Case 1

Eastern Shipping Lines, Inc. v. IAC and Development Insurance

& Surety Corp. G.R. No. L-69044, May 29, 1987 Eastern
Shipping Lines, Inc. v. The Nisshin Fire and Marine Insurance
Co., and Dowa Fire & Marine Insurance Co., Ltd. G.R. No.
71478, May 29, 1987
Melencio-Herrera, J.
FACTS: These two cases, both for the recovery of the value of
cargo insurance, arose from the same incident, the sinking of
the M/S Asiatica when it caught fire resulting to the total loss of
ship and cargo. In G.R. No. 69044, the M/S Asiatica, a vessel
operated by petitioner Eastern Shipping Lines (Petitioner
carrier) loaded at Kobe, Japan for transportation to Manila,
5,000 colorized lance pipes in 28 packages consigned to the
Philippine Blooming Mills, Co. and 7 cases of spare parts
consigned to Central Textile Mills, Inc. Both sets of goods were
insured against marine risk. In G.R. No. 71478, during the same
period, the same vessel took on board 128 cartons of garment
fabrics and accessories, in 2 containers, consigned to Mariveles
Apparel Co., and 2 cases of surveying instruments consigned to
Aman Enterprises and General Merchandise. En route for
Kolba, Japan to Manila, the vessel caught fire and sank,
resulting in the total loss of the ship and cargo. The respective
respondent insurers paid the corresponding marine insurance
values.
ISSUE: Whether or not the provisions of the Civil Code on
Common Carriers should govern.
RULING: The law of the country to which the goods are to be
transported governs the liability of the common carrier oin case
of their loss, destruction or deterioration. As the cargoes were
transported from Japan to the Philippines, the liability of
Petitioner carrier is governed primarily by the Civil Code.
However, in all matters not regulated by said Code, the rights
and obligations of common carrier shall be governed by the
Code of Commerce and by special laws. Thus, the Carriage of
Goods by Sea Act (COGSA), a special law, is suppletory to the
provisions of the Civil Code

Case 2
Cokaliong Shipping Lines v. UCPB G.R. No. 146018 / 25 June
2003
FACTS: On 11 December 1991, Nestor Angelia, both the shipper
and consignee, delivered to the petitioner, Cokaliong Shipping
Lines, cargo consisting of one carton of Christmas decorations
and two sacks of plastic toys, to be transported on board the
M/V Tandag scheduled to depart the following day from Cebu
City to Surigao del Sur. Zosimo Mercado, also the shipper and
consignee of cargo, likewise delivered to the petitioner two
cartons of plastic toys and Christmas decor, one roll of floor
matting, and one bundle of assorted goods for transportation.
The cargoes were both insured against all risk by Feliciana
Legaspi through the UCPB General Insurance Co. for
PHP150,000.00.
When the vessel left port, it had thirty-four passengers and
assorted cargo on board, including the goods of Legaspi.
However, after the vessel had passed by the Mandaue-Mactan
Bridge, a fire broke out in the engine room which threatened
the lives of everyone on board. Despite earnest efforts of the
officers and crew of the vessel to safeguard the cargoes, the
fire ultimately engulfed and destroyed the entire vessel
resulting in the loss of the vessel and the cargoes therein.
As a result of the sinking, Legaspi filed a claim with the
respondent which was subsequently approved with the
issuance of a check for PHP P148,500.00 as payment for the lost
goods. Having been issued a Subrogation Receipt for both
insured cargoes, the UPCB filed a claim anchored on torts
against Cokaliong Shipping Lines and sought to collect the sum
it payed to Legaspi plus legal interest, attorney’s fees, and the
cost of the suit. They principal claim upon which UPCB anchors
its case is that the loss of the cargo was due to the negligence
of the officers of the shipping company which makes them
liable to pay for damages by reason of their carelessness.
The petitioners, on the other hand, alleged that they had
already been cleared by the Board of Marine Inquiry of any
negligence in the burning of the vessel and the
shippers/consignee had already been paid the value of the
goods as stated in the Bill of Lading and, hence, they cannot be
held liable for the loss of the cargo beyond the value thereof
declared in the Bills of Lading – a total of PHP20,500.00 for both
cargoes it had issued to Legaspi Marketing Corporation and
Nestor Angelia which supposedly extinguishes their liability
with the respondent.
Both the Regional Trial Court and the Court of Appeals found
the case in favor of the respondent. While it was true that the
petitioner had paid PHP14,000.00 to Legaspi Marketing, the
appellate court held that the payment did not extinguish the
petitioner’s obligation to pay the insurance price because there
was no evidence that Feliciana Legaspi was the same owner of
Legaspi Marketing. They also pointed out the impropriety of
treating the claim covering the cargo valued therein at P6,500
as a setoff against Nestor Angelia’s account with Chester
Enterprises, Inc. Finally, it ruled that the UPCB is not bound by
the valuation of the cargo under the Bills of Lading issued
because the goods were insured with the respondent for the
total amount of PHP150,000.00.
ISSUE: Can the petitioner be liable for the lost goods? If it is,
what is the extent of their liability?
RULING: Yes, the petitioner is liable for the lost cargoes. The
uncontroverted findings of the Philippine Coast Guard show
that the M/V Tandag sank due to a fire, which resulted from an
unchecked and untended crack in the auxiliary engine fuel oil
service tank from which fuel spurted out and dripped to the
heating exhaust manifold, causing the ship to burst into flames.
The crack was located on the side of the fuel oil tank, which had
a mere two-inch gap from the engine room walling, thus
precluding constant inspection and care by the crew. The law
provides that a common carrier is presumed to have been
negligent if it fails to prove that it exercised extraordinary
vigilance over the goods it transported therewith. Where loss of
cargo results from the failure of the officers of a vessel to
inspect their ship frequently so that they would have
discovered the existence of cracked, that loss cannot be
attributed to force majeure or even be considered as a caso
fortuito, but solely to the negligence of those officials who were
supposed to have inspected the worthiness of their vessel
before departure.
With respect to the extent of its liability, the respondent
contended that the petitioner’s liability should be based on the
actual insured value of the goods while the petitioner claimed
that its liability should be limited to the value declared by the
shipper/consignee in the Bill of Lading. A stipulation in a Bill of
Lading limiting the common carrier’s liability for loss or
destruction of a cargo to a certain sum, unless the shipper or
owner declares a greater value, is sanctioned by Articles 1749
and 1750 of the New Civil Code. The purpose of the limiting
stipulations in Bills of Lading is to protect the common carrier
from exorbitant liabilities since such it obliges the
shipper/consignee to notify the common carrier of the amount
that the latter may be liable for in case of loss of the goods. The
common carrier can then take appropriate measures to protect
itself from harm.
Pursuant to the aforementioned provisions of law, it then must
be required that the stipulation limiting the common carrier’s
liability for loss must be reasonable and just under the
circumstances, and has been freely and fairly agreed upon. In
the present case, however, in their desire to obtain lower
freightage fees, Zosimo Mercado and Nestor Angelia willfully
misled the petitioner by undervaluing the goods in their
respective Bills of Lading, hence, the petitioner was exposed to
a risk that was deliberately hidden from it, and from which it
could not protect itself. Not only did it violate a valid
contractual stipulation, they likewise committed a fraudulent
act which sought to make the common carrier liable for more
than the amount declared in the Bills of Lading.
Considering these circumstances then, in addition to the facts
that the insurance company was paid the correct higher
premium by Feliciana Legaspi while the petitioner was paid a
fee lower than what it was entitled to for transporting the
goods that had been deliberately undervalued by the shippers
in the Bills of Lading they prepared, it is in accordance with
justice and equity that between the two of them, UPCB should
bear the loss in excess of the value declared in the Bills of
Lading.

Case 3
G.R. No. 116940 June 11, 1997
The Phil. American Gen. Insurance Co., Inc.
vs Court of Appeals and Felman Shipping Lines
Ponente: Bellosillo

Facts:
July 6, 1983 Coca-cola loaded on board MV Asilda, owned and
operated by Felman, 7,500 cases of 1-liter Coca-Cola soft drink
bottles to be transported to Zamboanga City to Cebu. The
shipment was insured with Philamgen.
July 7, the vessel sank in Zamboanga del Norte. July 15,
cocacola filed a claim with respondent Felman for recovery of
damages. Felman denied thus prompted cocacola to file an
insurance claim with Philamgen. Philamgen later on claimed its
right of subrogation against Felman which disclaimed any
liability for the loss.
Philamgen alleged that the sinking and loss were due to the
vessel's unseaworthiness, that the vessel was improperly
manned and its officers were grossly negligent. Felman filed a
motion to dismiss saying that there is no right of subrogation in
favor of Philamgen was transmitted by the shipper.
RTC dismissed the complaint of Philamgen. CA set aside the
dismissal and remanded the case to the lower court for trial on
the merits. Felman filed a petition for certiorari but was denied.
RTC rendered judgment in favor of Felman. it ruled that the
vessel was seaworthy when it left the port of Zamboanga as
evidenced by the certificate issued by the Phil. Coast Guard and
the ship owner’s surveyor. Thus, the loss is due to a fortuitous
event, in which, no liability should attach unless there is
stipulation or negligence.
On appeal, CA rendered judgment finding the vessel
unseaworthy for the cargo for being top-heavy and the
cocacola bottles were also improperly stored on deck.
Nonetheless, the CA denied the claim of Philamgen, saying that
Philamgen was not properly subrogated to the rights and
interests of the shipper plus the filing of notice of
abandonment had absolved the ship owner from liability under
the limited liability rule.
Issues: (a) Whether the vessel was seaworthy, (b) whether
limited liability rule should apply and (c) whether Philamgen
was properly subrogated to the rights against Felman.
Ruling:
(a) The vessel was unseaworthy. The proximate cause thru the
findings of the Elite Adjusters, Inc., is the vessel's being top-
heavy. Evidence shows that days after the sinking coca-cola
bottles were found near the vicinity of the sinking which would
mean that the bottles were in fact stowed on deck which the
vessel was not designed to carry substantial amount of cargo
on deck. The inordinate loading of cargo deck resulted in the
decrease of the vessel's metacentric height thus making it
unstable.
(b) Art. 587 of the Code of Commerce is not applicable, the
agent is liable for the negligent acts of the captain in the care of
the goods. This liability however can be limited through
abandonment of the vessel, its equipment and freightage.
Nonetheless, there are exceptions wherein the ship agent could
still be held answerable despite the abandonment, as where
the loss or injury was due to the fault of the ship owner and the
captain. The international rule is that the right of abandonment
of vessels, as legal limitation of liability, does not apply to cases
where the injury was occasioned by the fault of the ship owner.
Felman was negligent, it cannot therefore escape liability.
(c) Generally, in marine insurance policy, the assured impliedly
warrants to the assurer that the vessel is seaworthy and such
warranty is as much a term of the contract as if expressly
written on the face of the policy. However, the implied
warranty of seaworthiness can be excluded by terms in writing
in the policy of the clearest language. The marine policy issued
by Philamgen to cocacola has dispensed that the
"seaworthiness of the vessel as between the assured and the
underwriters in hereby admitted."
The result of the admission of seaworthiness by Philamgen may
mean two things: (1) the warranty of seaworthiness is fulfilled
and (2) the risk of unseaworthiness is assumed by the insurance
company. This waiver clause would mean that Philamgen has
accepted the risk of unseaworthiness, therefore Philamgen is
liable.
On the matter of subrogation, it is provided that;
Art. 2207. If the plaintiff's property has been insured,
and he has received indemnity from the insurance company for
the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to
the rights of the insured against the wrongdoer or the person
who has violated the contract. If the amount paid by the
insurance company does not fully cover the injury or loss, the
aggrieved party shall be entitled to recover the deficiency from
the person causing the loss or injury.
Pan Malayan Insurance Corp. vs CA: The right of subrogation is
not dependent upon, nor does it grow out of any privity of
contract or upon payment by the insurance company of the
insurance claim. It accrues simply upon payment by the
insurance company of the insurance claim.
Therefore, the payment made by PHILAMGEN to Coca-Cola
Bottlers Philippines, Inc., gave the former the right to bring an
action as subrogee against FELMAN. Having failed to rebut the
presumption of fault, the liability of FELMAN for the loss of the
7,500 cases of 1-liter Coca-Cola soft drink bottles is inevitable.
WHEREFORE, the petition is GRANTED. Respondent FELMAN
SHIPPING LINES is ordered to pay petitioner PHILIPPINE
AMERICAN GENERAL INSURANCE CO., INC.
Case 4
Sarkies Tours Philippines, Inc. v. CA G.R. No. 108897/ 2
October 1997
FACTS: On 31 August 1984, Fatima boarded the petitioner’s De
Luxe Bus No. 5 in Manila on her way to Legazpi City. Her
brother, Raul, helped her load three pieces of luggage
containing all of her optometry review books, materials,
equipment, trial lenses, trial contact lenses, passport and visa,
as well as her mother’s US Immigration Green Card, among
other important documents and personal belongings. Her
belongings were kept in the baggage compartment of the bus,
but during a stopover at Daet, it was discovered that all but one
bag remained in the open compartment. The others
passengers, including Fatima, suggested retracing the route to
try to recover the lost items, but the driver ignored them and
instead proceeded to Legazpi City.
Fatima immediately reported the loss to her mother who, in
turn, went to petitioner’s office in Legazpi City and later at its
head office in Manila. The latter, however, merely offered her
P1,000.00 for each piece of luggage lost which she turned
down. After returning to Bicol, they asked assistance from the
radio stations and even from Philtranco bus drivers who plied
the same route on August 31st. The effort paid off when one of
Fatima’s bags was recovered. Marisol also reported the incident
to the National Bureau of Investigations field office in Legazpi
City, and to the local police.
On 20 September 1984, respondents, through counsel, formally
demanded satisfaction of their complaint from petitioner. In a
letter dated 1 October 1984, the latter apologized for the delay
and said that (a) team has been sent out to Bicol for the
purpose of recovering or at least getting the full detail of the
incident. However, after more than nine months of fruitless
waiting, the respondents decided to instead file a case for
damages to recover the value of the remaining lost items, as
well as moral and exemplary damages, attorney’s fees, and
expenses of litigation.
The respondents claimed that the loss was due to petitioner’s
failure to observe extraordinary diligence in the care of
Fatima’s luggage and that petitioner dealt with them in bad
faith from the start. The petitioner, on the other hand,
disowned any liability for the loss on the ground that Fatima
allegedly did not declare any excess baggage upon boarding its
bus. In the end, both the trial and appellate courts resolved the
matter in favor of the respondents in declaring Sarkies Tours
liable for the losses. Hoping to turn the decision around, the
petitioner elevated the case to the Supreme Court for review.
ISSUE: whether or not the petitioner is liable for the lost
luggage
RULING: Yes, they are. Despite what the petitioner would have
the Court believe, the documentary and testimonial evidence
presented at the trial established that Fatima indeed boarded
the bus and brought three pieces of luggage with her, one of
them was even recovered with the help of a Philtranco bus
driver. Furthermore, in its letter on 1 October, the petitioner
tacitly admitted its liability by apologizing to respondents and
assuring them that efforts were being made to recover the lost
items. The records also reveal that respondents went to great
lengths just to salvage their loss. The incident was reported to
the police, the NBI, and the regional and head offices of
petitioner. Marisol even sought the assistance of Philtranco bus
drivers and the radio stations. To expedite the replacement of
her mother’s lost immigration documents, Fatima also had to
execute an affidavit of loss. Clearly, they would not have gone
through all that trouble in pursuit of a fancied loss. In fact,
Fatima was not the only one who lost her luggage as well as
other passengers have testified to have suffered similar fates as
well. Under the Civil Code, common carriers, from the nature of
their business and for reasons of public policy, are bound to
observe extraordinary diligence in the vigilance over the goods
transported by them, and this liability lasts from the time the
goods are unconditionally placed in the possession of, and
received by, the carrier for transportation until the same are
delivered, actually or constructively, to the person who has a
right to receive them, unless the loss is due to any of the
excepted causes under Article 1734 thereof.
The cause of the loss in the case at bar was the petitioner’s
negligence in not ensuring that the doors of the baggage
compartment of its bus were securely fastened. As a result of
this lack of care, almost all the luggage was lost to the prejudice
of the paying passengers. Where the common carrier accepted
its passenger’s baggage for transportation and even had it
placed in the vehicle by its own employee, its failure to collect
the necessary freight charge is the common carrier’s own
lookout, but it is nevertheless still responsible for the
consequent loss of the baggage.

Case 5
Coastwise Lighterage Corp. vs. Court of Appeals and Philippine
General Insurance Company
G.R. No. 114167, July 12, 1995
245 SCRA 796

FACTS:
The consignee entered into a contract of affreightment which is
to transport molasses from the province of Negros to Manila
with the carrier using the latter’s barges. The barges were
towed in tandem by the tugboat MT Marica, also owned by the
carrier. While approaching the pier of destination, one of the
barges, “Coastwise 9” was struck and as a result, the molasses
at the cargo tanks were contaminated and rendered unfit for
the use it was intended. The consignee rejected the shipment
of molasses as a total loss. The insurer paid the consignee the
amount representing the value of the damaged cargo of
molasses.
Parties:
Consignee – Pag-asa Sales, Inc.
Carrier – Coastwise Lighterage Corporation (Coastwise)
Insurer of the cargo – Philippine General Insurance Company
(PhilGen)
ISSUES:
1. WON Coastwise Lighterage was transformed into a private
carrier, by virtue of the contract of affreightment which it
entered into with the consignee, Pag-asa Sales, Inc. What is the
extent of its liability over the lost, damaged and deteriorated
cargo?
2. WON the insurer was subrogated into the rights of the
consignee against the carrier, upon payment by the insurer of
the value of the consignee’s goods lost while on board one of
the carrier’s vessels.
RULING:
1. No. The contract of affreightment entered into between the
consignee and the carrier did not convert the latter into a
private carrier, but remained a common carrier and was still
liable as such. The consignee only leased three of petitioner’s
vessels, in order to carry cargo from one point to another, but
the possession, command and navigation of the vessels
remained with petitioner carrier.
As a common carrier, the presumption of negligence attaches
to it when the goods it transports are lost, destroyed or
deteriorated. This presumption may be overcame only by proof
of the exercise of extraordinary diligence such as placing a
person with navigational skills. However, the carrier failed to
overcome this presumption of negligence as the patron did not
possess the necessary license to navigate.
2. Petitioner carrier was liable for breach of the contract of
carriage it entered into with the consignee. In accordance with
Art. 2207, payment by the insurer to the assured operated as
an equitable assignment to the former of all remedies which
the latter may have against the third party whose negligence or
wrongful act caused the loss. If the insured property is
destroyed or damaged through the fault or negligence of a
party other than the assured, then the insurer, upon payment
to the assured will be subrogated to the rights of the assured to
recover from the wrongdoer to the extent that the insurer has
been obligated to pay.

NOTES:
The distinction between the two kinds of charter parties (i.e.
bareboat or demise and contract of affreightment) –
Under the demise or bareboat charter of the vessel, the
charterer will generally be regarded as the owner for the
voyage or service stipulated. The charterer mans the vessel
with his own people and becomes the owner pro hac vice,
subject to liability to others for damages caused by negligence.
To create a demise, the owner of a vessel must completely and
exclusively relinquish possession, command and navigation
thereof to the charterer, anything short of such a complete
transfer is a contract of affreightment (time or voyage charter
party) or not a charter party at all.
On the other hand a contract of affreightment is one in which
the owner of the vessel leases part or all of its space to haul
goods for others. It is a contract for special service to be
rendered by the owner of the vessel and under such contract
the general owner retains the possession, command and
navigation of the ship, the charterer or freighter merely having
use of the space in the vessel in return for his payment of the
charter hire. . . . . . . . . An owner who retains possession of the
ship though the hold is the property of the charterer, remains
liable as carrier and must answer for any breach of duty as to
the care, loading and unloading of the cargo. . . . – Puromines,
Inc. vs. Court of Appeals,
Coastwise Lighterage Corp. vs. Court of Appeals, et al. G.R. No.
114167, July 12, 1995

Case 6
Benito Macam, doing business under the name and style Ben-
Mac Enterprises vs. Courts of Appeals, China Ocean Shipping
Co., and/or Wallem Philippines Shipping, Inc.
G.R. No. 125524, August 25, 1999
FACTS:
On 6 April 1989, petitioner Benito Macam shipped on board the
vessel Nen Jiang, owned and operated by respondent China
Ocean Shipping Co., through local agent respondent Wallem
Philippines Shipping, Inc. boxes of watermelons and mangoes
which were covered by bill of ladings and exported through
letters of credit issued by National Bank of Pakistan, Hongkong
(Pakistan Bank). The Bills of Lading contained the following
pertinent provision: “One of the Bills of Lading must be
surrendered duly endorsed in exchange for the goods or
delivery order.” The shipment was bound for Hongkong with
Pakistan Bank as consignee and Great Prospect Company of
Kowloon, Hongkong (GPC) as notify party.
On 6 April 1989, copies of the bills of lading and commercial
invoices were submitted to petitioner’s depository bank,
Consolidated Banking Corporation (Solidbank), which paid
petitioner in advance the total value of the shipment.
Upon arrival in Hongkong and after receiving a telex instruction,
the shipment was delivered by respondent Wallem directly to
GPC, not to Pakistan Bank, and without the required bill of
lading having been surrendered. Subsequently, GPC failed to
pay Pakistan Bank such that the latter, still in possession of the
original bills of lading, refused to pay petitioner through
Solidbank.
ISSUE:
Whether or not Wallem is liable for the goods it delivered to
GPC without presentation of the bills of lading and bank
guarantee.
RULING:
NO. Wallem is not liable for the following reasons:
1. It delivered the goods to the person who has the right to
receive them. This is in accordance with Art. 1736 which states
that: The extraordinary responsibility of the common carriers
lasts from the time the goods are unconditionally placed in the
possession of, and received by the carrier for transportation
until the same are delivered, actually or constructively, by the
carrier to the consignee, or to the person who has a right to
receive them, without prejudice to the provisions of article
1738. GPC, even though designated as the notify party in the
bills of lading, was clearly named as buyer/importer in the
export invoices.
2. The petitioner sent instructions through telex to deliver
various shipments to the respective consignees without need of
presenting the bill of lading and bank guarantee per the
respective shipper’s request since “for prepaid shipt ofrt
charges already fully paid.” GPC is listed as one among the
several consignees in the telex.

Case 7
Servando V. Philippine Steam Navigation Co. (1982)
Lessons Applicable: Contract of Adhesion (Transportation)
Laws Applicable: Article 1736, Article 1174
FACTS:
Clara Uy Bico (1,528 cavans of rice worth P40,907.50) and
Amparo Servando (44 cartons of colored paper toys and
general merchandise worth P1,070.50) loaded on
board Philippine Steam Navigation Co.'s vessel, FS-176 for
carriage from Manila to Pulupandan, Negros Occidental
Bill of Lading:
Clause 14. Carrier shall not be responsible for loss or damage
to shipments billed 'owner's risk' unless such loss or damage is
due to negligence of carrier. Nor shall carrier be responsible for
loss or damage caused by force majeure, dangers or accidents
of the sea or other waters; war; public enemies; . . . fire . ...
Upon arrival of the vessel at Pulupandan, in the morning of
November 18, 1963, the cargoes were discharged, complete
and in good order, unto the warehouse of the Bureau of
Customs
2 pm: warehouse was razed by fire
Before the fire, 907 cavans of rice were delivered by Uy Bico
Uy Bico and Servando filed a claim for the value but was
rejected by Philippine Steam
CFI: favored UY Bico and Sercando
delivery of the shipment in question to the warehouse of the
Bureau of Customs is not the delivery contemplated by Article
1736
ISSUE: W/N Philippine Steam should not be liable because of
the stipulation in the bill of lading exempting it
from fortuitous event
HELD: YES. set aside

Agreement was in iteration of

Article 1174. Except in cases expressly specified by the law, or
when it is otherwise declared by stipulation, or when the
nature of the obligation requires the assumption of risk, no
person shall be responsible for those events which could not be
foreseen, or which, though foreseen, were inevitable.
'caso fortuito' presents the following essential characteristics:
(1) the cause of the unforeseen and unexpected occurrence, or
of the failure of the debtor to comply with his obligation, must
be independent of the human will; (2) it must be impossible to
foresee the event which constitutes the 'caso fortuito', or if it
can be foreseen, it must be impossible to avoid; (3) the
occurrence must be such as to render it impossible for the
debtor to fulfill his obligation in a normal manner; and (4) the
obligor must be free from any participation in the aggravation
of the injury resulting to the creditor." In the case at bar, the
burning of the customs warehouse was an extraordinary event
which happened independently of the will of the appellant. The
latter could not have foreseen the event.
nothing in the record to show that appellant carrier ,incurred in
delay in the performance of its obligation

Case 8
MAERSK LINES V CA GR. No. 94761, May 17, 1993
FACTS: Petitioner Maersk Line is engaged in the transportation
of goods by sea, doing business in the Philippines through its
general agent Compania de Tabacos de Filipinas, while private
respondent Efren Castillo is the proprietor of Ethegal
Laboratories, a firm engaged in the manufacture of
pharmaceutical products.
On Nov. 12, 1976, Castillo ordered from Eli Lilly, Inc. of Puerto
Rico 600,000 empty gelatin capsules for the manufacture of his
pharmaceutical products. The capsules were placed in 6 drums
of 100,000 capsules each valued at US$1,668.71. Shipper Eli
Liily,Inc. advised Castillo through a Memorandum of Shipment
that the products were already shipped on board MV ―Anders
Maesrkline‖ and date of arrival to be April 3, 1977.
However, for unknown reasons, said cargoes of capsules were
diverted to Richmond, VA and then transported back to
Oakland, CA and with the goods finally arriving in the PI on June
10, 1977. Consignee Castillo refused to take delivery of the
goods on account of its failure to arrive on time, and filed an
action for rescission of contract with damages against Maersk
and Eli Lilly alleging gross negligence and undue delay.
Maersk contends that it is liable only in case of loss, destruction
or deterioration of goods under Art 1734 NCC while Eli Lilly in
its cross claim argued that the delay was due solely to the
negligence of Maersk Line. Trial Court dismissed the complaint
against Eli Lilly and the latter withdrew cross claim but TC still
held Maersk liable and CA affirmed with modifications.
ISSUE: Whether or not the common carrier is liable for
damages.
RULING: The SC has 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 NCC and not under the law on
Admiralty.
In the case at bar, 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 insistence that it cannot be held liable for the delay
finds no merit

Case 9
TABACALERA INSURANCE CO., PRUDENTIAL GUARANTEE &
ASSURANCE, INC., and NEW ZEALAND INSURANCE CO., LTD.
vs. NORTH FRONT SHIPPING SERVICES, INC., and COURT OF
APPEALS
[G.R. No. 119197. May 16, 1997]

FACTS:
Petitioners are insurers of a shipment of sacks of corn grains
consigned to Republic Flour Mills Corporation in Manila. The
cargo was shipped by North Front Shipping Services, Inc. The
consignee was advised of its arrival but the unloading was
delayed for six days for unknown reason, and the merchandise
was already moldy, rancid and deteriorating.

The moisture content and the wetting was due to contact with
salt water but the mold growth was only incipient and not
sufficient to make the corn grains toxic and unfit for
consumption. In fact the mold growth could still be arrested by
drying. However, Republic Flour rejected the entire cargo which
therefore forced the petitioners to pay the former.
Now, as subrogees, they lodged a complaint for damages
against respondents claiming that the loss was exclusively
attributable to the fault and negligence of the carrier. The
Marine Cargo Adjusters hired by the insurance companies
conducted a survey and found cracks in the bodega of the
barge and heavy concentration of molds on the tarpaulins and
wooden boards. They did not notice any seals in the hatches.
The tarpaulins were not brand new as there were patches on
them, contrary to the claim of North Front Shipping Services,
Inc., thus making it possible for water to seep in. They also
discovered that the bulkhead of the barge was rusty.

The trial court dismissed the complaint and ruled that the
contract entered into between North Front Shipping Services,
Inc., and Republic Flour Mills Corporation was a charter-party
agreement. As such, only ordinary diligence in the care of goods
was required. On the other hand, the Court of Appeals ruled
that as a common carrier required to observe a higher degree
of diligence North Front 777 satisfactorily complied with all the
requirements hence was issued a Permit to Sail after proper
inspection.

ISSUE:
Whether or not a charter-party agreement between P and R
requires extraordinary diligence.

HELD:
Yes. The charter-party agreement between North Front
Shipping Services, Inc., and Republic Flour Mills Corporation did
not in any way convert the common carrier into a private
carrier.

xxx

North Front Shipping Services, Inc., is a corporation engaged in

the business of transporting cargo and offers its services
indiscriminately to the public. It is without doubt a common
carrier. As such it is required to observe extraordinary diligence
in its vigilance over the goods it transports. When goods placed
in its care are lost or damaged, the carrier is presumed to have
been at fault or to have acted negligently. North Front Shipping
Services, Inc., therefore has the burden of proving that it
observed extraordinary diligence in order to avoid
responsibility for the lost cargo.

However, we cannot attribute the destruction, loss or

deterioration of the cargo solely to the carrier. We find the
consignee Republic Flour Mills Corporation guilty of
contributory negligence. It was seasonably notified of the
arrival of the barge but did not immediately start the unloading
operations. No explanation was proffered by the consignee as
to why there was a delay of six (6) days. Had the unloading
been commenced immediately the loss could have been
completely avoided or at least minimized. As testified to by the
chemist who analyzed the corn samples, the mold growth was
only at its incipient stage and could still be arrested by drying.
The corn grains were not yet toxic or unfit for consumption.

Case 10
Ganzon v. CA (G.R. No. L-48757)
Facts:
Private respondent Tumambing contracted the services of
petitioner Ganzon to haul 305 tons of scrap iron from Bataan to
the port of Manila on board the lighter LCT “Batman.”
Petitioner sent his lighter with its Captain Filomeno to dock at
Mariveles, where respondent Tumambing delivered the scrap
irons for loading which also begun on the same day. Mayor
Advincula arrived at the port and demanded P 5,000
shakedown from respondent. The two ended up in a heated
argument where respondent had to be taken to a hospital to be
treated of a gunshot wound. After sometime, the loading of the
scrap iron was resumed. But now, the Acting Mayor together
with 3 policemen ordered Captain Filomeno to dump the scrap
iron where the lighter was docked and the rest to be brought to
NASSCO compound. Later, the Acting Mayor issued a receipt
stating that the Municipality had taken custody of the scrap
iron. Respondent instituted an action for damages against
petitioner. Respondent Court found in favor for Tumambing.
Issue:
Whether or not petitioner Ganzon, a common carrier, can be
exempt from liability by invoking order of competent authority.
Ruling: NO.
The petitioner has failed to show that the loss of the scraps was
due to any of the following causes enumerated in Article 1734
of the Civil Code.
Before the appellee Ganzon could be absolved from
responsibility on the ground that he was ordered by competent
public authority to unload the scrap iron, it must be shown that
Acting Mayor Basilio Rub had the power to issue the disputed
order, or that it was lawful, or that it was issued under legal
process of authority. The appellee failed to establish this.
Indeed, no authority or power of the acting mayor to issue such
an order was given in evidence. Neither has it been shown that
the cargo of scrap iron belonged to the Municipality of
Mariveles. The fact remains that the order given by the acting
mayor to dump the scrap iron into the sea was part of the
pressure applied by Mayor Jose Advincula to shakedown the
appellant for P5,000.00. The order of the acting mayor did not
constitute valid authority for appellee Mauro Ganzon and his
representatives to carry out. The petitioner was not duty bound
to obey the illegal order to dump into the sea the scrap iron.

Case 11
Loadstar Shipping Corporation Inc. vs Court of Appeals GR No
131621
FACTS: 19 November 1984, Loadstar Shipping Corporation Inc.
received on board its M/V Cherokee (vessel herein is insured by
Prudential Guarantee and Assurance, Inc. (PGAI)) a) 705 bales
of lawanit hardwood, b) 27 boxes and crates of tilewood
assemblies and others; and c) 49 bundles of mouldings R & W
(3) Apitong Bolidenized for shipping, all amounting to
P6,067,178 (goods herein insured by Manila Insurance Co.
(MIC)). On 20 November 1984, on its way to Manila from the
port of Nasipit, Agusan del Norte, the vessel, along with its
cargo, sank off Limasawa Island.
On 4 February 1985, MIC filed a complaint against Loadstar and
PGAI, alleging that the sinking of the vessel was due to the fault
and negligence of Loadstar and its employees. It also prayed
that PGAI be ordered to pay the insurance proceeds from the
loss of the vessel directly to MIC, said amount to be deducted
from MICs claim from LOADSTAR.
Loadstar denied any liability and claimed that the sinking of its
vessel was due to force majeure. PGAI averred that MIC had no
cause of action against it, Loadstar being the party insured.
PGAI was later dropped as a party defendant after it paid the
insurance proceeds to LOADSTAR.
RTC rendered judgment in favor of MIC, which was affirmed by
the trial court.
Petitioner's (Loadstar) Contention:
• Loadstar submits that the vessel was a private carrier
because it was not issued a certificate of public convenience, it
did not have a regular trip or schedule nor a fixed route, and
there was only one shipper, one consignee for a special cargo.
While it is true that the vessel had on board only the cargo of
wood products for delivery to one consignee, it was also
carrying passengers as part of its regular business. Moreover,
the bills of lading in this case made no mention of any charter
party but only a statement that the vessel was a general cargo
carrier. Neither was there any special arrangement between
LOADSTAR and the shipper regarding the shipment of the
cargo. The singular fact that the vessel was carrying a particular
type of cargo for one shipper is not sufficient to convert the
vessel into a private carrier.
• Petitioner argues that as a private carrier, it cannot be
presumed to have been negligent, and the burden of proving
otherwise devolved upon MIC.
Loadstar also maintains that the vessel was seaworthy. Before
the fateful voyage, the vessel was allegedly dry docked was
duly inspected and certified fit for voyage by the maritime
safety engineers of the Philippine Coast Guard. Its crew at the
time was experienced, licensed and unquestionably competent.
Therefore it exercised the diligence of a good father of a family
in ensuring the vessels seaworthiness.
• Loadstar further claims that it was not responsible for the loss
of the cargo, such loss being due to force majeure. It points out
that when the vessel left Nasipit, Agusan del Norte the weather
was fine until the next day when the vessel sank due to strong
waves.
• Loadstar goes on to argue that, being a private carrier, any
agreement limiting its liability, such as what transpired in this
case, is valid. Since the cargo was being shipped at owners risk,
LOADSTAR was not liable for any loss or damage to the same.
Private Respondent's (Manila Insurance Co.) Answer:
• MIC, on the other hand, claims that LOADSTAR was liable,
notwithstanding that the loss of the cargo was due to force
majeure, because the same concurred with LOADSTARS fault or
negligence.
• The limited liability theory is not applicable in the case at bar
because LOADSTAR was at fault or negligent, and because it
failed to maintain a seaworthy vessel. Authorizing the voyage
notwithstanding its knowledge of a typhoon is tantamount to
negligence.
ISSUE/S:
(1) whether or not the M/V Cherokee is a common carrier
(2) whether or not LOADSTAR observed due and/or ordinary
diligence in these premises
Ruling:
(1) LOADSTAR is a common carrier. It is not necessary that the
carrier be issued a certificate of public convenience, and this
public character is not altered by the fact that the carriage of
the goods in question was periodic, occasional, episodic or
unscheduled. The records do not disclose that the M/V
Cherokee, undertook to carry a special cargo or was chartered
to a special person only. There was no charter party. The bills of
lading failed to show any special arrangement, but only a
general provision to the effect that the M/V Cherokee was a
general cargo carrier. Further, the bare fact that the vessel was
carrying a particular type of cargo for one shipper, which
appears to be purely coincidental, is not reason enough to
convert the vessel from a common to a private carrier,
especially where, as in this case, it was shown that the vessel
was also carrying passengers.
The Court of Appeals referred to the fact that private
respondent held no certificate of public convenience, and
concluded he was not a common carrier. This is palpable error.
A certificate of public convenience is not a requisite for the
incurring of liability under the Civil Code provisions governing
common carriers. To exempt private respondent from the
liabilities of a common carrier because he has not secured the
necessary certificate of public convenience, would be offensive
to sound public policy; that would be to reward private
respondent precisely for failing to comply with applicable
statutory requirements.
(2) The Court finds that the M/V Cherokee was not seaworthy
when it embarked on its voyage on 19 November 1984. The
vessel was not even sufficiently manned at the time. For a
vessel to be seaworthy, it must be adequately equipped for the
voyage and manned with a sufficient number of competent
officers and crew. The failure of a common carrier to maintain
in seaworthy condition its vessel involved in a contract of
carriage is a clear breach of its duty prescribed in Article 1755
of the Civil Code. Neither do we agree with LOADSTAR’s
argument that the limited liability theory should be applied in
this case. The doctrine of limited liability does not apply where
there was negligence on the part of the vessel owner or agent.

Case 12
PRECILLANO NECESITO, ETC. vs. NATIVIDAD PARAS, ET AL.
G.R. No. L-10605, June 30, 1958)

FACTS:

A mother and her son boarded a passenger auto-truck of the

Philippine Rabbit Bus Lines. While entering a wooden bridge, its
front wheels swerved to the right, the driver lost control and
the truck fell into a breast-deep creek. The mother drowned
and the son sustained injuries. These cases involve actions ex
contractu against the owners of PRBL filed by the son and the
heirs of the mother. Lower Court dismissed the actions, holding
that the accident was a fortuitous event.

ISSUE:

Whether or not the carrier is liable for the manufacturing

defect of the steering knuckle, and whether the evidence
discloses that in regard thereto the carrier exercised the
diligence required by law (Art. 1755, new Civil Code)

HELD: Yes.

While the carrier is not an insurer of the safety of the

passengers, the manufacturer of the defective appliance is
considered in law the agent of the carrier, and the good repute
of the manufacturer will not relieve the carrier from liability.
The rationale of the carrier’s liability is the fact that the
passengers has no privity with the manufacturer of the
defective equipment; hence, he has no remedy against him,
while the carrier has. We find that the defect could be
detected. The periodical, usual inspection of the steering
knuckle did not measure up to the “utmost diligence of a very
cautious person” as “far as human care and foresight can
provide” and therefore the knuckle’s failure cannot be
considered a fortuitous event that exempts the carrier from
responsibility.
HELD:
1. YES.
▪ A stipulation in the bill of lading limiting the common
carrier’s liability for loss or destruction of a cargo to a
certain sum, unless the shipper or owner declares a
greater value, is sanctioned by law, particularly
Articles 1749 and 1750 of the Civil Code which
provide:

ART. 1749. A stipulation that the common carrier’s liability

is limited to the value of the goods appearing in the bill of
lading, unless the shipper or owner declares a greater value,
is binding.

ART. 1750. A contract fixing the sum that may be recovered

by the owner or shipper for the loss, destruction, or
deterioration of the goods is valid, if it is reasonable and just
under the circumstances, and has been freely and fairly
agreed upon.
▪ Maruman Trading, had the option to declare a higher

valuation if the value of its cargo was higher than the

limited liability of the carrier. Considering that the
shipper did not declare a higher valuation, it had
itself to blame for not complying with the
stipulations.
▪ The trial court’s ratiocination that private respondent

could not have “fairly and freely” agreed to the

 limited liability clause in the bill of lading because the
said conditions were printed in small letters does not
make the bill of lading invalid.
▪ contracts of adhesion are valid and

binding
▪ Greater vigilance, however, is required of the
courts when dealing with contracts of
adhesion in that the said contracts must be
carefully scrutinized “in order to shield the
unwary (or weaker party) from deceptive
schemes contained in ready-made covenant
▪ Article 24 of the Civil Code which

mandates that “(i)n all contractual,

property or other relations, when one of
the parties is at a disadvantage on
account of his moral dependence,
ignorance, indigence, mental weakness,
tender age or other handicap, the courts
must be vigilant for his protection
▪ Maruman Trading, we assume, has been
extensively engaged in the trading
business. It can not be said to be ignorant
of the business transactions it entered into
involving the shipment of its goods to its
customers. The shipper could not have
known, or should know the stipulations in
the bill of lading and there it should have
declared a higher valuation of the goods
shipped. Moreover, Maruman Trading has
 not been heard to complain that it has been
deceived or rushed into agreeing to ship the
cargo in petitioner’s vessel. In fact, it was
not even impleaded in this case.

Case 13
Everett Streamship Corp. V. CA (1998)
FACTS:
Hernandez Trading Co., Inc. (Hernandez) imported 3 crates of
bus spare parts (MARCO C/No. 12, MARCO C/No. 13
and MARCO C/No. 14), from Maruman Trading Company, Ltd.
(Maruman), a foreign corporation based in Japan.
The crates (covered by Bill of Lading No. NGO53MN) were
shipped on board “ADELFAEVERETTE,” a vessel owned by
Everett Orient Lines
Upon arrival at the port of Manila, it was discovered that the
crate marked MARCO C/No. 14 was missing
Hernandez made a formal claim for Y1,552,500.00, as shown in
an Invoice No. MTM-941, dated November 14, 1991
Everett Streamship Corp. offered to pay only Y100,000.00 the
maximum amount stipulated under Clause 18 of the covering
bill of lading
Hernandez rejected the offer and thereafter instituted a suit for
collection
Trial Court: in favor of Hernandez
CA: Affirmed but deleted the award of attorney’s fees

ISSUES:
W/N the limited liability clause in the Bill of Lading is valid
W/N Hernandez as consignee, who is not a signatory to the bill
of lading is bound by the stipulations thereof
HELD:
1. YES.
A stipulation in the bill of lading limiting the common carrier’s
liability for loss or destruction of a cargo to a certain sum,
unless the shipper or owner declares a greater value, is
sanctioned by law, particularly Articles 1749 and 1750 of the
Civil Code which provide:
ART. 1749. A stipulation that the common carrier’s liability is
limited to the value of the goods appearing in the bill of lading,
unless the shipper or owner declares a greater value, is binding.
ART. 1750. A contract fixing the sum that may be recovered by
the owner or shipper for the loss, destruction, or deterioration
of the goods is valid, if it is reasonable and just under the
circumstances, and has been freely and fairly agreed upon.
Maruman Trading, had the option to declare a higher valuation
if the value of its cargo was higher than the limited liability of
the carrier. Considering that the shipper did not declare a
higher valuation, it had itself to blame for not complying with
the stipulations.
The trial court’s ratiocination that private respondent could not
have “fairly and freely” agreed to the limited liability clause in
the bill of lading because the said conditions were printed in
small letters does not make the bill of lading invalid.
contracts of adhesion are valid and binding
Greater vigilance, however, is required of the courts when
dealing with contracts of adhesion in that the said contracts
must be carefully scrutinized “in order to shield the unwary (or
weaker party) from deceptive schemes contained in ready-
made covenant
Article 24 of the Civil Code which mandates that “(i)n all
contractual, property or other relations, when one of the
parties is at a disadvantage on account of his moral
dependence, ignorance, indigence, mental weakness, tender
age or other handicap, the courts must be vigilant for his
protection
Maruman Trading, we assume, has been extensively engaged in
the trading business. It can not be said to be ignorant of the
business transactions it entered into involving the shipment of
its goods to its customers. The shipper could not have known,
or should know the stipulations in the bill of lading and there it
should have declared a higher valuation of the goods
shipped. Moreover, Maruman Trading has not been heard to
complain that it has been deceived or rushed into agreeing to
ship the cargo in petitioner’s vessel. In fact, it was not even
impleaded in this case.

2. YES.
the right of a party in the same situation as Hernandez, to
recover for loss of a shipment consigned to him under a bill of
lading drawn up only by and between the shipper and the
carrier, springs from either a relation of agency that may exist
between him and the shipper or consignor, or his status as
stranger in whose favor some stipulation is made in said
contract, and who becomes a party thereto when he demands
fulfillment of that stipulation, in this case the delivery of the
goods or cargo shipped
When Hernandez formally claimed reimbursement for the
missing goods from Everett and subsequently filed a case
against the it based on the very same bill of lading, it accepted
the provisions of the contract and thereby made itself a party
thereto, or at least has come to court to enforce it.[
The commercial Invoice No. MTM-941 does not in itself
sufficiently and convincingly show that Everett has knowledge
of the value of the cargo as contended by Hernandez