are binding on the Court
unless there is a clear showing that such findings are tainted with arbitrariness,
capriciousness or palpable error. 5
Delsan would have the Court absolve it from liability for the loss of its cargo on two
grounds. First, the loss through spillage was partly due to the contributory negligence
of Caltex; and Second, the loss through backflow should not be borne by Delsan
because it was already delivered to Caltex’s shore tank.
Common carriers are bound to observe extraordinary diligence in the vigilance over
the goods transported by them. They are presumed to have been at fault or to have
acted negligently if the goods are lost, destroyed or deteriorated. 6 To overcome the
presumption of negligence in case of loss, destruction or deterioration of the goods,
the common carrier must prove that it exercised extraordinary diligence. There are,
however, exceptions to this rule. Article 1734 of the Civil Code enumerates the
instances when the presumption of negligence does not attach:
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration
of the goods, unless the same is due to any of the following causes only:
1) Flood storm, earthquake, lightning, or other natural disaster or calamity;
2) Act of the public enemy in war, whether international or civil;
3) Act or omission of the shipper or owner of the goods;
4) The character of the goods or defects in the packing or in the containers;
5) Order or act of competent public authority.
Both the trial court and the CA uniformly ruled that Delsan failed to prove its claim that
there was a contributory negligence on the part of the owner of the goods – Caltex.
We see no reason to depart therefrom. As aptly pointed out by the CA, it had been
established that the proximate cause of the spillage and backflow of the diesel oil was
due to the severance of the port bow mooring line of the vessel and the failure of the
shore tender to close the storage tank gate valve even as a check on the drain cock
showed that there was still a product on the pipeline. To the two courts below, the
actuation of the gauger and the escort surveyor, both personnel from the Caltex Bulk
Depot, negates the allegation that Caltex was remiss in its duties. As we see it, the
crew of the vessel should have promptly informed the shore tender that the port
mooring line was cut off. However, Delsan did not do so on the lame excuse that
there was no available banca. As it is, Delsan’s personnel signaled a "red light" which
was not a sufficient warning because such signal only meant that the pumping of
diesel oil had been finished. Neither did the blowing of whistle suffice considering the
distance of more than 2 kilometers between the vessel and the Caltex Bulk Depot,
aside from the fact that it was not the agreed signal. Had the gauger and the escort
surveyor from Caltex Bulk Depot not gone aboard the vessel to make inquiries, the
shore tender would have not known what really happened. The crew of the vessel
should have exerted utmost effort to immediately inform the shore tender that the port
bow mooring line was severed.
To be sure, Delsan, as the owner of the vessel, was obliged to prove that the loss
was caused by one of the excepted causes if it were to seek exemption from
32|Transportation (Carriage of goods)
responsibility. 7 Unfortunately, it miserably failed to discharge this burden by the
required quantum of proof.
Delsan’s argument that it should not be held liable for the loss of diesel oil due to
backflow because the same had already been actually and legally delivered to Caltex
at the time it entered the shore tank holds no water. It had been settled that the
subject cargo was still in the custody of Delsan because the discharging thereof has
not yet been finished when the backflow occurred. Since the discharging of the cargo
into the depot has not yet been completed at the time of the spillage when the
backflow occurred, there is no reason to imply that there was actual delivery of the
cargo to the consignee. Delsan is straining the issue by insisting that when the diesel
oil entered into the tank of Caltex on shore, there was legally, at that moment, a
complete delivery thereof to Caltex. To be sure, the extraordinary responsibility of
common carrier lasts from the time the goods are unconditionally placed in the
possession of, and received by, the carrier for transportation until the same are
delivered, actually or constructively, by the carrier to the consignee, or to a person
who has the right to receive them. 8 The discharging of oil products to Caltex Bulk
Depot has not yet been finished, Delsan still has the duty to guard and to preserve
the cargo. The carrier still has in it the responsibility to guard and preserve the goods,
a duty incident to its having the goods transported.
To recapitulate, common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in vigilance over the goods
and for the safety of the passengers transported by them, according to all the
circumstances of each case. 9 The mere proof of delivery of goods in good order to
the carrier, and their arrival in the place of destination in bad order, make out a prima
facie case against the carrier, so that if no explanation is given as to how the injury
occurred, the carrier must be held responsible. It is incumbent upon the carrier to
prove that the loss was due to accident or some other circumstances inconsistent
with its liability. 10
All told, Delsan, being a common carrier, should have exercised extraordinary
diligence in the performance of its duties. Consequently, it is obliged to prove that the
damage to its cargo was caused by one of the excepted causes if it were to seek
exemption from responsibility. 11 Having failed to do so, Delsan must bear the
consequences.
WHEREFORE, petition is DENIED and the assailed decision of the CA is AFFIRMED
in toto.
Cost against petitioner.
SO ORDERED.
THIRD DIVISION
[G.R. No. 146018. June 25, 2003.]
EDGAR COKALIONG SHIPPING LINES, INC., Petitioner, v. UCPB GENERAL
INSURANCE COMPANY, INC., Respondent.
DECISION
PANGANIBAN, J.:
The liability of a common carrier for the loss of goods may, by stipulation in the bill of
lading, be limited to the value declared by the shipper. On the other hand, the liability
of the insurer is determined by the actual value covered by the insurance policy and
the insurance premiums paid therefor, and not necessarily by the value declared in
the bill of lading.
The Case
Before the Court is a Petition for Review 1 under Rule 45 of the Rules of Court,
seeking to set aside the August 31, 2000 Decision 2 and the November 17, 2000
Resolution 3 of the Court of Appeals 4 (CA) in CA-GR SP No. 62751. The dispositive
part of the Decision reads:
"IN THE LIGHT OF THE FOREGOING, the appeal is GRANTED. The Decision
appealed from is REVERSED. [Petitioner] is hereby condemned to pay to
[respondent] the total amount of P148,500.00, with interest thereon, at the rate of 6%
per annum, from date of this Decision of the Court. [Respondent’s] claim for
attorney’s fees [is] DISMISSED. [Petitioner’s] counterclaims are DISMISSED." 5
The assailed Resolution denied petitioner’s Motion for Reconsideration.
On the other hand, the disposition of the Regional Trial Court’s 6 Decision, 7 which
was later reversed by the CA, states:
"WHEREFORE, premises considered, the case is hereby DISMISSED for lack of
merit.
"No cost." 8
The Facts
The facts of the case are summarized by the appellate court in this
wise:jgc:chanrobles.com.ph
"Sometime on December 11, 1991, Nestor Angelia delivered to the Edgar Cokaliong
Shipping Lines, Inc. (now Cokaliong Shipping Lines), [petitioner] for brevity, cargo
33|Transportation (Carriage of goods)
consisting of one (1) carton of Christmas decor and two (2) sacks of plastic toys, to be
transported on board the M/V Tandag on its Voyage No. T-189 scheduled to depart
from Cebu City, on December 12, 1991, for Tandag, Surigao del Sur. [Petitioner]
issued Bill of Lading No. 58, freight prepaid, covering the cargo. Nestor Angelia was
both the shipper and consignee of the cargo valued, on the face thereof, in the
amount of P6,500.00. Zosimo Mercado likewise delivered cargo to [petitioner],
consisting of two (2) cartons of plastic toys and Christmas decor, one (1) roll of floor
mat and one (1) bundle of various or assorted goods for transportation thereof from
Cebu City to Tandag, Surigao del Sur, on board the said vessel, and said voyage.
[Petitioner] issued Bill of Lading No. 59 covering the cargo which, on the face thereof,
was valued in the amount of P14,000.00. Under the Bill of Lading, Zosimo Mercado
was both the shipper and consignee of the cargo.
"On December 12, 1991, Feliciana Legaspi insured the cargo, covered by Bill of
Lading No. 59, with the UCPB General Insurance Co., Inc., [respondent] for brevity,
for the amount of P100,000.00 ‘against all risks’ under Open Policy No. 002/91/254
for which she was issued, by [respondent], Marine Risk Note No. 18409 on said date.
She also insured the cargo covered by Bill of Lading No. 58, with [respondent], for the
amount of P50,000.00, under Open Policy No. 002/91/254 on the basis of which
[respondent] issued Marine Risk Note No. 18410 on said date.
"When the vessel left port, it had thirty-four (34) passengers and assorted cargo on
board, including the goods of Legaspi. After the vessel had passed by the Mandaue
Mactan Bridge, fire ensued in the engine room, and, despite earnest efforts of the
officers and crew of the vessel, the fire engulfed and destroyed the entire vessel
resulting in the loss of the vessel and the cargoes therein. The Captain filed the
required Marine Protest.
"Shortly thereafter, Feliciana Legaspi filed a claim, with [respondent], for the value of
the cargo insured under Marine Risk Note No. 18409 and covered by Bill of Lading
No. 59. She submitted, in support of her claim, a Receipt, dated December 11, 1991,
purportedly signed by Zosimo Mercado, and Order Slips purportedly signed by him for
the goods he received from Feliciana Legaspi valued in the amount of P110,056.00.
[Respondent] approved the claim of Feliciana Legaspi and drew and issued UCPB
Check No. 612939, dated March 9, 1992, in the net amount of P99,000.00, in
settlement of her claim after which she executed a Subrogation Receipt/Deed, for
said amount, in favor of [respondent]. She also filed a claim for the value of the cargo
covered by Bill of Lading No. 58. She submitted to [respondent] a Receipt, dated
December 11, 1991 and Order Slips, purportedly signed by Nestor Angelia for the
goods he received from Feliciana Legaspi valued at P60,338.00. [Respondent]
approved her claim and remitted to Feliciana Legaspi the net amount of P49,500.00,
after which she signed a Subrogation Receipt/Deed, dated March 9, 1992, in favor of
[respondent].
"On July 14, 1992, [respondent], as subrogee of Feliciana Legaspi, filed a complaint
anchored on torts against [petitioner], with the Regional Trial Court of Makati City, for
the collection of the total principal amount of P148,500.00, which it paid to Feliciana
Legaspi for the loss of the cargo, praying that judgment be rendered in its favor and
against the [petitioner] as follows:chanrob1es virtual 1aw library
‘WHEREFORE, it is respectfully prayed of this Honorable Court that after due
hearing, judgment be rendered ordering [petitioner] to pay [respondent] the following.

1. Actual damages in the amount of P148,500.00 plus interest thereon at the legal
rate from the time of filing of this complaint until fully paid;
2. Attorney’s fees in the amount of P10,000.00; and
3. Cost of suit.
‘[Respondent] further prays for such other reliefs and remedies as this Honorable
Court may deem just and equitable under the premises.’
" [Respondent] alleged, inter alia, in its complaint, that the cargo subject of its
complaint was delivered to, and received by, [petitioner] for transportation to Tandag,
Surigao del Sur under ‘Bill of Ladings,’ Annexes ‘A’ and ‘B’ of the complaint; that the
loss of the cargo was due to the negligence of the [petitioner]; and that Feliciana
Legaspi had executed Subrogation Receipts/Deeds in favor of [respondent] after
paying to her the value of the cargo on account of the Marine Risk Notes it issued in
her favor covering the cargo.
"In its Answer to the complaint, [petitioner] alleged that: (a) [petitioner] was cleared by
the Board of Marine Inquiry of any negligence in the burning of the vessel; (b) the
complaint stated no cause of action against [petitioner]; and (c) the
shippers/consignee had already been paid the value of the goods as stated in the Bill
of Lading and, hence, [petitioner] cannot be held liable for the loss of the cargo
beyond the value thereof declared in the Bill of Lading.
"After [respondent] rested its case, [petitioner] prayed for and was allowed, by the
Court a quo, to take the depositions of Chester Cokaliong, the Vice-President and
Chief Operating Officer of [petitioner], and a resident of Cebu City, and of Noel Tanyu,
an officer of the Equitable Banking Corporation, in Cebu City, and a resident of Cebu
City, to be given before the Presiding Judge of Branch 106 of the Regional Trial Court
of Cebu City. Chester Cokaliong and Noel Tanyu did testify, by way of deposition,
before the Court and declared inter alia, that: [petitioner] is a family corporation like
the Chester Marketing, Inc.; Nestor Angelia had been doing business with [petitioner]
and Chester Marketing, Inc., for years, and incurred an account with Chester
Marketing, Inc. for his purchases from said corporation; [petitioner] did issue Bills of
Lading Nos. 58 and 59 for the cargo described therein with Zosimo Mercado and
Nestor Angelia as shippers/consignees, respectively; the engine room of the M/V
Tandag caught fire after it passed the Mandaue/Mactan Bridge resulting in the total
loss of the vessel and its cargo; an investigation was conducted by the Board of
Marine Inquiry of the Philippine Coast Guard which rendered a Report, dated
February 13, 1992 absolving [petitioner] of any responsibility on account of the fire,
which Report of the Board was approved by the District Commander of the Philippine
Coast Guard; a few days after the sinking of the vessel, a representative of the
Legaspi Marketing filed claims for the values of the goods under Bills of Lading Nos.
58 and 59 in behalf of the shippers/consignees, Nestor Angelia and Zosimo Mercado;
[petitioner] was able to ascertain, from the shippers/consignees and the
representative of the Legaspi Marketing that the cargo covered by Bill of Lading No.
59 was owned by Legaspi Marketing and consigned to Zosimo Mercado while that
covered by Bill of Lading No. 58 was purchased by Nestor Angelia from the Legaspi
Marketing; that [petitioner] approved the claim of Legaspi Marketing for the value of
the cargo under Bill of Lading No. 59 and remitted to Legaspi Marketing the said
34|Transportation (Carriage of goods)
amount under Equitable Banking Corporation Check No. 20230486 dated August 12,
1992, in the amount of P14,000.00 for which the representative of the Legaspi
Marketing signed Voucher No. 4379, dated August 12, 1992, for the said amount of
P14,000.00 in full payment of claims under Bill of Lading No. 59; that [petitioner)
approved the claim of Nestor Angelia in the amount of P6,500.00 but that since the
latter owed Chester Marketing, Inc., for some purchases, [petitioner] merely set off
the amount due to Nestor Angelia under Bill of Lading No. 58 against his account with
Chester Marketing, Inc.; [petitioner] lost/[misplaced] the original of the check after it
was received by Legaspi Marketing, hence, the production of the microfilm copy by
Noel Tanyu of the Equitable Banking Corporation; [petitioner] never knew, before
settling with Legaspi Marketing and Nestor Angelia that the cargo under both Bills of
Lading were insured with [respondent], or that Feliciana Legaspi filed claims for the
value of the cargo with [respondent] and that the latter approved the claims of
Feliciana Legaspi and paid the total amount of P148,500.00 to her; [petitioner] came
to know, for the first time, of the payments by [respondent] of the claims of Feliciana
Legaspi when it was served with the summons and complaint, on October 8, 1992;
after settling his claim, Nestor Angelia . . . executed the Release and Quitclaim, dated
July 2, 1993, and Affidavit, dated July 2, 1993 in favor of [respondent]; hence,
[petitioner] was absolved of any liability for the loss of the cargo covered by Bills of
Lading, Nos. 58 and 59; and even if it was, its liability should not exceed the value of
the cargo as stated in the Bills of Lading.
" [Petitioner) did not anymore present any other witnesses on its evidence-in-
chief. . . ." 9 (Citations omitted)
Ruling of the Court of Appeals
The CA held that petitioner had failed "to prove that the fire which consumed the
vessel and its cargo was caused by something other than its negligence in the
upkeep, maintenance and operation of the vessel." 10
Petitioner had paid P14,000 to Legaspi Marketing for the cargo covered by Bill of
Lading No. 59. The CA, however, held that the payment did not extinguish petitioner’s
obligation to respondent, because there was no evidence that Feliciana Legaspi (the
insured) was the owner/proprietor of Legaspi Marketing. The CA also pointed out the
impropriety of treating the claim under Bill of Lading No. 58 — covering cargo valued
therein at P6,500 — as a setoff against Nestor Angelia’s account with Chester
Enterprises, Inc.
Finally, it ruled that respondent "is not bound by the valuation of the cargo under the
Bills of Lading, . . . nor is the value of the cargo under said Bills of Lading conclusive
on the [respondent]. This is so because, in the first place, the goods were insured
with the [respondent] for the total amount of P150,000.00, which amount may be
considered as the face value of the goods." 11
Hence this Petition. 12
Issues
Petitioner raises for our consideration the following alleged errors of the CA:
"I
"The Honorable Court of Appeals erred, granting arguendo that petitioner is liable, in
holding that petitioner’s liability should be based on the ‘actual insured value’ of the
goods and not from actual valuation declared by the shipper/consignee in the bill of
lading.
"II
"The Court of Appeals erred in not affirming the findings of the Philippine Coast
Guard, as sustained by the trial court a quo, holding that the cause of loss of the
aforesaid cargoes under Bill of Lading Nos. 58 and 59 was due to force majeure and
due diligence was [exercised] by petitioner prior to, during and immediately after the
fire on [petitioner’s] vessel.
"III
"The Court of Appeals erred in not holding that respondent UCPB General Insurance
has no cause of action against the petitioner." 13
In sum, the issues are: (1) Is petitioner liable for the loss of the goods? (2) If it is
liable, what is the extent of its liability?
This Court’s Ruling
The Petition is partly meritorious.
First Issue:
Liability for Loss
Petitioner argues that the cause of the loss of the goods, subject of this case, was
force majeure. It adds that its exercise of due diligence was adequately proven by the
findings of the Philippine Coast Guard. We are not convinced. The uncontroverted
findings of the Philippine Coast Guard show that the M/V Tandag sank due to a fire,
which resulted from a crack in the auxiliary engine fuel oil service tank. Fuel spurted
out of the crack and dripped to the heating exhaust manifold, causing the ship to burst
into flames. The crack was located on the side of the fuel oil tank, which had a mere
two-inch gap from the engine room walling, thus precluding constant inspection and
care by the crew.
Having originated from an unchecked crack in the fuel oil service tank, the fire could
not have been caused by force majeure. Broadly speaking, force majeure generally
applies to a natural accident, such as that caused by a lightning, an earthquake, a
tempest or a public enemy. 14 Hence, fire is not considered a natural disaster or
calamity. In Eastern Shipping Lines, Inc. v. Intermediate Appellate Court, 15 we
explained:
35|Transportation (Carriage of goods)
". . . . This must be so as it arises almost invariably from some act of man or by
human means. It does not fall within the category of an act of God unless caused by
lighting or by other natural disaster or calamity. It may even be caused by the actual
fault or privity of the carrier.
"Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous
event refers to leases or rural lands where a reduction of the rent is allowed when
more than one-half of the fruits have been lost due to such event, considering that the
law adopts a protective policy towards agriculture.
"As the peril of fire is not comprehended within the exceptions in Article 1734, supra,
Article 1735 of the Civil Code provides that in all cases other than those mentioned in
Article 1734, the common carrier shall be presumed to have been at fault or to have
acted negligently, unless it proves that it has observed the extraordinary diligence
required by law."
Where loss of cargo results from the failure of the officers of a vessel to inspect their
ship frequently so as to discover the existence of cracked parts, that loss cannot be
attributed to force majeure, but to the negligence .of those officials. 16
The law provides that a common carrier is presumed to have been negligent if it fails
to prove that it exercised extraordinary vigilance over the goods it transported.
Ensuring the seaworthiness of the vessel is the first step in exercising the required
vigilance. Petitioner did not present sufficient evidence showing what measures or
acts it had undertaken to ensure the seaworthiness of the vessel. It failed to show
when the last inspection and care of the auxiliary engine fuel oil service tank was
made, what the normal practice was for its maintenance, or some other evidence to
establish that it had exercised extraordinary diligence. It merely stated that constant
inspection and care were not possible, and that the last time the vessel was dry-
docked was in November 1990. Necessarily, in accordance with Article 1735 17 of
the Civil Code, we hold petitioner responsible for the loss of the goods covered by
Bills of Lading Nos. 58 and 59.
Second Issue:
Extent of Liability
Respondent contends that petitioner’s liability should be based on the actual insured
value of the goods, subject of this case. On the other hand, petitioner claims that its
liability should be limited to the value declared by the shipper/consignee in the Bill of
Lading.
The records 18 show that the Bills of Lading covering the lost goods contain the
stipulation that in case of claim for loss or for damage to the shipped merchandise or
property," [t]he liability of the common carrier . . . shall not exceed the value of the
goods as appearing in the bill of lading." 19 The attempt by respondent to make light
of this stipulation is unconvincing. As it had the consignees’ copies of the Bills of
Lading, 20 it could have easily produced those copies, instead of relying on mere
allegations and suppositions. However, it presented mere photocopies thereof to
disprove petitioner’s evidence showing the existence of the above stipulation.

A stipulation that limits liability is valid 21 as long as it is not against public policy. In
Everett Steamship Corporation v. Court of Appeals, 22 the Court stated:
"A stipulation in the bill of lading limiting the common carrier’s liability for loss or
destruction of a cargo to a certain sum, unless the shipper or owner declares a
greater value, is sanctioned by law, particularly Articles 1749 and 1750 of the Civil
Code which provides:
‘Art. 1749. A stipulation that the common carrier’s liability is limited to the value of the
goods appearing in the bill of lading, unless the shipper or owner declares a greater
value, is binding.’
‘Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper
for the loss, destruction, or deterioration of the goods is valid, if it is reasonable and
just under the circumstances, and has been freely and fairly agreed upon.’
"Such limited-liability clause has also been consistently upheld by this Court in a
number of cases. Thus, in Sea-Land Service, Inc. v. Intermediate Appellate Court, we
ruled:
‘It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea Act did
not exist, the validity and binding effect of the liability limitation clause in the bill of
lading here are nevertheless fully sustainable on the basis alone of the cited Civil
Code Provisions. That said stipulation is just and reasonable is arguable from the fact
that it echoes Art. 1750 itself in providing a limit to liability only if a greater value is not
declared for the shipment in the bill of lading. To hold otherwise would amount to
questioning the justness and fairness of the law itself, and this the private respondent
does not pretend to do. But over and above that consideration, the just and
reasonable character of such stipulation is implicit in it giving the shipper or owner the
option of avoiding accrual of liability limitation by the simple and surely far from
onerous expedient of declaring the nature and value of the shipment in the bill of
lading.’
"Pursuant to the afore-quoted provisions of law, it is required that the stipulation
limiting the common carrier’s liability for loss must be ‘reasonable and just under the
circumstances, and has been freely and fairly agreed upon.
"The bill of lading subject of the present controversy specifically provides, among
others:
‘18. All claims for which the carrier may be liable shall be adjusted and settled on the
basis of the 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 (¥100,000.00) or its equivalent in any other currency per package or
customary freight unit (whichever is least) unless the value of the goods higher than
36|Transportation (Carriage of goods)
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.’
"The above stipulations are, to our mind, reasonable and just. In the bill of lading, the
carrier made it clear that its liability would only be up to One Hundred Thousand
(¥100,000.00) Yen. However, the shipper, Maruman Trading, had the option to
declare a higher valuation if the value of its cargo was higher than the limited liability
of the carrier. Considering that the shipper did not declare a higher valuation, it had
itself to blame for not complying with the stipulations." (Italics supplied)
In the present case, the stipulation limiting petitioner’s liability is not contrary to public
policy. In fact, its just and reasonable character is evident. The shippers/consignees
may recover the full value of the goods by the simple expedient of declaring the true
value of the shipment in the Bill of Lading. Other than the payment of a higher freight,
there was nothing to stop them from placing the actual value of the goods therein. In
fact, they committed fraud against the common carrier by deliberately undervaluing
the goods in their Bill of Lading, thus depriving the carrier of its proper and just
transport fare.
Concededly, the purpose of the limiting stipulation in the Bill of Lading is to protect the
common carrier. Such stipulation obliges the shipper/consignee to notify the common
carrier of the amount that the latter may be liable for in case of loss of the goods. The
common carrier can then take appropriate measures — getting insurance, if needed,
to cover or protect itself. This precaution on the part of the carrier is reasonable and
prudent. Hence, a shipper/consignee that undervalues the real worth of the goods it
seeks to transport does not only violate a valid contractual stipulation, but commits a
fraudulent act when it seeks to make the common carrier liable for more than the
amount it declared in the bill of lading.
Indeed, Zosimo Mercado and Nestor Angelia misled petitioner by undervaluing the
goods in their respective Bills of Lading. Hence, petitioner was exposed to a risk that
was deliberately hidden from it, and from which it could not protect itself.
It is well to point out that, for assuming a higher risk (the alleged actual value of the
goods) the insurance company was paid the correct higher premium by Feliciana
Legaspi; while petitioner was paid a fee lower than what it was entitled to for
transporting the goods that had been deliberately undervalued by the shippers in the
Bill of Lading. Between the two of them, the insurer should bear the loss in excess of
the value declared in the Bills of Lading. This is the just and equitable solution.
In Aboitiz Shipping Corporation v. Court of Appeals, 23 the description of the nature
and the value of the goods shipped were declared and reflected in the bill of lading,
like in the present case. The Court therein considered this declaration as the basis of
the carrier’s liability and ordered payment based on such amount. Following this
ruling, petitioner should not be held liable for more than what was declared by the
shippers/consignees as the value of the goods in the bills of lading.
We find no cogent reason to disturb the CA’s finding that Feliciana Legaspi was the
owner of the goods covered by Bills of Lading Nos. 58 and 59. Undoubtedly, the
goods were merely consigned to Nestor Angelia and Zosimo Mercado, respectively;
thus, Feliciana Legaspi or her subrogee (respondent) was entitled to the goods or, in
case of loss, to compensation therefor. There is no evidence showing that petitioner
paid her for the loss of those goods. It does not even claim to have paid her.
On the other hand, Legaspi Marketing filed with petitioner a claim for the lost goods
under Bill of Lading No. 59, for which the latter subsequently paid P14,000. But
nothing in the records convincingly shows that the former was the owner of the
goods. Respondent was, however, able to prove that it was Feliciana Legaspi who
owned those goods, and who was thus entitled to payment for their loss. Hence, the
claim for the goods under Bill of Lading No. 59 cannot be deemed to have been
extinguished, because payment was made to a person who was not entitled thereto.
With regard to the claim for the goods that were covered by Bill of Lading No. 58 and
valued at P6,500, the parties have not convinced us to disturb the findings of the CA
that compensation could not validly take place. Thus, we uphold the appellate court’s
ruling on this point.
WHEREFORE, the Petition is hereby PARTIALLY GRANTED. The assailed Decision
is MODIFIED in the sense that petitioner is ORDERED to pay respondent the sums of
P14,000 and P6,500, which represent the value of the goods stated in Bills of Lading
Nos. 59 and 58, respectively. No costs.
SO ORDERED.
THIRD DIVISION
[G.R. No. 135377. October 7, 2003.]
DSR-SENATOR LINES AND C.F. SHARP AND COMPANY, INC., Petitioners, v.
FEDERAL PHOENIX ASSURANCE CO., INC., Respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:
Before us is a petition for review on certiorari 1 assailing the Decision 2 dated June 5,
1998 of the Court of Appeals in CA-G.R. CV No. 50833 which affirmed the Decision
of the Regional Trial Court (RTC), Manila City, Branch 16, in Civil Case No. 94-
69699, "Federal Phoenix Assurance Company, Inc. v. DSR-Senator Lines and C.F.
Sharp & Co., Inc.," for damages arising from the loss of cargo while in
transit.chanrob1es virtua1 1aw 1ibrary
Berde Plants, Inc. (Berde Plants) delivered 632 units of artificial trees to C.F. Sharp
and Company, Inc. (C.F. Sharp), the General Ship Agent of DSR-Senator Lines, a
foreign shipping corporation, for transportation and delivery to the consignee, Al-Mohr
International Group, in Riyadh, Saudi Arabia. C.F. Sharp issued International Bill of
Lading No. SENU MNL-26548 3 for the cargo with an invoice value of $34,579.60.
Under the Bill of Lading, the port of discharge for the cargo was at the Khor Fakkan
37|Transportation (Carriage of goods)
port and the port of delivery was Riyadh, Saudi Arabia, via Port Dammam. The cargo
was loaded in M/S "Arabian Senator."cralaw virtua1aw library
Federal Phoenix Assurance Company, Inc. (Federal Phoenix Assurance) insured the
cargo against all risks in the amount of P941,429.61. 4
On June 7, 1993, M/S "Arabian Senator" left the Manila South Harbor for Saudi
Arabia with the cargo on board. When the vessel arrived in Khor Fakkan Port, the
cargo was reloaded on board DSR-Senator Lines’ feeder vessel, M/V "Kapitan
Sakharov," bound for Port Dammam, Saudi Arabia. However, while in transit, the
vessel and all its cargo caught fire.
On July 5, 1993, DSR-Senator Lines informed Berde Plants that M/V "Kapitan
Sakharov" with its cargo was gutted by fire and sank on or about July 4, 1993. On
December 16, 1993, C.F. Sharp issued a certification to that effect.
Consequently, Federal Phoenix Assurance paid Berde Plants P941,429.61
corresponding to the amount of insurance for the cargo. In turn Berde Plants
executed in its favor a "Subrogation Receipt" 5 dated January 17, 1994.
On February 8, 1994, Federal Phoenix Assurance sent a letter to C.F. Sharp
demanding payment of P941,429.61 on the basis of the Subrogation Receipt. C.F.
Sharp denied any liability on the ground that such liability was extinguished when the
vessel carrying the cargo was gutted by fire.
Thus, on March 11, 1994, Federal Phoenix Assurance filed with the RTC, Branch 16,
Manila a complaint for damages against DSR-Senator Lines and C.F. Sharp, praying
that the latter be ordered to pay actual damages of P941,429.61, compensatory
damages of P100,000.00 and costs.
On August 22, 1995, the RTC rendered a Decision in favor of Federal Phoenix
Assurance, the dispositive portion of which reads:jgc:chanrobles.com.ph
"WHEREFORE, premises considered, judgment is hereby rendered in favor of
plaintiff and against the defendants who are hereby ordered jointly and severally to
pay plaintiff:chanrob1es virtua1 1aw 1ibrary
I. The amount of P941,439.61 (should be P941,429.61 6) with legal interest of 6% per
annum from the date of the letter of demand of February 8, 1993 (EXH. L) and 12%
per annum from the date the judgment becomes final and executory until its
satisfaction (Eastern Shipping Lines v. Court of Appeals, G.R. No. 97412, July 12,
1994);
II. The amount of P15,000.00 by way of reasonable attorney’s fees; and
III. To pay costs.
"The counterclaim of defendants is DISMISSED.
"SO ORDERED." 7
On appeal, the Court of Appeals rendered a Decision dated June 5, 1998, affirming
the RTC Decision, thus:jgc:chanrobles.com.ph
"In the present recourse, the appellant carrier was presumed to have acted
negligently for the fire that gutted the feeder vessel and the consequent loss or
destruction of the cargo. Hence, the appellant carrier is liable for appellee’s claim
under the New Civil Code of the Philippines.
"Contrary to C.F. Sharp and Co., Inc.’s pose, its liability as ship agent continued and
remained until the cargo was delivered to the consignee. The status of the appellant
as ship agent subsisted and its liability as a ship agent was co-terminous with and
subsisted as long as the cargo was not delivered to the consignee under the terms of
the Bill of Lading.
"IN LIGHT OF ALL THE FOREGOING, the appeal of the appellants is DISMISSED.
The Decision appealed from is affirmed. With costs against the appellants.
"SO ORDERED." 8
On September 7, 1998, the Court of Appeals denied the motion for reconsideration of
DSR-Senator Lines and C.F. Sharp, prompting them to file with this Court the instant
petition.cralaw : red
We find the petition bereft of merit.
Article 1734 of the Civil Code provides:jgc:chanrobles.com.ph
"Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration
of the goods, unless the same is due to any of the following causes only:chanrob1es
virtual 1aw library
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority."cralaw virtua1aw library
Fire is not one of those enumerated under the above provision which exempts a
carrier from liability for loss or destruction of the cargo.
In Eastern Shipping Lines, Inc. v. Intermediate Appellate Court, 9 we ruled that since
the peril of fire is not comprehended within the exceptions in Article 1734, then 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 low.
Even if fire were to be considered a natural disaster within the purview of Article 1734,
it is required under Article 1739 10 of the same Code that the natural disaster must
have been the proximate and only cause of the loss, and that the carrier has
38|Transportation (Carriage of goods)
exercised due diligence to prevent or minimize the loss before, during or after the
occurrence of the disaster.
We have held that a 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. 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. 11chanrob1es virtua1 1aw 1ibrary
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 1739. In those cases where the presumption is
applied, the common carrier must prove that it exercised extraordinary diligence in
order to overcome the presumption. 12
Respondent Federal Phoenix Assurance raised the presumption of negligence
against petitioners. However, they failed to overcome it by sufficient proof of
extraordinary diligence.
WHEREFORE, the instant petition is DENIED. The assailed Decision of the Court of
Appeals dated June 5, 1998, in CA-G.R. CV No. 50833 is hereby AFFIRMED.
SO ORDERED.
[G.R. NO. 150751 : September 20, 2004]
CENTRAL SHIPPING COMPANY, INC., Petitioner, v. INSURANCE COMPANY OF
NORTH AMERICA, Respondent.
DECISION
PANGANIBAN, J.:
A common carrier is presumed to be at fault or negligent. It shall be liable for the loss,
destruction or deterioration of its cargo, unless it can prove that the sole and
proximate cause of such event is one of the causes enumerated in Article 1734 of the
Civil Code, or that it exercised extraordinary diligence to prevent or minimize the loss.
In the present case, the weather condition encountered by petitioner's vessel was not
a "storm" or a natural disaster comprehended in the law. Given the known weather
condition prevailing during the voyage, the manner of stowage employed by the
carrier was insufficient to secure the cargo from the rolling action of the sea. The
carrier took a calculated risk in improperly securing the cargo. Having lost that risk, it
cannot now disclaim any liability for the loss.
The Case
Before the Court is a Petition for Review1 under Rule 45 of the Rules of Court,
seeking to reverse and set aside the March 23, 2001 Decision2 of the Court of
Appeals (CA) in CA-GR CV No. 48915. The assailed Decision disposed as follows:
"WHEREFORE, the decision of the Regional Trial Court of Makati City, Branch 148
dated August 4, 1994 is hereby MODIFIED in so far as the award of attorney's fees is
DELETED. The decision is AFFIRMED in all other respects."3
The CA denied petitioner's Motion for Reconsideration in its November 7, 2001
Resolution.4
The Facts
The factual antecedents, summarized by the trial court and adopted by the appellate
court, are as follows:
"On July 25, 1990 at Puerto Princesa, Palawan, the [petitioner] received on board its
vessel, the M/V 'Central Bohol', 376 pieces [of] Philippine Apitong Round Logs and
undertook to transport said shipment to Manila for delivery to Alaska Lumber Co., Inc.
"The cargo was insured for P3,000,000.00 against total loss under [respondent's]
Marine Cargo Policy No. MCPB-00170.
"On July 25, 1990, upon completion of loading of the cargo, the vessel left Palawan
and commenced the voyage to Manila.
"At about 0125 hours on July 26, 1990, while enroute to Manila, the vessel listed
about 10 degrees starboardside, due to the shifting of logs in the hold.
"At about 0128 hours, after the listing of the vessel had increased to 15 degrees, the
ship captain ordered his men to abandon ship and at about 0130 hours of the same
day the vessel completely sank. Due to the sinking of the vessel, the cargo was totally
lost.
"[Respondent] alleged that the total loss of the shipment was caused by the fault and
negligence of the [petitioner] and its captain and as direct consequence thereof the
consignee suffered damage in the sum of P3,000,000.00.
"The consignee, Alaska Lumber Co. Inc., presented a claim for the value of the
shipment to the [petitioner] but the latter failed and refused to settle the claim, hence
[respondent], being the insurer, paid said claim and now seeks to be subrogated to all
the rights and actions of the consignee as against the [petitioner].
39|Transportation (Carriage of goods)
"[Petitioner], while admitting the sinking of the vessel, interposed the defense that the
vessel was fully manned, fully equipped and in all respects seaworthy; that all the
logs were properly loaded and secured; that the vessel's master exercised due
diligence to prevent or minimize the loss before, during and after the occurrence of
the storm.
"It raised as its main defense that the proximate and only cause of the sinking of its
vessel and the loss of its cargo was a natural disaster, a tropical storm which neither
[petitioner] nor the captain of its vessel could have foreseen."5
The RTC was unconvinced that the sinking of M/V Central Bohol had been caused by
the weather or any other caso fortuito. It noted that monsoons, which were common
occurrences during the months of July to December, could have been foreseen and
provided for by an ocean-going vessel. Applying the rule of presumptive fault or
negligence against the carrier, the trial court held petitioner liable for the loss of the
cargo. Thus, the RTC deducted the salvage value of the logs in the amount
of P200,000 from the principal claim of respondent and found that the latter was
entitled to be subrogated to the rights of the insured. The court a quo disposed as
follows:
"WHEREFORE, premises considered, judgment is hereby rendered in favor of the
[respondent] and against the [petitioner] ordering the latter to pay the following:
1) the amount of P2,800,000.00 with legal interest thereof from the filing of this
complaint up to and until the same is fully paid;
2) P80,000.00 as and for attorney's fees;
3) Plus costs of suit."6
Ruling of the Court of Appeals
The CA affirmed the trial court's finding that the southwestern monsoon encountered
by the vessel was not unforeseeable. Given the season of rains and monsoons, the
ship captain and his crew should have anticipated the perils of the sea. The appellate
court further held that the weather disturbance was not the sole and proximate cause
of the sinking of the vessel, which was also due to the concurrent shifting of the logs
in the hold that could have resulted only from improper stowage. Thus, the carrier
was held responsible for the consequent loss of or damage to the cargo, because its
own negligence had contributed thereto.
The CA found no merit in petitioner's assertion of the vessel's seaworthiness. It held
that the Certificates of Inspection and Drydocking were not conclusive proofs thereof.
In order to consider a vessel to be seaworthy, it must be fit to meet the perils of the
sea.
Found untenable was petitioner's insistence that the trial court should have given
greater weight to the factual findings of the Board of Marine Inquiry (BMI) in the
investigation of the Marine Protest filed by the ship captain, Enriquito Cahatol. The
CA further observed that what petitioner had presented to the court a quo were mere
excerpts of the testimony of Captain Cahatol given during the course of the
proceedings before the BMI, not the actual findings and conclusions of the agency.
Citing Arada v. CA,7 it said that findings of the BMI were limited to the administrative
liability of the owner/operator, officers and crew of the vessel. However, the
determination of whether the carrier observed extraordinary diligence in protecting the
cargo it was transporting was a function of the courts, not of the BMI.
The CA concluded that the doctrine of limited liability was not applicable, in view of
petitioner's negligence - - particularly its improper stowage of the logs.
Hence, this Petition.8
Issues
In its Memorandum, petitioner submits the following issues for our consideration:
"(i) Whether or not the weather disturbance which caused the sinking of the vessel
M/V Central Bohol was a fortuitous event.
"(ii) Whether or not the investigation report prepared by Claimsmen Adjustment
Corporation is hearsay evidence under Section 36, Rule 130 of the Rules of Court.
"(iii) Whether or not the finding of the Court of Appeals that 'the logs in the hold
shifted and such shifting could only be due to improper stowage' has a valid and
factual basis.
"(iv) Whether or not M/V Central Bohol is seaworthy.
"(v) Whether or not the Court of Appeals erred in not giving credence to the factual
finding of the Board of Marine Inquiry (BMI), an independent government agency
tasked to conduct inquiries on maritime accidents.
"(vi) Whether or not the Doctrine of Limited Liability is applicable to the case at bar."9
The issues boil down to two: (1) whether the carrier is liable for the loss of the cargo;
and (2) whether the doctrine of limited liability is applicable. These issues involve a
determination of factual questions of whether the loss of the cargo was due to the
occurrence of a natural disaster; and if so, whether its sole and proximate cause was
such natural disaster or whether petitioner was partly to blame for failing to exercise
due diligence in the prevention of that loss.
The Court's Ruling
The Petition is devoid of merit.
40|Transportation (Carriage of goods)
First Issue:
Liability for Lost Cargo
From the nature of their business and for reasons of public policy, common carriers
are bound to observe extraordinary diligence over the goods they transport, according
to all the circumstances of each case.10 In the event of loss, destruction or
deterioration of the insured goods, common carriers are responsible; that is, unless
they can prove that such loss, destruction or deterioration was brought about - -
among others - - by "flood, storm, earthquake, lightning or other natural disaster or
calamity."11 In all other cases not specified under Article 1734 of the Civil Code,
common carriers are presumed to have been at fault or to have acted negligently,
unless they prove that they observed extraordinary diligence.12
In the present case, petitioner disclaims responsibility for the loss of the cargo by
claiming the occurrence of a "storm" under Article 1734(1). It attributes the sinking of
its vessel solely to the weather condition between 10:00 p.m. on July 25, 1990 and
1:25 a.m. on July 26, 1990.
At the outset, it must be stressed that only questions of law13 may be raised in a
Petition for Review on Certiorari under Rule 45 of the Rules of Court. Questions of
fact are not proper subjects in this mode of appeal,14 for "[t]he Supreme Court is not a
trier of facts."15 Factual findings of the CA may be reviewed on appeal16 only under
exceptional circumstances such as, among others, when the inference is manifestly
mistaken,17 the judgment is based on a misapprehension of facts,18 or the CA
manifestly overlooked certain relevant and undisputed facts that, if properly
considered, would justify a different conclusion.19
In the present case, petitioner has not given the Court sufficient cogent reasons to
disturb the conclusion of the CA that the weather encountered by the vessel was not
a "storm" as contemplated by Article 1734(1). Established is the fact that between
10:00 p.m. on July 25, 1990 and 1:25 a.m. on July 26, 1990, M/V Central Bohol
encountered a southwestern monsoon in the course of its voyage.
The Note of Marine Protest,20 which the captain of the vessel issued under oath,
stated that he and his crew encountered a southwestern monsoon about 2200 hours
on July 25, 1990, and another monsoon about 2400 hours on July 26, 1990. Even
petitioner admitted in its Answer that the sinking of M/V Central Bohol had been
caused by the strong southwest monsoon.21 Having made such factual
representation, it cannot now be allowed to retreat and claim that the southwestern
monsoon was a "storm."
The pieces of evidence with respect to the weather conditions encountered by the
vessel showed that there was a southwestern monsoon at the time. Normally
expected on sea voyages, however, were such monsoons, during which strong winds
were not unusual. Rosa S. Barba, weather specialist of the Philippine Atmospheric
Geophysical and Astronomical Services Administration (PAGASA), testified that a
thunderstorm might occur in the midst of a southwest monsoon. According to her, one
did occur between 8:00 p.m. on July 25, 1990, and 2 a.m. on July 26, 1990, as
recorded by the PAGASA Weather Bureau.22
Nonetheless, to our mind it would not be sufficient to categorize the weather condition
at the time as a "storm" within the absolutory causes enumerated in the law.
Significantly, no typhoon was observed within the Philippine area of responsibility
during that period.23
According to PAGASA, a storm has a wind force of 48 to 55 knots,24 equivalent to 55
to 63 miles per hour or 10 to 11 in the Beaufort Scale. The second mate of the vessel
stated that the wind was blowing around force 7 to 8 on the Beaufort
Scale.25 Consequently, the strong winds accompanying the southwestern monsoon
could not be classified as a "storm." Such winds are the ordinary vicissitudes of a sea
voyage.26
Even if the weather encountered by the ship is to be deemed a natural disaster under
Article 1739 of the Civil Code, petitioner failed to show that such natural disaster or
calamity was the proximate and only cause of the loss. Human agency must be
entirely excluded from the cause of injury or loss. In other words, the damaging
effects blamed on the event or phenomenon must not have been caused, contributed
to, or worsened by the presence of human participation.27 The defense of fortuitous
event or natural disaster cannot be successfully made when the injury could have
been avoided by human precaution.28
Hence, if a common carrier fails to exercise due diligence - - or that ordinary care that
the circumstances of the particular case demand - - to prevent or minimize the loss
before, during and after the occurrence of the natural disaster, the carrier shall be
deemed to have been negligent. The loss or injury is not, in a legal sense, due to a
natural disaster under Article 1734(1).29
We also find no reason to disturb the CA's finding that the loss of the vessel was
caused not only by the southwestern monsoon, but also by the shifting of the logs in
the hold. Such shifting could been due only to improper stowage. The assailed
Decision stated:
"Notably, in Master Cahatol's account, the vessel encountered the first southwestern
monsoon at about 1[0]:00 in the evening. The monsoon was coupled with heavy rains
and rough seas yet the vessel withstood the onslaught. The second monsoon attack
occurred at about 12:00 midnight. During this occasion, the master 'felt' that the logs
in the hold shifted, prompting him to order second mate Percival Dayanan to look at
the bodega. Complying with the captain's order, 2nd mate Percival Dayanan found
that there was seawater in the bodega. 2nd mate Dayanan's account was:
'14.T - Kung inyo pong natatandaan ang mga pangyayari, maari mo bang isalaysay
ang naganap na paglubog sa barkong M/V Central Bohol?chanroblesvirtualawlibrary
'S - Opo, noong ika-26 ng Julio 1990 humigit kumulang alas 1:20 ng umaga (dst)
habang kami ay nagnanabegar patungong Maynila sa tapat ng Cadlao Island at
Cauayan Island sakop ng El Nido, Palawan, inutusan ako ni Captain Enriquito
41|Transportation (Carriage of goods)
Cahatol na tingnan ko ang bodega; nang ako ay nasa bodega, nakita ko ang loob
nang bodega na maraming tubig at naririnig ko ang malakas na agos ng tubig-dagat
na pumapasok sa loob ng bodega ng barko; agad bumalik ako kay Captain Enriquito
Cahatol at sinabi ko ang malakas na pagpasok ng tubig-dagat sa loob nang bodega
ng barko na ito ay naka-tagilid humigit kumulang sa 020 degrees, nag-order si
Captain Cahatol na standby engine at tinawag ang lahat ng mga officials at mga crew
nang maipon kaming lahat ang barko ay naka-tagilid at ito ay tuloy-tuloy ang
pagtatagilid na ang ilan sa mga officials ay naka-hawak na sa barandilla ng barko at
di-nagtagal sumigaw nang ABANDO[N] SHIP si Captain Cahatol at kami ay
nagkanya-kanya nang talunan at languyan sa dagat na malakas ang alon at nang ako
ay lumingon sa barko ito ay di ko na nakita.'
"Additionally, [petitioner's] own witnesses, boatswain Eduardo Viñas Castro and oiler
Frederick Perena, are one in saying that the vessel encountered two weather
disturbances, one at around 10 o'clock to 11 o'clock in the evening and the other at
around 12 o'clock midnight. Both disturbances were coupled with waves and heavy
rains, yet, the vessel endured the first and not the second. Why? The reason is plain.
The vessel felt the strain during the second onslaught because the logs in the bodega
shifted and there were already seawater that seeped inside."30
The above conclusion is supported by the fact that the vessel proceeded through the
first southwestern monsoon without any mishap, and that it began to list only during
the second monsoon immediately after the logs had shifted and seawater had
entered the hold. In the hold, the sloshing of tons of water back and forth had created
pressures that eventually caused the ship to sink. Had the logs not shifted, the ship
could have survived and reached at least the port of El Nido. In fact, there was
another motor launch that had been buffeted by the same weather condition within
the same area, yet it was able to arrive safely at El Nido.31
In its Answer, petitioner categorically admitted the allegation of respondent in
paragraph 5 of the latter's Complaint "[t]hat at about 0125 hours on 26 July 1990,
while enroute to Manila, the M/V 'Central Bohol' listed about 10 degrees
starboardside, due to the shifting of logs in the hold." Further, petitioner averred that
"[t]he vessel, while navigating through this second southwestern monsoon, was under
extreme stress. At about 0125 hours, 26 July 1990, a thud was heard in the cargo
hold and the logs therein were felt to have shifted. The vessel thereafter immediately
listed by ten (10) degrees starboardside."32
Yet, petitioner now claims that the CA's conclusion was grounded on mere
speculations and conjectures. It alleges that it was impossible for the logs to have
shifted, because they had fitted exactly in the hold from the port to the starboard side.
After carefully studying the records, we are inclined to believe that the logs did indeed
shift, and that they had been improperly loaded.
According to the boatswain's testimony, the logs were piled properly, and the entire
shipment was lashed to the vessel by cable wire.33 The ship captain testified that out
of the 376 pieces of round logs, around 360 had been loaded in the lower hold of the
vessel and 16 on deck. The logs stored in the lower hold were not secured by cable
wire, because they fitted exactly from floor to ceiling. However, while they were
placed side by side, there were unavoidable clearances between them owing to their
round shape. Those loaded on deck were lashed together several times across by
cable wire, which had a diameter of 60 millimeters, and were secured from starboard
to port.34
It is obvious, as a matter of common sense, that the manner of stowage in the lower
hold was not sufficient to secure the logs in the event the ship should roll in heavy
weather. Notably, they were of different lengths ranging from 3.7 to 12.7
meters.35 Being clearly prone to shifting, the round logs should not have been stowed
with nothing to hold them securely in place. Each pile of logs should have been
lashed together by cable wire, and the wire fastened to the side of the hold.
Considering the strong force of the wind and the roll of the waves, the loose
arrangement of the logs did not rule out the possibility of their shifting. By force of
gravity, those on top of the pile would naturally roll towards the bottom of the ship.
The adjuster's Report, which was heavily relied upon by petitioner to strengthen its
claim that the logs had not shifted, stated that "the logs were still properly lashed by
steel chains on deck." Parenthetically, this statement referred only to those loaded on
deck and did not mention anything about the condition of those placed in the lower
hold. Thus, the finding of the surveyor that the logs were still intact clearly pertained
only to those lashed on deck.
The evidence indicated that strong southwest monsoons were common occurrences
during the month of July. Thus, the officers and crew of M/V Central Bohol should
have reasonably anticipated heavy rains, strong winds and rough seas. They should
then have taken extra precaution in stowing the logs in the hold, in consonance with
their duty of observing extraordinary diligence in safeguarding the goods. But the
carrier took a calculated risk in improperly securing the cargo. Having lost that risk, it
cannot now escape responsibility for the loss.
Second Issue:
Doctrine of Limited Liability
The doctrine of limited liability under Article 587 of the Code of Commerce36 is not
applicable to the present case. This rule does not apply to situations in which the loss
or the injury is due to the concurrent negligence of the shipowner and the captain.37 It
has already been established that the sinking of M/V Central Bohol had been caused
by the fault or negligence of the ship captain and the crew, as shown by the improper
stowage of the cargo of logs. "Closer supervision on the part of the shipowner could
have prevented this fatal miscalculation."38 As such, the shipowner was equally
negligent. It cannot escape liability by virtue of the limited liability rule.
WHEREFORE, the Petition is DENIED, and the assailed Decision and
Resolution AFFIRMED. Costs against petitioner.
SO ORDERED.
42|Transportation (Carriage of goods)
G.R. No. 150255. April 22, 2005
SCHMITZ TRANSPORT & BROKERAGE CORPORATION, Petitioners,
vs.
TRANSPORT VENTURE, INC., INDUSTRIAL INSURANCE COMPANY, LTD., and
BLACK SEA SHIPPING AND DODWELL now INCHCAPE SHIPPING
SERVICES, Respondents.
DECISION
CARPIO-MORALES, J.:
On petition for review is the June 27, 2001 Decision1 of the Court of Appeals, as well
as its Resolution2 dated September 28, 2001 denying the motion for reconsideration,
which affirmed that of Branch 21 of the Regional Trial Court (RTC) of Manila in Civil
Case No. 92-631323 holding petitioner Schmitz Transport Brokerage Corporation
(Schmitz Transport), together with Black Sea Shipping Corporation (Black Sea),
represented by its ship agent Inchcape Shipping Inc. (Inchcape), and Transport
Venture (TVI), solidarily liable for the loss of 37 hot rolled steel sheets in coil that were
washed overboard a barge.
On September 25, 1991, SYTCO Pte Ltd. Singapore shipped from the port of
Ilyichevsk, Russia on board M/V "Alexander Saveliev" (a vessel of Russian registry
and owned by Black Sea) 545 hot rolled steel sheets in coil weighing 6,992,450
metric tons.
The cargoes, which were to be discharged at the port of Manila in favor of the
consignee, Little Giant Steel Pipe Corporation (Little Giant),4 were insured against all
risks with Industrial Insurance Company Ltd. (Industrial Insurance) under Marine
Policy No. M-91-3747-TIS.5
The vessel arrived at the port of Manila on October 24, 1991 and the Philippine Ports
Authority (PPA) assigned it a place of berth at the outside breakwater at the Manila
South Harbor.6
Schmitz Transport, whose services the consignee engaged to secure the requisite
clearances, to receive the cargoes from the shipside, and to deliver them to its (the
consignee’s) warehouse at Cainta, Rizal,7 in turn engaged the services of TVI to send
a barge and tugboat at shipside.
On October 26, 1991, around 4:30 p.m., TVI’s tugboat "Lailani" towed the barge
"Erika V" to shipside.8
By 7:00 p.m. also of October 26, 1991, the tugboat, after positioning the barge
alongside the vessel, left and returned to the port terminal.9 At 9:00 p.m., arrastre
operator Ocean Terminal Services Inc. commenced to unload 37 of the 545 coils from
the vessel unto the barge.
By 12:30 a.m. of October 27, 1991 during which the weather condition had become
inclement due to an approaching storm, the unloading unto the barge of the 37 coils
was accomplished.10 No tugboat pulled the barge back to the pier, however.
At around 5:30 a.m. of October 27, 1991, due to strong waves,11 the crew of the barge
abandoned it and transferred to the vessel. The barge pitched and rolled with the
waves and eventually capsized, washing the 37 coils into the sea.12 At 7:00 a.m., a
tugboat finally arrived to pull the already empty and damaged barge back to the pier.13
Earnest efforts on the part of both the consignee Little Giant and Industrial Insurance
to recover the lost cargoes proved futile.14
Little Giant thus filed a formal claim against Industrial Insurance which paid it the
amount of ₱5,246,113.11. Little Giant thereupon executed a subrogation receipt15 in
favor of Industrial Insurance.
Industrial Insurance later filed a complaint against Schmitz Transport, TVI, and Black
Sea through its representative Inchcape (the defendants) before the RTC of Manila,
for the recovery of the amount it paid to Little Giant plus adjustment fees, attorney’s
fees, and litigation expenses.16
Industrial Insurance faulted the defendants for undertaking the unloading of the
cargoes while typhoon signal No. 1 was raised in Metro Manila.17
By Decision of November 24, 1997, Branch 21 of the RTC held all the defendants
negligent for unloading the cargoes outside of the breakwater notwithstanding the
storm signal.18 The dispositive portion of the decision reads:
WHEREFORE, premises considered, the Court renders judgment in favor of the
plaintiff, ordering the defendants to pay plaintiff jointly and severally the sum of
₱5,246,113.11 with interest from the date the complaint was filed until fully satisfied,
as well as the sum of ₱5,000.00 representing the adjustment fee plus the sum of 20%
of the amount recoverable from the defendants as attorney’s fees plus the costs of
suit. The counterclaims and cross claims of defendants are hereby DISMISSED for
lack of [m]erit.19
To the trial court’s decision, the defendants Schmitz Transport and TVI filed a joint
motion for reconsideration assailing the finding that they are common carriers and the
award of excessive attorney’s fees of more than ₱1,000,000. And they argued that
they were not motivated by gross or evident bad faith and that the incident was
caused by a fortuitous event. 20
43|Transportation (Carriage of goods)
By resolution of February 4, 1998, the trial court denied the motion for
reconsideration. 21
All the defendants appealed to the Court of Appeals which, by decision of June 27,
2001, affirmed in toto the decision of the trial court, 22 it finding that all the defendants
were common carriers — Black Sea and TVI for engaging in the transport of goods
and cargoes over the seas as a regular business and not as an isolated
transaction,23 and Schmitz Transport for entering into a contract with Little Giant to
transport the cargoes from ship to port for a fee.24
In holding all the defendants solidarily liable, the appellate court ruled that "each one
was essential such that without each other’s contributory negligence the incident
would not have happened and so much so that the person principally liable cannot be
distinguished with sufficient accuracy."25
In discrediting the defense of fortuitous event, the appellate court held that "although
defendants obviously had nothing to do with the force of nature, they however had
control of where to anchor the vessel, where discharge will take place and even when
the discharging will commence."26
The defendants’ respective motions for reconsideration having been denied by
Resolution27 of September 28, 2001, Schmitz Transport (hereinafter referred to as
petitioner) filed the present petition against TVI, Industrial Insurance and Black Sea.
Petitioner asserts that in chartering the barge and tugboat of TVI, it was acting for its
principal, consignee Little Giant, hence, the transportation contract was by and
between Little Giant and TVI.28
By Resolution of January 23, 2002, herein respondents Industrial Insurance, Black
Sea, and TVI were required to file their respective Comments.29
By its Comment, Black Sea argued that the cargoes were received by the consignee
through petitioner in good order, hence, it cannot be faulted, it having had no control
and supervision thereover.30
For its part, TVI maintained that it acted as a passive party as it merely received the
cargoes and transferred them unto the barge upon the instruction of petitioner.31
In issue then are:
(1) Whether the loss of the cargoes was due to a fortuitous event, independent of any
act of negligence on the part of petitioner Black Sea and TVI, and
(2) If there was negligence, whether liability for the loss may attach to Black Sea,
petitioner and TVI.
When a fortuitous event occurs, Article 1174 of the Civil Code absolves any party
from any and all liability arising therefrom:
ART. 1174. Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the assumption
of risk, no person shall be responsible for those events which could not be foreseen,
or which though foreseen, were inevitable.
In order, to be considered a fortuitous event, however, (1) the cause of the
unforeseen and unexpected occurrence, or the failure of the debtor to comply with his
obligation, must be independent of human will; (2) it must be impossible to foresee
the event which constitute 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 any manner; and (4) the obligor must be free from any
participation in the aggravation of the injury resulting to the creditor.32
[T]he principle embodied in the act of God doctrine strictly requires that the act must
be occasioned solely by the violence of nature. Human intervention is to be excluded
from creating or entering into the cause of the mischief. When the effect is found to be
in part the result of the participation of man, whether due to his active intervention or
neglect or failure to act, the whole occurrence is then humanized and removed from
the rules applicable to the acts of God.33
The appellate court, in affirming the finding of the trial court that human intervention in
the form of contributory negligence by all the defendants resulted to the loss of the
cargoes,34 held that unloading outside the breakwater, instead of inside the
breakwater, while a storm signal was up constitutes negligence.35 It thus concluded
that the proximate cause of the loss was Black Sea’s negligence in deciding to unload
the cargoes at an unsafe place and while a typhoon was approaching.36
From a review of the records of the case, there is no indication that there was greater
risk in loading the cargoes outside the breakwater. As the defendants proffered, the
weather on October 26, 1991 remained normal with moderate sea condition such that
port operations continued and proceeded normally.37
The weather data report,38 furnished and verified by the Chief of the Climate Data
Section of PAG-ASA and marked as a common exhibit of the parties, states that while
typhoon signal No. 1 was hoisted over Metro Manila on October 23-31, 1991, the sea
condition at the port of Manila at 5:00 p.m. - 11:00 p.m. of October 26, 1991 was
moderate. It cannot, therefore, be said that the defendants were negligent in not
unloading the cargoes upon the barge on October 26, 1991 inside the breakwater.
That no tugboat towed back the barge to the pier after the cargoes were completely
loaded by 12:30 in the morning39 is, however, a material fact which the appellate court
failed to properly consider and appreciate40 — the proximate cause of the loss of the
cargoes. Had the barge been towed back promptly to the pier, the deteriorating sea
conditions notwithstanding, the loss could have been avoided. But the barge was left
floating in open sea until big waves set in at 5:30 a.m., causing it to sink along with
the cargoes.41 The loss thus falls outside the "act of God doctrine."
44|Transportation (Carriage of goods)
The proximate cause of the loss having been determined, who among the parties
is/are responsible therefor?
Contrary to petitioner’s insistence, this Court, as did the appellate court, finds that
petitioner is a common carrier. For it undertook to transport the cargoes from the
shipside of "M/V Alexander Saveliev" to the consignee’s warehouse at Cainta, Rizal.
As the appellate court put it, "as long as a person or corporation holds [itself] to the
public for the purpose of transporting goods as [a] business, [it] is already considered
a common carrier regardless if [it] owns the vehicle to be used or has to hire
one."42 That petitioner is a common carrier, the testimony of its own Vice-President
and General Manager Noel Aro that part of the services it offers to its clients as a
brokerage firm includes the transportation of cargoes reflects so.
Atty. Jubay: Will you please tell us what [are you] functions x x x as Executive Vice-
President and General Manager of said Company?
Mr. Aro: Well, I oversee the entire operation of the brokerage and transport business
of the company. I also handle the various division heads of the company for operation
matters, and all other related functions that the President may assign to me from time
to time, Sir.
Q: Now, in connection [with] your duties and functions as you mentioned, will you
please tell the Honorable Court if you came to know the company by the name Little
Giant Steel Pipe Corporation?
A: Yes, Sir. Actually, we are the brokerage firm of that Company.
Q: And since when have you been the brokerage firm of that company, if you can
recall?
A: Since 1990, Sir.
Q: Now, you said that you are the brokerage firm of this Company. What work or duty
did you perform in behalf of this company?
A: We handled the releases (sic) of their cargo[es] from the Bureau of Customs. We
[are] also in-charged of the delivery of the goods to their warehouses. We also
handled the clearances of their shipment at the Bureau of Customs, Sir.
xxx
Q: Now, what precisely [was] your agreement with this Little Giant Steel Pipe
Corporation with regards to this shipment? What work did you do with this shipment?
A: We handled the unloading of the cargo[es] from vessel to lighter and then the
delivery of [the] cargo[es] from lighter to BASECO then to the truck and to the
warehouse, Sir.
Q: Now, in connection with this work which you are doing, Mr. Witness, you are
supposed to perform, what equipment do (sic) you require or did you use in order to
effect this unloading, transfer and delivery to the warehouse?
A: Actually, we used the barges for the ship side operations, this unloading [from]
vessel to lighter, and on this we hired or we sub-contracted with [T]ransport Ventures,
Inc. which [was] in-charged (sic) of the barges. Also, in BASECO compound we are
leasing cranes to have the cargo unloaded from the barge to trucks, [and] then we
used trucks to deliver [the cargoes] to the consignee’s warehouse, Sir.
Q: And whose trucks do you use from BASECO compound to the consignee’s
warehouse?
A: We utilized of (sic) our own trucks and we have some other contracted trucks, Sir.
xxx
ATTY. JUBAY: Will you please explain to us, to the Honorable Court why is it you
have to contract for the barges of Transport Ventures Incorporated in this particular
operation?
A: Firstly, we don’t own any barges. That is why we hired the services of another firm
whom we know [al]ready for quite sometime, which is Transport Ventures, Inc.
(Emphasis supplied)43
It is settled that under a given set of facts, a customs broker may be regarded as a
common carrier. Thus, this Court, in A.F. Sanchez Brokerage, Inc. v. The Honorable
Court of Appeals,44 held:
The appellate court did not err in finding petitioner, a customs broker, to be also a
common carrier, as defined under Article 1732 of the Civil Code, to wit,
Art. 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.
xxx
Article 1732 does not distinguish between one whose principal business activity is the
carrying of goods and one who does such carrying only as an ancillary activity. The
contention, therefore, of petitioner that it is not a common carrier but a customs
broker whose principal function is to prepare the correct customs declaration and
proper shipping documents as required by law is bereft of merit. It suffices that
petitioner undertakes to deliver the goods for pecuniary consideration.45
And in Calvo v. UCPB General Insurance Co. Inc.,46 this Court held that as the
transportation of goods is an integral part of a customs broker, the customs broker is
45|Transportation (Carriage of goods)
also a common carrier. For to declare otherwise "would be to deprive those with
whom [it] contracts the protection which the law affords them notwithstanding the fact
that the obligation to carry goods for [its] customers, is part and parcel of petitioner’s
business."47
As for petitioner’s argument that being the agent of Little Giant, any negligence it
committed was deemed the negligence of its principal, it does not persuade.
True, petitioner was the broker-agent of Little Giant in securing the release of the
cargoes. In effecting the transportation of the cargoes from the shipside and into Little
Giant’s warehouse, however, petitioner was discharging its own personal obligation
under a contact of carriage.
Petitioner, which did not have any barge or tugboat, engaged the services of TVI as
handler48 to provide the barge and the tugboat. In their Service Contract,49 while Little
Giant was named as the consignee, petitioner did not disclose that it was acting on
commission and was chartering the vessel for Little Giant.50 Little Giant did not thus
automatically become a party to the Service Contract and was not, therefore, bound
by the terms and conditions therein.
Not being a party to the service contract, Little Giant cannot directly sue TVI based
thereon but it can maintain a cause of action for negligence.51
In the case of TVI, while it acted as a private carrier for which it was under no duty to
observe extraordinary diligence, it was still required to observe ordinary diligence to
ensure the proper and careful handling, care and discharge of the carried goods.
Thus, Articles 1170 and 1173 of the Civil Code provide:
ART. 1170. 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. 1173. 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 2202, paragraph 2, shall apply.
If the law or contract 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.
Was the reasonable care and caution which an ordinarily prudent person would have
used in the same situation exercised by TVI?52
This Court holds not.
TVI’s failure to promptly provide a tugboat did not only increase the risk that might
have been reasonably anticipated during the shipside operation, but was
the proximate cause of the loss. A man of ordinary prudence would not leave a
heavily loaded barge floating for a considerable number of hours, at such a
precarious time, and in the open sea, knowing that the barge does not have any
power of its own and is totally defenseless from the ravages of the sea. That it was
nighttime and, therefore, the members of the crew of a tugboat would be charging
overtime pay did not excuse TVI from calling for one such tugboat.
As for petitioner, for it to be relieved of liability, it should, following Article 173953 of the
Civil Code, prove that it exercised due diligence to prevent or minimize the loss,
before, during and after the occurrence of the storm in order that it may be exempted
from liability for the loss of the goods.
While petitioner sent checkers54 and a supervisor55 on board the vessel to counter-
check the operations of TVI, it failed to take all available and reasonable precautions
to avoid the loss. After noting that TVI failed to arrange for the prompt towage of the
barge despite the deteriorating sea conditions, it should have summoned the same or
another tugboat to extend help, but it did not.
This Court holds then that petitioner and TVI are solidarily liable56 for the loss of the
cargoes. The following pronouncement of the Supreme Court is instructive:
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.
Should Prudent be made likewise liable? If at all, that liability could only be for tort
under the provisions of Article 2176 and related provisions, in conjunction with Article
2180 of the Civil Code. x x x [O]ne might ask further, how then must the liability of the
common carrier, on one hand, and an independent contractor, on the other hand, be
described? It would be solidary. 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.57
As for Black Sea, its duty as a common carrier extended only from the time the goods
were surrendered or unconditionally placed in its possession and received for
transportation until they were delivered actually or constructively to consignee Little
Giant.58
46|Transportation (Carriage of goods)
Parties to a contract of carriage may, however, agree upon a definition of delivery that
extends the services rendered by the carrier. In the case at bar, Bill of Lading No. 2
covering the shipment provides that delivery be made "to the port of discharge or so
near thereto as she may safely get, always afloat."59 The delivery of the goods to the
consignee was not from "pier to pier" but from the shipside of "M/V Alexander
Saveliev" and into barges, for which reason the consignee contracted the services of
petitioner. Since Black Sea had constructively delivered the cargoes to Little Giant,
through petitioner, it had discharged its duty.60
In fine, no liability may thus attach to Black Sea.
Respecting the award of attorney’s fees in an amount over ₱1,000,000.00 to
Industrial Insurance, for lack of factual and legal basis, this Court sets it aside. While
Industrial Insurance was compelled to litigate its rights, such fact by itself does not
justify the award of attorney’s fees under Article 2208 of the Civil Code. For 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.61 To award
attorney’s fees to a party just because the judgment is rendered in its favor would be
tantamount to imposing a premium on one’s right to litigate or seek judicial redress of
legitimate grievances.62
On the award of adjustment fees: The adjustment fees and expense of divers were
incurred by Industrial Insurance in its voluntary but unsuccessful efforts to locate and
retrieve the lost cargo. They do not constitute actual damages.63
As for the court a quo’s award of interest on the amount claimed, the same calls for
modification following the ruling in Eastern Shipping Lines, Inc. v. Court of
Appeals64 that when the demand cannot be reasonably established at the time the
demand is made, the interest shall begin to run not from the time the claim is made
judicially or extrajudicially but from the date the judgment of the court is made (at
which the time the quantification of damages may be deemed to have been
reasonably ascertained).65
WHEREFORE, judgment is hereby rendered ordering petitioner Schmitz Transport &
Brokerage Corporation, and Transport Venture Incorporation jointly and severally
liable for the amount of ₱5,246,113.11 with the MODIFICATION that interest at SIX
PERCENT per annum of the amount due should be computed from the promulgation
on November 24, 1997 of the decision of the trial court.
Costs against petitioner.
SO ORDERED.
[G.R. No. 136960. December 8, 2003.]
IRON BULK SHIPPING PHILIPPINES, CO., LTD., Petitioner, v. REMINGTON
INDUSTRIAL SALES CORPORATION, Respondent.

DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court
assailing the August 28, 1998 Decision 1 and the December 24, 1998 Resolution of
the Court of Appeals in CA-G.R. CV No. 49725, 2 affirming in toto the decision of the
Regional Trial Court of Manila (Branch 9).chanrob1es virtua1 law library
The factual background of the case is summarized by the appellate court,
thus:chanrob1es virtual 1aw library
Sometime in the latter part of 1991, plaintiff Remington Industrial Sales Corporation
(hereafter Remington for short) ordered from defendant Wangs Company, Inc.
(hereafter Wangs for short) 194 packages of hot rolled steel sheets, weighing
686.565 metric tons, with a total value of $219,380.00, then equivalent to
P6,469,759.17. Wangs forwarded the order to its supplier, Burwill (Agencies) Ltd., in
Hongkong. On or about November 26, 1991, the 194 packages were loaded on board
the vessel MV ‘Indian Reliance’ at the Port of Gdynia, Poland, for transportation to the
Philippines, under Bill of Lading No. 27 (Exh.’C’). The vessel’s owner/charterer is
represented in the Philippines by defendant Iron Bulk Shipping Phils., Inc. (hereafter
Iron Bulk for short).
Remington had the cargo insured for P6,469,759.17 during the voyage by Marine
Insurance Policy No. 7741 issued by defendant Pioneer Asia Insurance Corporation
(hereafter Pioneer for short).
On or about January 3, 1992, the MV ‘Indian Reliance’ arrived in the Port of Manila,
and the 194 packages of hot rolled steel sheets were discharged from the vessel. The
cargo was inspected twice by SGS Far East Ltd. and found to be wet (with slight trace
of salt) and rusty, extending from 50% to 80% of each plate. Plaintiff filed formal
claims for loss amounting to P544,875.17 with Pioneer, Iron Bulk, Manila Port
Services, Inc. (MPS) and ESE Brokerage Corporation (ESE). No one honored such
claims.
Thus, plaintiff filed an action for collection, plus attorney’s fees, against Wangs,
Pioneer and Iron Bulk . . ." 3
and affirmed in toto the following findings of the trial court, on February 1, 1995, to
wit:chanrob1es virtual 1aw library
x           x          x
The evidence on record shows that the direct and immediate cause of the rusting of
the goods imported by the plaintiff was the water found inside the cargo hold of M/V
‘Indian Reliance’ wherein those goods were stored during the voyage, particularly the
water found on the surface of the merchandise and on the floor of the vessel hatch.
47|Transportation (Carriage of goods)
And even at the time the cargoes were being unloaded by crane at the Pier of Manila,
Iron Bulk’s witnesses noticed that water was dripping from the cargoes. (TSN dated
July 20, 1993, pp. 13–14; TSN dated May 30, 1994, pp. 8–9, 14, 24–25; TSN dated
June 3, 1994, pp. 31–32; TSN dated July 14, 1994, pp. 10–11).
SGS Far East Limited, an inspection agency hired by defendant Wangs, issued
Certificate of Inspection and Analysis No. 6401/35071 stating the following
findings:chanrob1es virtual 1aw library
Results of tests indicated that a very slight trace of salt was present in the sample as
confirmed by the test of Sodium. The results however does not necessarily indicate
that the rusty condition of the material was caused by seawater.
Tan-Gatue Adjustment Co., Inc., a claims adjustment firm hired by defendant Pioneer,
submitted a Report (Exh. 10-Pioneer) dated February 20, 1992 to Pioneer which
pertinently reads as follows:chanrob1es virtual 1aw library
All the above 3,971 sheets were heavily rusty at sides/ends/edges/surfaces. Pieces of
cotton were rubbed by us on different rusty steel sheets and submitted to Precision
Analytical Services, Inc. to determine the cause of wetting. Result thereof as per
Laboratory Report No. 077-92 of this firm showed that: ‘The sample was
wetted/contaminated by fresh water.
After considering the foregoing test results and the other evidence on record, the
Court found no clear and sufficient proof showing that the water which stayed in the
cargo hold of the vessel and which contaminated the merchandise was seawater. The
Court, however, is convinced that the subject goods were exposed to salt conditions
as evidenced by the presence of about 17% Sodium on the rust sample tested by
SGS.chanrob1es virtua1 law library
As to the source of the water found in the cargo hold, there is also no concrete and
competent evidence on record establishing that such water leaked from the pipe
installed in Hatch No. 1 of M/V ‘Indian Reliance’, as claimed by plaintiff. Indeed, the
plaintiff based such claim only from information it allegedly received from its supplier,
as stated in its letter to defendant Iron Bulk dated March 28, 1992 (Exh. K-3). And no
one took the witness stand to confirm or establish the alleged leakage.
Nevertheless, since Iron Bulk’s own evidence shows that there was water inside the
cargo hold of the vessel and that the goods stored therein were wet and full of rust,
without sufficient explanation on its part as to when and how water found its way into
the vessel holds, the Court finds and so holds that Iron Bulk failed to exercise the
extraordinary diligence required by law in the handling and transporting of the goods.
x           x          x
Iron Bulk did not even exercise due diligence because admittedly, water was dripping
from the cargoes at the time they were being discharged from the vessel. Had Iron
Bulk done so, it could have discovered by ordinary inspection that the cargo holds
and the cargoes themselves were affected by water and it could have provided some
remedial measures to prevent or minimize the damage to the cargoes. But it did not,
showing its lack of care and diligence over the goods.

Besides, since the goods were undoubtedly damaged, and as Iron Bulk failed to
establish by any clear and convincing evidence any of the exempting causes provided
for in Article 1734 of the Civil Code, it is presumed to have been at fault or to have
acted negligently.
x           x          x
WHEREFORE, the Court finding preponderance of evidence for the plaintiff hereby
renders judgment in favor of it and against all the defendants herein as
follows:chanrob1es virtual 1aw library
1. Ordering defendant Pioneer Asia Insurance Corporation to pay plaintiff the
following amounts:chanrob1es virtual 1aw library
a) P544,875.17 representing the loss allowance for the goods insured, plus interest at
the legal rate (6% p.a.) reckoned from the time of filing of this case until full payment
is made;
b) P50,000.00 for and as attorney’s fees; and
c) the cost of suit.
2. Ordering defendant Iron Bulk Shipping Co. Inc. immediately upon payment by
defendant Pioneer of the foregoing award to the plaintiff, to reimburse defendant
Pioneer the total amount it paid to the plaintiff, in respect to its right of subrogation.
3. Denying the counterclaims of all the defendants and the cross-claim of defendant
Wangs Company, Incorporated and Iron Bulk Shipping Co., Inc. for lack of merit.
4. Granting the cross-claim of defendant Pioneer Asia Insurance Corporation against
defendant Iron Bulk by virtue of its right of subrogation.
5. Dismissing the case against defendant Wangs Company, Inc.
SO ORDERED. 4
Only Iron Bulk filed the present petition raising the following Assignment of
Errors:chanrob1es virtual 1aw library
FIRSTLY, the Court of Appeals erred in its insistent reliance on the pro forma Bills of
Lading to establish the condition of the cargo upon loading;
SECONDLY, the Court of Appeals erred in not exculpating petitioner since the cargo
was not contaminated during the time the same was in possession of the vessel, as
evidenced by the express finding of the lower court that the contamination and rusting
was chemically established to have been caused by fresh water;chanrob1es virtua1
law library
THIRDLY, the Court of Appeals erred in making a sweeping finding that the petitioner
as carrier failed to exercise the requisite diligence under the law, which is contrary to
48|Transportation (Carriage of goods)
what is demonstrated by the evidence adduced; and
FINALLY, the Court of Appeals erred in affirming the amount of damages adjudicated
by the Court below, which is at best speculative and not supported by damages. 5
The general rule is that only questions of law are entertained in petitions for review
by certiorari under Rule 45 of the Rules of Court. The trial court’s findings of fact,
which the Court of Appeals affirmed, are generally binding and conclusive upon this
court. 6 There are recognized exceptions to this rule, among which are: (1) the
conclusion is grounded on speculations, surmises or conjectures; (2) the inference is
manifestly mistaken, absurd or impossible; (3) there is grave abuse of discretion; (4)
the judgment is based on a misapprehension of facts; (5) the findings of facts are
conflicting; (6) there is no citation of specific evidence on which the factual findings
are based; (7) the finding of absence of facts is contradicted by the presence of
evidence on record; (8) the findings of the CA are contrary to the findings of the trial
court; (9) the CA manifestly overlooked certain relevant and undisputed facts that, if
properly considered, would justify a different conclusion; (10) the findings of the CA
are beyond the issues of the case; and (11) such findings are contrary to the
admissions of both parties. 7 Petitioner failed to demonstrate that its petition falls
under any one of the above exceptions, except as to damages which will be
discussed forthwith.
Anent the first assigned error: That the Court of Appeals erred in relying on the pro
forma Bills of Lading to establish the condition of the cargo upon landing.
There is no merit to petitioner’s contention that the Bill of Lading covering the subject
cargo cannot be relied upon to indicate the condition of the cargo upon loading. It is
settled that a bill of lading has a two-fold character. In Phoenix Assurance Co., Ltd. v.
United States Lines, we held that:chanrob1es virtual 1aw library
[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 rate or charges, and stipulates the rights and
obligations assumed by the parties. 8
We find no error in the findings of the appellate court that the questioned bill of lading
is a clean bill of lading, i.e., it does not indicate any defect in the goods covered by it,
as shown by the notation, "CLEAN ON BOARD" 9 and "Shipped at the Port of
Loading in apparent good condition on board the vessel for carriage to Port of
Discharge." 10
Petitioner presented evidence to prove that, contrary to the recitals contained in the
subject bill of lading, the cargo therein described as clean on board is actually wet
and covered with rust. Indeed, having the nature of a receipt, or an acknowledgement
of the quantity and condition of the goods delivered, the bill of lading, like any other
receipts, may be explained, varied or even contradicted. 11 However, we agree with
the Court of Appeals that far from contradicting the recitals contained in the said bill,
petitioner’s own evidence shows that the cargo covered by the subject bill of lading,
although it was partially wet and covered with rust was, nevertheless, found to be in a
"fair, usually accepted condition" when it was accepted for shipment. 12
The fact that the issued bill of lading is pro forma is of no moment. If the bill of lading
is not truly reflective of the true condition of the cargo at the time of loading to the
effect that the said cargo was indeed in a damaged state, the carrier could have
refused to accept it, or at the least, made a marginal note in the bill of lading
indicating the true condition of the merchandise. But it did not. On the contrary, it
accepted the subject cargo and even agreed to the issuance of a clean bill of lading
without taking any exceptions with respect to the recitals contained therein. Since the
carrier failed to annotate in the bill of lading the alleged damaged condition of the
cargo when it was loaded, said carrier and the petitioner, as its representative, are
bound by the description appearing therein and they are now estopped from denying
the contents of the said bill.chanrob1es virtua1 1aw library
Petitioner presented in evidence the Mate’s Receipts 13 and a Survey Report 14 to
prove the damaged condition of the cargo. However, contrary to the asseveration of
petitioner, the Mate’s Receipts and the Survey Report which were both dated
November 6, 1991, are unreliable evidence of the true condition of the shipment at
the time of loading since said receipts and report were issued twenty days prior to
loading and before the issuance of the clean bill of lading covering the subject cargo
on November 26, 1991. Moreover, while the surveyor, commissioned by the carrier to
inspect the subject cargo, found the inspected steel goods to be contaminated with
rust he, nonetheless, estimated the merchandise to be in a fair and usually accepted
condition.
Anent the second and third assigned errors: That the Court of Appeals erred in not
finding that the contamination and rusting was chemically to have been caused by
fresh water; and that the appellate court erred in finding that petitioner failed to
exercise the requisite diligence under the law.
Petitioner’s arguments in support of the assigned errors are not plausible. Even
granting, for the sake of argument, that the subject cargo was already in a damaged
condition at the time it was accepted for transportation, the carrier is not relieved from
its responsibility to exercise due care in handling the merchandise and in employing
the necessary precautions to prevent the cargo from further deteriorating. It is settled
that 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. 15 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. 16 Under Article 1742 of
the Civil Code, even if the loss, destruction, or deterioration of the goods should be
caused, among others, by the character of the goods, the common carrier must
exercise due diligence to forestall or lessen the loss. This extraordinary responsibility
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. 17 In the instant case, if the carrier indeed found the steel sheets to
have been covered by rust at the time that it accepted the same for transportation,
such finding should have prompted it to apply additional safety measures to make
sure that the cargo is protected from corrosion. This, the carrier failed to do.
49|Transportation (Carriage of goods)
Article 1734 of the Civil Code states that:chanrob1es virtual 1aw library
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:chanrob1es virtual
1aw library
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
Except in the cases mentioned under Article 1734, if the goods are lost, destroyed or
deteriorated, common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary diligence as required
under the law. 18 The Court of Appeals did not err in finding that no competent
evidence was presented to prove that the deterioration of the subject cargo was
brought about by any of the causes enumerated under the aforequoted Article 1734
of the said Code. We likewise agree with appellate court’s finding that the carrier
failed to present proof that it exercised extraordinary diligence in its vigilance over the
goods. The presumption that the carrier was at fault or that it acted negligently was
not overcome by any countervailing evidence.
Anent the last assigned error: That the Court of Appeals erred in affirming the amount
of damages awarded by the trial court.
We agree with the contention of the petitioner in its last assigned error that the
amount of damages adjudicated by the trial court and affirmed by the appellate court
is not in consonance with the evidence presented by the parties. The judgments of
both lower courts are based on misapprehension of facts as we find no competent
evidence to prove the actual damages sustained by Respondent.
Based on the Packing List issued by Burwill (Agencies) Limited, the supplier of the
steel sheets, the cargo consigned to Remington consisted of hot rolled steel sheets
with lengths of eight feet and twenty feet. The eight-foot length steel sheets contained
in 142 packages had a weight of 491.54 metric tons while the twenty-foot steel sheets
which were contained in 52 packages weighed 194.25 metric tons. 19 The goods
were valued at $320.00 per metric ton. 20
It is not disputed that at the time of inspection of the subject merchandise conducted
by SGS Far East Limited on January 21–24, 1992 and January 27–28, 1992, only
30% of said goods originally consigned to Remington was available for examination
at Remington’s warehouse in Manila and that Remington had already disposed of the
remaining 70%. In the Certificate of Inspection issued by SGS, dated February 18,
1992, it was reported that the surface of the steel sheets with length of twenty feet
were found to be rusty "extending from 60% to 80% per plate." 21 However, there
was no proof to show how many metric tons of twenty-foot and eight-foot length steel
sheets, respectively, comprise the remaining 30% of the cargo. No competent
evidence was presented to prove the weight of the remaining twenty-foot length steel
sheets, on the basis of which the amount of actual damages could have been
ascertained.
Remington claims that 70% of the twenty-foot length steel sheets were damaged.
Remington’s general manager, Rowina Tan Saban, testified that the "70%" figure was
based on the reports submitted by SGS and Tan-Gatue and Remington’s
independent survey to confirm these reports. 22 Saban further testified that on the
basis of these reports, Remington came up with a summary of the amount of
damages sustained by the subject cargo, to wit:chanrob1es virtua1 1aw library
Plates 8 ft lengths 491.540 MT — US$157,292.80
Quantity Damaged 25%
Loss Allowance 13%
Total Plates 8 ft lengths US$15,211.56
US$20,323.58 @ $26.81 = P544,875.17
and which the trial court based the actual damages awarded in favor of Remington.
However, after a careful examination of the reports submitted by SGS and Tan-
Gatue, we find nothing in the said reports and computation to justify the claim of
Remington that 70% of the twenty-foot length steel sheets were damaged. Neither
does the alleged survey conducted by Remington consisting only of photographs, 23
prove the quantity of the damaged cargo.
As to the eight-foot length steel sheets, SGS reported that they were found oiled all
over which makes it hard to determine the rust condition on its surface. 24 On the
other hand, the report issued by Tan-Gatue did not specify the extent of damage
done to the said merchandise. 25 There is also no proof of the weight of the
remaining eight-foot length steel sheets. From the foregoing, it is evident that the
extent of actual damage to the subject cargo is likewise not satisfactorily proven.
It is settled that actual or compensatory damages are not presumed and should be
proven before they are awarded. In Spouses Quisumbing v. Meralco 26 , we held that

Plates 20 ft lengths 194.025 MT — US$62,088.00 Actual damages are compensation for an injury that will put the injured party in the
position where it was before it was injured. They pertain to such injuries or losses that
Quantity Damaged 70% are actually sustained and susceptible of measurement. Except as provided by law or
stipulation, a party is entitled to an adequate compensation only for such pecuniary
Loss Allowance 35% loss as it has duly proven.

Total Plates 20 ft lengths P544,875.71 Hence, for failure of Remington to present sufficient evidence which is susceptible of
measurement, it is not entitled to actual damages.
with the following detailed computation:chanrob1es virtual 1aw library
Nonetheless, since it was established that the subject steel sheets sustained damage
Plates under 8 ft lengths 491.540 MT @ $320./MT by reason of the negligence of the carrier, albeit no competent proof was presented to
justify the award of actual damages, we find that Remington is entitled to temperate
US $157,292.80 damages in accordance with Articles 2216, 2224 and 2225 of the Civil Code, to
wit:chanrob1es virtual 1aw library
Multiply by 25% Qty. damaged $39,323.20
Art. 2216. No proof of pecuniary loss is necessary in order that moral, nominal,
13% Loss allowance $5,112.02 temperate, liquidated or exemplary damages may be adjudicated. The assessment of
such damages, except liquidated ones, is left to the discretion of the court, according
Plates under 20 ft. lengths 194.025 MT @ $320./MT to the circumstances of each case.

US$62,088.00 Art. 2224. Temperate or moderate damages, which are more than nominal but less
than compensatory damages, may be recovered when the court finds that some
Multiple 70% Qty. damaged US$43,461.60 pecuniary loss has been suffered but its amount cannot, from the nature of the case,
be proved with certainty.chanrob1es virtua1 1aw library
35% Loss allowance $15,211.56
Art. 2225. Temperate damages must be reasonable under the circumstances.
Total claim US$5,112.02
Thirty percent of the alleged cost of damages, i.e., P544,875.17 or P165,000.00 is
$15,211.56 reasonable enough for temperate damages.

————— We likewise agree with petitioner’s claim that it should not be held liable for the
payment of attorney’s fees because it was always willing to settle its liability by
50|Transportation (Carriage of goods)
offering to pay 30% of Remington’s claim and that it is only Remington’s unwarranted
refusal to accept such offer that led to the filing of the instant case. As found earlier,
there is no evidence that the 70% of the 20-foot length steel sheets which had been
disposed of had been damaged. Neither is there competent evidence proving the
actual extent of damage sustained by the eight-foot length steel sheets. Petitioner
was therefore justified in refusing to satisfy the full amount of Remington’s claims.
WHEREFORE, the assailed Decision of the Court of Appeals dated August 28, 1998
and the Resolution dated December 24, 1998, in CA-G.R. CV No. 49725 are
MODIFIED as follows: The award of actual damages and attorney’s fees are deleted.
Respondent is awarded temperate damages in the amount of P165,000.00. In all
other respects, the appealed decision and resolution are affirmed.
No pronouncement as to costs.
SO ORDERED.
G.R. No. L-48757 May 30, 1988
MAURO GANZON, petitioner,
vs.
COURT OF APPEALS and GELACIO E. TUMAMBING, respondents.
Antonio B. Abinoja for petitioner.
Quijano, Arroyo & Padilla Law Office for respondents.
SARMIENTO, J.:
The private respondent instituted in the Court of First Instance of Manila 1 an action
against the petitioner for damages based on culpa contractual. The antecedent facts,
as found by the respondent Court, 2 are undisputed:
On November 28, 1956, Gelacio Tumambing contracted the services of Mauro B.
Ganzon to haul 305 tons of scrap iron from Mariveles, Bataan, to the port of Manila
on board the lighter LCT "Batman" (Exhibit 1, Stipulation of Facts, Amended Record
on Appeal, p. 38). Pursuant to that agreement, Mauro B. Ganzon sent his lighter
"Batman" to Mariveles where it docked in three feet of water (t.s.n., September 28,
1972, p. 31). On December 1, 1956, Gelacio Tumambing delivered the scrap iron to
defendant Filomeno Niza, captain of the lighter, for loading which was actually begun
on the same date by the crew of the lighter under the captain's supervision. When
about half of the scrap iron was already loaded (t.s.n., December 14, 1972, p. 20),
Mayor Jose Advincula of Mariveles, Bataan, arrived and demanded P5,000.00 from
Gelacio Tumambing. The latter resisted the shakedown and after a heated argument
51|Transportation (Carriage of goods)
between them, Mayor Jose Advincula drew his gun and fired at Gelacio Tumambing
(t.s.n., March 19, 1971, p. 9; September 28, 1972, pp. 6-7).<äre||anº•1àw>  The
gunshot was not fatal but Tumambing had to be taken to a hospital in Balanga,
Bataan, for treatment (t.s.n., March 19, 1971, p. 13; September 28, 1972, p. 15).
After sometime, the loading of the scrap iron was resumed. But on December 4,
1956, Acting Mayor Basilio Rub, accompanied by three policemen, ordered captain
Filomeno Niza and his crew to dump the scrap iron (t.s.n., June 16, 1972, pp. 8-9)
where the lighter was docked (t.s.n., September 28, 1972, p. 31). The rest was
brought to the compound of NASSCO (Record on Appeal, pp. 20-22). Later on Acting
Mayor Rub issued a receipt stating that the Municipality of Mariveles had taken
custody of the scrap iron (Stipulation of Facts, Record on Appeal, p. 40; t.s.n.,
September 28, 1972, p. 10.)
On the basis of the above findings, the respondent Court rendered a decision, the
dispositive portion of which states:
WHEREFORE, the decision appealed from is hereby reversed and
set aside and a new one entered ordering defendant-appellee
Mauro Ganzon to pay plaintiff-appellant Gelacio E. Tumambimg the
sum of P5,895.00 as actual damages, the sum of P5,000.00 as
exemplary damages, and the amount of P2,000.00 as attorney's
fees. Costs against defendant-appellee Ganzon. 3
In this petition for review on certiorari, the alleged errors in the decision of the Court of
Appeals are:
I
THE COURT OF APPEALS FINDING THE HEREIN PETITIONER GUILTY OF
BREACH OF THE CONTRACT OF TRANSPORTATION AND IN IMPOSING A
LIABILITY AGAINST HIM COMMENCING FROM THE TIME THE SCRAP WAS
PLACED IN HIS CUSTODY AND CONTROL HAVE NO BASIS IN FACT AND IN
LAW.
II
THE APPELLATE COURT ERRED IN CONDEMNING THE PETITIONER FOR THE
ACTS OF HIS EMPLOYEES IN DUMPING THE SCRAP INTO THE SEA DESPITE
THAT IT WAS ORDERED BY THE LOCAL GOVERNMENT OFFICIAL WITHOUT
HIS PARTICIPATION.
III
THE APPELLATE COURT FAILED TO CONSIDER THAT THE LOSS OF THE
SCRAP WAS DUE TO A FORTUITOUS EVENT AND THE PETITIONER IS
THEREFORE NOT LIABLE FOR LOSSES AS A CONSEQUENCE THEREOF. 4
The petitioner, in his first assignment of error, insists that the scrap iron had not been
unconditionally placed under his custody and control to make him liable. However, he
completely agrees with the respondent Court's finding that on December 1, 1956, the
private respondent delivered the scraps to Captain Filomeno Niza for loading in the
lighter "Batman," That the petitioner, thru his employees, actually received the scraps
is freely admitted. Significantly, there is not the slightest allegation or showing of any
condition, qualification, or restriction accompanying the delivery by the private
respondent-shipper of the scraps, or the receipt of the same by the petitioner. On the
contrary, soon after the scraps were delivered to, and received by the petitioner-
common carrier, loading was commenced.
By the said act of delivery, the scraps were unconditionally placed in the possession
and control of the common carrier, and upon their receipt by the carrier for
transportation, the contract of carriage was deemed perfected. Consequently, the
petitioner-carrier's extraordinary responsibility for the loss, destruction or deterioration
of the goods commenced. Pursuant to Art. 1736, such extraordinary responsibility
would cease only upon the delivery, actual or constructive, by the carrier to the
consignee, or to the person who has a right to receive them. 5 The fact that part of the
shipment had not been loaded on board the lighter did not impair the said contract of
transportation as the goods remained in the custody and control of the carrier, albeit
still unloaded.
The petitioner has failed to show that the loss of the scraps was due to any of the
following causes enumerated in Article 1734 of the Civil Code, namely:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
Hence, the petitioner is presumed to have been at fault or to have acted
negligently. 6 By reason of this presumption, the court is not even required to make an
express finding of fault or negligence before it could hold the petitioner answerable for
the breach of the contract of carriage. Still, the petitioner could have been exempted
from any liability had he been able to prove that he observed extraordinary diligence
in the vigilance over the goods in his custody, according to all the circumstances of
the case, or that the loss was due to an unforeseen event or to force majeure. As it
was, there was hardly any attempt on the part of the petitioner to prove that he
exercised such extraordinary diligence.
It is in the second and third assignments of error where the petitioner maintains that
he is exempt from any liability because the loss of the scraps was due mainly to the
52|Transportation (Carriage of goods)
intervention of the municipal officials of Mariveles which constitutes a caso fortuito as
defined in Article 1174 of the Civil Code. 7
We cannot sustain the theory of caso fortuito. In the courts below, the petitioner's
defense was that the loss of the scraps was due to an "order or act of competent
public authority," and this contention was correctly passed upon by the Court of
Appeals which ruled that:
... In the second place, before the appellee Ganzon could be
absolved from responsibility on the ground that he was ordered by
competent public authority to unload the scrap iron, it must be
shown that Acting Mayor Basilio Rub had the power to issue the
disputed order, or that it was lawful, or that it was issued under
legal process of authority. The appellee failed to establish this.
Indeed, no authority or power of the acting mayor to issue such an
order was given in evidence. Neither has it been shown that the
cargo of scrap iron belonged to the Municipality of Mariveles. What
we have in the record is the stipulation of the parties that the cargo
of scrap iron was accilmillated by the appellant through separate
purchases here and there from private individuals (Record on
Appeal, pp. 38-39). The fact remains that the order given by the
acting mayor to dump the scrap iron into the sea was part of the
pressure applied by Mayor Jose Advincula to shakedown the
appellant for P5,000.00. The order of the acting mayor did not
constitute valid authority for appellee Mauro Ganzon and his
representatives to carry out.
Now the petitioner is changing his theory to caso fortuito. Such a change of theory on
appeal we cannot, however, allow. In any case, the intervention of the municipal
officials was not In any case, of a character that would render impossible the
fulfillment by the carrier of its obligation. The petitioner was not duty bound to obey
the illegal order to dump into the sea the scrap iron. Moreover, there is absence of
sufficient proof that the issuance of the same order was attended with such force or
intimidation as to completely overpower the will of the petitioner's employees. The
mere difficulty in the fullfilment of the obligation is not considered force majeure. We
agree with the private respondent that the scraps could have been properly unloaded
at the shore or at the NASSCO compound, so that after the dispute with the local
officials concerned was settled, the scraps could then be delivered in accordance with
the contract of carriage.
There is no incompatibility between the Civil Code provisions on common carriers and
Articles 361 8 and 362 9 of the Code of Commerce which were the basis for this
Court's ruling in Government of the Philippine Islands vs. Ynchausti & Co.10 and
which the petitioner invokes in tills petition. For Art. 1735 of the Civil Code, conversely
stated, means that the shipper will suffer the losses and deterioration arising from the
causes enumerated in Art. 1734; and in these instances, the burden of proving that
damages were caused by the fault or negligence of the carrier rests upon him.
However, the carrier must first establish that the loss or deterioration was occasioned
by one of the excepted causes or was due to an unforeseen event or to force
majeure. Be that as it may, insofar as Art. 362 appears to require of the carrier only
ordinary diligence, the same is .deemed to have been modified by Art. 1733 of the
Civil Code.
Finding the award of actual and exemplary damages to be proper, the same will not
be disturbed by us. Besides, these were not sufficiently controverted by the petitioner.
WHEREFORE, the petition is DENIED; the assailed decision of the Court of Appeals
is hereby AFFIRMED. Costs against the petitioner.
This decision is IMMEDIATELY EXECUTORY.
G.R. No. L-18965            October 30, 1964
COMPAÑIA MARITIMA, petitioner,
vs.
INSURANCE COMPANY OF NORTH AMERICA, respondent.
Rafael Dinglasan for petitioner.
Ozaeta Gibbs & Ozaeta for respondent.
BAUTISTA ANGELO, J.:
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 transhipment to Boston, Massachusetts, U.S.A. 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 handcarried to
Compañia Maritima's branch office in Davao in compliance with which the latter sent
to Macleod's private wharf LCT Nos. 1023 and 1025 on which the loading of the
hemp was completed on October 29, 1952. These two lighters were manned each by
a patron and an assistant patron. The patrons of both barges issued the
corresponding carrier's receipts and that issued by the patron of Barge No. 1025
reads in part:
Received in behalf of S.S. Bowline Knot in good order and condition from
MACLEOD AND COMPANY OF PHILIPPINES, Sasa Davao, for
transhipment at Manila onto S.S. Steel Navigator.
FINAL DESTINATION: Boston.
Thereafter, the two 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.
53|Transportation (Carriage of goods)
During the night of October 29, 1952, or at the early hours of October 30, LCT No.
1025 sank, resulting in the damage or loss of 1,162 bales of hemp loaded therein. On
October 30, 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 value
of 116,835.00. 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,
rebating, 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 No. 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 P60,421.02, which is the only amount supported by receipts, the insurance
company instituted the present action on October 28, 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
December 14, 1960. Hence, this petition for review.
The issues posed before us are: (1) Was there a contract of carriage between the
carrier and the shipper even if the loss occurred when the hemp was loaded on a
barge owned by the carrier which was loaded free of charge and was not actually
loaded on the S.S. Bowline Knot which would carry the hemp to Manila and no bill of
lading was issued therefore?; (2) Was the damage caused to the cargo or the sinking
of the barge where it was loaded due to a fortuitous event, storm or natural disaster
that would exempt the carrier from liability?; (3) Can respondent insurance company
sue the carrier under its insurance contract as assignee of Macleod in spite of the fact
that the liability of the carrier as insurer is not recognized in this jurisdiction?; (4) Has
the Court of Appeals erred in regarding Exhibit NNN-1 as an implied admission by the
carrier of the correctness and sufficiency of the shipper's statement of accounts
contrary to the burden of proof rule?; and (5) Can the insurance company maintain
this suit without proof of its personality to do so?
1. This issue should be answered in the affirmative. As found by the Court of Appeals,
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 transhipped 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 No. 1025 signed the receipt
covering the cargo of hemp loaded therein as follows: .
Received in behalf of S.S. Bowline Knot in good order and condition from
MACLEOD AND COMPANY OF PHILIPPINES, Sasa Davao, for
transhipment at Manila onto S.S. Steel Navigator.
FINAL DESTINATION: Boston.
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 onto 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 step is but 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, here we have 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.
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 such 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 landing is applicable to the goods as soon as they are placed
on the lighters. (80 C.J.S., p. 901, emphasis supplied)
... 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. Railroad Co. v. Murphy, 60 Ark.
333, 30 S.W. 419, 46 A. St. Rep. 202; Pine Bluff & Arkansas River Ry. v.
MaKenzie, 74 Ark. 100, 86 S.W. 834; Matthews & Hood v. St. L., I.M. & S.R.
Co., 123 Ark. 365, 185 S.W. 461, L.R.A. 1916E, 1194. (W.F. Bogart & Co.,
et al. v. Wade, et al., 200 S.W. 148).
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
54|Transportation (Carriage of goods)
moment, for, as already stated, 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." On the other hand, the authorities are to the effect
that a bill of lading is not indispensable for the creation of a contract of carriage.
Bill of lading not indispensable to contract of carriage. — As to the 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 or goods may mutua-
lly demand that a 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, pp.
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). (Martin, Philippine Commercial Laws,
Vol. II, Revised Edition, pp. 12-13)
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. (13 C.J.S., p. 288)
2. Petitioner disclaims responsibility for the damage of the cargo in question shielding
itself behind the claim of  force majeure or storm which occurred on the night of
October 29, 1952. But the evidence fails to bear this out.
Rather, it shows that the mishap that caused the damage or loss was due, not
to force majeure, but to lack of adequate precautions or measures taken by the
carrier to prevent the loss as may be inferred from the following findings of the Court
of Appeals:
Aside from the fact that, as admitted by appellant's own witness, the ill-fated
barge had cracks on its bottom (pp. 18-19, t.s.n., Sept. 13, 1959) which
admitted sea water in the same manner as rain entered "thru tank man-
holes", according to the patron of LCT No. 1023 (exh. JJJ-4) — conclusively
showing that the barge was not seaworthy — it should be noted that on the
night of the nautical accident there was no storm, flood, or other natural
disaster or calamity. Certainly, winds of 11 miles per hour, although stronger
than the average 4.6 miles per hour then prevailing in Davao on October 29,
1952 (exh. 5), cannot be classified as storm. For 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 storm (Northern
Assurance Co., Ltd. vs. Visayan Stevedore Transportation Co., CA-G.R. No.
23167-R, March 12, 1959).
The Court of Appeals further added: "the report of R. J. del Pan & Co., Inc., marine
surveyors, attributes the sinking of LCT No. 1025 to the 'non-water-tight conditions of
various buoyancy compartments' (exh. JJJ); and this report finds confirmation on the
above-mentioned admission of two witnesses for appellant concerning the cracks of
the lighter's bottom and the entrance of the rain water 'thru manholes'." We are not
prepared to dispute this finding of the Court of Appeals.
3. There can also be no doubt that 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. And this is so because since the cargo that was
damaged was insured with respondent 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. Thus,
we find fitting the following comments of the Court of Appeals:
It was not imperative and necessary for the trial court to pass upon the
question of whether or not the disputed abaca cargo was covered by Marine
Open Cargo Policy No. MK-134 isued by appellee. Appellant was neither a
party nor privy to this insurance contract, and therefore cannot avail itself of
any defect in the policy which may constitute a valid reason for appellee, as
the insurer, to reject the claim of Macleod, as the insured. Anyway, whatever
defect the policy contained, if any, is deemed to have been waived by the
subsequent payment of Macleod's claim by appellee. Besides, appellant is
herein sued in its capacity as a common carrier, and appellee is suing as the
assignee of the shipper pursuant to exhibit MM. Since, as above
demonstrated, appellant is liable to Macleod and Company of the Philippines
for the los or damage to the 1,162 bales of hemp after these were received
in good order and condition by the patron of appellant's LCT No. 1025, it
necessarily follows that appellant is likewise liable to appellee who, as
assignee of Macleod, merely stepped into the shoes of and substi-tuted the
latter in demanding from appellant the payment for the loss and damage
aforecited.
4. It should be recalled in connection with this issue that during the trial of this case
the carrier asked the lower court to order the production of the books of accounts of
the Odell Plantation containing the charges it made for the loss of the damaged hemp
for verification of its accountants, but later it desisted therefrom on the claim that it
55|Transportation (Carriage of goods)
finds their production no longer necessary. This desistance notwithstanding, the
shipper however pre-sented other documents to prove the damage it suffered in
connection with the cargo and on the strength thereof the court a quo ordered the
carrier to pay the sum of P60,421.02. And after the Court of Appeals affirmed this
award upon the theory that the 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, petitioner now contends that the Court of
Appeals erred in basing the affirmance of the award on such erroneous interpretation.
There is reason to believe that the act of petitioner 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 here, as well as below, 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 now 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.
And according to the Court of Appeals, these documents alone sufficiently establish
the award of P60,412.02 made in favor of respondent.
5. Finally, with regard to the question concerning the personality of the insurance
company to maintain this action, we find 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.
WHEREFORE, the decision appealed from is affirmed, with costs against petitioner.
[G.R. No. L-9840. April 22, 1957.]
LU DO & LU YM CORPORATION, petitioner-defendant, v. I. V. BINAMIRA,
respondent-plaintiff .
Ross, Selph, Carrascoso & Janda for Petitioner.
I. V. Binamira in his own behalf.
SYLLABUS
1. CONTRACT OF CARRIAGE; LIABILITY OF CARRIERS WHILE THE GOODS
ARE IN THE CUSTODY OF CUSTOMS AUTHORITIES. — While delivery of the
cargo to the customs authorities is not delivery to the consignee, or "to the person
who has a right to receive them" contemplated in Article 1736 of the New Civil Code,
because in such case the goods are still in the hands of the Government and the
owner cannot exercise dominion over them, however the parties may agree to limit
the liability of the carrier considering that the goods have still to go through the
inspection of the customs authorities before they are actually turned over to the
consignee. This is a situation where the carrier loses control of the goods because of
a custom regulation and it is unfair that it be made responsible for any loss or damage
that may be caused to the goods during the interregnum.
SYLLABUS
1. CONTRACT OF CARRIAGE; LIABILITY OF CARRIERS WHILE THE GOODS
ARE IN THE CUSTODY OF CUSTOMS AUTHORITIES. — While delivery of the
cargo to the customs authorities is not delivery to the consignee, or "to the person
who has a right to receive them" contemplated in Article 1736 of the New Civil Code,
because in such case the goods are still in the hands of the Government and the
owner cannot exercise dominion over them, however the parties may agree to limit
the liability of the carrier considering that the goods have still to go through the
inspection of the customs authorities before they are actually turned over to the
consignee. This is a situation where the carrier loses control of the goods because of
a custom regulation and it is unfair that it be made responsible for any loss or damage
that may be caused to the goods during the interregnum.
DECISION
BAUTISTA ANGELO, J.:
On April 4, 1954, plaintiff filed an action in the Court of First Instance of Cebu against
defendant to recover the sum of P324.63 as value of certain missing shipment, P150
as actual and compensatory damages, and P600 as moral and pecuniary damages.
After trial, the court rendered judgment ordering defendant to pay plaintiff the sum of
P216.84, with legal interest. On appeal, the Court of Appeals affirmed the judgment,
hence the present petition for review.
On August 10, 1951, the Delta Photo Supply Company of New York shipped on board
the M/S "FERNSIDE" at New York, U.S.A., six cases of films and/or photographic
supplies consigned to the order of respondent I. V. Binamira. For this shipment, Bill of
Lading No. 29 was issued. The ship arrived at the port of Cebu on September 23,
1951 and discharged her cargo on September 23 and 24, 1951, including the
shipment in question, placing it in the possession and custody of the arrastre operator
of said port, the Visayan Cebu Terminal Company, Inc.
Petitioner, as agent of the carrier, hired the Cebu Stevedoring Company, Inc. to
unload its cargo. During the discharge, good order cargo was separated from the bad
order cargo on board the ship, and a separate list of bad order cargo was prepared by
Pascual Villamor, checker of the stevedoring company. All the cargo unloaded was
56|Transportation (Carriage of goods)
received at the pier by the Visayan Cebu Terminal Company, Inc., arrastre operator
of the port. This terminal company had also its own checker, Romeo Quijano, who
also recorded and noted down the good cargo from the bad one. The shipment in
question was not included in the report of bad order cargo of both checkers, indicating
that it was discharged from the ship in good order and condition.
On September 26, 1951, three days after the goods were unloaded from the ship,
respondent took delivery of his six cases of photographic supplies from the arrastre
operator. He discovered that the cases showed signs of pilferage and, consequently,
he hired marine surveyors, R. J. del Pan & Company, Inc. to examine them. The
surveyors examined the cases and made a physical count of their contents in the
presence of representatives of petitioner, respondent and the stevedoring company.
The finding of the surveyors showed that some films and photographic supplies were
missing valued at P324.63.
It appears from the evidence that the six cases of films and photographic supplies
were discharged from the ship at the port of Cebu by the stevedoring company hired
by petitioner as agent of the carrier. All the unloaded cargo, including the shipment in
question, was received by the Visayan Cebu Terminal Company, Inc., the arrastre
operator appointed by the Bureau of Customs. It also appears that during the
discharge, the cargo was checked both by the stevedoring company hired by
petitioner as well as by the arrastre operator of the port, and the shipment in question,
when discharged from the ship, was found to be in good order and condition. But after
it was delivered to respondent three days later, the same was examined by a marine
surveyor who found that some films and supplies were missing valued at P324.63.
The question now to be determined is: Is the carrier responsible for the loss
considering that the same occurred after the shipment was discharged from the ship
and placed in the possession and custody of the customs authorities?
The Court of Appeals found for the affirmative, making on this point the following
comment:jgc:chanrobles.com.ph
"In this jurisdiction, a common carrier has the legal duty to deliver goods to a
consignee in the same condition in which it received them. Except where the loss,
destruction or deterioration of the merchandise was due to any of the cases
enumerated in Article 1734 of the new Civil Code, a carrier is presumed to have been
at fault and to have acted negligently, unless it could prove that it observed
extraordinary diligence in the care and handling of the goods (Article 1735, supra).
Such presumption and the liability of the carrier attach until the goods are delivered
actually or constructively, to the consignee, or to the person who has a right to
receive them (Article 1736, supra), and we believe delivery to the customs authorities
is not the delivery contemplated by Article 1736, supra, in connection with the second
paragraph of Article 1498, supra, because, in such a case, the goods are then still in
the hands of the Government and their owner could not exercise dominion whatever
over them until the duties are paid. In the case at bar, the presumption against the
carrier, represented by appellant as its agent, has not been successfully
rebutted."cralaw virtua1aw library
It is now contended that the Court of Appeals erred in its finding not only because it
made a wrong interpretation of the law on the matter, but also because it ignored the
provisions of the bill of lading covering the shipment wherein it was stipulated that the
responsibility of the carrier is limited only to losses that may occur while the cargo is
still under its custody and control. (Paragraph 22, Exhibit "1")

We believe this contention is well taken. It is true that, as a rule, a common carrier is It therefore appears clear that the carrier does not assume liability for any loss or
responsible for the loss, destruction or deterioration of the goods it assumes to carry damage to the goods once they have been "taken into the custody of customs or
from one place to another unless the same is due to any of the causes mentioned in other authorities", or when they have been delivered at ship’s tackle. These
Article 1734 of the new Civil Code, and that, if the goods are lost, destroyed or stipulations are clear. They have been adopted precisely to mitigate the responsibility
deteriorated, for causes other than those mentioned, the common carrier is presumed of the carrier considering the present law on the matter, and we find nothing therein
to have been at fault or to have acted negligently, unless it proves that it has that is contrary to morals or public policy that may justify their nullification. We are
observed extraordinary diligence in their care (Article 1735, Idem.) , and that this therefore persuaded to conclude that the carrier is not responsible for the loss in
extraordinary liability lasts from the time the goods are placed in the possession of the question, it appearing that the same happened after the shipment had been delivered
carrier until they are delivered to the consignee, or "to the person who has the right to to the customs authorities.
receive them" (Article 1736, Idem.) , but these provisions only apply when the loss,
destruction or deterioration takes place while the goods are in the possession of the Wherefore, the decision appealed from is reversed, without pronouncement as to
carrier, and not after it has lost control of them. The reason is obvious. While the costs.
goods are in its possession, it is but fair that it exercise extraordinary diligence in
protecting them from damage, and if loss occurs, the law presumes that it was due to
its fault or negligence. This is necessary to protect the interest of the owner who is at
its mercy. The situation changes after the goods are delivered to the consignee.
G.R. No. L-36481-2 October 23, 1982
While we agree with the Court of Appeals that while delivery of the cargo to the
customs authorities is not delivery to the consignee, or "to the person who has a right AMPARO C. SERVANDO, CLARA UY BICO, plaintiffs-appellees,
to receive them", contemplated in Article 1736, because in such case the goods are vs.
still in the hands of the Government and the owner cannot exercise dominion over PHILIPPINE STEAM NAVIGATION CO., defendant-appellant.
them, we believe however that the parties may agree to limit the liability of the carrier
considering that the goods have still to go through the inspection of the customs Zoilo de la Cruz, Jr. & Associate for plaintiff-appellee Amparo Servando.
authorities before they are actually turned over to the consignee. This is a situation
where we may say that the carrier loses control of the goods because of a custom
regulation and it is unfair that it be made responsible for what may happen during the Benedicto, Sumbingco & Associate for appellee Clara Uy Bico.
interregnum. And this is precisely what was done by the parties herein. In the bill of
lading that was issued covering the shipment in question, both the carrier and the Ross, Salcedo, del Rosario, Bito & Misa for defendant-appellant.
consignee have stipulated to limit the responsibility of the carrier for the loss or
damage that may be caused to the goods before they are actually delivered by
inserting therein the following provisions:chanrob1es virtual 1aw library

1.." . . The Carrier shall not be liable in any capacity whatsoever for any delay, ESCOLIN, J.:
nondelivery or misdelivery, or loss of or damage to the goods occurring while the
goods are not in the actual custody of the Carrier. . . . (Italics ours.) This appeal, originally brought to the Court of Appeals, seeks to set aside the
decision of the Court of First Instance of Negros Occidental in Civil Cases Nos. 7354
(Paragraph 1, Exhibit "1") and 7428, declaring appellant Philippine Steam Navigation liable for damages for the
loss of the appellees' cargoes as a result of a fire which gutted the Bureau of
2.." . . The responsibility of the Carrier in any capacity shall altogether cease and the Customs' warehouse in Pulupandan, Negros Occidental.
goods shall be considered to be delivered and at their own risk and expense in every
respect when taken into the custody of customs or other authorities. The Carrier shall The Court of Appeals certified the case to Us because only pure questions of law are
not be required to give any notification of disposition of the goods . . ." (Italics ours.) raised therein.
(Paragraph 12, Exhibit "1")
The facts culled from the pleadings and the stipulations submitted by the parties are
3. "Any provisions herein to the contrary notwithstanding, goods may be . . . delivered as follows:
by Carrier at ship’s tackle . . . and delivery beyond ship’s tackle shall be entirely at the
option of the Carrier and solely at the expense of the shipper or cousignee."cralaw
virtua1aw library
57|Transportation (Carriage of goods)
On November 6, 1963, appellees Clara Uy Bico and Amparo Servando loaded on
board the appellant's vessel, FS-176, for carriage from Manila to Pulupandan, Negros
Occidental, the following cargoes, to wit:
Clara Uy Bico —
1,528 cavans of rice valued
at P40,907.50;
Amparo Servando —
44 cartons of colored paper,
toys and general merchandise valued at
P1,070.50;
as evidenced by the corresponding bills of lading issued by the appellant. 1
Upon arrival of the vessel at Pulupandan, in the morning of November 18, 1963, the
cargoes were discharged, complete and in good order, unto the warehouse of the
Bureau of Customs. At about 2:00 in the afternoon of the same day, said warehouse
was razed by a fire of unknown origin, destroying appellees' cargoes. Before the fire,
however, appellee Uy Bico was able to take delivery of 907 cavans of rice 2 Appellees'
claims for the value of said goods were rejected by the appellant.
On the bases of the foregoing facts, the lower court rendered a decision, the decretal
portion of which reads as follows:
WHEREFORE, judgment is rendered as follows:
1. In case No. 7354, the defendant is hereby ordered to pay the
plaintiff Amparo C. Servando the aggregate sum of P1,070.50 with
legal interest thereon from the date of the filing of the complaint
until fully paid, and to pay the costs.
2. In case No. 7428, the defendant is hereby ordered to pay to
plaintiff Clara Uy Bico the aggregate sum of P16,625.00 with legal
interest thereon from the date of the filing of the complaint until fully
paid, and to pay the costs.
Article 1736 of the Civil Code imposes upon common carriers the duty to observe
extraordinary diligence from the moment the goods are unconditionally placed in their
possession "until the same are delivered, actually or constructively, by the carrier to
the consignee or to the person who has a right to receive them, without prejudice to
the provisions of Article 1738. "
58|Transportation (Carriage of goods)
The court a quo  held that the delivery of the shipment in question to the warehouse of
the Bureau of Customs is not the delivery contemplated by Article 1736; and since the
burning of the warehouse occurred before actual or constructive delivery of the goods
to the appellees, the loss is chargeable against the appellant.
It should be pointed out, however, that in the bills of lading issued for the cargoes in
question, the parties agreed to limit the responsibility of the carrier for the loss or
damage that may be caused to the shipment by inserting therein the following
stipulation:
Clause 14. Carrier shall not be responsible for loss or damage to
shipments billed 'owner's risk' unless such loss or damage is due to
negligence of carrier. Nor shall carrier be responsible for loss or
damage caused by force majeure, dangers or accidents of the sea
or other waters; war; public enemies; . . . fire . ...
We sustain the validity of the above stipulation; there is nothing therein that is
contrary to law, morals or public policy.
Appellees would contend that the above stipulation does not bind them because it
was printed in fine letters on the back-of the bills of lading; and that they did not sign
the same. This argument overlooks the pronouncement of this Court in Ong Yiu vs.
Court of Appeals, promulgated June 29, 1979, 3 where the same issue was resolved
in this wise:
While it may be true that petitioner had not signed the plane ticket
(Exh. '12'), he is nevertheless bound by the provisions thereof.
'Such provisions have been held to be a part of the contract of
carriage, and valid and binding upon the passenger regardless of
the latter's lack of knowledge or assent to the regulation'. It is what
is known as a contract of 'adhesion', in regards which it has been
said that contracts of adhesion wherein one party imposes a ready
made form of contract on the other, as the plane ticket in the case
at bar, are contracts not entirely prohibited. The one who adheres
to the contract is in reality free to reject it entirely; if he adheres, he
gives his consent." (Tolentino, Civil Code, Vol. IV, 1962 Ed., p. 462,
citing Mr. Justice J.B.L. Reyes, Lawyer's Journal, Jan. 31, 1951, p.
49).
Besides, the agreement contained in the above quoted Clause 14 is a mere iteration
of the basic principle of law written in Article 1 1 7 4 of the Civil Code:
Article 1174. Except in cases expressly specified by the law, or
when it is otherwise declared by stipulation, or when the nature of
the obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which,
though foreseen, were inevitable.
Thus, where fortuitous event or force majeure is the immediate and proximate cause
of the loss, the obligor is exempt from liability for non-performance. The
Partidas, 4 the antecedent of Article 1174 of the Civil Code, defines 'caso fortuito' as
'an event that takes place by accident and could not have been foreseen. Examples
of this are destruction of houses, unexpected fire, shipwreck, violence of robbers.'
In its dissertation of the phrase 'caso fortuito' the Enciclopedia Juridicada
Espanola 5 says: "In a legal sense and, consequently, also in relation to contracts, a
'caso fortuito' presents the following essential characteristics: (1) the cause of the
unforeseen and unexpected occurrence, or of the failure of the debtor to comply with
his obligation, must be independent of the human will; (2) it must be impossible to
foresee the event which constitutes the 'caso fortuito', or if it can be foreseen, it must
be impossible to avoid; (3) the occurrence must be such as to render it impossible for
the debtor to fulfill his obligation in a normal manner; and (4) the obligor must be free
from any participation in the aggravation of the injury resulting to the creditor." In the
case at bar, the burning of the customs warehouse was an extraordinary event which
happened independently of the will of the appellant. The latter could not have
foreseen the event.
There is nothing in the record to show that appellant carrier ,incurred in delay in the
performance of its obligation. It appears that appellant had not only notified appellees
of the arrival of their shipment, but had demanded that the same be withdrawn. In
fact, pursuant to such demand, appellee Uy Bico had taken delivery of 907 cavans of
rice before the burning of the warehouse.
Nor can the appellant or its employees be charged with negligence. The storage of
the goods in the Customs warehouse pending withdrawal thereof by the appellees
was undoubtedly made with their knowledge and consent. Since the warehouse
belonged to and was maintained by the government, it would be unfair to impute
negligence to the appellant, the latter having no control whatsoever over the same.
The lower court in its decision relied on the ruling laid down in Yu Biao Sontua vs.
Ossorio 6, where this Court held the defendant liable for damages arising from a fire
caused by the negligence of the defendant's employees while loading cases of
gasoline and petroleon products. But unlike in the said case, there is not a shred of
proof in the present case that the cause of the fire that broke out in the Custom's
warehouse was in any way attributable to the negligence of the appellant or its
employees. Under the circumstances, the appellant is plainly not responsible.
WHEREFORE, the judgment appealed from is hereby set aside. No costs.
SO ORDERED.
Makasiar (Chairman), Concepcion, Jr., Guerrero, Abad Santos and De Castro, JJ.,
concur.
 
59|Transportation (Carriage of goods)
[G.R. No. L-28673. October 23, 1984.]
SAMAR MINING COMPANY, INC., Plaintiff-Appellee, v. NORDEUTSCHER
LLOYD and C.F. SHARP & COMPANY, INC., Defendants-Appellants.
P. de Ocampo for Plaintiff-Appellee.
Ross Salcedo, for Defendants-Appellants.
SYLLABUS
1. COMMERCIAL LAW; COMMON CARRIERS; BILL OF LADING; BILL OF LADING
IS RECEIPT FOR GOODS AND A CONTRACT BETWEEN THE PARTIES. — A bill
of lading 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. ID.; ID.; ID.; ID.; CASE AT BAR. — Bill of Lading No. 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," in this case, 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.’" As
instructed above, the following words appeared typewritten under the column for
"description of contents:" "PORT OF DISCHARGE OF GOODS: DAVAO FREIGHT
PREPAID." It is clear, then, that in discharging the goods from the ship at the port of
Manila, and delivering the same into the custody of AMCYL, the bonded warehouse,
appellants were acting in full accord with the contractual stipulations contained in Bill
of Lading No. 18. The delivery of the goods to AMCYL was part of appellants’ duty to
transship the goods from Manila to their port of destination — Davao. The word
"transship" means: "to transfer for further transportation from one ship or conveyance
to another."cralaw virtua1aw library
3. ID.; ID.; ID.; ID.; VALIDITY OF STIPULATIONS IN BILL OF LADING EXEMPTING
CARRIER FROM LIABILITY UPHELD. — The extent of appellant carrier’s
responsibility and/or liability in the transshipment of the goods in question are spelled
out and delineated under Section 1, paragraph 3 of Bill of Lading No. 18; and in
Section 11 of the same Bill. Defendants-appellants now shirk liability for the loss of
the subject goods by claiming that they have discharged the same in full and good
condition unto the custody of AMCYL at the port of discharge from ship-Manila, and
therefore, pursuant to the stipulation (Sec. 11) in the bill of lading, their responsibility
for the cargo had ceased. We find merit in appellant’s stand. The validity of stipulation
in bill of lading exempting the carrier from liability for loss or damage to the goods
when the same are not in its actual custody has been upheld by Us in PHOENIX
ASSURANCE CO., LTD. v. 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. Finding the stipulations not contrary to law, morals, good
customs, public order or public policy, We sustained their validity. Applying said
stipulations as the law between the parties in the aforecited case, the Court
concluded that: ". . . The short form bill of lading ()states in no uncertain terms that the
port of discharge of the cargo is Manila, but that the same was to be transshipped
beyond the port of discharge to Davao City. Pursuant to the terms of the long form Bill
of Lading (), appellee’s responsibility as a common carrier ceased the moment the
goods were unloaded in Manila; and in the matter of transshipment, appellee acted
merely as an agent of the shipper and consignee. . . ." (Italics supplied)
4. ID.; ID.; LIABILITY OF COMMON CARRIERS; LAWS APPLICABLE THEREON. —
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.
5. ID.; ID.; ID.; LIABILITY OF COMMON CARRIER IN CASE AT BAR GOVERNED
BY ART. 1736 IN CASE AT BAR. — Article 1736 is applicable to the instant suit.
Under said article, the carrier may be relieved of the responsibility for loss or damage
to the goods upon actual or constructive delivery of the same by the carrier to the
consignee, or to the person who has a right to receive them. In sales, actual delivery
has been defined as the ceding of corporeal possession by the seller, and the actual
apprehension of corporal 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. The court a quo found
that there was actual delivery to the consignee through its duly authorized agent, the
carrier. It becomes necessary at this point to dissect the complex relationship that had
developed between appellant and appellee in the course of the transactions that gave
birth to the present suit. Two undertakings appeared embodied and/or provided for in
the Bill of Lading in question. The first is FOR THE TRANSPORT OF GOODS from
Bremen, Germany to Manila. The second, THE TRANSSHIPMENT OF THE SAME
GOODS from Manila to DAVAO, with appellant acting as agent of the consignee. At
the hiatus between these two undertakings of appellant which is the moment when
the subject goods are discharged in Manila, its personality changes from that of
carrier to that of agent of the consignee. Thus, the character of appellant’s
possession also changes, from possession in its own name as carrier, into
possession in the name of consignee as the latter’s agent. Such being the case, there
was, in effect, actual delivery of the goods from appellant as carrier to the same
appellant as agent of the consignee. Upon such delivery, the appellant, as erstwhile
carrier, ceases to be responsible for any loss or damage that may befall the goods
from that point onwards. This is the full import of Article 1736, as applied to the case
before Us.
60|Transportation (Carriage of goods)
6. ID.; ID.; ID.; ID.; APPELLANT IN CASE AT BAR NOT LIABLE EVEN AS AGENT
OF THE CONSIGNEE UNDER THE CIVIL CODE. — Even as agent of the
consignee, the appellant cannot be made answerable for the value of the missing
goods. It is true that the transshipment of the goods, which was the object of the
agency, was not fully performed. However, appellant had commenced said
performance, the completion of which was aborted by circumstances beyond its
control. An agent who carries out the orders and instructions of the principal without
being guilty of negligence, deceit or fraud, cannot be held responsible for the failure of
the principal to accomplish the object of the agency. This can be gleaned from the
provisions of Arts. 1884, 1889, 1892 and 1909 of the New Civil Code on the
obligations of the agent. The records fail to reveal proof of negligence, deceit or fraud
committed by appellant or by its representative in the Philippines. Neither is there any
showing of notorious incompetence or insolvency on the part of AMCYL which acted
as appellant’s substitute in storing the goods awaiting transshipment.
[G.R. No. L-28673. October 23, 1984.]
SAMAR MINING COMPANY, INC., Plaintiff-Appellee, v. NORDEUTSCHER LLOYD
and C.F. SHARP & COMPANY, INC., Defendants-Appellants.
P. de Ocampo for Plaintiff-Appellee.
Ross Salcedo, for Defendants-Appellants.
SYLLABUS
1. COMMERCIAL LAW; COMMON CARRIERS; BILL OF LADING; BILL OF LADING
IS RECEIPT FOR GOODS AND A CONTRACT BETWEEN THE PARTIES. — A bill
of lading 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. ID.; ID.; ID.; ID.; CASE AT BAR. — Bill of Lading No. 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," in this case, 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.’" As
instructed above, the following words appeared typewritten under the column for
"description of contents:" "PORT OF DISCHARGE OF GOODS: DAVAO FREIGHT
PREPAID." It is clear, then, that in discharging the goods from the ship at the port of
Manila, and delivering the same into the custody of AMCYL, the bonded warehouse,
appellants were acting in full accord with the contractual stipulations contained in Bill
of Lading No. 18. The delivery of the goods to AMCYL was part of appellants’ duty to
transship the goods from Manila to their port of destination — Davao. The word
"transship" means: "to transfer for further transportation from one ship or conveyance
to another."cralaw virtua1aw library
3. ID.; ID.; ID.; ID.; VALIDITY OF STIPULATIONS IN BILL OF LADING EXEMPTING
CARRIER FROM LIABILITY UPHELD. — The extent of appellant carrier’s
responsibility and/or liability in the transshipment of the goods in question are spelled
out and delineated under Section 1, paragraph 3 of Bill of Lading No. 18; and in
Section 11 of the same Bill. Defendants-appellants now shirk liability for the loss of
the subject goods by claiming that they have discharged the same in full and good
condition unto the custody of AMCYL at the port of discharge from ship-Manila, and
therefore, pursuant to the stipulation (Sec. 11) in the bill of lading, their responsibility
for the cargo had ceased. We find merit in appellant’s stand. The validity of stipulation
in bill of lading exempting the carrier from liability for loss or damage to the goods
when the same are not in its actual custody has been upheld by Us in PHOENIX
ASSURANCE CO., LTD. v. 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. Finding the stipulations not contrary to law, morals, good
customs, public order or public policy, We sustained their validity. Applying said
stipulations as the law between the parties in the aforecited case, the Court
concluded that: ". . . The short form bill of lading ()states in no uncertain terms that the
port of discharge of the cargo is Manila, but that the same was to be transshipped
beyond the port of discharge to Davao City. Pursuant to the terms of the long form Bill
of Lading (), appellee’s responsibility as a common carrier ceased the moment the
goods were unloaded in Manila; and in the matter of transshipment, appellee acted
merely as an agent of the shipper and consignee. . . ." (Italics supplied)
4. ID.; ID.; LIABILITY OF COMMON CARRIERS; LAWS APPLICABLE THEREON. —
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.
5. ID.; ID.; ID.; LIABILITY OF COMMON CARRIER IN CASE AT BAR GOVERNED
BY ART. 1736 IN CASE AT BAR. — Article 1736 is applicable to the instant suit.
Under said article, the carrier may be relieved of the responsibility for loss or damage
to the goods upon actual or constructive delivery of the same by the carrier to the
consignee, or to the person who has a right to receive them. In sales, actual delivery
has been defined as the ceding of corporeal possession by the seller, and the actual
apprehension of corporal 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. The court a quo found
that there was actual delivery to the consignee through its duly authorized agent, the
carrier. It becomes necessary at this point to dissect the complex relationship that had
developed between appellant and appellee in the course of the transactions that gave
birth to the present suit. Two undertakings appeared embodied and/or provided for in
the Bill of Lading in question. The first is FOR THE TRANSPORT OF GOODS from
61|Transportation (Carriage of goods)
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 appellant which is the moment when
the subject goods are discharged in Manila, its personality changes from that of
carrier to that of agent of the consignee. Thus, the character of appellant’s
possession also changes, from possession in its own name as carrier, into
possession in the name of consignee as the latter’s agent. Such being the case, there
was, in effect, actual delivery of the goods from appellant as carrier to the same
appellant as agent of the consignee. Upon such delivery, the appellant, as erstwhile
carrier, ceases to be responsible for any loss or damage that may befall the goods
from that point onwards. This is the full import of Article 1736, as applied to the case
before Us.
6. ID.; ID.; ID.; ID.; APPELLANT IN CASE AT BAR NOT LIABLE EVEN AS AGENT
OF THE CONSIGNEE UNDER THE CIVIL CODE. — Even as agent of the
consignee, the appellant cannot be made answerable for the value of the missing
goods. It is true that the transshipment of the goods, which was the object of the
agency, was not fully performed. However, appellant had commenced said
performance, the completion of which was aborted by circumstances beyond its
control. An agent who carries out the orders and instructions of the principal without
being guilty of negligence, deceit or fraud, cannot be held responsible for the failure of
the principal to accomplish the object of the agency. This can be gleaned from the
provisions of Arts. 1884, 1889, 1892 and 1909 of the New Civil Code on the
obligations of the agent. The records fail to reveal proof of negligence, deceit or fraud
committed by appellant or by its representative in the Philippines. Neither is there any
showing of notorious incompetence or insolvency on the part of AMCYL which acted
as appellant’s substitute in storing the goods awaiting transshipment.
DECISION
CUEVAS, J.:
This is an appeal taken directly to Us on certiorari from the decision of the defunct
Court of First Instance of Manila, finding defendants carrier and agent, liable for the
value of goods never delivered to plaintiff consignee. The issue raised is a pure
question of law, which is, the liability of the defendants, now appellants, under the bill
of lading covering the subject shipment.
The case arose from an importation made by plaintiff, now appellee, SAMAR MINING
COMPANY, INC., of one (1) crate Optima welded wedge wire sieves through the M/S
SCHWABENSTEIN, a vessel owned by defendant-appellant NORDEUTSCHER
LLOYD, (represented in the Philippines by its agent, C.F. SHARP & CO., INC.), which
shipment is covered by Bill of Lading No. 18 duly issued to consignee SAMAR
MINING COMPANY, INC. Upon arrival of the aforesaid vessel at the port of Manila,
the aforementioned importation was unloaded and delivered in good order and
condition to the bonded warehouse of AMCYL. 1 The goods were however never
delivered to, nor received by, the consignee at the port of destination — Davao.
When the letters of complaint sent to defendants failed to elicit the desired response,
consignee herein appellee, filed a formal claim for P1,691.93, the equivalent of
$424.00 at the prevailing rate of exchange at that time, against the former, but neither
paid. Hence, the filing of the instant suit to enforce payment. Defendants-appellants
brought in AMCYL as third party defendant.
The trial court rendered judgment in favor of plaintiff, ordering defendants to pay the
amount of P1,691.93 plus attorney’s fees and costs. However, the Court stated that
defendants may recoup whatever they may pay plaintiff by enforcing the judgment
against third party defendant AMCYL which had earlier been declared in default. Only
the defendants appealed from said decision.
The issue at hand demands a close scrutiny of Bill of Lading No. 18 and its various
clauses and stipulations which should be examined in the light of pertinent legal
provisions and settled jurisprudence. This undertaking is not only proper but
necessary as well because of the nature of the bill of lading which operates both as a
receipt for the goods; and more importantly, as a contract to transport and deliver the
same as stipulated therein. 2 Being a contract, it is the law between the parties
thereto, 3 who are bound by its terms and conditions 4 provided that these are not
contrary to law, morals, good customs, public order and public policy. 5
Bill of Lading No. 18 sets forth in page 2 thereof 6 that one (1) crate of Optima welded
wedge wire sieves was received by the carrier NORDEUTSCHER LLOYD at the "port
of loading" which is Bremen, Germany, while the freight had been prepaid up to the
port of destination or the "port of discharge of goods", in this case, Davao, the carrier
undertook to transport the goods in its vessel, M/S 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:jgc:chanrobles.com.ph
"if goods are to be transshipped at port of discharge, show destination under the
column for `description of contents’" 7
As instructed above, the following words appeared typewritten under the column for
"description of contents" :jgc:chanrobles.com.ph
"PORT OF DISCHARGE OF GOODS: DAVAO
FREIGHT PREPAID" 8
It is clear, then, that in discharging the goods from the ship at the port of Manila, and
delivering the same into the custody of AMCYL, the bonded warehouse, appellants
were acting in full accord with the contractual stipulations contained in Bill of Lading
No. 18. The delivery of the goods to AMCYL was part of appellants’ duty to transship
the goods from Manila to their port of destination — Davao. The word "transship"
means:jgc:chanrobles.com.ph
62|Transportation (Carriage of goods)
"to transfer for further transportation from one ship or conveyance to another" 9
The extent of appellant carrier’s responsibility and/or liability in the transshipment of
the goods in question are spelled out and delineated under Section 1, paragraph 3 of
Bill of Lading No. 18, to wit:chanrobles virtual lawlibrary
"The carrier shall not be liable in any capacity whatsoever for any delay, loss or
damage occurring before the goods enter ship’s tackle to be loaded or after the goods
leave ship’s tackle to be discharged, transshipped or forwarded . . . ." (Emphasis
supplied)
and in Section 11 of the same Bill, which provides:jgc:chanrobles.com.ph
"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"
(Emphasis supplied) 10
Defendants-appellants now shirk liability for the loss of the subject goods by claiming
that they have discharged the same in full and good condition unto the custody of
AMCYL at the port of discharge from ship — Manila, and therefore, pursuant to the
aforequoted stipulation (Sec. 11) in the bill of lading, their responsibility for the cargo
had ceased. 11
We find merit in appellants’ stand. The validity of stipulations in bills of lading
exempting the carrier from liability for loss or damage to the goods when the same
are not in its actual custody has been upheld by Us in PHOENIX ASSURANCE CO.,
LTD. v. UNITED STATES LINES, 22 SCRA 674 (1968). Said case matches the
present controversy not only as to the material facts but more importantly, as to the
stipulations contained in the bill of lading concerned. As if to underline their awesome
likeness, the goods in question in both cases were destined for Davao, but were
discharged from ship in Manila, in accordance with their respective bills of lading.
The stipulations in the bill of lading in the PHOENIX case which are substantially the
same as the subject stipulations before Us, provides:jgc:chanrobles.com.ph
"The carrier shall not be liable in any capacity whatsoever for any loss or damage to
the goods while the goods are not in its actual custody. (Par. 2, last subpar.)
x x x
The carrier or master, in making arrangements with any person for or in connection
with all transshipping or forwarding of the goods or the use of any means of
transportation or forwarding of goods not used or operated by the carrier, shall be
considered solely the agent of the shipper and consignee and without any other
responsibility whatsoever or for the cost thereof . . . (Par. 16)." 12
Finding the above stipulations not contrary to law, morals, good customs, public order
or public policy, We sustained their validity. 13 Applying said stipulations as the law
between the parties in the aforecited case, the Court concluded
that:jgc:chanrobles.com.ph
". . . The short form Bill of Lading () states in no uncertain terms that the port of
discharge of the cargo is Manila, but that the same was to be transshipped beyond
the port of discharge to Davao City. Pursuant to the terms of the long form Bill of
Lading (), appellee’s responsibility as a common carrier ceased the moment the
goods were unloaded in Manila; and in the matter of transshipment, appellee acted
merely as an agent of the shipper and consignee. . . . ." (Emphasis supplied) 14
Coming now to the case before Us, We hold, that by the authority of the above
pronouncements, and in conformity with the pertinent provisions of the New Civil
Code, Section 11 of Bill of Lading No. 18 and the third paragraph of Section 1 thereof
are valid stipulations between the parties insofar as they exempt the carrier from
liability for loss or damage to the goods while the same are not in the latter’s actual
custody.
The liability of the common carrier for the loss, destruction or deterioration of goods
transported from a foreign country to the Philippines is governed primarily by the New
Civil Coded. 15 In all matters not regulated by said Code, the rights and obligations of
common carriers shall be governed by the Code of Commerce and by special laws.
16 A careful perusal of the provisions of the New Civil Code on common carriers
(Section 4, Title VIII, Book IV) directs our attention to Article 1736 thereof, which
reads:chanrobles.com:cralaw:red
"Article 1736. The extraordinary responsibility of the common carrier lasts from the
time the goods are unconditionally placed in the possession of, and received by the
carrier for transportation until the same are delivered, actually or constructively, by the
carrier to the consignee, or to the person who has a right to receive them, without
prejudice to the provisions of article 1738."cralaw virtua1aw library
Article 1738 referred to in the foregoing provision runs thus:jgc:chanrobles.com.ph
"Article 1738. The extraordinary liability of the common carrier continues to be
operative even during the time the goods are stored in a warehouse of the carrier at
the place of destination, until the consignee has been advised of the arrival of the
goods and has had reasonable opportunity thereafter to remove them or otherwise
dispose of them."cralaw virtua1aw library
There is no doubt that Art. 1738 finds no applicability to the instant case. The said
article contemplates a situation where the goods had already reached their place of
destination and are stored in the warehouse of the carrier. The subject goods were
still awaiting transshipment to their port of destination, and were stored in the
warehouse of a third party when last seen and/or heard of. However, Article 1736 is
63|Transportation (Carriage of goods)
applicable to the instant suit. Under said article, the carrier may be relieved of the
responsibility for loss or damage to the goods upon actual or constructive delivery of
the same by the carrier to the consignee, or to the person who has a right to receive
them. In sales, actual delivery has been defined as the ceding of corporeal
possession by the seller, and the actual apprehension of corporeal possession by the
buyer or by some person authorized by him to receive the goods as his
representative for the purpose of custody or disposal. 17 By the same token, there is
actual delivery in contracts for the transport of goods when possession has been
turned over to the consignee or to his duly authorized agent and a reasonable time is
given him to remove the goods. 18 The court a quo found that there was actual
delivery to the consignee through its duly authorized agent, the carrier.
It becomes necessary at this point to dissect the complex relationship that had
developed between appellant and appellee in the course of the transactions that gave
birth to the present suit. Two undertakings appeared embodied and/or provided for in
the Bill of Lading 19 in question. The first is FOR THE TRANSPORT OF GOODS
from Bremen, Germany to Manila. The second, THE TRANSSHIPMENT OF THE
SAME GOODS from Manila to Davao, with appellant acting as agent of the
consignee. 20 At the hiatus between these two undertakings of appellant which is the
moment when the subject goods are discharged in Manila, its personality changes
from that of carrier to that of agent of the consignee. Thus, the character of
appellant’s possession also changes, from possession in its own name as carrier, into
possession in the name of consignee as the latter’s agent. Such being the case, there
was, in effect, actual delivery of the goods from appellant as carrier to the same
appellant as agent of the consignee. Upon such delivery, the appellant, as erstwhile
carrier, ceases to be responsible for any loss or damage that may befall the goods
from that point onwards. This is the full import of Article 1736, as applied to the case
before Us.
But even as agent of the consignee, the appellant cannot be made answerable for the
value of the missing goods. It is true that the transshipment of the goods, which was
the object of the agency, was not fully performed. However, appellant had
commenced said performance, the completion of which was aborted by
circumstances beyond its control. An agent who carries out the orders and
instructions of the principal without being guilty of negligence, deceit or fraud, cannot
be held responsible for the failure of the principal to accomplish the object of the
agency, 21 This can be gleaned from the following provisions of the New Civil Code
on the obligations of the agent:jgc:chanrobles.com.ph
"Article 1884. The agent is bound by his acceptance to carry out the agency, and is
liable for the damages which, through his non-performance, the principal may suffer.
x x x
Article 1889. The agent shall be liable for damages if, there being a conflict between
his interests and those of the principal, he should prefer his own.
Article 1892. The agent may appoint a substitute if the principal has not prohibited
him from doing so; but he shall be responsible for the acts of the
substitute:chanrob1es virtual 1aw library
(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.
x x x On 6 April 1989, per letter of credit requirement, copies of the bills of lading and
Article 1909. The agent is responsible not only for fraud, but also for negligence which
shall be judged with more or less rigor by the courts, according to whether the agency
was or was not for a compensation."cralaw virtua1aw library
The records fail to reveal proof of negligence, deceit or fraud committed by appellant
or by its representative in the Philippines. Neither is there any showing of notorious
incompetence or insolvency on the part of AMCYL which acted as appellant’s
substitute in storing the goods awaiting transshipment.chanrobles law library
The actions of appellant carrier and of its representative in the Philippines being in full
faith with the lawful stipulations of Bill of Lading No. 18 and in conformity with the
provisions of the New Civil Code on common carriers, agency and contracts, they
incur no liability for the loss of the goods in question.
WHEREFORE, the appealed decision is hereby REVERSED. Plaintiff-appellee’s
complaint is hereby DISMISSED.
No costs.
SO ORDERED.
G.R. No. 125524           August 25, 1999
BENITO MACAM doing business under the name and style BEN-MAC
ENTERPRISES, petitioner,
vs.
COURT OF APPEALS, CHINA OCEAN SHIPPING CO., and/or WALLEM
PHILIPPINES SHIPPING, INC., respondents.
BELLOSILLO, J.:
On 4 April 1989 petitioner Benito Macam, doing business under the name and
style Ben-Mac Enterprises, shipped on board the vessel Nen Jiang, owned and
operated by respondent China Ocean Shipping Co., through local agent respondent
Wallem Philippines Shipping, Inc. (hereinafter WALLEM), 3,500 boxes of
watermelons valued at US$5,950.00 covered by Bill of Lading No. HKG 99012 and
exported through Letter of Credit No. HK 1031/30 issued by National Bank of
Pakistan, Hongkong (hereinafter PAKISTAN BANK) and 1,611 boxes of fresh
mangoes with a value of US$14,273.46 covered by Bill of Lading No. HKG 99013 and
exported through Letter of Credit No. HK 1032/30 also issued by PAKISTAN BANK.
The Bills of Lading contained the following pertinent provision: "One of the Bills of
64|Transportation (Carriage of goods)
Lading must be surrendered duly endorsed in exchange for the goods or delivery
order.1 The shipment was bound for Hongkong with PAKISTAN BANK as consignee
and Great Prospect Company of Kowloon, Hongkong (hereinafter GPC) as notify
party.
commercial invoices were submitted to petitioner's depository bank, Consolidated
Banking Corporation (hereinafter SOLIDBANK), which paid petitioner in advance the
total value of the shipment of US$20,223.46.1âwphi1.nêt
Upon arrival in Hongkong, the shipment was delivered by respondent WALLEM
directly to GPC, not to PAKISTAN BANK, and without the required bill of lading
having been surrendered. Subsequently, GPC failed to pay PAKISTAN BANK such
that the latter, still in possession of the original bills of lading, refused to pay petitioner
through SOLIDBANK. Since SOLIDBANK already pre-paid petitioner the value of the
shipment, it demanded payment from respondent WALLEM through five (5) letters but
was refused. Petitioner was thus allegedly constrained to return the amount involved
to SOLIDBANK, then demanded payment from respondent WALLEM in writing but to
no avail.
On 25 September 1991 petitioner sought collection of the value of the shipment of
US$20,223.46 or its equivalent of P546,033.42 from respondents before the Regional
Trial Court of Manila, based on delivery of the shipment to GPC without presentation
of the bills of lading and bank guarantee.
Respondents contended that the shipment was delivered to GPC without presentation
of the bills of lading and bank guarantee per request of petitioner himself because the
shipment consisted of perishable goods. The telex dated 5 April 1989 conveying such
request read —
AS PER 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 shipt ofrt charges already fully paid our end . . . .
3
Respondents explained that it is a standard maritime practice, when immediate
delivery is of the essence, for the shipper to request or instruct the carrier to deliver
the goods to the buyer upon arrival at the port of destination without requiring
presentation of the bill of lading as that usually takes time. As proof thereof,
respondents apprised the trial court that for the duration of their two-year business
relationship with petitioner concerning similar shipments to GPC deliveries were
effected without presentation of the bills of lading.4 Respondents advanced next that
the refusal of PAKISTAN BANK to pay the letters of credit to SOLIDBANK was due to
the latter's failure to submit a Certificate of Quantity and Quality. Respondents
counterclaimed for attorney's fees and costs of suit.
On 14 May 1993 the trial court ordered respondents to pay, jointly and severally, the
following amounts: (1) P546,033.42 plus legal interest from 6 April 1989 until full
payment; (2) P10,000.00 as attorney's fees; and, (3) the costs. The counterclaims
were dismissed for lack of merit.5 The trial court opined that respondents breached
the provision in the bill of lading requiring that "one of the Bills of Lading must be
surrendered duly endorsed in exchange for the goods or delivery order," when they
released the shipment to GPC without presentation of the bills of lading and the bank
guarantee that should have been issued by PAKISTAN BANK in lieu of the bills of
lading. The trial court added that the shipment should not have been released to GPC
at all since the instruction contained in the telex was to arrange delivery to the
respective consignees and not to any party. The trial court observed that the only role
of GPC in the transaction as notify party was precisely to be notified of the arrival of
the cargoes in Hongkong so it could in turn duly advise the consignee.
Respondent Court of Appeals appreciated the evidence in a different manner.
According to it, as established by previous similar transactions between the parties,
shipped cargoes were sometimes actually delivered not to the consignee but to notify
party GPC without need of the bills of lading or bank guarantee.6 Moreover, the bills
of lading were viewed by respondent court to have been properly superseded by the
telex instruction and to implement the instruction, the delivery of the shipment must
be to GPC, the real importer/buyer of the goods as shown by the export
invoices,7 and not to PAKISTAN BANK since the latter could very well present the
bills of lading in its possession; likewise, if it were the PAKISTAN BANK to which the
cargoes were to be strictly delivered it would no longer be proper to require a bank
guarantee. Respondent court noted that besides, GPC was listed as a consignee in
the telex. It observed further that the demand letter of petitioner to respondents never
complained of misdelivery of goods. Lastly, respondent court found that petitioner's
claim of having reimbursed the amount involved to SOLIDBANK was unsubstantiated.
Thus, on 13 March 1996 respondent court set aside the decision of the trial court and
dismissed the complaint together with the counterclaims.8 On 5 July 1996
reconsideration was denied.9
Petitioner submits that the fact that the shipment was not delivered to the consignee
as stated in the bill of lading or to a party designated or named by the consignee
constitutes a misdelivery thereof. Moreover, petitioner argues that from the text of the
telex, assuming there was such an instruction, the delivery of the shipment without
the required bill of lading or bank guarantee should be made only to the designated
consignee, referring to PAKISTAN BANK.
We are not persuaded. The submission of petitioner that "the fact that the shipment
was not delivered to the consignee as stated in the Bill of Lading or to a party
designated or named by the consignee constitutes a misdelivery thereof" is a
deviation from his cause of action before the trial court. It is clear from the allegation
in his complaint that it does not deal with misdelivery of the cargoes but of delivery to
GPC without the required bills of lading and bank guarantee —
6. The goods arrived in Hongkong and were released by the defendant
Wallem directly to the buyer/notify party, Great Prospect Company and not
to the consignee, the National Bank of Pakistan, Hongkong, without the
required bills of lading and bank guarantee for the release of the shipment
issued by the consignee of the goods . . . .10
65|Transportation (Carriage of goods)
Even going back to an event that transpired prior to the filing of the present case or
when petitioner wrote respondent WALLEM demanding payment of the value of the
cargoes, misdelivery of the cargoes did not come into the picture —
We are writing you on behalf of our client, Ben-Mac Enterprises who
informed us that Bills of Lading No. 99012 and 99013 with a total value of
US$20,223.46 were released to Great Prospect, Hongkong without the
necessary bank guarantee. We were further informed that the consignee of
the goods, National Bank of Pakistan, Hongkong, did not release or endorse
the original bills of lading. As a result thereof, neither the consignee, National
Bank of Pakistan, Hongkong, nor the importer, Great Prospect Company,
Hongkong, paid our client for the goods . . . .11
At any rate, we shall dwell on petitioner's submission only as a prelude to our
discussion on the imputed liability of respondents concerning the shipped goods.
Article 1736 of the Civil Code provides —
Art. 1736. The extraordinary responsibility of the common carriers lasts from
the time the goods are unconditionally placed in the possession of, and
received by the carrier for transportation until the same are delivered,
actually or constructively, by the carrier to the consignee, or to the person
who has a right to receive them, without prejudice to the provisions of article
1738.12
We emphasize that the extraordinary responsibility of the common carriers lasts until
actual or constructive delivery of the cargoes to the consignee or to the person who
has a right to receive them. PAKISTAN BANK was indicated in the bills of lading as
consignee whereas GPC was the notify party. However, in the export invoices GPC
was clearly named as buyer/importer. Petitioner also referred to GPC as such in his
demand letter to respondent WALLEM and in his complaint before the trial court. This
premise draws us to conclude that the delivery of the cargoes to GPC as
buyer/importer which, conformably with Art. 1736 had, other than the consignee, the
right to receive them14 was proper.
The real issue is whether respondents are liable to petitioner for releasing the goods
to GPC without the bills of lading or bank guarantee.
Respondents submitted in evidence a telex dated 5 April 1989 as basis for delivering
the cargoes to GPC without the bills of lading and bank guarantee. The telex
instructed delivery of various shipments to the respective consignees without need of
presenting the bill of lading and bank guarantee per the respective shipper's request
since "for prepaid shipt ofrt charges already fully paid." Petitioner was named therein
as shipper and GPC as consignee with respect to Bill of Lading Nos. HKG 99012 and
HKG 99013. Petitioner disputes the existence of such instruction and claims that this
evidence is self-serving.
From the testimony of petitioner, we gather that he has been transacting with GPC as
buyer/importer for around two (2) or three (3) years already. When mangoes and
watermelons are in season, his shipment to GPC using the facilities of respondents is
twice or thrice a week. The goods are released to GPC. It has been the practice of
petitioner to request the shipping lines to immediately release perishable cargoes
such as watermelons and fresh mangoes through telephone calls by himself or his
"people." In transactions covered by a letter of credit, bank guarantee is normally
required by the shipping lines prior to releasing the goods. But for buyers using
telegraphic transfers, petitioner dispenses with the bank guarantee because the
goods are already fully paid. In his several years of business relationship with GPC
and respondents, there was not a single instance when the bill of lading was first
presented before the release of the cargoes. He admitted the existence of the telex of
3 July 1989 containing his request to deliver the shipment to the consignee without
presentation of the bill of lading15 but not the telex of 5 April 1989 because he could
not remember having made such request.
Consider pertinent portions of petitioner's testimony —
Q: Are you aware of any document which would indicate or show that your
request to the defendant Wallem for the immediate release of your fresh
fruits, perishable goods, to Great Prospect without the presentation of the
original Bill of Lading?
A: Yes, by telegraphic transfer, which means that it is fully paid. And I
requested immediate release of the cargo because there was immediate
payment.
Q: And you are referring, therefore, to this copy Telex release that you
mentioned where your Company's name appears Ben-Mac?
Atty. Hernandez: Just for the record, Your Honor, the witness is
showing a Bill of Lading referring to SKG (sic) 93023 and 93026
with Great Prospect Company.
Atty. Ventura:
Q: Is that the telegraphic transfer?
A: Yes, actually, all the shippers partially request for the immediate release
of the goods when they are perishable. I thought Wallem Shipping Lines is
not neophyte in the business. As far as LC is concerned, Bank guarantee is
needed for the immediate release of the goods . . . .15
Q: Mr. Witness, you testified that if is the practice of the shipper of the
perishable goods to ask the shipping lines to release immediately the
shipment. Is that correct?
A: Yes, sir.
66|Transportation (Carriage of goods)
Q: Now, it is also the practice of the shipper to allow the shipping lines to
release the perishable goods to the importer of goods without a Bill of Lading
or Bank guarantee?
A: No, it cannot be without the Bank Guarantee.
Atty. Hernandez:
Q: Can you tell us an instance when you will allow the release of the
perishable goods by the shipping lines to the importer without the Bank
guarantee and without the Bill of Lading?
A: As far as telegraphic transfer is concerned.
Q: Can you explain (to) this Honorable Court what telegraphic transfer is?
A: Telegraphic transfer, it means advance payment that I am already fully
paid . . . .
Q: Mr. Macam, with regard to Wallem and to Great Prospect, would you
know and can you recall that any of your shipment was released to Great
Prospect by Wallem through telegraphic transfer?
A: I could not recall but there were so many instances sir.
Q: Mr. Witness, do you confirm before this Court that in previous shipments
of your goods through Wallem, you requested Wallem to release
immediately your perishable goods to the buyer?
A: Yes, that is the request of the shippers of the perishable goods . . . .16
Q: Now, Mr. Macam, if you request the Shipping Lines for the release of your
goods immediately even without the presentation of OBL, how do you
course it?
A: Usually, I call up the Shipping Lines, sir . . . .17
Q: You also testified you made this request through phone calls. Who of you
talked whenever you made such phone call?
A: Mostly I let my people to call, sir. (sic)
Q: So everytime you made a shipment on perishable goods you let your
people to call? (sic)
A: Not everytime, sir.
 Q: You did not make this request in writing?
A: No, sir. I think I have no written request with Wallem . . . .18
Against petitioner'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
respondent WALLEM that petitioner indeed requested the release of the goods to
GPC without presentation of the bills of lading and bank guarantee.
The instruction in the telex of 5 April 1989 was "to deliver the shipment to respective
consignees." And so petitioner argues that, assuming there was such an instruction,
the consignee referred to was PAKISTAN BANK. We find the argument too simplistic.
Respondent court analyzed the telex in its entirety and correctly arrived at the
conclusion that the consignee referred to was not PAKISTAN BANK but GPC —
There is no mistake that the originals of the two (2) subject Bills of Lading
are still in the possession of the Pakistani Bank. The appealed decision
affirms this fact. Conformably, to implement the said telex instruction, the
delivery of the shipment must be to GPC, the notify party or real
importer/buyer of the goods and not the Pakistani Bank since the latter can
very well present the original Bills of Lading in its possession. Likewise, if it
were the Pakistani Bank to whom the cargoes were to be strictly delivered, it
will no longer be proper to require a bank guarantee as a substitute for the
Bill of Lading. To construe otherwise will render meaningless the telex
instruction. After all, the cargoes consist of perishable fresh fruits and
immediate delivery thereof to the buyer/importer is essentially a factor to
reckon with. Besides, GPC is listed as one among the several consignees in
the telex (Exhibit 5-B) and the instruction in the telex was to arrange delivery
of A/M shipment (not any party) to respective consignees without
presentation of OB/L and bank guarantee . . . .20
Apart from the foregoing obstacles to the success of petitioner's cause, petitioner
failed to substantiate his claim that he returned to SOLIDBANK the full amount of the
value of the cargoes. It is not far-fetched to entertain the notion, as did respondent
court, that he merely accommodated SOLIDBANK in order to recover the cost of the
shipped cargoes from respondents. We note that it was SOLIDBANK which initially
demanded payment from respondents through five (5) letters. SOLIDBANK must
have realized the absence of privity of contract between itself and respondents. That
is why petitioner conveniently took the cudgels for the bank.
In view of petitioner's utter failure to establish the liability of respondents over the
cargoes, no reversible error was committed by respondent court in ruling against him.
67|Transportation (Carriage of goods)
WHEREFORE, the petition is DENIED. The decision of respondent Court of Appeals
of 13 March 1996 dismissing the complaint of petitioner Benito Macam and the
counterclaims of respondents China Ocean Shipping Co. and/or Wallem Philippines
Shipping, Inc., as well as its resolution of 5 July 1996 denying reconsideration, is
AFFIRMED.1âwphi1.nêt
SO ORDERED.
G.R. No. L-16598             October 3, 1921
H. E. HEACOCK COMPANY, plaintiff-appellant,
vs.
MACONDRAY & COMPANY, INC., defendant-appellant.
Fisher & DeWitt for plaintiff-appellant.
Wolfson, Wolfson & Schwarzkopf for defendant-appellant.
JOHNSON, J.:
This action was commenced in the Court of First Instance of the City of Manila to
recover the sum of P240 together with interest thereon. The facts are stipulated by
the parties, and are, briefly, as follows:
(1) On or about the 5th day of June, 1919, the plaintiff caused to be
delivered on board of steamship Bolton Castle, then in the harbor of New
York, four cases of merchandise one of which contained twelve (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
steampship arrived in the port of Manila on or about the 10th day of
September, 1919, consigned to the defendant herein as agent and
representative of said vessel in said port. Neither the master of said vessel
nor the defendant herein, as its agent, delivered to the plaintiff the aforesaid
twelve 8-day Edmond clocks, although demand was made upon them for
their delivery.
(2) The invoice value of the said twelve 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 the plaintiff was P420.
 (3) The bill of lading issued and delivered to the plaintiff by the master of the
said steamship Bolton Castle  contained, among others, the following
clauses:
1. It is mutually agreed that the value of the goods receipted for
above does not exceed $500 per freight ton, or, in proportion for
any part of a ton, unless the value be expressly stated herein and
ad valorem freight paid thereon.
9. Also, that in the event of claims for short delivery of, or damage
to, cargo being made, the carrier shall not be liable for more than
the net invoice price plus freight and insurance less all charges
saved, and any loss or damage for which the carrier may be liable
shall be adjusted pro rata on the said basis.
(4) The case containing the aforesaid twelve 8-day Edmond clocks
measured 3 cubic feet, and the freight ton value thereof was $1,480, U. S.
currency.
(5) No greater value than $500, U. S. currency, per freight ton was declared
by the plaintiff on the aforesaid clocks, and no ad valorem freight was paid
thereon.
(6) On or about October 9, 1919, the defendant tendered to the plaintiff
P76.36, the proportionate freight ton value of the aforesaid twelve 8-day
Edmond clocks, in payment of plaintiff's claim, which tender plaintiff rejected.
The lower court, in accordance with clause 9 of the bill of lading above quoted,
rendered judgment in favor of the plaintiff against the defendant 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 November 20, 1919, the date of
the complaint, together with costs. From that judgment both parties appealed to this
court.
The plaintiff-appellant insists that it is entitled to recover from the defendant the
market value of the clocks in question, to wit: the sum of P420. The defendant-
appellant, on the other hand, contends that, in accordance with clause 1 of the bill of
lading, the plaintiff is entitled to recover only the sum of P76.36, the proportionate
freight ton value of the said clocks. The claim of the plaintiff is based upon the
argument that the two clause in the bill of lading above quoted, limiting the liability of
the carrier, are contrary to public order and, therefore, null and void. The defendant,
on the other hand, contends that both of said clauses are valid, and the clause 1
should have been applied by the lower court instead of clause 9.
I. The appeal of the plaintiff presents this question; May a common carrier, by
stipulations inserted in the bill of lading, limit its liability for the loss of or damage to
the cargo to an agreed valuation of the latter? 1awph!l.net
68|Transportation (Carriage of goods)
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.
The authorities relied upon by the plaintiff-appellant (the Harter Act [Act of Congress
of February 13, 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 negligence, or provide
for an unqualified limitation of such liability to an agreed valuation.
A reading of clauses 1 and 9 of the bill of lading here in question, however, 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).
In the case of Hart vs. Pennsylvania R. R. Co., supra, 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 securing 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."
In the case of Union Pacific Railway Co. vs. Burke, supra, 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 and 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 the 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."
The syllabus of the same case reads as follows: "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 principles of justice that a shipper may understate value
in order to reduce the rate and then recover a larger value in case of loss.
(Adams Express Co. vs. Croninger 226 U. S. 491, 492.) See also
Reid vs. Farbo (130 C. C. A., 285); Jennings vs. Smith (45 C. C. A., 249);
George N. Pierce Co. vs. Wells, Fargo and Co. (227 U. S., 278); Wells,
Fargo & Co. vs. Neiman-Marcus Co. (227 U. S., 469).
It seems clear from the foregoing authorities that the clauses (1 and 9) of the bill of
lading here in question 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.
II. The question presented by the appeal of the defendant is whether clause 1 or
clause 9 of the bill of lading here in question is to be adopted as the measure of
defendant's liability. Clause 1 provides as follows:
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.
Clause 9 provides:
9. Also, that in the even 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.
The defendant-appellant contends that these two clauses, if construed together,
mean that the shipper and the carrier stipulate and agree that the value of the goods
receipted for does not exceed $500 per freight ton, but should the invoice value of the
goods be less than $500 per freight ton, then the invoice value governs; that since in
this case the invoice value is more than $500 per freight ton, the latter valuation
should be adopted and that according to that valuation, the proportionate value of the
clocks in question is only P76.36 which the defendant is ready and willing to pay to
the plaintiff.
It will be noted, however, that 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
69|Transportation (Carriage of goods)
carrier may be liable shall be adjusted pro rata on the said basis," clause 9 expressly
provides. It seems to us that there is an irreconcilable conflict between the two
clauses with regard to the measure of defendant's liability. It is difficult to reconcile
them without doing violence to the language used and reading exceptions and
conditions into the undertaking contained in clause 9 that are not there. This being the
case, the bill of lading in question should be interpreted against the defendant carrier,
which drew 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 as
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.)
It follows from all of the foregoing that the judgment appealed from should be
affirmed, without any finding as to costs. So ordered.
G.R. No. L-20099             July 7, 1966
PARMANAND SHEWARAM, plaintiff and appellee,
vs.
PHILIPPINE AIR LINES, INC., defendant and appellant.
Ponce Enrile, Siguion Reyna, Montecillo and Belo for defendant and appellant.
Climaco and Associates for plaintiff and appellee.
ZALDIVAR, J.:
Before the municipal court of Zamboanga City, plaintiff-appellee Parmanand
Shewaram instituted an action to recover damages suffered by him due to the alleged
failure of defendant-appellant Philippines Air Lines, Inc. to observe extraordinary
diligence in the vigilance and carriage of his luggage. After trial the municipal court of
Zamboanga City rendered judgment ordering the appellant to pay appellee P373.00
as actual damages, P100.00 as exemplary damages, P150.00 as attorney's fees, and
the costs of the action.
Appellant Philippine Air Lines appealed to the Court of First Instance of Zamboanga
City. After hearing the Court of First Instance of Zamboanga City modified the
judgment of the inferior court by ordering the appellant to pay the appellee only the
sum of P373.00 as actual damages, with legal interest from May 6, 1960 and the sum
of P150.00 as attorney's fees, eliminating the award of exemplary damages.
From the decision of the Court of First Instance of Zamboanga City, appellant appeals
to this Court on a question of law, assigning two errors allegedly committed by the
lower court a quo, to wit:
1. The lower court erred in not holding that plaintiff-appellee was bound by
the provisions of the tariff regulations filed by defendant-appellant with the
civil aeronautics board and the conditions of carriage printed at the back of
the plane ticket stub.
2. The lower court erred in not dismissing this case or limiting the liability of
the defendant-appellant to P100.00.
The facts of this case, as found by the trial court, quoted from the decision appealed
from, are as follows:
That Parmanand Shewaram, the plaintiff herein, was on November 23,
1959, a paying passenger with ticket No. 4-30976, on defendant's aircraft
flight No. 976/910 from Zamboanga City bound for Manila; that defendant 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; that on the above-
mentioned date of November 23, 1959, he checked in three (3) pieces of
baggages — a suitcase and two (2) other pieces; that the suitcase was
mistagged by defendant's personnel in Zamboanga City, as I.G.N. (for Iligan)
with claim check No. B-3883, instead of MNL (for Manila). When plaintiff
Parmanand Shewaram arrived in Manila on the date of November 23, 1959,
his suitcase did not arrive with his flight because it was sent to Iligan. So, he
made a claim with defendant'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 the plaintiff 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; that after inquiries made by
defendant'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 the plaintiff herein
arrived in Manila airport on November 24, 1959; that it was also found out
that the suitcase shown to and given to the plaintiff for delivery which he
refused to take delivery belonged to a certain Del Rosario who was bound
for Iligan in the same flight with Mr. Shewaram; that when the plaintiff's
suitcase arrived in Manila as stated above on November 24, 1959, 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; that Shewaram made demand for these two (2)
items or for the value thereof but the same was not complied with by
defendant.
70|Transportation (Carriage of goods)
xxx     xxx     xxx
It is admitted by defendant that there was mistake in tagging the suitcase of
plaintiff as IGN. The tampering of the suitcase is more apparent when on
November 24, 1959, when the suitcase arrived in Manila, defendant's
personnel could open the same in spite of the fact that plaintiff had it under
key when he delivered the suitcase to defendant's personnel in Zamboanga
City. Moreover, it was established during the hearing that there was space in
the suitcase where the two items in question could have been placed. It was
also shown that as early as November 24, 1959, when plaintiff was notified
by phone of the arrival of the suitcase, plaintiff asked that check of the things
inside his suitcase be made and defendant admitted that the two items could
not be found inside the suitcase. There was no evidence on record sufficient
to show that plaintiff's suitcase was never opened during the time it was
placed in defendant's possession and prior to its recovery by the plaintiff.
However, defendant had presented evidence that it had authority to open
passengers' baggage to verify and find its ownership or identity. Exhibit "1"
of the defendant would show that the baggage that was offered to plaintiff as
his own was opened and the plaintiff denied ownership of the contents of the
baggage. This proven fact that baggage may and could be opened without
the necessary authorization and presence of its owner, applied too, to the
suitcase of plaintiff which was mis-sent to Iligan City because of mistagging.
The possibility of what happened in the baggage of Mr. Del Rosario at the
Manila Airport in his absence could have also happened to plaintiffs suitcase
at Iligan City in the absence of plaintiff. Hence, the Court believes that these
two items were really in plaintiff's suitcase and defendant should be held
liable for the same by virtue of its contract of carriage.
It is clear from the above-quoted portions of the decision of the trial court that said
court had found that the suitcase of the appellee was tampered, and the transistor
radio and the camera contained therein were lost, and that the loss of those articles
was due to the negligence of the employees of the appellant. The evidence shows
that the transistor radio cost P197.00 and the camera cost P176.00, so the total value
of the two articles was P373.00.
There is no question that the appellant is a common carrier.1 As such common carrier
the appellant, 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. 2 It having been shown that the loss of the transistor radio and the camera of
the appellee, costing P373.00, was due to the negligence of the employees of the
appellant, it is clear that the appellant should be held liable for the payment of said
loss.3
It is, however, contended by the appellant that its liability should be limited to the
amount stated in the conditions of carriage printed at the back of the plane ticket stub
which was issued to the appellee, which conditions are embodied in Domestic Tariff
Regulations No. 2 which was filed with the Civil Aeronautics Board. One of those
conditions, which is pertinent to the issue raised by the appellant in this case 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.
The appellant maintains that in view of the failure of the appellee to declare a higher
value for his luggage, and pay the freight on the basis of said declared value when he
checked such luggage at the Zamboanga City airport, pursuant to the abovequoted
condition, appellee can not demand payment from the appellant of an amount in
excess of P100.00.
The law that may be invoked, in this connection is Article 1750 of the New Civil Code
which provides as follows:
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 the above-quoted provision of 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."
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. In the
case before us We believe that the requirements of said article have not been met. It
can not be said that the appellee had actually entered into a contract with the
appellant, embodying the conditions as printed at the back of the ticket stub that was
issued by the appellant to the appellee. The fact that those conditions are printed at
the back of the ticket stub in letters so small that they are hard to read would not
warrant the presumption that the appellee was aware of those conditions such that he
had "fairly and freely agreed" to those conditions. The trial court has categorically
stated in its decision that the "Defendant admits that passengers do not sign the
ticket, much less did plaintiff herein sign his ticket when he made the flight on
November 23, 1959." We hold, therefore, that the appellee 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 appellant's plane on November 23, 1959.
The liability of the appellant in the present case should be governed by the provisions
of Articles 1734 and 1735 of the New Civil Code, which We quote as follows:
ART. 1734. Common carries 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;
71|Transportation (Carriage of goods)
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.1äwphï1.ñët
ART. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4 and 5
of the preceding article, if the goods are lost, destroyed or deteriorated,
common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary diligence as
required in Article 1733.
It having been clearly found by the trial court that the transistor radio and the camera
of the appellee were lost as a result of the negligence of the appellant as a common
carrier, the liability of the appellant is clear — it must pay the appellee the value of
those two articles.
In the case of Ysmael and Co. vs. Barreto, 51 Phil. 90, cited by the trial court in
support of its decision, this 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.
Corpus Juris, volume 10, p. 154, says:
"Par. 194, 6. Reasonableness of Limitations. — 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.
"Par. 195. 7. What Limitations of Liability Permissible. — 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.
"Par. 196. bb. Considerations on which Rule Based. — 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.
"Par. 197. cc. Application and Extent of Rule — (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 employer." (Cited in Ysmael and Co. vs. Barreto, 51 Phil. 90, 98, 99).
In view of the foregoing, the decision appealed from is affirmed, with costs against the
appellant.
[G.R. No. L-40597. June 29, 1979.]
AUGUSTO B. ONG YIU, Petitioner, v. HONORABLE COURT OF APPEALS and
PHILIPPINE AIR LINES, Respondents.
DECISION
MELENCIO-HERRERA, J.:
In this Petition for Review by Certiorari, Petitioner, a practicing lawyer and
businessman, seeks a reversal of the Decision of the Court of Appeals in CA.-G.R.
No. 45005-R, which reduced his claim for damages for breach of contract of
transportation.
The facts are as follows:chanrob1es virtual 1aw library
On August 26, 1967, petitioner was a fare paying passenger of respondent Philippine
Air Lines, Inc. (PAL), on board Flight No. 463-R, from Mactan, Cebu, bound for
Butuan City. He was scheduled to attend the trial of Civil Case No. 1005 and Spec.
Procs. No. 1125 in the Court of First Instance, Branch II, thereat, 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 No. 2106-R (Exh. "A"). The plane left
Mactan Airport, Cebu, at about 1:00 o’clock P.M., and arrived at Bancasi airport,
Butuan City, at past 2:00 o’clock P.M., of the same day. Upon arrival, petitioner
claimed his luggage but it could not be found. According to petitioner, it was only after
72|Transportation (Carriage of goods)
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 o’clock 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. (Exh. "2") that same afternoon. It must have been transmitted to Manila
immediately, for at 3:59 that same afternoon, PAL Manila wired PAL Cebu advising
that the luggage had been overcarried to Manila aboard Flight No. 156 and that it
would be forwarded to Cebu on Flight No. 345 of the same day. Instructions were
also given that the luggage be immediately forwarded to Butuan City on the first
available flight (Exh. "3"). 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 No. 963 the
following day, August 27, 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.chanrobles virtual lawlibrary
In the meantime, petitioner was worried about the missing luggage because it
contained vital documents needed for trial the next day. At 10:00 o’clock that evening,
petitioner 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 (Exh. "B"). This telegram was received by the Cebu PAL supervisor
but the latter felt no need to wire petitioner 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, August 27, 1967, petitioner went to the Bancasi
Airport to inquire about his luggage. He did not wait, however, for the morning flight
which arrived at 10:00 o’clock that morning. This flight carried the missing luggage.
The porter clerk, Maximo Gomez, paged petitioner, but the latter had already left. A
certain Emilio Dagorro, a driver of a "colorum" car, who also used to drive for
petitioner, volunteered to take the luggage to petitioner. As Maximo Gomez knew
Dagorro to be the same driver used by petitioner 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 petitioner, with the information that the lock
was open. Upon inspection, petitioner 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. Petitioner 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, petitioner asked for postponement of the hearing of Civil Case No. 1005
due to loss of his documents, which was granted by the Court (Exhs. "C" and "C-1").
Petitioner returned to Cebu City on August 28, 1967. In a letter dated August 29,
1967 addressed to PAL, Cebu, petitioner called attention to his telegram (Exh. "D"),
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 five days from receipt of the
letter, otherwise, he would be left with no alternative but to file suit (Exh. "D").
On August 31, 1967, Messrs. de Leon, Navarsi, and Agustin, all of PAL Cebu, went to
petitioner’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 petitioner (Exh.
"E").chanrobles law library
On September 5, 1967, petitioner 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" (Exh.
"F").
The following day, September 6, 1967, PAL sent its reply hereinunder quoted
verbatim:jgc:chanrobles.com.ph
"Dear Atty. Ong Yiu:jgc:chanrobles.com.ph
"This is with reference to your September 5, 1967, letter to Mr. Ricardo G. Paloma,
Acting Manager, Southern Philippines.
"First of all, may we apologize for the delay in informing you of the result of our
investigation since we visited you in your office last August 31, 1967. Since there are
stations other than Cebu which are involved in your case, we have to communicate
and await replies from them. We regret to inform you that to date we have not found
the supposedly lost folder of papers nor have we been able to pinpoint the personnel
who allegedly pilferred your baggage.
"You must realize that no inventory was taken of the cargo upon loading them on any
plane. Consequently, we have no way of knowing the real contents of your baggage
when same was loaded.
"We realized the inconvenience you encountered of this incident but we trust that you
will give us another opportunity to be of better service to you.
Very truly yours,
PHILIPPINE AIR LINES, INC.
(Sgd) JEREMIAS S. AGUSTIN
Branch Supervisor
Cebu"
(Exhibit G, Folder of Exhibits)" 1
On September 13, 1967, petitioner filed a Complaint against PAL for damages for
breach of contract of transportation with the Court of First Instance of Cebu, Branch
V, docketed as Civil Case No. 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 — petitioner in so far as he was
awarded only the sum of P80,000.00 as moral damages; and defendant because of
the unfavorable judgment rendered against it.
73|Transportation (Carriage of goods)
On August 22, 1974, the Court of Appeals, * finding that PAL was guilty only of simple
negligence, reversed the judgment of the trial Court granting petitioner moral and
exemplary damages, but ordered PAL to pay plaintiff the sum of P100.00, the
baggage liability assumed by it under the condition of carriage printed at the back of
the ticket.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph
Hence, this Petition for Review by Certiorari, filed on May 2, 1975, with petitioner
making the following Assignments of Error:jgc:chanrobles.com.ph
"I. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING RESPONDENT
PAL GUILTY ONLY OF SIMPLE NEGLIGENCE AND NOT BAD FAITH IN THE
BREACH OF ITS CONTRACT OF TRANSPORTATION WITH PETITIONER.
"II. THE HONORABLE COURT OF APPEALS MISCONSTRUED THE EVIDENCE
AND THE LAW WHEN IT REVERSED THE DECISION OF THE LOWER COURT
AWARDING TO PETITIONER MORAL DAMAGES IN THE AMOUNT OF
P80,000.00, EXEMPLARY DAMAGES OF P30,000.00, AND P5,000.00
REPRESENTING ATTORNEY’S FEES, AND ORDERED RESPONDENT PAL TO
COMPENSATE PLAINTIFF THE SUM OF P100.00 ONLY, CONTRARY TO THE
EXPLICIT PROVISIONS OF ARTICLES 2220, 2229, 2232 AND 2234 OF THE CIVIL
CODE OF THE PHILIPPINES.
On July 16, 1975, this Court gave due course to the Petition.
There is no dispute that PAL incurred in delay in the delivery of petitioner’s luggage.
The question is the correctness of respondent Court’s conclusion that there was no
gross negligence on the part of PAL and that it had not acted fraudulently or in bad
faith as to entitle petitioner to an award of moral and exemplary damages.
From the facts of the case, we agree with respondent Court that PAL had not acted in
bad faith. Bad faith means a breach of a known duty through some motive of interest
or ill will. 2 It was the duty of PAL to look for petitioner’s luggage which had been
miscarried. PAL exerted due diligence in complying with such duty.
As aptly stated by the appellate Court:jgc:chanrobles.com.ph
"We do not find any evidence of bad faith in this. On the contrary, We find that the
defendant had exerted diligent effort to locate plaintiff’s baggage. The trial court saw
evidence of bad faith because PAL sent the telegraphic message to Mactan only at
3:00 o’clock that same afternoon, despite plaintiff’s indignation for the non-arrival of
his baggage. The message was sent within less than one hour after plaintiff’s luggage
could not be located. Efforts had to be exerted to locate plaintiff’s maleta. Then the
Bancasi airport had to attend to other incoming passengers and to the outgoing
passengers. Certainly, no evidence of bad faith can be inferred from these facts.
Cebu office immediately wired Manila inquiring about the missing baggage of the
plaintiff. At 3:59 P.M., Manila station agent at the domestic airport wired Cebu that the
baggage was overcarried to Manila. And this message was received in Cebu one
minute thereafter, or at 4:00 P.M. The baggage was in fact sent back to Cebu City
that same afternoon. His Honor stated that the fact that the message was sent at 3:59
P.M. from Manila and completely relayed to Mactan at 4:00 P.M., or within one
minute, made the message appear spurious. This is a forced reasoning. A radio
message of about 50 words can be completely transmitted in even less than one
minute, depending upon atmospheric conditions. Even if the message was sent from
Manila or other distant places, the message can be received within a minute that is a
scientific fact which cannot be questioned." 3
Neither was the failure of PAL Cebu to reply to petitioner’s rush telegram indicative of
bad faith. The telegram (Exh. B) was dispatched by petitioner at around 10:00 P.M. of
August 26, 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, therefore, in the assumption made by said
supervisor that the plane carrying the bag would arrive at Butuan earlier than a reply
telegram. Had petitioner 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.chanrobles law library : red
In the absence of a wrongful act or omission or of fraud or bad faith, petitioner is not
entitled to moral damages.
"Art. 2217. 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."cralaw virtua1aw library
"Art. 2220. 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."cralaw virtua1aw library
Petitioner 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 this case.
Petitioner further contends that respondent Court committed grave error when it
limited PAL’s carriage liability to the amount of P100.00 as stipulated at the back of
the ticket. In this connection, respondent Court opined:jgc:chanrobles.com.ph
"As a general proposition, the plaintiff’s maleta having been pilfered while in the
custody of the defendant, it is presumed that the defendant had been negligent. The
liability, however, of PAL for the loss, in accordance with the stipulation written on the
back of the ticket, Exhibit 12, is limited to P100.00 per baggage plaintiff not having
declared a greater value, and not having called the attention of the defendant on its
true value and paid the tariff therefor. The validity of this stipulation is not questioned
by the plaintiff. They are printed in reasonably and fairly big letters, and are easily
readable. Moreover, plaintiff 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." 4
We agree with the foregoing finding. The pertinent Condition of Carriage printed at
the back of the plane ticket reads:jgc:chanrobles.com.ph
74|Transportation (Carriage of goods)
"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."cralaw virtua1aw library
There is no dispute that petitioner did not declare any higher value for his luggage,
much less did he pay any additional transportation charge.
But petitioner argues that there is nothing in the evidence to show that he had actually
entered into a contract with PAL limiting the latter’s liability for loss or delay of the
baggage of its passengers, and that Article 1750 * of the Civil Code has not been
complied with.
While it may be true that petitioner had not signed the plane ticket (Exh. "12"), he is
nevertheless bound by the provisions thereof. "Such provisions have been held to be
a part of the contract of carriage, and valid and binding upon the passenger
regardless of the latter’s lack of knowledge or assent to the regulation." 5 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. 6 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."cralaw virtua1aw library
Considering, therefore, that petitioner 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" (Exh. "1"). It is likewise to be noted that there is nothing in the
evidence to show the actual value of the goods allegedly lost by petitioner.chanrobles
law library
There is another matter involved, raised as an error by PAL — the fact that on
October 24, 1974 or two months after the promulgation of the Decision of the
appellate Court, petitioner’s widow filed a Motion for Substitution claiming that
petitioner died on January 6, 1974 and that she only came to know of the adverse
Decision on October 23, 1974 when petitioner’s law partner informed her that he
received copy of the Decision on August 28, 1974. Attached to her Motion was an
Affidavit of petitioner’s law partner reciting facts constitutive of excusable negligence.
The appellate Court noting that all pleadings had been signed by petitioner 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 August 22, 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 petitioner 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 respondent PAL.
In fine, we hold that the conclusions drawn by respondent Court from the evidence on
record are not erroneous.
WHEREFORE, for lack of merit, the instant Petition is hereby denied, and the
judgment sought to be reviewed hereby affirmed in toto.
No costs.
SO ORDERED.
G.R. No. 70462 August 11, 1988
PAN AMERICAN WORLD AIRWAYS, INC., petitioner,
vs.
INTERMEDIATE APPELLATE COURT, RENE V. PANGAN, SOTANG BASTOS
PRODUCTIONS and ARCHER PRODUCTIONS, respondents.
Guerrero & Torres for petitioner.
Jose B. Layug for private respondents.
CORTES, J.:
Before the Court is a petition filed by an international air carrier seeking to limit its
liability for lost baggage, containing promotional and advertising materials for films to
be exhibited in Guam and the U.S.A., clutch bags, barong tagalogs and personal
belongings, to the amount specified in the airline ticket absent a declaration of a
higher valuation and the payment of additional charges.
The undisputed facts of the case, as found by the trial court and adopted by the
appellate court, are as follows:
On April 25, 1978, plaintiff Rene V. Pangan, president and general
manager of the plaintiffs Sotang Bastos and Archer Production
while in San Francisco, Califonia and Primo Quesada of Prime
Films, San Francisco, California, entered into an agreement (Exh.
A) 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 plaintiffs would
provide the necessary promotional and advertising materials for
said films on or before May 30, 1978.
75|Transportation (Carriage of goods)
On his way home to the Philippines, plaintiff Pangan visited Guam
where he contacted Leo Slutchnick of the Hafa Adai Organization.
Plaintiff Pangan likewise entered into a verbal agreement with
Slutchnick for the exhibition of two of the films above-mentioned at
the Hafa Adai Theater in Guam on May 30, 1978 for the
consideration of P7,000.00 per picture (p. 11, tsn, June 20, 1979).
Plaintiff Pangan undertook to provide the necessary promotional
and advertising materials for said films on or before the exhibition
date on May 30,1978.
By virtue of the above agreements, plaintiff Pangan caused the
preparation of the requisite promotional handbills and still pictures
for which he paid the total sum of P12,900.00 (Exhs. B, B-1, C and
C1). Likewise in preparation for his trip abroad to comply with his
contracts, plaintiff Pangan purchased fourteen clutch bags, four
capiz lamps and four barong tagalog, with a total value of
P4,400.00 (Exhs. D, D-1, E, and F).
On May 18, 1978, plaintiff Pangan obtained from defendant Pan
Am's Manila Office, through the Your Travel Guide, an economy
class airplane ticket with No. 0269207406324 (Exh. G) for passage
from Manila to Guam on defendant's Flight No. 842 of May
27,1978, upon payment by said plaintiff 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 May 27, 1978, two hours before departure time plaintiff Pangan
was at the defendant'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 Nos. 963633 and
963649 (Exhs. H and H-1). 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 No. 842 in the economy class. Since there was no
space in the economy class, plaintiff 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 plaintiff Pangan arrived in Guam on the date of May 27,
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 (Exh. L). Thereafter, he filed a written claim
(Exh. J) 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 the defendant and the
loss of his two luggages (Exh. M, O, Q, S, and T). Defendant Pan
 Am assured plaintiff Pangan that his grievances would be
investigated and given its immediate consideration (Exhs. N, P and
R). Due to the defendant's failure to communicate with Pangan
about the action taken on his protests, the present complaint was
filed by the plaintiff. (Pages 4-7, Record On Appeal). [Rollo, pp. 27-
29.]
On the basis of these facts, the Court of First Instance found petitioner liable and
rendered judgment as follows:
(1) Ordering defendant Pan American World Airways, Inc. to pay all
the plaintiffs the sum of P83,000.00, for actual damages, with
interest thereon at the rate of 14% per annum from December 6,
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) Ordering defendant Pan American World Airways, Inc. to pay
plaintiff Rene V. Pangan the sum of P8,123.34, for additional actual
damages, with interest thereon at the rate of 14% per annum from
December 6, 1978, until the same is fully paid;
(3) Dismissing the counterclaim interposed by defendant Pan
American World Airways, Inc.; and
(4) Ordering defendant Pan American World Airways, Inc. to pay
the costs of suit. [Rollo, pp. 106-107.]
On appeal, the then Intermediate Appellate Court affirmed the trial court decision.
Hence, the instant recourse to this Court by petitioner.
The petition was given due course and the parties, as required, submitted their
respective memoranda. In due time the case was submitted for decision.
In assailing the decision of the Intermediate Appellate Court petitioner assigned the
following errors:
1. The respondent court erred as a matter of law in affirming the trial court's award of
actual damages beyond the limitation of liability set forth in the Warsaw Convention
and the contract of carriage.
2. The respondent court erred as a matter of law in affirming the trial court's award of
actual damages consisting of alleged lost profits in the face of this Court's ruling
concerning special or consequential damages as set forth in Mendoza v.
Philippine Airlines [90 Phil. 836 (1952).]
The assigned errors shall be discussed seriatim
76|Transportation (Carriage of goods)
1. The airline ticket (Exh. "G') contains the following conditions:
NOTICE
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.
CONDITIONS OF CONTRACT
1. As used in this contract "ticket" means this passenger ticket and
baggage check of which these conditions and the notices form part,
"carriage" is equivalent to "transportation," "carrier" means all air
carriers that carry or undertake to carry the passenger or his
baggage hereunder or perform any other service incidental to such
air carriage. "WARSAW CONVENTION" means the convention for
the Unification of Certain Rules Relating to International Carriage
by Air signed at Warsaw, 12th October 1929, or that Convention as
amended at The Hague, 28th September 1955, whichever may be
applicable.
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.
3. To the extent not in conflict with the foregoing carriage and other
services performed by each carrier are subject to: (i) provisions
contained in this ticket, (ii) applicable tariffs, (iii) carrier's conditions
of carriage and related regulations which are made part hereof (and
are available on application at the offices of carrier), except in
transportation between a place in the United States or Canada and
any place outside thereof to which tariffs in force in those countries
apply.
xxx xxx xxx
NOTICE OF BAGGAGE LIABILITY LIMITATIONS
Liability for loss, delay, or damage to baggage is limited as follows
unless a higher value is declared in advance and additional
charges are paid: (1)for most international travel (including
domestic portions of international journeys) to approximately $9.07
per pound ($20.00 per kilo) for checked baggage and $400 per
 passenger for unchecked baggage: (2) for travel wholly between
U.S. points, to $750 per passenger on most carriers (a few have
lower limits). Excess valuation may not be declared on certain
types of valuable articles. Carriers assume no liability for fragile or
perishable articles. Further information may be obtained from the
carrier. [Emphasis supplied.].
On the basis of the foregoing stipulations printed at the back of the ticket, petitioner
contends that its liability for the lost baggage of private respondent 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.
To support this contention, petitioner cites the case of Ong Yiu v. Court of
Appeals [G.R. No. L-40597, June 29, 1979, 91 SCRA 223], where 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.
We find the ruling in Ong Yiu squarely applicable to the instant case. In said case, the
Court, through Justice Melencio Herrera, stated:
Petitioner further contends that respondent Court committed grave
error when it limited PAL's carriage liability to the amount of
P100.00 as stipulated at the back of the ticket....
We agree with the foregoing finding. 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 Pl,000.00 and
additional charges are paid pursuant to Carrier's
tariffs.
There is no dispute that petitioner did not declare any higher value
for his luggage, much less (lid he pay any additional transportation
charge.
But petitioner argues that there is nothing in the evidence to show
that he had actually entered into a contract with PAL limiting the
latter's liability for loss or delay of the baggage of its passengers,
and that Article 1750 * of the Civil Code has not been complied
with.
77|Transportation (Carriage of goods)
While it may be true that petitioner had not signed the plane ticket
(Exh. "12"), he is nevertheless bound by the provisions thereof.
"Such provisions have been held to be a part of the contract of
carriage, and valid and binding upon the passenger regardless of
the latter's lack of knowledge or assent to the regulation."
[Tannebaum v. National Airline, Inc., 13 Misc. 2d 450,176 N.Y.S. 2d
400; Lichten v. Eastern Airlines, 87 Fed. Supp. 691; Migoski v.
Eastern Air Lines, Inc., Fla., 63 So. 2d 634.] 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,[Tolentino, Civil Code, Vol. IV, 1962 ed., p. 462, citing
Mr. Justice J.B.L. Reyes, Lawyer's Journal, Jan. 31, 1951, p. 49].
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."
Considering, therefore, that petitioner had failed to declare a higher
value for his baggage, he cannot be permitted a recovery in excess
of P100.00....
On the other hand, 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. In the instant case, similar facts that
would make the case fall under the exception have not been alleged, much less
shown to exist.
In view thereof petitioner's liability for the lost baggage is limited to $20.00 per kilo or
$600.00, as stipulated at the back of the ticket.
At this juncture, in order to rectify certain misconceptions the Court finds it necessary
to state that 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, to say the least. In said case, while the
Court, as quoted in the Intermediate Appellate Court's decision, said:
Petitioner argues that pursuant to those provisions, an air "carrier is
liable only" in the event of death of a passenger or injury suffered
by him, or of destruction or loss of, or damages to any checked
baggage or any goods, or of delay in the transportation by air of
 passengers, baggage or goods. This pretense is not borne out by
the language of said Articles. The same merely declare the carrier
liable for damages in enumerated cases, if the conditions therein
specified are present. Neither said provisions nor others in the
aforementioned Convention regulate or exclude liability for other
breaches of contract by the carrier. Under petitioner's theory, an air
carrier would be exempt from any liability for damages in the event
of its absolute refusal, in bad faith, to comply with a contract of
carriage, which is absurd.
it prefaced this statement by explaining that:
...The case is now before us on petition for review by certiorari,
upon the ground that the lower court has erred: (1) in holding that
the Warsaw Convention of October 12, 1929, relative to
transportation by air is not in force in the Philippines: (2) in not
holding that respondent has no cause of action; and (3) in awarding
P20,000 as nominal damages.
We deem it unnecessary to pass upon the First assignment of error
because the same is the basis of the second assignment of error,
and the latter is devoid of merit, even if we assumed the former to
be well taken. (Emphasis supplied.)
Thus, it is quite clear that 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.
2. The Court finds itself unable to agree with the decision of the trial court, and
affirmed by the Court of Appeals, awarding private respondents 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 like the
defendant herein, 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. The trial court correctly found that
the defendant company could not have foreseen the damages that
would be suffered by Mendoza upon failure to deliver the can of
film  on the 17th of September, 1948 for the reason that the plans of
Mendoza to exhibit that film during the town fiesta and his
preparations, specially the announcement of said exhibition by
posters and advertisement in the newspaper, were not called to the
defendant's attention.
78|Transportation (Carriage of goods)
In our research for authorities we have found a case very similar to the one under
consideration. 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 the defendant 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. Said appellate court observed:
But 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 purpose 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 for this effect.
As may be seen, that New York case is a stronger one than the present case for the
reason that the attention of the common carrier in said case was called to the nature
of the articles shipped, the purpose of shipment, and the desire to rush the shipment,
circumstances and facts absent in the present case. [Emphasis supplied.]
Thus, applying the foregoing ruling to the facts of the instant case, in the absence of a
showing that petitioner's attention was called to the special circumstances requiring
prompt delivery of private respondent Pangan's luggages, petitioner cannot be held
liable for the cancellation of private respondents' contracts as it could not have
foreseen such an eventuality when it accepted the luggages for transit.
The Court is unable to uphold the Intermediate Appellate Court's disregard of the rule
laid down in Mendoza and affirmance of the trial court's conclusion that petitioner is
liable for damages based on the finding that "[tlhe undisputed fact is that the contracts
of the plaintiffs for the exhibition of the films in Guam and California were cancelled
because of the loss of the two luggages in question." [Rollo, p. 36] The evidence
reveals that the proximate cause of the cancellation of the contracts was private
respondent Pangan's failure to deliver the promotional and advertising materials on
the dates agreed upon. For this petitioner cannot be held liable. Private respondent
Pangan had not declared the value of the two luggages he had checked in and paid
additional charges. Neither was petitioner privy to respondents' contracts nor was its
attention called to the condition therein requiring delivery of the promotional and
advertising materials on or before a certain date.
3. With the Court's holding that petitioner'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 private respondent's just and valid claim, loses support
and must be set aside.
WHEREFORE, the Petition is hereby GRANTED and the Decision of the Intermediate
Appellate Court is SET ASIDE and a new judgment is rendered ordering petitioner to
pay private respondents damages in the amount of US $600.00 or its equivalent in
Philippine currency at the time of actual payment.
SO ORDERED.
[G.R. No. 75118. August 31, 1987.]
SEA-LAND SERVICE, INC., Petitioner, v. INTERMEDIATE APPELLATE COURT
and PAULINO CUE, doing business under the name and style of "SEN HIAP
HING," respondents.
[G.R. No. 75118. August 31, 1987.]
SEA-LAND SERVICE, INC., Petitioner, v. INTERMEDIATE APPELLATE COURT and
PAULINO CUE, doing business under the name and style of "SEN HIAP HING,"
respondents.
DECISION
NARVASA, J.:
The main issue here is whether or not the consignee of seaborne freight is bound by
stipulations in the covering bill of lading limiting to a fixed amount the liability of the
carrier for loss or damage to the cargo where its value is not declared in the bill.
The factual antecedents, for the most part, are not in dispute.
On or about January 8, 1981, Sea-Land Service, Inc. (Sea-Land for brevity), 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." 1 Based on volume measurements Sea-land charged the shipper the total
79|Transportation (Carriage of goods)
amount of US$209.28 2 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 February 12, 1981, and there discharged in
Container No. 310996 into the custody of the arrastre contractor and the customs and
port authorities. 3 Sometime between February 13 and 16, 1981, after the shipment
had been transferred, along with other cargoes to Container No. 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. 4
On March 10, 1981, Paulino Cue, the consignee, made formal claim upon Sea-Land
for the value of the lost shipment allegedly amounting to P179,643.48. 5 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. 6
Cue rejected the offer and thereafter brought suit for damages against Sea-Land in
the then Court of First Instance of Cebu, Branch X. 7 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
one (1%) percent 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. 8
Sea-Land appealed to the Intermediate Appellate Court. 9 That Court however
affirmed the decision of the Trial Court." . . in all its parts . . . ." 10 Sea-Land
thereupon filed the present petition for review which, as already stated, poses the
question of whether, upon the facts above set forth, it can be held liable for the loss of
the shipment in any amount beyond the limit of US$500.00 per package stipulated in
the bill of lading.chanrobles.com : virtual law library
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. In Mendoza v. Philippine Air Lines, Inc. 11 the Court
delved at some length into the reasons behind this when, upon a claim made by the
consignee of a motion picture film shipped by air that he was never a party to the
contract of transportation and was a complete stranger thereto, it
said:jgc:chanrobles.com.ph
"But appellant now contends that he is not suing on a breach of contract but on a tort
as provided for in Art. 1902 of the Civil Code. We are a little perplexed as to this new
theory of the appellant. First, he insists that the articles of the Code of Commerce
should be applied: that he invokes the provisions of aid Code governing the
obligations of a common carrier to make prompt delivery of goods given to it under a
contract of transportation. Later, as already said, he says that he was never a party to
the contract of transportation and was a complete stranger to it, and that he is now
suing on a tort or a violation of his rights as a stranger (culpa aquiliana). If he does
not invoke the contract of carriage entered into with the defendant company, then he
would hardly have any leg to stand on. His right to prompt delivery of the can of film at
the Phil. Air Port stems and is derived from the contract of carriage under which
contract, the PAL undertook to carry the can of film safely and to deliver it to him
promptly. Take away or ignore that contract and the obligation to carry and to deliver
and right to prompt delivery disappear. 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. In the
present case, the findings of the trial court which as already stated, are accepted by
the parties and which we must accept are to the effect that the LVN Pictures Inc. and
Jose Mendoza on one side, and the defendant company on the other, entered into a
contract of transportation (p. 29, Rec. on Appeal). 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.
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 Phil Air Port armed with the copy of the Air Way Bill (Exh.
1) demanding the delivery of the shipment to him, he thereby made himself a party to
the contract of transportation. The very citation made by appellant in his
memorandum supports this view. Speaking of 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, Malagarriga in his book Codigo de
Comercio Comentado, Vol. 1, p. 400, citing a decision of the Argentina Court of
Appeals on commercial matters, cited by Tolentino in Vol. II of his book entitled
‘Commentaries and Jurisprudence on the Commercial Laws of the Philippines’ p. 209,
says that 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.
Still another view of this phase of the case is that contemplated in Art. 1257,
paragraph 2, of the old Civil Code (now Art. 1311, second paragraph) which reads
thus:chanrob1es virtual 1aw library
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.’
Here, the contract of carriage between the LVN Pictures Inc. and the defendant
carrier contains the stipulations of delivery to Mendoza as consignee. His demand for
the delivery of the can of film to him at the Phil 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 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."cralaw virtua1aw library
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 12
and the goods in question were shipped from the United States to the Philippines, the
liability of petitioner Sea-Land to the respondent consignee is governed primarily by
the Civil Code, and as ordained by the said Code, suppletorily, in all matters not
80|Transportation (Carriage of goods)
determined thereby, by the Code of Commerce and special laws. 13 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 No. 65, approved on
October 22, 1936. Sec. 4(5) of said Act in part reads:chanrobles lawlibrary : rednad
"(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.
x x x."cralaw virtua1aw library
Clause 22, first paragraph, of the long-form bill of lading customarily issued by Sea-
Land to its shipping clients 14 is a virtual copy of the first paragraph of the foregoing
provision. It says:jgc:chanrobles.com.ph
"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."cralaw virtua1aw library
And in its second paragraph, the bill states:jgc:chanrobles.com.ph
"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."cralaw virtua1aw library
Since, as already pointed out, 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, the Court fails to
fathom the reason or justification for the Appellate Court’s pronouncement in its
appealed Decision that the Carriage of Goods by Sea Act." . . has no application
whatsoever in this case." 15 Not only is there 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, that:jgc:chanrobles.com.ph
"ART. 1749. A stipulation that the common carrier’s liability is limited to the value of
the goods appearing in the bill of lading, unless the shipper or owner declares a
greater value, is binding."cralaw virtua1aw library
"ART. 1750. A contract fixing the sum that may be recovered by the owner or shipper
for the loss, destruction, or deterioration of the goods is valid, if it is reasonable and
just under the circumstances, and has been fairly and freely agreed upon."cralaw
virtua1aw library
Nothing contained in section 4(5) of the Carriage of Goods by Sea Act already quoted
is repugnant to or inconsistent with any of the just-cited 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.chanrobles.com : virtual law library
It seems clear that even if said section 4(5) of the Carriage of Goods by Sea Act did
not exist, the validity and binding effect of the liability limitation clause in the bill of
lading here are nevertheless fully sustainable on the basis alone of the cited Civil
Code provisions. That said stipulation is just and reasonable is arguable from the fact
that it echoes Art. 1750 itself in providing a limit to liability only if a greater value is not
declared for the shipment in the bill of lading. To hold otherwise would amount to
questioning the justice and fairness of that 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. 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.
The private respondent 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 v. PAL, supra, the right of a party in the
same situation as respondent here, 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, in this case the delivery of the goods or cargo shipped. 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 16 where this Court found that a similar package
81|Transportation (Carriage of goods)
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.
There can, therefore, 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 pro-position, moreover, rests upon
an almost uniform weight of authority. 17
The issue of alleged deviation is also settled by Clause 13 of the bill of lading which
expressly authorizes transshipment of the goods at any point in the voyage in these
terms:chanrobles.com : virtual law library
"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."cralaw
virtua1aw library
Said provision 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. 18
Furthermore, this Court has also ruled 19 that 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.
Private respondent also contends that the aforecited Clauses 22 and 13 of the bill of
lading relied upon by petitioner Sea-Land form no part of the short-form bill of lading
attached to his complaint before the Trial Court and appear only in the long form of
that document which, he claims. Sea-Land offered (as its Exhibit 2) as an unused
blank form with no entries or signatures therein. He, however, admitted in the Trial
Court that several times in the past shipments had been delivered to him through
Sea-Land, 20 from which the assumption may fairly follow that by the time of the
consignment now in question, he was already reasonably apprised of the usual terms
covering contracts of carriage with said petitioner.
At any rate, as observed earlier, it has already been held that the provisions of the
Carriage of Goods by Sea Act on package limitation [sec. 4(5) of the Act hereinabove
referred to] are as much a part of a bill of lading as though actually placed therein by
agreement of the parties. 21
Private respondent, 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. Respondent cannot elude its provisions simply because they prejudice
him and take advantage of those that are beneficial. Secondly, the fact that
respondent shipped his goods on board the ship of petitioner 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. . . . . 22
There is one final consideration. The private respondent admits 23 that as early as on
April 22, 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. This Court
having reached the conclusion that said sum is all that is justly due said respondent, it
does not appear just or equitable that Sea-Land, which offered that amount in good
faith as early as six 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 the private respondent 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, said respondent
having claimed a dollar value of $23,256.00 for said shipment. 24 All circumstances
considered, it is just and fair that Sea-Land’s dollar obligation be convertible at the
same rate.chanrobles lawlibrary : rednad
WHEREFORE, the Decision of the Intermediate Appellate Court complained of is
reversed and set aside. 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 held valid and binding on private Respondent. There being
no question of the fact that said shipment consisted of eight (8) cartons or packages,
for the loss of which Sea-Land is therefore liable in the aggregate amount of
US$4,000.00, it is the judgment of the Court that said petitioner discharge that
obligation by paying private respondent 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 private Respondent.
SO ORDERED.
G.R. No. L-69044 May 29, 1987
EASTERN SHIPPING LINES, INC., petitioner,
vs.
INTERMEDIATE APPELLATE COURT and DEVELOPMENT INSURANCE &
SURETY CORPORATION, respondents.
82|Transportation (Carriage of goods)
No. 71478 May 29, 1987
EASTERN SHIPPING LINES, INC., petitioner,
vs.
THE NISSHIN FIRE AND MARINE INSURANCE CO., and DOWA FIRE & MARINE
INSURANCE CO., LTD., respondents.
MELENCIO-HERRERA, J.:
These two cases, both for the recovery of the value of cargo insurance, arose from
the same incident, the sinking of the M/S ASIATICA when it caught fire, resulting in
the total loss of ship and cargo.
The basic facts are not in controversy:
In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel
operated by petitioner Eastern Shipping Lines, Inc., (referred to hereinafter as
Petitioner Carrier) loaded at Kobe, Japan for transportation to Manila, 5,000 pieces of
calorized lance pipes in 28 packages valued at P256,039.00 consigned to Philippine
Blooming Mills Co., Inc., and 7 cases of spare parts valued at P92,361.75, consigned
to Central Textile Mills, Inc. Both sets of goods were insured against marine risk for
their stated value with respondent Development Insurance and Surety Corporation.
In G.R. No. 71478, during the same period, the same vessel took on board 128
cartons of garment fabrics and accessories, in two (2) containers, consigned to
Mariveles Apparel Corporation, and two cases of surveying instruments consigned to
Aman Enterprises and General Merchandise. The 128 cartons were insured for their
stated value by respondent Nisshin Fire & Marine Insurance Co., for US $46,583.00,
and the 2 cases by respondent Dowa Fire & Marine Insurance Co., Ltd., for US
$11,385.00.
Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the
total loss of ship and cargo. The respective respondent Insurers paid the
corresponding marine insurance values to the consignees concerned and were thus
subrogated unto the rights of the latter as the insured.
G.R. NO. 69044
On May 11, 1978, respondent Development Insurance & Surety Corporation
(Development Insurance, for short), having been subrogated unto the rights of the two
insured companies, filed suit against petitioner Carrier for the recovery of the amounts
it had paid to the insured before the then Court of First instance of Manila, Branch
XXX (Civil Case No. 6087).
Petitioner-Carrier denied liability mainly on the ground that the loss was due to an
extraordinary fortuitous event, hence, it is not liable under the law.
On August 31, 1979, the Trial Court rendered judgment in favor of Development
Insurance in the amounts of P256,039.00 and P92,361.75, respectively, with legal
interest, plus P35,000.00 as attorney's fees and costs. Petitioner Carrier took an
appeal to the then Court of Appeals which, on August 14, 1984, affirmed.
Petitioner Carrier is now before us on a Petition for Review on Certiorari.
G.R. NO. 71478
On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN for
short), and Dowa Fire & Marine Insurance Co., Ltd. (DOWA, for brevity), as
subrogees of the insured, filed suit against Petitioner Carrier for the recovery of the
insured value of the cargo lost with the then Court of First Instance of Manila, Branch
11 (Civil Case No. 116151), imputing unseaworthiness of the ship and non-
observance of extraordinary diligence by petitioner Carrier.
Petitioner Carrier denied liability on the principal grounds that the fire which caused
the sinking of the ship is an exempting circumstance under Section 4(2) (b) of the
Carriage of Goods by Sea Act (COGSA); and that when the loss of fire is established,
the burden of proving negligence of the vessel is shifted to the cargo shipper.
On September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN and
DOWA in the amounts of US $46,583.00 and US $11,385.00, respectively, with legal
interest, plus attorney's fees of P5,000.00 and costs. On appeal by petitioner, the
then Court of Appeals on September 10, 1984, affirmed with modification the Trial
Court's judgment by decreasing the amount recoverable by DOWA to US $1,000.00
because of $500 per package limitation of liability under the COGSA.
Hence, this Petition for Review on certiorari by Petitioner Carrier.
Both Petitions were initially denied for lack of merit. G.R. No. 69044 on January 16,
1985 by the First Division, and G. R. No. 71478 on September 25, 1985 by the
Second Division. Upon Petitioner Carrier's Motion for Reconsideration, however, G.R.
No. 69044 was given due course on March 25, 1985, and the parties were required to
submit their respective Memoranda, which they have done.
On the other hand, in G.R. No. 71478, Petitioner Carrier sought reconsideration of the
Resolution denying the Petition for Review and moved for its consolidation with G.R.
No. 69044, the lower-numbered case, which was then pending resolution with the
First Division. The same was granted; the Resolution of the Second Division of
September 25, 1985 was set aside and the Petition was given due course.
At the outset, we reject Petitioner Carrier's claim that it is not the operator of the M/S
Asiatica but merely a charterer thereof. We note that in G.R. No. 69044, Petitioner
Carrier stated in its Petition:
There are about 22 cases of the "ASIATICA" pending in various
courts where various plaintiffs are represented by various counsel
83|Transportation (Carriage of goods)
representing various consignees or insurance companies. The
common defendant in these cases is petitioner herein, being the
operator of said vessel. ... 1
Petitioner Carrier should be held bound to said admission. As a general rule, the facts
alleged in a party's pleading are deemed admissions of that party and binding upon
it. 2 And an admission in one pleading in one action may be received in evidence
against the pleader or his successor-in-interest on the trial of another action to which
he is a party, in favor of a party to the latter action. 3
The threshold issues in both cases are: (1) which law should govern — the Civil Code
provisions on Common carriers or the Carriage of Goods by Sea Act? and (2) who
has the burden of proof to show negligence of the carrier?
On the Law Applicable
The law of the country to which the goods are to be transported governs the liability of
the common carrier in case of their loss, destruction or deterioration. 4 As the cargoes
in question were transported from Japan to the Philippines, the liability of Petitioner
Carrier is governed primarily by the Civil Code. 5 However, in all matters not regulated
by said Code, the rights and obligations of common carrier shall be governed by the
Code of Commerce and by special laws. 6 Thus, the Carriage of Goods by Sea Act, a
special law, is suppletory to the provisions of the Civil Code. 7
On the Burden of Proof
Under the Civil Code, common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence in the vigilance
over goods, according to all the circumstances of each case. 8 Common carriers are
responsible for the loss, destruction, or deterioration of the goods unless the same is
due to any of the following causes only:
(1) Flood, storm, earthquake, lightning or other natural disaster or
calamity;
xxx xxx xxx 9
Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability
under the phrase "natural disaster or calamity. " However, we are of the opinion that
fire may not be considered a natural disaster or calamity. This must be so as it arises
almost invariably from some act of man or by human means. 10 It does not fall within
the category of an act of God unless caused by lightning 11 or by other natural
disaster or calamity. 12 It may even be caused by the actual fault or privity of the
carrier. 13
Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous
event refers to leases of rural lands where a reduction of the rent is allowed when
more than one-half of the fruits have been lost due to such event, considering that the
law adopts a protection policy towards agriculture. 14
As the peril of the fire is not comprehended within the exception in Article
1734, supra, Article 1735 of the Civil Code provides that all cases than those mention
in Article 1734, the common carrier shall be presumed to have been at fault or to
have acted negligently, unless it proves that it has observed the extraordinary
deligence required by law.
In this case, the respective Insurers. as subrogees of the cargo shippers, have proven
that the transported goods have been lost. Petitioner Carrier has also proved that the
loss was caused by fire. The burden then is upon Petitioner Carrier to proved that it
has exercised the extraordinary diligence required by law. In this regard, the Trial
Court, concurred in by the Appellate Court, made the following Finding of fact:
The cargoes in question were, according to the witnesses
defendant placed in hatches No, 2 and 3 cf the vessel, Boatswain
Ernesto Pastrana noticed that smoke was coming out from hatch
No. 2 and hatch No. 3; that where the smoke was noticed, the fire
was already big; that the fire must have started twenty-four 24) our
the same was noticed; that carbon dioxide was ordered released
and the crew was ordered to open the hatch covers of No, 2 tor
commencement of fire fighting by sea water: that all of these effort
were not enough to control the fire.
Pursuant to Article 1733, common carriers are bound to
extraordinary diligence in the vigilance over the goods. The
evidence of the defendant did not show that extraordinary vigilance
was observed by the vessel to prevent the occurrence of fire at
hatches numbers 2 and 3. Defendant's evidence did not likewise
show he amount of diligence made by the crew, on orders, in the
care of the cargoes. What appears is that after the cargoes were
stored in the hatches, no regular inspection was made as to their
condition during the voyage. Consequently, the crew could not
have even explain what could have caused the fire. The defendant,
in the Court's mind, failed to satisfactorily show that extraordinary
vigilance and care had been made by the crew to prevent the
occurrence of the fire. The defendant, as a common carrier, is liable
to the consignees for said lack of deligence required of it under
Article 1733 of the Civil Code. 15
Having failed to discharge the burden of proving that it had exercised the
extraordinary diligence required by law, Petitioner Carrier cannot escape liability for
the loss of the cargo.
And even if fire were to be considered a "natural disaster" within the meaning of
Article 1734 of the Civil Code, it is required under Article 1739 of the same Code that
the "natural disaster" must have been the "proximate and only cause of the loss," and
that the carrier has "exercised due diligence to prevent or minimize the loss before,
84|Transportation (Carriage of goods)
during or after the occurrence of the disaster. " This Petitioner Carrier has also failed
to establish satisfactorily.
Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods by
Sea Act, It is provided therein that:
Sec. 4(2). Neither the carrier nor the ship shall be responsible for
loss or damage arising or resulting from
(b) Fire, unless caused by the actual fault or privity of the carrier.
xxx xxx xxx
In this case, both the Trial Court and the Appellate Court, in effect, found, as a fact,
that there was "actual fault" of the carrier shown by "lack of diligence" in that "when
the smoke was noticed, the fire was already big; that the fire must have started
twenty-four (24) hours before the same was noticed; " and that "after the cargoes
were stored in the hatches, no regular inspection was made as to their condition
during the voyage." The foregoing suffices to show that the circumstances under
which the fire originated and spread are such as to show that Petitioner Carrier or its
servants were negligent in connection therewith. Consequently, the complete defense
afforded by the COGSA when loss results from fire is unavailing to Petitioner Carrier.
On the US $500 Per Package Limitation:
Petitioner Carrier avers that its liability if any, should not exceed US $500 per
package as provided in section 4(5) of the COGSA, which reads:
(5) Neither the carrier nor the ship shall in any event be or become
liable for any loss or damage to or in connection with the
transportation of goods in an amount exceeding $500 per package
lawful money of the United States, or in case of goods not shipped
in packages, per customary freight unit, or the equivalent of that
sum in other currency, unless the nature and value of such goods
have been declared by the shipper before shipment and inserted in
bill of lading. This declaration if embodied in the bill of lading shall
be prima facie evidence, but all be conclusive on the carrier.
By agreement between the carrier, master or agent of the carrier,
and the shipper another maximum amount than that mentioned in
this paragraph may be fixed: Provided, That such maximum shall
not be less than the figure above named. In no event shall the
carrier be Liable for more than the amount of damage actually
sustained.
xxx xxx xxx
Article 1749 of the New Civil Code also allows the limitations of liability in this wise:
 Art. 1749. A stipulation that the common carrier's liability as limited
to the value of the goods appearing in the bill of lading, unless the
shipper or owner declares a greater value, is binding.
It is to be noted that the Civil Code does not of itself limit the liability of the common
carrier to a fixed amount per package although the Code expressly permits a
stipulation limiting such liability. Thus, the COGSA which is suppletory to the
provisions of the Civil Code, steps in and supplements the Code by establishing a
statutory provision limiting the carrier's liability in the absence of a declaration of a
higher value of the goods by the shipper in the bill of lading. The provisions of the
Carriage of Goods by.Sea Act on limited liability are as much a part of a bill of lading
as though physically in it and as much a part thereof as though placed therein by
agreement of the parties. 16
In G.R. No. 69044, there is no stipulation in the respective Bills of Lading (Exhibits "C-
2" and "I-3") 1 7 limiting the carrier's liability for the loss or destruction of the goods.
Nor is there a declaration of a higher value of the goods. Hence, Petitioner Carrier's
liability should not exceed US $500 per package, or its peso equivalent, at the time of
payment of the value of the goods lost, but in no case "more than the amount of
damage actually sustained."
The actual total loss for the 5,000 pieces of calorized lance pipes was P256,039
(Exhibit "C"), which was exactly the amount of the insurance coverage by
Development Insurance (Exhibit "A"), and the amount affirmed to be paid by
respondent Court. The goods were shipped in 28 packages (Exhibit "C-2") Multiplying
28 packages by $500 would result in a product of $14,000 which, at the current
exchange rate of P20.44 to US $1, would be P286,160, or "more than the amount of
damage actually sustained." Consequently, the aforestated amount of P256,039
should be upheld.
With respect to the seven (7) cases of spare parts (Exhibit "I-3"), their actual value
was P92,361.75 (Exhibit "I"), which is likewise the insured value of the cargo (Exhibit
"H") and amount was affirmed to be paid by respondent Court. however, multiplying
seven (7) cases by $500 per package at the present prevailing rate of P20.44 to US
$1 (US $3,500 x P20.44) would yield P71,540 only, which is the amount that should
be paid by Petitioner Carrier for those spare parts, and not P92,361.75.
In G.R. No. 71478, in so far as the two (2) cases of surveying instruments are
concerned, the amount awarded to DOWA which was already reduced to $1,000 by
the Appellate Court following the statutory $500 liability per package, is in order.
In respect of the shipment of 128 cartons of garment fabrics in two (2) containers and
insured with NISSHIN, the Appellate Court also limited Petitioner Carrier's liability to
$500 per package and affirmed the award of $46,583 to NISSHIN. it multiplied 128
cartons (considered as COGSA packages) by $500 to arrive at the figure of $64,000,
and explained that "since this amount is more than the insured value of the goods,
that is $46,583, the Trial Court was correct in awarding said amount only for the 128
cartons, which amount is less than the maximum limitation of the carrier's liability."
85|Transportation (Carriage of goods)
We find no reversible error. The 128 cartons and not the two (2) containers should be
considered as the shipping unit.
In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the
consignees of tin ingots and the shipper of floor covering brought action against the
vessel owner and operator to recover for loss of ingots and floor covering, which had
been shipped in vessel — supplied containers. The U.S. District Court for the
Southern District of New York rendered judgment for the plaintiffs, and the defendant
appealed. The United States Court of Appeals, Second Division, modified and
affirmed holding that:
When what would ordinarily be considered packages are shipped in
a container supplied by the carrier and the number of such units is
disclosed in the shipping documents, each of those units and not
the container constitutes the "package" referred to in liability
limitation provision of Carriage of Goods by Sea Act. Carriage of
Goods by Sea Act, 4(5), 46 U.S.C.A.& 1304(5).
Even if language and purposes of Carriage of Goods by Sea Act
left doubt as to whether carrier-furnished containers whose
contents are disclosed should be treated as packages, the interest
in securing international uniformity would suggest that they should
not be so treated. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A.
1304(5).
... After quoting the statement in Leather's Best, supra, 451 F 2d at
815, that treating a container as a package is inconsistent with the
congressional purpose of establishing a reasonable minimum level
of liability, Judge Beeks wrote, 414 F. Supp. at 907 (footnotes
omitted):
Although this approach has not completely
escaped criticism, there is, nonetheless, much to
commend it. It gives needed recognition to the
responsibility of the courts to construe and apply
the statute as enacted, however great might be
the temptation to "modernize" or reconstitute it by
artful judicial gloss. If COGSA's package
limitation scheme suffers from internal illness,
Congress alone must undertake the surgery.
There is, in this regard, obvious wisdom in the
Ninth Circuit's conclusion in Hartford that
technological advancements, whether or not
forseeable by the COGSA promulgators, do not
warrant a distortion or artificial construction of the
statutory term "package." A ruling that these
large reusable metal pieces of transport
equipment qualify as COGSA packages — at
least where, as here, they were carrier owned
 and supplied — would amount to just such a
distortion.
Certainly, if the individual crates or cartons
prepared by the shipper and containing his goods
can rightly be considered "packages" standing by
themselves, they do not suddenly lose that
character upon being stowed in a carrier's
container. I would liken these containers to
detachable stowage compartments of the ship.
They simply serve to divide the ship's overall
cargo stowage space into smaller, more
serviceable loci. Shippers' packages are quite
literally "stowed" in the containers utilizing
stevedoring practices and materials analogous to
those employed in traditional on board stowage.
In Yeramex International v. S.S. Tando,, 1977 A.M.C. 1807 (E.D.
Va.) rev'd on other grounds, 595 F 2nd 943 (4 Cir. 1979), another
district with many maritime cases followed Judge Beeks' reasoning
in Matsushita and similarly rejected the functional economics test.
Judge Kellam held that when rolls of polyester goods are packed
into cardboard cartons which are then placed in containers, the
cartons and not the containers are the packages.
xxx xxx xxx
The case of Smithgreyhound v. M/V Eurygenes, 18 followed the Mitsui test:
Eurygenes concerned a shipment of stereo equipment packaged by
the shipper into cartons which were then placed by the shipper into
a carrier- furnished container. The number of cartons was
disclosed to the carrier in the bill of lading. Eurygenes followed the
Mitsui test and treated the cartons, not the container, as the
COGSA packages. However, Eurygenes indicated that a carrier
could limit its liability to $500 per container if the bill of lading failed
to disclose the number of cartons or units within the container, or if
the parties indicated, in clear and unambiguous language, an
agreement to treat the container as the package.
(Admiralty Litigation in Perpetuum: The
Continuing Saga of Package Limitations and
Third World Delivery Problems by Chester D.
Hooper & Keith L. Flicker, published in Fordham
International Law Journal, Vol. 6, 1982-83,
Number 1) (Emphasis supplied)
In this case, the Bill of Lading (Exhibit "A") disclosed the following data:
86|Transportation (Carriage of goods)
2 Containers
(128) Cartons)
Men's Garments Fabrics and Accessories Freight Prepaid
Say: Two (2) Containers Only.
Considering, therefore, that the Bill of Lading clearly disclosed the contents of the
containers, the number of cartons or units, as well as the nature of the goods, and
applying the ruling in the Mitsui  and Eurygenes cases it is clear that the 128 cartons,
not the two (2) containers should be considered as the shipping unit subject to the
$500 limitation of liability.
True, the evidence does not disclose whether the containers involved herein were
carrier-furnished or not. Usually, however, containers are provided by the
carrier. 19 In this case, the probability is that they were so furnished for Petitioner
Carrier was at liberty to pack and carry the goods in containers if they were not so
packed. Thus, at the dorsal side of the Bill of Lading (Exhibit "A") appears the
following stipulation in fine print:
11. (Use of Container) Where the goods receipt of which is
acknowledged on the face of this Bill of Lading are not already
packed into container(s) at the time of receipt, the Carrier shall be
at liberty to pack and carry them in any type of container(s).
The foregoing would explain the use of the estimate "Say: Two (2) Containers Only"
in the Bill of Lading, meaning that the goods could probably fit in two (2) containers
only. It cannot mean that the shipper had furnished the containers for if so, "Two (2)
Containers" appearing as the first entry would have sufficed. and if there is any
ambiguity in the Bill of Lading, it is a cardinal principle in the construction of contracts
that the interpretation of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity. 20 This applies with even greater force in a contract of
adhesion where a contract is already prepared and the other party merely adheres to
it, like the Bill of Lading in this case, which is draw. up by the carrier. 21
On Alleged Denial of Opportunity to Present Deposition of Its Witnesses: (in G.R. No.
69044 only)
Petitioner Carrier claims that the Trial Court did not give it sufficient time to take the
depositions of its witnesses in Japan by written interrogatories.
We do not agree. petitioner Carrier was given- full opportunity to present its evidence
but it failed to do so. On this point, the Trial Court found:
xxx xxx xxx
 Indeed, since after November 6, 1978, to August 27, 1979, not to
mention the time from June 27, 1978, when its answer was
prepared and filed in Court, until September 26, 1978, when the
pre-trial conference was conducted for the last time, the defendant
had more than nine months to prepare its evidence. Its belated
notice to take deposition on written interrogatories of its witnesses
in Japan, served upon the plaintiff on August 25th, just two days
before the hearing set for August 27th, knowing fully well that it was
its undertaking on July 11 the that the deposition of the witnesses
would be dispensed with if by next time it had not yet been
obtained, only proves the lack of merit of the defendant's motion for
postponement, for which reason it deserves no sympathy from the
Court in that regard. The defendant has told the Court since
February 16, 1979, that it was going to take the deposition of its
witnesses in Japan. Why did it take until August 25, 1979, or more
than six months, to prepare its written interrogatories. Only the
defendant itself is to blame for its failure to adduce evidence in
support of its defenses.
xxx xxx xxx 22
Petitioner Carrier was afforded ample time to present its side of the case. 23 It cannot
complain now that it was denied due process when the Trial Court rendered its
Decision on the basis of the evidence adduced. What due process abhors is absolute
lack of opportunity to be heard. 24
On the Award of Attorney's Fees:
Petitioner Carrier questions the award of attorney's fees. In both cases, respondent
Court affirmed the award by the Trial Court of attorney's fees of P35,000.00 in favor
of Development Insurance in G.R. No. 69044, and P5,000.00 in favor of NISSHIN and
DOWA in G.R. No. 71478.
Courts being vested with discretion in fixing the amount of attorney's fees, it is
believed that the amount of P5,000.00 would be more reasonable in G.R. No. 69044.
The award of P5,000.00 in G.R. No. 71478 is affirmed.
WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in that petitioner
Eastern Shipping Lines shall pay the Development Insurance and Surety Corporation
the amount of P256,039 for the twenty-eight (28) packages of calorized lance pipes,
and P71,540 for the seven (7) cases of spare parts, with interest at the legal rate from
the date of the filing of the complaint on June 13, 1978, plus P5,000 as attorney's
fees, and the costs.
2) In G.R.No.71478,the judgment is hereby affirmed.
SO ORDERED
87|Transportation (Carriage of goods)
[G.R. No. 108897. October 2, 1997.]
SARKIES TOURS PHILIPPINES, INC., Petitioner, v. HONORABLE COURT OF
APPEALS (TENTH DIVISION), DR. ELINO G. FORTADES, MARISOL A.
FORTADES and FATIMA MINERVA A. FORTADES, Respondents.
DECISION
ROMERO, J.:
This petition for review is seeking the reversal of the decision of the Court of Appeals
in CA-G.R. CV No. 18979 promulgated on January 13, 1993, as well as its resolution
of February 19, 1993, denying petitioner’s motion for reconsideration for being a mere
rehash of the arguments raised in the appellant’s brief.
The case arose from a damage suit filed by private respondents Elino, Marisol, and
Fatima Minerva, all surnamed Fortades, against petitioner for breach of contract of
carriage allegedly attended by bad faith.
On August 31, 1984, Fatima boarded petitioner’s De Luxe Bus No. 5 in Manila on her
way to Legazpi City. Her brother Raul helped her load three pieces of luggage
containing all of her optometry review books, materials and equipment, trial lenses,
trial contact lenses, passport and visa, as well as her mother Marisol’s U.S.
immigration (green) card, among other important documents and personal
belongings. Her belongings were kept in the baggage compartment of the bus, but
during a stopover at Daet, it was discovered that only one bag remained in the open
compartment. The others, including Fatima’s things, were missing and might have
dropped along the way. Some of the passengers suggested retracing the route of the
bus to try to recover the lost items, but the driver ignored them and proceeded to
Legazpi City.
Fatima immediately reported the loss to her mother who, in turn, went to petitioner’s
office in Legazpi City and later at its head office in Manila. Petitioner, however, merely
offered her P1,000.00 for each piece of luggage lost, which she turned down. After
returning to Bicol, disappointed but not defeated, mother and daughter asked
assistance from the radio stations and even from Philtranco bus drivers who plied the
same route on August 31st. The effort paid off when one of Fatima’s bags was
recovered. Marisol further reported the incident to the National Bureau of
Investigation’s field office in Legazpi City and to the local police.chanrobles.com :
virtual lawlibrary
On September 20, 1984, Respondents, through counsel, formally demanded
satisfaction of their complaint from petitioner. In a letter dated October 1, 1984, the
latter apologized for the delay and said that" (a) team has been sent out to Bicol for
the purpose of recovering or at least getting the full detail" 1 of the incident.

After more than nine months of fruitless waiting, respondents decided to file the case
below to recover the value of the remaining lost items, as well as moral and
exemplary damages, attorney’s fees and expenses of litigation. They claimed that the
loss was due to petitioner’s failure to observe extraordinary diligence in the care of
Fatima’s luggage and that petitioner dealt with them in bad faith from the start.
Petitioner, on the other hand, disowned any liability for the loss on the ground that
Fatima allegedly did not declare any excess baggage upon boarding its bus.
On June 15, 1988, after trial on the merits, the court a quo adjudged the case in favor
of respondents, viz.:jgc:chanrobles.com.ph
"‘PREMISES CONSIDERED, judgment is hereby rendered in favor of the plaintiffs
(herein respondents) and against the herein defendant Sarkies Tours Philippines,
Inc., ordering the latter to pay to the former the following sums of money, to
wit:chanrob1es virtual 1aw library
1. The sum of P30,000.00 equivalent to the value of the personal belongings of
plaintiff Fatima Minerva Fortades, etc. less the value of one luggage recovered;
2. The sum of P90,000.00 for the transportation expenses, as well as moral damages;
3. The sum of P10,000.00 by way of exemplary damages;
4. The sum of P5,000.00 as attorney’s fees; and
5. The sum of P5,000.00 as litigation expenses or a total of One Hundred Forty
Thousand (P140,000.00) Pesos.
to be paid by herein defendant Sarkies Tours Philippines, Inc. to the herein plaintiffs
within 30 days from receipt of this Decision.
SO ORDERED."cralaw virtua1aw library
On appeal, the appellate court affirmed the trial court’s judgment, but deleted the
award of moral and exemplary damages. Thus,
"WHEREFORE, premises considered, except as above modified, fixing the award for
transportation expenses at P30,000.00 and the deletion of the award for moral and
exemplary damages, the decision appealed from is AFFIRMED, with costs against
defendant-appellant.
SO ORDERED."cralaw virtua1aw library
Its motion for reconsideration was likewise rejected by the Court of Appeals, so
petitioner elevated its case to this Court for a review.
After a careful scrutiny of the records of this case, we are convinced that the trial and
appellate courts resolved the issues judiciously based on the evidence at hand.
Petitioner claims that Fatima did not bring any piece of luggage with her, and even if
she did, none was declared at the start of the trip. The documentary and testimonial
88|Transportation (Carriage of goods)
evidence presented at the trial, however, established that Fatima indeed boarded
petitioner’s De Luxe Bus No. 5 in the evening of August 31, 1984, and she brought
three pieces of luggage with her, as testified by her brother Raul, 2 who helped her
pack her things and load them on said bus. One of the bags was even recovered by a
Philtranco bus driver. In its letter dated October 1, 1984, petitioner tacitly admitted its
liability by apologizing to respondents and assuring them that efforts were being
made to recover the lost items.
The records also reveal that respondents went to great lengths just to salvage their
loss. The incident was reported to the police, the NBI, and the regional and head
offices of petitioner. Marisol even sought the assistance of Philtranco bus drivers and
the radio stations. To expedite the replacement of her mother’s lost U.S. immigration
documents, Fatima also had to execute an affidavit of loss. 3 Clearly, they would not
have gone through all that trouble in pursuit of a fancied loss.
Fatima was not the only one who lost her luggage. Apparently, other passengers had
suffered a similar fate: Dr. Lita Samarista testified that petitioner offered her
P1,000.00 for her lost baggage and she accepted it; 4 Carleen Carullo-Magno lost her
chemical engineering review materials, while her brother lost abaca products he was
transporting to Bicol. 5
Petitioner’s receipt of Fatima’s personal luggage having been thus established, it
must now be determined if, as a common carrier, it is responsible for their loss. Under
the Civil Code," (c)ommon carriers, from the nature of their business and for reasons
of public policy, are bound to observe extraordinary diligence in the vigilance over the
goods . . . transported by them," 6 and this liability "lasts from the time the goods are
unconditionally placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or constructively, by the carrier
to . . . the person who has a right to receive them," 7 unless the loss is due to any of
the excepted causes under Article 1734 thereof. 8
The cause of the loss in the case at bar was petitioner’s negligence in not ensuring
that the doors of the baggage compartment of its bus were securely fastened. As a
result of this lack of care, almost all of the luggage was lost, to the prejudice of the
paying passengers. As the Court of Appeals correctly observed:
". . . Where the common carrier accepted its passenger’s baggage for transportation
and even had it placed in the vehicle by its own employee, its failure to collect the
freight charge is the common carrier’s own lookout. It is responsible for the
consequent loss of the baggage. In the instant case, defendant appellant’s employee
even helped Fatima Minerva Fortades and her brother load the luggages/baggages in
the bus’ baggage compartment, without asking that they be weighed, declared,
receipted or paid for (TSN, August 4, 1986, pp. 29, 34, 54, 57, 70; December 23,
1987, p. 35). Neither was this required of the other passengers (TSN, August 4, 1986,
p. 104; February 5, 1988, p. 13)."cralaw virtua1aw library
Finally, petitioner questions the award of actual damages to respondents. On this
point, we likewise agree with the trial and appellate courts’ conclusions. There is no
dispute that of the three pieces of luggage of Fatima, only one was recovered. The
other two contained optometry books, materials, equipment, as well as vital
documents and personal belongings. Respondents had to shuttle between Bicol and
Manila in their efforts to be compensated for the loss. During the trial, Fatima and
Marisol had to travel from the United States just to be able to testify. Expenses were
also incurred in reconstituting their lost documents. Under these circumstances, the
Court agrees with the Court of Appeals in awarding P30,000.00 for the lost items and
P30,000.00 for the transportation expenses, but disagrees with the deletion of the
award of moral and exemplary damages which, in view of the foregoing proven facts,
with negligence and bad faith on the fault of petitioner having been duly established,
should be granted to respondents in the amount of P20,000.00 and P5,000.00,
respectively.chanrobles virtual lawlibrary

WHEREFORE, the assailed decision of the Court of Appeals dated January 13, 1993,
and its resolution dated February 19, 1993, are hereby AFFIRMED with the
MODIFICATION that petitioner is ordered to pay respondents an additional
P20,000.00 as moral damages and P5,000.00 as exemplary damages. Costs against
petitioner.

SO ORDERED.

89|Transportation (Carriage of goods)