Republic of the Philippines
4
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 116863 February 12, 1998
KENG HUA PAPER PRODUCTS CO. INC., petitioner,
vs.
COURT OF APPEALS; REGIONAL TRIAL COURT OF
MANILA, BR. 21; and SEA-LAND SERVICE,
INC., respondents.
PANGANIBAN, J.:
What is the nature of a bill of lading? When does a bill of
lading become binding on a consignee? Will an alleged
overshipment justify the consignee's refusal to receive
the goods described in the bill of lading? When may
interest be computed on unpaid demurrage charges?
Statement of the Case
These are the main questions raised in this petition
assailing the Decision 1 of the Court of
2 from the container during the "free
Appeals   promulgated on May 20, 1994 in C.A.-G.R. CV
No. 29953 affirming in toto the decision 3 dated
September 28, 1990 in Civil Case No. 85-33269 of the
Regional Trial Court of Manila, Branch 21. The dispositive
portion of the said RTC decision reads:
WHEREFORE, the Court finds by
preponderance of evidence that
Plaintiff has proved its cause of action
and right to relief. Accordingly,
judgment is hereby rendered in favor of
the Plaintiff and against Defendant,
ordering the Defendant to pay plaintiff:
1. The sum of P67,340.00 as demurrage
charges, with interest at the legal rate
from the date of the extrajudicial
demand until fully paid;
2. A sum equivalent to ten (10%)
percent of the total amount due as
Attorney's fees and litigation expenses.
Send copy to respective counsel of the
parties.
1
SO ORDERED.
The Facts
The factual antecedents of this case as found by the
Court of Appeals are as follows:
Plaintiff (herein private respondent), a
shipping company, is a foreign
corporation licensed to do business in
the Philippines. On June 29, 1982,
plaintiff received at its Hong Kong
terminal a sealed container, Container
No. SEAU 67523, containing seventy-six
bales of "unsorted waste paper" for
shipment to defendant (herein
petitioner), Keng Hua Paper Products,
Co. in Manila. A bill of lading (Exh. A) to
cover the shipment was issued by the
plaintiff.
On July 9, 1982, the shipment was
discharged at the Manila International
Container Port. Notices of arrival were
transmitted to the defendant but the
latter failed to discharge the shipment
time" period or grace period. The said
shipment remained inside the plaintiff's
container from the moment the free
time period expired on July 29, 1982
until the time when the shipment was
unloaded from the container on
November 22, 1983, or a total of four
hundred eighty-one (481) days. During
the 481-day period, demurrage charges
accrued. Within the same period,
letters demanding payment were sent
by the plaintiff to the defendant who,
however, refused to settle its obligation
which eventually amounted to
P67,340.00. Numerous demands were
made on the defendant but the
obligation remained unpaid. Plaintiff
thereafter commenced this civil action
for collection and damages.
In its answer, defendant, by way of
special and affirmative defense, alleged
that it purchased fifty (50) tons of
waste paper from the shipper in Hong
Kong, Ho Kee Waste Paper, as
 manifested in Letter of Credit No. I. Whether or not
824858 (Exh. 7. p. 110. Original Record) petitioner had
issued by Equitable Banking accepted the bill of
Corporation, with partial shipment lading;
permitted; that under the letter of
credit, the remaining balance of the II. Whether or not the
shipment was only ten (10) metric tons award of the sum of
as shown in Invoice No. H-15/82 (Exh. P67,340.00 to private
8, p. 111, Original Record); that the respondent was
shipment plaintiff was asking proper;
defendant to accept was twenty (20)
metric tons which is ten (10) metric III. Whether or not
tons more than the remaining balance; petitioner was correct
that if defendant were to accept the in not accepting the
shipment, it would be violating Central overshipment;
Bank rules and regulations and custom
and tariff laws; that plaintiff had no
IV. Whether or not
cause of action against the defendant
the award of legal
because the latter did not hire the
interest from the
former to carry the merchandise; that
date of private
the cause of action should be against
respondent's
the shipper which contracted the
extrajudicial demand
plaintiff's services and not against
was proper;8
defendant; and that the defendant duly
notified the plaintiff about the wrong
In the main, the case revolves around the question of
shipment through a letter dated
whether petitioner bound by the bill of lading. We shall,
January 24, 1983 (Exh. D for plaintiff,
thus, discuss the above four issues as they intertwine
Exh. 4 for defendant, p. 5. Folder of
with this main question.
Exhibits).

The Court's Ruling

As previously mentioned, the RTC found petitioner liable
for demurrage; attorney's fees and expenses of litigation.
The petitioner appealed to the Court of Appeals, arguing
that the lower court erred in (1) awarding the sum of
P67,340 in favor of the private respondent, (2) rejecting
petitioner's contention that there was overshipment, (3)
ruling that petitioner's recourse was against the shipper,
and (4) computing legal interest from date of
extrajudicial demand.5
Respondent Court of Appeals denied the appeal and
affirmed the lower court's decision in toto. In a
subsequent resolution,6 it also denied the petitioner's
motion for reconsideration.
Hence, this petition for review.7
The Issues
In its memorandum, petitioner submits the following
issues:
The petition is partly meritorious. We affirm petitioner's
liability for demurrage, but modify the interest rate
thereon.
Main Issue: Liability Under the Bill of Lading
A bill of lading serves two functions. First, it is a receipt
for the goods shipped. Second, it is a contract by which
three parties, namely, the shipper, the carrier, and the
consignee undertake specific responsibilities and assume
stipulated obligations. 9 A "bill of lading delivered and
accepted constitutes the contract of carriage even
though not signed," 10 because the "(a)cceptance of a
paper containing the terms of a proposed contract
generally constitutes an acceptance of the contract and
of all of its terms and conditions of which the acceptor
has actual or constructive notice." 11 In a nutshell, the
acceptance of a bill of lading by the shipper and the
consignee, with full knowledge of its contents, gives rise

2
to the presumption that the same was a perfected and
binding contract. 12
In the case at bar, both lower courts held that the bill of
lading was a valid and perfected contract between the
shipper (Ho Kee), the consignee (Petitioner Keng Hua),
and the carrier (Private Respondent Sea-Land). Section
17 of the bill of lading provided that the shipper and the
consignee were liable for the payment of demurrage
charges for the failure to discharge the containerized
shipment beyond the grace period allowed by tariff rules.
Applying said stipulation, both lower courts found
petitioner liable. The aforementioned section of the bill
of lading reads:
17. COOPERAGE FINES. The shipper and
consignee shall be liable for, indemnify
the carrier and ship and hold them
harmless against, and the carrier shall
have a lien on the goods for, all
expenses and charges for mending
cooperage, baling, repairing or
reconditioning the goods, or the van,
trailers or containers, and all expenses
incurred in protecting, caring for or
otherwise made for the benefit of the
goods, whether the goods be damaged
or not, and for any payment, expense,
penalty fine, dues, duty, tax or impost,
loss, damage, detention, demurrage, or
liability of whatsoever nature,
sustained or incurred by or levied upon
the carrier or the ship in connection
with the goods or by reason of the
goods being or having been on board,
or because of shipper's failure to
procure consular or other proper
permits, certificates or any papers that
may be required at any port or place or
shipper's failure to supply information
or otherwise to comply with all laws,
regulations and requirements of law in
connection with the goods of from any
other act or omission of the shipper or
consignee: (Emphasis supplied.)
Petitioner contends, however, that it should not be
bound by the bill of lading because it never gave its
consent thereto. Although petitioner admits "physical
acceptance" of the bill of lading, it argues that its
subsequent actions belie the finding that it accepted the
terms and conditions printed therein. 13 Petitioner cites
3
as support the "Notice of Refused or On Hand Freight" it
received on November 2, 1982 from private respondent,
which acknowledged that petitioner declined to accept
the shipment. Petitioner adds that it sent a copy of the
said notice to the shipper on December 23, 1982.
Petitioner points to its January 24, 1983 letter to the
private respondent, stressing "that its acceptance of the
bill of lading would be tantamount to an act of smuggling
as the amount it had imported (with full documentary
support) was only (at that time) for 10,000 kilograms and
not for 20,313 kilograms as stated in the bill of lading"
and "could lay them vulnerable to legal sanctions for
violation of customs and tariff as well as Central Bank
laws." 14 Petitioner further argues that the demurrage
"was a consequence of the shipper's mistake" of shipping
more than what was bought. The discrepancy in the
amount of waste paper it actually purchased, as reflected
in the invoice vis-a-vis the excess amount in the bill of
lading, allegedly justifies its refusal to accept the
shipment. 15
Petitioner Bound by
the Bill of Lading
We are not persuaded. Petitioner admits that it "received
the bill of lading immediately after the arrival of the
shipment" 16 on July 8, 1982. 17 Having been afforded an
opportunity to examine the said document, petitioner
did not immediately object to or dissent from any term
or stipulation therein. It was only six months later, on
January 24, 1983, that petitioner sent a letter to private
respondent saying that it could not accept the shipment.
Petitioner's inaction for such a long period conveys the
clear inference that it accepted the terms and conditions
of the bill of lading. Moreover, said letter spoke only of
petitioner's inability to use the delivery permit, i.e. to
pick up the cargo, due to the shipper's failure to comply
with the terms and conditions of the letter of credit, for
which reason the bill of lading and other shipping
documents were returned by the "banks" to the
shipper. 18 The letter merely proved petitioner's refusal to
pick up the cargo, not its rejection of the bill of lading.
Petitioner's reliance on the Notice of Refused or On Hand
Freight, as proof of its nonacceptance of the bill of lading,
is of no consequence. Said notice was not written by
petitioner; it was sent by private respondent to
petitioner in November 1982, or four months after
petitioner received the bill of lading. If the notice has any
legal significance at all, it is to highlight petitioner's
prolonged failure to object to the bill of lading. Contrary
to petitioner's contention, the notice and the letter
support — not belie — the findings of the two lower
courts that the bill of lading was impliedly accepted by
petitioner.
As aptly stated by Respondent Court of Appeals:
In the instant case, (herein petitioner)
cannot and did not allege non-receipt
of its copy of the bill of lading from the
shipper. Hence, the terms and
conditions as well as the various entries
contained therein were brought to its
knowledge. (Herein petitioner)
accepted the bill of lading without
interposing any objection as to its
contents. This raises the presumption
that (herein petitioner) agreed to the
entries and stipulations imposed
therein.
Moreover, it is puzzling that (herein
petitioner) allowed months to pass, six
(6) months to be exact, before notifying
(herein private respondent) of the
"wrong shipment". It was only on
January 24, 1983 that (herein
petitioner) sent (herein private
respondent) such a letter of notification
(Exh D for plaintiff, Exh. 4 for
defendant; p. 5, Folder of Exhibits).
Thus, for the duration of those six
months (herein private respondent
never knew the reason for (herein
petitioner's) refusal to discharge the
shipment.
After accepting the bill of lading,
receiving notices of arrival of the
shipment, failing to object thereto,
(herein petitioner) cannot now deny
that it is bound by the terms in the bill
of lading. If it did not intend to be
bound, (herein petitioner) would not
have waited for six months to lapse
before finally bringing the matter to
(herein private respondent's attention.
The most logical reaction in such a case
would be to immediately verify the
matter with the other parties involved.
In this case, however, (herein
petitioner) unreasonably detained
4
(herein private respondent's) vessel to
the latter's prejudice. 19
Petitioner's attempt to evade its obligation to receive the
shipment on the pretext that this may cause it to violate
customs, tariff and central bank laws must likewise fail.
Mere apprehension of violating said laws, without a clear
demonstration that taking delivery of the shipment has
become legally impossible, 20 cannot defeat the
petitioner's contractual obligation and liability under the
bill of lading.
In any event, the issue of whether petitioner accepted
the bill of lading was raised for the first time only in
petitioner's memorandum before this Court. Clearly, we
cannot now entertain an issue raised for the very first
time on appeal, in deference to the well-settled doctrine
that "(a)n issue raised for the first time on appeal and not
raised timely in the proceedings in the lower court is
barred by estoppel. Questions raised on appeal must be
within the issues framed by the parties and,
consequently, issues not raised in the trial court cannot
be raised for the first time on appeal."21
In the case at bar, the prolonged failure of petitioner to
receive and discharge the cargo from the private
respondent's vessel constitutes a violation of the terms
of the bill of lading. It should thus be liable for demurrage
to the former.
In The Apollon, 22 Justice Story made the following
relevant comment on the nature of demurrage:
In truth, demurrage is merely an
allowance or compensation for the
delay or detention of a vessel. It is
often a matter of contract, but not
necessarily so. The very circumstance
that in ordinary commercial voyages, a
particular sum is deemed by the parties
a fair compensation for delays, is the
very reason why it is, and ought to be,
adopted as a measure of
compensation, in cases ex delicto. What
fairer rule can be adopted than that
which founds itself upon mercantile
usage as to indemnity, and fixes a
recompense upon the deliberate
consideration of all the circumstances
attending the usual earnings and
expenditures in common voyages? It
appears to us that an allowance, by
 way of demurrage, is the true measure
of damages in all cases of mere
detention, for that allowance has
reference to the ship's expenses, wear
and tear, and common employment.23
Amount of Demurrage Charges
Petitioner argues that it is not obligated to pay any
demurrage charges because, prior to the filing of the
complaint, private respondent made no demand for the
sum of P67,340. Moreover, private respondent's loss and
prevention manager, Loi Gillera, demanded P50,260; but
its counsel, Sofronio Larcia, subsequently asked for a
different amount of P37,800.
Petitioner's position is puerile. The amount of demurrage
charges in the sum of P67,340 is a factual conclusion of
the trial court that was affirmed by the Court of Appeals
and, thus, binding on this Court. 24 Besides, such factual
finding is supported by the extant evidence. 25 The
apparent discrepancy was a result of the variance of the
dates when the two demands were made. Necessarily,
the longer the cargo remained unclaimed, the higher the
demurrage. Thus, while in his letter dated April 24,
1983, 26 private respondent's counsel demanded
payment of only P37,800, the additional demurrage
incurred petitioner due to its continued refusal to receive
delivery of the cargo ballooned to P67,340 by November
22, 1983. The testimony of Counsel Sofronio Larcia as
regards said letter of April 24, 1983 elucidates, viz:
Q Now, after you sent
this letter, do you
know what
happened?
A Defendant
continued to refuse
to take delivery of the
shipment and the
shipment stayed at
the port for a longer
period.
Q So, what happened
to the shipment?
A The shipment
incurred additional
demurrage charges
which amounted to
5
P67,340.00 as of
November 22, 1983
or more than a year
after — almost a year
after the shipment
arrived at the port.
Q So, what did you
do?
A We requested our
collection agency to
pursue the collection
of this amount. 27
Bill of Lading Separate from
Other Letter of Credit Arrangements
In a letter of credit, there are three distinct and
independent contracts:
(1) the contract of sale between the buyer and the seller,
(2) the contract of the buyer with the issuing bank, and
(3) the letter of credit proper in which the bank promises
to pay the seller pursuant to the terms and conditions
stated therein. "Few things are more clearly settled in
law than that the three contracts which make up the
letter of credit arrangement are to be maintained in a
state of perpetual separation." 28 A transaction involving
the purchase of goods may also require, apart from a
letter of credit, a contract of transportation specially
when the seller and the buyer are not in the same locale
or country, and the goods purchased have to be
transported to the latter.
Hence, the contract of carriage, as stipulated in the bill of
lading in the present case, must be treated
independently of the contract of sale between the seller
and the buyer, and the contract for the issuance of a
letter of credit between the buyer and the issuing bank.
Any discrepancy between the amount of the goods
described in the commercial invoice in the contract of
sale and the amount allowed in the letter of credit will
not affect the validity and enforceability of the contract
of carriage as embodied in the bill of lading. As the bank
cannot be expected to look beyond the documents
presented to it by the seller pursuant to the letter of
credit, 29 neither can the carrier be expected to go
beyond the representations of the shipper in the bill of
lading and to verify their accuracy vis-a-viz the
commercial invoice and the letter of a credit. Thus, the
discrepancy between the amount of goods indicated in
the invoice and the amount in the bill of lading cannot
negate petitioner's obligation to private respondent
arising from the contract of transportation. Furthermore,
private respondent, as carrier, had no knowledge of the
contents of the container. The contract of carriage was
under the arrangement known as "Shipper's Load And
Count," and shipper was solely responsible for the
loading of the container while carrier was oblivious to
the contents of the shipment. Petitioner's remedy in case
of overshipment lies against the seller/shipper, not
against the carrier.
Payment of Interest
Petitioner posits that it "first knew" of the demurrage
claim of P67,340 only when it received, by summons,
private respondent's complaint. Hence, interest may not
be allowed to run from the date of private respondent's
extrajudicial demands on March 8, 1983 for P50,260 or
on April 24, 1983 for P37,800, considering that, in both
cases, "there was no demand for interest." 30 We agree.
Jurisprudence teaches us:
2. When an obligation, not constituting
a loan or forbearance of money, is
breached, an interest on the amount of
damages awarded may be imposed at
the discretion of the court at the rate of
6%  per annum. No interest, however,
shall be adjudged on unliquidated
claims or damages except when or until
the demand can be established with
reasonable certainty.
Accordingly, where the demand is
established with reasonable certainty,
the interest shall begin to run from the
time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code)
but when such certainty cannot be so
reasonably established at the time the
demand is made, the interest shall
begin to run only from the date the
judgment of the court is made (at
which time the quantification of
damages may be deemed to have been
reasonably ascertained). The actual
base for the computation of legal
interest shall, in any case, be on the
amount finally adjudged.
6
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.31
The case before us involves an obligation not arising from
a loan or forbearance of money; thus, pursuant to Article
2209 of the Civil Code, the applicable interest rate is six
percent  per annum. Since the bill of lading did not
specify the amount of demurrage, and the sum claimed
by private respondent increased as the days went by, the
total amount demanded cannot be deemed to have been
established with reasonable certainty until the trial court
rendered its judgment. Indeed, "(u)nliquidated damages
or claims, it is said, are those which are not or cannot be
known until definitely ascertained, assessed and
determined by the courts after presentation of proof.
" 32 Consequently, the legal interest rate is six percent, to
be computed from September 28, 1990, the date of the
trial court's decision. And in accordance with Philippine
National Bank 33 and Eastern Shipping, 34 the rate of
twelve percent  per annum shall be charged on the total
then outstanding, from the time the judgment becomes
final and executory until its satisfaction.
Finally, the Court notes that the matter of attorney's fees
was taken up only in the dispositive portion of the trial
court's decision. This falls short of the settled
requirement that the text of the decision should state
the reason for the award of attorney's fees, for without
such justification, its award would be a "conclusion
without a premise, its basis being improperly left to
speculation and conjecture."35
WHEREFORE, the assailed Decision is hereby AFFIRMED
with the MODIFICATION that the legal interest of six
percent  per annum shall be computed from September
28, 1990 until its full payment before finality of
judgment. The rate of interest shall be adjusted to twelve
percent  per annum, computed from the time said
judgment became final and executory until full
satisfaction. The award of attorney's fees is DELETED.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-25599             April 4, 1968
HOME INSURANCE COMPANY, plaintiff-appellee,
vs.
AMERICAN STEAMSHIP AGENCIES, INC. and LUZON
STEVEDORING CORPORATION, defendants,
AMERICAN STEAMSHIP AGENCIES, INC., defendant-
appellant.
BENGZON, J.P., J.:
"Consorcio Pesquero del Peru of South America" shipped
freight pre-paid at Chimbate, Peru, 21,740 jute bags of
Peruvian fish meal through SS Crowborough, covered by
clean bills of lading Numbers 1 and 2, both dated January
17, 1963. The cargo, consigned to San Miguel Brewery,
Inc., now San Miguel Corporation, and insured by Home
Insurance Company for $202,505, arrived in Manila on
March 7, 1963 and was discharged into the lighters of
Luzon Stevedoring Company. When the cargo was
delivered to consignee San Miguel Brewery Inc., there
were shortages amounting to P12,033.85, causing the
latter to lay claims against Luzon Stevedoring
Corporation, Home Insurance Company and the
American Steamship Agencies, owner and operator of SS
Crowborough.
Because the others denied liability, Home Insurance
Company paid the consignee P14,870.71 — the insurance
value of the loss, as full settlement of the claim. Having
been refused reimbursement by both the Luzon
Stevedoring Corporation and American Steamship
Agencies, Home Insurance Company, as subrogee to the
consignee, filed against them on March 6, 1964 before
the Court of First Instance of Manila a complaint for
recovery of P14,870.71 with legal interest, plus attorney's
fees.
In answer, Luzon Stevedoring Corporation alleged that it
delivered with due diligence the goods in the same
quantity and quality that it had received the same from
the carrier. It also claimed that plaintiff's claim had
prescribed under Article 366 of the Code of Commerce
stating that the claim must be made within 24 hours
from receipt of the cargo.
7
American Steamship Agencies denied liability by alleging
that under the provisions of the Charter party referred to
in the bills of lading, the charterer, not the shipowner,
was responsible for any loss or damage of the cargo.
Furthermore, it claimed to have exercised due diligence
in stowing the goods and that as a mere forwarding
agent, it was not responsible for losses or damages to the
cargo.
On November 17, 1965, the Court of First Instance, after
trial, absolved Luzon Stevedoring Corporation, having
found the latter to have merely delivered what it
received from the carrier in the same condition and
quality, and ordered American Steamship Agencies to
pay plaintiff P14,870.71 with legal interest plus P1,000
attorney's fees. Said court cited the following grounds:
(a) The non-liability claim of American
Steamship Agencies under the charter party
contract is not tenable because Article 587 of
the Code of Commerce makes the ship agent
also civilly liable for damages in favor of third
persons due to the conduct of the captain of the
carrier;
(b) The stipulation in the charter party contract
exempting the owner from liability is against
public policy under Article 1744 of the Civil
Code;
(c) In case of loss, destruction or deterioration of
goods, common carriers are presumed at fault
or negligent under Article 1735 of the Civil Code
unless they prove extraordinary diligence, and
they cannot by contract exempt themselves
from liability resulting from their negligence or
that of their servants; and
(d) When goods are delivered to the carrier in
good order and the same are in bad order at the
place of destination, the carrier is  prima
facie liable.
Disagreeing with such judgment, American Steamship
Agencies appealed directly to Us. The appeal brings forth
for determination this legal issue: Is the stipulation in the
charter party of the owner's non-liability valid so as to
absolve the American Steamship Agencies from liability
for loss?
The bills of lading,1 covering the shipment of Peruvian
fish meal provide at the back thereof that the bills of
lading shall be governed by and subject to the terms and
conditions of the charter party, if any, otherwise, the bills
of lading prevail over all the agreements. 2 On the of the
bills are stamped "Freight prepaid as per charter party.
Subject to all terms, conditions and exceptions of charter
party dated London, Dec. 13, 1962."
A perusal of the charter party3 referred to shows that
while the possession and control of the ship were not
entirely transferred to the charterer,4 the vessel was
chartered to its full and complete capacity (Exh. 3).
Furthermore, the, charter had the option to go north or
south or vice-versa,5 loading, stowing and discharging at
its risk and expense.6 Accordingly, the charter party
contract is one of affreightment over the whole vessel
rather than a demise. As such, the liability of the
shipowner for acts or negligence of its captain and crew,
would remain in the absence of stipulation.
Section 2, paragraph 2 of the charter party, provides that
the owner is liable for loss or damage to the goods
caused by personal want of due diligence on its part or
its manager to make the vessel in all respects seaworthy
and to secure that she be properly manned, equipped
and supplied or by the personal act or default of the
owner or its manager. Said paragraph, however, exempts
the owner of the vessel from any loss or damage or delay
arising from any other source, even from the neglect or
fault of the captain or crew or some other person
employed by the owner on board, for whose acts the
owner would ordinarily be liable except for said
paragraph..
Regarding the stipulation, the Court of First Instance
declared the contract as contrary to Article 587 of the
Code of Commerce making the ship agent civilly liable for
indemnities suffered by third persons arising from acts or
omissions of the captain in the care of the goods and
Article 1744 of the Civil Code under which a stipulation
between the common carrier and the shipper or owner
limiting the liability of the former for loss or destruction
of the goods to a degree less than extraordinary diligence
is valid provided it be reasonable, just and not contrary
to public policy. The release from liability in this case was
held unreasonable and contrary to the public policy on
common carriers.
The provisions of our Civil Code on common carriers
were taken from Anglo-American law.7 Under American
jurisprudence, a common carrier undertaking to carry a
special cargo or chartered to a special person only,
becomes a private carrier.8 As a private carrier, a
8
stipulation exempting the owner from liability for the
negligence of its agent is not against public policy,9 and is
deemed valid.
Such doctrine We find reasonable. The Civil Code
provisions on common carriers should not be applied
where the carrier is not acting as such but as a private
carrier. The stipulation in the charter party absolving the
owner from liability for loss due to the negligence of its
agent would be void only if the strict public policy
governing common carriers is applied. Such policy has no
force where the public at large is not involved, as in the
case of a ship totally chartered for the use of a single
party.
And furthermore, in a charter of the entire vessel, the bill
of lading issued by the master to the charterer, as
shipper, is in fact and legal contemplation merely a
receipt and a document of title not a contract, for the
contract is the charter party.10 The consignee may not
claim ignorance of said charter party because the bills of
lading expressly referred to the same. Accordingly, the
consignees under the bills of lading must likewise abide
by the terms of the charter party. And as stated, recovery
cannot be had thereunder, for loss or damage to the
cargo, against the shipowners, unless the same is due to
personal acts or negligence of said owner or its manager,
as distinguished from its other agents or employees. In
this case, no such personal act or negligence has been
proved.
WHEREFORE, the judgment appealed from is hereby
reversed and appellant is absolved from liability to
plaintiff. No costs. So ordered.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 95529               August 22, 1991
MAGELLAN MANUFACTURING MARKETING
CORPORATION,* petitioner,
vs.
 COURT OF APPEALS, ORIENT OVERSEAS CONTAINER
LINES and F.E. ZUELLIG, INC. respondents.
REGALADO, J.:
Petitioner, via this petition for review on certiorari, seeks
the reversal of the judgment of respondent Court of
Appeals in CA-G.R. CV No. 18781,1 affirming in part the
decision of the trial court,2 the dispositive portion of
which reads:
Premises considered, the decision appealed
from is affirmed insofar as it dismisses the
complaint. On the counter-claim, however,
appellant is ordered to pay appellees the
amount of P52,102.45 with legal interest from
date of extra-judicial demand. The award of
attorney's fees is deleted.3
The facts as found by respondent appellate court are as
follows:
On May 20, 1980, plaintiff-appellant Magellan
Manufacturers Marketing Corp. (MMMC)
entered into a contract with Choju Co. of
Yokohama, Japan to export 136,000 anahaw
fans for and in consideration of $23,220.00. As
payment thereof, a letter of credit was issued to
plaintiff MMMC by the buyer. Through its
president, James Cu, MMMC then contracted
F.E. Zuellig, a shipping agent, through its
solicitor, one Mr. King, to ship the anahaw fans
through the other appellee, Orient Overseas
Container Lines, Inc., (OOCL) specifying that he
needed an on-board bill of lading and that
transhipment is not allowed under the letter of
credit (Exh. B-1). On June 30, 1980, appellant
MMMC paid F.E. Zuellig the freight charges and
secured a copy of the bill of lading which was
presented to Allied Bank. The bank then
credited the amount of US$23,220.00 covered
by the letter of credit to appellant's account.
However, when appellant's president James Cu,
went back to the bank later, he was informed
that the payment was refused by the buyer
allegedly because there was no on-board bill of
lading, and there was a transhipment of goods.
As a result of the refusal of the buyer to accept,
upon appellant's request, the anahaw fans were
shipped back to Manila by appellees, for which
the latter demanded from appellant payment of
9
P246,043.43. Appellant abandoned the whole
cargo and asked appellees for damages.
In their Partial Stipulation of Facts, the parties
admitted that a shipment of 1,047 cartons of
136,000 pieces of Anahaw Fans contained in 1 x
40 and 1 x 20 containers was loaded at Manila
on board the MV 'Pacific Despatcher' freight
prepaid, and duly covered by Bill of Lading No.
MNYK201T dated June 27, 1980 issued by OOCL;
that the shipment was delivered at the port of
discharge on July 19, 1980, but was
subsequently returned to Manila after the
consignee refused to accept/pay the same.4
Elaborating on the above findings of fact of respondent
court and without being disputed by herein private
respondents, petitioner additionally avers that:
When petitioner informed private respondents
about what happened, the latter issued a
certificate stating that its bill of lading it issued is
an on board bill of lading and that there was no
actual transhipment of the fans. According to
private respondents when the goods are
transferred from one vessel to another which
both belong to the same owner which was what
happened to the Anahaw fans, then there is (no)
transhipment. Petitioner sent this certification
to Choju Co., Ltd., but the said company still
refused to accept the goods which arrived in
Japan on July 19, 1980.
Private respondents billed petitioner in the
amount of P16,342.21 for such shipment and
P34,928.71 for demurrage in Japan from July 26
up to August 31, 1980 or a total of P51,271.02.
In a letter dated March 20, 1981, private
respondents gave petitioner the option of
paying the sum of P51,271.02 or to abandon the
Anahaw fans to enable private respondents to
sell them at public auction to cover the cost of
shipment and demurrages. Petitioner opted to
abandon the goods. However, in a letter dated
June 22, 1981 private respondents demanded
for payment of P298,150.93 from petitioner
which represents the freight charges from Japan
to Manila, demurrage incurred in Japan and
Manila from October 22, 1980 up to May 20,
1981; and charges for stripping the container
van of the Anahaw fans on May 20, 1981.
 On July 20, 1981 petitioner filed the complaint
in this case praying that private respondents be
ordered to pay whatever petitioner was not able
to earn from Choju Co., Ltd., amounting to
P174,150.00 and other damages like attorney's
fees since private respondents are to blame for
the refusal of Choju Co., Ltd. to accept the
Anahaw fans. In answer thereto the private
respondents alleged that the bill of lading clearly
shows that there will be a transhipment and
that petitioner was well aware that MV (Pacific)
Despatcher was only up to Hongkong where the
subject cargo will be transferred to another
vessel for Japan. Private respondents also filed a
counterclaim praying that petitioner be ordered
to pay freight charges from Japan to Manila and
the demurrages in Japan and Manila amounting
to P298,150.93.
The lower court decided the case in favor of
private respondents. It dismissed the complaint
on the ground that petitioner had given its
consent to the contents of the bill of lading
where it is clearly indicated that there will be
transhipment. The lower court also said that
petitioner is liable to pay to private respondent
the freight charges from Japan to Manila and
demurrages since it was the former which
ordered the reshipment of the cargo from Japan
to Manila.
On appeal to the respondent court, the finding
of the lower (court) that petitioner agreed to a
transhipment of the goods was affirmed but the
finding that petitioner is liable for P298,150.93
was modified. It was reduced to P52,102.45
which represents the freight charges and
demurrages incurred in Japan but not for the
demurrages incurred in Marta. According to the
respondent (court) the petitioner can not be
held liable for the demurrages incurred in
Manila because Private respondents did not
timely inform petitioner that the goods were
already in Manila in addition to the fact that
private respondent had given petitioner the
option of abandoning the goods in exchange for
the demurrages.5
Petitioner, being dissatisfied with the decision of
respondent court and the motion for reconsideration
thereof having been denied, invokes the Court's review
powers for the resolution of the issues as to whether or
10
not respondent court erred (1) in affirming the decision
of the trial court which dismissed petitioner's complaint;
and (2) in holding petitioner liable to private respondents
in the amount of P52,102.45.6
I. Petitioner obstinately faults private respondents for the
refusal of its buyer, Choju Co., Ltd., to take delivery of the
exported anahaw fans resulting in a loss of P174,150.00
representing the purchase price of the said export items
because of violation of the terms and conditions of the
letter of credit issued in favor of the former which
specified the requirement for an on board bill of lading
and the prohibition against transhipment of goods,
inasmuch as the bill of lading issued by the latter bore
the notation "received for shipment" and contained an
entry indicating transhipment in Hongkong.
We find no fault on the part of private respondents. On
the matter of transhipment, petitioner maintains that "...
while the goods were transferred in Hongkong from MV
Pacific Despatcher, the feeder vessel, to MV Oriental
Researcher, a mother vessel, the same cannot be
considered transhipment because both vessels belong to
the same shipping company, the private respondent
Orient Overseas Container Lines, Inc."7 Petitioner
emphatically goes on to say: "To be sure, there was no
actual transhipment of the Anahaw fans. The private
respondents have executed a certification to the effect
that while the Anahaw fans were transferred from one
vessel to another in Hong Kong, since the two vessels
belong to one and the same company then there was no
transhipment.8
Transhipment, in maritime law, is defined as "the act of
taking cargo out of one ship and loading it in
another,"9 or "the transfer of goods from the vessel
stipulated in the contract of affreightment to another
vessel before the place of destination named in the
contract has been reached,"10 or "the transfer for further
transportation from one ship or conveyance to
another."11 Clearly, either in its ordinary or its strictly
legal acceptation, there is transhipment whether or not
the same person, firm or entity owns the vessels. In other
words, the fact of transhipment is not dependent upon
the ownership of the transporting ships or conveyances
or in the change of carriers, as the petitioner seems to
suggest, but rather on the fact of actual physical transfer
of cargo from one vessel to another.
That there was transhipment within this contemplation is
the inescapable conclusion, as there unmistakably
appears on the face of the bill of lading the entry "Hong
Kong" in the blank space labeled "Transhipment," which
can only mean that transhipment actually took
place.12 This fact is further bolstered by the
certification13 issued by private respondent F.E. Zuellig,
Inc. dated July 19, 1980, although it carefully used the
term "transfer" instead of transhipment. Nonetheless, no
amount of semantic juggling can mask the fact that
transhipment in truth occurred in this case.
Petitioner insists that "(c)onsidering that there was no
actual transhipment of the Anahaw fans, then there is no
occasion under which the petitioner can agree to the
transhipment of the Anahaw fans because there is
nothing like that to agree to" and "(i)f there is no actual
transhipment but there appears to be a transhipment in
the bill of lading, then there can be no possible reason
for it but a mistake on the part of the private
respondents.14
Petitioner, in effect, is saying that since there was a
mistake in documentation on the part of private
respondents, such a mistake militates against the
conclusiveness of the bill of lading insofar as it reflects
the terms of the contract between the parties, as an
exception to the parol evidence rule, and would
therefore permit it to explain or present evidence to vary
or contradict the terms of the written agreement, that is,
the bill of lading involved herein.
It is a long standing jurisprudential rule that a bill of
lading operates both as a receipt and as a contract. It is a
receipt for the goods shipped and a contract to transport
and deliver the same as therein stipulated. As a contract,
it names the parties, which includes the consignee, fixes
the route, destination, and freight rates or charges, and
stipulates the rights and obligations assumed by the
parties.15 Being a contract, it is the law between the
parties who are bound by its terms and conditions
provided that these are not contrary to law, morals, good
customs, public order and public policy.16 A bill of lading
usually becomes effective upon its delivery to and
acceptance by the shipper. It is presumed that the
stipulations of the bill were, in the absence of fraud,
concealment or improper conduct, known to the shipper,
and he is generally bound by his acceptance whether he
reads the bill or not.17
The holding in most jurisdictions has been that a shipper
who receives a bill of lading without objection after an
opportunity to inspect it, and permits the carrier to act
on it by proceeding with the shipment is presumed to
have accepted it as correctly stating the contract and to
11
have assented to its terms. In other words, the
acceptance of the bill without dissent raises the
presumption that all the terms therein were brought to
the knowledge of the shipper and agreed to by him and,
in the absence of fraud or mistake, he is estopped from
thereafter denying that he assented to such terms. This
rule applies with particular force where a shipper accepts
a bill of lading with full knowledge of its contents and
acceptance under such circumstances makes it a binding
contract.18
In the light of the series of events that transpired in the
case at bar, there can be no logical conclusion other than
that the petitioner had full knowledge of, and actually
consented to, the terms and conditions of the bill of
lading thereby making the same conclusive as to it, and it
cannot now be heard to deny having assented thereto.
As borne out by the records, James Cu himself, in his
capacity as president of MMMC, personally received and
signed the bill of lading. On practical considerations,
there is no better way to signify consent than by
voluntarry signing the document which embodies the
agreement. As found by the Court of Appeals —
Contrary to appellant's allegation that it did not
agree to the transhipment, it could be gleaned
from the record that the appellant actually
consented to the transhipment when it received
the bill of lading personally at appellee's (F.E.
Zuellig's) office. There clearly appears on the
face of the bill of lading under column "PORT OF
TRANSHIPMENT" an entry "HONGKONG'
(Exhibits'G-l'). Despite said entries he still
delivered his voucher (Exh. F) and the
corresponding check in payment of the freight
(Exhibit D), implying that he consented to the
transhipment (Decision, p. 6, Rollo).19
Furthermore and particularly on the matter of whether
or not there was transhipment, James Cu, in his
testimony on crossexamination, categorically stated that
he knew for a fact that the shipment was to be unloaded
in Hong Kong from the MV Pacific Despatcher to be
transferred to a mother vessel, the MV Oriental
Researcher in this wise:
Q Mr. Cu, are you not aware of the fact that
your shipment is to be transferred or
transhipped at the port of Hongkong?
A I know. It's not transport, they relay, not
trans... yes, that is why we have an agreement if
 they should not put a transhipment in
Hongkong, that's why they even stated in the
certification.
x x x           x x x          x x x
Q In layman's language, would you agree with
me that transhipment is the transfer of a cargo
from one vessel to the other?
A As a layman, yes.
Q So, you know for a fact that your shipment is
going to be unloaded in Hongkong from M. V.
Dispatcher (sic) and then transfer (sic) to
another vessel which was the Oriental
Dispatcher, (sic) you know that for a fact?
A Yes, sir. (Emphasis supplied.)20
Under the parol evidence rule,21 the terms of a contract
are rendered conclusive upon the parties, and
evidence aliunde is not admissible to vary or contradict a
complete and enforceable agreement embodied in a
document, subject to well defined exceptions which do
not obtain in this case. The parol evidence rule is based
on the consideration that when the parties have reduced
their agreement on a particular matter into writing, all
their previous and contemporaneous agreements on the
matter are merged therein. Accordingly, evidence of a
prior or contemporaneous verbal agreement is generally
not admissible to vary, contradict or defeat the operation
of a valid instrument.22 The mistake contemplated as an
exception to the parol evidence rule is one which is a
mistake of fact mutual to the parties.23 Furthermore, the
rules on evidence, as amended, require that in order that
parol evidence may be admitted, said mistake must be
put in issue by the pleadings, such that if not raised
inceptively in the complaint or in the answer, as the case
may be, a party can not later on be permitted to
introduce parol evidence thereon.24 Needless to say, the
mistake adverted to by herein petitioner, and by its own
admission, was supposedly committed by private
respondents only and was raised by the former rather
belatedly only in this instant petition. Clearly then, and
for failure to comply even only with the procedural
requirements thereon, we cannot admit evidence to
prove or explain the alleged mistake in documentation
imputed to private respondents by petitioner.
Petitioner further argues that assuming that there was
transhipment, it cannot be deemed to have agreed
12
thereto even if it signed the bill of lading containing such
entry because it had made known to private respondents
from the start that transhipment was prohibited under
the letter of credit and that, therefore, it had no
intention to allow transhipment of the subject cargo. In
support of its stand, petitioner relies on the second
paragraph of Article 1370 of the Civil Code which states
that "(i)f the words appear to be contrary to the evident
intention of the parties, the latter shall prevail over the
former," as wen as the supposed ruling in Caltex Phil.,
Inc. vs. Intermediate Appellate Court, et al.25 that "where
the literal interpretation of a contract is contrary to the
evident intention of the parties, the latter shall prevail."
As between such stilted thesis of petitioner and the
contents of the bill of lading evidencing the intention of
the parties, it is irremissible that the latter must prevail.
Petitioner conveniently overlooks the first paragraph of
the very article that he cites which provides that "(i)f the
terms of the contract are clear and leave no doubt upon
the intention of the contracting parties, the literal
meaning of the stipulations shall control." In addition,
Article 1371 of the same Code provides that "(i)n order to
judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be
principally considered."
The terms of the contract as embodied in the bill of
lading are clear and thus obviates the need for any
interpretation. The intention of the parties which is the
carriage of the cargo under the terms specified
thereunder and the wordings of the bill of lading do not
contradict each other. The terms of the contract being
conclusive upon the parties and judging from the
contemporaneous and subsequent actuations of
petitioner, to wit, personally receiving and signing the bill
of lading and paying the freight charges, there is no
doubt that petitioner must necessarily be charged with
full knowledge and unqualified acceptance of the terms
of the bill of lading and that it intended to be bound
thereby.
Moreover, it is a well-known commercial usage that
transhipment of freight without legal excuse, however
competent and safe the vessel into which the transfer is
made, is a violation of the contract and an infringement
of the right of the shipper, and subjects the carrier to
liability if the freight is lost even by a cause otherwise
excepted.26 It is highly improbable to suppose that
private respondents, having been engaged in the
shipping business for so long, would be unaware of such
a custom of the trade as to have undertaken such
transhipment without petitioner's consent and
unnecessarily expose themselves to a possible liability.
Verily, they could only have undertaken transhipment
with the shipper's permission, as evidenced by the
signature of James Cu.
Another ground for the refusal of acceptance of the
cargo of anahaw fans by Choju Co., Ltd. was that the bill
of lading that was issued was not an on board bill of
lading, in clear violation of the terms of the letter of
credit issued in favor of petitioner. On cross-examination,
it was likewise established that petitioner, through its
aforesaid president, was aware of this fact, thus:
Q If the container van, the loaded container van,
was transported back to South Harbor on June
27, 1980, would you tell us, Mr. Cu, when the
Bill of Lading was received by you?
A I received on June 30, 1980. I received at the
same time so then I gave the check.
x x x           x x x          x x x
Q So that in exchange of the Bill of Lading you
issued your check also dated June 30, 1980?
A Yes, sir.
Q And June 27, 1980 was the date of the Bill of
Lading, did you notice that the Bill of Lading
states: 'Received for shipment'only? .
A Yes, sir.
Q What did you say?
A I requested to issue me on board bill of lading.
Q When?
A In the same date of June 30.
Q What did they say?
A They said, they cannot.
x x x           x x x          x x x
13
Q Do you know the difference between a
"received for shipment bill of lading" and "on
board bill of lading"?
A Yes, sir.
Q What's the difference?
A Received for shipment, you can receive the
cargo even you don't ship on board, that is
placed in the warehouse; while on-board bill of
lading means that is loaded on the vessel, the
goods.
x x x           x x x          x x x
Q In other words, it was not yet on board the
vessel?
A During that time, not yet.
x x x           x x x          x x x
Q Do you know, Mr. Cu, that under the law, if
your shipment is received on board a vessel you
can demand an on-board bill of lading not only a
received for shipment bill of lading.?
A Yes sir.
Q And did you demand from F.E. Zuellig the
substitution of that received for shipment bill of
lading with an on-board bill of lading?
A Of course, instead they issue me a
certification.
Q They give you a ... ?
A ... a certification that it was loaded on board
on June 30.
x x x           x x x          x x x
Q Mr. Cu, are you aware of the conditions of the
Letter of Credit to the effect that there should
be no transhipment and that it should also get
an on board bill of lading.?
A Yes sir.27
Undoubtedly, at the outset, petitioner knew that its
buyer, Choju Co., Ltd., particularly required that there be
an on board bill of lading, obviously due to the guaranty
afforded by such a bill of lading over any other kind of bill
of lading. The buyer could not have insisted on such a
stipulation on a pure whim or caprice, but rather because
of its reliance on the safeguards to the cargo that having
an on board bill of lading ensured. Herein petitioner
cannot feign ignorance of the distinction between an "on
board" and a "received for shipment" bill of lading, as
manifested by James Cu's testimony. It is only to be
expected that those long engaged in the export industry
should be familiar with business usages and customs.
In its petition, MMMC avers that "when petitioner
teamed of what happened, it saw private respondent F.E.
Zuellig which, in turn, issued a certification that as of
June 30, 1980, the Anahaw fans were already on board
MV Pacific Despatcher (which means that the bill of
lading is an on- board-bill of lading or 'shipped' bill of
lading as distinguished from a 'received for shipment'bill
of lading as governed by Sec. 3, par. 7, Carriage of Goods
by Sea Act) ...."28 What the petitioner would suggest is
that said certification issued by F.E. Zuellig, Inc., dated
July 19, 1980, had the effect of converting the original
"received for shipment only" bill of lading into an "on
board" bill of lading as required by the buyer and was,
therefore, by substantial compliance, not violative of the
contract.
An on board bill of lading is one in which it is stated that
the goods have been received on board the vessel which
is to carry the goods, whereas a received for shipment
bill of lading is one in which it is stated that the goods
have been received for shipment with or without
specifying the vessel by which the goods are to be
shipped. Received for shipment bills of lading are issued
whenever conditions are not normal and there is
insufficiency of shipping space.29 An on board bill of
lading is issued when the goods have been actually
placed aboard the ship with every reasonable
expectation that the shipment is as good as on its
way.30 It is, therefore, understandable that a party to a
maritime contract would require an on board bill of
lading because of its apparent guaranty of certainty of
shipping as well as the seaworthiness of the vessel which
is to carry the goods.
It cannot plausibly be said that the aforestated
certification of F.E. Zuellig, Inc. can qualify the bill of
lading, as originally issued, into an on board bill of lading
as required by the terms of the letter of credit issued in
14
favor of petitioner. For one, the certification was issued
only on July 19, 1980, way beyond the expiry date of
June 30, 1980 specified in the letter of credit for the
presentation of an on board bill of lading. Thus, even
assuming that by a liberal treatment of the certification it
could have the effect of converting the received for
shipment bill of lading into an on board of bill of lading,
as petitioner would have us believe, such an effect may
be achieved only as of the date of its issuance, that is, on
July 19, 1980 and onwards.
The fact remains, though, that on the crucial date of June
30, 1980 no on board bill of lading was presented by
petitioner in compliance with the terms of the letter of
credit and this default consequently negates its
entitlement to the proceeds thereof. Said certification, if
allowed to operate retroactively, would render illusory
the guaranty afforded by an on board bill of lading, that
is, reasonable certainty of shipping the loaded cargo
aboard the vessel specified, not to mention that it would
indubitably be stretching the concept of substantial
compliance too far.
Neither can petitioner escape liability by adverting to the
bill of lading as a contract of adhesion, thus warranting a
more liberal consideration in its favor to the extent of
interpreting ambiguities against private respondents as
allegedly being the parties who gave rise thereto. The bill
of lading is clear on its face. There is no occasion to speak
of ambiguities or obscurities whatsoever. All of its terms
and conditions are plainly worded and commonly
understood by those in the business.
It will be recalled that petitioner entered into the
contract with Choju Co., Ltd. way back on May 20,1980
or over a month before the expiry date of the letter of
credit on June 30, 1980, thus giving it more than ample
time to find a carrier that could comply with the
requirements of shipment under the letter of credit. It is
conceded that bills of lading constitute a class of
contracts of adhesion. However, as ruled in the earlier
case of Ong Yiu vs. Court of Appeals, et al. 31 and
reiterated in Servando, et al. vs. Philippine Steam
Navigation Co.,32 plane tickets as well as bills of lading are
contracts not entirely prohibited. The one who adheres
to the contract is in reality free to reject it entirely; if he
adheres, he gives his consent. The respondent court
correctly observed in the present case that "when the
appellant received the bill of lading, it was tantamount to
appellant's adherence to the terms and conditions as
embodied therein.33
In sum, petitioner had full knowledge that the bill issued
to it contained terms and conditions clearly violative of
the requirements of the letter of credit. Nonetheless,
perhaps in its eagerness to conclude the transaction with
its Japanese buyer and in a race to beat the expiry date
of the letter of credit, petitioner took the risk of
accepting the bill of lading even if it did not conform with
the indicated specifications, possibly entertaining a
glimmer of hope and imbued with a touch of daring that
such violations may be overlooked, if not disregarded, so
long as the cargo is delivered on time. Unfortunately, the
risk did not pull through as hoped for. Any violation of
the terms and conditions of the letter of credit as would
defeat its right to collect the proceeds thereof was,
therefore, entirely of the petitioner's making for which it
must bear the consequences. As finally averred by
private respondents, and with which we agree, "... the
questions of whether or not there was a violation of the
terms and conditions of the letter of credit, or whether
or not such violation was the cause or motive for the
rejection by petitioner's Japanese buyer should not affect
private respondents therein since they were not privies
to the terms and conditions of petitioner's letter of credit
and cannot therefore be held liable for any violation
thereof by any of the parties thereto."34
II. Petitioner contends that respondent court erred in
holding it liable to private respondents for P52,102.45
despite its exercise of its option to abandon the cargo. It
will be recalled that the trial court originally found
petitioner liable for P298,150.93, which amount consists
of P51,271.02 for freight, demurrage and other charges
during the time that the goods were in Japan and for its
reshipment to Manila, P831.43 for charges paid to the
Manila International Port Terminal, and P246,043.43 for
demurrage in Manila from October 22, 1980 to June 18,
1981. On appeal, the Court of Appeals limited
petitioner's liability to P52,102.45 when it ruled:
As regards the amount of P51,271.02, which
represents the freight charges for the return
shipment to Manila and the demurrage charges
in Japan, the same is supported by appellant's
own letter request (Exh. 2) for the return of the
shipment to Manila at its (appellant's) expense,
and hence, it should be held liable therefor. The
amount of P831.43 was paid to the Manila
International Port Terminal upon arrival of the
shipment in Manila for appellant's account. It
should properly be charged to said appellant.35
15
However, respondent court modified the trial court's
decision by excluding the award for P246,043.43 for
demurrage in Manila from October 22, 1980 to June 18,
1981.
Demurrage, in its strict sense, is the compensation
provided for in the contract of affreightment for the
detention of the vessel beyond the time agreed on for
loading and unloading. Essentially, demurrage is the
claim for damages for failure to accept delivery. In a
broad sense, every improper detention of a vessel may
be considered a demurrage. Liability for demurrage,
using the word in its strictly technical sense, exists only
when expressly stipulated in the contract. Using the term
in its broader sense, damages in the nature of demurrage
are recoverable for a breach of the implied obligation to
load or unload the cargo with reasonable dispatch, but
only by the party to whom the duty is owed and only
against one who is a party to the shipping
contract.36 Notice of arrival of vessels or conveyances, or
of their placement for purposes of unloading is often a
condition precedent to the right to collect demurrage
charges.
Private respondents, admittedly, have adopted the
common practice of requiring prior notice of arrival of
the goods shipped before the shipper can be held liable
for demurrage, as declared by Wilfredo Hans, head of the
accounting department of F.E. Zuellig, Inc., on cross-
examination as a witness for private respondents:
Q ... you will agree with me that before one
could be charged with demurrage the shipper
should be notified of the arrival of the
shipment?
A Yes sir.
Q Without such notification, there is no way by
which the shipper would know (of) such arrival?
A Yes.
Q And no charges of demurrage before the
arrival of the cargo?
A Yes sir.37
Accordingly, on this score, respondent court ruled:
 However, insofar as the demurrage charges of
P246,043.43 from October up to May 1980,
arriv(al) in Manila, are concerned, We are of the
view that appellant should not be made to
shoulder the same, as it was not at fault nor was
it responsible for said demurrage charges.
Appellee's own witness (Mabazza) testified that
while the goods arrived in Manila in October
1980, appellant was notified of said arrival only
in March 1981. No explanation was given for the
delay in notifying appellant. We agree with
appellant that before it could be charged for
demurrage charges it should have been notified
of the arrival of the goods first.1âwphi1 Without
such notification it could not- be so charged
because there was no way by which it would
know that the goods had already arrived for it to
take custody of them. Considering that it was
only in March 1981 (Exh. K) that appellant was
notified of the arrival of the goods, although the
goods had actually arrived in October 1980 (tsn,
Aug. 14, 1986, pp. 10-14), appellant cannot be
charged for demurrage from October 1980 to
March 1981. ...38
While being satisfied with the exclusion of demurrage
charges in Manila for the period from October 22,1980 to
June 18,1981, petitioner nevertheless assails the Court of
Appeals' award of P52,102.43 in favor of private
respondents, consisting of P51,271.01 as freight and
demurrage charges in Japan and P831.43 for charges
paid at the Manila International Port Termninal.
Petitioner asserts that by virtue of the exercise of its
option to abandon the goods so as to allow private
respondents to sell the same at a public auction and to
apply the proceeds thereof as payment for the shipping
and demurrage charges, it was released from liability for
the sum of P52,102.43 since such amount represents the
shipping and demurrage charges from which it is
considered to have been released due to the
abandonment of goods. It further argues that the
shipping and demurrage charges from which it was
released by the exercise of the option to abandon the
goods in favor of private respondents could not have
referred to the demurrage charges in Manila because
respondent court ruled that the same were not
chargeable to petitioner. Private respondents would
rebut this contention by saying in their memorandum
that the abandonment of goods by petitioner was too
late and made in bad faith.39
16
On this point, we agree with petitioner. Ordinarily, the
shipper is liable for freightage due to the fact that the
shipment was made for its benefit or under its direction
and, correspondingly, the carrier is entitled to collect
charges for its shipping services. This is particularly true
in this case where the reshipment of the goods was
made at the instance of petitioner in its letter of August
29, 1980.40
However, in a letter dated March 20, 1981,41 private
respondents belatedly informed petitioner of the arrival
of its goods from Japan and that if it wished to take
delivery of the cargo it would have to pay P51,271.02,
but with the last paragraph thereof stating as follows:
Please can you advise within 15 days of receipt
of this letter whether you intend to take delivery
of this shipment, as alternatively we will have to
take legal proceedings in order to have the
cargo auctioned to recover the costs involved,
as well as free the container which are (sic)
urgently required for export cargoes.
Clearly, therefore, private respondents unequivocally
offered petitioner the option of paying the shipping and
demurrage charges in order to take delivery of the goods
or of abandoning the same so that private respondents
could sell them at public auction and thereafter apply the
proceeds in payment of the shipping and other charges.
Responding thereto, in a letter dated April 3, 1981,
petitioner seasonably communicated its decision to
abandon to the goods in favor of private respondents
with the specific instruction that any excess of the
proceeds over the legal costs and charges be turned over
to petitioner. Receipt of said letter was acknowledged by
private respondents, as revealed by the testimony of
Edwin Mabazza, a claim officer of F.E. Zuellig, Inc., on
cross-examination.42
Despite petitioner's exercise of the option to abandon
the cargo, however, private respondents sent a demand
letter on June 22, 198143 insisting that petitioner should
pay the entire amount of P298,150.93 and, in another
letter dated Apiril 30, 1981,44 they stated that they win
not accept the abandonment of the goods and
demanded that the outstanding account be settled. The
testimony of said Edwin Mabazza definitely admits and
bears this out.45
Now, there is no dispute that private respondents
expressly and on their own volition granted petitioner an
option with respect to the satisfaction of freightage and
demurrage charges. Having given such option, especially
since it was accepted by petitioner, private respondents
are estopped from reneging thereon. Petitioner, on its
part, was well within its right to exercise said option.
Private respondents, in giving the option, and petitioner,
in exercising that option, are concluded by their
respective actions. To allow either of them to unilaterally
back out on the offer and on the exercise of the option
would be to countenance abuse of rights as an order of
the day, doing violence to the long entrenched principle
of mutuality of contracts.
It will be remembered that in overland transportation, an
unreasonable delay in the delivery of transported goods
is sufficient ground for the abandonment of goods. By
analogy, this can also apply to maritime transportation.
Further, with much more reason can petitioner in the
instant case properly abandon the goods, not only
because of the unreasonable delay in its delivery but
because of the option which was categorically granted to
and exercised by it as a means of settling its liability for
the cost and expenses of reshipment. And, said choice
having been duly communicated, the same is binding
upon the parties on legal and equitable considerations of
estoppel.
WHEREFORE, the judgment of respondent Court of
Appeals is AFFIRMED with the MODIFICATION that
petitioner is likewise absolved of any hability and the
award of P52,102.45 with legal interest granted by
respondent court on private respondents' counterclaim is
SET ASIDE, said counterclaim being hereby DISMISSED,
without pronouncement as to costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 94761 May 17, 1993
MAERSK LINE, petitioner,
vs.
COURT OF APPEALS AND EFREN V. CASTILLO, doing
business under the name and style of Ethegal
Laboratories, respondents.
17
BIDIN, J.:
Petitioner Maersk Line is engaged in the transportation
of goods by sea, doing business in the Philippines
through its general agent Compania General de Tabacos
de Filipinas.
Private respondent Efren Castillo, on the other hand, is
the proprietor of Ethegal Laboratories, a firm engaged in
the manutacture of pharmaceutical products.
On November 12, 1976, private respondent ordered
from Eli Lilly. Inc. of Puerto Rico through its (Eli Lilly,
Inc.'s) agent in the Philippines, Elanco Products, 600,000
empty gelatin capsules for the manufacture of his
pharmaceutical products. The capsules were placed in six
(6) drums of 100,000 capsules each valued at US
$1,668.71.
Through a Memorandum of Shipment (Exh. "B"; AC GR
CV No.10340, Folder of Exhibits, pp. 5-6), the shipper Eli
Lilly, Inc. of Puerto Rico advised private respondent as
consignee that the 600,000 empty gelatin capsules in six
(6) drums of 100,000 capsules each, were already
shipped on board MV "Anders Maerskline" under Voyage
No. 7703 for shipment to the Philippines via Oakland,
California. In said Memorandum, shipper Eli Lilly, Inc.
specified the date of arrival to be April 3, 1977.
For reasons unknown, said cargo of capsules were
mishipped and diverted to Richmond, Virginia, USA and
then transported back Oakland, Califorilia. The goods
finally arrived in the Philippines on June 10, 1977 or after
two (2) months from the date specified in the
memorandum. As a consequence, private respondent as
consignee refused to take delivery of the goods on
account of its failure to arrive on time.
Private respondent alleging gross negligence and undue
delay in the delivery of the goods, filed an action before
the court a quo for rescission of contract with damages
against petitioner and Eli Lilly, Inc. as defendants.
Denying that it committed breach of contract, petitioner
alleged in its that answer that the subject shipment was
transported in accordance with the provisions of the
covering bill of lading and that its liability under the law
on transportation of good attaches only in case of loss,
destruction or deterioration of the goods as provided for
in Article 1734 of Civil Code (Rollo, p. 16).
Defendant Eli Lilly, Inc., on the other hand, filed its (a) Defendant to pay the plaintiff Efren
answer with compulsory and cross-claim. In its cross- V. Castillo the amount of THREE
claim, it alleged that the delay in the arrival of the the HUNDRED SIXTY NINE THOUSAND
subject merchandise was due solely to the gross PESOS, (P369,000.00) as unrealized
negligence of petitioner Maersk Line. profit;.

The issues having been joined, private respondent moved (b) Defendant to pay plaintiff the sum
for the dismissal of the complaint against Eli Lilly, Inc.on of TWO HUNDRED THOUSAND PESOS
the ground that the evidence on record shows that the (P200,000.00), as moral damages;
delay in the delivery of the shipment was attributable
solely to petitioner. (c) Defendant to pay plaintiff the sum
of TEN THOUSAND PESOS (P10,000.00)
Acting on private respondent's motion, the trial court as exemplary damages;
dismissed the complaint against Eli Lilly, Inc.
Correspondingly, the latter withdraw its cross-claim (d) Defendant to pay plaintiff the sum
against petitioner in a joint motion dated December 3, of ELEVEN THOUSAND SIX HUNDRED
1979. EIGHTY PESOS AND NINETY SEVEN
CENTAVOS (P11,680.97) as cost of
After trial held between respondent and petitioner, the credit line; and
court a quo rendered judgment dated January 8, 1982 in
favor of respondent Castillo, the dispositive portion of (e) Defendant to pay plaintiff the sum
which reads: of FIFTY THOUSAND PESOS
(P50,000.00), as attorney's fees and to
IN VIEW OF THE FOREGOING, this Court pay the costs of suit.
believe (sic) and so hold (sic) that there
was a breach in the performance of That the above sums due to the
their obligation by the defendant plaintiff will bear the legal rate of
Maersk Line consisting of their interest until they are fully paid from
negligence to ship the 6 drums of the time the case was filed.
empty Gelatin Capsules which under
their own memorandum shipment SO ORDERED. (AC-GR CV No.
would arrive in the Philippines on April 10340, Rollo, p. 15).
3, 1977 which under Art. 1170 of the
New Civil Code, they stood liable for
On appeal, respondent court rendered its decision dated
damages.
August 1, 1990 affirming with modifications the lower
court's decision as follows:
Considering that the only evidence
presented by the defendant Maersk
WHEREFORE, the decision appealed
line thru its agent the Compania de
from is affirmed with a modification,
Tabacos de Filipinas is the testimony of
and, as modified, the judgment in this
Rolando Ramirez who testified on Exhs.
case should read as follows:
"1" to "5" which this Court believe (sic)
did not change the findings of this
Judgment is hereby rendered ordering
Court in its decision rendered on
defendant-appellant Maersk Line to
September 4, 1980, this Court hereby
pay plaintiff-appellee (1) compensatory
renders judgment in favor of the
damages of P11,680.97 at 6% annual
plaintiff Efren Castillo as against the
interest from filing of the complaint
defendant Maersk Line thru its agent,
until fully paid, (2) moral damages of
the COMPANIA GENERAL DE TABACOS
P50,000.00, (3) exemplary damages of
DE FILIPINAS and ordering:
P20,000,00, (3) attorney's fees, per
appearance fees, and litigation

18
 expenses of P30,000.00, (4) 30% of the
total damages awarded except item (3)
above, and the costs of suit.
SO ORDERED. (Rollo, p. 50)
In its Memorandum, petitioner submits the following
"issues" for resolution of the court :
I "Memorandum of Shipment" but the
Whether or not the respondent Court
of Appeals committed an error when it
ruled that a defendant's cross-claim
against a co-defendant survives or
subsists even after the dismissal of the
complaint against defendant-cross
claimant.
II
Whether or not respondent Castillo is
entitled to damages resulting from
delay in the delivery of the shipment in
the absence in the bill of lading of a
stipulation on the period of delivery.
III
Whether or not the respondent
appellate court erred in awarding
actual, moral and exemplary damages
and attorney's fees despite the absence
of factual findings and/or legal bases in
the text of the decision as support for
such awards.
IV
Whether or not the respondent Court
of Appeals committed an error when it
rendered an ambiguous and
unexplained award in the dispositive
portion of the decision which is not
supported by the body or the text of
the decision. (Rollo, pp.94-95).
With regard to the first issue raised by petitioner on
whether or not a defendant's cross-claim against co-
defendant (petitioner herein) survives or subsists even
after the dismissal of the complaint against defendant-
19
cross-claimant (petitioner herein), we rule in the
negative.
Apparently this issue was raised by reason of the
declaration made by respondent court in its questioned
decision, as follows:
Re the first assigned error: What should
be rescinded in this case is not the
contract between appellee and
defendant Eli Lilly (embodied in three
documents, namely: Exhs. A, A-1 and A-
2) whereby the former agreed to buy
and the latter to sell those six drums of
gelatin capsules. It is by virtue of the
cross-claim by appellant Eli Lilly against
defendant Maersk Line for the latter's
gross negligence in diverting the
shipment thus causing the delay and
damage to appellee that the trial court
found appellant Maersk Line liable. . . .
xxx xxx xxx
Re the fourth assigned error: Appellant
Maersk Line's insistence that appellee
has no cause of action against it and
appellant Eli Lilly because the shipment
was delivered in good order and
condition, and the bill of lading in
question contains "stipulations,
exceptions and conditions" Maersk
Line's liability only to the "loss,
destruction or deterioration," indeed,
this issue of lack of cause of action has
already been considered in our
foregoing discussion on the second
assigned error, and our resolution here
is still that appellee has a cause of
action against appellant Eli Lilly. Since
the latter had filed a cross-claim
against appellant Maersk Line, the trial
court committed no error, therefore, in
holding the latter appellant ultimately
liable to appellee. (Rollo, pp. 47-50;
Emphasis supplied)
Reacting to the foregoing declaration, petitioner submits
that its liability is predicated on the cross-claim filed its
co-defendant Eli Lilly, Inc. which cross-claim has been
dismissed, the original complaint against it should
likewise be dismissed. We disagree. It should be recalled
that the complaint was filed originally against Eli Lilly, Inc.
as shipper-supplier and petitioner as carrier. Petitioner
being an original party defendant upon whom the
delayed shipment is imputed cannot claim that the
dismissal of the complaint against Eli Lilly, Inc. inured to
its benefit.
Respondent court, erred in declaring that the trial court
based petitioner's liability on the cross-claim of Eli Lilly,
Inc. As borne out by the record, the trial court anchored
its decision on petitioner's delay or negligence to deliver
the six (6) drums of gelatin capsules within a reasonable
time on the basis of which petitioner was held liable for
damages under Article 1170 of the New Civil Code which
provides that those who in the performance of their
obligations are guilty of fraud, negligence, or delay and
those who in any manner contravene the tenor thereof,
are liable for damages.
Nonetheless, petitioner maintains that it cannot be held
for damages for the alleged delay in the delivery of the
600,000 empty gelatin capsules since it acted in good
faith and there was no special contract under which the
carrier undertook to deliver the shipment on or before a
specific date (Rollo, p. 103).
On the other hand, private respondent claims that during
the period before the specified date of arrival of the
goods, he had made several commitments and contract
of adhesion. Therefore, petitioner can be held liable for
the damages suffered by private respondent for the
cancellation of the contracts he entered into.
We have carefully reviewed the decisions of respondent
court and the trial court and both of them show that, in
finding petitioner liable for damages for the delay in the
delivery of goods, reliance was made on the rule that
contracts of adhesion are void. Added to this, the lower
court stated that the exemption against liability for delay
is against public policy and is thus, void. Besides, private
respondent's action is anchored on Article 1170 of the
New Civil Code and not under the law on Admiralty (AC-
GR CV No. 10340, Rollo, p. 14).
The bill of lading covering the subject shipment among
others, reads:
6. GENERAL
(1) The Carrier does not undertake that
the goods shall arive at the port of
20
discharge or the place of delivery at any
particular time or to meet any
particular market or use and save as is
provided in clause 4 the Carrier shall in
no circumstances be liable for any
direct, indirect or consequential loss or
damage caused by delay. If the Carrier
should nevertheless be held legally
liable for any such direct or indirect or
consequential loss or damage caused
by delay, such liability shall in no event
exceed the freight paid for the
transport covered by this Bill of Lading.
(Exh. "1-A"; AC-G.R. CV No. 10340,
Folder of Exhibits, p. 41)
It is not disputed that the aforequoted provision at the
back of the bill of lading, in fine print, is a contract of
adhesion. Generally, contracts of adhesion are
considered void since almost all the provisions of these
types of contracts are prepared and drafted only by one
party, usually the carrier (Sweet Lines v. Teves, 83 SCRA
361 [1978]). The only participation left of the other party
in such a contract is the affixing of his signature thereto,
hence the term "Adhesion" (BPI Credit Corporation v.
Court of Appeals, 204 SCRA 601 [1991]; Angeles v.
Calasanz, 135 SCRA 323 [1985]).
Nonetheless, settled is the rule that bills of lading are
contracts not entirely prohibited (Ong Yiu v. Court of
Appeals, et al., 91 SCRA 223 [1979]; Servando, et al. v.
Philippine Steam Navigation Co., 117 SCRA 832 [1982]).
One who adheres to the contract is in reality free to
reject it in its entirety; if he adheres, he gives his consent
(Magellan Manufacturing Marketing Corporation v. Court
of Appeals, et al., 201 SCRA 102 [1991]).
In Magellan, (supra), we ruled:
It is a long standing jurisprudential rule
that a bill of lading operates both as a
receipt and as contract to transport
and deliver the same a therein
stipulated. As a contract, it names the
parties, which includes the consignee,
fixes the route, destination, and freight
rates or charges, and stipulates the
rights and obligations assumed by the
parties. Being a contract, it is the law
between the parties who are bound by
its terms and conditions provided that
these are not contrary to law, morals,
 good customs, public order and public
policy. A bill of lading usually becomes
effective upon its delivery to and
acceptance by the shipper. It is
presumed that the stipulations of the
bill were, in the absence of fraud,
concealment or improper conduct,
known to the shipper, and he is
generally bound by his acceptance
whether he reads the bill or not.
(Emphasis supplied)
However, the aforequoted ruling applies only if such
contracts will not create an absurd situation as in the
case at bar. The questioned provision in the subject bill of
lading has the effect of practically leaving the date of
arrival of the subject shipment on the sole determination
and will of the carrier.
While it is true that common carriers are not obligated by
law to carry and to deliver merchandise, and persons are
not vested with the right to prompt delivery, unless such
common carriers previously assume the obligation to
deliver at a given date or time (Mendoza v. Philippine Air
Lines, Inc., 90 Phil. 836 [1952]), delivery of shipment or
cargo should at least be made within a reasonable time.
In Saludo, Jr. v. Court of Appeals (207 SCRA 498 [1992])
this Court held:
The oft-repeated rule regarding a
carrier's liability for delay is that in the
absence of a special contract, a carrier
is not an insurer against delay in
transportation of goods. When a
common carrier undertakes to convey
goods, the law implies a contract that
they shall be delivered at destination
within a reasonable time, in the
absence, of any agreement as to the
time of delivery. But where a carrier has
made an express contract to transport
and deliver properly within a specified
time, it is bound to fulfill its contract
and is liable for any delay, no matter
from what cause it may have arisen.
This result logically follows from the
well-settled rule that where the law
creates a duty or charge, and the
default in himself, and has no remedy
over, then his own contract creates a
duty or charge upon himself, he is
21
bound to make it good notwithstanding
any accident or delay by inevitable
necessity because he might have
provided against it by contract.
Whether or not there has been such an
undertaking on the part of the carrier is
to be determined from the
circumstances surrounding the case
and by application of the ordinary rules
for the interpretation of contracts.
An examination of the subject bill of lading (Exh. "1"; AC
GR CV No. 10340, Folder of Exhibits, p. 41) shows that
the subject shipment was estimated to arrive in Manila
on April 3, 1977. While there was no special contract
entered into by the parties indicating the date of arrival
of the subject shipment, petitioner nevertheless, was
very well aware of the specific date when the goods were
expected to arrive as indicated in the bill of lading itself.
In this regard, there arises no need to execute another
contract for the purpose as it would be a mere
superfluity.
In the case before us, we find that a delay in the delivery
of the goods spanning a period of two (2) months and
seven (7) days falls was beyond the realm of
reasonableness. Described as gelatin capsules for use in
pharmaceutical products, subject shipment was
delivered to, and left in, the possession and custody of
petitioner-carrier for transport to Manila via Oakland,
California. But through petitioner's negligence was
mishipped to Richmond, Virginia. Petitioner's insitence
that it cannot be held liable for the delay finds no merit.
Petition maintains that the award of actual, moral and
exemplary dames and attorney's fees are not valid since
there are no factual findings or legal bases stated in the
text of the trial court's decision to support the award
thereof.
Indeed, it is settled that actual and compensataory
damages requires substantial proof (Capco v. Macasaet.
189 SCRA 561 [1990]). In the case at bar, private
respondent was able to sufficiently prove through an
invoice (Exh. 'A-1'), certification from the issuer of the
letter of credit (Exh.'A-2') and the Memorandum of
Shipment (Exh. "B"), the amount he paid as costs of the
credit line for the subject goods. Therefore, respondent
court acted correctly in affirming the award of eleven
thousand six hundred eighty pesos and ninety seven
centavos (P11,680.97) as costs of said credit line.
As to the propriety of the award of moral damages,
Article 2220 of the Civil Code provides that moral
damages may be awarded in "breaches of contract
where the defendant acted fraudulently or in bad faith"
(Pan American World Airways v. Intermediate Appellate
Court, 186 SCRA 687 [1990]).
In the case before us, we that the only evidence
presented by petitioner was the testimony of Mr.
Rolando Ramirez, a claims manager of its agent
Compania General de Tabacos de Filipinas, who merely
testified on Exhs. '1' to '5' (AC-GR CV No. 10340, p. 2) and
nothing else. Petitioner never even bothered to explain
the course for the delay, i.e. more than two (2) months,
in the delivery of subject shipment. Under the
circumstances of the case, we hold that petitioner is
liable for breach of contract of carriage through gross
negligence amounting to bad faith. Thus, the award of
moral damages if therefore proper in this case.
[G.R. No. 73490. June 18, 1987.]
UNITED STATES LINES, INC., Petitioner, v.
COMMISSIONER OF CUSTOMS, Respondent.
DECISION
PARAS, J.:
This is a petition for review of the decision of the Court of
Tax Appeals dated September 27, 1985, which affirmed
the decision of respondent Commissioner of Customs
dated April 5, 1984, imposing an administrative fine of
P10,000.00 against petitioner’s vessel, MV "American
Venture," for violation of Sec. 1005 of the Tariff and
Customs Code as amended, in relation to Sec. 2521 of
the same Code.chanrobles.com:cralaw:red

In line with this pronouncement, we hold that exemplary On October 15, 1976, the vessel "American Venture"
damages may be awarded to the private respondent. In arrived in Manila from Hongkong. Among the shipments
contracts, exemplary damages may be awarded if the on board were cargoes consigned by the same shipper
defendant acted in a wanton, fraudulent, reckless, and from the same loading port consisting of two (2)
oppresive or malevolent manner. There was gross containers which were described in the respective bills of
negligence on the part of the petitioner in mishiping the lading (B/L No. 38 and B/L No. 39) as
subject goods destined for Manila but was inexplicably follows:jgc:chanrobles.com.ph
shipped to Richmond, Virginia, U.S.A. Gross carelessness
or negligence contitutes wanton misconduct, hence, "Shipper’s Load and Count"
exemplary damages may be awarded to the aggrieved
party (Radio Communication of the Phils., Inc. v. Court of 1 Container (Part) Cont. # 2020984
Appeals, 195 SCRA 147 [1991]).
Seal # 601-04725
Although attorney's fees are generally not recoverable, a
party can be held lible for such if exemplary damages are 38 cases 100% Cotton brushed denim
awarded (Artice 2208, New Civil Code). In the case at bar,
we hold that private respondent is entitled to reasonable broken twill"
attorney`s fees since petitioner acte with gross
negligence amounting to bad faith. 1 Container Cont. # 2101730

Seal # 601-04707
However, we find item 4 in the dispositive portion of
respondent court`s decision which awarded thirty (30)
40 Cases 100% Cotton Sulphur Dyed denim
percent of the total damages awarded except item 3
regarding attorney`s fees and litigation expenses in favor
Total: One Container Only
of private respondent, to be unconsionable, the same
should be deleted.
"Shipper’s Load and Count"
WHEREFORE, with the modification regarding the The aforestated information as furnished by the Shipper,
deletion of item 4 of respondent court`s decision, the was copied or entered into the vessel’s Inward Foreign
appealed decision is is hereby AFFIRMED in all respects. Manifest. Upon opening of the containers by the Bureau
of Customs, it was discovered that a) Container No.
SO ORDERED. USLU-2020984 contained 34 cases of cotton denim

22
instead of 38 cases and b) Container No. USLU - 2101730
contained 44 cases of cotton denim instead of 40 cases.
The total number of cases in the two containers was the
same, however, to wit, 78 cases. Having been informed
of the differences herein petitioner had the Manifest
amended with the consent of the customs authorities on
November 3, 1976 to reflect the actual quantity of the
cases in each of the containers. Subsequently, the
Collector of Customs instituted proceedings against
herein petitioner for alleged violation of Sec. 1005 in
relation to Sec. 2521 of the Tariff and Customs Code. Not
finding the explanation of the herein petitioner
satisfactory, the Collector of Customs found petitioner
guilty of violating said provisions of the Tariff and
Customs Code and ordered it to pay a fine of P10,000.00.
Appeal was made by the petitioner to the Commissioner
of Customs, who affirmed the said decision in toto. Upon
a petition to review the decision of the Commissioner of
Customs, the Court of Tax Appeals (CTA) affirmed the
assailed decision.chanrobles law library
In its petition for review before the Court of Tax Appeals,
petitioner assails the Commissioner of Customs, in
disregarding Customs Administrative Order (CAO) No. 8-
75 particularly in not applying Sec. II-24 thereof and in
not treating each container as the unit of cargo. Acting
on these issues, the Court of Tax Appeals ruled that
Customs Administrative Order No. 8-75 is irrelevant and
contrary to Sec. 1005 of the Tariff and Customs Code, We
quote the tax tribunal:jgc:chanrobles.com.ph
"Customs Administrative Order (CAO) No. 8-75 simply
defines the term "Shipper’s Load and Count" without any
further provisions or explicit explanation as to the scope
of its applicability. While the concept may be relevant in
determining responsibility in case of injury or damage to
the cargo arising from loading, handling or movement of
the cargo, the same cannot positively, or even impliedly,
be viewed as an exception to the provisions of Sections
1005 and 2521 of the Tariff and Customs Code imposing
a mandatory duty on vessels from foreign ports to have
on board true and accurate manifests of their cargoes.
Besides, Customs Administrative Order No. 8-75 is
merely an administrative order and the same cannot
certainly modify or amend a law or statute like the Tariff
and Customs Code, and defeat the purpose of its
enactment." (p. 39, Rollo).
Petitioner now seeks before Us the determination of the
following issues:chanrob1es virtual 1aw library
1. Whether or not CAO No. 8-75 is irrelevant and
contrary to Sec. 1005 of the Tariff and Customs Code.
23
2. Whether or not a carrier of containerized cargo should
be held liable for a fine under Sec. 2521 in relation to
Sec. 1005 of the Tariff and Customs Code upon a clerical
error imputable to the Shipper alone, and not
discoverable by the carrier until after examination by
Customs of the importation.
3. Whether or not appellant had violated Sec. 1005 of the
Tariff and Customs Code notwithstanding that the total
content of the two-container shipment in question (78
bales) is exactly the same quantity (78 bales) of the
merchandise described in the bills of lading and the
Inward Foreign Manifest.
Sec. II-24 of Customs Administrative Order No. 8-75
reads as follows:jgc:chanrobles.com.ph
"Shipper’s ‘Load and Count’ — a container packed with
cargo by one shipper where the quantity, description and
conditions of the cargo is the sole responsibility of the
shipper." (Emphasis for emphasis);
and quoted hereunder are the relevant provisions of the
Tariff and Customs Code:jgc:chanrobles.com.ph
"SEC. 1005. Every vessel from a foreign port must have
on board a complete manifest of all her cargo.
x          x          x
"Each manifest shall include the port of departure and
the port of delivery with the marks, numbers, quantity
and description of the packages and the names of the
consignee thereof.
x          x          x
"A cargo manifest shall in no case be changed or altered
after entry of the vessel except by means of an
amendment by the master, consignee or agent thereof,
under oath, and attached to the original manifest:
Provided, however, that after the invoice and/or entry
covering an importation have been received and
recorded in the office of the Appraiser, no amendment of
the Manifest shall be allowed except when it is obvious
that a clerical error or any other discrepancy has been
committed in the preparation of the manifest without
any fraudulent intent, discovery of which could not have
been made until after examination of the importation
has been completed." (Emphasis supplied).

"SEC. 2521. Failure to Supply Requisite Manifests. — If
any vessel or aircraft enters or departs from a port of
entry without submitting the proper manifests to the
customs authorities, or shall enter or depart conveying
unmanifested cargo other than as stated in the next
preceding section hereof, such vessel or aircraft shall be
fined in a sum not less than ten thousand pesos
(P10,000.00) but not exceeding thirty thousand
(P30,000.00) pesos.
"The same fine shall be imposed upon any arriving or
departing vessel or aircraft if the master or pilot in
command shall fail to deliver or mail to the Commission
on Audit a true copy of the manifest of the incoming or
outgoing cargo, as required by law."cralaw virtua1aw
library
It is petitioner’s contention that Sec. 24 of Customs
Administrative Order No. 8-75 was promulgated in line
with the government policy of encouraging
containerization which results in the laudable
decongestion of ports of entry. Such arrangement has
been sanctioned worldwide by international ports to
cope up with the ever-increasing volume of cargoes of
the shipping industry. Hence, the containerization system
was devised to facilitate the expeditious and economical
loading, carriage and unloading of cargoes. Under this
system, the shipper loads his cargoes in a specially
designed container, seals the container and delivers it to
the carrier for transportation. The carrier does not
participate in the counting of the merchandise for
loading into the container, the actual loading thereof nor
the sealing of the container. Having no actual knowledge
of the kind, quantity or condition of the contents of the
container, the carrier issues the corresponding bill of
lading based on the declaration of the shipper. The bill of
lading describes the cargo as a container simply and it
states the contents of the container either as advised by
the shipper or prefaced by the phrase "said to contain."
Clearly then, the matter quantity, description and
conditions of the cargo is the sole responsibility of the
shipper.
The case at bar involves a situation intended precisely to
be covered by Sec. 24 of CAO No. 8-75. An examination
of said Customs Administrative Order in relation to Sec.
1005 and Sec. 2521 shows that containerized cargoes on
"Shipper’s Load and Count" shipping arrangement are
not required to be checked and inventoried by the carrier
at the port of loading or before said carrier enters the
port of unloading in the Philippines since it is the shipper
who has the sole responsibility for the quantity,
24
description and condition of the cargoes shipped in
container vans, each container van considered as a unit
of transport.
Petitioner’s vessel, the "American Venture" faithfully
complied with the requirements of Sec. 1005 of the Tariff
and Customs Code. Said vessel submitted a complete
manifest of all her cargoes. However there was a slight
error thru no fraudulent intent or negligence of the
vessel. Said vessel relied on the information in the bill of
lading submitted by the shipper in making the Manifest.
There was no way for the vessel to discover until after
the opening of the containers and the inventory of their
contents, that the first container contained 34 cases and
the second container contained 44 cases. Furthermore,
noteworthy is the fact that Container No. 2020984 is
described expressly in both the bill of lading and the
vessel’s manifest as a "Part" of the goods contained in
the second Container No. 2101730, an important
indication that the contents of Container No. 2020984
and Container No. 2101730 are parts of the same
importation coming from one and the same shipper and
destined to the same consignee and that in the
examination of contents for Customs purposes, the
number of cases should be the total in the 2 containers,
to wit 78 cases.
Considering therefore, that the total number of cases of
cotton denims as declared by the shipper in the manifest
is 78 as borne on two containers, and considering the
undisputed fact that the same total number of 78 cases
of cotton denims were found by the Bureau of Customs
on board petitioner’s vessel, it is clear that the vessel’s
Manifest reflects a complete and substantially accurate
statement of the cargoes contained therein in
accordance with the requirement of Sec. 1005 in relation
to Sec. 2521 of the Tariff and Customs Code. Accordingly,
therefore, the imposition by respondent-appellee of a
fine of P10,000.00 upon petitioner-appellant’s vessel
allegedly for the failure of the latter to have on board a
complete manifest of all her cargoes is patently baseless,
unfair, inconsiderate, and illegal. Besides the clerical
error cannot be attributed to the shipper. Finally, there
was no financial loss for the government.
WHEREFORE, finding the instant petition meritorious, the
assailed Decision of the Court of Tax Appeals imposing a
fine of P10,000.00 on petitioner’s vessel, M/V "American
Venture" for alleged violation of Sec. 1005 in relation to
Sec. 2521 of the Tariff and Customs Code, as amended, is
hereby REVERSED and SET ASIDE.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 93464 October 7, 1991
REYMA BROKERAGE, INC., petitioner,
vs.
PHILIPPINE HOME ASSURANCE CORPORATION, and THE
HONORABLE COURT OF APPEALS, respondents.
SARMIENTO, J.:
Assailed in this petition for review on certiorari is the
decision of the Court of Appeals in CA-G.R. CV No.
14550, 1 promulgated on November 29, 1988, which
affirmed in toto the decision of the Regional Trial Court,
National Capital Judicial Region, Branch 31, Manila. 2
The challenged decision of the trial court disposes as
follows:
WHEREFORE, judgment is hereby rendered in
favor of the plaintiff and against the defendant
as follows:
a. To pay the sum of P88,650.22 plus legal
interest thereon from the date of the filing of
the Complaint until the same is fully paid;
b. To pay a sum equivalent to 25% of the entire
amount as attorney's fees; and
c. To pay the costs of this suit.
SO ORDERED. 3
The facts of the ease found by the court a quo and
adopted by the respondent court, are, in brief:
On October 2, 1979, the vessel 'MS Malmros Monsoon'
received onboard at Fremantle, Brisbane Queensland,
Australia from shipper Craig Mostyn & Co., Pty. Ltd. (of
Brisbane, Queensland) a shipment of 2,680 cartons of
hard frozen boneless beef contained in five (5) containers
complete and in good order and condition for transport
to Manila in favor of the eventual consignee RFM Corp.
under Bill of Lading No. 53149, dated October 2, 1979.
25
On October 13, 1979, the MS 'Malmros Monsoon' arrived
at Pier 3 of the Port of Manila and discharged the
shipment into the possession and custody of the
defendant, the arrastre operator in the case at bar (Exh.
'A'). From Pier 3, the shipment was transferred to the
Reefer Van Area of Pier 13 and on October 22, 1979, the
defendant arrastre contractor loaded the containers in
two (2) trucks and delivered them to Grech Food
Industries Cold Storage in Pasig, Rizal arriving there at
1:00 o'clock A.M., the following morning, October 23,
1979. Four (4) personnel of defendant, a driver and a
helper in each truck made the delivery. On October 23,
1979 at 9:00 o'clock in the morning, the containers were
stripped and the representative of the defendant and
consignee counted the contents of five (5) containers and
after an inventory of Container No. BROU-430656[1], it
was discovered that 203 cartons were found short out of
the loaded 2,680 cartons of hard frozen boneless beef
which according to the consignee was totally attributable
to the defendant as it occurred while the said container
in question was in the custody and responsibility of the
defendant. Consignee filed claim for the recovery of the
missing 203 cartons but the same was denied and
consequently, consignee filed the claim with the plaintiff
under its Marine Cargo Insurance Policy. The consignee
was paid by plaintiff the amount of P88,658.22 (Exhs.'F'
and 'G'). The payment of consignee's claim by the
plaintiff had subrogated the latter to file this instant
claim for the recovery of the said amount (Exh. 'H'). 
As earlier indicated, the lower courts ruled against the
herein petitioner despite its pleas specifically the
following:
I. That, in the light of US Lines case (G.R. NO.
73490, June 18, 1987), a "said-to-contain" bill of
lading for sealed containers is "receipt' only of
the containers but not of their contents which
the carrier was not in a position to verify.
II. That, since there is no evidence of tampering
of seals, presumptions cannot take the place of
proof in a due-process system where the burden
of proof lies on the plaintiff (private
respondent), and [where] the rule is that
plaintiff must rely on the strength of his own
evidence and not on the weakness of the
defense.
III. That, if, as claimed by private respondent,
the "tampering" was ingeniously done and the
tampered seal cannot be determined unless
 "separated" from the container, then plaintiff
(private respondent) virtually admits that the
containers could have been tampered from the
very start (i.e., before petitioner took possession
of them) but nobody noticed the tampering.
IV. That, in the light of the foregoing, it was not
procedurally and equitably sound of private
respondent to sue petitioner alone without
joining the carrier and the arrastre contractor as
alternative defendants; petitioner should not be
singled out as defendant.
V. That, this case is barred by prescription, as
previously alleged in petitioner's Answer in the
lower court; as a mere subrogee, private
respondent cannot have more rights than the
consignee itself who could not have brought this
action beyond the one-year prescriptive period
(one year from October 22, 1979) fixed by the
carriage of goods by sea act. 5
The issue presented is whether or not the respondent
court committed a reversible error in declaring the
petitioner liable for the short delivery of 203 cartons
from the containerized shipments.The petition is without
merit.The petitioner insists that the ruling of United
States Lines Inc. vs. Commissioner of Customs 6 which
held that:
It is petitioner's contention that Sec. 24 of
Customs Administrative Order No. 8-75 * was
promulgated in the with the government policy
of encouraging containerization which results in
the laudable decongestion of ports of entry.
Such arrangement has been sanctioned
worldwide by international ports to cope [up]
with the ever-increasing volume of cargoes of
the shipping industry. Hence, the
containerization system was devised to facilitate
the expeditious and economical loading,
carriage and unloading of cargoes. Under this
system, the shipper loads his cargoes in a
specially designed container, seals the container
and delivers it to the carrier for transportation.
The carrier does not participate in the counting
of the merchandise for loading into the
container, the actual loading thereof nor the
sealing of the container. Having no actual
knowledge of the kind, quantity or condition of
26
the contents of the container, the carrier issues
the corresponding bill of lading based on the
declaration of the shipper. The bill of lading
describes the cargo as a container simply and it
states the contents of the container either as
advised by the shipper or prefaced by the
phrase "said to contain." Clearly then, the
matter quantity, description and conditions of
the cargo is the sole responsibility of the
shipper.
is controlling in the case at bar because the transactions
are Identical, in that, in the present case, the cargoes in
question are containerized. And the bill of lading, has,
among others, the following entries: 7
SHIPPED ON BOARD FIVE SHIPPER PACKED
CONTAINERS SAID TO CONTAIN 2680 CARTONS
HARD FROZEN BONELESS 72938 kgs = 160800
lbs nett
536 CARTONS - CONTAINER NO: BROU 430915
(4) 536 CARTONS - CONTAINER NO: ITLU 780480
(2) 536 CARTONS - CONTAINER NO: BROU
430773 (7) 536 CARTONS - CONTAINER NO: ITLU
780254 (3) 536 CARTONS - CONTAINER NO:
BROU 4306561
Moreover, we must note also that the bill of lading itself
contains the printed stipulations:
x x x           x x x          x x x
Weight, measurement marks and numbers (except
loading marks for which the carrier is only responsible if
stamped or otherwise shown clearly in letters at least 50
mm high) quality contents and value shown above are
furnished by the Merchant and have not been checked
and are to be considered unknown, unless expressly
acknowledged and agreed to. 8
And in the bottom portion of the bill of lading there
appears the statement:
This bill of lading is a receipt only for the number of
packages shown above. 9 which was duly signed by the
carrier.
Evidently, the carrier, by signifying in the bill of lading
that "it is a receipt ... for the number of packages shown
above," had explicitly admitted that the containerized
shipments had actually the number of packages declared
by the shipper in the bill of lading. And this conclusion is
bolstered by the stipulation printed in the bill of lading,
"unless expressly acknowledged and agreed to."
Therefore, the phrase "said to contain" also appearing in
the bill of lading must give way to this reality.
Hence, this express acknowledgment of the carrier
makes the case at bar an exception to the doctrine
enunciated in United States Lines. The rule enunciated
by United States Lines applies to a situation where the
carrier of the containerized cargo simply admits the
information furnished by the shipper with regard to the
goods it shipped as reflected in the bill of lading ("said to
contain") but not where the carrier of the containerized
cargo makes an explicit admission as to the weight,
measurement marks, numbers, quality contents, and
value, and more so. inscribed these admissions as
stipulations in the bill of lading itself, or made them an
addendum thereto, to which the carrier affixed its
express acknowledgment as what happened in this case.
In its stead, the dictum that the bill of lading shall
be prima facie evidence of the receipt by the carrier of
the goods as therein described 10 governs. We have
already held that:
... [a] bill of lading operates both as a receipt
and as a contract. It is a receipt for the goods
shipped and a contract to transport and deliver
the same as therein stipulated. As a receipt, it
recites the date and place of shipment,
describes the goods as to quantity, weight,
dimensions, Identification marks and condition,
quality, and value. As a contract it names the
contracting parties, which include the
consignee, fixes the route, destination, and
freight rates or charges, and stipulates the rights
and obligations assumed by the parties. 11
In addition, the petitioner contends that it can not
possibly be held liable for the shortage of the
containerized goods because before the same came into
its custody the same had already passed through
different hands. And passing the buck, so to speak, it
surmises that the shortfall occurred either in Brisbane, or
on board the carrier, or at the piers (Piers 3 and 13), or at
27
the consignee's warehouse in Pasig. But wherever, the
shortage could not be blamed on the petitioner.
The petitioner contradicts itself for contrary to these
posturings, it included allegations in its answer that all
the containerized shipments arrived in Manila with the
seals intact, 12 and that the petitioner received the said
sealed containers of the shipments, particularly container
No. BROU-4306561 which sustained the loss of 203
cartons from the arrastre operator, also with the seals
intact. 13 It can therefore be concluded that the
petitioner received all the shipments as itemized in the
bill of lading. For the rule is well-established that the
facts alleged in a party's pleading are deemed admissions
of that party and binding upon it. 14
As the petitioner prima facie received all the shipments
in the sealed containers, it has the burden to rebut the
conclusion that it received the same without shortage, It
has been authoritatively said that:
... prima facie evidence is of course, like all evidence
susceptible to rebuttal; but unrebutted it remains
sufficient, as a matter of law to establish the ultimate
proposition it purports to prove. It goes without saving
that such evidence can only be overcome by contrary
proof and not by mere surmises and speculations. 15
We have gone over the records and we find that the
petitioner had not overthrown this presumption by
contrary evidence. Therefore, the respondent court did
not commit any reversible error in agreeing with the trial
court that the loss of the 203 cartons is attributable to
the petitioner.
On this score, the respondent court found that:
... The fact remains that on October 13, 1979, the vessel
MS 'Malmroo Monsoon" arrived at Pier 3 of the Port of
Manila and the shipment was discharged into possession
and custody of the arrastre operator with the seals of the
containers intact on same date (Exh, 'H'). It was only on
October 22, 1979 when defendant withdrew the
containers to be delivered to the Grech Food Industries
Cold Storage arriving at 1:00 o'clock in the morning of
the following day October 23, 1979 that the contents of
Container No. BROU 306561 was counted and there it
was discovered that the shipment was short of 203
cartons (Exhs. 'A', 'D' and 'E'). In other words, the
containers were delivered to the consignee's warehouse
at Grech Food Industries Cold Storage in Pasig, Rizal after
more than nine (9) hours which is highly auspicious as
the trip from the piers to Pasig, takes only one (1) hours
and there were (sic) no heavy traffic along the route. This
will militate against the stand of the defendant that the
loss of the 203 cartons of hard frozen boneless beef meat
occurred while it was outside its custody as the contrary
had been proven by plaintiff. 16
x x x           x x x          x x x
There being no showing that the respondent court
overlooked certain facts of substance and value, which if
taken into account would affect the result of this case
necessitating its reversal, 17 we must deny the petition
for review.
Belatedly, the petitioner raises the issue of prescription
citing sec. 2(6), paragraph 4 of the Carriage of Goods by
Sea Act which provides:
... the carrier and the ship shall be discharged
from all liability in respect of loss or damage
unless suit is brought within one year after
delivery of the goods or the date when the
goods should have been delivered: ...
This defense had been waived and/or abandoned by the
petitioner. Other than the allegation of prescription in
the answer, the petitioner never pursued this matter
either in the later proceedings of the trial court or in the
Court of Appeals. The petitioner can not now be allowed
to raise this issue to this Court after such waiver or
abandonment.
Granting arguendo that petitioner can still put up
prescription as its defense, nonetheless it will not
prosper considering that the petitioner is not a carrier or
a vessel or a charterer or the legal holder of the bill of
lading. The petitioner is the broker. And the private
respondent is the insurer. The prescriptive period of this
cause of action is ten years. In the present case, ten years
have not yet lapsed from the delivery of the shipment. 18
WHEREFORE, the petition is hereby DENIED. Costs
against the petitioner.
SO ORDERED.
28
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 131166 September 30, 1999
CALTEX (PHILIPPINES), INC., petitioner,
vs.
SULPICIO LINES, INC., GO SIOC SO, ENRIQUE S. GO,
EUSEBIO S. GO, CARLOS S. GO, VICTORIANO S. GO,
DOMINADOR S. GO, RICARDO S. GO, EDWARD S. GO,
ARTURO S. GO, EDGAR S. GO, EDMUND S. GO,
FRANCISCO SORIANO, VECTOR SHIPPING
CORPORATION, TERESITA G. CAÑEZAL, AND SOTERA E.
CAÑEZAL, respondents.
 PARDO, J.:
Is the charterer of a sea vessel liable for damages
resulting from a collision between the chartered vessel
and a passenger ship?
When MT Vector left the port of Limay, Bataan, on
December 19, 1987 carrying petroleum products of
Caltex (Philippines), Inc. (hereinafter Caltex) no one could
have guessed that it would collide with MV Doña Paz,
killing almost all the passengers and crew members of
both ships, and thus resulting in one of the country's
worst maritime disasters.
The petition before us seeks to reverse the Court of
Appeals decision 1 holding petitioner jointly liable with
the operator of MT Vector for damages when the latter
collided with Sulpicio Lines, Inc.'s passenger ship MV
Doña Paz.
The facts are as follows:
On December 19, 1987, motor tanker MT Vector left
Limay, Bataan, at about 8:00 p.m., enroute to Masbate,
loaded with 8,800 barrels of petroleum products shipped
by petitioner Caltex. 2 MT Vector is a tramping motor
tanker owned and operated by Vector Shipping
Corporation, engaged in the business of transporting fuel
products such as gasoline, kerosene, diesel and crude oil.
During that particular voyage, the MT Vector carried on
board gasoline and other oil products owned by Caltex by
virtue of a charter contract between
them. 3
On December 20, 1987, at about 6:30 a.m., the
passenger ship MV Doña Paz left the port of Tacloban
headed for Manila with a complement of 59 crew
members including the master and his officers, and
passengers totaling 1,493 as indicated in the Coast Guard
Clearance. 4 The MV Doña Paz is a passenger and cargo
vessel owned and operated by Sulpicio Lines, Inc. plying
the route of Manila/ Tacloban/ Catbalogan/ Manila/
Catbalogan/ Tacloban/ Manila, making trips twice a
week.
At about 10:30 p.m. of December 20, 1987, the two
vessels collided in the open sea within the vicinity of
Dumali Point between Marinduque and Oriental
Mindoro. All the crewmembers of MV Doña Paz died,
while the two survivors from MT Vector claimed that
they were sleeping at the time of the
incident.1âwphi1.nêt
The MV Doña Paz carried an estimated 4,000 passengers;
many indeed, were not in the passenger manifest. Only
24 survived the tragedy after having been rescued from
the burning waters by vessels that responded to distress
calls. 5 Among those who perished were public school
teacher Sebastian Cañezal (47 years old) and his
daughter Corazon Cañezal (11 years old), both
unmanifested passengers but proved to be on board the
vessel.
On March 22, 1988, the board of marine inquiry in BMI
Case No. 659-87 after investigation found that the MT
Vector, its registered operator Francisco Soriano, and its
owner and actual operator Vector Shipping Corporation,
29
were at fault and responsible for its collision with MV
Doña Paz. 6
On February 13, 1989, Teresita Cañezal and Sotera E.
Cañezal, Sebastian Cañezal's wife and mother
respectively, filed with the Regional Trial Court, Branch 8,
Manila, a complaint for "Damages Arising from Breach of
Contract of Carriage" against Sulpicio Lines, Inc.
(hereafter Sulpicio). Sulpicio, in turn, filed a third party
complaint against Francisco Soriano, Vector Shipping
Corporation and Caltex (Philippines), Inc. Sulpicio alleged
that Caltex chartered MT Vector with gross and evident
bad faith knowing fully well that MT Vector was
improperly manned, ill-equipped, unseaworthy and a
hazard to safe navigation; as a result, it rammed against
MV Doña Paz in the open sea setting MT Vector's highly
flammable cargo ablaze.
On September 15, 1992, the trial court rendered decision
dismissing, the third party complaint against petitioner.
The dispositive portion reads:
WHEREFORE, judgment is hereby
rendered in favor of plaintiffs and
against defendant-3rd party plaintiff
Sulpicio Lines, Inc., to wit:
1. For the death of Sebastian E. Cañezal
and his 11-year old daughter Corazon
G. Cañezal, including loss of future
earnings of said Sebastian, moral and
exemplary damages, attorney's fees, in
the total amount of P 1,241,287.44 and
finally;
2. The statutory costs of the
proceedings.
Likewise, the 3rd party complaint is
hereby DISMISSED for want of
substantiation and with costs against
the 3rd party plaintiff.
IT IS SO ORDERED.
DONE IN MANILA, this 15th day of
September 1992.7
On appeal to the Court of Appeals interposed by Sulpicio
Lines, Inc., on April 15, 1997, the Court of Appeal
modified the trial court's ruling and included petitioner SO ORDERED.
Caltex as one of the those liable for damages. Thus:
WE CONCUR:
WHEREFORE, in view of all the
foregoing, the judgment rendered by RAMON U. MABUTAS, JR. PORTIA
the Regional Trial Court is hereby ALIÑO HERMACHUELOS
MODIFIED as follows:
Associate Justice Associate Justice. 8
WHEREFORE, defendant Sulpicio Lines,
Inc., is ordered to pay the heirs of Hence, this petition.
Sebastian E. Cañezal and Corazon
Cañezal:
We find the petition meritorious.

1. Compensatory damages for the

First: The charterer has no liability for damages under
death of Sebastian E. Cañezal and
Philippine Maritime laws.
Corazon Cañezal the total amount of
ONE HUNDRED THOUSAND PESOS
The respective rights and duties of a shipper and the
(P100,000);
carrier depends not on whether the carrier is public or
private, but on whether the contract of carriage is a bill
2. Compensatory damages
of lading or equivalent shipping documents on the one
representing the unearned income of
hand, or a charter party or similar contract on the
Sebastian E. Cañezal, in the total
other. 9
amount of THREE HUNDRED SIX
THOUSAND FOUR HUNDRED EIGHTY
Petitioner and Vector entered into a contract of
(P306,480.00) PESOS;
affreightment, also known as a voyage charter. 10
3. Moral damages in the amount of
A charter party is a contract by which an entire ship, or
THREE HUNDRED THOUSAND PESOS
some principal part thereof, is let by the owner to
(P300,000.00);
another person for a specified time or use; a contract of
affreightment is one by which the owner of a ship or
4. Attorney's fees in the concept of
other vessel lets the whole or part of her to a merchant
actual damages in the amount of FIFTY
or other person for the conveyance of goods, on a
THOUSAND PESOS (P50,000.00);
particular voyage, in consideration of the payment of
freight. 11
5. Costs of the suit.
A contract of affreightment may be either time charter,
Third party defendants Vector Shipping wherein the leased vessel is leased to the charterer for a
Co. and Caltex (Phils.), Inc. are held fixed period of time, or voyage charter, wherein the ship
equally liable under the third party is leased for a single voyage. In both cases, the charter-
complaint to reimburse/indemnify party provides for the hire of the vessel only, either for a
defendant Sulpicio Lines, Inc. of the determinate period of time or for a single or consecutive
above-mentioned damages, attorney's voyage, the ship owner to supply the ship's store, pay for
fees and costs which the latter is the wages of the master of the crew, and defray the
adjudged to pay plaintiffs, the same to expenses for the maintenance of the ship. 12
be shared half by Vector Shipping Co.
(being the vessel at fault for the
Under a demise or bareboat charter on the other hand,
collision) and the other half by Caltex
the charterer mans the vessel with his own people and
(Phils.), Inc. (being the charterer that
becomes, in effect, the owner for the voyage or service
negligently caused the shipping of
stipulated, subject to liability for damages caused by
combustible cargo aboard an
negligence.
unseaworthy vessel).

30
If the charter is a contract of affreightment, which leaves
the general owner in possession of the ship as owner for
the voyage, the rights and the responsibilities of
ownership rest on the owner. The charterer is free from
liability to third persons in respect of the ship. 13
Second: MT Vector is a common carrier
Charter parties fall into three main categories: (1) Demise
or bareboat, (2) time charter, (3) voyage charter. Does a
charter party agreement turn the common carrier into a
private one? We need to answer this question in order to
shed light on the responsibilities of the parties.
In this case, the charter party agreement did not convert
the common carrier into a private carrier. The parties
entered into a voyage charter, which retains the
character of the vessel as a common carrier.
In Planters Products, Inc. vs. Court of Appeals, 14 we said:
It is therefore imperative that a public
carrier shall remain as such,
notwithstanding the charter of the
whole portion of a vessel of one or
more persons, provided the charter is
limited to the ship only, as in the case
of a time-charter or the voyage charter.
It is only when the charter includes
both the vessel and its crew, as in a
bareboat or demise that a common
carrier becomes private, at least insofar
as the particular voyage covering the
charter-party is concerned. Indubitably,
a ship-owner in a time or voyage
charter retains possession and control
of the ship, although her holds may, for
the moment, be the property of the
charterer.
Later, we ruled in Coastwise Lighterage Corporation
vs. Court of Appeals: 15
Although a charter party may
transform a common carrier into a
private one, the same however is not
true in a contract of affreightment . . .
A common carrier is a person or corporation whose
regular business is to carry passengers or property for all
persons who may choose to employ and to remunerate
31
him. 16 MT Vector fits the definition of a common carrier
under Article 1732 of the Civil Code. In Guzman vs. Court
of Appeals, 17 we ruled:
The Civil Code defines "common
carriers" in the following terms:
Art. 1732. Common carriers are
persons, corporations, firms or
associations engaged in the business of
carrying or transporting passengers for
passengers or goods or both, by land,
water, or air for compensation, offering
their services to the public.
The above article makes no distinction
between one whose principal business
activity is the carrying of persons or
goods or both, and one who does such
carrying only as an ancillary activity (in
local idiom, as "a sideline"). Article
1732 also carefully avoids making any
distinction between a person or
enterprise offering transportation
service on a regular or scheduled
basis and one offering such services 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 1733
deliberately refrained from making
such distinctions.
It appears to the Court that private
respondent is properly characterized as
a common carrier even though he
merely "back-hauled" goods for other
merchants from Manila to Pangasinan,
although such backhauling was done on
a periodic, occasional rather than
regular or scheduled manner, and even
though
respondent's  principal occupation was
not the carriage of goods for others.
There is no dispute that private
respondent charged his customers a
fee for hauling their goods; that the fee
 frequently fell below commercial
freight rates is not relevant here.
Under the Carriage of Goods by Sea Act :
Sec. 3. (1) The carrier shall be bound
before and at the beginning of the
voyage to exercise due diligence to —
(a) Make the ship seaworthy;
(b) Properly man, equip, and supply the
ship;
x x x           x x x          x x x
Thus, the carriers are deemed to warrant impliedly the
seaworthiness of the ship. For a vessel to be
seaworthy, it must be adequately equipped for the
voyage and manned with a sufficient number of
competent officers and crew. The failure of a common
carrier to maintain in seaworthy condition the vessel
involved in its contract of carriage is a clear breach of its
duty prescribed in Article 1755 of the Civil Code. 18
The provisions owed their conception to the nature of
the business of common carriers. This business is
impressed with a special public duty. The public must of
necessity rely on the care and skill of common carriers in
the vigilance over the goods and safety of the
passengers, especially because with the modern
development of science and invention, transportation
has become more rapid, more complicated and
somehow more hazardous. 19 For these reasons, a
passenger or a shipper of goods is under no obligation to
conduct an inspection of the ship and its crew, the carrier
being obliged by law to impliedly warrant its
seaworthiness.
This aside, we now rule on whether Caltex is liable for
damages under the Civil Code.
Third: Is Caltex liable for damages under the Civil Code?
We rule that it is not.
Sulpicio argues that Caltex negligently shipped its highly
combustible fuel cargo aboard an unseaworthy vessel
such as the MT Vector when Caltex:
32
1. Did not take steps to have M/T Vector's certificate of
inspection and coastwise license renewed;
2. Proceeded to ship its cargo despite defects found by
Mr. Carlos Tan of Bataan Refinery Corporation;
3. Witnessed M/T Vector submitting fake documents and
certificates to the Philippine Coast Guard.
Sulpicio further argues that Caltex chose MT Vector
transport its cargo despite these deficiencies.
1. The master of M/T Vector did not posses the required
Chief Mate license to command and navigate the vessel;
2. The second mate, Ronaldo Tarife, had the license of a
Minor Patron, authorized to navigate only in bays and
rivers when the subject collision occurred in the open
sea;
3. The Chief Engineer, Filoteo Aguas, had no license to
operate the engine of the vessel;
4. The vessel did not have a Third Mate, a radio operator
and lookout; and
5. The vessel had a defective main engine. 20
As basis for the liability of Caltex, the Court of Appeals
relied on Articles 20 and 2176 of the Civil Code, which
provide:
Art. 20. — Every person who contrary
to law, willfully or negligently causes
damage to another, shall indemnify the
latter for the same.
Art. 2176. — Whoever by act or
omission causes damage to another,
there being fault or negligence, is
obliged to pay for the damage done.
Such fault or negligence, if there is no
pre-existing contractual relation
between the parties, is called a quasi-
delict and is governed by the provisions
of this Chapter.
And what is negligence?
The Civil Code provides:
 Art. 1173. The fault or negligence of the nature of transportation business, passengers and
obligor consists in the omission of that shippers alike customarily presume that common carriers
diligence which is required by the possess all the legal requisites in its operation.
nature of the obligation and
corresponds with the circumstances of Thus, the nature of the obligation of Caltex demands
the persons, of the time and of the ordinary diligence like any other shipper in shipping his
place. When negligence shows bad cargoes.
faith, the provisions of Article 1171 and
2201 paragraph 2, shall apply. A cursory reading of the records convinces us that Caltex
had reasons to believe that MT Vector could legally
If the law does not state the diligence transport cargo that time of the year.
which is to be observed in the
performance, that which is expected of Atty. Poblador: Mr. Witness, I direct
a good father of a family shall be your attention to this portion here
required. containing the entries here under
"VESSEL'S DOCUMENTS
In Southeastern College, Inc. vs. Court of Appeals, 21 we
said that negligence, as commonly understood, is 1. Certificate of
conduct which naturally or reasonably creates undue risk Inspection No. 1290-
or harm to others. It may be the failure to observe that 85, issued December
degree of care, precaution, and vigilance, which the 21, 1986, and Expires
circumstances justly demand, or the omission to do December 7, 1987",
something which ordinarily regulate the conduct of Mr. Witness, what
human affairs, would do. steps did you take
regarding the
The charterer of a vessel has no obligation before impending expiry of
transporting its cargo to ensure that the vessel it the C.I. or the
chartered complied with all legal requirements. The duty Certificate of
rests upon the common carrier simply for being engaged Inspection No. 1290-
in "public service." 22 The Civil Code demands diligence 85 during the hiring
which is required by the nature of the obligation and that of MT Vector?
which corresponds with the circumstances of the
persons, the time and the place. Hence, considering the Apolinario Ng: At the
nature of the obligation between Caltex and MT Vector, time when I extended
liability as found by the Court of Appeals is without the Contract, I did
basis.1âwphi1.nêt nothing because the
tanker has a valid C.I.
The relationship between the parties in this case is which will expire on
governed by special laws. Because of the implied December 7, 1987
warranty of seaworthiness, 23 shippers of goods, when but on the last week
transacting with common carriers, are not expected to of November, I called
inquire into the vessel's seaworthiness, genuineness of the attention of Mr.
its licenses and compliance with all maritime laws. To Abalos to ensure that
demand more from shippers and hold them liable in case the C.I. be renewed
of failure exhibits nothing but the futility of our maritime and Mr. Abalos, in
laws insofar as the protection of the public in general is turn, assured me they
concerned. By the same token, we cannot expect will renew the same.
passengers to inquire every time they board a common
carrier, whether the carrier possesses the necessary Q: What happened
papers or that all the carrier's employees are qualified. after that?
Such a practice would be an absurdity in a business
where time is always of the essence. Considering the

33
 A: On the first week submit us a
of December, I again copy. 26
made a follow-up
from Mr. Abalos, and Finally, on Mr. Ng's redirect examination:
said they were going
to send me a copy as Atty. Poblador: Mr.
soon as possible, Witness, were you
sir. 24 aware of the pending
expiry of the
x x x           x x x          x x x Certificate of
Inspection in the
Q: What did you do coastwise license on
with the C.I.? December 7, 1987.
What was your
A: We did not insist assurance for the
on getting a copy of record that this
the C.I. from Mr. document was
Abalos on the first renewed by the MT
place, because of our Vector?
long business
relation, we trust Mr. Atty. Sarenas: . . .
Abalos and the fact
that the vessel was Atty. Poblador: The
able to sail indicates certificate of
that the documents Inspection?
are in order. . . . 25
A: As I said, firstly, we
On cross examination — trusted Mr. Abalos as
he is a long time
Atty. Sarenas: This business partner;
being the case, and secondly, those three
this being an years; they were
admission by you, this allowed to sail by the
Certificate of Coast Guard. That are
Inspection has some that make me
expired on December believe that they in
7. Did it occur to you fact were able to
not to let the vessel secure the necessary
sail on that day renewal.
because of the very
approaching date of Q: If the Coast Guard
expiration? clears a vessel to sail,
what would that
Apolinar Ng: No sir, mean?
because as I said
before, the operation Atty. Sarenas:
Manager assured us Objection.
that they were able
to secure a renewal Court: He already
of the Certificate of answered that in the
Inspection and that cross examination to
they will in time

34
 the effect that if it
was allowed,
referring to MV
Vector, to sail, where
it is loaded and that it
was scheduled for a
destination by the
Coast Guard, it means
that it has Certificate
of Inspection
extended as assured
to this witness by
Restituto Abalos. That
in no case MV Vector
will be allowed to sail
if the Certificate of
inspection is, indeed,
not to be extended.
That was his repeated
explanation to the
cross-examination.
So, there is no need
to clarify the same in
the re-direct
examination. 27
Caltex and Vector Shipping Corporation had been doing
business since 1985, or for about two years before the
tragic incident occurred in 1987. Past services rendered
showed no reason for Caltex to observe a higher degree
of diligence.
Clearly, as a mere voyage charterer, Caltex had the right
to presume that the ship was seaworthy as even the
Philippine Coast Guard itself was convinced of its
seaworthiness. All things considered, we find no legal
basis to hold petitioner liable for damages.
As Vector Shipping Corporation did not appeal from the
Court of Appeals' decision, we limit our ruling to the
liability of Caltex alone. However, we maintain the Court
of Appeals' ruling insofar as Vector is concerned.
WHEREFORE, the Court hereby GRANTS the petition and
SETS ASIDE the decision of the Court of Appeals in CA-
G.R. CV No. 39626, promulgated on April 15, 1997,
insofar as it held Caltex liable under the third party
complaint to reimburse/indemnify defendant Sulpicio
Lines, Inc. the damages the latter is adjudged to pay
plaintiffs-appellees. The Court AFFIRMS the decision of
the Court of Appeals insofar as it orders Sulpicio Lines,
Inc. to pay the heirs of Sebastian E. Cañezal and Corazon
35
Cañezal damages as set forth therein. Third-party
defendant-appellee Vector Shipping Corporation and
Francisco Soriano are held liable to reimburse/indemnify
defendant Sulpicio Lines, Inc. whatever damages,
attorneys' fees and costs the latter is adjudged to pay
plaintiffs-appellees in the case.1âwphi1.nêt
No costs in this instance.
SO ORDERED.
G.R. No. 122039 May 31, 2000
VICENTE CALALAS, petitioner,
vs.
COURT OF APPEALS, ELIZA JUJEURCHE SUNGA and
FRANCISCO SALVA, respondents.
MENDOZA, J.:
This is a petition for review on certiorari of the
decision1 of the Court of Appeals, dated March 31, 1991,
reversing the contrary decision of the Regional Trial
Court, Branch 36, Dumaguete City, and awarding
damages instead to private respondent Eliza Jujeurche
Sunga as plaintiff in an action for breach of contract of
carriage.
The facts, as found by the Court of Appeals, are as
follows:
At 10 o'clock in the morning of August 23, 1989, private
respondent Eliza Jujeurche G. Sunga, then a college
freshman majoring in Physical Education at the Siliman
University, took a passenger jeepney owned and
operated by petitioner Vicente Calalas. As the jeepney
was filled to capacity of about 24 passengers, Sunga was
given by the conductor an "extension seat," a wooden
stool at the back of the door at the rear end of the
vehicle.
On the way to Poblacion Sibulan, Negros Occidental, the
jeepney stopped to let a passenger off. As she was
seated at the rear of the vehicle, Sunga gave way to the
outgoing passenger. Just as she was doing so, an Isuzu
truck driven by Iglecerio Verena and owned by Francisco
Salva bumped the left rear portion of the jeepney. As a
result, Sunga was injured. She sustained a fracture of the
"distal third of the left tibia-fibula with severe necrosis of
the underlying skin." Closed reduction of the fracture,
long leg circular casting, and case wedging were done
under sedation. Her confinement in the hospital lasted
from August 23 to September 7, 1989. Her attending
physician, Dr. Danilo V. Oligario, an orthopedic surgeon,
certified she would remain on a cast for a period of three
months and would have to ambulate in crutches during
said period.
On October 9, 1989, Sunga filed a complaint for damages
against Calalas, alleging violation of the contract of
carriage by the former in failing to exercise the diligence
required of him as a common carrier. Calalas, on the
other hand, filed a third-party complaint against
Francisco Salva, the owner of the Isuzu truck.
The lower court rendered judgment against Salva as
third-party defendant and absolved Calalas of liability,
holding that it was the driver of the Isuzu truck who was
responsible for the accident. It took cognizance of
another case (Civil Case No. 3490), filed by Calalas
against Salva and Verena, for quasi-delict, in which
Branch 37 of the same court held Salva and his driver
Verena jointly liable to Calalas for the damage to his
jeepney.
On appeal to the Court of Appeals, the ruling of the lower
court was reversed on the ground that Sunga's cause of
action was based on a contract of carriage, not quasi-
delict, and that the common carrier failed to exercise the
diligence required under the Civil Code. The appellate
court dismissed the third-party complaint against Salva
and adjudged Calalas liable for damages to Sunga. The
dispositive portion of its decision reads:
WHEREFORE, the decision appealed
from is hereby REVERSED and SET
ASIDE, and another one is entered
ordering defendant-appellee Vicente
Calalas to pay plaintiff-appellant:
(1) P50,000.00 as actual and
compensatory damages;
(2) P50,000.00 as moral damages;
(3) P10,000.00 as attorney's fees; and
(4) P1,000.00 as expenses of litigation;
and
(5) to pay the costs.
36
SO ORDERED.
Hence, this petition. Petitioner contends that the ruling
in Civil Case No. 3490 that the negligence of Verena was
the proximate cause of the accident negates his liability
and that to rule otherwise would be to make the
common carrier an insurer of the safety of its passengers.
He contends that the bumping of the jeepney by the
truck owned by Salva was a caso fortuito. Petitioner
further assails the award of moral damages to Sunga on
the ground that it is not supported by evidence.
The petition has no merit.
The argument that Sunga is bound by the ruling in Civil
Case No. 3490 finding the driver and the owner of the
truck liable for quasi-delict ignores the fact that she was
never a party to that case and, therefore, the principle
of res judicata does not apply.
Nor are the issues in Civil Case No. 3490 and in the
present case the same. The issue in Civil Case No. 3490
was whether Salva and his driver Verena were liable for
quasi-delict for the damage caused to petitioner's
jeepney. On the other hand, the issue in this case is
whether petitioner is liable on his contract of carriage.
The  first, quasi-delict, also known as culpa aquiliana or
culpa extra contractual, has as its source the negligence
of the tortfeasor. The second, breach of contract or culpa
contractual, is premised upon the negligence in the
performance of a contractual obligation.
Consequently, in quasi-delict, the negligence or fault
should be clearly established because it is the basis of the
action, whereas in breach of contract, the action can be
prosecuted merely by proving the existence of the
contract and the fact that the obligor, in this case the
common carrier, failed to transport his passenger safely
to his destination.2 In case of death or injuries to
passengers, Art. 1756 of the Civil Code provides that
common carriers are presumed to have been at fault or
to have acted negligently unless they prove that they
observed extraordinary diligence as defined in Arts. 1733
and 1755 of the Code. This provision necessarily shifts to
the common carrier the burden of proof.
There is, thus, no basis for the contention that the ruling
in Civil Case No. 3490, finding Salva and his driver Verena
liable for the damage to petitioner's jeepney, should be
binding on Sunga. It is immaterial that the proximate
cause of the collision between the jeepney and the truck
was the negligence of the truck driver. The doctrine of
proximate cause is applicable only in actions for quasi-
delict, not in actions involving breach of contract. The
doctrine is a device for imputing liability to a person
where there is no relation between him and another
party. In such a case, the obligation is created by law
itself. But, where there is a pre-existing contractual
relation between the parties, it is the parties themselves
who create the obligation, and the function of the law is
merely to regulate the relation thus created. Insofar as
contracts of carriage are concerned, some aspects
regulated by the Civil Code are those respecting the
diligence required of common carriers with regard to the
safety of passengers as well as the presumption of
negligence in cases of death or injury to passengers. It
provides:
Art. 1733. Common carriers, from the
nature of their business and for reasons
of public policy, are bound to observe
extraordinary diligence in the vigilance
over the goods and for the safety of the
passengers transported by them,
according to all the circumstances of
each case.
Such extraordinary diligence in the
vigilance over the goods is further
expressed in articles 1734, 1735, and
1746, Nos. 5, 6, and 7, while the
extraordinary diligence for the safety of
the passengers is further set forth in
articles 1755 and 1756.
Art. 1755. A common carrier is bound
to carry the passengers safely as far as
human care and foresight can provide,
using the utmost diligence of very
cautious persons, with due regard for
all the circumstances.
Art. 1756. In case of death of or injuries
to passengers, common carriers are
presumed to have been at fault or to
have acted negligently, unless they
prove that they observed extraordinary
diligence as prescribed by articles 1733
and 1755.
In the case at bar, upon the happening of the accident,
the presumption of negligence at once arose, and it
became the duty of petitioner to prove that he had to
37
observe extraordinary diligence in the care of his
passengers.
Now, did the driver of jeepney carry Sunga "safely as far
as human care and foresight could provide, using the
utmost diligence of very cautious persons, with due
regard for all the circumstances" as required by Art.
1755? We do not think so. Several factors militate
against petitioner's contention.
First, as found by the Court of Appeals, the jeepney was
not properly parked, its rear portion being exposed
about two meters from the broad shoulders of the
highway, and facing the middle of the highway in a
diagonal angle. This is a violation of the R.A. No. 4136, as
amended, or the Land Transportation and Traffic Code,
which provides:
Sec. 54. Obstruction of Traffic. — No
person shall drive his motor vehicle in
such a manner as to obstruct or impede
the passage of any vehicle, nor, while
discharging or taking on passengers or
loading or unloading freight, obstruct
the free passage of other vehicles on
the highway.
Second, it is undisputed that petitioner's driver took in
more passengers than the allowed seating capacity of the
jeepney, a violation of §32(a) of the same law. It
provides:
Exceeding registered capacity. — No
person operating any motor vehicle
shall allow more passengers or more
freight or cargo in his vehicle than its
registered capacity.
The fact that Sunga was seated in an "extension seat"
placed her in a peril greater than that to which the other
passengers were exposed. Therefore, not only was
petitioner unable to overcome the presumption of
negligence imposed on him for the injury sustained by
Sunga, but also, the evidence shows he was actually
negligent in transporting passengers.
We find it hard to give serious thought to petitioner's
contention that Sunga's taking an "extension seat"
amounted to an implied assumption of risk. It is akin to
arguing that the injuries to the many victims of the
tragedies in our seas should not be compensated merely
because those passengers assumed a greater risk of
drowning by boarding an overloaded ferry. This is also
true of petitioner's contention that the jeepney being
bumped while it was improperly parked constitutes caso
fortuito. A caso fortuito is an event which could not be
foreseen, or which, though foreseen, was inevitable.3 This
requires that the following requirements be present: (a)
the cause of the breach is independent of the debtor's
will; (b) the event is unforeseeable or unavoidable; (c)
the event is such as to render it impossible for the debtor
to fulfill his obligation in a normal manner, and (d) the
debtor did not take part in causing the injury to the
creditor.4 Petitioner should have foreseen the danger of
parking his jeepney with its body protruding two meters
into the highway.
Finally, petitioner challenges the award of moral
damages alleging that it is excessive and without basis in
law. We find this contention well taken.
In awarding moral damages, the Court of Appeals stated:
Plaintiff-appellant at the time of the
accident was a first-year college
student in that school year 1989-1990
at the Silliman University, majoring in
Physical Education. Because of the
injury, she was not able to enroll in the
second semester of that school year.
She testified that she had no more
intention of continuing with her
schooling, because she could not walk
and decided not to pursue her degree,
major in Physical Education "because of
my leg which has a defect already."
Plaintiff-appellant likewise testified that
even while she was under confinement,
she cried in pain because of her injured
left foot. As a result of her injury, the
Orthopedic Surgeon also certified that
she has "residual bowing of the
fracture side." She likewise decided not
to further pursue Physical Education as
her major subject, because "my left
leg . . . has a defect already."
Those are her physical pains and moral
sufferings, the inevitable bedfellows of
the injuries that she suffered. Under
Article 2219 of the Civil Code, she is
entitled to recover moral damages in
38
the sum of P50,000.00, which is fair,
just and reasonable.
As a general rule, moral damages are not recoverable in
actions for damages predicated on a breach of contract
for it is not one of the items enumerated under Art. 2219
of the Civil Code.5 As an exception, such damages are
recoverable: (1) in cases in which the mishap results in
the death of a passenger, as provided in Art. 1764, in
relation to Art. 2206(3) of the Civil Code; and (2) in the
cases in which the carrier is guilty of fraud or bad faith, as
provided in Art. 2220.6
In this case, there is no legal basis for awarding moral
damages since there was no factual finding by the
appellate court that petitioner acted in bad faith in the
performance of the contract of carriage. Sunga's
contention that petitioner's admission in open court that
the driver of the jeepney failed to assist her in going to a
nearby hospital cannot be construed as an admission of
bad faith. The fact that it was the driver of the Isuzu truck
who took her to the hospital does not imply that
petitioner was utterly indifferent to the plight of his
injured passenger. If at all, it is merely implied
recognition by Verena that he was the one at fault for
the accident.
WHEREFORE, the decision of the Court of Appeals, dated
March 31, 1995, and its resolution, dated September 11,
1995, are AFFIRMED, with the MODIFICATION that the
award of moral damages is DELETED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 110398 November 7, 1997
NEGROS NAVIGATION CO., INC., petitioner,
vs.
THE COURT OF APPEALS, RAMON MIRANDA, SPS.
RICARDO and VIRGINIA DE LA VICTORIA, respondents.
MENDOZA, J.:
This is a petition for review on certiorari of the decision
of the Court of Appeals affirming with modification the
Regional Trial Court's award of damages to private responsibility for the payment and satisfaction of all
respondents for the death of relatives as a result of the claims arising out of or in connection with the collision
sinking of petitioner's vessel. and releasing the PNOC and the PNOC/STC from any
liability to it. The agreement was subsequently held by
In April of 1980, private respondent Ramon Miranda the trial court to be binding upon petitioner, PNOC and
purchased from the Negros Navigation Co., Inc. four PNOC/STC. Private respondents did not join in the
special cabin tickets (#74411, 74412, 74413 and 74414) agreement.
for his wife, daughter, son and niece who were going to
Bacolod City to attend a family reunion. The tickets were After trial, the court rendered judgment on February 21,
for Voyage No. 457-A of the M/V Don Juan, leaving 1991, the dispositive portion of which leads as follows:
Manila at 1:00 p.m. on April 22, 1980.
WHEREFORE, in view of the foregoing, judgment
The ship sailed from the port of Manila on schedule. is hereby rendered in favor of the plaintiffs,
ordering all the defendants to pay jointly and
At about 10:30 in the evening of April 22, 1980, the Don severally to the plaintiffs damages as follows:
Juan collided off the Tablas Strait in Mindoro, with the
M/T Tacloban City, an oil tanker owned by the Philippine To Ramon Miranda:
National Oil Company (PNOC) and the PNOC Shipping
and Transport Corporation (PNOC/STC). As a result, the P42,025.00
M/V Don Juan sank. Several of her passengers perished for actual
in the sea tragedy. The bodies of some of the victims damages;
were found and brought to shore, but the four members
of private respondents' families were never found. P152,654.55
as
Private respondents filed a complaint on July 16, 1980 in compensator
the Regional Trial Court of Manila, Branch 34, against the y damages
Negros Navigation, the Philippine National Oil Company for loss of
(PNOC), and the PNOC Shipping and Transport earning
Corporation (PNOC/STC), seeking damages for the death capacity of
of Ardita de la Victoria Miranda, 48, Rosario V. Miranda, his wife;
19, Ramon V. Miranda, Jr., 16, and Elfreda de la Victoria,
26. P90,000.00
as
In its answer, petitioner admitted that private compensator
respondents purchased ticket numbers 74411, 74412, y damages
74413 and 74414; that the ticket numbers were listed in for wrongful
the passenger manifest; and that the Don Juan left Pier 2, death of
North Harbor, Manila on April 22, 1980 and sank that three (3)
night after being rammed by the oil tanker M/T Tacloban victims;
City, and that, as a result of the collision, some of the
passengers of the M/V Don Juan died. Petitioner, P300,000.00
however, denied that the four relatives of private as moral
respondents actually boarded the vessel as shown by the damages;
fact that their bodies were never recovered. Petitioner
further averred that the Don Juan was seaworthy and
P50,000.00
manned by a full and competent crew, and that the
as exemplary
collision was entirely due to the fault of the crew of the
damages, all
M/T Tacloban City.
in the total
amount of
On January 20, 1986, the PNOC and petitioner Negros P634,679.55;
Navigation Co., Inc. entered into a compromise and
agreement whereby petitioner assumed full

39
 P40,000.00 P23,075.00 as actual damages instead of
as attorney's P42,025.00;
fees.
2. Ordering and sentencing defendants-
To Spouses appellants, jointly and severally, to pay plaintiff-
Ricardo and appellee Ramon Miranda the amount of
Virginia de la P150,000.00, instead of P90,000.00, as
Victoria: compensatory damages for the death of his wife
and two children;
P12,000.00
for actual 3. Ordering and sentencing defendants-
damages; appellants, jointly and severally, to pay
plaintiffs-appellees Dela Victoria spouses the
P158,899.00 amount of P50,000.00, instead of P30,000.00, as
as compensatory damages for the death of their
compensator daughter Elfreda Dela Victoria;
y damages
for loss of Hence this petition, raising the following issues:
earning
capacity; (1) whether the members of private respondents'
families were actually passengers of the Don Juan;
P30,000.00
as (2) whether the ruling in Mecenas v.  Court of
compensator Appeals,2 finding the crew members of petitioner to be
y damages grossly negligent in the performance of their duties, is
for wrongful binding in this case;
death;
(3) whether the total loss of the M/V Don
P100,000.00 Juan extinguished petitioner's liability; and
as moral
damages; (4) whether the damages awarded by the appellate court
are excessive, unreasonable and unwarranted.
P20,000.00
as exemplary First. The trial court held that the fact that the victims
damages, all were passengers of the M/V Don Juan was sufficiently
in the total proven by private respondent Ramon Miranda, who
amount of testified that he purchased tickets numbered 74411,
P320,899.00; 74412, 74413, and 74414 at P131.30 each from the
and Makati office of petitioner for Voyage No. 47-A of the
M/V Don Juan, which was leaving Manila on April 22,
P15,000.00 1980. This was corroborated by the passenger manifest
as attorney's (Exh. E) on which the numbers of the tickets and the
fees. names of Ardita Miranda and her children and Elfreda de
la Victoria appear.
On appeal, the Court of Appeals1 affirmed the decision of
the Regional Trial Court with modification — Petitioner contends that the purchase of the tickets does
not necessarily mean that the alleged victims actually
1. Ordering and sentencing defendants- took the trip. Petitioner asserts that it is common
appellants, jointly and severally, to pay plaintiff- knowledge that passengers purchase tickets in advance
appellee Ramon Miranda the amount of but do not actually use them. Hence, private respondent
should also prove the presence of the victims on the ship.

40
The witnesses who affirmed that the victims were on the
ship were biased and unreliable.
This contention is without merit. Private respondent
Ramon Miranda testified that he personally took his
family and his niece to the vessel on the day of the
voyage and stayed with them on the ship until it was
time for it to leave. There is no reason he should claim
members of his family to have perished in the accident
just to maintain an action. People do not normally lie
about so grave a matter as the loss of dear ones. It would
be more difficult for private respondents to keep the
existence of their relatives if indeed they are alive than it
is for petitioner to show the contrary. Petitioner's only
proof is that the bodies of the supposed victims were not
among those recovered from the site of the mishap. But
so were the bodies of the other passengers reported
missing not recovered, as this Court noted in
the Mecenas3 case.
Private respondent Miranda's testimony was
corroborated by Edgardo Ramirez. Ramirez was a
seminarian and one of the survivors of the collision. He
testified that he saw Mrs. Miranda and Elfreda de la
Victoria on the ship and that he talked with them. He
knew Mrs. Miranda who was his teacher in the grade
school. He also knew Elfreda who was his childhood
friend and townmate. Ramirez said he was with Mrs.
Miranda and her children and niece from 7:00 p.m. until
10:00 p.m. when the collision happened and that he in
fact had dinner with them. Ramirez said he and Elfreda
stayed on the deck after dinner and it was there where
they were jolted by the collision of the two vessels.
Recounting the moments after the collision, Ramirez
testified that Elfreda ran to fetch Mrs. Miranda. He
escorted her to the room and then tried to go back to the
deck when the lights went out. He tried to return to the
cabin but was not able to do so because it was dark and
there was a stampede of passengers from the deck.
Petitioner casts doubt on Ramirez' testimony, claiming
that Ramirez could not have talked with the victims for
about three hours and not run out of stories to tell,
unless Ramirez had a "storehouse" of stories. But what is
incredible about acquaintances thrown together on a
long journey staying together for hours on end, in idle
conversation precisely to while the hours away?
Petitioner also points out that it took Ramirez three (3)
days before he finally contacted private respondent
Ramon Miranda to tell him about the fate of his family.
But it is not improbable that it took Ramirez three days
41
before calling on private respondent Miranda to tell him
about the last hours of Mrs. Miranda and her children
and niece, in view of the confusion in the days following
the collision as rescue teams and relatives searched for
survivors.
Indeed, given the facts of this case, it is improper for
petitioner to even suggest that private respondents'
relatives did not board the ill-fated vessel and perish in
the accident simply because their bodies were not
recovered.
Second. In finding petitioner guilty of negligence and in
failing to exercise the extraordinary diligence required of
it in the carriage of passengers, both the trial court and
the appellate court relied on the findings of this Court
in Mecenas v. Intermediate Appellate Court,4 which case
was brought for the death of other passengers. In that
case it was found that although the proximate cause of
the mishap was the negligence of the crew of the
M/T Tacloban City, the crew of the Don Juan was equally
negligent as it found that the latter's master, Capt.
Rogelio Santisteban, was playing mahjong at the time of
collision, and the officer on watch, Senior Third Mate
Rogelio De Vera, admitted that he failed to call the
attention of Santisteban to the imminent danger facing
them. This Court found that Capt. Santisteban and the
crew of the M/V Don Juan failed to take steps to prevent
the collision or at least delay the sinking of the ship and
supervise the abandoning of the ship.
Petitioner Negros Navigation was found equally negligent
in tolerating the playing of mahjong by the ship captain
and other crew members while on board the ship and
failing to keep the M/V Don Juan seaworthy so much so
that the ship sank within 10 to 15 minutes of its impact
with the M/T Tacloban City.
In addition, the Court found that the Don Juan was
overloaded. The Certificate of Inspection, dated August
27, 1979, issued by the Philippine Coast Guard
Commander at Iloilo City stated that the total number of
persons allowed on the ship was 864, of whom 810 are
passengers, but there were actually 1,004 on board the
vessel when it sank, 140 persons more than the
maximum number that could be safely carried by it.
Taking these circumstances together, and the fact that
the M/V Don Juan, as the faster and better-equipped
vessel, could have avoided a collision with the PNOC
tanker, this Court held that even if the Tacloban City had
been at fault for failing to observe an internationally-
recognized rule of navigation, the Don Juan was guilty of
contributory negligence. Through Justice Feliciano, this
Court held:
The grossness of the negligence of the "Don
Juan" is underscored when one considers the
foregoing circumstances in the context of the
following facts: Firstly, the "Don Juan" was more
than twice as fast as the "Tacloban City." The
"Don Juan's" top speed was 17 knots; while that
of the "Tacloban City" was 6.3. knots. Secondly,
the "Don Juan" carried the full complement of
officers and crew members specified for a
passenger vessel of her class. Thirdly, the "Don
Juan" was equipped with radar which was
functioning that night. Fourthly, the "Don Juan's
officer on-watch had sighted the "Tacloban City"
on his radar screen while the latter was still four
(4) nautical miles away. Visual confirmation of
radar contact was established by the "Don Juan"
while the "Tacloban City" was still 2.7 miles
away. In the total set of circumstances which
existed in the instant case, the "Don Juan," had
it taken seriously its duty of extraordinary
diligence, could have easily avoided the collision
with the "Tacloban City." Indeed, the "Don Juan"
might well have avoided the collision even if it
had exercised ordinary diligence merely.
It is true that the "Tacloban City" failed to follow
Rule 18 of the International Rules of the Road
which requires two (2) power-driven vessels
meeting end on or nearly end on each to alter
her course to starboard (right) so that each
vessel may pass on the port side (left) of the
other. The "Tacloban City," when the two (2)
vessels were only three-tenths (0.3) of a mile
apart, turned (for the second time) 15° to port
side while the "Don Juan" veered hard to
starboard. . . . [But] "route observance" of the
International Rules of the Road will not relieve a
vessel from responsibility if the collision could
have been avoided by proper care and skill on
her part or even by a departure from the rules.
In the petition at bar, the "Don Juan" having
sighted the "Tacloban City" when it was still a
long way off was negligent in failing to take early
preventive action and in allowing the two (2)
vessels to come to such close quarters as to
render the collision inevitable when there was
no necessity for passing so near to the
42
"Tacloban City" as to create that hazard or
inevitability, for the "Don Juan" could choose its
own distance. It is noteworthy that the
"Tacloban City," upon turning hard to port
shortly before the moment of collision, signalled
its intention to do so by giving two (2) short
blasts with its horn. The "Don Juan" gave no
answering horn blast to signal its own intention
and proceeded to turn hard to starboard.
We conclude that Capt. Santisteban and Negros
Navigation are properly held liable for gross
negligence in connection with the collision of
the "Don Juan" and "Tacloban City" and the
sinking of the "Don Juan" leading to the death of
hundreds of passengers. . . .5
Petitioner criticizes the lower court's reliance on
the Mecenas case, arguing that, although this case arose
out of the same incident as that involved in Mecenas, the
parties are different and trial was conducted separately.
Petitioner contends that the decision in this case should
be based on the allegations and defenses pleaded and
evidence adduced in it or, in short, on the record of this
case.
The contention is without merit. What petitioner
contends may be true with respect to the merits of the
individual claims against petitioner but not as to the
cause of the sinking of its ship on April 22, 1980 and its
liability for such accident, of which there can only be one
truth. Otherwise, one would be subscribing to the
sophistry: truth on one side of the Pyrenees, falsehood
on the other!
Adherence to the Mecenas case is dictated by this
Court's policy of maintaining stability in jurisprudence in
accordance with the legal maxim "stare decisis et non
quieta movere" (Follow past precedents and do not
disturb what has been settled.) Where, as in this case,
the same questions relating to the same event have been
put forward by parties similarly situated as in a previous
case litigated and decided by a competent court, the rule
of stare decisis is a bar to any attempt to relitigate the
same issue.6 In Woulfe v. Associated Realties
Corporation,7 the Supreme Court of New Jersey held that
where substantially similar cases to the pending case
were presented and applicable principles declared in
prior decisions, the court was bound by the principle of
stare decisis. Similarly, in State ex rel. Tollinger v. Gill,8 it
was held that under the doctrine of stare decisis a ruling
is final even as to parties who are strangers to the
original proceeding and not bound by the judgment Third. The next issue is whether petitioner is liable to pay
under the res judicata doctrine. The Philadelphia court damages notwithstanding the total loss of its ship. The
expressed itself in this wise: "Stare decisis simply issue is not one of first impression. The rule is well-
declares that, for the sake of certainty, a conclusion entrenched in our jurisprudence that a shipowner may
reached in one case should be applied to those which be held liable for injuries to passengers notwithstanding
follow, if the facts are substantially the same, even the exclusively real and hypothecary nature of maritime
though the parties may be different."9 Thus, law if fault can be attributed to the shipowner. 15
in J.M. Tuason v. Mariano, supra, this Court relied on its
rulings in other cases involving different parties in In Mecenas, this Court found petitioner guilty of
sustaining the validity of a land title on the principle negligence in (1) allowing or tolerating the ship captain
of "stare decisis et non quieta movere." and crew members in playing mahjong during the
voyage, (2) in failing to maintain the vessel seaworthy
Indeed, the evidence presented in this case was the same and (3) in allowing the ship to carry more passengers
as those presented in the Mecenas case, to wit: than it was allowed to carry. Petitioner is, therefore,
clearly liable for damages to the full extent.
Document Mecenas case This case
Fourth. Petitioner contends that, assuming that
Decision of Commandant, Exh. 10 10 Exh. 11-B- the Mecenas case applies, private respondents should be
NN/X allowed to claim only P43,857.14 each as moral damages
Phil. Coast Guard because in the Mecenas case, the amount of P307,500.00
in BMI Case No. was awarded to the seven children of the Mecenas
415-80 dated 3/26/81 couple. Under petitioner's formula, Ramon Miranda
should receive P43,857.14, while the De la Victoria
Decision of the Minister Exh. 11 11 Exh. ZZ spouses should receive P97,714.28.
of National Defense
dated 3/12/82 Here is where the principle of stare decisis does not
apply in view of differences in the personal
Resolution on the Exh. 13 12 Exh. AAA circumstances of the victims. For that matter,
motion for reconsideration (private differentiation would be justified even if private
of the decision of the respondents) respondents had joined the private respondents in
Minister of National the Mecenas case. The doctrine of stare decisis works as
defense dated 7/27/84 a bar only against issues litigated in a previous case.
Where the issue involved was not raised nor presented
to the court and not passed upon by the court in the
Certificate of Exh. 1-A 13 Exh. 19-NN
previous case, the decision in the previous case is not
inspection dated
stare decisis of the question presently presented. 16 The
8/27/79
decision in the Mecenas case relates to damages for
which petitioner was liable to the claimants in that case.
Certificate of Stability Exh. 6-A 14 Exh. 19-D-NN
dated 12/16/76
In the case at bar, the award of P300,000.00 for moral
damages is reasonable considering the grief petitioner
Nor is it true that the trial court merely based its decision Ramon Miranda suffered as a result of the loss of his
on the Mecenas case. The trial court made its own entire family. As a matter of fact, three months after the
independent findings on the basis of the testimonies of collision, he developed a heart condition undoubtedly
witnesses, such as Senior Third Mate Rogelio de Vera, caused by the strain of the loss of his family. The
who incidentally gave substantially the same testimony P100,000.00 given to Mr. and Mrs. de la Victoria is
on petitioner's behalf before the Board of Marine likewise reasonable and should be affirmed.
Inquiry. The trial court agreed with the conclusions of the
then Minister of National Defense finding both vessels to
As for the amount of civil indemnity awarded to private
be negligent.
respondents, the appellate court's award of P50,000.00
per victim should be sustained. The amount of
P30,000.00 formerly set in De Lima v.  Laguna Tayabas

43
Co.,  17  Heirs of Amparo delos Santos v.  Court of
Appeals,  18  and Philippine Rabbit Bus Lines,
Inc. v.  Intermediate Appellate Court  19 as benchmark was
subsequently increased to P50,000.00 in the case
of Sulpicio Lines, Inc.  v. Court of Appeals, 20 which
involved the sinking of another interisland ship on
October 24, 1988.
We now turn to the determination of the earning
capacity of the victims. With respect to Ardita Miranda,
the trial court awarded damages computed as follows: 21
In the case of victim Ardita V. Miranda whose
age at the time of the accident was 48 years, her
life expectancy was computed to be 21.33 years,
and therefore, she could have lived up to almost
70 years old. Her gross earnings for 21.33 years
based on P10,224.00  per annum, would be
P218,077.92. Deducting therefrom 30% as her
living expenses, her net earnings would be
P152,654.55, to which plaintiff Ramon Miranda
is entitled to compensatory damages for the loss
of earning capacity of his wife. In considering
30% as the living expenses of Ardita Miranda,
the Court takes into account the fact that
plaintiff and his wife were supporting their
daughter and son who were both college
students taking Medicine and Law respectively.
In accordance with the ruling in Villa-Rey Transit,
Inc. v.  Court of Appeals, 22 we think the life expectancy of
Ardita Miranda was correctly determined to be 21.33
years, or up to age 69. Petitioner contends, however,
that Mrs. Miranda would have retired from her job as a
public school teacher at 65, hence her loss of earning
capacity should be reckoned up to 17.33 years only.
The accepted formula for determining life expectancy is
2/3 multiplied by (80 minus the age of the deceased). It
may be that in the Philippines the age of retirement
generally is 65 but, in calculating the life expectancy of
individuals for the purpose of determining loss of earning
capacity under Art. 2206(1) of the Civil Code, it is
assumed that the deceased would have earned income
even after retirement from a particular job. In this case,
the trial court took into account the fact that Mrs.
Miranda had a master's degree and a good prospect of
becoming principal of the school in which she was
teaching. There was reason to believe that her income
would have increased through the years and she could
still earn more after her retirement, e.g., by becoming a
consultant, had she not died. The gross earnings which
44
Mrs. Miranda could reasonably be expected to earn were
it not for her untimely death was, therefore, correctly
computed by the trial court to be P218,077.92 (given a
gross annual income of P10,224.00 and life expectancy of
21.33 years).
Petitioner contends that from the amount of gross
earnings, 60% should be deducted as necessary living
expenses, not merely 30% as the trial court allowed.
Petitioner contends that 30% is unrealistic, considering
that Mrs. Miranda's earnings would have been subject to
taxes, social security deductions and inflation.
We agree with this contention. In Villa-Rey Transit,
Inc. v.  Court of Appeals, 23 the Court allowed a deduction
of P1,184.00 for living expenses from the P2,184.00
annual salary of the victim, which is roughly 54.2%
thereof. The deceased was 29 years old and a training
assistant in the Bacnotan Cement Industries. In People
v.  Quilation, 24 the deceased was a 26-year old laborer
earning a daily wage. The court allowed a deduction of
P120,000.00 which was 51.3% of his annual gross
earnings of P234,000.00. In People v. Teehankee, 25 the
court allowed a deduction of P19,800.00, roughly 42.4%
thereof from the deceased's annual salary of P46,659.21.
The deceased, Maureen Hultman, was 17 years old and
had just received her first paycheck as a secretary. In the
case at bar, we hold that a deduction of 50% from Mrs.
Miranda's gross earnings (P218,077.92) would be
reasonable, so that her net earning capacity should be
P109,038.96. There is no basis for supposing that her
living expenses constituted a smaller percentage of her
gross income than the living expenses in the decided
cases. To hold that she would have used only a small part
of her income for herself, a larger part going to the
support of her children would be conjectural and
unreasonable.
As for Elfreda de la Victoria, the trial court found that, at
the time of her death, she was 26 years old, a teacher in
a private school in Malolos, Bulacan, earning P6,192.00
per annum. Although a probationary employee, she had
already been working in the school for two years at the
time of her death and she had a general efficiency rating
of 92.85% and it can be presumed that, if not for her
untimely death, she would have become a regular
teacher. Hence, her loss of earning capacity is
P111,456.00, computed as follows:
net earning = life x gross less reasonable
capacity (x) expectancy annual & necessary
 income living expenses
(50%)
x = [2(80-26)] x [P6,192.00 -
P3,096.00]
————
3 reason to disturb the award of P40,000.00 for
= 36
3,096.00
= The award of exemplary damages should be increased to
P111,456.00
On the other hand, the award of actual damages in the
amount of P23,075.00 was determined by the Court of
Appeals on the basis receipts submitted by private
respondents. This amount is reasonable considering the
expenses incurred by private respondent Miranda in
organizing three search teams to look for his family,
spending for transportation in going to places such as
Batangas City and Iloilo, where survivors and the bodies
of other victims were found, making long distance calls,
erecting a monument in honor of the four victims,
spending for obituaries in the Bulletin Today and for
food, masses and novenas.
Petitioner's contention that the expenses for the erection
of a monument and other expenses for memorial
services for the victims should be considered included in
the indemnity for death awarded to private respondents
is without merit. Indemnity for death is given to
compensate for violation of the rights of the
deceased, i.e., his right to life and physical integrity. 26 On
the other hand, damages incidental to or arising out of
such death are for pecuniary losses of the beneficiaries of
the deceased.
As for the award of attorney's fees, we agree with the
Court of Appeals that the amount of P40,000.00 for
private respondent Ramon Miranda and P15,000.00 for
the de la Victoria spouses is justified. The appellate court
correctly held:
The Mecenas case cannot be made the basis for
determining the award for attorney's fees. The
award would naturally vary or differ in each
case. While it is admitted that plaintiff-appellee
Ramon Miranda who is himself a lawyer,
represented also plaintiffs-appellees Dela
Victoria spouses, we note that separate
testimonial evidence were adduced by plaintiff-
appellee Ramon Miranda (TSN, February 26,
1982, p. 6) and plaintiffs-appellees spouses Dela
Victoria (TSN, August 13, 1981, p. 43).
Considering the amount of work and effort put
into the case as indicated by the voluminous
transcripts of stenographic notes, we find no
plaintiff-appellee Ramon Miranda and
x P15,000.00 for plaintiffs-appellees Dela Victoria
spouses. 27
P300,000.00 for Ramon Miranda and P100,000.00 for the
de la Victoria spouses in accordance with our ruling in
the Mecenas case:
Exemplary damages are designed by our civil
law to permit the courts to reshape behaviour
that is socially deleterious in its consequence by
creating negative incentives or deterrents
against such behaviour. In requiring compliance
with the standard of extraordinary diligence, a
standard which is in fact that of the highest
possible degree of diligence, from common
carriers and in creating a presumption of
negligence against them, the law seeks to
compel them to control their employees, to
tame their reckless instincts and to force them
to take adequate care of human beings and
their property. The Court will take judicial notice
of the dreadful regularity with which grievous
maritime disasters occur in our waters with
massive loss of life. The bulk of our population is
too poor to afford domestic air transportation.
So it is that notwithstanding the frequent
sinking of passenger vessels in our waters,
crowds of people continue to travel by sea. This
Court is prepared to use the instruments given
to it by the law for securing the ends of law and
public policy. One of those instruments is the
institution of exemplary damages; one of those
ends, of special importance in an archipelagic
state like the Philippines, is the safe and reliable
carriage of people and goods by sea. 28
WHEREFORE, the decision of the Court of Appeals is
AFFIRMED with modification and petitioner is ORDERED
to pay private respondents damages as follows:
45
To private respondent Ramon Miranda: petitioner Negros Navigation Co., Inc. shall reimburse
either of them such amount or amounts as either may
P23,075.00 for actual have paid, and in the event of failure of Negros
damages; Navigation Co., Inc., to make the necessary
reimbursement, PNOC and/or PNOC/STC shall be entitled
P109,038.96 as compensatory to a writ of execution without need of filing another
damages for loss of action.
earning capacity of his wife;
SO ORDERED.
P150,000.00 as compensatory
damages for wrongful Republic of the Philippines
death of three (3) victims; SUPREME COURT
Manila
P300,000.00 as moral
damages; SECOND DIVISION

P300,000.00 as exemplary G.R. No. L-28673 October 23, 1984

damages, all in the total
amount of P882,113.96; and
P40,000.00 as attorney's fees.
To private respondents Spouses Ricardo and Virginia de
la Victoria:
SAMAR MINING COMPANY, INC., plaintiff-appellee,
vs.
NORDEUTSCHER LLOYD and C.F. SHARP & COMPANY,
INC., defendants-appellants.
CUEVAS, J.:

P12,000.00 for actual This is an appeal taken directly to Us on certiorari from

damages; the decision of the defunct Court of First Instance of
Manila, finding defendants carrier and agent, liable for
P111,456.00 as compensatory the value of goods never delivered to plaintiff consignee.
damages for loss of The issue raised is a pure question of law, which is, the
earning capacity; liability of the defendants, now appellants, under the bill
of lading covering the subject shipment.
P50,000.00 as compensatory
damages for wrongful The case arose from an importation made by plaintiff,
death; 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-
P100,000.00 as moral
appellant NORDEUTSCHER LLOYD, (represented in the
damages;
Philippines by its agent, C.F. SHARP & CO., INC.), which
shipment is covered by Bill of Lading No. 18 duly issued
P100,000.00 as exemplary to consignee SAMAR MINING COMPANY, INC. Upon
damages, all in the total arrival of the aforesaid vessel at the port of Manila, the
amount of P373,456.00; and aforementioned importation was unloaded and delivered
in good order and condition to the bonded warehouse of
P15,000.00 as attorney's fees. AMCYL. 1 The goods were however never delivered to,
nor received by, the consignee at the port of destination
Petitioners are further ordered to pay costs of suit. — Davao.

In the event the Philippine National Oil Company and/or When the letters of complaint sent to defendants failed
the PNOC Shipping and Transport Corporation pay or are to elicit the desired response, consignee herein appellee,
required to pay all or a portion of the amounts adjudged, filed a formal claim for P1,691.93, the equivalent of

46
$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: têñ.£îhqwâ£
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": têñ.£îhqwâ£
47
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: têñ.
£îhqwâ£
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: têñ.£îhqwâ£
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: têñ.
£îhqwâ£
Whenever the carrier or m aster 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. vs. UNITED STATES
LINES, 22 SCRA 674 (1968). Said case matches the
present controversy not only as to the material facts but
more importantly, as to the stipulations contained in the
bill of lading concerned. As if to underline their awesome
likeness, the goods in question in both cases were
destined for Davao, but were discharged from ship in
Manila, in accordance with their respective bills of lading.
The stipulations in the bill of lading in the PHOENIX case
which are substantially the same as the subject
stipulations before Us, provides: têñ.£îhqwâ£
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.)
xxx xxx xxx
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
48
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: têñ.£îhqwâ£
... 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 Code. 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: têñ.£îhqwâ£
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.
Article 1738 referred to in the foregoing provision runs
thus: têñ.£îhqwâ£
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.
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 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
49
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: têñ.£îhqwâ£
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.
xxx xxx xxx
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:
 (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.

xxx xxx xxx

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.

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 AMCYT, which
acted as appellant's substitute in storing the goods
awaiting transshipment.

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.

50