1

Transportation Law – Common Carriers – Vigilance over Goods – Article 1734-Article 1754

1. Saudi Arabian Airlines vs. Court of Appeals,  297 SCRA 469, October 08, 1998
G.R. No. 122191. October 8, 1998.*
SAUDI ARABIAN AIRLINES, petitioner, vs. COURT OF APPEALS, MILAGROS P. MORADA and HON. RODOLFO A.
ORTIZ, in his capacity as Presiding Judge of Branch 89, Regional Trial Court of Quezon City, respondents.
Conflict of Laws;  Actions; Where the factual antecedents satisfactorily establish the existence of a foreign element,
the problem could present a “conflicts” case.—Where the factual antecedents satisfactorily establish the existence of a
foreign element, we agree with petitioner that the problem herein could present a “conflicts” case. A factual situation
that cuts across territorial lines and is affected by the diverse laws of two or more states is said to contain a “foreign
element.” The presence of a foreign element is inevitable since social and economic affairs of individuals and
associations are rarely confined to the geographic limits of their birth or conception.
Same;  Same; The forms in which a foreign element may appear are many, such as the fact that one party is a resident
Philippine national, and that the other is a resident foreign corporation.—The forms in which this foreign element may
appear are many. The foreign element may simply consist in the fact that one of the parties to a contract is an alien or
has a foreign domicile, or that a contract between nationals of one State involves properties situated in another State. In
other cases, the foreign element may assume a complex form. In the instant case, the foreign element consisted in the
fact that private respondent Morada is a resident Philippine national, and that petitioner SAUDIA is a resident foreign
corporation. Also, by virtue of the employment of Morada with the petitioner SAUDIA as a flight stewardess, events did
transpire during her many occasions of travel across national borders, particularly from Manila, Philippines to Jeddah,
Saudi Arabia, and vice versa, that caused a “conflicts” situation to arise.
Same;  Same; Damages; While Article 19 of the Civil Code merely declares a principle of law, Article 21 gives flesh to
its provisions; Violations of Articles 19 and 21 are actionable, with judicially enforceable remedies in the municipal forum.—
Although Article 19 merely declares a principle of law, Article 21 gives flesh to its provisions. Thus, we agree with private
respondent’s assertion that violations of Articles 19 and 21 are actionable, with judicially enforceable remedies in the
municipal forum. Based on the allegations in the Amended Complaint, read in the light of the Rules of Court on
jurisdiction we find that the Regional Trial Court (RTC) of Quezon City possesses jurisdiction over the subject matter of
the suit. Its authority to try and hear the case is provided for under Section 1 of Republic Act No. 7691.
Same;  Same; Forum Non Conveniens; Forum Shopping;  Plaintiff may not, by choice of an inconvenient forum, ‘vex,’
‘harass,’ or ‘oppress’ the defendant, e.g. by inflicting upon him needless expense or disturbance, but unless the balance is
strongly in favor of the defendant, the plaintiff’s choice of forum should rarely be disturbed.—Pragmatic considerations,
including the convenience of the parties, also weigh heavily in favor of the RTC Quezon City assuming jurisdiction.
Paramount is the private interest of the litigant. Enforceability of a judgment if one is obtained is quite obvious. Relative
advantages and obstacles to a fair trial are equally important. Plaintiff may not, by choice of an inconvenient forum,
‘vex,’ ‘harass,’ or ‘oppress’ the defendant, e.g. by inflicting upon him needless expense or disturbance. But unless the
balance is strongly in favor of the defendant, the plaintiff’s choice of forum should rarely be disturbed.
Same;  Same; Forcing a party to seek remedial action in a place where she no longer maintains substantial
connections would cause a fundamental unfairness to her.—Weighing the relative claims of the parties, the court a
quo found it best to hear the case in the Philippines. Had it refused to take cognizance of the case, it would be forcing
plaintiff (private respondent now) to seek remedial action elsewhere, i.e. in the Kingdom of Saudi Arabia where she no
longer maintains substantial connections. That would have caused a fundamental unfairness to her.
Same;  Same; A party effectively submits to the trial court’s jurisdiction by praying for the dismissal of the complaint
on grounds other than lack of jurisdiction.—The records show that petitioner SAUDIA has filed several motions praying
for the dismissal of Morada’s Amended Complaint. SAUDIA also filed an Answer In Ex Abundante Cautelam dated
February 20, 1995. What is very patent and explicit from the motions filed, is that SAUDIA prayed for other reliefs under
the premises. Undeniably, petitioner SAUDIA has effectively submitted to the trial court’s jurisdiction by praying for the
dismissal of the Amended Complaint on grounds other than lack of jurisdiction.
Same;  Choice-of-law problems seek to answer two important questions: (1) What legal system should control a given
situation where some of the significant facts occurred in two or more states; and (2) to what extent should the chosen legal
system regulate the situation.—As to the choice of applicable law, we note that choice-of-law problems seek to answer
two important questions: (1) What legal system should control a given situation where some of the significant facts
occurred in two or more states; and (2) to what extent should the chosen legal system regulate the situation.
Same;  Although ideally, all choice-of-law theories should intrinsically advance both notions of justice and
predictability, they do not always do so, in which case the forum is then faced with the problem of deciding which of these
two important values should be stressed.—Several theories have been propounded in order to identify the legal system
that should ultimately control. Although ideally, all choice-of-law theories should intrinsically advance both notions of
justice and predictability, they do not always do so. The forum is then faced with the problem of deciding which of these
two important values should be stressed.
Same;  Characterization or Doctrine of Qualification;  Words and Phrases;  Characterization is the “process of
deciding whether or not the facts relate to the kind of question specified in a conflicts rule.” —Before a choice can be made,
it is necessary for us to determine under what category a certain set of facts or rules fall. This process is known as
“characterization,” or the “doctrine of qualification.” It is the “process of deciding whether or not the facts relate to the
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kind of question specified in a conflicts rule.” The purpose of “characterization” is to enable the forum to select the
proper law.
Same;  Same; An essential element of conflict rules is the indication of a “test” or “connecting factor” or “point of
contact.”—Our starting point of analysis here is not a legal relation, but a factual situation, event, or operative fact. An
essential element of conflict rules is the indication of a “test” or “connecting factor” or “point of contact.” Choice-of-law
rules invariably consist of a factual relationship (such as property right, contract claim) and a connecting factor or point
of contact, such as the situs of the res, the place of celebration, the place of performance, or the place of wrongdoing.
Same;  Same; “Test Factors” or “Points of Contact” or “Connecting Factors.”—Note that one or more circumstances
may be present to serve as the possible test for the determination of the applicable law. These “test factors” or “points of
contact” or “connecting factors” could be any of the following: “(1) the nationality of a person, his domicile, his
residence, his place of sojourn, or his origin; (2) the seat of a legal or juridical person, such as a corporation; (3) the situs
of a thing, that is, the place where a thing is, or is deemed to be situated. In particular, the lex situs is decisive when real
rights are involved; (4) the place where an act has been done, the locus actus, such as the place where a contract has been
made, a marriage celebrated, a will signed or a tort committed. The lex loci actus is particularly important in contracts and
torts; (5) the place where an act is intended to come into effect, e.g., the place of performance of contractual duties, or
the place where a power of attorney is to be exercised; (6) the intention of the contracting parties as to the law that
should govern their agreement, the lex loci intentionis; (7) the place where judicial or administrative proceedings are
instituted or done. The lex fori—the law of the forum—is particularly important because, as we have seen earlier,
matters of ‘procedure’ not going to the substance of the claim involved are governed by it; and because the  lex
fori applies whenever the content of the otherwise applicable foreign law is excluded from application in a given case for
the reason that it falls under one of the exceptions to the applications of foreign law; and (8) the flag of a ship, which in
many cases is decisive of practically all legal relationships of the ship and of its master or owner as such. It also covers
contractual relationships particularly contracts of affreightment.” (Italics ours.)
Same;  Same; Same;  Torts; Where the action is one involving torts, the “connecting factor” or “point of contact” could
be the place or places where the tortious conduct or lex loci actus occurred; The Philippines is the situs of the tort where it
is in the Philippines where the defendant allegedly deceived the plaintiff, a citizen residing and working here, and the fact
that certain acts or parts of the injury occurred in another country is of no moment, for what is important is the place
where the over-all harm or the totality of the injury to the person, reputation, social standing and human rights of the
plaintiff had lodged.—Considering that the complaint in the court a quo is one involving torts, the “connecting factor” or
“point of contact” could be the place or places where the tortious conduct or lex loci actus occurred. And applying the
torts principle in a conflicts case, we find that the Philippines could be said as a situs of the tort (the place where the
alleged tortious conduct took place). This is because it is in the Philippines where petitioner allegedly deceived private
respondent, a Filipina residing and working here. According to her, she had honestly believed that petitioner would, in
the exercise of its rights and in the performance of its duties, “act with justice, give her her due and observe honesty and
good faith.” Instead, petitioner failed to protect her, she claimed. That certain acts or parts of the injury allegedly
occurred in another country is of no moment. For in our view what is important here is the place where the over-all
harm or the totality of the alleged injury to the person, reputation, social standing and human rights of complainant,
had lodged, according to the plaintiff below (herein private respondent). All told, it is not without basis to identify the
Philippines as the situs of the alleged tort.
Same;  Same; Same;  Same; “State of the Most Significant Relationship” Rule; The “State of the most significant
relationship” rule is the appropriate modern theory on tort liability to apply in the instant case. —With the widespread
criticism of the traditional rule of lex loci delicti commissi, modern theories and rules on tort liability have been
advanced to offer fresh judicial approaches to arrive at just results. In keeping abreast with the modern theories on tort
liability, we find here an occasion to apply the “State of the most significant relationship” rule, which in our view should
be appropriate to apply now, given the factual context of this case. In applying said principle to determine the State
which has the most significant relationship, the following contacts are to be taken into account and evaluated according
to their relative importance with respect to the particular issue: (a) the place where the injury occurred; (b) the place
where the conduct causing the injury occurred; (c) the domicile, residence, nationality, place of incorporation and place
of business of the parties; and (d) the place where the relationship, if any, between the parties is centered.
Same;  Same; Same;  Same; Same;  Where the Philippines is the situs of the tort complained of and the place “having
the most interest in the problem,” the Philippine law on tort liability should have paramount application to and control in
the resolution of the legal issues arising therein.—As already discussed, there is basis for the claim that over-all injury
occurred and lodged in the Philippines. There is likewise no question that private respondent is a resident Filipina
national, working with petitioner, a resident foreign corporation engaged here in the business of international air
carriage. Thus, the “relationship” between the parties was centered here, although it should be stressed that this suit is
not based on mere labor law violations. From the record, the claim that the Philippines has the most significant contact
with the matter in this dispute, raised by private respondent as plaintiff below against defendant (herein petitioner), in
our view, has been properly established. Prescinding from this premise that the Philippines is the situs of the tort
complained of and the place “having the most interest in the problem,” we find, by way of recapitulation, that the
Philippine law on tort liability should have paramount application to and control in the resolution of the legal issues
arising out of this case. Further, we hold that the respondent Regional Trial Court has jurisdiction over the parties and
the subject matter of the complaint; the appropriate venue is in Quezon City, which could properly apply Philippine law.
 3
Same;  Pleadings and Practice;  Evidence; A party whose cause of action is based on a Philippine law has no obligation
to plead and prove the law of another State.—We find untenable petitioner’s insistence that “[s]ince private respondent
instituted this suit, she has the burden of pleading and proving the applicable Saudi law on the matter.” As aptly said by
private respondent, she has “no obligation to plead and prove the law of the Kingdom of Saudi Arabia since her cause of
action is based on Articles 19 and 21” of the Civil Code of the Philippines. In her Amended Complaint and subsequent
pleadings, she never alleged that Saudi law should govern this case. And as correctly held by the respondent appellate
court, “considering that it was the petitioner who was invoking the applicability of the law of Saudi Arabia, then the
burden was on it [petitioner] to plead and to establish what the law of Saudi Arabia is.”

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.
     Siguion Reyna, Montecillo & Ongsiako for petitioner.
     Padilla, Jimenez, Kintanar & Asuncion Law Offices for private respondent.

QUISUMBING, J.:
This petition for certiorari pursuant to Rule 45 of the Rules of Court seeks to annul and set aside the Resolution 1 dated
September 27, 1995 and the Decision 2 dated April 10, 1996 of the Court of Appeals 3 in CA-G.R. SP No. 36533,4 and the
Orders5 dated August 29, 19946 and February 2, 19957 that were issued by the trial court in Civil Case No. Q-93-18394.8
The pertinent antecedent facts which gave rise to the instant petition, as stated in the questioned Decision, 9 are as
follows:
“On January 21, 1988 defendant SAUDIA hired plaintiff as a Flight Attendant for its airlines based in Jeddah, Saudi
Arabia. x x x
On April 27, 1990, while on a lay-over in Jakarta, Indonesia, plaintiff went to a disco dance with fellow crew members
Thamer AlGazzawi and Allah Al-Gazzawi, both Saudi nationals. Because it was almost morning when they returned to
their hotels, they agreed to have breakfast together at the room of Thamer. When they were in te (sic) room, Allah left
on some pretext. Shortly after he did, Thamer attempted to rape plaintiff. Fortunately, a roomboy and several security
personnel heard her cries for help and rescued her. Later, the Indonesian police came and arrested Thamer and Allah Al-
Gazzawi, the latter as an accomplice.
When plaintiff returned to Jeddah a few days later, several SAUDIA officials interrogated her about the Jakarta
incident. They then requested her to go back to Jakarta to help arrange the release of Thamer and Allah. In Jakarta,
SAUDIA Legal Officer Sirah Akkad and base manager Baharini negotiated with the police for the immediate release of
the detained crew members but did not succeed because plaintiff refused to cooperate. She was afraid that she might be
tricked into something she did not want because of her inability to understand the local dialect. She also declined to
sign a blank paper and a document written in the local dialect. Eventually, SAUDIA allowed plaintiff to return to Jeddah
but barred her from the Jakarta flights.
Plaintiff learned that, through the intercession of the Saudi Arabian government, the Indonesian authorities agreed
to deport Thamer and Allah after two weeks of detention. Eventually, they were again put in service by defendant
SAUDIA (sic). In September 1990, defendant SAUDIA transferred plaintiff to Manila.
On January 14, 1992, just when plaintiff thought that the Jakarta incident was already behind her, her superiors
requested her to see Mr. Ali Meniewy, Chief Legal Officer of SAUDIA, in Jeddah, Saudi Arabia. When she saw him, he
brought her to the police station where the police took her passport and questioned her about the Jakarta incident.
Miniewy simply stood by as the police put pressure on her to make a statement dropping the case against Thamer and
Allah. Not until she agreed to do so did the police return her passport and allowed her to catch the afternoon flight out
of Jeddah.
One year and a half later or on June 16, 1993, in Riyadh, Saudi Arabia, a few minutes before the departure of her flight
to Manila, plaintiff was not allowed to board the plane and instead ordered to take a later flight to Jeddah to see Mr.
Miniewy, the Chief Legal Officer of SAUDIA. When she did, a certain Khalid of the SAUDIA office brought her to a Saudi
court where she was asked to sign a document written in Arabic. They told her that this was necessary to close the case
against Thamer and Allah. As it turned out, plaintiff signed a notice to her to appear before the court on June 27, 1993.
Plaintiff then returned to Manila.
Shortly afterwards, defendant SAUDIA summoned plaintiff to report to Jeddah once again and see Miniewy on June 27,
1993 for further investigation. Plaintiff did so after receiving assurance from SAUDIA’s Manila manager, Aslam Saleemi,
that the investigation was routinary and that it posed no danger to her.
In Jeddah, a SAUDIA legal officer brought plaintiff to the same Saudi court on June 27, 1993. Nothing happened then
but on June 28, 1993, a Saudi judge interrogated plaintiff through an interpreter about the Jakarta incident. After one
hour of interrogation, they let her go. At the airport, however, just as her plane was about to take off, a SAUDIA officer
told her that the airline had forbidden her to take flight. At the Inflight Service Office where she was told to go, the
secretary of Mr. Yahya Saddick took away her passport and told her to remain in Jeddah, at the crew quarters, until
further orders.
On July 3, 1993, a SAUDIA legal officer again escorted plaintiff to the same court where the judge, to her
astonishment and shock, rendered a decision, translated to her in English, sentencing her to five months imprisonment
and to 286 lashes. Only then did she realize that the Saudi court had tried her, together with Thamer and Allah, for what
 4
happened in Jakarta. The court found plaintiff guilty of (1) adultery; (2) going to a disco, dancing and listening to the
music in violation of Islamic laws; and (3) socializing with the male crew, in contravention of Islamic tradition.” 10
Facing conviction, private respondent sought the help of her employer, petitioner SAUDIA. Unfortunately, she was
denied any assistance. She then asked the Philippine Embassy in Jeddah to help her while her case is on appeal.
Meanwhile, to pay for her upkeep, she worked on the domestic flight of SAUDIA, while Thamer and Allah continued to
serve in the international flights.11
Because she was wrongfully convicted, the Prince of Makkah dismissed the case against her and allowed her to leave
Saudi Arabia. Shortly before her return to Manila, 12 she was terminated from the service by SAUDIA, without her being
informed of the cause.
On November 23, 1993, Morada filed a Complaint 13 for damages against SAUDIA, and Khaled Al-Balawi (“Al-Balawi”),
its country manager.
On January 19, 1994, SAUDIA filed an Omnibus Motion To Dismiss 14 which raised the following grounds, to wit: (1)
that the Complaint states no cause of action against SAUDIA; (2) that defendant Al-Balawi is not a real party in interest;
(3) that the claim or demand set forth in the Complaint has been waived, abandoned or otherwise extinguished; and (4)
that the trial court has no jurisdiction to try the case.
On February 10, 1994, Morada filed her Opposition (To Motion to Dismiss). 15 SAUDIA filed a reply16 thereto on March
3, 1994.
On June 23, 1994, Morada filed an Amended Complaint 17 wherein Al-Balawi was dropped as party defendant. On
August 11, 1994, SAUDIA filed its Manifestation and Motion to Dismiss Amended Complaint. 18
The trial court issued an Order19 dated August 29, 1994 denying the Motion to Dismiss Amended Complaint filed by
SAUDIA.
From the Order of respondent Judge 20 denying the Motion to Dismiss, SAUDIA filed on September 20, 1994, its
Motion for Reconsideration21 of the Order dated August 29, 1994. It alleged that the trial court has no jurisdiction to hear
and try the case on the basis of Article 21 of the Civil Code, since the proper law applicable is the law of the Kingdom of
Saudi Arabia. On October 14, 1994, Morada filed her Opposition 22 (To Defendant’s Motion for Reconsideration).
In the Reply23 filed with the trial court on October 24, 1994, SAUDIA alleged that since its Motion for
Reconsideration raised lack of jurisdiction as its cause of action, the Omnibus Motion Rule does not apply, even if that
ground is raised for the first time on appeal. Additionally, SAUDIA alleged that the Philippines does not have any
substantial interest in the prosecution of the instant case, and hence, without jurisdiction to adjudicate the same.
Respondent Judge subsequently issued another Order 24 dated February 2, 1995, denying SAUDIA’s Motion for
Reconsideration. The pertinent portion of the assailed Order reads as follows:
“Acting on the Motion for Reconsideration of defendant Saudi Arabian Airlines filed, thru counsel, on September 20,
1994, and the Opposition thereto of the plaintiff filed, thru counsel, on October 14, 1994, as well as the Reply therewith
of defendant Saudi Arabian Airlines filed, thru counsel, on October 24, 1994, considering that a perusal of the plaintiff’s
Amended Complaint, which is one for the recovery of actual, moral and exemplary damages plus attorney’s fees, upon
the basis of the applicable Philippine law, Article 21 of the New Civil Code of the Philippines, is, clearly, within the
jurisdiction of this Court as regards the subject matter, and there being nothing new of substance which might cause the
reversal or modification of the order sought to be reconsidered, the motion for reconsideration of the defendant, is
DENIED.
SO ORDERED.”25
Consequently, on February 20, 1995, SAUDIA filed its Petition for Certiorari and Prohibition with Prayer for Issuance of
Writ of Preliminary Injunction and/or Temporary Restraining Order26 with the Court of Appeals.
Respondent Court of Appeals promulgated a Resolution with Temporary Restraining Order 27 dated February 23, 1995,
prohibiting the respondent Judge from further conducting any proceeding, unless otherwise directed, in the interim.
In another Resolution28 promulgated on September 27, 1995, now assailed, the appellate court denied SAUDIA’s
Petition for the Issuance of a Writ of Preliminary Injunction dated February 18, 1995, to wit:
“The Petition for the Issuance of a Writ of Preliminary Injunction is hereby DENIED, after considering the Answer, with
Prayer to Deny Writ of Preliminary Injunction (Rollo, p. 135) the Reply and Rejoinder, it appearing that herein petitioner
is not clearly entitled thereto (Unciano Paramedical College, et al. v. Court of Appeals, et al., G.R. No. 100335, April 7, 1993,
Second Division).
SO ORDERED.”
On October 20, 1995, SAUDIA filed with this Honorable Court the instant Petition 29 for Review with Prayer for
Temporary Restraining Order dated October 13, 1995.
However, during the pendency of the instant Petition, respondent Court of Appeals rendered the Decision 30 dated
April 10, 1996, now also assailed. It ruled that the Philippines is an appropriate forum considering that the Amended
Complaint’s basis for recovery of damages is Article 21 of the Civil Code, and thus, clearly within the jurisdiction of
respondent Court. It further held that certiorari is not the proper remedy in a denial of a Motion to Dismiss, inasmuch
as the petitioner should have proceeded to trial, and in case of an adverse ruling, find recourse in an appeal.
On May 7, 1996, SAUDIA filed its Supplemental Petition for Review with Prayer for Temporary Restraining Order 31 dated
April 30, 1996, given due course by this Court. After both parties submitted their Memoranda, 32 the instant case is now
deemed submitted for decision.
Petitioner SAUDIA raised the following issues:
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“I.
The trial court has no jurisdiction to hear and try Civil Case No. Q-93-18394 based on Article 21 of the New Civil Code
since the proper law applicable is the law of the Kingdom of Saudi Arabia inasmuch as this case involves what is known
in private international law as a ‘conflicts problem.’ Otherwise, the Republic of the Philippines will sit in judgment of the
acts done by another sovereign state which is abhorred.

II.
Leave of court before filing a supplemental pleading is not a jurisdictional requirement. Besides, the matter as to
absence of leave of court is now moot and academic when this Honorable Court required the respondents to comment
on petitioner’s April 30, 1996 Supplemental Petition For Review With Prayer For A Temporary Restraining Order Within
Ten (10) Days From Notice Thereof. Further, the Revised Rules of Court should be construed with liberality pursuant to
Section 2, Rule 1 thereof.

III.
Petitioner received on April 22, 1996 the April 10, 1996 decision in CA-G.R. SP No. 36533 entitled ‘Saudi Arabian
Airlines v. Hon. Rodolfo A. Ortiz, et al.’ and filed its April 30, 1996 Supplemental Petition For Review With Prayer For A
Temporary Restraining Order on May 7, 1996 at 10:29 a.m. or within the 15-day reglementary period as provided for
under Section 1, Rule 45 of the Revised Rules of Court. Therefore, the decision in CA-G.R. SP No. 36533 has not yet
become final and executory and this Honorable Court can take cognizance of this case.” 33
From the foregoing factual and procedural antecedents, the following issues emerge for our resolution:
I.
WHETHER RESPONDENT APPELLATE COURT ERRED IN HOLDING THAT THE REGIONAL TRIAL COURT OF
QUEZON CITY HAS JURISDICTION TO HEAR AND TRY CIVIL CASE NO. Q-93-18394 ENTITLED “MILAGROS P.
MORADA V. SAUDI ARABIAN AIRLINES.”

II.
WHETHER RESPONDENT APPELLATE COURT ERRED IN RULING THAT IN THIS CASE PHILIPPINE LAW
SHOULD GOVERN.
Petitioner SAUDIA claims that before us is a conflict of laws that must be settled at the outset. It maintains that private
respondent’s claim for alleged abuse of rights occurred in the Kingdom of Saudi Arabia. It alleges that the existence of a
foreign element qualifies the instant case for the application of the law of the Kingdom of Saudi Arabia, by virtue of
the lex loci delicti commissi rule.34
On the other hand, private respondent contends that since her Amended Complaint is based on Articles 19 35 and
21  of the Civil Code, then the instant case is properly a matter of domestic law. 37
36

Under the factual antecedents obtaining in this case, there is no dispute that the interplay of events occurred in two
states, the Philippines and Saudi Arabia.
As stated by private respondent in her Amended Complaint 38 dated June 23, 1994:

“2. Defendant SAUDI ARABIAN AIRLINES or SAUDIA is a foreign airlines corporation doing business in the
Philippines. It may be served with summons and other court processes at Travel Wide Associated Sales (Phils.), Inc., 3rd
Floor, Cougar Building, 114 Valero St., Salcedo Village, Makati, Metro Manila.x x x      x x x      x x x

6.Plaintiff learned that, through the intercession of the Saudi Arabian government, the Indonesian authorities agreed to
deport Thamer and Allah after two weeks of detention. Eventually, they were again put in service by defendant
SAUDIA. In September 1990, defendant SAUDIA transferred plaintiff to Manila.

7.On January 14, 1992, just when plaintiff thought that the Jakarta incident was already behind her, her superiors requested
her to see Mr. Ali Meniewy, Chief Legal Officer of SAUDIA, in Jeddah, Saudi Arabia. When she saw him, he brought her to
the police station where the police took her passport and questioned her about the Jakarta incident. Miniewy simply
stood by as the police put pressure on her to make a statement dropping the case against Thamer and Allah. Not until
she agreed to do so did the police return her passport and allowed her to catch the afternoon flight out of Jeddah.

8.One year and a half later or on June 16, 1993, in Riyadh, Saudi Arabia, a few minutes before the departure of her flight
to Manila, plaintiff was not allowed to board the plane and instead ordered to take a later flight to Jeddah to see Mr.
Meniewy, the Chief Legal Officer of SAUDIA. When she did, a certain Khalid of the SAUDIA office brought her to a
Saudi court where she was asked to sign a document written in Arabic. They told her that this was necessary to close the
case against Thamer and Allah. As it turned out, plaintiff signed a notice to her to appear before the court on June 27,
1993. Plaintiff then returned to Manila.
 6
9.Shortly afterwards, defendant SAUDIA summoned plaintiff to report to Jeddah once again and see Miniewy on June 27,
1993 for further investigation. Plaintiff did so after receiving assurance from SAUDIA’s Manila manager, Aslam Saleemi,
that the investigation was routinary and that it posed no danger to her.

10.In Jeddah, a SAUDIA legal officer brought plaintiff to the same Saudi court on June 27, 1993. Nothing happened then
but on June 28, 1993, a Saudi judge interrogated plaintiff through an interpreter about the Jakarta incident. After one
hour of interrogation, they let her go. At the airport, however, just as her plane was about to take off, a SAUDIA officer
told her that the airline had forbidden her to take that flight. At the Inflight Service Office where she was told to go, the
secretary of Mr. Yahya Saddick took away her passport and told her to remain in Jeddah, at the crew quarters, until
further orders.

11.On July 3, 1993 a SAUDIA legal officer again escorted plaintiff to the same court where the judge, to her astonishment
and shock, rendered a decision, translated to her in English, sentencing her to five months imprisonment and to 286
lashes. Only then did she realize that the Saudi court had tried her, together with Thamer and Allah, for what happened
in Jakarta. The court found plaintiff guilty of (1) adultery; (2) going to a disco, dancing, and listening to the music in
violation of Islamic laws; (3) socializing with the male crew, in contravention of Islamic tradition.

12.Because SAUDIA refused to lend her a hand in the case, plaintiff sought the help of the Philippine Embassy in Jeddah .
The latter helped her pursue an appeal from the decision of the court. To pay for her upkeep, she worked on the
domestic flights of defendant SAUDIA while, ironically, Thamer and Allah freely served the international flights.” 39
Where the factual antecedents satisfactorily establish the existence of a foreign element, we agree with petitioner that
the problem herein could present a “conflicts” case.
A factual situation that cuts across territorial lines and is affected by the diverse laws of two or more states is said to
contain a “foreign element.” The presence of a foreign element is inevitable since social and economic affairs of
individuals and associations are rarely confined to the geographic limits of their birth or conception. 40
The forms in which this foreign element may appear are many. 41 The foreign element may simply consist in the fact
that one of the parties to a contract is an alien or has a foreign domicile, or that a contract between nationals of one
State involves properties situated in another State. In other cases, the foreign element may assume a complex form. 42
In the instant case, the foreign element consisted in the fact that private respondent Morada is a resident Philippine
national, and that petitioner SAUDIA is a resident foreign corporation. Also, by virtue of the employment of Morada
with the petitioner SAUDIA as a flight stewardess, events did transpire during her many occasions of travel across
national borders, particularly from Manila, Philippines to Jeddah, Saudi Arabia, and vice versa, that caused a “conflicts”
situation to arise.
We thus find private respondent’s assertion that the case is purely domestic, imprecise. A conflicts problem presents
itself here, and the question of jurisdiction43 confronts the court a quo.
After a careful study of the private respondent’s Amended Complaint, 44 and the Comment thereon, we note that she
aptly predicated her cause of action on Articles 19 and 21 of the New Civil Code.
On one hand, Article 19 of the New Civil Code provides:
“Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice give
everyone his due and observe honesty and good faith.”
On the other hand, Article 21 of the New Civil Code provides:
“Art. 21. Any person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs
or public policy shall compensate the latter for damages.”
Thus, in Philippine National Bank (PNB) vs. Court of Appeals,45 this Court held that:
“The aforecited provisions on human relations were intended to expand the concept of torts in this jurisdiction by
granting adequate legal remedy for the untold number of moral wrongs which is impossible for human foresight to
specifically provide in the statutes.”
Although Article 19 merely declares a principle of law, Article 21 gives flesh to its provisions. Thus, we agree with private
respondent’s assertion that violations of Articles 19 and 21 are actionable, with judicially enforceable remedies in the
municipal forum.
Based on the allegations46 in the Amended Complaint, read in the light of the Rules of Court on jurisdiction 47 we find
that the Regional Trial Court (RTC) of Quezon City possesses jurisdiction over the subject matter of the suit. 48 Its
authority to try and hear the case is provided for under Section 1 of Republic Act No. 7691, to wit:
“Section 1. Section 19 of Batas Pambansa Blg. 129, otherwise known as the “Judiciary Reorganization Act of 1980,” is
hereby amended to read as follows:
SEC. 19. Jurisdiction in Civil Cases.—Regional Trial Courts shall exercise exclusive jurisdiction:
x x x      x x x      x x x
(8) In all other cases in which demand, exclusive of interest, damages of whatever kind, attorney’s fees, litigation
expenses, and cost or the value of the property in controversy exceeds One hundred thousand pesos (P100,000.00) or, in
such other cases in Metro Manila, where the demand, exclusive of the above-mentioned items exceeds Two hundred
thousand pesos (P200,000.00). (Emphasis ours)
 7
x x x      x x x      x x x
And following Section 2(b), Rule 4 of the Revised Rules of Court—the venue, Quezon City, is appropriate:
“SEC. 2. Venue in Courts of First Instance.—[Now Regional Trial Court]
(a) x x x      x x x      x x x
(b) Personal actions.—All other actions may be commenced and tried where the defendant or any of the defendants
resides or may be found, or where the plaintiff or any of the plaintiff resides, at the election of the plaintiff.”
Pragmatic considerations, including the convenience of the parties, also weigh heavily in favor of the RTC Quezon City
assuming jurisdiction. Paramount is the private interest of the litigant. Enforceability of a judgment if one is obtained is
quite obvious. Relative advantages and obstacles to a fair trial are equally important. Plaintiff may not, by choice of an
inconvenient forum, ‘vex,’ ‘harass,’ or ‘oppress’ the defendant, e.g. by inflicting upon him needless expense or
disturbance.

But unless the balance is strongly in favor of the defendant, the plaintiff’s choice of forum should rarely be disturbed. 49
Weighing the relative claims of the parties, the court a quo found it best to hear the case in the Philippines. Had it
refused to take cognizance of the case, it would be forcing plaintiff (private respondent now) to seek remedial action
elsewhere, i.e. in the Kingdom of Saudi Arabia where she no longer maintains substantial connections. That would have
caused a fundamental unfairness to her.
Moreover, by hearing the case in the Philippines no unnecessary difficulties and inconvenience have been shown by
either of the parties. The choice of forum of the plaintiff (now private respondent) should be upheld.
Similarly, the trial court also possesses jurisdiction over the persons of the parties herein. By filing her Complaint
and Amended Complaint with the trial court, private respondent has voluntarily submitted herself to the jurisdiction of
the court.
The records show that petitioner SAUDIA has filed several motions 50 praying for the dismissal of Morada’s Amended
Complaint. SAUDIA also filed an Answer In Ex Abundante Cautelam dated February 20, 1995. What is very patent and
explicit from the motions filed, is that SAUDIA prayed for other reliefs under the premises. Undeniably, petitioner
SAUDIA has effectively submitted to the trial court’s jurisdiction by praying for the dismissal of the Amended Complaint
on grounds other than lack of jurisdiction.

As held by this Court in Republic vs. Ker and Company, Ltd.:51

“We observe that the motion to dismiss filed on April 14, 1962, aside from disputing the lower court’s jurisdiction over
defendant’s person, prayed for dismissal of the complaint on the ground that plaintiff’s cause of action has prescribed.
By interposing such second ground in its motion to dismiss, Ker and Co., Ltd. availed of an affirmative defense on the
basis of which it prayed the court to resolve controversy in its favor. For the court to validly decide the said plea of
defendant Ker & Co., Ltd., it necessarily had to acquire jurisdiction upon the latter’s person, who, being the proponent of
the affirmative defense, should be deemed to have abandoned its special appearance and voluntarily submitted itself to
the jurisdiction of the court.”
Similarly, the case of De Midgely vs. Ferandos, held that:
“When the appearance is by motion for the purpose of objecting to the jurisdiction of the court over the person, it must
be for the sole and separate purpose of objecting to the jurisdiction of the court. If his motion is for any other purpose
than to object to the jurisdiction of the court over his person, he thereby submits himself to the jurisdiction of the court.
A special appearance by motion made for the purpose of objecting to the jurisdiction of the court over the person will be
held to be a general appearance, if the party in said motion should, for example, ask for a dismissal of the action upon
the further ground that the court had no jurisdiction over the subject matter.” 52
Clearly, petitioner had submitted to the jurisdiction of the Regional Trial Court of Quezon City. Thus, we find that the
trial court has jurisdiction over the case and that its exercise thereof, justified.
As to the choice of applicable law, we note that choice-of-law problems seek to answer two important questions: (1)
What legal system should control a given situation where some of the significant facts occurred in two or more states;
and (2) to what extent should the chosen legal system regulate the situation. 53
Several theories have been propounded in order to identify the legal system that should ultimately control. Although
ideally, all choice-of-law theories should intrinsically advance both notions of justice and predictability, they do not
always do so. The forum is then faced with the problem of deciding which of these two important values should be
stressed.54
Before a choice can be made, it is necessary for us to determine under what category a certain set of facts or rules fall.
This process is known as “characterization,” or the “doctrine of qualification.” It is the “process of deciding whether or
not the facts relate to the kind of question specified in a conflicts rule.” 55 The purpose of “characterization” is to enable
the forum to select the proper law.56
Our starting point of analysis here is not a legal relation, but a factual situation, event, or operative fact. 57 An
essential element of conflict rules is the indication of a “test” or “connecting factor” or “point of contact.” Choice-of-law
rules invariably consist of a factual relationship (such as property right, contract claim) and a connecting factor or point
of contact, such as the situs of the res, the place of celebration, the place of performance, or the place of wrongdoing. 58
Note that one or more circumstances may be present to serve as the possible test for the determination of the
applicable law.59 These “test factors” or “points of contact” or “connecting factors” could be any of the following:
 8
“(1)the nationality of a person, his domicile, his residence, his place of sojourn, or his origin;

(2)the seat of a legal or juridical person, such as a corporation;

(3)the situs of a thing, that is, the place where a thing is, or is deemed to be situated. In particular, the  lex situs is
decisive when real rights are involved;

(4)the place where an act has been done, the locus actus, such as the place where a contract has been made, a marriage
celebrated, a will signed or a tort committed. The lex loci actus is particularly important in contracts and torts;

(5)the place where an act is intended to come into effect, e.g., the place of performance of contractual duties, or the
place where a power of attorney is to be exercised;

(6)the intention of the contracting parties as to the law that should govern their agreement, the lex loci intentionis;

(7)the place where judicial or administrative proceedings are instituted or done. The lex fori—the law of the forum—is
particularly important because, as we have seen earlier, matters of ‘procedure’ not going to the substance of the claim
involved are governed by it; and because the lex fori applies whenever the content of the otherwise applicable foreign
law is excluded from application in a given case for the reason that it falls under one of the exceptions to the
applications of foreign law; and

(8)the flag of a ship, which in many cases is decisive of practically all legal relationships of the ship and of its master or
owner as such. It also covers contractual relationships particularly contracts of affreightment.” 60 (Italics ours.)
After a careful study of the pleadings on record, including allegations in the Amended Complaint deemed admitted for
purposes of the motion to dismiss, we are convinced that there is reasonable basis for private respondent’s assertion that
although she was already working in Manila, petitioner brought her to Jeddah on the pretense that she would merely
testify in an investigation of the charges she made against the two SAUDIA crew members for the attack on her person
while they were in Jakarta. As it turned out, she was the one made to face trial for very serious charges, including
adultery and violation of Islamic laws and tradition.
There is likewise logical basis on record for the claim that the “handing over” or “turning over” of the person of
private respondent to Jeddah officials, petitioner may have acted beyond its duties as employer. Petitioner’s purported
act contributed to and amplified or even proximately caused additional humiliation, misery and suffering of private
respondent. Petitioner thereby allegedly facilitated the arrest, detention and prosecution of private respondent under
the guise of petitioner’s authority as employer, taking advantage of the trust, confidence and faith she reposed upon it.
As purportedly found by the Prince of Makkah, the alleged conviction and imprisonment of private respondent was
wrongful. But these capped the injury or harm allegedly inflicted upon her person and reputation, for which petitioner
could be liable as claimed, to provide compensation or redress for the wrongs done, once duly proven.
Considering that the complaint in the court a quo is one involving torts, the “connecting factor” or “point of contact”
could be the place or places where the tortious conduct or lex loci actus occurred. And applying the torts principle in a
conflicts case, we find that the Philippines could be said as a situs of the tort (the place where the alleged tortious
conduct took place). This is because it is in the Philippines where petitioner allegedly deceived private respondent, a
Filipina residing and working here. According to her, she had honestly believed that petitioner would, in the exercise of
its rights and in the performance of its duties, “act with justice, give her her due and observe honesty and good faith.”
Instead, petitioner failed to protect her, she claimed. That certain acts or parts of the injury allegedly occurred in
another country is of no moment. For in our view what is important here is the place where the over-all harm or the
totality of the alleged injury to the person, reputation, social standing and human rights of complainant, had lodged,
according to the plaintiff below (herein private respondent). All told, it is not without basis to identify the Philippines as
the situs of the alleged tort.
Moreover, with the widespread criticism of the traditional rule of lex loci delicti commissi, modern theories and rules
on tort liability61 have been advanced to offer fresh judicial approaches to arrive at just results. In keeping abreast with
the modern theories on tort liability, we find here an occasion to apply the “State of the most significant relationship”
rule, which in our view should be appropriate to apply now, given the factual context of this case.
In applying said principle to determine the State which has the most significant relationship, the following contacts
are to be taken into account and evaluated according to their relative importance with respect to the particular issue: (a)
the place where the injury occurred; (b) the place where the conduct causing the injury occurred; (c) the domicile,
residence, nationality, place of incorporation and place of business of the parties; and (d) the place where the
relationship, if any, between the parties is centered. 62
As already discussed, there is basis for the claim that overall injury occurred and lodged in the Philippines. There is
likewise no question that private respondent is a resident Filipina national, working with petitioner, a resident foreign
corporation engaged here in the business of international air carriage. Thus, the “relationship” between the parties was
centered here, although it should be stressed that this suit is not based on mere labor law violations. From the record,
 9
the claim that the Philippines has the most significant contact with the matter in this dispute, 63 raised by private
respondent as plaintiff below against defendant (herein petitioner), in our view, has been properly established.
Prescinding from this premise that the Philippines is the situs of the tort complained of and the place “having the
most interest in the problem,” we find, by way of recapitulation, that the Philippine law on tort liability should have
paramount application to and control in the resolution of the legal issues arising out of this case. Further, we hold that
the respondent Regional Trial Court has jurisdiction over the parties and the subject matter of the complaint; the
appropriate venue is in Quezon City, which could properly apply Philip-pine law. Moreover, we find untenable
petitioner’s insistence that “[s]ince private respondent instituted this suit, she has the burden of pleading and proving
the applicable Saudi law on the matter.” 64 As aptly said by private respondent, she has “no obligation to plead and prove
the law of the Kingdom of Saudi Arabia since her cause of action is based on Articles 19 and 21” of the Civil Code of the
Philippines. In her Amended Complaint and subsequent pleadings, she never alleged that Saudi law should govern this
case.65 And as correctly held by the respondent appellate court, “considering that it was the petitioner who was invoking
the applicability of the law of Saudi Arabia, then the burden was on it [petitioner] to plead and to establish what the law
of Saudi Arabia is.”66
Lastly, no error could be imputed to the respondent appellate court in upholding the trial court’s denial of
defendant’s (herein petitioner’s) motion to dismiss the case. Not only was jurisdiction in order and venue properly laid,
but appeal after trial was obviously available, and expeditious trial itself indicated by the nature of the case at hand.
Indubitably, the Philippines is the state intimately concerned with the ultimate outcome of the case below, not just for
the benefit of all the litigants, but also for the vindication of the country’s system of law and justice in a transnational
setting. With these guidelines in mind, the trial court must proceed to try and adjudge the case in the light of relevant
Philippine law, with due consideration of the foreign element or elements involved. Nothing said herein, of course,
should be construed as prejudging the results of the case in any manner whatsoever.
WHEREFORE, the instant petition for certiorari is hereby DISMISSED Civil Case No. Q-93-18394 entitled “Milagros
P. Morada vs. Saudi Arabia Airlines” is hereby REMANDED to Regional Trial Court of Quezon City, Branch 89 for
further proceedings.
SO ORDERED.
     Davide, Jr. (Chairman),  Bellosillo, Vitug and Panganiban, JJ., concur.
Petition dismissed, Civil Case No. Q-93-18394 remanded to lower court.
Notes.—Forum-shopping originated as a concept in private international law, where non-resident litigants are given
the option to choose the forum or place wherein to bring their suit for various reasons or excuses, including to secure
procedural advantages, to annoy and harass the defendant, to avoid overcrowded dockets, or to select a more friendly
venue. (First Philippine International Bank vs. Court of Appeals, 252 SCRA 259 [1996])
After having acquired jurisdiction over a plaintiff foreign corporation by virtue of the filing of the original complaint,
the Philippine court now has the discretion, based on the facts of the case, to either give due course to the suit or
dismiss it, on the principle of forum non conveniens. (Communication Materials and Design, Inc. vs. Court of
Appeals, 260 SCRA 673 [1996])

——o0o——
2. Lea Mer Industries, Inc. vs. Malayan Insurance Co., Inc.,  471 SCRA 698, September 30, 2005
5
LEA MER INDUSTRIES, INC., petitioner, vs. MALAYAN INSURANCE CO., INC.,** respondent.
Appeals;  As a general rule, questions of fact may not be raised in a petition for review.—The resolution of the present
case hinges on whether the loss of the cargo was due to a fortuitous event. This issue involves primarily a question of
fact, notwithstanding petitioner’s claim that it pertains only to a question of law. As a general rule, questions of fact may
not be raised in a petition for review. The present case serves as an exception to this rule, because the factual findings of
the appellate and the trial courts vary. This Court meticulously reviewed the records, but found no reason to reverse the
CA.
Common Carriers;  Words and Phrases; Common carriers are persons, corporations, firms or associations engaged in
the business of carrying or transporting passengers or goods, or both—by land, water, or air—when this service is offered
to the public for compensa-tion.—Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods, or both—by land, water, or air—when this service is offered to
the public for compensation. Petitioner is clearly a common carrier, because it offers to the public its business of
transporting goods through its vessels.
Same;  Same; A demise or bareboat charter indicates a business undertaking that is private in character, and
therefore, the rights and obligations of the parties are governed principally by their stipulations, not by the law on common
carriers; In a contract of affreightment (time or voyage charter party), the rules for common carriers govern.—The Court
corrects the trial court’s finding that petitioner became a private carrier when Vulcan chartered it. Charter parties are
classified as contracts of demise (or bareboat) and affreightment, which are distinguished as follows: “Under the demise
or bareboat charter of the vessel, the charterer will generally be considered as owner for the voyage or service stipulated.
The charterer mans the vessel with his own people and becomes, in effect, the owner pro hac vice, subject to liability to
others for damages caused by negligence. To create a demise, the owner of a vessel must completely and exclusively
relinquish possession, command and navigation thereof to the charterer; anything short of such a complete transfer is a
 10
contract of affreightment (time or voyage charter party) or not a charter party at all.” The distinction is significant,
because a demise or bareboat charter indicates a business undertaking that is private in character. Consequently, the
rights and obligations of the parties to a contract of private carriage are governed principally by their stipulations, not by
the law on common carriers. The Contract in the present case was one of affreightment, as shown by the fact that it was
petitioner’s crew that manned the tugboat M/V Ayalit and controlled the barge Judy VII. Necessarily, petitioner was a
common carrier, and the pertinent law governs the present factual circumstances.
Same;  Same; Extraordinary Diligence;  Negligence;  Extraordinary diligence requires rendering service with the
greatest skill and foresight to avoid damage and destruction to the goods entrusted for carriage and delivery; Common
carriers are presumed to have been at fault or to have acted negligently for loss or damage to the goods that they have
transported; Exceptions.—Common carriers are bound to observe extraordinary diligence in their vigilance over the
goods and the safety of the passengers they transport, as required by the nature of their business and for reasons of
public policy. Extraordinary diligence requires rendering service with the greatest skill and foresight to avoid damage
and destruction to the goods entrusted for carriage and delivery. Common carriers are presumed to have been at fault or
to have acted negligently for loss or damage to the goods that they have transported. This presumption can be rebutted
only by proof that they observed extraordinary diligence, or that the loss or damage was occasioned by any of the
following causes: “(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity; “(2) Act of the public
enemy in war, whether international or civil; “(3) Act or omission of the shipper or owner of the goods; “(4) The
character of the goods or defects in the packing or in the containers; “(5) Order or act of competent public authority.”
Same;  Same; Same;  Same; To excuse the common carrier fully of any liability, the fortuitous event must have been
the proximate and only cause of the loss.—Article 1174 of the Civil Code provides that “no person shall be responsible for
a fortuitous event which could not be foreseen, or which, though foreseen, was inevitable.” Thus, if the loss or damage
was due to such an event, a common carrier is exempted from liability. Jurisprudence defines the elements of a
“fortuitous event” as follows: (a) the cause of the unforeseen and unexpected occurrence, or the failure of the debtors to
comply with their obligations, must have been independent of human will; (b) the event that constituted the caso
fortuito must have been impossible to foresee or, if foreseeable, impossible to avoid; (c) the occurrence must have been
such as to render it impossible for the debtors to fulfill their obligation in a normal manner; and (d) the obligor must
have been free from any participation in the aggravation of the resulting injury to the creditor. To excuse the common
carrier fully of any liability, the fortuitous event must have been the proximate and only cause of the loss. Moreover, it
should have exercised due diligence to prevent or minimize the loss before, during and after the occurrence of the
fortuitous event.
Evidence;  Hearsay Rule; Survey Reports;  Where the person who prepared a Survey Report did not testify during the
trial, the Report is hearsay and therefore inadmissible in evidence for the purpose of proving the truth of its contents.—
Petitioner claims that the Survey Report prepared by Jesus Cortez, the cargo surveyor, should not have been admitted in
evidence. The Court partly agrees. Because he did not testify during the trial, then the Report that he had prepared was
hearsay and therefore inadmissible for the purpose of proving the truth of its contents.
Same;  Same; Same;  Independently Relevant Statement Rule; A report made by a person is admissible if it is intended
to prove the tenor, not the truth of the statements—independent of the truth or the falsity of the statement given in the
report, the fact that it has been made is relevant.—That witnesses must be examined and presented during the trial, and
that their testimonies must be confined to personal knowledge is required by the rules on evidence, from which we
quote: “Section 36. Testimony generally confined to personal knowledge; Hearsay excluded.—A witness can testify only to
those facts which he knows of his personal knowledge; that is, which are derived from his own perception, except as
otherwise provided in these rules.” On this basis, the trial court correctly refused to admit Jesus Cortez’s Affidavit, which
respondent had offered as evidence. Well-settled is the rule that, unless the affiant is presented as a witness, an affidavit
is considered hearsay. An exception to the foregoing rule is that on “independently relevant statements.” A report made
by a person is admissible if it is intended to prove the tenor, not the truth, of the statements. Independent of the truth
or the falsity of the statement given in the report, the fact that it has been made is relevant. Here, the hearsay rule does
not apply.

PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
     Romualdo M. Jubay for petitioner.
     Frederick C. Angel for private respondent.

PANGANIBAN, J.:
Common carriers are bound to observe extraordinary diligence in their vigilance over the goods entrusted to them, as
required by the nature of their business and for reasons of public policy. Consequently, the law presumes that common
carriers are at fault or negligent for any loss or damage to the goods that they transport. In the present case, the
evidence submitted by petitioner to overcome this presumption was sorely insufficient.
The Case
Before us is a Petition for Review 1 under Rule 45 of the Rules of Court, assailing the October 9, 2002 Decision 2 and the
December 29, 2003 Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 66028. The challenged Decision
disposed as follows:
 11
“WHEREFORE, the appeal is GRANTED. The December 7, 1999 decision of the Regional Trial Court of Manila, Branch
42 in Civil Case No. 92-63159 is hereby REVERSED and SET ASIDE. [Petitioner] is ordered to pay the [herein respondent]
the value of the lost cargo in the amount of P565,000.00. Costs against the [herein petitioner].” 4
The assailed Resolution denied reconsideration.
The Facts
Ilian Silica Mining entered into a contract of carriage with Lea Mer Industries, Inc., for the shipment of 900 metric tons
of silica sand valued at P565,000. 5 Consigned to Vulcan Industrial and Mining Corporation, the cargo was to be
transported from Palawan to Manila. On October 25, 1991, the silica sand was placed on board Judy VII, a barge leased by
Lea Mer.6 During the voyage, the vessel sank, resulting in the loss of the cargo. 7
Malayan Insurance Co., Inc., as insurer, paid Vulcan the value of the lost cargo. 8 To recover the amount paid and in
the exercise of its right of subrogation, Malayan demanded reimbursement from Lea Mer, which refused to comply.
Consequently, Malayan instituted a Complaint with the Regional Trial Court (RTC) of Manila on September 4, 1992, for
the collection of P565,000 representing the amount that respondent had paid Vulcan. 9
On October 7, 1999, the trial court dismissed the Complaint, upon finding that the cause of the loss was a fortuitous
event.10 The RTC noted that the vessel had sunk because of the bad weather condition brought about by Typhoon
Trining. The court ruled that petitioner had no advance knowledge of the incoming typhoon, and that the vessel had
been cleared by the Philippine Coast Guard to travel from Palawan to Manila. 11
Ruling of the Court of Appeals
Reversing the trial court, the CA held that the vessel was not seaworthy when it sailed for Manila. Thus, the loss of the
cargo was occasioned by petitioner’s fault, not by a fortuitous event.12
Hence, this recourse.13
The Issues
Petitioner states the issues in this wise:
“A. Whether or not the survey report of the cargo surveyor, Jesus Cortez, who had not been presented as a witness of the
said report during the trial of this case before the lower court can be admitted in evidence to prove the alleged facts
cited in the said report.
“B. Whether or not the respondent, Court of Appeals, had validly or legally reversed the finding of fact of the Regional
Trial Court which clearly and unequivocally held that the loss of the cargo subject of this case was caused by fortuitous
event for which herein petitioner could not be held liable.
“C. Whether or not the respondent, Court of Appeals, had committed serious error and grave abuse of discretion in
disregarding the testimony of the witness from the MARINA, Engr. Jacinto Lazo y Villegal, to the effect that the vessel
‘Judy VII’ was seaworthy at the time of incident and further in disregarding the testimony of the PAG-ASA weather
specialist, Ms. Rosa Barba y Saliente, to the effect that typhoon ‘Trining’ did not hit Metro Manila or Palawan.” 14
In the main, the issues are as follows: (1) whether petitioner is liable for the loss of the cargo, and (2) whether the survey
report of Jesus Cortez is admissible in evidence.

The Court’s Ruling

The Petition has no merit.

First Issue: Liability for Loss of Cargo

Question of Fact
The resolution of the present case hinges on whether the loss of the cargo was due to a fortuitous event. This issue
involves primarily a question of fact, notwithstanding petitioner’s claim that it pertains only to a question of law. As a
general rule, questions of fact may not be raised in a petition for review. 15 The present case serves as an exception to this
rule, because the factual findings of the appellate and the trial courts vary. 16 This Court meticulously reviewed the
records, but found no reason to reverse the CA.

_______________
14
 Petition, p. 8; Rollo, p. 19. Original in uppercase.
15
 §1 of Rule 45 of the Rules of Court.
16
 Menchavez v. Teves, Jr., 449 SCRA 380, 395, January 26, 2005; Philippine American General Insurance Company v.
PKS
705
VOL. 471, SEPTEMBER 30, 2005 705
Lea Mer Industries, Inc. vs. Malayan Insurance Co., Inc.
Rule on Common Carriers
Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting
passengers or goods, or both—by land, water, or air—when this service is offered to the public for
compensation.17 Petitioner is clearly a common carrier, because it offers to the public its business of transporting goods
through its vessels.18
 12
Thus, the Court corrects the trial court’s finding that petitioner became a private carrier when Vulcan chartered
it.19 Charter parties are classified as contracts of demise (or bare-boat) and affreightment, which are distinguished as
follows:
“Under the demise or bareboat charter of the vessel, the charterer will generally be considered as owner for the voyage
or service stipulated. The charterer mans the vessel with his own people and becomes, in effect, the owner  pro hac vice,
subject to liability to others for damages caused by negligence. To create a demise, the owner of a vessel must
completely and exclusively relinquish possession, command and navigation thereof to the charterer; anything short of
such a complete transfer is a contract of affreightment (time or voyage charter party) or not a charter party at all.” 20
The distinction is significant, because a demise or bareboat charter indicates a business undertaking that is  private in
character.21 Consequently, the rights and obligations of the parties to a contract of private carriage are governed
principally by their stipulations, not by the law on common carriers. 22
The Contract in the present case was one of affreightment, as shown by the fact that it was petitioner’s crew that
manned the tugboat M/V Ayalit and controlled the barge Judy VII.23 Necessarily, petitioner was a common carrier, and
the pertinent law governs the present factual circumstances.
Extraordinary Diligence Required
Common carriers are bound to observe extraordinary diligence in their vigilance over the goods and the safety of the
passengers they transport, as required by the nature of their business and for reasons of public policy. 24 Extraordinary
diligence requires rendering service with the greatest skill and foresight to avoid damage and destruction to the goods
entrusted for carriage and delivery.25
Common carriers are presumed to have been at fault or to have acted negligently for loss or damage to the goods
that they have transported. 26 This presumption can be rebutted only by proof that they observed extraordinary diligence,
or that the loss or damage was occasioned by any of the following causes: 27

“(1)Flood, storm, earthquake, lightning, or other natural disaster or calamity;

“(2)Act of the public enemy in war, whether international or civil;
“(3)Act or omission of the shipper or owner of the goods;
“(4)The character of the goods or defects in the packing or in the containers;
“(5)Order or act of competent public authority.”28

Rule on Fortuitous Events

Article 1174 of the Civil Code provides that “no person shall be responsible for a fortuitous event which could not be
foreseen, or which, though foreseen, was inevitable.” Thus, if the loss or damage was due to such an event, a common
carrier is exempted from liability.
Jurisprudence defines the elements of a “fortuitous event” as follows: (a) the cause of the unforeseen and unexpected
occurrence, or the failure of the debtors to comply with their obligations, must have been independent of human will;
(b) the event that constituted the caso fortuito must have been impossible to foresee or, if foreseeable, impossible to
avoid; (c) the occurrence must have been such as to render it impossible for the debtors to fulfill their obligation in a
normal manner; and (d) the obligor must have been free from any participation in the aggravation of the resulting injury
to the creditor.29
To excuse the common carrier fully of any liability, the fortuitous event must have been the proximate and only
cause of the loss.30 Moreover, it should have exercised due diligence to prevent or minimize the loss before, during and
after the occurrence of the fortuitous event.31

Loss in the Instant Case

There is no controversy regarding the loss of the cargo in the present case. As the common carrier, petitioner bore the
burden of proving that it had exercised extraordinary diligence to avoid the loss, or that the loss had been occasioned by
a fortuitous event—an exempting circumstance.
It was precisely this circumstance that petitioner cited to escape liability. Lea Mer claimed that the loss of the cargo
was due to the bad weather condition brought about by Typhoon Trining. 32 Evidence was presented to show that
petitioner had not been informed of the incoming typhoon, and that the Philippine Coast Guard had given it clearance
to begin the voyage.33 On October 25, 1991, the date on which the voyage commenced and the barge sank, Typhoon
Trining was allegedly far from Palawan, where the storm warning was only “Signal No. 1.” 34
The evidence presented by petitioner in support of its defense of fortuitous event was sorely insufficient. As required
by the pertinent law, it was not enough for the common carrier to show that there was an unforeseen or unexpected
occurrence. It had to show that it was free from any fault—a fact it miserably failed to prove.
First, petitioner presented no evidence that it had attempted to minimize or prevent the loss before, during or after
the alleged fortuitous event.35 Its witness, Joey A. Draper, testified that he could no longer remember whether anything
had been done to minimize loss when water started entering the barge. 36 This fact was confirmed during his cross-
examination, as shown by the following brief exchange:
“Atty. Baldovino, Jr.:
Other than be[a]ching the barge Judy VII, were there other precautionary
measure[s] exercised by you and the crew of Judy VII so as to prevent the
 13
los[s] or sinking of barge Judy VII?
x x x      x x x      x x x
Atty. Baldovino, Jr.:
Your Honor, what I am asking [relates to the] action taken by the officers
and crew of tugboat Ayalit and barge Judy VII x x x to prevent the sinking
of barge Judy VII?
x x x      x x x      x x x
Court:
Mr. witness, did the captain of that tugboat give any instruction on how
to save the barge Judy VII?
Joey Draper:
I can no longer remember sir, because that happened [a] long time ago.” 37
Second, the alleged fortuitous event was not the sole and proximate cause of the loss. There is a preponderance of
evidence that the barge was not seaworthy when it sailed for Manila. 38 Respondent was able to prove that, in the hull of
the barge, there were holes that might have caused or aggravated the sinking. 39 Because the presumption of negligence
or fault applied to petitioner, it was incumbent upon it to show that there were no holes; or, if there were, that they did
not aggravate the sinking.
Petitioner offered no evidence to rebut the existence of the holes. Its witness, Domingo A. Luna, testified that the
barge was in “tip-top” or excellent condition,40 but that he had not personally inspected it when it left Palawan. 41

The submission of the Philippine Coast Guard’s Certificate of Inspection of Judy VII, dated July 31, 1991, did not
conclusively prove that the barge was seaworthy. 42 The regularity of the issuance of the Certificate is disputably
presumed.43 It could be contradicted by competent evidence, which respondent offered. Moreover, this evidence did not
necessarily take into account the actual condition of the vessel at the time of the commencement of the voyage. 44
Second Issue:
Admissibility of the Survey Report
Petitioner claims that the Survey Report 45 prepared by Jesus Cortez, the cargo surveyor, should not have been admitted
in evidence. The Court partly agrees. Because he did not testify during the trial, 46 then the Report that he had prepared
was hearsay and therefore inadmissible for the purpose of proving the truth of its contents.
The Survey Report Not the Sole Evidence
The facts reveal that Cortez’s Survey Report was used in the testimonies of respondent’s witnesses—Charlie M. Soriano;
and Federico S. Manlapig, a cargo marine surveyor and the vice-president of Toplis and Harding Company. 47 Sorian o
testified that the Survey Report had been used in preparing the final Adjustment Report conducted by their
company.48 The final Report showed that the barge was not seaworthy because of the existence of the holes. Manlapig
testified that he had prepared that Report after taking into account the findings of the surveyor, as well as the pictures
and the sketches of the place where the sinking occurred. 49 Evidently, the existence of the holes was proved by the
testimonies of the witnesses, not merely by Cortez’ Survey Report.

Rule on Independently Relevant Statement

That witnesses must be examined and presented during the trial, 50 and that their testimonies must be confined to
personal knowledge is required by the rules on evidence, from which we quote:
“Section 36. Testimony generally confined to personal knowledge; hearsay excluded.—A witness can testify only to those
facts which he knows of his personal knowledge; that is, which are derived from his own perception, except as otherwise
provided in these rules.”51
On this basis, the trial court correctly refused to admit Jesus Cortez’s Affidavit, which respondent had offered as
evidence.52 Well-settled is the rule that, unless the affiant is presented as a witness, an affidavit is considered hearsay. 53

An exception to the foregoing rule is that on “independently relevant statements.” A report made by a person is
admissible if it is intended to prove the tenor, not the truth, of the statements. 54 Independent of the truth or the falsity
of the statement given in the report, the fact that it has been made is relevant. Here, the hearsay rule does not apply. 55
In the instant case, the challenged Survey Report prepared by Cortez was admitted only as part of the testimonies of
respondent’s witnesses. The referral to Cortez’s Report was in relation to Manlapig’s final Adjustment Report. Evidently,
it was the existence of the Survey Report that was testified to. The admissibility of that Report as part of the testimonies
of the witnesses was correctly ruled upon by the trial court.
At any rate, even without the Survey Report, petitioner has already failed to overcome the presumption of fault that
applies to common carriers.
WHEREFORE, the Petition is DENIED and the assailed Decision and Resolution are AFFIRMED. Costs against
petitioner.
SO ORDERED.
     Sandoval-Gutierrez, Corona, Carpio-Morales and Garcia, JJ., concur.
Petition denied, assailed decision and resolution affirmed.
 14
Notes.—Statements or admissions allegedly made by a person not presented as witness admissible only as
independently relevant statements but not as proof of the truth of facts revealed in said statements or admissions.
(Alfonso vs. Juanson, 228 SCRA 239 [1993])
When one devotes his property to a use in which the public has an interest, he, in effect, grants to the public an
interest in that use, and must submit to the control by the public for the common good, to the extent of the interest he
has thus created. (Kilusang Mayo Uno Labor Center vs. Garcia, Jr., 239 SCRA 386 [1994])

3. Aboitiz Shipping Corporation vs. Insurance Company of North America,  561 SCRA 262, August 06, 2008
G.R. No. 168402. August 6, 2008.*
ABOITIZ SHIPPING CORPORATION, petitioner, vs. INSURANCE COMPANY OF NORTH AMERICA, respondent.
Corporation Law; A foreign corporation not licensed to do business in the Philippines is not absolutely incapacitated
from filing a suit in local courts.—A foreign corporation not licensed to do business in the Philippines is not
absolutely incapacitated from filing a suit in local courts. Only when that foreign corporation is “transacting” or
“doing business” in the country will a license be necessary before it can institute suits. It may, however, bring suits on
isolated business transactions, which is not prohibited under Philippine law. Thus, this Court has held that a foreign
insurance company may sue in Philippine courts upon the marine insurance policies issued by it abroad to cover
international-bound cargoes shipped by a Philippine carrier, even if it has no license to do business in this country. It is
the act of engaging in business without the prescribed license, and not the lack of license per se, which bars a foreign
corporation from access to our courts.
Civil Law; Subrogation; Respondent’s cause of action is founded on it being subrogated to the rights of the consignee
of the damaged shipment.—Respondent’s cause of action is founded on it being subrogated to the rights of the
consignee of the damaged shipment. The right of subrogation springs from Article 2207 of the Civil Code, which
states: Article 2207. If the plaintiff’s property has been insured, and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall
be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the
amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to
recover the deficiency from the person causing the loss or injury.
Same; Same; Subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written
assignment of claim.—As this Court held in the case of Pan Malayan Insurance Corporation v. Court of Appeals, 184 SCRA
54 (1990), payment by the insurer to the assured operates as an equitable assignment of all remedies the assured may
have against the third party who caused the damage. Subrogation is not dependent upon, nor does it grow out of, any
privity of contract or upon written assignment of claim. It accrues simply upon payment of the insurance claim by the
insurer.
Same; Insurance Law; The giving of notice of loss or injury is a condition precedent to the action for loss or injury or
the right to enforce the carrier’s liability.—The giving of notice of loss or injury is a condition precedent to the
action for loss or injury or the right to enforce the carrier’s liability. Circumstances peculiar to this case lead
Us to conclude that the notice requirement was complied with. As held in the case of Philippine American General
Insurance Co., Inc. v. Sweet Lines, Inc., 212 SCRA 194 (1992), this notice requirement protects the carrier by affording it an
opportunity to make an investigation of the claim while the matter is still fresh and easily investigated. It is meant to
safeguard the carrier from false and fraudulent claims.
Mercantile Law; The notice of claim must be made within 24 hours from receipt of the cargo if the damage is not
apparent from the outside of the package. For damages that are visible from the outside of the package, the claim  must be
made immediately.—Under the Code of Commerce, the notice of claim must be made within twenty-four (24) hours
from receipt of the cargo if the damage is not apparent from the outside of the package. For damages that are visible
from the outside of the package, the claim must be made immediately. The law provides: Article 366.  Within twenty-four
hours following the receipt of the merchandise, the claim against the carrier for damages or average which may be found
therein upon opening the packages, may be made, provided that the indications of the damage or average which give rise
to the claim cannot be ascertained from the outside part of such packages, in which case the claim shall be admitted only
at the time of receipt. After the periods mentioned have elapsed, or the transportation charges have been paid, no claim
shall be admitted against the carrier with regard to the condition in which the goods transported were delivered.
Same; Stipulations requiring notice of loss or claim for damage as a condition precedent to the right of recovery from
a carrier must be given a reasonable and practical construction, adapted to the circumstances of the case under
adjudication, and their application is limited to cases falling fairly within their object and purpose. —Stipulations requiring
notice of loss or claim for damage as a condition precedent to the right of recovery from a carrier must be given a
reasonable and practical construction, adapted to the circumstances of the case under adjudication, and their
application is limited to cases falling fairly within their object and purpose.
Same; Provisions specifying a time to give notice of damage to common carriers are ordinarily to be given a
reasonable and practical, rather than a strict construction.—Provisions specifying a time to give notice of damage to
common carriers are ordinarily to be given a reasonable and practical, rather than a strict construction. We give due
consideration to the fact that the final destination of the damaged cargo was a school institution where authorities are
bound by rules and regulations governing their actions. Understandably, when the goods were delivered, the necessary
clearance had to be made before the package was opened. Upon opening and discovery of the damaged condition of the
 15
goods, a report to this effect had to pass through the proper channels before it could be finalized and endorsed by the
institution to the claims department of the shipping company.
Subrogation; Parties; We have found that respondent, as subrogee of the consignee, is the real party in interest to
institute the claim for damages against petitioner.—To recapitulate, We have found that respondent, as subrogee of the
consignee, is the real party in interest to institute the claim for damages against petitioner; and pro hac vice, that a valid
notice of claim was made by respondent.
Civil Law; The rule as stated in Article 1735 of the Civil Code is that in cases where the goods are lost, destroyed or
deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they
observed extraordinary diligence required by law.—We now discuss petitioner’s liability for the damages sustained by the
shipment. The rule as stated in Article 1735 of the Civil Code is that in cases where the goods are lost, destroyed
or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they
prove that they observed extraordinary diligence required by law. Extraordinary diligence is that extreme measure
of care and caution which persons of unusual prudence and circumspection use for securing and preserving their own
property rights. This standard is intended to grant favor to the shipper who is at the mercy of the common carrier once
the goods have been entrusted to the latter for shipment.
PETITION for review on certiorari of a decision of the Court of Appeals.
   The facts are stated in the opinion of the Court.
  Libarios, Jalandoni, Dimayuga & Magtanong (LIBRA Law)  for petitioner.
  Astorga & Repol Law Offices for respondent.
REYES, R.T., J.:
THE RIGHT of subrogation attaches upon payment by the insurer of the insurance claims by the assured. As
subrogee, the insurer steps into the shoes of the assured and may exercise only those rights that the assured may have
against the wrongdoer who caused the damage.
Before Us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) which reversed the
Decision2 of the Regional Trial Court (RTC). The CA ordered petitioner Aboitiz Shipping Corporation to pay the sum of
P280,176.92 plus interest and attorney’s fees in favor of respondent Insurance Company of North America (ICNA).

The Facts
Culled from the records, the facts are as follows:
On June 20, 1993, MSAS Cargo International Limited and/or Associated and/or Subsidiary Companies (MSAS)
procured a marine insurance policy from respondent ICNA UK Limited of London. The insurance was for a
transshipment of certain wooden work tools and workbenches purchased for the consignee Science Teaching
Improvement Project (STIP), Ecotech Center, Sudlon Lahug, Cebu City, Philippines. 3 ICNA issued an “all-risk” open
marine policy,4 stating:
“This Company, in consideration of a premium as agreed and subject to the terms and conditions printed hereon,
does insure for MSAS Cargo International Limited &/or Associated &/or Subsidiary Companies on behalf of the title
holder: – Loss, if any, payable to the Assured or order.”5
The cargo, packed inside one container van, was shipped “freight prepaid” from Hamburg, Germany on board M/S
Katsuragi. A clean bill of lading 6 was issued by Hapag-Lloyd which stated the consignee to be STIP, Ecotech Center,
Sudlon Lahug, Cebu City.
The container van was then off-loaded at Singapore and transshipped on board M/S Vigour Singapore. On July 18,
1993, the ship arrived and docked at the Manila International Container Port where the container van was again off-
loaded. On July 26, 1993, the cargo was received by petitioner Aboitiz Shipping Corporation (Aboitiz) through its duly
authorized booking representative, Aboitiz Transport System. The bill of lading 7 issued by Aboitiz contained the
notation “grounded outside warehouse.”
The container van was stripped and transferred to another crate/container van without any notation on the
condition of the cargo on the Stuffing/Stripping Report. 8 On August 1, 1993, the container van was loaded on board
petitioner’s vessel, MV Super Concarrier I. The vessel left Manila en route to Cebu City on August 2, 1993.
On August 3, 1993, the shipment arrived in Cebu City and discharged onto a receiving apron of the Cebu
International Port. It was then brought to the Cebu Bonded Warehousing Corporation pending clearance from the
Customs authorities. In the Stripping Report 9 dated August 5, 1993, petitioner’s checker noted that the crates were
slightly broken or cracked at the bottom.
On August 11, 1993, the cargo was withdrawn by the representative of the consignee, Science Teaching Improvement
Project (STIP) and delivered to Don Bosco Technical High School, Punta Princesa, Cebu City. It was received by Mr.
Bernhard Willig. On August 13, 1993, Mayo B. Perez, then Claims Head of petitioner, received a telephone call from
Willig informing him that the cargo sustained water damage. Perez, upon receiving the call, immediately went to the
bonded warehouse and checked the condition of the container and other cargoes stuffed in the same container. He
found that the container van and other cargoes stuffed there were completely dry and showed no sign of wetness. 10
Perez found that except for the bottom of the crate which was slightly broken, the crate itself appeared to be
completely dry and had no water marks. But he confirmed that the tools which were stored inside the crate were already
corroded. He further explained that the “grounded outside warehouse” notation in the bill of lading referred only to the
container van bearing the cargo.11
 16
In a letter dated August 15, 1993, Willig informed Aboitiz of the damage noticed upon opening of the cargo. 12 The
letter stated that the crate was broken at its bottom part such that the contents were exposed. The work tools and
workbenches were found to have been completely soaked in water with most of the packing cartons already
disintegrating. The crate was properly sealed off from the inside with tarpaper sheets. On the outside, galvanized metal
bands were nailed onto all the edges. The letter concluded that apparently, the damage was caused by water entering
through the broken parts of the crate.
The consignee contacted the Philippine office of ICNA for insurance claims. On August 21, 1993, the Claimsmen
Adjustment Corporation (CAC) conducted an ocular inspection and survey of the damage. CAC reported to ICNA that
the goods sustained water damage, molds, and corrosion which were discovered upon delivery to consignee. 13
On September 21, 1993, the consignee filed a formal claim 14 with Aboitiz in the amount of P276,540.00 for the
damaged condition of the following goods:
ten (10) wooden workbenches
three (3) carbide-tipped saw blades
one (1) set of ball-bearing guides
one (1) set of overarm router bits
twenty (20) rolls of sandpaper for stroke sander
In a Supplemental Report dated October 20, 1993, 15 CAC reported to ICNA that based on official weather report from
the Philippine Atmospheric, Geophysical and Astronomical Services Administration, it would appear that heavy rains on
July 28 and 29, 1993 caused water damage to the shipment. CAC noted that the shipment was placed outside the
warehouse of Pier No. 4, North Harbor, Manila when it was delivered on July 26, 1993. The shipment was placed outside
the warehouse as can be gleaned from the bill of lading issued by Aboitiz which contained the notation “grounded
outside warehouse.” It was only on July 31, 1993 when the shipment was stuffed inside another container van for
shipment to Cebu.
Aboitiz refused to settle the claim. On October 4, 1993, ICNA paid the amount of P280,176.92 to consignee. A
subrogation receipt was duly signed by Willig. ICNA formally advised Aboitiz of the claim and subrogation receipt
executed in its favor. Despite follow-ups, however, no reply was received from Aboitiz.

RTC Disposition
ICNA filed a civil complaint against Aboitiz for collection of actual damages in the sum of P280,176.92, plus interest
and attorney’s fees.16 ICNA alleged that the damage sustained by the shipment was exclusively and solely brought about
by the fault and negligence of Aboitiz when the shipment was left grounded outside its warehouse prior to delivery.
Aboitiz disavowed any liability and asserted that the claim had no factual and legal bases. It countered that the
complaint stated no cause of action, plaintiff ICNA had no personality to institute the suit, the cause of action was
barred, and the suit was premature there being no claim made upon Aboitiz.
On November 14, 2003, the RTC rendered judgment against ICNA. The dispositive portion of the decision 17 states:
“WHEREFORE, premises considered, the court holds that plaintiff is not entitled to the relief claimed in the
complaint for being baseless and without merit. The complaint is hereby DISMISSED. The defendant’s counterclaims
are, likewise, DISMISSED for lack of basis.”18
The RTC ruled that ICNA failed to prove that it is the real party-in-interest to pursue the claim against Aboitiz. The
trial court noted that Marine Policy No. 87GB 4475 was issued by ICNA UK Limited with address at Cigna House, 8 Lime
Street, London EC3M 7NA. However, complainant ICNA Phils. did not present any evidence to show that ICNA UK is its
predecessor-in-interest, or that ICNA UK assigned the insurance policy to ICNA Phils. Moreover, ICNA Phils.’ claim that
it had been subrogated to the rights of the consignee must fail because the subrogation receipt had no probative value
for being hearsay evidence. The RTC reasoned:
“While it is clear that Marine Policy No. 87GB 4475 was issued by Insurance Company of North America (U.K.) Limited
(ICNA UK) with address at Cigna House, 8 Lime Street, London EC3M 7NA, no evidence has been adduced which would
show that ICNA UK is the same as or the predecessor-in-interest of plaintiff Insurance Company of North America ICNA
with office address at Cigna-Monarch Bldg., dela Rosa cor. Herrera Sts., Legaspi Village, Makati, Metro Manila or that
ICNA UK assigned the Marine Policy to ICNA. Second, the assured in the Marine Policy appears to be MSAS Cargo
International Limited &/or Associated &/or Subsidiary Companies. Plaintiff’s witness, Francisco B. Francisco, claims that
the signature below the name MSAS Cargo International is an endorsement of the marine policy in favor of Science
Teaching Improvement Project. Plaintiff’s witness, however, failed to identify whose signature it was and plaintiff did not
present on the witness stand or took (sic) the deposition of the person who made that signature. Hence, the claim that
there was an endorsement of the marine policy has no probative value as it is hearsay.
Plaintiff, further, claims that it has been subrogated to the rights and interest of Science Teaching Improvement
Project as shown by the Subrogation Form (Exhibit “K”) allegedly signed by a representative of Science Teaching
Improvement Project. Such representative, however, was not presented on the witness stand. Hence, the Subrogation
Form is self-serving and has no probative value.”19 (Emphasis supplied)
The trial court also found that ICNA failed to produce evidence that it was a foreign corporation duly licensed to do
business in the Philippines. Thus, it lacked the capacity to sue before Philippine Courts, to wit:
“Prescinding from the foregoing, plaintiff alleged in its complaint that it is a foreign insurance company duly
authorized to do business in the Philippines. This allegation was, however, denied by the defendant. In fact, in the
 17
Pre-Trial Order of 12 March 1996, one of the issues defined by the court is whether or not the plaintiff has legal capacity
to sue and be sued. Under Philippine law, the condition is that a foreign insurance company must obtain
licenses/authority to do business in the Philippines. These licenses/authority are obtained from the Securities
and Exchange Commission, the Board of Investments and the Insurance Commission. If it fails to obtain these
licenses/authority, such foreign corporation doing business in the Philippines cannot sue before Philippine
courts.  Mentholatum Co., Inc. v. Mangaliman, 72 Phil. 524.” (Emphasis supplied)

CA Disposition
ICNA appealed to the CA. It contended that the trial court failed to consider that its cause of action is anchored on
the right of subrogation under Article 2207 of the Civil Code.
ICNA said it is one and the same as the ICNA UK Limited as made known in the dorsal portion of the Open Policy. 20
On the other hand, Aboitiz reiterated that ICNA lacked a cause of action. It argued that the formal claim was not
filed within the period required under Article 366 of the Code of Commerce; that ICNA had no right of subrogation
because the subrogation receipt should have been signed by MSAS, the assured in the open policy, and not Willig, who
is merely the representative of the consignee.
On March 29, 2005, the CA reversed and set aside the RTC ruling, disposing as follows:
“WHEREFORE, premises considered, the present appeal is hereby GRANTED. The appealed decision of the Regional
Trial Court of Makati City in Civil Case No. 94-1590 is hereby REVERSED and SET ASIDE. A new judgment is hereby
rendered ordering defendant-appellee Aboitiz Shipping Corporation to pay the plaintiff-appellant Insurance Company of
North America the sum of P280,176.92 with interest thereon at the legal rate from the date of the institution of this case
until fully paid, and attorney’s fees in the sum of P50,000, plus the costs of suit.” 21
The CA opined that the right of subrogation accrues simply upon payment by the insurance company of the
insurance claim. As subrogee, ICNA is entitled to reimbursement from Aboitiz, even assuming that it is an unlicensed
foreign corporation. The CA ruled:
“At any rate, We find the ground invoked for the dismissal of the complaint as legally untenable. Even
assuming arguendo that the plaintiff-insurer in this case is an unlicensed foreign corporation, such circumstance will not
bar it from claiming reimbursement from the defendant carrier by virtue of subrogation under the contract of insurance
and as recognized by Philippine courts. x x x
x x x x
Plaintiff insurer, whether the foreign company or its duly authorized Agent/Representative in the country, as
subrogee of the claim of the insured under the subject marine policy, is therefore the real party in interest to bring this
suit and recover the full amount of loss of the subject cargo shipped by it from Manila to the consignee in Cebu City.
x x x”22
The CA ruled that the presumption that the carrier was at fault or that it acted negligently was not overcome by any
countervailing evidence. Hence, the trial court erred in dismissing the complaint and in not finding that based on the
evidence on record and relevant provisions of law, Aboitiz is liable for the loss or damage sustained by the subject cargo.

Issues
The following issues are up for Our consideration:
(1) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT ICNA HAS A
CAUSE OF ACTION AGAINST ABOITIZ BY VIRTUE OF THE RIGHT OF SUBROGATION BUT WITHOUT
CONSIDERING THE ISSUE CONSISTENTLY RAISED BY ABOITIZ THAT THE FORMAL CLAIM OF STIP WAS NOT
MADE WITHIN THE PERIOD PRESCRIBED BY ARTICLE 366 OF THE CODE OF COMMERCE; AND, MORE SO, THAT
THE CLAIM WAS MADE BY A WRONG CLAIMANT.
(2) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THE SUIT
FOR REIMBURSEMENT AGAINST ABOITIZ WAS PROPERLY FILED BY ICNA AS THE LATTER WAS AN
AUTHORIZED AGENT OF THE INSURANCE COMPANY OF NORTH AMERICA (U.K.) (“ICNA UK”).
(3) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THERE
WAS PROPER INDORSEMENT OF THE INSURANCE POLICY FROM THE ORIGINAL ASSURED MSAS CARGO
INTERNATIONAL LIMITED (“MSAS”) IN FAVOR OF THE CONSIGNEE STIP, AND THAT THE SUBROGATION
RECEIPT ISSUED BY STIP IN FAVOR OF ICNA IS VALID NOTWITHSTANDING THE FACT THAT IT HAS NO
PROBATIVE VALUE AND IS MERELY HEARSAY AND A SELF-SERVING DOCUMENT FOR FAILURE OF ICNA TO
PRESENT A REPRESENTATIVE OF STIP TO IDENTIFY AND AUTHENTICATE THE SAME.
(4) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THE
EXTENT AND KIND OF DAMAGE SUSTAINED BY THE SUBJECT CARGO WAS CAUSED BY THE FAULT OR
NEGLIGENCE OF ABOITIZ.23 (Underscoring supplied)
Elsewise stated, the controversy rotates on three (3) central questions: (a) Is respondent ICNA the real party-in-
interest that possesses the right of subrogation to claim reimbursement from petitioner Aboitiz? (b) Was there a timely
filing of the notice of claim as required under Article 366 of the Code of Commerce? (c) If so, can petitioner be held
liable on the claim for damages?

Our Ruling
 18
We answer the triple questions in the affirmative.
A foreign corporation not licensed to do business in the Philippines is not absolutely incapacitated from
filing a suit in local courts. Only when that foreign corporation is “transacting” or “doing business” in the country will
a license be necessary before it can institute suits. 24 It may, however, bring suits on isolated business transactions, which
is not prohibited under Philippine law. 25 Thus, this Court has held that a foreign insurance company may sue in
Philippine courts upon the marine insurance policies issued by it abroad to cover international-bound cargoes shipped
by a Philippine carrier, even if it has no license to do business in this country. It is the act of engaging in business
without the prescribed license, and not the lack of license per se, which bars a foreign corporation from access to our
courts.26
In any case, We uphold the CA observation that while it was the ICNA UK Limited which issued the subject marine
policy, the present suit was filed by the said company’s authorized agent in Manila. It was the domestic corporation that
brought the suit and not the foreign company. Its authority is expressly provided for in the open policy which includes
the ICNA office in the Philippines as one of the foreign company’s agents.
As found by the CA, the RTC erred when it ruled that there was no proper indorsement of the insurance policy by
MSAS, the shipper, in favor of STIP of Don Bosco Technical High School, the consignee.
The terms of the Open Policy authorize the filing of any claim on the insured goods, to be brought against ICNA UK,
the company who issued the insurance, or against any of its listed agents worldwide. 27 MSAS accepted said provision
when it signed and accepted the policy. The acceptance operated as an acceptance of the authority of the agents. Hence,
a formal indorsement of the policy to the agent in the Philippines was unnecessary for the latter to exercise the rights of
the insurer.
Likewise, the Open Policy expressly provides that:
“The Company, in consideration of a premium as agreed and subject to the terms and conditions printed hereon,
does insure MSAS Cargo International Limited &/or Associates &/or Subsidiary Companies in behalf of the title holder: –
Loss, if any, payable to the Assured or Order.”
The policy benefits any subsequent assignee, or holder, including the consignee, who may file claims on behalf of the
assured. This is in keeping with Section 57 of the Insurance Code which states:
“A policy may be so framed that it will inure to the benefit of whosoever, during the continuance of the risk, may
become the owner of the interest insured.” (Emphasis added)
Respondent’s cause of action is founded on it being subrogated to the rights of the consignee of the
damaged shipment. The right of subrogation springs from Article 2207 of the Civil Code, which states:
“Article 2207. If the plaintiff’s property has been insured, and he has received indemnity from the insurance company
for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount
paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the
deficiency from the person causing the loss or injury.” (Emphasis added)
As this Court held in the case of Pan Malayan Insurance Corporation v. Court of Appeals,28 payment by the insurer to
the assured operates as an equitable assignment of all remedies the assured may have against the third party who caused
the damage. Subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written
assignment of claim. It accrues simply upon payment of the insurance claim by the insurer. 29
Upon payment to the consignee of indemnity for damage to the insured goods, ICNA’s entitlement to subrogation
equipped it with a cause of action against petitioner in case of a contractual breach or negligence. 30 This right of
subrogation, however, has its limitations. First, both the insurer and the consignee are bound by the contractual
stipulations under the bill of lading. 31 Second, the insurer can be subrogated only to the rights as the insured may have
against the wrongdoer. If by its own acts after receiving payment from the insurer, the insured releases the wrongdoer
who caused the loss from liability, the insurer loses its claim against the latter. 32
The giving of notice of loss or injury is a condition precedent to the action for loss or injury or the right to
enforce the carrier’s liability. Circumstances peculiar to this case lead Us to conclude that the notice
requirement was complied with. As held in the case of Philippine American General Insurance Co., Inc. v. Sweet Lines,
Inc.,33 this notice requirement protects the carrier by affording it an opportunity to make an investigation of the claim
while the matter is still fresh and easily investigated. It is meant to safeguard the carrier from false and fraudulent
claims.
Under the Code of Commerce, the notice of claim must be made within twenty-four (24) hours from receipt of the
cargo if the damage is not apparent from the outside of the package. For damages that are visible from the outside of the
package, the claim must be made immediately. The law provides:
“Article 366. Within twenty-four hours following the receipt of the merchandise, the claim against the carrier for
damages or average which may be found therein upon opening the packages, may be made,  provided that the indications
of the damage or average which give rise to the claim cannot be ascertained from the outside part of such packages,  in
which case the claim shall be admitted only at the time of receipt.
After the periods mentioned have elapsed, or the transportation charges have been paid, no claim shall be admitted
against the carrier with regard to the condition in which the goods transported were delivered.” (Emphasis supplied)
 19
The periods above, as well as the manner of giving notice may be modified in the terms of the bill of lading, which is
the contract between the parties. Notably, neither of the parties in this case presented the terms for giving notices of
claim under the bill of lading issued by petitioner for the goods.
The shipment was delivered on August 11, 1993. Although the letter informing the carrier of the damage was dated
August 15, 1993, that letter, together with the notice of claim, was received by petitioner only on September 21, 1993. But
petitioner admits that even before it received the written notice of claim, Mr. Mayo B. Perez, Claims Head of the
company, was informed by telephone sometime in August 13, 1993. Mr. Perez then immediately went to the warehouse
and to the delivery site to inspect the goods in behalf of petitioner. 34
In the case of Philippine Charter Insurance Corporation (PCIC) v. Chemoil Lighterage Corporation,35 the notice was
allegedly made by the consignee through telephone. The claim for damages was denied. This Court ruled that such a
notice did not comply with the notice requirement under the law. There was no evidence presented that the notice was
timely given. Neither was there evidence presented that the notice was relayed to the responsible authority of the
carrier.
As adverted to earlier, there are peculiar circumstances in the instant case that constrain Us to rule differently from
the PCIC case, albeit this ruling is being made pro hac vice, not to be made a precedent for other cases.
Stipulations requiring notice of loss or claim for damage as a condition precedent to the right of recovery from a
carrier must be given a reasonable and practical construction, adapted to the circumstances of the case under
adjudication, and their application is limited to cases falling fairly within their object and purpose. 36
Bernhard Willig, the representative of consignee who received the shipment, relayed the information that the
delivered goods were discovered to have sustained water damage to no less than the Claims Head of petitioner, Mayo B.
Perez. Immediately, Perez was able to investigate the claims himself and he confirmed that the goods were, indeed,
already corroded.
Provisions specifying a time to give notice of damage to common carriers are ordinarily to be given a reasonable and
practical, rather than a strict construction. 37 We give due consideration to the fact that the final destination of the
damaged cargo was a school institution where authorities are bound by rules and regulations governing their actions.
Understandably, when the goods were delivered, the necessary clearance had to be made before the package was
opened. Upon opening and discovery of the damaged condition of the goods, a report to this effect had to pass through
the proper channels before it could be finalized and endorsed by the institution to the claims department of the
shipping company.
The call to petitioner was made two days from delivery, a reasonable period considering that the goods could not
have corroded instantly overnight such that it could only have sustained the damage during transit. Moreover,
petitioner was able to immediately inspect the damage while the matter was still fresh. In so doing, the main objective of
the prescribed time period was fulfilled. Thus, there was substantial compliance with the notice requirement in this
case.
To recapitulate, We have found that respondent, as subrogee of the consignee, is the real party in interest to institute
the claim for damages against petitioner; and pro hac vice, that a valid notice of claim was made by respondent.
We now discuss petitioner’s liability for the damages sustained by the shipment. The rule as stated in Article 1735
of the Civil Code is that in cases where the goods are lost, destroyed or deteriorated, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence required by law. 38 Extraordinary diligence is that extreme measure of care and caution which
persons of unusual prudence and circumspection use for securing and preserving their own property rights. 39 This
standard is intended to grant favor to the shipper who is at the mercy of the common carrier once the goods have been
entrusted to the latter for shipment.40
Here, the shipment delivered to the consignee sustained water damage. We agree with the findings of the CA that
petitioner failed to overturn this presumption:
“x x x upon delivery of the cargo to the consignee Don Bosco Technical High School by a representative from Trabajo
Arrastre, and the crates opened, it was discovered that the workbenches and work tools suffered damage due to
“wettage” although by then they were already physically dry. Appellee carrier having failed to discharge the burden of
proving that it exercised extraordinary diligence in the vigilance over such goods it contracted for carriage, the
presumption of fault or negligence on its part from the time the goods were unconditionally placed in its possession (July
26, 1993) up to the time the same were delivered to the consignee (August 11, 1993), therefore stands.  The presumption that
the carrier was at fault or that it acted negligently was not overcome by any countervailing evidence. x x x”41 (Emphasis
added)
The shipment arrived in the port of Manila and was received by petitioner for carriage on July 26, 1993. On the same
day, it was stripped from the container van. Five days later, on July 31, 1993, it was re-stuffed inside another container
van. On August 1, 1993, it was loaded onto another vessel bound for Cebu. During the period between July 26 to 31, 1993,
the shipment was outside a container van and kept in storage by petitioner.
The bill of lading issued by petitioner on July 31, 1993 contains the notation “grounded outside warehouse,”
suggesting that from July 26 to 31, the goods were kept outside the warehouse. And since evidence showed that rain fell
over Manila during the same period, We can conclude that this was when the shipment sustained water damage.
To prove the exercise of extraordinary diligence, petitioner must do more than merely show the possibility that some
other party could be responsible for the damage. It must prove that it used “all reasonable means to ascertain the nature
 20
and characteristic of the goods tendered for transport and that it exercised due care in handling them. 42 Extraordinary
diligence must include safeguarding the shipment from damage coming from natural elements such as rainfall.
Aside from denying that the “grounded outside warehouse” notation referred not to the crate for shipment but only
to the carrier van, petitioner failed to mention where exactly the goods were stored during the period in question. It
failed to show that the crate was properly stored indoors during the time when it exercised custody before shipment to
Cebu. As amply explained by the CA:
“On the other hand, the supplemental report submitted by the surveyor has confirmed that it was rainwater that
seeped into the cargo based on official data from the PAGASA that there was, indeed, rainfall in the Port Area of Manila
from July 26 to 31, 1993. The Surveyor specifically noted that the subject cargo was under the custody of appellee carrier
from the time it was delivered by the shipper on July 26, 1993 until it was stuffed inside Container No. ACCU-213798-4 on
July 31, 1993. No other inevitable conclusion can be deduced from the foregoing established facts that damage from
“wettage” suffered by the subject cargo was caused by the negligence of appellee carrier in grounding the shipment outside
causing rainwater to seep into the cargoes.
Appellee’s witness, Mr. Mayo tried to disavow any responsibility for causing “wettage” to the subject goods by claiming
that the notation “GROUNDED OUTSIDE WHSE.” actually refers to the container and not the contents thereof or the
cargoes. And yet it presented no evidence to explain where did they place or store the subject goods from the time it
accepted the same for shipment on July 26, 1993 up to the time the goods were stripped or transferred from the container
van to another container and loaded into the vessel M/V Supercon Carrier I on August 1, 1993 and left Manila for Cebu City
on August 2, 1993. x x x If the subject cargo was not grounded outside prior to shipment to Cebu City, appellee provided
no explanation as to where said cargo was stored from July 26, 1993 to July 31, 1993. What the records showed is that the
subject cargo was stripped from the container van of the shipper and transferred to the container on August 1, 1993 and
finally loaded into the appellee’s vessel bound for Cebu City on August 2, 1993. The Stuffing/Stripping Report (Exhibit
“D”) at the Manila port did not indicate any such defect or damage, but when the container was stripped upon arrival in
Cebu City port after being discharged from appellee’s vessel, it was noted that only one (1) slab was slightly broken at the
bottom allegedly hit by a forklift blade (Exhibit “F”).” 43 (Emphasis added)
Petitioner is thus liable for the water damage sustained by the goods due to its failure to satisfactorily prove that it
exercised the extraordinary diligence required of common carriers.
WHEREFORE, the petition is DENIED and the appealed Decision AFFIRMED.
SO ORDERED.
Ynares-Santiago (Chairperson), Austria-Martinez, Chico-Nazario and  Nachura, JJ.,  concur.
Petition denied, judgment affirmed.
Notes.—As a common carrier, petitioner is required to observe extraordinary diligence in the vigilance over the
goods it transports.  (Aboitiz Shipping Corporation vs. New India Assurance Company, Ltd., 488 SCRA 563 [2006])
There is no evidence that respondent has been subrogated to any right which LSPI may have against petitioner.
(Gaisano Cagayan, Inc. vs. Insurance Company of North America, 490 SCRA 286 [2006])

4. Philippines First Insurance, Co., Inc. vs. Wallem Phils. Shipping, Inc.,  582 SCRA 457, March 26, 2009

[G.R. NO. 165647 : March 26, 2009]

PHILIPPINES FIRST INSURANCE CO., INC., Petitioner, v. WALLEM PHILS. SHIPPING, INC., UNKNOWN OWNER
AND/OR UNKNOWN CHARTERER OF THE VESSEL M/S "OFFSHORE MASTER" AND "SHANGHAI FAREAST
SHIP BUSINESS COMPANY," Respondents.

DECISION

TINGA, J.:

Before us is a Rule 45 petition 1 which seeks the reversal of the Decision 2 and Resolution3 of the Court of Appeals in CA-
G.R. No. 61885. The Court of Appeals reversed the Decision 4 of the Regional Trial Court (RTC) of Manila, Branch 55 in
Civil Case No. 96-80298, dismissing the complaint for sum of money.

The facts of the case follow.5

On or about 2 October 1995, Anhui Chemicals Import & Export Corporation loaded on board M/S Offshore Master a
shipment consisting of 10,000 bags of sodium sulphate anhydrous 99 PCT Min. (shipment), complete and in good order
for transportation to and delivery at the port of Manila for consignee, L.G. Atkimson Import-Export, Inc. (consignee),
covered by a Clean Bill of Lading. The Bill of Lading reflects the gross weight of the total cargo at 500,200
kilograms.6 The Owner and/or Charterer of M/V Offshore Master is unknown while the shipper of the shipment is
Shanghai Fareast Ship Business Company. Both are foreign firms doing business in the Philippines, thru its local ship
agent, respondent Wallem Philippines Shipping, Inc. (Wallem). 7
 21
On or about 16 October 1995, the shipment arrived at the port of Manila on board the vessel M/S Offshore Master from
which it was subsequently discharged. It was disclosed during the discharge of the shipment from the carrier that 2,426
poly bags (bags) were in bad order and condition, having sustained various degrees of spillages and losses. This is
evidenced by the Turn Over Survey of Bad Order Cargoes (turn-over survey) of the arrastre operator, Asian Terminals,
Inc. (arrastre operator).8 The bad state of the bags is also evinced by the arrastre operator's Request for Bad Order
Survey.9

Asia Star Freight Services, Inc. undertook the delivery of the subject shipment from the pier to the consignee's
warehouse in Quezon City,10 while the final inspection was conducted jointly by the consignee's representative and the
cargo surveyor. During the unloading, it was found and noted that the bags had been discharged in damaged and bad
order condition. Upon inspection, it was discovered that 63,065.00 kilograms of the shipment had sustained
unrecovered spillages, while 58,235.00 kilograms had been exposed and contaminated, resulting in losses due to
depreciation and downgrading.11

On 29 April 1996, the consignee filed a formal claim with Wallem for the value of the damaged shipment, to no avail.
Since the shipment was insured with petitioner Philippines First Insurance Co., Inc. against all risks in the amount
of P2,470,213.50,12 the consignee filed a formal claim 13 with petitioner for the damage and losses sustained by the
shipment. After evaluating the invoices, the turn-over survey, the bad order certificate and other documents, 14 petitioner
found the claim to be in order and compensable under the marine insurance policy. Consequently, petitioner paid the
consignee the sum of P397,879.69 and the latter signed a subrogation receipt.

Petitioner, in the exercise of its right of subrogation, sent a demand letter to Wallem for the recovery of the amount paid
by petitioner to the consignee. However, despite receipt of the letter, Wallem did not settle nor even send a response to
petitioner's claim.15

Consequently, petitioner instituted an action before the RTC for damages against respondents for the recovery
of P397,879.69 representing the actual damages suffered by petitioner plus legal interest thereon computed from the
time of the filing of the complaint until fully paid and attorney's fees equivalent to 25% of the principal claim plus costs
of suit.

In a decision16 dated 3 November 1998, the RTC ordered respondents to pay petitioner P397,879.69 with 6% interest plus
attorney's fees and costs of the suit. It attributed the damage and losses sustained by the shipment to the arrastre
operator's mishandling in the discharge of the shipment. Citing Eastern Shipping Lines, Inc. v. Court of Appeals,17 the RTC
held the shipping company and the arrastre operator solidarily liable since both the arrastre operator and the carrier are
charged with and obligated to deliver the goods in good order condition to the consignee. It also ruled that the ship
functioned as a common carrier and was obliged to observe the degree of care required of a common carrier in handling
cargoes. Further, it held that a notice of loss or damage in writing is not required in this case because said goods already
underwent a joint inspection or survey at the time of receipt thereof by the consignee, which dispensed with the notice
requirement.

The Court of Appeals reversed and set aside the RTC's decision. 18 According to the appellate court, there is no solidary
liability between the carrier and the arrastre operator because it was clearly established by the court a quo that the
damage and losses of the shipment were attributed to the mishandling by the arrastre operator in the discharge of the
shipment. The appellate court ruled that the instant case falls under an exception recognized in Eastern

Shipping Lines.19 Hence, the arrastre operator was held solely liable to the consignee.

Petitioner raises the following issues:

1. Whether or not the Court of Appeals erred in not holding that as a common carrier, the carrier's duties extend to the
obligation to safely discharge the cargo from the vessel;

2. Whether or not the carrier should be held liable for the cost of the damaged shipment;

3. Whether or not Wallem's failure to answer the extra judicial demand by petitioner for the cost of the lost/damaged
shipment is an implied admission of the former's liability for said goods;

4. Whether or not the courts below erred in giving credence to the testimony of Mr. Talens.
 22
It is beyond question that respondent's vessel is a common carrier. 20 Thus, the standards for determining the existence
or absence of the respondent's liability will be gauged on the degree of diligence required of a common carrier.
Moreover, as the shipment was an exercise of international trade, the provisions of the Carriage of Goods

by Sea Act21 (COGSA), together with the Civil Code and the Code of Commerce, shall apply. 22

The first and second issues raised in the petition will be resolved concurrently since they are interrelated.

It is undisputed that the shipment was damaged prior to its receipt by the insured consignee. The damage to the
shipment was documented by the turn-over survey 23 and Request for Bad Order Survey. 24 The turn-over survey, in
particular, expressly stipulates that 2,426 bags of the shipment were received by the arrastre operator in damaged
condition. With these documents, petitioner insists that the shipment incurred damage or losses while still in the care
and responsibility of Wallem and before it was turned over and delivered to the arrastre operator.

The trial court, however, found through the testimony of Mr. Maximino Velasquez Talens, a cargo surveyor of Oceanica
Cargo Marine Surveyors Corporation, that the losses and damage to the cargo were caused by the mishandling of the
arrastre operator. Specifically, that the torn cargo bags resulted from the use of steel hooks/spikes in piling the cargo
bags to the pallet board and in pushing the bags by the stevedores of the arrastre operator to the tug boats then to the
ports.25 The appellate court affirmed the finding of mishandling in the discharge of cargo and it served as its basis for
exculpating respondents from liability, rationalizing that with the fault of the arrastre operator in the unloading of the
cargo established it should bear sole liability for the cost of the damaged/lost cargo.

While it is established that damage or losses were incurred by the shipment during the unloading, it is disputed who
should be liable for the damage incurred at that point of transport. To address this issue, the pertinent laws and
jurisprudence are examined.

Common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary
diligence in the vigilance over the goods transported by them. 26 Subject to certain exceptions enumerated under Article
173427 of the Civil Code, common carriers are responsible for the loss, destruction, or deterioration of the goods. The
extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally placed in the
possession of, and received by the carrier for transportation until the same are delivered, actually or constructively, by
the carrier to the consignee, or to the person who has a right to receive them. 28

For marine vessels, Article 619 of the Code of Commerce provides that the ship captain is liable for the cargo from the
time it is turned over to him at the dock or afloat alongside the vessel at the port of loading, until he delivers it on the
shore or on the discharging wharf at the port of unloading, unless agreed otherwise. In Standard Oil Co. of New York v.
Lopez Castelo,29 the Court interpreted the ship captain's liability as ultimately that of the shipowner by regarding the
captain as the representative of the ship owner.

Lastly, Section 2 of the COGSA provides that under every contract of carriage of goods by sea, the carrier in relation to
the loading, handling, stowage, carriage, custody, care, and discharge of such goods, shall be subject to the
responsibilities and liabilities and entitled to the rights and immunities set forth in the Act. 30 Section 3 (2) thereof then
states that among the carriers' responsibilities are to properly and carefully load, handle, stow, carry, keep, care for, and
discharge the goods carried.

The above doctrines are in fact expressly incorporated in the bill of lading between the shipper Shanghai Fareast
Business Co., and the consignee, to wit:

4. PERIOD OF RESPONSIBILITY. The responsibility of the carrier shall commence from the time when the goods are
loaded on board the vessel and shall cease when they are discharged from the vessel.

The Carrier shall not be liable of loss of or damage to the goods before loading and after discharging from the vessel,
howsoever such loss or damage arises. 31

On the other hand, the functions of an arrastre operator involve the handling of cargo deposited on the wharf or
between the establishment of the consignee or shipper and the ship's tackle. 32 Being the custodian of the goods
discharged from a vessel, an arrastre operator's duty is to take good care of the goods and to turn them over to the party
entitled to their possession.33
 23
Handling cargo is mainly the arrastre operator's principal work so its drivers/operators or employees should observe the
standards and measures necessary to prevent losses and damage to shipments under its custody. 34

In Fireman's Fund Insurance Co. v. Metro Port Service, Inc. 35 the Court explained the relationship and responsibility of an
arrastre operator to a consignee of a cargo, to quote:

The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and warehouseman.
The relationship between the consignee and the common carrier is similar to that of the consignee and the arrastre
operator. Since it is the duty of the ARRASTRE to take good care of the goods that are in its custody and to deliver them
in good condition to the consignee, such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the
CARRIER are therefore charged with and obligated to deliver the goods in good condition to the consignee.( Emphasis
supplied) (Citations omitted) chanroblesvirtuallawlibrary

The liability of the arrastre operator was reiterated in Eastern Shipping Lines, Inc. v. Court of Appeals 36 with the
clarification that the arrastre operator and the carrier are not always and necessarily solidarily liable as the facts of a case
may vary the rule.

Thus, in this case the appellate court is correct insofar as it ruled that an arrastre operator and a carrier may not be held
solidarily liable at all times. But the precise question is which entity had custody of the shipment during its unloading
from the vessel?cralawred

The aforementioned Section 3(2) of the COGSA states that among the carriers' responsibilities are to properly and
carefully load, care for and discharge the goods carried. The bill of lading covering the subject shipment likewise
stipulates that the carrier's liability for loss or damage to the goods ceases after its discharge from the vessel. Article 619
of the Code of Commerce holds a ship captain liable for the cargo from the time it is turned over to him until its delivery
at the port of unloading.

In a case decided by a U.S. Circuit Court, Nichimen Company v. M./V. Farland,37 it was ruled that like the duty of
seaworthiness, the duty of care of the cargo is non-delegable, 38 and the carrier is accordingly responsible for the acts of
the master, the crew, the stevedore, and his other agents. It has also been held that it is ordinarily the duty of the master
of a vessel to unload the cargo and place it in readiness for delivery to the consignee, and there is an implied obligation
that this shall be accomplished with sound machinery, competent hands, and in such manner that no unnecessary
injury shall be done thereto. 39 And the fact that a consignee is required to furnish persons to assist in unloading a
shipment may not relieve the carrier of its duty as to such unloading. 40

The exercise of the carrier's custody and responsibility over the subject shipment during the unloading actually
transpired in the instant case during the unloading of the shipment as testified by Mr. Talens, the cargo surveyor, to
quote:

Atty. Repol:

- Do you agree with me that Wallem Philippines is a shipping [company]?cralawred

A Yes, sir.

Q And, who hired the services of the stevedores?cralawred

A The checker of the vessel of Wallem, sir. 41

xxx

Q Mr. Witness, during the discharging operation of this cargo, where was the master of the vessel?cralawred

A On board the vessel, supervising, sir.

Q And, observed the discharging operation?cralawred

A Yes, sir.
 24
Q And, what did the master of the vessel do when the cargo was being unloaded from the vessel?cralawred

A He would report to the head checker, sir.

Q He did not send the stevedores to what manner in the discharging of the cargo from the vessel?cralawred

A And head checker po and siyang nagpapatakbo ng trabaho sa loob ng barko, sir. 42

xxx

Q Is he [the head checker] an employee of the company?cralawred

A He is a contractor/checker of Wallem Philippines, sir. 43

Moreover, the liability of Wallem is highlighted by Mr. Talen's notes in the Bad Order Inspection, to wit:

"The bad order torn bags, was due to stevedores['] utilizing steel hooks/spikes in piling the cargo to [the] pallet board at
the vessel's cargo holds and at the pier designated area before and after discharged that cause the bags to torn
[sic]."44 (Emphasis supplied)cralawlibrary

The records are replete with evidence which show that the damage to the bags happened before and after their
discharge45 and it was caused by the stevedores of the arrastre operator who were then under the supervision of
Wallem.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

It is settled in maritime law jurisprudence that cargoes while being unloaded generally remain under the custody of the
carrier. In the instant case, the damage or losses were incurred during the discharge of the shipment while under the
supervision of the carrier. Consequently, the carrier is liable for the damage or losses caused to the shipment. As the cost
of the actual damage to the subject shipment has long been settled, the trial court's finding of actual damages in the
amount of P397,879.69 has to be sustained.

On the credibility of Mr. Talens which is the fourth issue, the general rule in assessing credibility of witnesses is well-
settled:

x x x the trial court's evaluation as to the credibility of witnesses is viewed as correct and entitled to the highest respect
because it is more competent to so conclude, having had the opportunity to observe the witnesses' demeanor and
deportment on the stand, and the manner in which they gave their testimonies. The trial judge therefore can better
determine if such witnesses were telling the truth, being in the ideal position to weigh conflicting testimonies.
Therefore, unless the trial judge plainly overlooked certain facts of substance and value which, if considered, might
affect the result of the case, his assessment on credibility must be respected. 46

Contrary to petitioner's stance on the third issue, Wallem's failure to respond to its demand letter does not constitute an
implied admission of liability. To borrow the words of Mr. Justice Oliver Wendell Holmes, thus:

A man cannot make evidence for himself by writing a letter containing the statements that he wishes to prove. He does
not make the letter evidence by sending it to the party against whom he wishes to prove the facts [stated therein]. He no
more can impose a duty to answer a charge than he can impose a duty to pay by sending goods. Therefore a failure to
answer such adverse assertions in the absence of further circumstances making an answer requisite or natural has no
effect as an admission.47

With respect to the attorney's fees, it is evident that petitioner was compelled to litigate this matter to protect its
interest. The RTC's award of P20,000.00 as attorney's fees is reasonable.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals dated 22 June 2004 and its Resolution
dated 11 October 2004 are REVERSED and SET ASIDE. Wallem is ordered to pay petitioner the sum of  P397,879.69, with
interest thereon at 6% per annum from the filing of the complaint on 7 October 1996 until the judgment becomes final
and executory. Thereafter, an interest rate of 12% per annum shall be imposed. 48 Respondents are also ordered to pay
petitioner the amount of P20,000.00 for and as attorney's fees, together with the costs of the suit.

SO ORDERED.
 25
5. Eastern Shipping Lines, Inc. vs. Court of Appeals,  234 SCRA 78, July 12, 1994
G.R. No. 97412. July 12, 1994.*
EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT OF APPEALS AND MERCANTILE INSURANCE
COMPANY, INC., respondents.

Common Carriers; Obligations; Presumption of Fault;  When the goods shipped either are lost or arrive in damaged
condition, a presumption arises against the carrier of its failure to observe that requisite diligence, and there need not be an
express finding of negligence to hold it liable.—The common carrier’s duty to observe the requisite diligence in the
shipment of goods lasts from the time the articles are surrendered to or unconditionally placed in the possession of, and
received by, the carrier for transportation until delivered to, or until the lapse of a reasonable time for their acceptance
by, the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai
vs. Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either are lost or arrive in damaged condition, a
presumption arises against the carrier of its failure to observe that diligence, and there need not be an express finding of
negligence to hold it liable (Art. 1735, Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro
Port Service vs. Court of Appeals, 131 SCRA 365). There are, of course, exceptional cases when such presumption of fault
is not observed but these cases, enumerated in Article 1734 of the Civil Code, are exclusive, not one of which can be
applied to this case.
Same;  Same; Arrastre Operator; Carrier and arrastre operator liable in solidum for the proper delivery of the goods to
the consignee.—The question of charging both the carrier and the arrastre operator with the obligation of properly
delivering the goods to the consignee has, too, been passed upon by the Court. In Fireman’s Fund Insurance Co. vs.
Metro Port Service, Inc. (182 SCRA 455), we have explained, in holding the carrier and the arrastre operator liable
in solidum, thus: “The legal relationship between the consignee and the arrastre operator is akin to that of a depositor
and warehouseman (Lua Kian v. Manila Railroad Co., et al., 19 SCRA 5 [1967]. The relationship between the consignee
and the common carrier is similar to that of the consignee and the arrastre operator (Northern Motors, Inc. v. Prince
Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE to take good care of the goods that are in its
custody and to deliver them in good condition to the consignee, such responsibility also devolves upon the CARRIER.
Both the ARRASTRE and the CARRIER are therefore charged with the obligation to deliver the goods in good condition
to the consignee.”
Same;  Same; Same;  The Supreme Court is not implying, however, that the arrastre operator and the customs broker
are themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that attendant facts in a given
case may not vary the rule.—We do not, of course, imply by the above pronouncement that the arrastre operator and the
customs broker are themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that attendant
facts in a given case may not vary the rule. The instant petition has been brought solely by Eastern Shipping Lines which,
being the carrier and not having been able to rebut the presumption of fault, is, in any event, to be held liable in this
particular case. A factual finding of both the court a quo and the appellate court, we take note, is that “there is sufficient
evidence that the shipment sustained damage while in the successive possession of appellants” (the herein petitioner
among them). Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is
inevitable regardless of whether there are others solidarily liable with it.
Damages; Interest Rates; Rules of thumb for future guidance in the award of damages and interest rates.—The
ostensible discord is not difficult to explain. The factual circumstances may have called for different applications, guided
by the rule that the courts are vested with discretion, depending on the equities of each case, on the award of interest.
Nonetheless, it may not be unwise, by way of clarification and reconciliation, to suggest the following rules of thumb for
future guidance.
Same;  Same; Same;  When an obligation is breached, the contravenor can be held liable for damages.—When an
obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the
contravenor can be held liable for damages. The provisions under Title XVIII on “Damages” of the Civil Code govern in
determining the measure of recoverable damages.
Same;  Same; Same;  Interests in the Concept of Actual and Compensatory Damages; In a loan or forbearance of
money, the interest due should be that stipulated in writing, and in the absence thereof, the rate shall be 12% per annum. —
With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest,
as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment
of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated
in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
Same;  Same; Same;  Same; In case of other obligations, the interest on the amount of damages may be imposed at the
discretion of the court at the rate of 6% per annum.—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
 26
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.
Same;  Same; Same;  Same; When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest 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.—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.

PETITION for review of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

     Alojado & Garcia and Jimenea, Dala & Zaragoza for petitioner.
     Zapa Law Office for private respondent.

VITUG,J.:

The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a shipment of goods can
be a solidary, or joint and several, liability of the common carrier, the arrastre operator and the customs broker; (b)
whether the payment of legal interest on an award for loss or damage is to be computed from the time the complaint is
filed or from the date the decision appealed from is rendered; and (c) whether the applicable rate of interest, referred to
above, is twelve percent (12%) or six percent (6%).
The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed facts that have
led to the controversy are hereunder reproduced:
“This is an action against defendants shipping company, arrastre operator and broker-forwarder for damages sustained
by a shipment while in defendants’ custody, filed by the insurer-subrogee who paid the consignee the value of such
losses/damages.
“On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel ‘SS
EASTERN COMET’ owned by defendant Eastern Shipping Lines, Inc. under Bill of Lading No. YMA-8 (Exh. B). The
shipment was insured under plaintiff’s Marine Insurance Policy No. 81/01177 for P36,382,466.38.

“Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of defendant
Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, which damage was unknown to
plaintiff.
“On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro Port
Service, Inc., one drum opened and without seal (per ‘Request for Bad Order Survey.’ (Exh. D).
“On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to the
consignee’s warehouse. The latter excepted to one drum which contained spillages, while the rest of the contents was
adulterated/fake (per ‘Bad Order Waybill’ No. 10649, Exh. E).
“Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered losses totaling
P19,032.95, due to the fault and negligence of defendants. Claims were presented against defendants who failed and
refused to pay the same (Exhs. H, I, J, K, L).
“As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95 under the
aforestated marine insurance policy, so that it became subrogated to all the rights of action of said consignee against
defendants (per ‘Form of Subrogation,’ ‘Release’ and Philbanking check, Exhs. M, N, and O).” (pp. 85-86, Rollo.)

There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said:
“Defendants filed their respective answers, traversing the material allegations of the complaint contending that: As for
defendant Eastern Shipping it alleged that the shipment was discharged in good order from the vessel unto the custody
of Metro Port Service so that any damage/losses incurred after the shipment was incurred after the shipment was turned
over to the latter, is no longer its liability (p. 17, Record); Metroport averred that although subject shipment was
discharged unto its custody, portion of the same was already in bad order (p. 11, Record); Allied Brokerage alleged that
plaintiff has no cause of action against it, not having negligent or at fault for the shipment was already in damage and
bad order condition when received by it, but nonetheless, it still exercised extra ordinary care and diligence in the
handling/delivery of the cargo to consignee in the same condition shipment was received by it.
“From the evidence the court found the following:
“‘The issues are:
‘1.Whether or not the shipment sustained losses/damages;
‘2.Whether or not these losses/damages were sustained while in the custody of defendants (in whose respective custody,
if determinable);
 27
‘3.Whether or not defendant(s) should be held liable for the losses/damages (see plaintiff’s pre-Trial Brief, Records, p. 34;
Allied’s pre-Trial Brief, adopting plaintiff’s Records, p. 38).’

‘As to the first issue, there can be no doubt that the shipment sustained losses/damages. The two, drums were
shipped in good order and condition, as clearly shown by the Bill of Lading and Commercial Invoice which do not
indicate any damages drum that was shipped (Exhs. B and C). But when on December 12, 1981 the shipment was
delivered to defendant Metro Port Service, Inc., it excepted to one drum in bad order.
‘Correspondingly, as to the second issue, it follows that the losses/damages were sustained while in the respective
and/or successive custody and possession of defendants carrier (Eastern), arrastre operator (Metro Port) and broker
(Allied Brokerage). This becomes evident when the Marine Cargo Survey Report (Exh. G), with its ‘Additional Survey
Notes,’ are considered. In the latter notes, it is stated that when the shipment was ‘landed on vessel’ to dock of Pier # 15,
South Harbor, Manila on December 12, 1981,’ it was observed that ‘one (1) fiber drum (was) in damaged condition,
covered by the vessel’s Agent’s Bad Order Tally Sheet No. 86427.’ The report further states that when defendant Allied
Brokerage withdrew the shipment from defendant arrastre operator’s custody on January 7, 1982, one drum was found
opened without seal, cello bag partly torn but contents intact. Net unrecovered spillage was 15 kgs. The report went on
to state that when the drums reached the consignee, one drum was found with adul-terated/faked contents. It is
obvious, therefore, that these losses/ damages occurred before the shipment reached the consignee while under the
successive custodies of defendants. Under Art. 1737 of the New Civil Code, the common carrier’s duty to observe
extraordinary diligence in the vigilance of goods remains in full force and effect even if the goods are temporarily
unloaded and stored in transit in the warehouse of the carrier at the place of destination, until the consignee has been
advised and has had reasonable opportunity to remove or dispose of the goods (Art. 1738, NCC). Defendant Eastern
Shipping’s own exhibit, the ‘Turn-Over Survey of Bad Order Cargoes’ (Exhs. 3-Eastern) states that on December 12, 1981
one drum was found ‘open.’
“and thus held:

‘WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:

A.Ordering defendants to pay plaintiff, jointly and severally:
1.The amount of P19,032.95, with the present legal interest of 12% per annum from October 1, 1982, the date of filing of
this complaints, until fully paid (the liability of defendant Eastern Shipping, Inc. shall not exceed US$500 per case or the
CIF value of the loss, whichever is lesser, while the liability of defendant Metro Port Service, Inc. shall be to the extent of
the actual invoice value of each package, crate box or container in no case to exceed P5,000.00 each, pursuant to Section
6.01 of the Management Contract);
2.P3,000.00 as attorney’s fees, and
3.Costs.
B.Dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage Corporation.
SO ORDERED.’ (p. 207, Record).
“Dissatisfied, defendant’s recourse to US.
“The appeal is devoid of merit.
“After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is correct. As there
is sufficient evidence that the shipment sustained damage while in the successive possession of appellants, and therefore
they are liable to the appellee, as subrogee for the amount it paid to the consignee.” (pp. 87-89, Rollo.)

The Court of Appeals thus affirmed in toto the judgment of the court a quo.
In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of discretion on
the part of the appellate court when—

I.IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE OPERATOR AND
CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED DECISION;

II.IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT SHOULD COMMENCE
FROM THE DATE OF THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE PERCENT PER ANNUM
INSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF SIX
PERCENT PER ANNUM, PRIVATE RESPONDENT’S CLAIM BEING INDISPUTABLY UNLIQUIDATED.

The petition is, in part, granted.

In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that novel.
Indeed, we do have a fairly good number of previous decisions this Court can merely tack to.
The common carrier’s duty to observe the requisite diligence in the shipment of goods lasts from the time the
articles are surrendered to or unconditionally placed in the possession of, and received by, the carrier for transportation
until delivered to, or until the lapse of a reasonable time for their acceptance by, the person entitled to receive them
(Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863).
 28
When the goods shipped either are lost or arrive in damaged condition, a presumption arises against the carrier of its
failure to observe that diligence, and there need not be an express finding of negligence to hold it liable (Art. 1735, Civil
Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service, Inc. vs. Court of Appeals, 131
SCRA 365). There are, of course, exceptional cases when such presumption of fault is not observed but these cases,
enumerated in Article 17341 of the Civil Code, are exclusive, not one of which can be applied to this case.
The question of charging both the carrier and the arrastre operator with the obligation of properly delivering the
goods to the consignee has, too, been passed upon by the Court. In Fireman’s Fund Insurance, Co. vs. Metro Port
Service, Inc. (182 SCRA 455), we have explained, in holding the carrier and the arrastre operator liable in solidum, thus:
“The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and warehouseman
(Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship between the consignee and the common carrier is
similar to that of the consignee and the arrastre operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253
[1960]). Since it is the duty of the ARRASTRE to take good care of the goods that are in its custody and to deliver them in
good condition to the consignee, such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the
CARRIER are therefore charged with the obligation to deliver the goods in good condition to the consignee.”

We do not, of course, imply by the above pronouncement that the arrastre operator and the customs broker are
themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that attendant facts in a given case
may not vary the rule. The instant petition has been brought solely by Eastern Shipping Lines which, being the carrier
and not having been able to rebut the presumption of fault, is, in any event, to be held liable in this particular case. A
factual finding of both the court a quo and the appellate court, we take note, is that “there is sufficient evidence that the
shipment sustained damage while in the successive possession of appellants” (the herein petitioner among them).
Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless
of whether there are others solidarily liable with it.
It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing remark.
Let us first see a chronological recitation of the major rulings of this Court:
The early case of Malayan Insurance Co., Inc., vs. Manila Port Service, 2 decided3 on 15 May 1969, involved a suit for
recovery of money arising out of short deliveries and pilferage of goods. In this case, appellee Malayan Insurance (the
plaintiff in the lower court) averred in its complaint that the total amount of its claim for the value of the undelivered
goods amounted to P3,947.20. This demand, however, was neither established in its totality nor definitely ascertained. In
the stipulation of facts later entered into by the parties, in lieu of proof, the amount of P1,447.51 was agreed upon. The
trial court rendered judgment ordering the appellants (defendants) Manila Port Service and Manila Railroad Company
to pay appellee Malayan Insurance the sum of P1,447.51 with legal interest thereon from the date the complaint was filed
on 28 December 1962 until full payment thereof. The appellants then assailed, inter alia, the award of legal interest. In
sustaining the appellants, this Court ruled:
“Interest upon an obligation which calls for the payment of money, absent a stipulation, is the legal rate. Such interest
normally is allowable from the date of demand, judicial or extrajudicial. The trial court opted for judicial demand as the
starting point.
“But then upon the provisions of Article 2213 of the Civil Code, interest ‘cannot be recovered upon unliquidated
claims or damages, except when the demand can be established with reasonable certainty.’ And as was held by this
Court in Rivera vs. Perez,4 L-6998, February 29, 1956,if the suit were for damages, ‘unliquidated and not known until
definitely ascertained, assessed and determined by the courts after proof (Montilla c. Corporacion de P. P. Agustinos, 25
Phil. 447; Lichauco v. Guzman, 38 Phil. 302),’ then, interest ‘should be from the date of the decision.’” (Italics supplied)

The case of Reformina vs. Tomol,5 rendered on 11 October 1985, was for “Recovery of Damages for Injury to Person and
Loss of Property.” After trial, the lower court decreed: Enrique Fernando, Francisco Capistrano, Claudio Teehankee and
Antonio Barredo. Chief Justice Roberto Concepcion and Justice Fred Ruiz Castro were on official leave. “WHEREFORE,
judgment is hereby rendered in favor of the plaintiffs and third party defendants and against the defendants and third
party plaintiffs as follows:
“Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and severally the
following persons:
“(a).....
“x x x      x x x
“(g)Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is the value of the boat F B
Pacita III together with its accessories, fishing gear and equipment minus P80,000.00 which is the value of the insurance
recovered and the amount of P10,000.00 a month as the estimated monthly loss suffered by them as a result of the fire of
May 6, 1969 up to the time they are actually paid or alreadythe total sum of P370,000.00 as of June 4, 1972 with legal
interest from the filing of the complaint until paid and to pay attorney’s fees of P5,000.00 with costs against defendants
and third party plaintiffs.” (Italics supplied.)

On appeal to the Court of Appeals, the latter modified the amount of damages awarded but sustained the trial court in
adjudging legal interest from the filing of the complaint until fully paid. When the appellate court’s decision became final,
the case was remanded to the lower court for execution, and this was when the trial court issued its assailed resolution
 29
which applied the 6% interest per annum prescribed in Article 2209 of the Civil Code. In their petition for review
on certiorari, the petitioners contended that Central Bank Circular No. 416, providing thus—
“By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary Board in its Resolution No.
1622 dated July 29, 1974, has prescribed that the rate of interest for the loan, or forbearance of any money, goods, or
credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be twelve
(12%) percent per annum. This Circular shall take effect immediately.” (Italics found in the text)—

should have, instead, been applied. This Court6 ruled:

“The judgments spoken of and referred to are judgments in litigations involving loans or forbearance of any money,
goods or credits. Any other kind of monetary judgment which has nothing to do with, nor involving loans or forbearance
of any money, goods or credits does not fall within the coverage of the said law for it is not within the ambit of the
authority granted to the Central Bank.
“x x x      x x x      x x x
“Coming to the case at bar, the decision herein sought to be executed is one rendered in an Action for Damages for
injury to persons and loss of property and does not involve any loan, much less forbear-ances of any money, goods or
credits. As correctly argued by the private respondents, the law applicable to the said case is Article 2209 of the New
Civil Code which reads—
‘Art.2209.—If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity
for damages, there being no stipulation to the contrary, shall be the payment of interest agreed upon, and in the absence
of stipulation, the legal interest which is six percent per annum.’”

The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz,7 promulgated on 28 July 1986. The case was for
damages occasioned by an injury to person and loss of property. The trial court awarded private respondent Pedro
Manabat actual and compensatory damages in the amount of P72,500.00 withlegal interest thereon from the filing of the
complaint until fully paid. Relying on the Reformina v. Tomol case, this Court 8 modified the interest award from 12% to
6% interest per annum but sustained the time computation thereof, i.e., from the filing of the complaint until fully paid.
In Nakpil and Sons vs. Court of Appeals,9 the trial court, in an action for the recovery of damages arising from the
collapse of a building, ordered, inter alia, the “defendant United Construction Co., Inc. (one of the petitioners) x x x to
pay the plaintiff, x x x, the sum of P989,335.68 with interest at the legal rate from November 29, 1968, the date of the filing
of the complaint until full payment x x x.” Save from the modification of the amount granted by the lower court, the
Court of Appeals sustained the trial court’s decision. When taken to this Court for review, the case, on 03 October 1986,
was decided, thus:
“WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and environmental
circumstances of this case, we deem it reasonable to render a decision imposing, as We do hereby impose, upon the
defendant and the third-party defendants (with the exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra,
p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to cover all damages
(with the exception of attorney’s fees) occasioned by the loss of the building (including interest charges and lost rentals)
and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for attorney’s fees, the total sum being
payable upon the finality of this decision. Upon failure to pay on such finality, twelve (12%) per cent interest per annum
shall be imposed upon aforementioned amounts from finality until paid. Solidary costs against the defendant and third-
party defen-dants (except Roman Ozaeta).” (Italics supplied)

A motion for reconsideration was filed by United Construction, contending that “the interest of twelve (12%) percent per
annum imposed on the total amount of the monetary award was in contravention of law.” The Court 10 ruled out the
applicability of the Reformina and Philippine Rabbit Bus Lines cases and, in its resolution of 15 April 1988, it explained:
“There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No. 416 x x x is
applicable only in the following: (1) loans; (2) forbearance of any money, goods or credit; and (3) rate allowed in
judgments (judgments spoken of refer to judgments involving loans or forbearance of any money, goods or credits.
(Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is
true that in the instant case, there is neither a loan or a forbearance, but then no interest is actually imposed provided the
sums referred to in the judgment are paid upon the finality of the judgment. It is delay in the payment of such final
judgment, that will cause the imposition of the interest. “It will be noted that in the cases already adverted to, the rate of
interest is imposed on the total sum, from the filing of the complaint until paid; in other words, as part of the judgment
for damages. Clearly, they are not applicable to the instant case.” (Italics supplied)
The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court 11 was a petition for review
on certiorari from the decision, dated 27 February 1985, of the then Intermediate Appellate Court reducing the amount
of moral and exemplary damages awarded by the trial court, to P240,000.00 and P100,000.00, respectively, and its
resolution, dated 29 April 1985, restoring the amount of damages awarded by the trial court, i.e., P2,000,000.00 as moral
damages and P400,000.00 as exemplary damages with interest thereon at 12% per annum from notice of judgment, plus
costs of suit. In a decision of 09 November 1988, this Court, while recognizing the right of the private respondent to
recover damages, held the award, however, for moral damages by the trial court, later sustained by the IAC, to be
inconceivably large. The Court12 thus set aside the decision of the appellate court and rendered a new one, “ordering the
 30
petitioner to pay private respondent the sum of One Hundred Thousand (P100,000.00) Pesos as moral damages, with  six
(6%) percent interest thereon computed from the finality of this decision until paid.” (Italics supplied)
Reformina came into fore again in the 21 February 1989 case of Florendo v.Ruiz 13 which arose from a breach of
employment contract. For having been illegally dismissed, the petitioner was awarded by the trial court moral and
exemplary damages without, however, providing any legal interest thereon. When the decision was appealed to the
Court of Appeals, the latter held:
“WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental dated October 31, 1972 is
affirmed in all respects, with the modification that defendants-appellants, except defendant-appellant Merton Munn, are
ordered to pay, jointly and severally, the amounts stated in the dispositive portion of the decision, including the sum of
P1,400.00 in concept of compensatory damages, with interest at the legal rate from the date of the filing of the complaint
until fully paid.” (Italics supplied)

The petition for review to this Court was denied. The records were thereupon transmitted to the trial court, and an entry
of judgment was made. The writ of execution issued by the trial court directed that only compensatory damages should
earn interest at 6% per annum from the date of the filing of the complaint. Ascribing grave abuse of discretion on the
part of the trial judge, a petition forcertiorari assailed the said order. This Court said:
“x x x, it is to be noted that the Court of Appeals ordered the payment of interest ‘at the legal rate’  from the time of the
filing of the complaint. x x x. Said circular [Central Bank Circular No. 416] does not apply to actions based on a breach of
employment contract like the case at bar.” (Italics supplied)

The Court reiterated that the 6% interest per annum on the damages should be computed from the time the complaint
was filed until the amount is fully paid.
Quite recently, the Court had another occasion to rule on the matter.National Power Corporation vs. Angas,14 decided
on 08 May 1992, involved the expropriation of certain parcels of land. After conducting a hearing on the complaints
for eminent domain, the trial court ordered the petitioner to pay the private respondents certain sums of money as just
compensation for their lands so expropriated “with legal interest thereon x x x until fully paid.” Again, in applying the 6%
legal interest per annum under the Civil Code, the Court 15 declared:
“x x x, (T)he transaction involved is clearly not a loan or forbearance of money, goods or credits but expropriation of
certain parcels of land for a public purpose, the payment of which is without stipulation regarding interest, and the
interest adjudged by the trial court is in the nature of indemnity for damages. The legal interest required to be paid on
the amount of just compensation for the properties expropriated is manifestly in the form of indemnity for damages for
the delay in the payment thereof. Therefore, since the kind of interest involved in the joint judgment of the lower court
sought to be enforced in this case is interest by way of damages, and not by way of earnings from loans, etc. Art. 2209 of
the Civil Code shall apply.”

Concededly, there have been seeming variances in the above holdings. The cases can perhaps be classified into two
groups according to the similarity of the issues involved and the corresponding rulings rendered by the court. The  “first
group” would consist of the cases of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz (1986), Florendo v.
Ruiz (1989) and National Power Corporation v. Angas (1992). In the “second group” would be Malayan Insurance
Company v. Manila Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and American Express International
v. Intermediate Appellate Court (1988).
In the “first group,” the basic issue focuses on the application of either the 6% (under the Civil Code) or 12% (under
the Central Bank Circular) interest per annum. It is easily discernible in these cases that there has been a consistent
holding that the Central Bank Circular imposing the 12% interest per annum applies only to loans or forbearance 16 of
money, goods or credits, as well as to judgments involving such loan or forbearance of money, goods or credits, and that
the 6% interest under the Civil Code governs when the transaction involves the payment of indemnities in the concept
of damage arising from the breach or a delay in the performance of obligations in general. Observe, too, that in these
cases, a common time frame in the computation of the 6% interest per annum has been applied, i.e., from the time the
complaint is filed until the adjudged amount is fully paid.
The“second group,” did not alter the pronounced rule on the application of the 6% or 12% interest per
annum,17 depending on whether or not the amount involved is a loan or forbearance, on the one hand, or one of
indemnity for damage, on the other hand. Unlike, however, the “first group” which remained consistent in holding that
the running of the legal interest should be from the time of the filing of the complaint until fully paid, the “second
group” varied on the commencement of the running of the legal interest.
Malayan held that the amount awarded should bear legal interest from the date of the decision of the court a quo,
explaining that “if the suit were for damages, ‘unliquidated and not known until definitely ascertained, assessed and
determined by the courts after proof,’ then, interest ‘should be from the date of the decision.’” American Express
International v. IAC, introduced a different time frame for reckoning the 6% interest by ordering it to be “ computed
from the finality of (the) decision until paid.” The Nakpil and Sons case ruled that 12% interest per annum should be
imposed from the finality of the decision until the judgment amount is paid.
The ostensible discord is not difficult to explain. The factual circumstances may have called for different
applications, guided by the rule that the courts are vested with discretion, depending on the equities of each case, on the
 31
award of interest. Nonetheless, it may not be unwise, by way of clarification and reconciliation, to suggest the following
rules of thumb for future guidance.

I.When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts 18 is breached,
the contravenor can be held liable for damages. 19 The provisions under Title XVIII on “Damages” of the Civil Code
govern in determining the measure of recoverable damages. 20

II.With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:

1.When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been stipulated in writing. 21 Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. 22 In the absence of stipulation, the rate of interest shall
be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 116923 of the Civil Code.

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 court24 at the rate of 6% per annum.25 No interest, however,
shall be adjudged on unliquidated claims or damages except when or until the demand can be established with
reasonable certainty.26 Accordingly, where the demand is established with reasonable certainty, the interest shall begin
to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot
be so reasonably established at the time the demand is made, the interest shall begin to run only from the date 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.
3.When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.
WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the MODIFICATION that
the legal interest to be paid is SIX PERCENT (6%) on the amount due computed from the decision, dated 03 February
1988, of the courta quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on such
amount upon finality of this decision until the payment thereof.
SO ORDERED.
     Narvasa  (C.J.), Cruz,  Feliciano,  Padilla,  Bidin,  Regalado, Davide,
Jr.,  Romero,  Bellosillo, Melo,  Quiason, Puno and Kapunan, JJ., concur.
     Mendoza, J., Took no part in deliberations.

Petition partly granted.

Notes.—Where the obligation arose from a contract or purchase and sale and not from a contract of loan or
mutuum, the applicable rate is 6% per annum as provided in Article 2209 of the Civil Code and not the rate of 12% per
annum as provided in Circular No. 416 (Pilipinas Bank vs. Court of Appeals, 225 SCRA 268 [1993]).
While common carriers are required to observe extraordinary diligence and are presumed at fault, no such
presumption applies to private carriers (Planters Products, Inc. vs. Court of Appeals, 226 SCRA 476 [1993]).

6. Ynchausti Steamship Co. vs. Dexter and Unson.,  41 Phil. 289, December 14, 1920
[No. 15652. December 14, 1920.]
THE YNCHAUSTI STEAMSHIP COMPANY, petitioner, vs. I. B. DEXTER, as Auditor of the Philippine Islands, and C. E.
UNSON, as Acting Purchasing Agent of the Philippine Islands, respondents.

1.COMMON CARRIER; TRANSPORTATION OF GOVERNMENT PROPERTY; NoTATION OF SHORTAGE BY

CONSIGNEE.—When Government property is transported by common carrier, it is the duty of the consignee, under
section 646 of the Administrative Code, to make notation of any loss, shortage, or damage upon the bill of lading, or
receipt, before accomplishing it; and where in obedience to this precept a shortage is noted by the consignee upon the
bill of lading at the time of delivery, such notation is competent evidence to show that the shortage in fact existed.

2ID.; LOSS OR DAMAGE TO GOODS IN TRANSIT; LIABILITY OF CARRIER.—Proof of the delivery of goods in good

order to a carrier, and of their arrival at the place of destination short or in bad order, makes out a prima facie case; and
it is incumbent on the carrier, in order to exonerate itself, to prove that the loss or injury was due to some circumstance
inconsistent with its liability

3ID.; FREIGHT DUE TO CARRIER; SET-OFF FOR LOSS OR DAMAGE IN TRANSIT—The Purchasing Agent, under the
direction of the Insular Auditor, may properly deduct from the freight due to a common carrier for the transportation of
 32
Government property any sum for which the carrier is liable to the Government for loss, shortage, or damage occurring
in course of the transportation of the same property.

4MANDAMUS; COMMON CARRIER; CLAIM AGAINST .GOVERNMENT; BUR4. DEN OF PROOF.—A common carrier

cannot maintain an action for the writ of mandamus to compel .the Purchasing Agent to pay a bill for freight due to the
carrier, under the doctrine enunciated in Compañía General de Tabacos vs. French and Unson (39 Phil, 34), without
showing that the loss, shortage, or damage suffered by the property while in the hands of the carrier for transportation
resulted from some other cause than its own fault or negligence.

ORIGINAL ACTION in the Supreme Court. Mandamus.

The facts are stated in the opinion of the court.
Cohn & Fisher for petitioner.
Attorney-General Paredes and Assistant Attorney-General A. Santos for respondents.

STREET, J.;

This is a petition for a writ of mandamus filed in this court by the Ynchausti Steamship Company to compel the
Purchasing Agent of the Philippine Islands and the Insular Auditor to sign, countersign, and deliver to the petitioner a
warrant upon the Treasurer of the Philippine Islands for the sum of P82.79 in satisfaction of a claim for that amount,
which is alleged to be due the petitioner as a common carrier for freight earned in transporting for the Government two
distinct consignments of mineral oil from Manila to two other ports in the Philippine Islands. After the defendants had
duly answered, denying all the allegations of the petition except such as relate to the character and places of residence of
the parties to the petition (which are admitted) the controversy was submitted for determination by this court upon an
agreed statement of facts as follows:
"On July 23, 1918, the Government of the Philippine Islands, acting by and through the respondent Insular
Purchasing Agent, employed the services of the petitioner, Ynchausti Steamship Co., a common carrier, for the
transportation, on board the steamship Venus, from the port of Manila to the port of Aparri, Cagayan, of a consignment
of merchandise,-consisting of thirty (30) cases of 'White Rose' mineral oil of two five-gallon cans to the case; and on
September 18, 1918, the said Government likewise employed the services of petitioner for the transportation on board the
steamship Venus, from Manila to Aparri, Cagayan, of ninety-six cases of 'Cock' brand mineral oil, ten gallons to the case.
The goods were delivered by the shipper to the carrier, which accordingly received them, and to evidence the contract of
transportation, the parties duly executed and delivered what is popularly called the Government bill of lading (General
Form 9—A), hereto attached, marked Exhibit A and made a part hereof, wherein and whereby it was stipulated that the
carrier, the petitioner Ynchausti & Co., received the above-mentioned supplies in apparent good condition, obligating
itself to carry said supplies to the place agreed upon, in accordance with the authorized and prescribed rates and
classifications, and subject to the law of common carriers in force on the date of the shipment, and to the conditions
prescribed by the Insular Collector of Customs in Philippine Marine Regulations at page 16 under the heading of 'Bill of
Lading Conditions,' hereto attached, marked Exhibit B and made a part hereof.
"Upon the delivery of the said shipment of 'Cock' brand oil the consignee claimed that one case was delivered
empty, and noted such claim upon the bill of lading; and upon the delivery of the said. shipment of 'White Rose,' brand
oil the consignee claimed that one case was delivered empty, and noted said claim upon the bill of lading.
"Thereafter, notwithstanding the protestations of the petitioner, Ynchausti Steamship Co., that said shortages were
due to causes entirely unknown to it, and were not due to any fault or negligence on its part, or on the part of its agents
or servants, the Acting Insular Purchasing Agent of the Philippine .Islands notified the petitioners herein that after due
investigation the Insular Auditor found and decided that the leakages of the two whole cases were due to its negligence
and that the deduction of the sum of P22.53, the invoice value of the goods lost, and held by the Auditor to be the true
value thereof, had been authorized by the said Insular Auditor.
"Petitioner thereupon protested against the threatened deduction, and demanded that it be paid the f ull amount
due for the transportation of the two said shipments of merchandise, to wit, the sum of P82.79, as shown by its
transportation voucher presented in this cause, hereto attached, marked Exhibit C and made a part hereof.
"Thereafter, notwithstanding the protest and demand of the petitioner as aforesaid, the Insular Auditor, in
conformity with his ruling, declined and still declines to issue to the petitioner a warrant for the full sum of P82.79, and
has tendered to it a warrant for the sum of P60.26, which the petitioner has refused to accept.
"The sum of P22.53 authorized to be deducted by the Insular Auditor, as appears herein, has not at any time been
liquidated by consent, agreement, or by the judgment of any court of competent jurisdiction."
Upon a perusal of the foregoing agreed statement it will be seen that the present litigation had its origin in a
situation practically identical with that considered by this court in Compañía General de Tabacos vs. French and
Unson (39 Phil., 34). It will be noted, however, that the case mentioned was decided upon demurrer, while the one now
before us is to be heard and determined upon the petition, answer, and the admitted facts.
We note that in this case, as in the case of Compañía General de Tabacos vs. French and Unson (supra), the petition
alleges that the leakage of the lost gasoline was due to causes unknown to the petitioner and was not due to any fault or
 33
negligence of petitioner, its agents, or servants. The respondents, by demurring to the petition in the earlier case,
admitted that allegation. In the case now before us that allegation is put in issue, and we find nothing in the admitted
statement of facts to support it. It results that if that allegation is material to the relief here sought, the petition must
fail.
We are of the opinion that the allegation in question is material and that the relief sought in this case cannot be
granted.
In section 646 of the Administrative Code it is provided that when Government property is transmitted from one
place to another by carrier, it shall be upon proper bill of lading, or receipt, from such carrier; and it shall be the duty of
the consignee, or his representative, to make full notation of any evidence of loss, shortage, or damage, upon the bill of
lading, or receipt, before accomplishing it. It is admitted by the petitioner in the agreed statement of facts that the
consignee, at the time the oil was delivered, noted the loss in the present case upon the two respective bills of lading.
The notation of these losses by the consignee, in obedience to the precept of section 646 of the Administrative Code, is
competent evidence to show that the shortage in f act existed. As the petitioner admits that the oil was received by it for
carriage and inasmuch as the fact of loss is proved in the manner just stated, it results that there is a presumption that
the petitioner was to blame for the loss; and it was incumbent upon the petitioner in order to entitle it to relief in this
case to rebut that presumption by proving, as is alleged in the petition, that the loss was not due to any fault or
negligence of the petitioner.
The mere proof of delivery of goods in good order to a carrier, and of their arrival -at the place of destination in bad
order, makes out a prima facie case against the carrier, so that if no explanation is given as to how the injury occurred,
the carrier must be held responsible. (4 R. C. L., p. 917.) It is incumbent upon the carrier to prove that the loss was due
to accident or some other circumstance inconsistent with its liability. (Articles 361-363, Code of Commerce.) Indeed, if
the Government of the Philippine Islands had instituted an action in a court of law against the petitioner to recover the
value of the oil lost while' these consignments were in the course of transportation, it would, upon' the facts appearing
before us, have been entitled to judgment.
From this it is apparent that the mandamus prayed for cannot be granted. It is a rule of universal application that a
petition for extraordinary relief of the character here sought must show merit. That is, the petitioner's right to relief
must be clear. Such cannot be said to be the case where, as here, a presumption of responsibility on the part of the
petitioner stands unrefuted upon the record.
We are of the opinion that, in the absence of proof showing that the carrier was not at fault in respect to the matter
under discussion, the Insular Auditor was entitled to withhold, from the .amount admittedly due to the petitioner for
the freight charges, a sum sufficient to cover the value of the oil lost in transit.
The petition will be dismissed, with costs against the petitioner. So ordered.
Mapa, C. J., Araullo, Avanceña, and Villamor, JJ., concur.
Malcolm, J., concurs in the result.

Petition dismissed.

7. Delsan Transport Lines, Inc. vs. American Home Assurance Corporation,  498 SCRA 603, August 15, 2006
G.R. No. 149019. August 15, 2006.*
DELSAN TRANSPORT LINES, INC., petitioner, vs. AMERICAN HOME ASSURANCE CORPORATION, respondent.

Appeals; Factual findings of the Court of Appeals, affirmatory of those of the trial court, are binding on the Supreme
Court unless there is a clear showing that such findings are tainted with arbitrariness, capriciousness or palpable error.—In
resolving this appeal, the Court reiterates the oft-stated doctrine that factual findings of the CA, affirmatory of those of
the trial court, are binding on the Court unless there is a clear showing that such findings are tainted with arbitrariness,
capriciousness or palpable error.

Common Carriers; Presumption of Negligence; Common carriers are presumed to have been at fault or to have acted
negligently if the goods are lost, destroyed or deteriorated; Exceptions.—Common carriers are bound to observe
extraordinary diligence in the vigilance over the goods transported by them. They are presumed to have been at fault or
to have acted negligently if the goods are lost, destroyed or deteriorated. To overcome the presumption of negligence in
case of loss, destruction or deterioration of the goods, the common carrier must prove that it exercised extraordinary
diligence. There are, however, exceptions to this rule. Article 1734 of the Civil Code enumerates the instances when the
presumption of negligence does not attach: Art. 1734. Common carriers are responsible for the loss, destruction, or
deterioration of the goods, unless the same is due to any of the following causes only: 1) Flood storm, earthquake,
lightning, or other natural disaster or calamity; 2) Act of the public enemy in war, whether international or civil; 3) Act
or omission of the shipper or owner of the goods; 4) The character of the goods or defects in the packing or in the
containers; 5) Order or act of competent public authority.
Same;  Same; The extraordinary responsibility of common carrier lasts from the time the goods are unconditionally
placed in the possession of, and received by, the carrier for transportation until the same are delivered, actually or
constructively, by the carrier to the consignee, or to a person who has the right to receive them.—Delsan’s argument that it
should not be held liable for the loss of diesel oil due to backflow because the same had already been actually and legally
 34
delivered to Caltex at the time it entered the shore tank holds no water. It had been settled that the subject cargo was
still in the custody of Delsan because the discharging thereof has not yet been finished when the backflow occurred.
Since the discharging of the cargo into the depot has not yet been completed at the time of the spillage when the
backflow occurred, there is no reason to imply that there was actual delivery of the cargo to the consignee. Delsan is
straining the issue by insisting that when the diesel oil entered into the tank of Caltex on shore, there was legally, at that
moment, a complete delivery thereof to Caltex. To be sure, the extraordinary responsibility of common carrier lasts from
the time the goods are unconditionally placed in the possession of, and received by, the carrier for transportation until
the same are delivered, actually or constructively, by the carrier to the consignee, or to a person who has the right to
receive them. The discharging of oil products to Caltex Bulk Depot has not yet been finished, Delsan still has the duty to
guard and to preserve the cargo. The carrier still has in it the responsibility to guard and preserve the goods, a duty
incident to its having the goods transported.

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.
     Valeriano R. Del Rosario and Michelle Orcine Cabral for petitioner.
     Gerard M. Linsangan for respondent.

GARCIA, J.:

By this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Delsan Transport Lines, Inc.
(Delsan hereafter) assails and seeks to set aside the Decision, 1 dated July 16, 2001, of the Court of Appeals (CA) in CA-
G.R. CV No. 40951 affirming an earlier decision of the Regional Trial Court (RTC) of Manila, Branch IX, in two separate
complaints for damages docketed as Civil Case No. 85-29357 and Civil Case No. 85-30559.
The facts:
Delsan is a domestic corporation which owns and operates the vessel MT Larusan. On the other hand, respondent
American Home Assurance Corporation (AHAC for brevity) is a foreign insurance company duly licensed to do business
in the Philippines through its agent, the American-International Underwriters, Inc. (Phils.). It is engaged, among others,
in insuring cargoes for transportation within the Philippines.
On August 5, 1984, Delsan received on board MT Larusan a shipment consisting of 1,986.627 k/l Automotive Diesel
Oil (diesel oil) at the Bataan Refinery Corporation for transportation and delivery to the bulk depot in Bacolod City of
Caltex Phils., Inc. (Caltex), pursuant to a Contract of Afreightment. The shipment was insured by respondent AHAC
against all risks under Inland Floater Policy No. AH-IF64-1011549P and Marine Risk Note No. 34-5093-6.

On August 7, 1984, the shipment arrived in Bacolod City. Immediately thereafter, unloading operations commenced.
The discharging of the diesel oil started at about 1:30 PM of the same day. However, at about 10:30 PM, the discharging
had to be stopped on account of the discovery that the port bow mooring of the vessel was intentionally cut or stolen by
unknown persons. Because there was nothing holding it, the vessel drifted westward, dragged and stretched the flexible
rubber hose attached to the riser, broke the elbow into pieces, severed completely the rubber hose connected to the
tanker from the main delivery line at sea bed level and ultimately caused the diesel oil to spill into the sea. To avoid
further spillage, the vessel’s crew tried water flushing to clear the line of the diesel oil but to no avail. In the meantime,
the shore tender, who was waiting for the completion of the water flushing, was surprised when the tanker signaled a
“red light” which meant stop pumping. Unaware of what happened, the shore tender, thinking that the vessel would, at
any time, resume pumping, did not shut the storage tank gate valve. As all the gate valves remained open, the diesel oil
that was earlier discharged from the vessel into the shore tank back-flowed. Due to non-availability of a pump boat, the
vessel could not send somebody ashore to inform the people at the depot about what happened. After almost an hour, a
gauger and an assistant surveyor from the Caltex’s Bulk Depot Office boarded the vessel. It was only then that they
found out what had happened. Thereafter, the duo immediately went ashore to see to it that the shore tank gate valve
was closed. The loss of diesel oil due to spillage was placed at 113.788 k/l while some 435,081 k/l thereof backflowed from
the shore tank.
As a result of spillage and backflow of diesel oil, Caltex sought recovery of the loss from Delsan, but the latter refused
to pay. As insurer, AHAC paid Caltex the sum of P479,262.57 for spillage, pursuant to Marine Risk Note No. 34-5093-6,
and P1,939,575.37 for backflow of the diesel oil pursuant to Inland Floater Policy No. AH-1F64-1011549P.

On February 19, 1985, AHAC, as Caltex’s subrogee, instituted Civil Case No. 85-29357 against Delsan before the Manila
RTC, Branch 9, for loss caused by the spillage. It likewise prayed that it be indemnified for damages suffered in the
amount of P652,432.57 plus legal interest thereon.
Also, on May 5, 1985, in the Manila RTC, Branch 31, AHAC instituted Civil Case No. 85-30559 against Delsan for the
loss caused by the backflow. It likewise prayed that it be awarded the amount of P1,939,575.37 for damages and
reasonable attorney’s fees. As counterclaim in both cases, AHAC prayed for attorney’s fees in the amount of P200,000.00
and P500.00 for every court appearance.
Since the cause of action in both cases arose out of the same incident and involved the same issues, the two were
consolidated and assigned to Branch 9 of the court.
 35
On August 31, 1989, the trial court rendered its decision 2 in favor of AHAC holding Delsan liable for the loss of the
cargo for its negligence in its duty as a common carrier. Dispositively, the decision reads:
“WHEREFORE, judgment is hereby rendered:

A).In Civil Case No. 85-30559:

(1)Ordering the defendant (petitioner Delsan) to pay plaintiff (respondent AHAC) the sum of P1,939,575.37 with interest
thereon at the legal rate from November 21, 1984 until fully paid and satisfied; and

(2)Ordering defendant to pay plaintiff the sum of P10,000.00 as and for attorney’s fees. For lack of merit, the
counterclaim is hereby dismissed.

B). In Civil Case No. 85-29357:

(1)Ordering defendant to pay plaintiff the sum of P479,262.57 with interest thereon at the legal rate from February 6,
1985 until fully paid and satisfied;

(2)Ordering defendant to pay plaintiff the sum of P5,000.00 as and for attorney’s fees. For lack of merit, the
counterclaim is hereby dismissed.

Costs against the defendant.

SO ORDERED.”

In time, Delsan appealed to the CA whereat its recourse was docketed as CA-G.R. CV No. 40951. In the herein challenged
decision,3 the CA affirmed the findings of the trial court. In so ruling, the CA declared that Delsan failed to exercise the
extraordinary diligence of a good father of a family in the handling of its cargo. Applying Article 1736 4 of the Civil Code,
the CA ruled that since the discharging of the diesel oil into Caltex bulk depot had not been completed at the time the
losses occurred, there was no reason to imply that there was actual delivery of the cargo to Caltex, the consignee. We
quote the fallo of the CA decision:
“WHEREFORE, premises considered, the appealed Decision of the Regional Trial Court of Manila, Branch 09 in Civil
Case Nos. 85-29357 and 85-30559 is hereby AFFIRMED with a modification that attorney’s fees awarded in Civil Case
Nos. 85-29357 and 85-30559 are hereby DELETED.
SO ORDERED.”

Delsan is now before the Court raising substantially the same issues proffered before the CA.
Principally, Delsan insists that the CA committed reversible error in ruling that Article 1734 of the Civil Code cannot
exculpate it from liability for the loss of the subject cargo and in not applying the rule on contributory negligence
against Caltex, the shipper-owner of the cargo, and in not taking into consideration the fact that the loss due to
backflow occurred when the diesel oil was already completely delivered to Caltex.
We are not persuaded.
In resolving this appeal, the Court reiterates the oft-stated doctrine that factual findings of the CA, affirmatory of
those of the trial court, are binding on the Court unless there is a clear showing that such findings are tainted with
arbitrariness, capriciousness or palpable error. 5
Delsan would have the Court absolve it from liability for the loss of its cargo on two grounds.  First, the loss through
spillage was partly due to the contributory negligence of Caltex; and Second, the loss through backflow should not be
borne by Delsan because it was already delivered to Caltex’s shore tank.
Common carriers are bound to observe extraordinary diligence in the vigilance over the goods transported by them.
They are presumed to have been at fault or to have acted negligently if the goods are lost, destroyed or deteriorated. 6 To
overcome the presumption of negligence in case of loss, destruction or deterioration of the goods, the common carrier
must prove that it exercised extraordinary diligence. There are, however, exceptions to this rule. Article 1734 of the Civil
Code enumerates the instances when the presumption of negligence does not attach:
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due
to any of the following causes only:

1. 1)Flood storm, earthquake, lightning, or other natural disaster or calamity;

2. 2)Act of the public enemy in war, whether international or civil;

3. 3)Act or omission of the shipper or owner of the goods;

 36
4. 4)The character of the goods or defects in the packing or in the containers;

5. 5)Order or act of competent public authority.

Both the trial court and the CA uniformly ruled that Delsan failed to prove its claim that there was a contributory
negligence on the part of the owner of the goods—Caltex. We see no reason to depart therefrom. As aptly pointed out by
the CA, it had been established that the proximate cause of the spillage and backflow of the diesel oil was due to the
severance of the port bow mooring line of the vessel and the failure of the shore tender to close the storage tank gate
valve even as a check on the drain cock showed that there was still a product on the pipeline. To the two courts below,
the actuation of the gauger and the escort surveyor, both personnel from the Caltex Bulk Depot, negates the allegation
that Caltex was remiss in its duties. As we see it, the crew of the vessel should have promptly informed the shore tender
that the port mooring line was cut off. However, Delsan did not do so on the lame excuse that there was no
available banca. As it is, Delsan’s personnel signaled a “red light” which was not a sufficient warning because such signal
only meant that the pumping of diesel oil had been finished. Neither did the blowing of whistle suffice considering the
distance of more than 2 kilometers between the vessel and the Caltex Bulk Depot, aside from the fact that it was not the
agreed signal. Had the gauger and the escort surveyor from Caltex Bulk Depot not gone aboard the vessel to make
inquiries, the shore tender would have not known what really happened. The crew of the vessel should have exerted
utmost effort to immediately inform the shore tender that the port bow mooring line was severed.
To be sure, Delsan, as the owner of the vessel, was obliged to prove that the loss was caused by one of the excepted
causes if it were to seek exemption from responsibility. 7 Unfortunately, it miserably failed to discharge this burden by
the required quantum of proof.
Delsan’s argument that it should not be held liable for the loss of diesel oil due to backflow because the same had
already been actually and legally delivered to Caltex at the time it entered the shore tank holds no water. It had been
settled that the subject cargo was still in the custody of Delsan because the discharging thereof has not yet been finished
when the backflow occurred. Since the discharging of the cargo into the depot has not yet been completed at the time of
the spillage when the backflow occurred, there is no reason to imply that there was actual delivery of the cargo to the
consignee. Delsan is straining the issue by insisting that when the diesel oil entered into the tank of Caltex on shore,
there was legally, at that moment, a complete delivery thereof to Caltex. To be sure, the extraordinary responsibility of
common carrier lasts from the time the goods are unconditionally placed in the possession of, and received by, the
carrier for transportation until the same are delivered, actually or constructively, by the carrier to the consignee, or to a
person who has the right to receive them. 8 The discharging of oil products to Caltex Bulk Depot has not yet been
finished, Delsan still has the duty to guard and to preserve the cargo. The carrier still has in it the responsibility to guard
and preserve the goods, a duty incident to its having the goods transported.
To recapitulate, common carriers, from the nature of their business and for reasons of public policy, are bound to
observe extraordinary diligence in vigilance over the goods and for the safety of the passengers transported by them,
according to all the circumstances of each case. 9 The mere proof of delivery of goods in good order to the carrier, and
their arrival in the place of destination in bad order, make out a prima facie case against the carrier, so that if no
explanation is given as to how the injury occurred, the carrier must be held responsible. It is incumbent upon the carrier
to prove that the loss was due to accident or some other circumstances inconsistent with its liability. 10
All told, Delsan, being a common carrier, should have exercised extraordinary diligence in the performance of its
duties. Consequently, it is obliged to prove that the damage to its cargo was caused by one of the excepted causes if it
were to seek exemption from responsibility. 11 Having failed to do so, Delsan must bear the consequences.
WHEREFORE, petition is DENIED and the assailed decision of the CA is AFFIRMED in toto.
Cost against petitioner.
SO ORDERED.
     Puno  (Chairperson),  Sandoval-Gutierrez,  Corona and Azcuna, JJ., concur.

Petition denied, assailed decision affirmed in toto.

Notes.—Upon the happening of the accident, the presumption of negligence at once arises, and it becomes the duty
of common carrier to prove that he had observed extraordinary diligence in the care of his passengers. (Calalas vs. Court
of Appeals, 332 SCRA 356 [2000])
While the payment by the insurer for the insured value of the lost cargo operates as a waiver of the insurer’s right to
enforce the term of the implied warranty against the assured under the marine insurance policy, the same cannot be
validly interpreted as an automatic admission of the vessel’s seaworthiness by the insurer as to foreclose recourse against
the common carrier for any liability under the contractual obligation as such common carrier. (Delsan Transport Lines,
Inc. vs. Court of Appeals, 369 SCRA 24 [2001])

——o0o——
 37
8. Edgar Cokaliong Shipping Lines, Inc. vs. UCPB General Insurance Company, Inc.,  404 SCRA 706, June 25, 2003
G.R. No. 146018. June 25, 2003.*
EDGAR COKALIONG SHIPPING LINES, INC., petitioner, vs. UCPB GENERAL INSURANCE COMPANY, INC.,
respondent.
Civil Law; Damages; Force Majeure; Broadly speaking, force majeure generally applies to a natural accident, such as
that caused by a lightning, an earthquake, a tempest or a public enemy.—Having originated from an unchecked crack in
the fuel oil service tank, the fire could not have been caused by force majeure. Broadly speaking, force majeure generally
applies to a natural accident, such as that caused by a lightning, an earthquake, a tempest or a public enemy. Hence, fire
is not considered a natural disaster or calamity.
Same;  Same; Negligence; Common Carriers;  A common carrier is presumed to have been negligent if it fails to prove
that it exercised extraordinary vigilance over the goods if transported.—The law provides that a common carrier is
presumed to have been negligent if it fails to prove that it exercised extraordinary vigilance over the goods it
transported. Ensuring the seaworthiness of the vessel is the first step in exercising the required vigilance. Petitioner did
not present sufficient evidence showing what measures or acts it had undertaken to ensure the seaworthiness of the
vessel.
Same;  Same; Same;  Same; A stipulation that limits liability is valid as long as it is not against public policy .—A
stipulation that limits liability is valid as long as it is not against public policy. In  Everett Steamship Corporation v. Court
of Appeals the Court stated: “A stipulation in the bill of lading limiting the common carrier’s liability for loss or
destruction of a cargo to a certain sum, unless the shipper or owner declares a greater value, is sanctioned by law,
particularly Articles 1749 and 1750 of the Civil Code.
Same;  Same; Same;  Same; Petitioner should not be held liable for more than what was declared by the
shippers/consignees as the value of the goods in the bills of lading.—In Aboitiz Shipping Corporation v. Court of Appeals,
the description of the nature and the value of the goods shipped were declared and reflected in the bill of lading, like in
the present case. The Court therein considered this declaration as the basis of the carrier’s liability and ordered payment
based on such amount. Following this ruling, petitioner should not be held liable for more than what was declared by
the shippers/consignees as the value of the goods in the bills of lading.

PETITION for review on certiorari of the Court of Appeals.

The facts are stated in the opinion of the Court.

     Gutierrez, Sundiam, Villanueva & Doronila for petitioner.
     Linsangan,  Linsangan, Linsangan Law Offices for respondent.

PANGANIBAN, J.:

The liability of a common carrier for the loss of goods may, by stipulation in the bill of lading, be limited to the value
declared by the shipper. On the other hand, the liability of the insurer is determined by the actual value covered by the
insurance policy and the insurance premiums paid therefor, and not necessarily by the value declared in the bill of
lading.
The Case
Before the Court is a Petition for Review 1 under Rule 45 of the Rules of Court, seeking to set aside the August 31, 2000
Decision2 and the November 17, 2000 Resolution 3 of the Court of Appeals 4 (CA) in CA-GR SP No. 62751. The dispositive
part of the Decision reads:
“IN THE LIGHT OF THE FOREGOING, the appeal is GRANTED. The Decision appealed from is REVERSED. [Petitioner]
is hereby condemned to pay to [respondent] the total amount of P148,500.00, with interest thereon, at the rate of 6%  per
annum, from date of this Decision of the Court. [Respondent’s] claim for attorney’s fees [is]  DISMISSED. [Petitioner’s]
counterclaims are DISMISSED.”5
The assailed Resolution denied petitioner’s Motion for Reconsideration.
On the other hand, the disposition of the Regional Trial Court’s 6 Decision,7 which was later reversed by the CA, states:
“WHEREFORE, premises considered, the case is hereby DISMISSED for lack of merit.
“No cost.”8
The Facts
The facts of the case are summarized by the appellate court in this wise:
“Sometime on December 11, 1991, Nestor Angelia delivered to the Edgar Cokaliong Shipping Lines, Inc. (now Cokaliong
Shipping Lines), [petitioner] for brevity, cargo consisting of one (1) carton of Christmas decor and two (2) sacks of plastic
toys, to be transported on board the M/V Tandag on its Voyage No. T-189 scheduled to depart from Cebu City, on
December 12, 1991, for Tandag, Surigao del Sur. [Petitioner] issued Bill of Lading No. 58, freight prepaid, covering the
cargo. Nestor Angelia was both the shipper and consignee of the cargo valued, on the face thereof, in the amount of
P6,500.00. Zosimo Mercado likewise delivered cargo to [petitioner], consisting of two (2) cartons of plastic toys and
Christmas decor, one (1) roll of floor mat and one (1) bundle of various or assorted goods for transportation thereof from
Cebu City to Tandag, Surigao del Sur, on board the said vessel, and said voyage. [Petitioner] issued Bill of Lading No.
 38
59 covering the cargo which, on the face thereof, was valued in the amount of P14,000.00. Under the  Bill of Lading,
Zosimo Mercado was both the shipper and consignee of the cargo.
“On December 12, 1991, Feliciana Legaspi insured the cargo, covered by Bill of Lading No. 59, with the UCPB General
Insurance Co., Inc., [respondent] for brevity, for the amount of P100,000.00 “against all risks’ under Open Policy No.
002/91/254 for which she was issued, by [respondent], Marine Risk Note No. 18409 on said date. She also insured the
cargo covered by Bill of Lading No. 58, with [respondent], for the amount of P50,000.00, under Open Policy No.
002/91/254 on the basis of which [respondent] issued Marine Risk Note No. 18410 on said date.
“When the vessel left port, it had thirty-four (34) passengers and assorted cargo on board, including the goods of
Legaspi. After the vessel had passed by the Mandaue-Mactan Bridge, fire ensued in the engine room, and, despite
earnest efforts of the officers and crew of the vessel, the fire engulfed and destroyed the entire vessel resulting in the loss
of the vessel and the cargoes therein. The Captain filed the required Marine Protest.
“Shortly thereafter, Feliciana Legaspi filed a claim, with [respondent], for the value of the cargo insured under Marine
Risk Note No. 18409 and covered by Bill of Lading No. 59. She submitted, in support of her claim, a Receipt, dated
December 11, 1991, purportedly signed by Zosimo Mercado, and Order Slips purportedly signed by him for the goods he
received from Feliciana Legaspi valued in the amount of P110,056.00. [Respondent] approved the claim of Feliciana
Legaspi and drew and issued UCPB Check No. 612939, dated March 9, 1992, in the net amount of P99,000.00, in
settlement of her claim after which she executed a Subrogation Receipt/Deed, for said amount, in favor of [respondent].
She also filed a claim for the value of the cargo covered by Bill of Lading No. 58. She submitted to [respondent] a Receipt,
dated December 11, 1991 and Order Slips, purportedly signed by Nestor Angelia for the goods he received from Feliciana
Legaspi valued at P60,338.00. [Respondent] approved her claim and remitted to Feliciana Legaspi the net amount of
P49,500.00, after which she signed a Subrogation Receipt/Deed, dated March 9, 1992, in favor of [respondent].
“On July 14, 1992, [respondent], as subrogee of Feliciana Legaspi, filed a complaint anchored on torts against
[petitioner], with the Regional Trial Court of Makati City, for the collection of the total principal amount of P148,500.00,
which it paid to Feliciana Legaspi for the loss of the cargo, praying that judgment be rendered in its favor and against the
[petitioner] as follows:
‘WHEREFORE, it is respectfully prayed of this Honorable Court that after due hearing, judgment be rendered ordering
[petitioner] to pay [respondent] the following.

1. 1.Actual damages in the amount of P148,500.00 plus interest thereon at the legal rate from the time of
filing of this complaint until fully paid;

2. 2.Attorney’s fees in the amount of P10,000.00; and

3. 3.Cost of suit.

‘[Respondent] further prays for such other reliefs and remedies as this Honorable Court may deem just and equitable
under the premises.’
“[Respondent] alleged, inter alia, in its complaint, that the cargo subject of its complaint was delivered to, and
received by, [petitioner] for transportation to Tandag, Surigao del Sur under Bill of Ladings,’ Annexes ‘A’ and ‘B’ of the
complaint; that the loss of the cargo was due to the negligence of the [petitioner]; and that Feliciana Legaspi had
executed Subrogation Receipts/Deeds in favor of [respondent] after paying to her the value of the cargo on account of
the Marine Risk Notes it issued in her favor covering the cargo.
“In its Answer to the complaint, [petitioner] alleged that: (a) [petitioner] was cleared by the Board of Marine Inquiry
of any negligence in the burning of the vessel; (b) the complaint stated no cause of action against [petitioner]; and (c)
the shippers/consignee had already been paid the value of the goods as stated in the Bill of Lading and, hence,
[petitioner] cannot be held liable for the loss of the cargo beyond the value thereof declared in the Bill of Lading.
“After [respondent] rested its case, [petitioner] prayed for and was allowed, by the Court a quo, to take the
depositions of Chester Cokaliong, the Vice-President and Chief Operating Officer of [petitioner], and a resident of Cebu
City, and of Noel Tanyu, an officer of the Equitable Banking Corporation, in Cebu City, and a resident of Cebu City, to be
given before the Presiding Judge of Branch 106 of the Regional Trial Court of Cebu City. Chester Cokaliong and Noel
Tanyu did testify, by way of deposition, before the Court and declared inter alia, that: [petitioner] is a family corporation
like the Chester Marketing, Inc.; Nestor Angelia had been doing business with [petitioner] and Chester Marketing, Inc.,
for years, and incurred an account with Chester Marketing, Inc. for his purchases from said corporation; [petitioner] did
issue Bills of Lading Nos. 58 and 59 for the cargo described therein with Zosimo Mercado and Nestor Angelia as
shippers/consignees, respectively; the engine room of the M/V Tandag caught fire after it passed the Mandaue/Mactan
Bridge resulting in the total loss of the vessel and its cargo; an investigation was conducted by the Board of Marine
Inquiry of the Philippine Coast Guard which rendered a Report, dated February 13, 1992 absolving [petitioner] of any
responsibility on account of the fire, which Report of the Board was approved by the District Commander of the
Philippine Coast Guard; a few days after the sinking of the vessel, a representative of the Legaspi Marketing filed claims
for the values of the goods under Bills of Lading Nos. 58 and 59 in behalf of the shippers/consignees, Nestor Angelia and
Zosimo Mercado; [petitioner] was able to ascertain, from the shippers/consignees and the representative of the Legaspi
 39
Marketing that the cargo covered by Bill of Lading No. 59 was owned by Legaspi Marketing and consigned to Zosimo
Mercado while that covered by Bill of Lading No. 58 was purchased by Nestor Angelia from the Legaspi Marketing; that
[petitioner] approved the claim of Legaspi Marketing for the value of the cargo under Bill of Lading No. 59 and remitted
to Legaspi Marketing the said amount under Equitable Banking Corporation Check No. 20230486 dated August 12, 1992,
in the amount of P14,000.00 for which the representative of the Legaspi Marketing signed Voucher No. 4379, dated
August 12, 1992, for the said amount of P14,000.00 in full payment of claims under Bill of Lading No. 59; that [petitioner]
approved the claim of Nestor Angelia in the amount of P6,500.00 but that since the latter owed Chester Marketing, Inc.,
for some purchases, [petitioner] merely set off the amount due to Nestor Angelia under Bill of Lading No. 58 against his
account with Chester Marketing, Inc.; [petitioner] lost/[misplaced] the original of the check after it was received by
Legaspi Marketing, hence, the production of the microfilm copy by Noel Tanyu of the Equitable Banking Corporation;
[petitioner] never knew, before settling with Legaspi Marketing and Nestor Angelia that the cargo under both  Bills of
Lading were insured with [respondent], or that Feliciana Legaspi filed claims for the value of the cargo with [respondent]
and that the latter approved the claims of Feliciana Legaspi and paid the total amount of P148,500.00 to her; [petitioner]
came to know, for the first time, of the payments by [respondent] of the claims of Feliciana Legaspi when it was served
with the summons and complaint, on October 8, 1992; after settling his claim, Nestor Angelia x x x executed the  Release
and Quitclaim, dated July 2, 1993, and Affidavit, dated July 2, 1993 in favor of [respondent]; hence, [petitioner] was
absolved of any liability for the loss of the cargo covered by Bills of Lading Nos. 58 and 59; and even if it was, its liability
should not exceed the value of the cargo as stated in the Bills of Lading.
“[Petitioner] did not anymore present any other witnesses on its evidence-in-chief, x x x” 9 (Citations omitted)
Ruling of the Court of Appeals
The CA held that petitioner had failed “to prove that the fire which consumed the vessel and its cargo was caused by
something other than its negligence in the upkeep, maintenance and operation of the vessel.” 10
Petitioner had paid P14,000 to Legaspi Marketing for the cargo covered by Bill of Lading No. 59. The CA, however,
held that the payment did not extinguish petitioner’s obligation to respondent, because there was no evidence that
Feliciana Legaspi (the insured) was the owner/proprietor of Legaspi Marketing. The CA also pointed out the impropriety
of treating the claim under Bill of Lading No. 58—covering cargo valued therein at P6,500—as a setoff against Nestor
Angelia’s account with Chester Enterprises, Inc.
Finally, it ruled that respondent “is not bound by the valuation of the cargo under the Bills of Lading, x x x nor is the
value of the cargo under said Bills of Lading conclusive on the [respondent].
This is so because, in the first place, the goods were insured with the [respondent] for the total amount of P150,000.00,
which amount may be considered as the face value of the goods.” 11
Hence this Petition.12
Issues
Petitioner raises for our consideration the following alleged errors of the CA:

“I

“The Honorable Court of Appeals erred, granting arguendo that petitioner is liable, in holding that petitioner’s liability
should be based on the ‘actual insured value’ of the goods and not from actual valuation declared by the
shipper/consignee in the bill of lading.

“II

“The Court of Appeals erred in not affirming the findings of the Philippine Coast Guard, as sustained by the trial
court a quo, holding that the cause of loss of the aforesaid cargoes under Bill of Lading Nos. 58 and 59 was due to force
majeure and due diligence was [exercised] by petitioner prior to, during and immediately after the fire on [petitioner’s]
vessel.

“III

“The Court of Appeals erred in not holding that respondent UCPB General Insurance has no cause of action against
the petitioner.”13
In sum, the issues are: (1) Is petitioner liable for the loss of the goods? (2) If it is liable, what is the extent of its liability?

This Court’s Ruling

The Petition is partly meritorious.

First Issue: Liability for Loss

Petitioner argues that the cause of the loss of the goods, subject of this case, was force majeure. It adds that its exercise
of due diligence was adequately proven by the findings of the Philippine Coast Guard.
 40
We are not convinced. The uncontroverted findings of the Philippine Coast Guard show that the  M/V Tandag sank
due to a fire, which resulted from a crack in the auxiliary engine fuel oil service tank. Fuel spurted out of the crack and
dripped to the heating exhaust manifold, causing the ship to burst into flames. The crack was located on the side of the
fuel oil tank, which had a mere two-inch gap from the engine room walling, thus precluding constant inspection and
care by the crew.
Having originated from an unchecked crack in the fuel oil service tank, the fire could not have been caused by force
majeure. Broadly speaking, force majeure generally applies to a natural accident, such as that caused by a lightning, an
earthquake, a tempest or a public enemy. 14 Hence, fire is not considered a natural disaster or calamity. In Eastern
Shipping Lines, Inc. v. Intermediate Appellate Court,15 we explained:
“x x x. This must be so as it arises almost invariably from some act of man or by human means. It does not fall within the
category of an act of God unless caused by lighting or by other natural disaster or calamity. It may even be caused by the
actual fault or privity of the carrier.
“Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to leases or rural lands
where a reduction of the rent is allowed when more than one-half of the fruits have been lost due to such event,
considering that the law adopts a protective policy towards agriculture.
“As the peril of fire is not comprehended within the exceptions in Article 1734, supra, Article 1735 of the Civil Code
provides that in all cases other than those mentioned in Article 1734, the common carrier shall be presumed to have
been at fault or to have acted negligently, unless it proves that it has observed the extraordinary diligence required by
law.”

Where loss of cargo results from the failure of the officers of a vessel to inspect their ship frequently so as to discover the
existence of cracked parts, that loss cannot be attributed to force majeure, but to the negligence of those officials.16
The law provides that a common carrier is presumed to have been negligent if it fails to prove that it exercised
extraordinary vigilance over the goods it transported. Ensuring the seaworthiness of the vessel is the first step in
exercising the required vigilance. Petitioner did not present sufficient evidence showing what measures or acts it had
undertaken to ensure the seaworthiness of the vessel. It failed to show when the last inspection and care of the auxiliary
engine fuel oil service tank was made, what the normal practice was for its maintenance, or some other evidence to
establish that it had exercised extraordinary diligence. It merely stated that constant inspection and care were not
possible, and that the last time the vessel was dry-docked was in November 1990. Necessarily, in accordance with Article
173517 of the Civil Code, we hold petitioner responsible for the loss of the goods covered by Bills of Lading Nos. 58 and 59.

Second Issue: Extent of Liability

Respondent contends that petitioner’s liability should be based on the actual insured value of the goods, subject of this
case. On the other hand, petitioner claims that its liability should be limited to the value declared by the
shipper/consignee in the Bill of Lading.
The records18 show that the Bills of Lading covering the lost goods contain the stipulation that in case of claim for
loss or for damage to the shipped merchandise or property, “[t]he liability of the common carrier x x x shall not exceed
the value of the goods as appearing in the bill of lading.” 19 The attempt by respondent to make light of this stipulation is
unconvincing. As it had the consignees’ copies of the Bills of Lading, 20 it could have easily produced those copies, instead
of relying on mere allegations and suppositions. However, it presented mere photocopies thereof to disprove petitioner’s
evidence showing the existence of the above stipulation.
A stipulation that limits liability is valid 21 as long as it is not against public policy. In Everett Steamship Corporation v.
Court of Appeals,22 the Court stated:
“A stipulation in the bill of lading limiting the common carrier’s liability for loss or destruction of a cargo to a certain
sum, unless the shipper or owner declares a greater value, is sanctioned by law, particularly Articles 1749 and 1750 of the
Civil Code which provides:
‘Art. 1749. A stipulation that the common carrier’s liability is limited to the value of the goods appearing in the bill of
lading, unless the shipper or owner declares a greater value, is binding.’
‘Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction, or
deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been freely and fairly
agreed upon.’
“Such limited-liability clause has also been consistently upheld by this Court in a number of cases. Thus, in  Sea-Land
Service, Inc. vs. Intermediate Appellate Court, we ruled:
‘It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea Act did not exist, the validity and binding
effect of the liability limitation clause in the bill of lading here are nevertheless fully sustainable on the basis alone of the
cited Civil Code Provisions. That said stipulation is just and reasonable is arguable from the fact that it echoes Art. 1750
itself in providing a limit to liability only if a greater value is not declared for the shipment in the bill of lading. To hold
otherwise would amount to questioning the justness and fairness of the law itself, and this the private respondent does
not pretend to do. But over and above that consideration, the just and reasonable character of such stipulation is
implicit in it giving the shipper or owner the option of avoiding accrual of liability limitation by the simple and surely far
from onerous expedient of declaring the nature and value of the shipment in the bill of lading.’
 41
“Pursuant to the afore-quoted provisions of law, it is required that the stipulation limiting the common carrier’s
liability for loss must be ‘reasonable and just under the circumstances, and has been freely and fairly agreed upon.
“The bill of lading subject of the present controversy specifically provides, among others:
‘18. All claims for which the carrier may be liable shall be adjusted and settled on the basis of the shipper’s net invoice
cost plus freight and insurance premiums, if paid, and in no event shall the carrier be liable for any loss of possible
profits or any consequential loss.
‘The carrier shall not be liable for any loss of or any damage to or in any connection with, goods in an amount
exceeding One Hundred Thousand Yen in Japanese Currency (¥100,000.00) or its equivalent in any other currency per
package or customary freight unit (whichever is least) unless the value of the goods higher than this amount is declared in
writing by the shipper before receipt of the goods by the carrier and inserted in the Bill of Lading and extra freight is paid as
required.’
“The above stipulations are, to our mind, reasonable and just. In the bill of lading, the carrier made it clear that its
liability would only be up to One Hundred Thousand (¥100,000.00) Yen. However, the shipper, Maruman Trading,  had
the option to declare a higher valuation if the value of its cargo was higher than the limited liability of the carrier.
Considering that the shipper did not declare a higher valuation, it had itself to blame for not complying with the
stipulations.” (Italics supplied)
In the present case, the stipulation limiting petitioner’s liability is not contrary to public policy. In fact, its just and
reasonable character is evident. The shippers/consignees may recover the full value of the goods by the simple expedient
of declaring the true value of the shipment in the Bill of Lading. Other than the payment of a higher freight, there was
nothing to stop them from placing the actual value of the goods therein. In fact, they committed fraud against the
common carrier by deliberately undervaluing the goods in their Bill of Lading, thus depriving the carrier of its proper
and just transport fare.
Concededly, the purpose of the limiting stipulation in the Bill of Lading is to protect the common carrier. Such
stipulation obliges the shipper/consignee to notify the common carrier of the amount that the latter may be liable for in
case of loss of the goods. The common carrier can then take appropriate measures—getting insurance, if needed, to
cover or protect itself. This precaution on the part of the carrier is reasonable and prudent. Hence, a shipper/consignee
that undervalues the real worth of the goods it seeks to transport does not only violate a valid contractual stipulation,
but commits a fraudulent act when it seeks to make the common carrier liable for more than the amount it declared in
the bill of lading.
Indeed, Zosimo Mercado and Nestor Angelia misled petitioner by undervaluing the goods in their respective Bills of
Lading. Hence, petitioner was exposed to a risk that was deliberately hidden from it, and from which it could not protect
itself.
It is well to point out that, for assuming a higher risk (the alleged actual value of the goods) the insurance company
was paid the correct higher premium by Feliciana Legaspi; while petitioner was paid a fee lower than what it was
entitled to for transporting the goods that had been deliberately undervalued by the shippers in the Bill of Lading.
Between the two of them, the insurer should bear the loss in excess of the value declared in the Bills of Lading. This is
the just and equitable solution.
In Aboitiz Shipping Corporation v. Court of Appeals,23 the description of the nature and the value of the goods
shipped were declared and reflected in the bill of lading, like in the present case. The Court therein considered this
declaration as the basis of the carrier’s liability and ordered payment based on such amount. Following this ruling,
petitioner should not be held liable for more than what was declared by the shippers/consignees as the value of the
goods in the bills of lading.
We find no cogent reason to disturb the CA’s finding that Feliciana Legaspi was the owner of the goods covered by
Bills of Lading Nos. 58 and 59. Undoubtedly, the goods were merely consigned to Nestor Angelia and Zosimo Mercado,
respectively; thus, Feliciana Legaspi or her subrogee (respondent) was entitled to the goods or, in case of loss, to
compensation therefor. There is no evidence showing that petitioner paid her for the loss of those goods. It does not
even claim to have paid her.

On the other hand, Legaspi Marketing filed with petitioner a claim for the lost goods under Bill of Lading No. 59, for
which the latter subsequently paid P14,000. But nothing in the records convincingly shows that the former was the
owner of the goods. Respondent was, however, able to prove that it was Feliciana Legaspi who owned those goods, and
who was thus entitled to payment for their loss. Hence, the claim for the goods under Bill of Lading No. 59 cannot be
deemed to have been extinguished, because payment was made to a person who was not entitled thereto.
With regard to the claim for the goods that were covered by Bill of Lading No. 58 and valued at P6,500, the parties
have not convinced us to disturb the findings of the CA that compensation could not validly take place. Thus, we uphold
the appellate court’s ruling on this point.
WHEREFORE, the Petition is hereby PARTIALLY GRANTED. The assailed Decision is MODIFIED in the sense that
petitioner is ORDERED to pay respondent the sums of P14,000 and P6,500, which represent the value of the goods
stated in Bills of Lading Nos. 59 and 58, respectively.
No costs.
SO ORDERED.
     Puno  (Chairman), Sandoval-Gutierrez, Corona and Carpio-Morales, JJ., concur.
 42
Petition partially granted, assailed judgment modified.
Note.—A stipulation reducing the one year period for filing the action for recovery is null and void and must be
struck down. (Loadstar Shipping Co., Inc. vs. Court of Appeals, 315 SCRA 339 [1999])

9. Asia Lighterage and Shipping, Inc. vs. Court of Appeals,  409 SCRA 340, August 19, 2003
G.R. No. 147246. August 19, 2003.*
ASIA LIGHTERAGE AND SHIPPING, INC., petitioner, vs. COURT OF APPEALS and PRUDENTIAL GUARANTEE AND
ASSURANCE, INC., respondents.

Civil Law;  Contracts; Common Carriers;  Definition.—The definition of common carriers in Article 1732 of the Civil
Code makes no distinction between one whose principal business activity is the carrying of persons or goods or both,
and one who does such carrying only as an ancillary activity. We also did not distinguish between a person or enterprise
offering transportation service on a regular or scheduled basis and one offering such service on an occasional, episodic
or unscheduled basis. Further, we ruled that Article 1732 does not distinguish between a carrier offering its services to
the general public, and one who offers services or solicits business only from a narrow segment of the general
population.
Same;  Same; Same;  Determination of a common carrier.—The test to determine a common carrier is “whether the
given undertaking is a part of the business engaged in by the carrier which he has held out to the general public as his
occupation rather than the quantity or extent of the business transacted.”
Same;  Same; Same;  Presumption of Negligence; Common carriers are presumed to have been at fault or to have
acted negligently if the goods are lost, destroyed or deteriorated.—Common carriers are bound to observe extraordinary
diligence in the vigilance over the goods transported by them. They are presumed to have been at fault or to have acted
negligently if the goods are lost, destroyed or deteriorated. To overcome the presumption of negligence in the case of
loss, destruction or deterioration of the goods, the common carrier must prove that it exercised extraordinary diligence.
There are, however, exceptions to this rule. Article 1734 of the Civil Code enumerates the instances when the
presumption of negligence does not attach.

PETITION for review on certiorari of a decision and resolution of the Court of Appeals.

The facts are stated in the opinion of the Court.

     Soo,  Gutierrez,  Leogardo & Lee for petitioner.
     Linsangan, Linsangan & Linsangan Law Offices for private respondent.

PUNO, J.:

On appeal is the Court of Appeals’ May 11, 2000 Decision 1 in CA-G.R. CV No. 49195 and February 21, 2001
Resolution2 affirming with modification the April 6, 1994 Decision 3 of the Regional Trial Court of Manila which found
petitioner liable to pay private respondent the amount of indemnity and attorney’s fees.
First, the facts.
On June 13, 1990, 3,150 metric tons of Better Western White Wheat in bulk, valued at US$423,192,35 4 was shipped by
Marubeni American Corporation of Portland, Oregon on board the vessel M/V NEO CYMBIDIUM V-26 for delivery to
the consignee, General Milling Corporation in Manila, evidenced by Bill of Lading No. PTD/Man-4. 5 The shipment was
insured by the private respondent Prudential Guarantee and Assurance, Inc. against loss or damage for P14,621,771.75
under Marine Cargo Risk Note RN 11859/90.6
On July 25, 1990, the carrying vessel arrived in Manila and the cargo was transferred to the custody of the petitioner
Asia Lighterage and Shipping, Inc. The petitioner was contracted by the consignee as carrier to deliver the cargo to
consignee’s warehouse at Bo. Ugong, Pasig City.
On August 15, 1990, 900 metric tons of the shipment was loaded on barge PSTSI III, evidenced by Lighterage Receipt
No. 03647 for delivery to consignee. The cargo did not reach its destination.
It appears that on August 17, 1990, the transport of said cargo was suspended due to a warning of an incoming
typhoon. On August 22, 1990, the petitioner proceeded to pull the barge to Engineering Island off Baseco to seek shelter
from the approaching typhoon. PSTSI III was tied down to other barges which arrived ahead of it while weathering out
the storm that night. A few days after, the barge developed a list because of a hole it sustained after hitting an unseen
protuberance underneath the water. The petitioner filed a Marine Protest on August 28, 1990. 8 It likewise secured the
services of Gaspar Salvaging Corporation which refloated the barge. 9The hole was then patched with clay and cement.
The barge was then towed to ISLOFF terminal before it finally headed towards the consignee’s wharf on September
5, 1990. Upon reaching the Sta. Mesa spillways, the barge again ran aground due to strong current. To avoid the
complete sinking of the barge, a portion of the goods was transferred to three other barges. 10
The next day, September 6, 1990, the towing bits of the barge broke. It sank completely, resulting in the total loss of
the remaining cargo.11 A second Marine Protest was filed on September 7, 1990.12
On September 14, 1990, a bidding was conducted to dispose of the damaged wheat retrieved and loaded on the three
other barges.13 The total proceeds from the sale of the salvaged cargo was P201,379.75. 14
 43
On the same date, September 14, 1990, consignee sent a claim letter to the petitioner, and another letter dated
September 18, 1990 to the private respondent for the value of the lost cargo.
On January 30, 1991, the private respondent indemnified the consignee in the amount of P4,104,654.22. 15 Thereafter,
as subrogee, it sought recovery of said amount from the petitioner, but to no avail.
On July 3, 1991, the private respondent filed a complaint against the petitioner for recovery of the amount of
indemnity, attorney’s fees and cost of suit. 16 Petitioner filed its answer with counterclaim.17
The Regional Trial Court ruled in favor of the private respondent. The dispositive portion of its Decision states:
“WHEREFORE, premises considered, judgment is hereby rendered ordering defendant Asia Lighterage & Shipping, Inc.
liable to pay plaintiff Prudential Guarantee & Assurance Co., Inc. the sum of P4,104,654.22 with interest from the date
complaint was filed on July 3, 1991 until fully satisfied plus 10% of the amount awarded as and for attorney’s fees.
Defendant’s counterclaim is hereby DISMISSED. With costs against defendant.” 18

Petitioner appealed to the Court of Appeals insisting that it is not a common carrier. The appellate court affirmed the
decision of the trial court with modification. The dispositive portion of its decision reads:
“WHEREFORE, the decision appealed from is hereby AFFIRMED with modification in the sense that the salvage value of
P201,379.75 shall be deducted from the amount of P4,104,654.22. Costs against appellant.
SO ORDERED.”

Petitioner’s Motion for Reconsideration dated June 3, 2000 was likewise denied by the appellate court in a Resolution
promulgated on February 21, 2001.
Hence, this petition. Petitioner submits the following errors allegedly committed by the appellate court, viz:19

(1)THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD WITH LAW AND/OR WITH
THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT HELD THAT PETITIONER IS A COMMON
CARRIER.

(2)THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD WITH LAW AND/OR WITH
THE APPLICABLE DECISIONS OF TFIE SUPREME COURT WHEN IT AFFIRMED THE FINDING OF THE LOWER
COURT A QUO THAT ON THE BASIS OF THE PROVISIONS OF THE CIVIL CODE APPLICABLE TO COMMON
CARRIERS, “THE LOSS OF THE CARGO IS, THEREFORE, BORNE BY THE CARRIER IN ALL CASES EXCEPT IN THE
FIVE (5) CASES ENUMERATED.”

(3)THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD WITH LAW AND/OR WITH
THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT EFFECTIVELY CONCLUDED THAT
PETITIONER FAILED TO EXERCISE DUE DILIGENCE AND/OR WAS NEGLIGENT IN ITS CARE AND CUSTODY OF
THE CONSIGNEE’S CARGO.

The issues to be resolved are:

(1)Whether the petitioner is a common carrier; and,
(2)Assuming the petitioner is a common carrier, whether it exercised extraordinary diligence in its care and custody of
the consignee’s cargo.

On the first issue, we rule that petitioner is a common carrier.

Article 1732 of the Civil Code defines common carriers as persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their
services to the public.
Petitioner contends that it is not a common carrier but a private carrier. Allegedly, it has no fixed and publicly
known route, maintains no terminals, and issues no tickets. It points out that it is not obliged to carry indiscriminately
for any person. It is not bound to carry goods unless it consents. In short, it does not hold out its services to the general
public.20
We disagree.
In De Guzman vs. Court of Appeals,21 we held that the definition of common carriers in Article 1732 of the Civil Code
makes no distinction between one whose principal business activity is the carrying of persons or goods or both, and one
who does such carrying only as an ancillary activity. We also did not distinguish between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such service on an occasional, episodic or
unscheduled basis. Further, we ruled that Article 1732 does not distinguish between a carrier offering its services to the
general public, and one who offers services or solicits business only from a narrow segment of the general population.
In the case at bar, the principal business of the petitioner is that of lighterage and drayage 22 and it offers its barges to
the public for carrying or transporting goods by water for compensation. Petitioner is clearly a common carrier. In De
Guzman, supra,23 we considered private respondent Ernesto Cendaña to be a common carrier even if his principal
 44
occupation was not the carriage of goods for others, but that of buying used bottles and scrap metal in Pangasinan and
selling these items in Manila.
We therefore hold that petitioner is a common carrier whether its carrying of goods is done on an irregular rather
than scheduled manner, and with an only limited clientele. A common carrier need not have fixed and publicly known
routes. Neither does it have to maintain terminals or issue tickets.
To be sure, petitioner fits the test of a common carrier as laid down in Bascos vs. Court of Appeals.24 The test to
determine a common carrier is “whether the given undertaking is a part of the business engaged in by the carrier which
he has held out to the general public as his occupation rather than the quantity or extent of the business transacted.” 25 In
the case at bar, the petitioner admitted that it is engaged in the business of shipping and lighterage, 26 offering its barges
to the public, despite its limited clientele for carrying or transporting goods by water for compensation. 27
On the second issue, we uphold the findings of the lower courts that petitioner failed to exercise extraordinary
diligence in its care and custody of the consignee’s goods.
Common carriers are bound to observe extraordinary diligence in the vigilance over the goods transported by
them.28 They are presumed to have been at fault or to have acted negligently if the goods are lost, destroyed or
deteriorated.29 To overcome the presumption of negligence in the case of loss, destruction or deterioration of the goods,
the common carrier must prove that it exercised extraordinary diligence. There are, however, exceptions to this rule.
Article 1734 of the Civil Code enumerates the instances when the presumption of negligence does not attach:
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due
to any of the following causes only:

1. (1)Flood, storm, earthquake, lightning, or other natural disaster or calamity;

2. (2)Act of the public enemy in war, whether international or civil;

3. (3)Act or omission of the shipper or owner of the goods;

4. (4)The character of the goods or defects in the packing or in the containers;

5. (5)Order or act of competent public authority.

In the case at bar, the barge completely sank after its towing bits broke, resulting in the total loss of its cargo. Petitioner
claims that this was caused by a typhoon; hence, it should not be held liable for the loss of the cargo. However,
petitioner failed to prove that the typhoon is the proximate and only cause of the loss of the goods, and that it has
exercised due diligence before, during and after the occurrence of the typhoon to prevent or minimize the loss. 30 The
evidence show that, even before the towing bits of the barge broke, it had already previously sustained damage when it
hit a sunken object while docked at the Engineering Island. It even suffered a hole. Clearly, this could not be solely
attributed to the typhoon. The partly-submerged vessel was refloated but its hole was patched with only clay and
cement. The patch work was merely a provisional remedy, not enough for the barge to sail safely. Thus, when petitioner
persisted to proceed with the voyage, it recklessly exposed the cargo to further damage. A portion of the cross-
examination of Alfredo Cunanan, cargo-surveyor of Tan-Gatue Adjustment Co., Inc., states:
CROSS-EXAMINATION BY ATTY. DONN LEE:31
  x x x      x x x      x x x
Q Can you tell us what else transpired after that incident?
A After the first accident, through the initiative of the barge owners, they
tried to pull out the barge from the place of the accident, and bring it to
the anchor terminal for safety, then after deciding if the vessel is
stabilized, they tried to pull it to the consignee’s warehouse, now while
on route another accident occurred, now this time the barge totally
hitting something in the course.
Q You said there was another accident; can you tell the court the nature
of the second accident?
A The sinking, sir.
Q Can you tell the nature . . . can you tell the court, if you know what
caused the sinking?
A Mostly it was related to the first accident because there was already a
hole (sic) on the bottom part of the barge.
  x x x      x x x      x x x
 45
This is not all. Petitioner still headed to the consignee’s wharf despite knowledge of an incoming typhoon. During the
time that the barge was heading towards the consignee’s wharf on September 5, 1990, typhoon “Loleng” has already
entered the Philippine area of responsibility. 32 A part of the testimony of Robert Boyd, Cargo Operations Supervisor of
the petitioner, reveals:
DIRECT-EXAMINATION BY ATTY. LEE:33
  x x x      x x x      x x x
Q Now, Mr. Witness, did it not occur to you it might be safer to just allow
the Barge to lie where she was instead of towing it?
A Since that time that the Barge was refloated, GMC (General Milling
Corporation, the consignee) as I have said was in a hurry for their goods
to be delivered at their Wharf since they needed badly the wheat that
was loaded in PSTSI-3. It was needed badly by the consignee.
Q And this is the reason why you towed the Barge as you did?
A Yes, sir.
  x x x      x x x      x x x
CROSS-EXAMINATION BY ATTY. IGNACIO:34
  x x x      x x x      x x x
Q And then from ISLOFF Terminal you proceeded to the premises of the
GMC? Am I correct?
A The next day, in the morning, we hired for additional two (2) tugboats,
as I have stated.
Q Despite of the threats of an incoming typhoon as you testified a while
ago?
A It is already in an inner portion of Pasig River. The typhoon would be
coming and it would be dangerous if we are in the vicinity of Manila
Bay.
Q But the fact is, the typhoon was incoming? Yes or no?
A Yes.
Q And yet as a standard operating procedure of your Company, you have
to secure a sort of Certification to determine the weather condition, am
I correct?
A Yes, sir.
Q So, more or less, you had the knowledge of the incoming typhoon,
right?
A Yes, sir.
Q And yet you proceeded to the premises of the GMC?
A ISLOFF Terminal is far from Manila Bay and anytime even with the
typhoon if you are already inside the vicinity or inside Pasig entrance, it
is a safe place to tow upstream.
Accordingly, the petitioner cannot invoke the occurrence of the typhoon as force majeure to escape liability for the loss
sustained by the private respondent. Surely, meeting a typhoon head-on falls short of due diligence required from a
common carrier. More importantly, the officers/employees themselves of petitioner admitted that when the towing bits
of the vessel broke that caused its sinking and the total loss of the cargo upon reaching the Pasig River, it was no longer
affected by the typhoon. The typhoon then is not the proximate cause of the loss of the cargo; a human factor,  i.e.,
negligence had intervened.
IN VIEW THEREOF, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 49195 dated
May 11, 2000 and its Resolution dated February 21, 2001 arc hereby AFFIRMED. Costs against petitioner.
SO ORDERED.
     Panganiban and Sandoval-Gutierrez, JJ., concur.
     Corona and Carpio-Morales, JJ., On Official Leave.

Petition denied, judgment and resolution affirmed.

Note.—The general rule is that if the master is injured by the negligence of a third person and by the concurring
contributory negligence of his own servant or agent, the latter’s negligence is imputed to his superior and will defeat the
superior’s action against the third person, assuming of course that the contributory negligence was the proximate cause
 46
of the injury of which complaint is made (Philippine Commercial and International Bank vs. Court of Appeals, 350 SCRA
446 [2001])

——o0o——

10.  DSR-Senator Lines vs. Federal Phoenix Assurance Co., Inc.,  413 SCRA 14, October 07, 2003
G.R. No. 135377. October 7, 2003.*
DSR-SENATOR LINES AND C.F. SHARP AND COMPANY, INC., petitioners, vs. FEDERAL PHOENIX ASSURANCE CO.,
INC., respondent.

Civil Law;  Negligence;  Damages;  If the peril of fire is not comprehended within the exceptions in Article 1734, the
common carrier shall be presumed to have been at fault or to have acted negligently unless it proves that it has observed
the extraordinary diligence required by law.—In Eastern Shipping Lines, Inc. vs. Intermediate Appellate Court, we ruled
that since the peril of fire is not comprehended within the exceptions in Article 1734, then the common carrier shall be
presumed to have been at fault or to have acted negligently, unless it proves that it has observed the extraordinary
diligence required :by law.
Same;  Same; Same;  The natural disaster must have been the proximate and only cause of the loss and that the carrier
has exercised due diligence to prevent or minimize the loss before, during or after the occurrence of the disaster .—Even if
fire were to be considered a natural disaster within the purview of Article 1734, it is required under Article 1739 of the
same Code that the natural disaster must have been the proximate and only cause of the loss, and that the carrier has
exercised due diligence to prevent or minimize the loss before, during or after the occurrence of the disaster.
Same;  Same; Same;  When the goods shipped either are lost or arrive in damaged condition, a presumption arises
against the carrier of its failure to observe that diligence and there need not be an express finding of negligence to hold it
liable.—We have held that a common carrier’s duty to observe the requisite diligence in the shipment of goods lasts
from the time the articles are surrendered to or unconditionally placed in the possession of, and received by, the carrier
for transportation until delivered to or until the lapse of a reasonable time for their acceptance by the person entitled to
receive them. When the goods shipped either are lost or arrive in damaged condition, a presumption arises against the
carrier of its failure to observe that diligence, and there need not be an express finding of negligence to hold it liable.
Same;  Same; Same;  In those cases where the presumption is applied the common carrier must prove that it exercised
extraordinary diligence in order to overcome the presumption.—Common carriers are obliged to observe extraordinary
diligence in the vigilance over the goods transported by them. Accordingly, they are presumed to have been at fault or to
have acted negligently if the goods are lost, destroyed or deteriorated. There are very few instances when the
presumption of negligence does not attach and these instances are enumerated in Article 1734. In those cases where the
presumption is applied, the common carrier must prove that it exercised extraordinary diligence in order to overcome
the presumption.

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

     Arthur D. Lim Law Office for petitioner.
     Reloj Law Office for private respondents.

SANDOVAL-GUTIERREZ, J.:

Before us is a petition for review on certiorari 1 assailing the Decision2 dated June 5, 1998 of the Court of Appeals in CA-
G.R. CV No. 50833 which affirmed the Decision of the Regional Trial Court (RTC), Manila City, Branch 16, in Civil Case
No. 94-69699, “Federal Phoenix Assurance Company, Inc. vs. DSR-Senator Lines and C.F. Sharp & Co., Inc.,” for damages
arising from the loss of cargo while in transit.
Berde Plants, Inc. (Berde Plants) delivered 632 units of artificial trees to C.F. Sharp and Company, Inc. (C.F. Sharp),
the General Ship Agent of DSR-Senator Lines, a foreign shipping corporation, for transportation and delivery to the
consignee, Al-Mohr International Group, in Riyadh, Saudi Arabia. C.F. Sharp issued International Bill of Lading No.
SENU MNL-265483 for the cargo with an invoice value of $34,579.60. Under the Bill of Lading, the port of discharge for
the cargo was at the Khor Fakkan port and the port of delivery was Riyadh, Saudi Arabia, via Port Dammam. The cargo
was loaded in M/S “Arabian Senator.”
Federal Phoenix Assurance Company, Inc. (Federal Phoenix Assurance) insured the cargo against all risks in the
amount of P941,429.61.4
On June 7, 1993, M/S “Arabian Senator” left the Manila South Harbor for Saudi Arabia with the cargo on board.
When the vessel arrived in Khor Fakkan Port, the cargo was reloaded on board DSR-Senator Lines’ feeder vessel, M/V
“Kapitan Sakharov,” bound for Port Dammam, Saudi Arabia. However, while in transit, the vessel and all its cargo caught
fire.
On July 5, 1993, DSR-Senator Lines informed Berde Plants that M/V “Kapitan Sakharov” with its cargo was gutted by
fire and sank on or about July 4, 1993. On December 16, 1993, C.F. Sharp issued a certification to that effect.
 47
Consequently, Federal Phoenix Assurance paid Berde Plants P941,429.61 corresponding to the amount of insurance
for the cargo. In turn Berde Plants executed in its favor a “Subrogation Receipt” 5 dated January 17, 1994.
On February 8, 1994, Federal Phoenix Assurance sent a letter to C.F. Sharp demanding payment of P941,429.61 on the
basis of the Subrogation Receipt. C.F. Sharp denied any liability on the ground that such liability was extinguished when
the vessel carrying the cargo was gutted by fire.
Thus, on March 11, 1994, Federal Phoenix Assurance filed with the RTC, Branch 16, Manila a complaint for damages
against DSR-Senator Lines and C.F. Sharp, praying that the latter be ordered to pay actual damages of P941,429.61,
compensatory damages of P100,000.00 and costs.
On August 22, 1995, the RTC rendered a Decision in favor of Federal Phoenix Assurance, the dispositive portion of
which reads:
“WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff and against the defendants who
are hereby ordered jointly and severally to pay plaintiff:
I.The amount of P941,439.61 (should be P941,429.61 6) with legal interest of 6% per annum from the date of the letter of
demand of February 8, 1993 (EXH. “L”) and 12% per annum from the date the judgment becomes final and executory
until its satisfaction (Eastern Shipping Lines vs. Court of Appeals, G.R. No. 97412, July 12, 1994);
II.The amount of P15,000.00 by way of reasonable attorney’s fees; and
III.To pay costs.
“The counterclaim of defendants is DISMISSED.
“SO ORDERED.”7

On appeal, the Court of Appeals rendered a Decision dated June 5, 1998, affirming the RTC Decision, thus:
“In the present recourse, the appellant carrier was presumed to have acted negligently for the fire that gutted the feeder
vessel and the consequent loss or destruction of the cargo. Hence, the appellant carrier is liable for appellee’s claim
under the New Civil Code of the Philippines.
“Contrary to C.F. Sharp and Co., Inc.’s pose, its liability as ship agent continued and remained until the cargo was
delivered to the consignee. The status of the appellant as ship agent subsisted and its liability as a ship agent was co-
terminous with and subsisted as long as the cargo was not delivered to the consignee under the terms of the Bill of
Lading.

“IN LIGHT OF ALL THE FOREGOING, the appeal of the appellants is DISMISSED. The Decision appealed from is
affirmed. With costs against the appellants.
“SO ORDERED.”8

On September 7, 1998, the Court of Appeals denied the motion for reconsideration of DSR-Senator Lines and C.F. Sharp,
prompting them to file with this Court the instant petition.
We find the petition bereft of merit.
Article 1734 of the Civil Code provides:
“Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is
due to any of the following causes only:

(1)Flood, storm, earthquake, lightning, or other natural disaster or calamity;

(2)Act of the public enemy in war, whether international or civil;
(3)Act or omission of the shipper or owner of the goods;
(4)The character of the goods or defects in the packing or in the containers;
(5)Order or act of competent public authority.”
Fire is not one of those enumerated under the above provision which exempts a carrier from liability for loss or
destruction of the cargo.
In Eastern Shipping Lines, Inc. vs. Intermediate Appellate Court,9 we ruled that since the peril of fire is not
comprehended within the exceptions in Article 1734, then the common carrier shall be presumed to have been at fault or
to have acted negligently, unless it proves that it has observed the extraordinary diligence required :by law.
Even if fire were to be considered a natural disaster within the purview of Article 1734, it is required under Article
173910 of the same Code that the natural disaster must have been the proximate and only cause of the loss, and that the
carrier has exercised due diligence to prevent or minimize the loss before, during or after the occurrence of the disaster.
We have held that a common carrier’s duty to observe the requisite diligence in the shipment of goods lasts from the
time the articles are surrendered to or unconditionally placed in the possession of, and received by, the carrier for
transportation until delivered to or until the lapse of a reasonable time for their acceptance by the person entitled to
receive them. When the goods shipped either are lost or arrive in damaged condition, a presumption arises against the
carrier of its failure to observe that diligence, and there need not be an express finding of negligence to hold it liable. 11
Common carriers are obliged to observe extraordinary diligence in the vigilance over the goods transported by them.
Accordingly, they are presumed to have been at fault or to have acted negligently if the goods are lost, destroyed or
deteriorated. There are very few instances when the presumption of negligence does not attach and these instances are
 48
enumerated in Article 1734. In those cases where the presumption is applied, the common carrier must prove that it
exercised extraordinary diligence in order to overcome the presumption. 12
Respondent Federal Phoenix Assurance raised the presumption of negligence against petitioners. However, they
failed to overcome it by sufficient proof of extraordinary diligence.
WHEREFORE, the instant petition is DENIED. The assailed Decision of the Court of Appeals dated June 5, 1998, in CA-
G.R. CV No. 50833 is hereby AFFIRMED.
SO ORDERED.
     Puno  (Chairman), Panganiban and Carpio-Morales, JJ., concur.
     Corona, J., On leave.

Petition denied, judgment affirmed.

Note.—Accident and negligence are intrinsically contradictory—one cannot exist with the other. (Jarco Marketing
Corporation vs. Court of Appeals, 321 SCRA 375 [1999])

11. Central Shipping Company, Inc. vs. Insurance Company of North America,  438 SCRA 511, September 20, 2004
G.R. No. 150751. September 20, 2004.*
CENTRAL SHIPPING COMPANY, INC., petitioner, vs. INSURANCE COMPANY OF NORTH AMERICA, respondent.
Civil Law; Common Carriers;  Negligence;  Damages;  Common carriers are bound to observe extraordinary diligence
over the goods they transport, according to all the circumstances of each case; In all other cases not specified under Article
1734 of the Civil Code, common carriers are presumed to have been at fault or to have acted negligently, unless they prove
that they observed extraordinary diligence.—From the nature of their business and for reasons of public policy, common
carriers are bound to observe extraordinary diligence over the goods they transport, according to all the circumstances
of each case. In the event of loss, destruction or deterioration of the insured goods, common carriers are responsible;
that is, unless they can prove that such loss, destruction or deterioration was brought about—among others—by “flood,
storm, earthquake, lightning or other natural disaster or calamity.” In all other cases not specified under Article 1734 of
the Civil Code, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that
they observed extraordinary diligence.
Same;  Same; Same;  Same; The defense of fortuitous event or natural disaster cannot be successfully made when the
injury could have been avoided by human precaution.—Even if the weather encountered by the ship is to be deemed a
natural disaster under Article 1739 of the Civil Code, petitioner failed to show that such natural disaster or calamity was
the proximate and only cause of the loss. Human agency must be entirely excluded from the cause of injury or loss. In
other words, the damaging effects blamed on the event or phenomenon must not have been caused, contributed to, or
worsened by the presence of human participation. The defense of fortuitous event or natural disaster cannot be
successfully made when the injury could have been avoided by human precaution.
Same;  Same; Same;  Same; Doctrine of Limited Liability;  Doctrine does not apply to situations in which the loss or
the injury is due to the concurrent negligence of the shipowner and the captain.—The doctrine of limited liability under
Article 587 of the Code of Commerce is not applicable to the present case. This rule does not apply to situations in which
the loss or the injury is due to the concurrent negligence of the ship-owner and the captain. It has already been
established that the sinking of M/V Central Bohol had been caused by the fault or negligence of the ship captain and the
crew, as shown by the improper stowage of the cargo of logs. “Closer supervision on the part of the shipowner could
have prevented this fatal miscalculation.” As such, the shipowner was equally negligent. It cannot escape liability by
virtue of the limited liability rule.

PETITION for review on certiorari of the decision and resolution of the Court of Appeals.

The facts are stated in the opinion of the Court.

     Chato & Eleazar for petitioner.
     Bienvenido V. Zapa for respondent.

PANGANIBAN, J.:

A common carrier is presumed to be at fault or negligent. It shall be liable for the loss, destruction or deterioration of its
cargo, unless it can prove that the sole and proximate cause of such event is one of the causes enumerated in Article 1734
of the Civil Code, or that it exercised extraordinary diligence to prevent or minimize the loss. In the present case, the
weather condition encountered by petitioner’s vessel was not a “storm” or a natural disaster comprehended in the law.
Given the known weather condition prevailing during the voyage, the manner of stowage employed by the carrier was
insufficient to secure the cargo from the rolling action of the sea. The carrier took a calculated risk in improperly
securing the cargo. Having lost that risk, it cannot now disclaim any liability for the loss.
The Case
Before the Court is a Petition for Review 1 under Rule 45 of the Rules of Court, seeking to reverse and set aside the March
23, 2001 Decision2 of the Court of Appeals (CA) in CA-GR CV No. 48915. The assailed Decision disposed as follows:
 49
“WHEREFORE, the decision of the Regional Trial Court of Makati City, Branch 148 dated August 4, 1994 is hereby
MODIFIED in so far as the award of attorney’s fees is DELETED. The decision is AFFIRMED in all other respects.” 3
The CA denied petitioner’s Motion for Reconsideration in its November 7, 2001 Resolution. 4
The Facts
The factual antecedents, summarized by the trial court and adopted by the appellate court, are as follows:
“On July 25, 1990 at Puerto Princesa, Palawan, the [petitioner] received on board its vessel, the M/V ‘Central Bohol,’ 376
pieces [of] Philippine Apitong Round Logs and undertook to transport said shipment to Manila for delivery to Alaska
Lumber Co., Inc.
“The cargo was insured for P3,000,000.00 against total loss under [respondent’s] Marine Cargo Policy No. MCPB-
00170.
“On July 25, 1990, upon completion of loading of the cargo, the vessel left Palawan and commenced the voyage to
Manila.
“At about 0125 hours on July 26, 1990, while enroute to Manila, the vessel listed about 10 degrees starboardside, due
to the shifting of logs in the hold.
“At about 0128 hours, after the listing of the vessel had increased to 15 degrees, the ship captain ordered his men to
abandon ship and at about 0130 hours of the same day the vessel completely sank. Due to the sinking of the vessel, the
cargo was totally lost.
“[Respondent] alleged that the total loss of the shipment was caused by the fault and negligence of the [petitioner]
and its captain and as direct consequence thereof the consignee suffered damage in the sum of P3,000,000.00.
“The consignee, Alaska Lumber Co. Inc., presented a claim for the value of the shipment to the [petitioner] but the
latter failed and refused to settle the claim, hence [respondent], being the insurer, paid said claim and now seeks to be
subrogated to all the rights and actions of the consignee as against the [petitioner].
“[Petitioner], while admitting the sinking of the vessel, interposed the defense that the vessel was fully manned, fully
equipped and in all respects seaworthy; that all the logs were properly loaded and secured; that the vessel’s master
exercised due diligence to prevent or minimize the loss before, during and after the occurrence of the storm.
“It raised as its main defense that the proximate and only cause of the sinking of its vessel and the loss of its cargo
was a natural disaster, a tropical storm which neither [petitioner] nor the captain of its vessel could have foreseen.” 5
The RTC was unconvinced that the sinking of M/V Central Bohol had been caused by the weather or any other caso
fortuito. It noted that monsoons, which were common occurrences during the months of July to December, could have
been foreseen and provided for by an ocean-going vessel. Applying the rule of presumptive fault or negligence against
the carrier, the trial court held petitioner liable for the loss of the cargo. Thus, the RTC deducted the salvage value of the
logs in the amount of P200,000 from the principal claim of respondent and found that the latter was entitled to be
subrogated to the rights of the insured. The court a quo disposed as follows:
“WHEREFORE, premises considered, judgment is hereby rendered in favor of the [respondent] and against the
[petitioner] ordering the latter to pay the following:

1)the amount of P2,800,000.00 with legal interest thereof from the filing of this complaint up to and until the same is
fully paid;
2)P80,000.00 as and for attorney’s fees;
3)Plus costs of suit.”6

Ruling of the Court of Appeals

The CA affirmed the trial court’s finding that the southwestern monsoon encountered by the vessel was not
unforeseeable. Given the season of rains and monsoons, the ship captain and his crew should have anticipated the perils
of the sea. The appellate court further held that the weather disturbance was not the sole and proximate cause of the
sinking of the vessel, which was also due to the concurrent shifting of the logs in the hold that could have resulted only
from improper stowage. Thus, the carrier was held responsible for the consequent loss of or damage to the cargo,
because its own negligence had contributed thereto.
The CA found no merit in petitioner’s assertion of the vessel’s seaworthiness. It held that the Certificates of
Inspection and Drydocking were not conclusive proofs thereof. In order to consider a vessel to be seaworthy, it must be
fit to meet the perils of the sea.
Found untenable was petitioner’s insistence that the trial court should have given greater weight to the factual
findings of the Board of Marine Inquiry (BMI) in the investigation of the Marine Protest filed by the ship captain,
Enriquito Cahatol. The CA further observed that what petitioner had presented to the court a quo were mere excerpts of
the testimony of Captain Cahatol given during the course of the proceedings before the BMI, not the actual findings and
conclusions of the agency. Citing Arada v. CA,7 it said that findings of the BMI were limited to the administrative liability
of the owner/operator, officers and crew of the vessel. However, the determination of whether the carrier observed
extraordinary diligence in protecting the cargo it was transporting was a function of the courts, not of the BMI.
The CA concluded that the doctrine of limited liability was not applicable, in view of petitioner’s negligence—
particularly its improper stowage of the logs.
Hence, this Petition.8
 50
Issues
In its Memorandum, petitioner submits the following issues for our consideration:

1. “(i)Whether or not the weather disturbance which caused the sinking of the vessel M/V Central Bohol
was a fortuitous event.

2. “(ii)Whether or not the investigation report prepared by Claimsmen Adjustment Corporation is

hearsay evidence under Section 36, Rule 130 of the Rules of Court.

3. “(iii)Whether or not the finding of the Court of Appeals that ‘the logs in the hold shifted and such
shifting could only be due to improper stowage’ has a valid and factual basis.

4. “(iv)Whether or not M/V Central Bohol is seaworthy.

5. “(v)Whether or not the Court of Appeals erred in not giving credence to the factual finding of the
Board of Marine Inquiry (BMI), an independent government agency tasked to conduct inquiries on
maritime accidents.

6. “(vi)Whether or not the Doctrine of Limited Liability is applicable to the case at bar.” 9

The issues boil down to two: (1) whether the carrier is liable for the loss of the cargo; and (2) whether the doctrine of
limited liability is applicable. These issues involve a determination of factual questions of whether the loss of the cargo
was due to the occurrence of a natural disaster; and if so, whether its sole and proximate cause was such natural disaster
or whether petitioner was partly to blame for failing to exercise due diligence in the prevention of that loss.

The Court’s Ruling

The Petition is devoid of merit.
First Issue: Liability for Lost Cargo
From the nature of their business and for reasons of public policy, common carriers are bound to observe extraordinary
diligence over the goods they transport, according to all the circumstances of each case. 10 In the event of loss,
destruction or deterioration of the insured goods, common carriers are responsible; that is, unless they can prove that
such loss, destruction or deterioration was brought about—among others—by “flood, storm, earthquake, lightning or
other natural disaster or calamity.”11 In all other cases not specified under Article 1734 of the Civil Code, common carriers
are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary
diligence.12
In the present case, petitioner disclaims responsibility for the loss of the cargo by claiming the occurrence of a
“storm” under Article 1734(1). It attributes the sinking of its vessel solely to the weather condition between 10:00 p.m. on
July 25, 1990 and 1:25 a.m. on July 26, 1990.

At the outset, it must be stressed that only questions of law 13 may be raised in a petition for review on certiorari under
Rule 45 of the Rules of Court. Questions of fact are not proper subjects in this mode of appeal, 14 for “[t]he Supreme Court
is not a trier of facts.” 15 Factual findings of the CA may be reviewed on appeal 16 only under exceptional circumstances
such as, among others, when the inference is manifestly mistaken, 17 the judgment is based on a misapprehension of
facts,18 or the CA manifestly overlooked certain relevant and undisputed facts that, if properly considered, would justify a
different conclusion.19
In the present case, petitioner has not given the Court sufficient cogent reasons to disturb the conclusion of the CA
that the weather encountered by the vessel was not a “storm” as contemplated by Article 1734(1). Established is the fact
that between 10:00 p.m. on July 25, 1990 and 1:25 a.m. on July 26, 1990, M/V Central Bohol encountered a southwestern
monsoon in the course of its voyage.
The Note of Marine Protest,20 which the captain of the vessel issued under oath, stated that he and his crew
encountered a southwestern monsoon about 2200 hours on July 25, 1990, and another monsoon about 2400 hours on
July 26, 1990. Even petitioner admitted in its Answer that the sinking of M/V Central Bohol had been caused by the
strong southwest monsoon.21 Having made such factual representation, it cannot now be allowed to retreat and claim
that the southwestern monsoon was a “storm.”
The pieces of evidence with respect to the weather conditions encountered by the vessel showed that there was a
southwestern monsoon at the time. Normally expected on sea voyages, however, were such monsoons, during which
strong winds were not unusual. Rosa S. Barba, weather specialist of the Philippine Atmospheric Geophysical and
Astronomical Services Administration (PAGASA), testified that a thunderstorm might occur in the midst of a southwest
monsoon. According to her, one did occur between 8:00 p.m. on July 25, 1990, and 2 a.m. on July 26, 1990, as recorded by
the PAGASA Weather Bureau.22
 51
Nonetheless, to our mind it would not be sufficient to categorize the weather condition at the time as a “storm”
within the absolutory causes enumerated in the law. Significantly, no typhoon was observed within the Philippine area
of responsibility during that period.23
According to PAGASA, a storm has a wind force of 48 to 55 knots, 24 equivalent to 55 to 63 miles per hour or 10 to 11 in
the Beaufort Scale. The second mate of the vessel stated that the wind was blowing around force 7 to 8 on the Beaufort
Scale.25 Consequently, the strong winds accompanying the southwestern monsoon could not be classified as a “storm.”
Such winds are the ordinary vicissitudes of a sea voyage.26
Even if the weather encountered by the ship is to be deemed a natural disaster under Article 1739 of the Civil Code,
petitioner failed to show that such natural disaster or calamity was the proximate and only cause of the loss. Human
agency must be entirely excluded from the cause of injury or loss. In other words, the damaging effects blamed on the
event or phenomenon must not have been caused, contributed to, or worsened by the presence of human
participation.27 The defense of fortuitous event or natural disaster cannot be successfully made when the injury could
have been avoided by human precaution. 28
Hence, if a common carrier fails to exercise due diligence—or that ordinary care that the circumstances of the
particular case demand—to prevent or minimize the loss before, during and after the occurrence of the natural disaster,
the carrier shall be deemed to have been negligent. The loss or injury is not, in a legal sense, due to a natural disaster
under Article 1734(1).29
We also find no reason to disturb the CA’s finding that the loss of the vessel was caused not only by the
southwestern monsoon, but also by the shifting of the logs in the hold. Such shifting could been due only to improper
stowage. The assailed Decision stated:
“Notably, in Master Cahatol’s account, the vessel encountered the first southwestern monsoon at about 1[0]:00 in the
evening. The monsoon was coupled with heavy rains and rough seas yet the vessel withstood the onslaught. The second
monsoon attack occurred at about 12:00 midnight. During this occasion, the master ‘felt’ that the logs in the hold
shifted, prompting him to order second mate Percival Dayanan to look at the bodega. Complying with the captain’s
order, 2nd mate Percival Dayanan found that there was seawater in the bodega. 2nd mate Dayanan’s account was:

‘14. T—Kung inyo pong natatandaan ang mga pangyayari, maari mo bang isalaysay ang naganap na paglubog sa barkong
M/V Central Bohol?
‘S—Opo, noong ika-26 ng Julio 1990 humigit kumulang alas 1:20 ng umaga (dst) habang kami ay nagnanabegar
patungong Maynila sa tapat ng Cadlao Island at Cauayan Island sakop ng El Nido, Palawan, inutusan ako ni Captain
Enriquito Cahatol na tingnan ko ang bodega; nang ako ay nasa bodega, nakita ko ang loob nang bodega na
maraming tubig at naririnig ko ang malakas na agos ng tubig-dagat na pumapasok sa loob ng bodega ng
barko; agad bumalik ako kay Captain Enriquito Cahatol at sinabi ko ang malakas na pagpasok ng tubig-dagat sa loob
nang bodega ng barko na ito ay naka-tagilid humigit kumulang sa 020 degrees, nag-order si Captain Cahatol na standby
engine at tinawag ang lahat ng mga officials at mga crew nang maipon kaming lahat ang barko ay naka-tagilid at ito ay
tuloy-tuloy ang pagtatagilid na ang ilan sa mga officials ay naka-hawak na sa barandilla ng barko at di-nagtagal sumigaw
nang ABANDO[N]SHIP si Captain Cahatol at kami ay nagkanyakanya nang talunan at languyan sa dagat na malakas ang
alon at nang ako ay lumingon sa barko ito ay di ko na nakita.’
“Additionally, [petitioner’s] own witnesses, boatswain Eduardo Viñas Castro and oiler Frederick Perena, are one in
saying that the vessel encountered two weather disturbances, one at around 10 o’clock to 11 o’clock in the evening and
the other at around 12 o’clock midnight. Both disturbances were coupled with waves and heavy rains, yet, the vessel
endured the first and not the second. Why? The reason is plain. The vessel felt the strain during the second onslaught
because the logs in the bodega shifted and there were already seawater that seeped inside.” 30
The above conclusion is supported by the fact that the vessel proceeded through the first southwestern monsoon
without any mishap, and that it began to list only during the second monsoon immediately after the logs had shifted
and seawater had entered the hold. In the hold, the sloshing of tons of water back and forth had created pressures that
eventually caused the ship to sink. Had the logs not shifted, the ship could have survived and reached at least the port of
El Nido. In fact, there was another motor launch that had been buffeted by the same weather condition within the same
area, yet it was able to arrive safely at El Nido.31

In its Answer, petitioner categorically admitted the allegation of respondent in paragraph 5 of the latter’s Complaint
“[t]hat at about 0125 hours on 26 July 1990, while enroute to Manila, the M/V ‘Central Bohol’ listed about 10 degrees
starboardside, due to the shifting of logs in the hold.” Further, petitioner averred that “[t]he vessel, while navigating
through this second southwestern monsoon, was under extreme stress. At about 0125 hours, 26 July 1990, a thud was
heard in the cargo hold and the logs therein were felt to have shifted. The vessel thereafter immediately listed by ten (10)
degrees starboardside.”32
Yet, petitioner now claims that the CA’s conclusion was grounded on mere speculations and conjectures. It alleges
that it was impossible for the logs to have shifted, because they had fitted exactly in the hold from the port to the
starboard side.
After carefully studying the records, we are inclined to believe that the logs did indeed shift, and that they had been
improperly loaded.
 52
According to the boatswain’s testimony, the logs were piled properly, and the entire shipment was lashed to the
vessel by cable wire.33 The ship captain testified that out of the 376 pieces of round logs, around 360 had been loaded in
the lower hold of the vessel and 16 on deck. The logs stored in the lower hold were not secured by cable wire, because
they fitted exactly from floor to ceiling. However, while they were placed side by side, there were unavoidable clearances
between them owing to their round shape. Those loaded on deck were lashed together several times across by cable
wire, which had a diameter of 60 millimeters, and were secured from starboard to port. 34
It is obvious, as a matter of common sense, that the manner of stowage in the lower hold was not sufficient to secure
the logs in the event the ship should roll in heavy weather. Notably, they were of different lengths ranging from 3.7 to
12.7 meters.35 Being clearly prone to shifting, the round logs should not have been stowed with nothing to hold them
securely in place. Each pile of logs should have been lashed together by cable wire, and the wire fastened to the side of
the hold. Considering the strong force of the wind and the roll of the waves, the loose arrangement of the logs did not
rule out the possibility of their shifting. By force of gravity, those on top of the pile would naturally roll towards the
bottom of the ship.
The adjuster’s Report, which was heavily relied upon by petitioner to strengthen its claim that the logs had not
shifted, stated that “the logs were still properly lashed by steel chains on deck.” Parenthetically, this statement referred
only to those loaded on deck and did not mention anything about the condition of those placed in the lower hold. Thus,
the finding of the surveyor that the logs were still intact clearly pertained only to those lashed on deck.
The evidence indicated that strong southwest monsoons were common occurrences during the month of July. Thus,
the officers and crew of M/V Central Bohol should have reasonably anticipated heavy rains, strong winds and rough seas.
They should then have taken extra precaution in stowing the logs in the hold, in consonance with their duty of
observing extraordinary diligence in safeguarding the goods. But the carrier took a calculated risk in improperly securing
the cargo. Having lost that risk, it cannot now escape responsibility for the loss.
Second Issue: Doctrine of Limited Liability
The doctrine of limited liability under Article 587 of the Code of Commerce 36 is not applicable to the present case. This
rule does not apply to situations in which the loss or the injury is due to the concurrent negligence of the shipowner and
the captain.37 It has already been established that the sinking of M/V Central Bohol had been caused by the fault or
negligence of the ship captain and the crew, as shown by the improper stowage of the cargo of logs. “Closer supervision
on the part of the shipowner could have prevented this fatal miscalculation.” 38 As such, the shipowner was equally
negligent. It cannot escape liability by virtue of the limited liability rule.
WHEREFORE, the Petition is DENIED, and the assailed Decision and Resolution AFFIRMED. Costs against
petitioner.
SO ORDERED.
     Sandoval-Gutierrez and Corona, JJ., concur.
     Carpio-Morales, J., On Official Leave.
Petition denied, assailed decision and resolution affirmed.
Note.—Liability of the common carrier does not cease upon proof that it exercised all the diligence of a good father
of a family in the selection of its employees. (Mallari, Sr. vs. Court of Appeals, 324 SCRA 147 [2000])

12. Schmitz Transport & Brokerage Corporation vs. Transport Venture, Inc.,  456 SCRA 557, April 22, 2005
G.R. No. 150255. April 22, 2005.*
SCHMITZ TRANSPORT & BROKERAGE CORPORATION, petitioner, vs. TRANSPORT VENTURE, INC., INDUSTRIAL
INSURANCE COMPANY, LTD., and BLACK SEA SHIPPING AND DODWELL now INCHCAPE SHIPPING SERVICES,
respondents.

Obligations and Contracts; Negligence; Fortuitous Events; The principle embodied in the act of God doctrine strictly
requires that the act must be occasioned solely by the violence of nature—human intervention is to be excluded from
creating or entering into the cause of the mischief.—In order, to be considered a fortuitous event, however, (1) the cause
of the unforeseen and unexpected occurrence, or the failure of the debtor to comply with his obligation, must be
independent of human will; (2) it must be impossible to foresee the event which constitute the  caso fortuito, or if it can
be foreseen it must be impossible to avoid; (3) the occurrence must be such as to render it impossible for the debtor to
fulfill his obligation in any manner; and (4) the obligor must be free from any participation in the aggravation of the
injury resulting to the creditor. [T]he principle embodied in the act of God doctrine strictly requires that the act must be
occasioned solely by the violence of nature. Human intervention is to be excluded from creating or entering into the
cause of the mischief. When the effect is found to be in part the result of the participation of man, whether due to his
active intervention or neglect or failure to act, the whole occurrence is then humanized and removed from the rules
applicable to the acts of God.
Common Carriers; Customs Brokers; It is settled that under a given set of facts, a customs broker may be regarded as
a common carrier.—It is settled that under a given set of facts, a customs broker may be regarded as a common carrier.
Thus, this Court, in A.F. Sanchez Brokerage, Inc. v. The Honorable Court of Appeals, held: The appellate court did not err
in finding petitioner, a customs broker, to be also a common carrier, as defined under Article 1732 of the Civil Code, to
wit, Art. 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or
 53
transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public. x
x x Article 1732 does not distinguish between one whose principal business activity is the carrying of goods and one who
does such carrying only as an ancillary activity. The contention, therefore, of petitioner that it is not a common carrier
but a customs broker whose principal function is to prepare the correct customs declaration and proper shipping
documents as required by law is bereft of merit. It suffices that petitioner undertakes to deliver the goods for pecuniary
consideration. And in Calvo v. UCPB General Insurance Co., Inc., this Court held that as the transportation of goods is an
integral part of a customs broker, the customs broker is also a common carrier. For to declare otherwise “would be to
deprive those with whom [it] contracts the protection which the law affords them notwithstanding the fact that the
obligation to carry goods for [its] customers, is part and parcel of petitioner’s business.”
Same;  Private Carriers;  While a private carrier is under no duty to observe extraordinary diligence, it is still required
to observe ordinary diligence.—In the case of TVI, while it acted as a private carrier for which it was under no duty to
observe extraordinary diligence, it was still required to observe ordinary diligence to ensure the proper and careful
handling, care and discharge of the carried goods.
Same;  Same; A man of ordinary prudence would not leave a heavily loaded barge floating for a considerable number
of hours, at a precarious time, and in the open sea, knowing that the barge does not have any power of its own and is totally
defenseless from the ravages of the sea.—TVI’s failure to promptly provide a tugboat did not only increase the risk that
might have been reasonably anticipated during the shipside operation, but was the proximate cause of the loss. A man of
ordinary prudence would not leave a heavily loaded barge floating for a considerable number of hours, at such a
precarious time, and in the open sea, knowing that the barge does not have any power of its own and is totally
defenseless from the ravages of the sea. That it was nighttime and, therefore, the members of the crew of a tugboat
would be charging overtime pay did not excuse TVI from calling for one such tugboat.
Same;  Obligations and Contracts; Torts;  Quasi-Delicts;  When an act which constitutes a breach of contract would
have itself constituted the source of a quasi-delictual liability had no contract existed between the parties, the contract can
be said to have been breached by tort, thereby allowing the rules on tort to apply.—This Court holds then that petitioner
and TVI are solidarily liable for the loss of the cargoes. The following pronouncement of the Supreme Court is
instructive: The foundation of LRTA’s liability is the contract of carriage and its obligation to indemnify the victim arises
from the breach of that contract by reason of its failure to exercise the high diligence required of the common carrier. In
the discharge of its commitment to ensure the safety of passengers, a carrier may choose to hire its own employees or
avail itself of the services of an outsider or an independent firm to undertake the task. In either case, the common carrier
is not relieved of its responsibilities under the contract of carriage. Should Prudent be made likewise liable? If at all, that
liability could only be for tort under the provisions of Article 2176 and related provisions, in conjunction with Article
2180 of the Civil Code. x x x [O]ne might ask further, how then must the liability of the common carrier, on one hand, and
an independent contractor, on the other hand, be described? It would be solidary. A contractual obligation can be breached
by tort and when the same act or omission causes the injury, one resulting in culpa contractual and the other in culpa
aquiliana, Article 2194 of the Civil Code can well apply. In fine, a liability for tort may arise even under a contract, where
tort is that which breaches the contract. Stated differently, when an act which constitutes a breach of contract would have
itself constituted the source of a quasi-delictual liability had no contract existed between the parties, the contract can be
said to have been breached by tort, thereby allowing the rules on tort to apply.
Same;  Same; Words and Phrases;  Parties to a contract of carriage may agree upon a definition of delivery that
extends the services rendered by the carrier.—Parties to a contract of carriage may, however, agree upon a definition of
delivery that extends the services rendered by the carrier. In the case at bar, Bill of Lading No. 2 covering the shipment
provides that delivery be made “to the port of discharge or so near thereto as she may safely get, always afloat.” The
delivery of the goods to the consignee was not from “pier to pier” but from the shipside of “M/V Alexander Saveliev” and
into barges, for which reason the consignee contracted the services of petitioner.
Since Black Sea had constructively delivered the cargoes to Little Giant, through petitioner, it had discharged its
duty.
Damages; Attorney’s Fees; To award attorney’s fees to a party just because the judgment is rendered in its favor
would be tantamount to imposing a premium on one’s right to litigate or seek judicial redress of legitimate grievances—no
sufficient showing of bad faith is reflected in a party’s persistence in a case based on an erroneous conviction of the
righteousness of his cause.—Respecting the award of attorney’s fees in an amount over P1,000,000.00 to Industrial
Insurance, for lack of factual and legal basis, this Court sets it aside. While Industrial Insurance was compelled to litigate
its rights, such fact by itself does not justify the award of attorney’s fees under Article 2208 of the Civil Code. For no
sufficient showing of bad faith would be reflected in a party’s persistence in a case other than an erroneous conviction of
the righteousness of his cause. To award attorney’s fees to a party just because the judgment is rendered in its favor
would be tantamount to imposing a premium on one’s right to litigate or seek judicial redress of legitimate grievances.
Same;  Insurance; Adjustment fees do not constitute actual damages.—On the award of adjustment fees: The
adjustment fees and expense of divers were incurred by Industrial Insurance in its voluntary but unsuccessful efforts to
locate and retrieve the lost cargo. They do not constitute actual damages.
Same;  Interests; When the demand cannot be reasonably established at the time the demand is made, the interest
shall begin to run not from the time the claim is made judicially or extrajudicially but from the date the judgment of the
lower court is made.—As for the court a quo’s award of interest on the amount claimed, the same calls for modification
following the ruling in Eastern Shipping Lines, Inc. v. Court of Appeals that when the demand cannot be reasonably
 54
established at the time the demand is made, the interest shall begin to run not from the time the claim is made judicially
or extrajudicially but from the date the judgment of the court is made (at which the time the quantification of damages
may be deemed to have been reasonably ascertained).

PETITION for review on certiorari of the decision and resolution of the Court of Appeals.

The facts are stated in the opinion of the Court.

     Pena,  Del Rosario,  Mendoza,  Tiamson  and Pulido for petitioner.

CARPIO-MORALES, J.:

On petition for review is the June 27, 2001 Decision 1 of the Court of Appeals, as well as its Resolution 2 dated September
28, 2001 denying the motion for reconsideration, which affirmed that of Branch 21 of the Regional Trial Court (RTC) of
Manila in Civil Case No. 92-631323 holding petitioner Schmitz Transport Brokerage Corporation (Schmitz Transport),
together with Black Sea Shipping Corporation (Black Sea), represented by its ship agent Inchcape Shipping Inc.
(Inchcape), and Transport Venture Inc. (TVI), solidarily liable for the loss of 37 hot rolled steel sheets in coil that were
washed overboard a barge.
On September 25, 1991, SYTCO Pte Ltd. Singapore shipped from the port of Ilyichevsk, Russia on board M/V
“Alexander Saveliev” (a vessel of Russian registry and owned by Black Sea) 545 hot rolled steel sheets in coil weighing
6,992,450 metric tons.
The cargoes, which were to be discharged at the port of Manila in favor of the consignee, Little Giant Steel Pipe
Corporation (Little Giant),4 were insured against all risks with Industrial Insurance Company Ltd. (Industrial Insurance)
under Marine Policy No. M-91-3747-TIS.5
The vessel arrived at the port of Manila on October 24, 1991 and the Philippine Ports Authority (PPA) assigned it a
place of berth at the outside breakwater at the Manila South Harbor.6
Schmitz Transport, whose services the consignee engaged to secure the requisite clearances, to receive the cargoes
from the shipside, and to deliver them to its (the consignee’s) warehouse at Cainta, Rizal, 7 in turn engaged the services
of TVI to send a barge and tugboat at shipside.
On October 26, 1991, around 4:30 p.m., TVI’s tugboat “Lailani” towed the barge “Erika V” to shipside. 8
By 7:00 p.m. also of October 26, 1991, the tugboat, after positioning the barge alongside the vessel, left and returned
to the port terminal.9 At 9:00 p.m., arrastre operator Ocean Terminal Services Inc. commenced to unload 37 of the 545
coils from the vessel unto the barge.
By 12:30 a.m. of October 27, 1991 during which the weather condition had become inclement due to an approaching
storm, the unloading unto the barge of the 37 coils was accomplished. 10 No tugboat pulled the barge back to the pier,
however.
At around 5:30 a.m. of October 27, 1991, due to strong waves, 11 the crew of the barge abandoned it and transferred to
the vessel. The barge pitched and rolled with the waves and eventually capsized, washing the 37 coils into the sea. 12 At
7:00 a.m., a tugboat finally arrived to pull the already empty and damaged barge back to the pier. 13
Earnest efforts on the part of both the consignee Little Giant and Industrial Insurance to recover the lost cargoes proved
futile.14
Little Giant thus filed a formal claim against Industrial Insurance which paid it the amount of P5,246,113.11. Little
Giant thereupon executed a subrogation receipt15 in favor of Industrial Insurance.
Industrial Insurance later filed a complaint against Schmitz Transport, TVI, and Black Sea through its representative
Inchcape (the defendants) before the RTC of Manila, for the recovery of the amount it paid to Little Giant plus
adjustment fees, attorney’s fees, and litigation expenses. 16
Industrial Insurance faulted the defendants for undertaking the unloading of the cargoes while typhoon signal No. 1
was raised in Metro Manila.17
By Decision of November 24, 1997, Branch 21 of the RTC held all the defendants negligent for unloading the cargoes
outside of the breakwater notwithstanding the storm signal.18 The dispositive portion of the decision reads:
“WHEREFORE, premises considered, the Court renders judgment in favor of the plaintiff, ordering the defendants to
pay plaintiff jointly and severally the sum of P5,246,113.11 with interest from the date the complaint was filed until fully
satisfied, as well as the sum of P5,000.00 representing the adjustment fee plus the sum of 20% of the amount recoverable
from the defendants as attorney’s fees plus the costs of suit. The counterclaims and cross claims of defendants are
hereby DISMISSED for lack of [m]erit. 19

To the trial court’s decision, the defendants Schmitz Transport and TVI filed a joint motion for reconsideration assailing
the finding that they are common carriers and the award of excessive attorney’s fees of more than P1,000,000. And they
argued that they were not motivated by gross or evident bad faith and that the incident was caused by a fortuitous
event.20
By resolution of February 4, 1998, the trial court denied the motion for reconsideration. 21
All the defendants appealed to the Court of Appeals which, by decision of June 27, 2001, affirmed in toto the decision
of the trial court,22 it finding that all the defendants were common carriers—Black Sea and TVI for engaging in the
 55
transport of goods and cargoes over the seas as a regular business and not as an isolated transaction, 23 and Schmitz
Transport for entering into a contract with Little Giant to transport the cargoes from ship to port for a fee. 24
In holding all the defendants solidarily liable, the appellate court ruled that “each one was essential such that
without each other’s contributory negligence the incident would not have happened and so much so that the person
principally liable cannot be distinguished with sufficient accuracy.” 25
In discrediting the defense of fortuitous event, the appellate court held that “although defendants obviously had
nothing to do with the force of nature, they however had control of where to anchor the vessel, where discharge will
take place and even when the discharging will commence.” 26
The defendants’ respective motions for reconsideration having been denied by Resolution 27 of September 28, 2001,
Schmitz Transport (hereinafter referred to as petitioner) filed the present petition against TVI, Industrial Insurance and
Black Sea.
Petitioner asserts that in chartering the barge and tugboat of TVI, it was acting for its principal, consignee Little
Giant, hence, the transportation contract was by and between Little Giant and TVI. 28
By Resolution of January 23, 2002, herein respondents Industrial Insurance, Black Sea, and TVI were required to file
their respective Comments.29
By its Comment, Black Sea argued that the cargoes were received by the consignee through petitioner in good order,
hence, it cannot be faulted, it having had no control and supervision thereover. 30
For its part, TVI maintained that it acted as a passive party as it merely received the cargoes and transferred them
unto the barge upon the instruction of petitioner. 31
In issue then are:

1. (1)Whether the loss of the cargoes was due to a fortuitous event, independent of any act of negligence
on the part of petitioner Black Sea and TVI, and

2. (2)If there was negligence, whether liability for the loss may attach to Black Sea, petitioner and TVI.

When a fortuitous event occurs, Article 1174 of the Civil Code absolves any party from any and all liability arising
therefrom:
ART. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the
nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not
be foreseen, or which though foreseen, were inevitable.

In order, to be considered a fortuitous event, however, (1) the cause of the unforeseen and unexpected occurrence, or the
failure of the debtor to comply with his obligation, must be independent of human will; (2) it must be impossible to
foresee the event which constitute the caso fortuito, or if it can be foreseen it must be impossible to avoid; (3) the
occurrence must be such as to render it impossible for the debtor to fulfill his obligation in any manner; and (4) the
obligor must be free from any participation in the aggravation of the injury resulting to the creditor. 32
[T]he principle embodied in the act of God doctrine strictly requires that the act must be occasioned solely by the
violence of nature. Human intervention is to be excluded from creating or entering into the cause of the mischief. When
the effect is found to be in part the result of the participation of man, whether due to his active intervention or neglect
or failure to act, the whole occurrence is then humanized and removed from the rules applicable to the acts of God. 33

The appellate court, in affirming the finding of the trial court that human intervention in the form of contributory
negligence by all the defendants resulted to the loss of the cargoes, 34 held that unloading outside the breakwater, instead
of inside the breakwater, while a storm signal was up constitutes negligence. 35 It thus concluded that the proximate
cause of the loss was Black Sea’s negligence in deciding to unload the cargoes at an unsafe place and while a typhoon
was approaching.36
From a review of the records of the case, there is no indication that there was greater risk in loading the cargoes
outside the breakwater. As the defendants proffered, the weather on October 26, 1991 remained normal with moderate
sea condition such that port operations continued and proceeded normally. 37
The weather data report,38 furnished and verified by the Chief of the Climate Data Section of PAG-ASA and marked
as a common exhibit of the parties, states that while typhoon signal No. 1 was hoisted over Metro Manila on October 23-
31, 1991, the sea condition at the port of Manila at 5:00 p.m. -11:00 p.m. of October 26, 1991 was moderate. It cannot,
therefore, be said that the defendants were negligent in not unloading the cargoes upon the barge on October 26, 1991
inside the breakwater.
That no tugboat towed back the barge to the pier after the cargoes were completely loaded by 12:30 in the
morning39 is, however, a material fact which the appellate court failed to properly consider and appreciate 40—
the proximate cause of the loss of the cargoes. Had the barge been towed back promptly to the pier, the deteriorating sea
conditions notwithstanding, the loss could have been avoided. But the barge was left floating in open sea until big waves
set in at 5:30 a.m., causing it to sink along with the cargoes.41 The loss thus falls outside the “act of God doctrine.”
The proximate cause of the loss having been determined, who among the parties is/are responsible therefor?
 56
Contrary to petitioner’s insistence, this Court, as did the appellate court, finds that petitioner is a common carrier.
For it undertook to transport the cargoes from the shipside of “M/V Alexander Saveliev” to the consignee’s warehouse at
Cainta, Rizal. As the appellate court put it, “as long as a person or corporation holds [itself] to the public for the purpose
of transporting goods as [a] business, [it] is already considered a common carrier regardless if [it] owns the vehicle to be
used or has to hire one.” 42 That petitioner is a common carrier, the testimony of its own Vice-President and General
Manager Noel Aro that part of the services it offers to its clients as a brokerage firm includes the transportation of
cargoes reflects so.
Atty. Will you please tell us what [are you] functions x x x
Jubay: as Executive Vice-President and General Manager of
said Company?
Mr. Well, I oversee the entire operation of the brokerage
Aro: and transport business of the company. I also handle
the various division heads of the company for operation
matters, and all other related functions that the President
may assign to me from time to time, Sir.
Q: Now, in connection [with] your duties and functions as you
mentioned, will you please tell the Honorable Court if you came
to know the company by the name Little Giant Steel Pipe
Corporation?
A: Yes, Sir. Actually, we are the brokerage firm of that Company.
Q: And since when have you been the brokerage firm of that
company, if you can recall?
A: Since 1990, Sir.
Q: Now, you said that you are the brokerage firm of this Company.
What work or duty did you perform in behalf of this company?
A: We handled the releases (sic) of their cargo[es] from the Bureau
of Customs. We [are] also in-charged of the delivery of the goods
to their warehouses. We also handled the clearances of their
shipment at the Bureau of Customs, Sir.
  xxx
Q: Now, what precisely [was] your agreement with this Little Giant
Steel Pipe Corporation with regards to this shipment? What
work did you do with this shipment?
A: We handled the unloading of the cargo[es] from vessel to lighter
and then the delivery of [the] cargo[es] from lighter to BASECO
then to the truck and to the warehouse, Sir.
Q: Now, in connection with this work which you are doing, Mr.
Witness, you are supposed to perform, what equipment do (sic)
you require or did you use in order to effect this unloading,
transfer and delivery to the warehouse?
A: Actually, we used the barges for the ship side operations, this
unloading [from] vessel to lighter, and on this we hired or we sub-
contracted with [T]ransport Ventures, Inc. which [was] in-charged
(sic) of the barges. Also, in BASECO compound we are leasing
cranes to have the cargo unloaded from the barge to trucks,
[and] then we used trucks to deliver [the cargoes] to the
consignee’s warehouse, Sir.
Q: And whose trucks do you use from BASECO compound to the
consignee’s warehouse?
A: We utilized of (sic) our own trucks and we have some other
contracted trucks, Sir.
  xxx
ATTY. Will you please explain to us, to the Honorable Court why is it
 57
JUBAY: you have to contract for the barges of Transport Ventures
Incorporated in this particular operation?
A: Firstly, we don’t own any barges. That is why we hired the
services of another firm whom we know [al]ready for
      quite sometime, which is Transport Ventures, Inc. (Emphasis
supplied)43
It is settled that under a given set of facts, a customs broker may be regarded as a common carrier. Thus, this Court,
in A.F. Sanchez Brokerage, Inc. v. The Honorable Court of Appeals,44 held:
The appellate court did not err in finding petitioner, a customs broker, to be also a common carrier, as defined under
Article 1732 of the Civil Code, to wit,
Art. 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public. x
xx

Article 1732 does not distinguish between one whose principal business activity is the carrying of goods and one who
does such carrying only as an ancillary activity. The contention, therefore, of petitioner that it is not a common carrier
but a customs broker whose principal function is to prepare the correct customs declaration and proper shipping
documents as required by law is bereft of merit. It suffices that petitioner undertakes to deliver the goods for pecuniary
consideration.45

And in Calvo v. UCPB General Insurance Co., Inc.,46 this Court held that as the transportation of goods is an integral part
of a customs broker, the customs broker is also a common carrier. For to declare otherwise “would be to deprive those
with whom [it] contracts the protection which the law affords them notwithstanding the fact that the obligation to carry
goods for [its] customers, is part and parcel of petitioner’s business.” 47
As for petitioner’s argument that being the agent of Little Giant, any negligence it committed was deemed the
negligence of its principal, it does not persuade.
True, petitioner was the broker-agent of Little Giant in securing the release of the cargoes. In effecting the
transportation of the cargoes from the shipside and into Little Giant’s warehouse, however, petitioner was discharging
its own personal obligation under a contact of carriage.
Petitioner, which did not have any barge or tugboat, engaged the services of TVI as handler 48 to provide the barge
and the tugboat. In their Service Contract, 49 while Little Giant was named as the consignee, petitioner did not disclose
that it was acting on commission and was chartering the vessel for Little Giant. 50 Little Giant did not thus automatically
become a party to the Service Contract and was not, therefore, bound by the terms and conditions therein.
Not being a party to the service contract, Little Giant cannot directly sue TVI based thereon but it can maintain a
cause of action for negligence.51
In the case of TVI, while it acted as a private carrier for which it was under no duty to observe extraordinary
diligence, it was still required to observe ordinary diligence to ensure the proper and careful handling, care and
discharge of the carried goods.
Thus, Articles 1170 and 1173 of the Civil Code provide:
ART. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in
any manner contravene the tenor thereof, are liable for damages.
ART. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the
nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. When
negligence shows bad faith, the provisions of articles 1171 and 2202, paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be observed in the performance, that which is expected
of a good father of a family shall be required.

Was the reasonable care and caution which an ordinarily prudent person would have used in the same situation
exercised by TVI?52
This Court holds not.
TVI’s failure to promptly provide a tugboat did not only increase the risk that might have been reasonably anticipated
during the shipside operation, but was the  proximate cause of the loss. A man of ordinary prudence would not leave a
heavily loaded barge floating for a considerable number of hours, at such a precarious time, and in the open sea,
knowing that the barge does not have any power of its own and is totally defenseless from the ravages of the sea. That it
was nighttime and, therefore, the members of the crew of a tug-boat would be charging overtime pay did not excuse TVI
from calling for one such tugboat.
As for petitioner, for it to be relieved of liability, it should, following Article 1739 53 of the Civil Code, prove that it
exercised due diligence to prevent or minimize the loss, before, during and after the occurrence of the storm in order
that it may be exempted from liability for the loss of the goods.
While petitioner sent checkers 54 and a supervisor55 on board the vessel to counter-check the operations of TVI,
it failed to take all available and reasonable precautions to avoid the loss. After noting that TVI failed to arrange for the
 58
prompt towage of the barge despite the deteriorating sea conditions, it should have summoned the same or another
tugboat to extend help, but it did not.
This Court holds then that petitioner and TVI are solidarily liable 56 for the loss of the cargoes. The following
pronouncement of the Supreme Court is instructive:
The foundation of LRTA’s liability is the contract of carriage and its obligation to indemnify the victim arises from the
breach of that contract by reason of its failure to exercise the high diligence required of the common carrier. In the
discharge of its commitment to ensure the safety of passengers, a carrier may choose to hire its own employees or avail
itself of the services of an outsider or an independent firm to undertake the task. In either case, the common carrier is
not relieved of its responsibilities under the contract of carriage.
Should Prudent be made likewise liable? If at all, that liability could only be for tort under the provisions of Article
2176 and related provisions, in conjunction with Article 2180 of the Civil Code. x x x  [O]ne might ask further, how then
must the liability of the common carrier, on one hand, and an independent contractor, on the other hand, be described? It
would be solidary. A contractual obligation can be breached by tort and when the same act or omission causes the injury,
one resulting in culpa contractual and the other in culpa aquiliana, Article 2194 of the Civil Code can well apply. In fine, a
liability for tort may arise even under a contract, where tort is that which breaches the contract. Stated differently, when an
act which constitutes a breach of contract would have itself constituted the source of a quasi-delictual liability had no
contract existed between the parties, the contract can be said to have been breached by tort, thereby allowing the rules on
tort to apply.57
As for Black Sea, its duty as a common carrier extended only from the time the goods were surrendered or
unconditionally placed in its possession and received for transportation until they were delivered actually or
constructively to consignee Little Giant.58
Parties to a contract of carriage may, however, agree upon a definition of delivery that extends the services rendered
by the carrier. In the case at bar, Bill of Lading No. 2 covering the shipment provides that delivery be made “to the port
of discharge or so near thereto as she may safely get, always afloat.”59 The delivery of the goods to the consignee was not
from “pier to pier” but from the shipside of “M/V Alexander Saveliev” and into barges, for which reason the consignee
contracted the services of petitioner. Since Black Sea had constructively delivered the cargoes to Little Giant, through
petitioner, it had discharged its duty.60
In fine, no liability may thus attach to Black Sea.
Respecting the award of attorney’s fees in an amount over P1,000,000.00 to Industrial Insurance, for lack of factual
and legal basis, this Court sets it aside. While Industrial Insurance was compelled to litigate its rights, such fact by itself
does not justify the award of attorney’s fees under Article 2208 of the Civil Code. For no sufficient showing of bad faith
would be reflected in a party’s persistence in a case other than an erroneous conviction of the righteousness of his
cause.61 To award attorney’s fees to a party just because the judgment is rendered in its favor would be tantamount to
imposing a premium on one’s right to litigate or seek judicial redress of legitimate grievances. 62
On the award of adjustment fees: The adjustment fees and expense of divers were incurred by Industrial Insurance in
its voluntary but unsuccessful efforts to locate and retrieve the lost cargo. They do not constitute actual damages. 63
As for the court a quo’s award of interest on the amount claimed, the same calls for modification following the ruling
in Eastern Shipping Lines, Inc. v. Court of Appeals 64 that when the demand cannot be reasonably established at the time
the demand is made, the interest shall begin to run not from the time the claim is made judicially or extrajudicially but
from the date the judgment of the court is made (at which the time the quantification of damages may be deemed to
have been reasonably ascertained).65
WHEREFORE, judgment is hereby rendered ordering petitioner Schmitz Transport & Brokerage Corporation, and
Transport Venture Incorporation jointly and severally liable for the amount of P5,246,113.11 with the MODIFICATION
that interest at SIX PERCENT per annum of the amount due should be computed from the promulgation on November
24, 1997 of the decision of the trial court.
Costs against petitioner.
SO ORDERED.
     Panganiban  (Chairman), Sandoval-Gutierrez, Corona and Garcia, JJ., concur.

Judgment modified.
Notes.—Where no sufficient showing of bad faith would be reflected in a party’s persistence in a case other than an
erroneous conviction of the righteousness of his cause, attorney’s fees shall not be recovered as cost. (Servicewide
Specialists, Incorporated vs. Court of Appeals, 256 SCRA 649 [1996])
To deserve compensation for his legal services based on quantum meruit, a lawyer must prove by substantial
evidence that he is entitled to a reasonable fee for his efforts in pursuing his client’s case with the Court taking into
account certain factors in fixing the amount of his fees. (Emiliano Court Townhouses Homeowners Association vs.
Dioneda, 399 SCRA 296 [2003])

13. Iron Bulk Shipping Philippines, Co., Ltd. vs. Remington Industrial Sales Corporation,  417 SCRA
229, December 08, 2003
G.R. No. 136960. December 8, 2003.*
 59
IRON BULK SHIPPING PHILIPPINES, CO., LTD., petitioner, vs. REMINGTON INDUSTRIAL SALES CORPORATION,
respondent.

Actions;  Pleadings and Practice; Certiorari;  Findings of Fact; Exceptions;  The trial court’s findings of fact are
generally binding and conclusive upon this Court, but there are exceptions to this rule. —The trial court’s findings of fact,
which the Court of Appeals affirmed, are generally binding and conclusive upon this court. There are recognized
exceptions to this rule, among which are: (1) the conclusion is grounded on speculations, surmises or conjectures; (2) the
inference is manifestly mistaken, absurd or impossible; (3) there is grave abuse of discretion; (4) the judgment is based
on a misapprehension of facts; (5) the findings of facts are conflicting; (6) there is no citation of specific evidence on
which the factual findings are based; (7) the finding of absence of facts is contradicted by the presence of evidence on
record; (8) the findings of the CA are contrary to the findings of the trial court; (9) the CA manifestly overlooked certain
relevant and undisputed facts that, if properly considered, would justify a different conclusion; (10) the findings of the
CA are beyond the issues of the case; and (11) such findings are contrary to the admissions of both parties. Petitioner
failed to demonstrate that its petition falls under any one of the above exceptions, except as to damages which will be
discussed forthwith.
Civil Law;  Contacts;  Contract of Carriage; Bill of Lading;  Two-fold Character; A bill of lading operates both as a
receipt and as a contract.—It is settled that a bill of lading has a two-fold character. In Phoenix Assurance Co., Ltd. vs.
United States Lines, we 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 rate or charges, and stipulates the rights and obligations assumed by the parties.
Same;  Same; Same;  Extraordinary Diligence; Extraordinary diligence in the carriage of goods required of a common
carrier.—It is settled that the extraordinary diligence in the vigilance over the goods tendered for shipment requires the
common carrier to know and to follow the required precaution for avoiding damage to, or destruction of the goods
entrusted to it for safe carriage and delivery. It requires common carriers to render service with the greatest skill and
foresight and to use all reasonable means to ascertain the nature and characteristic of goods tendered for shipment, and
to exercise due care in the handling and stowage, including such methods as their nature requires. Under Article 1742 of
the Civil Code, even if the loss, destruction, or deterioration of the goods should be caused, among others, by the
character of the goods, the common carrier must exercise due diligence to forestall or lessen the loss. This extraordinary
responsibility lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier
for transportation until the same are delivered, actually or constructively, by the carrier to the consignee, or to the
person who has a right to receive them.

PETITION for review on certiorari of the decision and resolution of the Court of Appeals.

The facts are stated in the opinion of the Court.

     Soo,  Gutierrez,  Leogardo, Lee for petitioner.
     P.C. Nolasco & Associates for respondent Remington Industrial Sales Corporation.

AUSTRIA-MARTINEZ, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the August 28, 1998
Decision1 and the December 24, 1998 Resolution of the Court of Appeals in CA-G.R. CV No. 49725, 2 affirming in toto the
decision of the Regional Trial Court of Manila (Branch 9).
The factual background of the case is summarized by the appellate court, thus:
Sometime in the latter part of 1991, plaintiff Remington Industrial Sales Corporation (hereafter Remington for short)
ordered from defendant Wangs Company, Inc. (hereafter Wangs for short) 194 packages of hot rolled steel sheets,
weighing 686.565 metric tons, with a total value of $219,380.00, then equivalent to P6,469,759.17. Wangs forwarded the
order to its supplier, Burwill (Agencies) Ltd., in Hongkong. On or about November 26, 1991, the 194 packages were
loaded on board the vessel MV ‘Indian Reliance’ at the Port of Gdynia, Poland, for transportation to the Philippines,
under Bill of Lading No. 27 (Exh. ‘C’). The vessel’s owner/charterer is represented in the Philippines by defendant Iron
Bulk Shipping Phils., Inc. (hereafter Iron Bulk for short).
Remington had the cargo insured for P6,469,759.17 during the voyage by Marine Insurance Policy No. 7741 issued by
defendant Pioneer Asia Insurance Corporation (hereafter Pioneer for short).
On or about January 3, 1992, the MV ‘Indian Reliance’ arrived in the Port of Manila, and the 194 packages of hot
rolled steel sheets were discharged from the vessel. The cargo was inspected twice by SGS Far East Ltd. and found to be
wet (with slight trace of salt) and rusty, extending from 50% to 80% of each plate. Plaintiff filed formal claims for loss
amounting to P544,875.17 with Pioneer, Iron Bulk, Manila Port Services, Inc. (MPS) and ESE Brokerage Corporation
(ESE). No one honored such claims.
Thus, plaintiff filed an action for collection, plus attorney’s fees, against Wangs, Pioneer and Iron Bulk. . . .” 3
 60
and affirmed in toto the following findings of the trial court, on February 1, 1995, to wit:
...
The evidence on record shows that the direct and immediate cause of the rusting of the goods imported by the
plaintiff was the water found inside the cargo hold of M/V ‘Indian Reliance’ wherein those goods were stored during the
voyage, particularly the water found on the surface of the merchandise and on the floor of the vessel hatch. And even at
the time the cargoes were being unloaded by crane at the Pier of Manila, Iron Bulk’s witnesses noticed that water was
dripping from the cargoes. (TSN dated July 20, 1993, pp. 13-14; TSN dated May 30, 1994, pp. 8-9, 14, 24-25; TSN dated June
3, 1994, pp. 31-32; TSN dated July 14, 1994, pp. 10-11).
SGS Far Fast Limited, an inspection agency hired by defendant Wangs, issued Certificate of Inspection and Analysis
No. 6401/35071 stating the following findings:
Results of tests indicated that a very slight trace of salt was present in the sample as confirmed by the test of Sodium.
The results however does not necessarily indicate that the rusty condition of the material was caused by seawater.

Tan-Gatue Adjustment Co., Inc., a claims adjustment firm hired by defendant Pioneer, submitted a Report (Exh. “10-
Pioneer”) dated February 20, 1992 to Pioneer which pertinently reads as follows:
All the above 3,971 sheets were heavily rusty at sides/ends/ edges/surfaces. Pieces of cotton were rubbed by us on
different rusty steel sheets and submitted to Precision Analytical Services, Inc. to determine the cause of wetting. Result
thereof as per Laboratory Report No. 077-92 of this firm showed that: ‘The sample was wetted/contaminated by fresh
water.

After considering the foregoing test results and the other evidence on record, the Court found no clear and sufficient
proof showing that the water which stayed in the cargo hold of the vessel and which contaminated the merchandise was
seawater. The Court, however, is convinced that the subject goods were exposed to salt conditions as evidenced by the
presence of about 17% Sodium on the rust sample tested by SGS.
As to the source of the water found in the cargo hold, there is also no concrete and competent evidence on record
establishing that such water leaked from the pipe installed in Hatch No. 1 of M/V ‘Indian Reliance’, as claimed by
plaintiff. Indeed, the plaintiff based such claim only from information it allegedly received from its supplier, as stated in
its letter to defendant Iron Bulk dated March 28, 1992 (Exh. “K-3”). And no one took the witness stand to confirm or
establish the alleged leakage.
Nevertheless, since Iron Bulk’s own evidence shows that there was water inside the cargo hold of the vessel and that
the goods stored therein were wet and full of rust, without sufficient explanation on its part as to when and how water
found its way into the vessel holds, the Court finds and so holds that Iron Bulk failed to exercise the extraordinary
diligence required by law in the handling and transporting of the goods.
.....
Iron Bulk did not even exercise due diligence because admittedly, water was dripping from the cargoes at the time
they were being discharged from the vessel. Had Iron Bulk done so, it could have discovered by ordinary inspection that
the cargo holds and the cargoes themselves were affected by water and it could have provided some remedial measures
to prevent or minimize the damage to the cargoes. But it did not, showing its lack of care and diligence over the goods.
Besides, since the goods were undoubtedly damaged, and as Iron Bulk failed to establish by any clear and convincing
evidence any of the exempting causes provided for in Article 1734 of the Civil Code, it is presumed to have been at fault
or to have acted negligently.
....

“WHEREFORE, the Court finding preponderance of evidence for the plaintiff hereby renders judgment in favor of it and
against all the defendants herein as follows:

1. 1.Ordering defendant Pioneer Asia Insurance Corporation to pay plaintiff the following amounts:

1. a)P544,875.17 representing the loss allowance for the goods insured, plus interest at the legal rate (6%
p.a.) reckoned from the time of filing of this case until full payment is made;

2. b)P50,000.00 for and as attorney’s fees; and

3. c)the cost of suit.

1. 2.Ordering defendant Iron Bulk Shipping Co., Inc. immediately upon payment by defendant Pioneer of
the foregoing award to the plaintiff, to reimburse defendant Pioneer the total amount it paid to the
plaintiff, in respect to its right of subrogation.

2. 3.Denying the counterclaims of all the defendants and the cross-claim of defendant Wangs Company,
Incorporated and Iron Bulk Shipping Co., Inc. for lack of merit.
 61
3. 4.Granting the cross-claim of defendant Pioneer Asia Insurance Corporation against defendant Iron
Bulk by virtue of its right of subrogation.

4. 5.Dismissing the case against defendant Wangs Company, Inc.

SO ORDERED.”4
Only Iron Bulk filed the present petition raising the following Assignment of Errors:
FIRSTLY, the Court of Appeals erred in its insistent reliance on the pro forma Bills of Lading to establish the condition of
the cargo upon loading;
SECONDLY, the Court of Appeals erred in not exculpating petitioner since the cargo was not contaminated during
the time the same was in possession of the vessel, as evidenced by the express finding of the lower court that the
contamination and rusting was chemically established to have been caused by fresh water;
THIRDLY, the Court of Appeals erred in making a sweeping finding that the petitioner as carrier failed to exercise
the requisite diligence under the law, which is contrary to what is demonstrated by the evidence adduced; and FINALLY,
the Court of Appeals erred in affirming the amount of damages adjudicated by the Court below, which is at best
speculative and not supported by damages.5

The general rule is that only questions of law are entertained in petitions for review by certiorari under Rule 45 of the
Rules of Court. The trial court’s findings of fact, which the Court of Appeals affirmed, are generally binding and
conclusive upon this court.6 There are recognized exceptions to this rule, among which are: (1) the conclusion is
grounded on speculations, surmises or conjectures; (2) the inference is manifestly mistaken, absurd or impossible; (3)
there is grave abuse of discretion; (4) the judgment is based on a misapprehension of facts; (5) the findings of facts are
conflicting; (6) there is no citation of specific evidence on which the factual findings are based; (7) the finding of absence
of facts is contradicted by the presence of evidence on record; (8) the findings of the CA are contrary to the findings of
the trial court; (9) the CA manifestly overlooked certain relevant and undisputed facts that, if properly considered,
would justify a different conclusion; (10) the findings of the CA are beyond the issues of the case; and (11) such findings
are contrary to the admissions of both parties. 7 Petitioner failed to demonstrate that its petition falls under any one of
the above exceptions, except as to damages which will be discussed forthwith.
Anent the first assigned error: That the Court of Appeals erred in relying on the pro forma Bills of Lading to establish
the condition of the cargo upon landing.
There is no merit to petitioner’s contention that the Bill of Lading covering the subject cargo cannot be relied upon
to indicate the condition of the cargo upon loading. It is settled that a bill of lading has a two-fold character. In Phoenix
Assurance Co., Ltd. vs. United States Lines, we 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 rate or charges, and
stipulates the rights and obligations assumed by the parties. 8
We find no error in the findings of the appellate court that the questioned bill of lading is a clean bill of lading, i.e., it
does not indicate any defect in the goods covered by it, as shown by the notation, “CLEAN ON BOARD” 9 and “Shipped
at the Port of Loading in apparent good condition on board the vessel for carriage to Port of Discharge.” 10
Petitioner presented evidence to prove that, contrary to the recitals contained in the subject bill of lading, the cargo
therein described as clean on board is actually wet and covered with rust. Indeed, having the nature of a receipt, or an
acknowledgement of the quantity and condition of the goods delivered, the bill of lading, like any other receipts, may be
explained, varied or even contradicted. 11 However, we agree with the Court of Appeals that far from contradicting the
recitals contained in the said bill, petitioner’s own evidence shows that the cargo covered by the subject bill of lading,
although it was partially wet and covered with rust was, nevertheless, found to be in a “fair, usually accepted condition”
when it was accepted for shipment.12
The fact that the issued bill of lading is pro forma is of no moment. If the bill of lading is not truly reflective of the
true condition of the cargo at the time of loading to the effect that the said cargo was indeed in a damaged state, the
carrier could have refused to accept it, or at the least, made a marginal note in the bill of lading indicating the true
condition of the merchandise. But it did not. On the contrary, it accepted the subject cargo and even agreed to the
issuance of a clean bill of lading without taking any exceptions with respect to the recitals contained therein. Since the
carrier failed to annotate in the bill of lading the alleged damaged condition of the cargo when it was loaded, said carrier
and the petitioner, as its representative, are bound by the description appearing therein and they are now estopped from
denying the contents of the said bill.
Petitioner presented in evidence the Mate’s Receipts 13 and a Survey Report14 to prove the damaged condition of the
cargo. However, contrary to the asseveration of petitioner, the Mate’s Receipts and the Survey Report which were both
dated November 6, 1991, are unreliable evidence of the true condition of the shipment at the time of loading since said
receipts and report were issued twenty days prior to loading and before the issuance of the clean bill of lading covering
the subject cargo on November 26, 1991. Moreover, while the surveyor, commissioned by the carrier to inspect the
 62
subject cargo, found the inspected steel goods to be contaminated with rust he, nonetheless, estimated the merchandise
to be in a fair and usually accepted condition.
Anent the second and third assigned errors: That the Court of Appeals erred in not finding that the contamination
and rusting was chemically to have been caused by fresh water; and that the appellate court erred in finding that
petitioner failed to exercise the requisite diligence under the law.
Petitioner’s arguments in support of the assigned errors are not plausible. Even granting, for the sake of argument,
that the subject cargo was already in a damaged condition at the time it was accepted for transportation, the carrier is
not relieved from its responsibility to exercise due care in handling the merchandise and in employing the necessary
precautions to prevent the cargo from further deteriorating. It is settled that the extraordinary diligence in the vigilance
over the goods tendered for shipment requires the common carrier to know and to follow the required precaution for
avoiding damage to, or destruction of the goods entrusted to it for safe carriage and delivery. 15 It requires common
carriers to render service with the greatest skill and foresight and to use all reasonable means to ascertain the nature and
characteristic of goods tendered for shipment, and to exercise due care in the handling and stowage, including such
methods as their nature requires.16
Under Article 1742 of the Civil Code, even if the loss, destruction, or deterioration of the goods should be caused, among
others, by the character of the goods, the common carrier must exercise due diligence to forestall or lessen the loss. This
extraordinary responsibility lasts from the time the goods are unconditionally placed in the possession of, and received
by the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the consignee,
or to the person who has a right to receive them. 17 In the instant case, if the carrier indeed found the steel sheets to have
been covered by rust at the time that it accepted the same for transportation, such finding should have prompted it to
apply additional safety measures to make sure that the cargo is protected from corrosion. This, the carrier failed to do.
Article 1734 of the Civil Code states that:
Common carriers are responsible for the loss, destruction or deterioration of the goods, unless the same is due to any of
the following causes only:

1. (1)Flood, storm, earthquake, lightning, or other natural disaster or calamity;

2. (2)Act of the public enemy in war, whether international or civil;

3. (3)Act or omission of the shipper or owner of the goods;

4. (4)The character of the goods or defects in the packing or in the containers;

5. (5)Order or act of competent public authority.

Except in the cases mentioned under Article 1734, if the goods are lost, destroyed or deteriorated, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary
diligence as required under the law.18 The Court of Appeals did not err in finding that no competent evidence was
presented to prove that the deterioration of the subject cargo was brought about by any of the causes enumerated under
the aforequoted Article 1734 of the said Code. We likewise agree with appellate court’s finding that the carrier failed to
present proof that it exercised extraordinary diligence in its vigilance over the goods. The presumption that the carrier
was at fault or that it acted negligently was not overcome by any countervailing evidence.
Anent the last assigned error: That the Court of Appeals erred in affirming the amount of damages awarded by the
trial court.
We agree with the contention of the petitioner in its last assigned error that the amount of damages adjudicated by
the trial court and affirmed by the appellate court is not in consonance with the evidence presented by the parties. The
judgments of both lower courts are based on misapprehension of facts as we find no competent evidence to prove the
actual damages sustained by respondent.
Based on the Packing List issued by Burwill (Agencies) Limited, the supplier of the steel sheets, the cargo consigned
to Remington consisted of hot rolled steel sheets with lengths of eight feet and twenty feet. The eight-foot length steel
sheets contained in 142 packages had a weight of 491.54 metric tons while the twenty-foot steel sheets which were
contained in 52 packages weighed 194.25 metric tons. 19 The goods were valued at $320.00 per metric ton. 20
It is not disputed that at the time of inspection of the subject merchandise conducted by SGS Far East Limited on
January 21-24, 1992 and January 27-28, 1992, only 30% of said goods originally consigned to Remington was available for
examination at Remington’s warehouse in Manila and that Remington had already disposed of the remaining 70%. In
the Certificate of Inspection issued by SGS, dated February 18, 1992, it was reported that the surface of the steel sheets
with length of twenty feet were found to be rusty “extending from 60% to 80% per plate.” 21 However, there was no proof
to show how many metric tons of twenty-foot and eight-foot length steel sheets, respectively, comprise the remaining
30% of the cargo. No competent evidence was presented to prove the weight of the remaining twenty-foot length steel
sheets, on the basis of which the amount of actual damages could have been ascertained.
 63
Remington claims that 70% of the twenty-foot length steel sheets were damaged. Remington’s general manager,
Rowina Tan Saban, testified that the “70%” figure was based on the reports submitted by SGS and Tan-Gatue and
Remington’s independent survey to confirm these reports. 22 Saban further testified that on the basis of these reports,
Remington came up with a summary of the amount of damages sustained by the subject cargo, to wit:
Plates 8 ft lengths 491.540 MT US$157,292.80
Quantity Damaged   25%
Loss Allowance   13%
Total Plates 8 ft lengths   US$15,211.56
Plates 20 ft lengths 194.025 MT US$62,088.00
Quantity Damaged   70%
Loss Allowance   35%
Total Plates 20 ft lengths   P544,875.71
with the following detailed computation:
Plates under 8 ft lengths 491.540 MT @ $320./MT
    US $157,292.80
Multiply by 25% Qty. damaged $ 39,323.20
     13% Loss allowance $ 5,112.02
Plates under 20 ft. lengths 194.025 MT @ $320./MT
    US $ 62,088.00
Multiple 70% Qty. damaged US $ 43,461.60
35% Loss allowance   $ 15,211.56
Total claim US $ 5,112.02  
  $15,211.56  
       US $20,323.58 @ $26.81 = P544,875.17
and which the trial court based the actual damages awarded in favor of Remington.
However, after a careful examination of the reports submitted by SGS and Tan-Gatue, we find nothing in the said
reports and computation to justify the claim of Remington that 70% of the twenty-foot length steel sheets were
damaged. Neither does the alleged survey conducted by Remington consisting only of photographs, 23 prove the quantity
of the damaged cargo.
As to the eight-foot length steel sheets, SGS reported that they were found oiled all over which makes it hard to
determine the rust condition on its surface. 24 On the other hand, the report issued by Tan-Gatue did not specify the
extent of damage done to the said merchandise. 25 There is also no proof of the weight of the remaining eight-foot length
steel sheets. From the foregoing, it is evident that the extent of actual damage to the subject cargo is likewise not
satisfactorily proven.
It is settled that actual or compensatory damages are not presumed and should be proven before they are awarded.
In Spouses Quisumbing vs. Meralco,26 we held that
Actual damages are compensation for an injury that will put the injured party in the position where it was before it was
injured. They pertain to such injuries or losses that are actually sustained and susceptible of measurement. Except as
provided by law or stipulation, a party is entitled to an adequate compensation only for such pecuniary loss as it has duly
proven.

Hence, for failure of Remington to present sufficient evidence which is susceptible of measurement, it is not entitled to
actual damages.
Nonetheless, since it was established that the subject steel sheets sustained damage by reason of the negligence of
the carrier, albeit no competent proof was presented to justify the award of actual damages, we find that Remington is
entitled to temperate damages in accordance with Articles 2216, 2224 and 2225 of the Civil Code, to wit:
Art. 2216. No proof of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or exemplary
damages may be adjudicated. The assessment of such damages, except liquidated ones, is left to the discretion of the
court, according to the circumstances of each case.
Art. 2224. Temperate or moderate damages, which are more than nominal but less than compensatory damages, may
be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of
the case, be proved with certainty.
Art. 2225. Temperate damages must be reasonable under the circumstances.

Thirty percent of the alleged cost of damages, i.e., P544,875.17 orP165,000.00 is reasonable enough for temperate
damages.
We likewise agree with petitioner’s claim that it should not be held liable for the payment of attorney’s fees because
it was always willing to settle its liability by offering to pay 30% of Remington’s claim and that it is only Remington’s
 64
unwarranted refusal to accept such offer that led to the filing of the instant case. As found earlier, there is no evidence
that the 70% of the 20-foot length steel sheets which had been disposed of had been damaged. Neither is there
competent evidence proving the actual extent of damage sustained by the eight-foot length steel sheets. Petitioner was
therefore justified in refusing to satisfy the full amount of Remington’s claims.
WHEREFORE, the assailed Decision of the Court of Appeals dated August 28, 1998 and the Resolution dated
December 24, 1998, in CA-G.R. CV No. 49725 are MODIFIED as follows: The award of actual damages and attorney’s fees
are deleted. Respondent is awarded temperate damages in the amount of P165,000.00. In all other respects, the appealed
decision and resolution are affirmed.
No pronouncement as to costs.
SO ORDERED.
     Puno  (Chairman), Quisumbing, Callejo, Sr. and Tinga, JJ., concur.

Judgment and resolution modified.

Note.—A man must use common sense, and exercise due reflection in all his acts—it is his duty to be cautious,
careful, and prudent, if not from instinct, then through fear of incurring punishment. (People vs. Delos Santos, 355 SCRA
415 [2001])

14. A.F. Sanchez Brokerage, Inc. vs. Court of Appeals,  447 SCRA 427, December 21, 2004G.R. No. 147079. December
21, 2004.*
A.F. SANCHEZ BROKERAGE, INC., petitioner, vs. THE HON. COURT OF APPEALS and FGU INSURANCE
CORPORATION, respondents.

Remedial Law; Certiorari;  Appeals;  The filing by petitioner of a petition for certiorari on March 6, 2001 cannot serve
as a substitute for the lost remedy of appeal.—The Resolution of the Court of Appeals dated December 8, 2000 denying
the motion for reconsideration of its Decision of August 10, 2000 was received by petitioner on January 5, 2001. Since
petitioner failed to appeal within 15 days or on or before January 20, 2001, the appellate court’s decision had become final
and executory. The filing by petitioner of a petition for certiorari on March 6, 2001 cannot serve as a substitute for the
lost remedy of appeal.
Same;  Same; Same;  In a petition for certiorari, the petitioner must prove not merely reversible error but also grave
abuse of discretion amounting to lack or excess of jurisdiction.—In another vein, the rule is well settled that in a petition
for certiorari, the petitioner must prove not merely reversible error but also grave abuse of discretion amounting to lack
or excess of jurisdiction.
Same;  Same; Same;  What petitioner is ascribing is an error of judgment, not of jurisdiction, which is properly the
subject of an ordinary appeal.—Petitioner alleges that the appellate court erred in reversing and setting aside the
decision of the trial court based on its finding that petitioner is liable for the damage to the cargo as a common carrier.
What petitioner is ascribing is an error of judgment, not of jurisdiction, which is properly the subject of an ordinary
appeal.
Same;  Same; Where the issue or question involves or affects the wisdom or legal soundness of the decision—not the
jurisdiction of the court to render said decision—the same is beyond the province of a petition for certiorari.— Where the
issue or question involves or affects the wisdom or legal soundness of the decision—not the jurisdiction of the court to
render said decision—the same is beyond the province of a petition for certiorari. The supervisory jurisdiction of this
Court to issue a cert writ cannot be exercised in order to review the judgment of lower courts as to its intrinsic
correctness, either upon the law or the facts of the case.
Civil Law;  Common Carriers; Appellate court did not err in finding petitioner, a customs broker, to be also a common
carrier, as defined under Article 1732 of the Civil Code.—The appellate court did not err in finding petitioner, a customs
broker, to be also a common carrier, as defined under Article 1732 of the Civil Code, to wit: Art. 1732. Common carriers
are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods
or both, by land, water, or air, for compensation, offering their services to the public.
Same;  Same; Article 1732 does not distinguish between one whose principal business activity is the carrying of goods
and one who does such carrying only as an ancillary activity.—Article 1732 does not distinguish between one whose
principal business activity is the carrying of goods and one who does such carrying only as an ancillary activity. The
contention, therefore, of petitioner that it is not a common carrier but a customs broker whose principal function is to
prepare the correct customs declaration and proper shipping documents as required by law is bereft of merit. It suffices
that petitioner undertakes to deliver the goods for pecuniary consideration.
Same;  Same; Petitioner as a common carrier is mandated to observe, under Article 1733 of the Civil Code,
extraordinary diligence in the vigilance over the goods it transports according to all the circumstances of each case. —
Petitioner as a common carrier is mandated to observe, under Article 1733 of the Civil Code, extraordinary diligence in
the vigilance over the goods it transports according to all the circumstances of each case. In the event that the goods are
lost, destroyed or deteriorated, it is presumed to have been at fault or to have acted negligently, unless it proves that it
observed extraordinary diligence.
Same;  Same; The rule is that if the improper packing is known to the carrier or his employees or is apparent upon
ordinary observation, but he nevertheless accepts the same without protest or exception notwithstanding such condition,
 65
he is not relieved of liability for the resulting damage.—While paragraph No. 4 of Article 1734 of the Civil Code exempts a
common carrier from liability if the loss or damage is due to the character of the goods or defects in the packing or in
the containers, the rule is that if the improper packing is known to the carrier or his employees or is apparent upon
ordinary observation, but he nevertheless accepts the same without protest or exception notwithstanding such
condition, he is not relieved of liability for the resulting damage.

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

     Bonifacio Aranjuez for petitioner.
     Astorga and  Repol Law Office for respondent.

CARPIO-MORALES, J.:

Before this Court on a petition for Certiorari is the appellate court’s Decision 1 of August 10, 2000 reversing and setting
aside the judgment of Branch 133, Regional Trial Court of Makati City, in Civil Case No. 93-76B which dismissed the
complaint of respondent FGU Insurance Corporation (FGU Insurance) against petitioner A.F. Sanchez Brokerage, Inc.
(Sanchez Brokerage).
On July 8, 1992, Wyeth-Pharma GMBH shipped on board an aircraft of KLM Royal Dutch Airlines at Dusseldorf,
Germany oral contraceptives consisting of 86,800 Blisters Femenal tablets, 14,000 Blisters Nordiol tablets and 42,000
Blisters Trinordiol tablets for delivery to Manila in favor of the consignee, Wyeth-Suaco Laboratories, Inc. 2 The Femenal
tablets were placed in 124 cartons and the Nordiol tablets were placed in 20 cartons which were packed together in one
(1) LD3 aluminum container, while the Trinordial tablets were packed in two pallets, each of which contained 30
cartons.3
Wyeth-Suaco insured the shipment against all risks with FGU Insurance which issued Marine Risk Note No. 4995
pursuant to Marine Open Policy No. 138.4
Upon arrival of the shipment on July 11, 1992 at the Ninoy Aquino International Airport (NAIA), 5 it was discharged
“without exception”6 and delivered to the warehouse of the Philippine Skylanders, Inc. (PSI) located also at the NAIA for
safekeeping.7
In order to secure the release of the cargoes from the PSI and the Bureau of Customs, Wyeth-Suaco engaged the services
of Sanchez Brokerage which had been its licensed broker since 1984. 8 As its customs broker, Sanchez Brokerage
calculates and pays the customs duties, taxes and storage fees for the cargo and thereafter delivers it to Wyeth-Suaco. 9
On July 29, 1992, Mitzi Morales and Ernesto Mendoza, representatives of Sanchez Brokerage, paid PSI storage fee
amounting to P8,572.35 a receipt for which, Official Receipt No. 016992, 10 was issued. On the receipt, another
representative of Sanchez Brokerage, M. Sison, 11 acknowledged that he received the cargoes consisting of three pieces in
good condition.12
Wyeth-Suaco being a regular importer, the customs examiner did not inspect the cargoes 13 which were thereupon
stripped from the aluminum containers14 and loaded inside two transport vehicles hired by Sanchez Brokerage. 15
Among those who witnessed the release of the cargoes from the PSI warehouse were Ruben Alonso and Tony
Akas,16 employees of Elite Adjusters and Surveyors Inc. (Elite Surveyors), a marine and cargo surveyor and insurance
claim adjusters firm engaged by Wyeth-Suaco on behalf of FGU Insurance.
Upon instructions of Wyeth-Suaco, the cargoes were delivered to Hizon Laboratories Inc. in Antipolo City for quality
control check.17 The delivery receipt, bearing No. 07037 dated July 29, 1992, indicated that the delivery consisted of one
container with 144 cartons of Femenal and Nordiol and 1 pallet containing Trinordiol. 18
On July 31, 1992, Ronnie Likas, a representative of Wyeth-Suaco, acknowledged the delivery of the cargoes by affixing
his signature on the delivery receipt. 19 Upon inspection, however, he, together with Ruben Alonzo of Elite Surveyors,
discovered that 44 cartons containing Femenal and Nordiol tablets were in bad order. 20 He thus placed a note above his
signature on the delivery receipt stating that 44 cartons of oral contraceptives were in bad order. The remaining 160
cartons of oral contraceptives were accepted as complete and in good order.
Ruben Alonzo thus prepared and signed, along with Ronnie Likas, a survey report 21 dated July 31, 1992 stating that 41
cartons of Femenal tablets and 3 cartons of Nordiol tablets were “wetted” (sic).22
The Elite Surveyors later issued Certificate No. CS-0731-1538/92 23 attached to which was an “Annexed Schedule”
whereon it was indicated that prior to the loading of the cargoes to the broker’s trucks at the NAIA, they were inspected
and found to be in “apparent good condition.” 24 Also noted was that at the time of delivery to the warehouse of Hizon
Laboratories Inc., slight to heavy rains fell, which could account for the wetting of the 44 cartons of Femenal and
Nordiol tablets.25
On August 4, 1992, the Hizon Laboratories Inc. issued a Destruction Report 26 confirming that 38 x 700 blister packs of
Femenal tablets, 3 x 700 blister packs of Femenal tablets and 3 x 700 blister packs of Nordiol tablets were heavily
damaged with water and emitted foul smell.
On August 5, 1992, Wyeth-Suaco issued a Notice of Materials Rejection 27 of 38 cartons of Femenal and 3 cartons of
Nordiol on the ground that they were “delivered to Hizon Laboratories with heavy water damaged ( sic) causing the
cartons to sagged (sic) emitting a foul order and easily attracted flies.”28
 66
Wyeth-Suaco later demanded, by letter 29 of August 25, 1992, from Sanchez Brokerage the payment of P191,384.25
representing the value of its loss arising from the damaged tablets.
As the Sanchez Brokerage refused to heed the demand, Wyeth-Suaco filed an insurance claim against FGU Insurance
which paid Wyeth-Suaco the amount of P181,431.49 in settlement of its claim under Marine Risk Note Number 4995.
Wyeth-Suaco thus issued Subrogation Receipt30 in favor of FGU Insurance.
On demand by FGU Insurance for payment of the amount of P181,431.49 it paid Wyeth-Suaco, Sanchez Brokerage, by
letter31 of January 7, 1993, disclaimed liability for the damaged goods, positing that the damage was due to improper and
insufficient export packaging; that when the sealed containers were opened outside the PSI warehouse, it was discovered
that some of the loose cartons were wet, 32 prompting its (Sanchez Brokerage’s) representative Morales to inform the
Import-Export Assistant of Wyeth-Suaco, Ramir Calicdan, about the condition of the cargoes but that the latter advised
to still deliver them to Hizon Laboratories where an adjuster would assess the damage. 33
Hence, the filing by FGU Insurance of a complaint for damages before the Regional Trial Court of Makati City against
the Sanchez Brokerage.
The trial court, by Decision 34 of July 29, 1996, dismissed the complaint, holding that the Survey Report prepared by
the Elite Surveyors is bereft of any evidentiary support and a mere product of pure guesswork. 35
On appeal, the appellate court reversed the decision of the trial court, it holding that the Sanchez Brokerage engaged
not only in the business of customs brokerage but also in the transportation and delivery of the cargo of its clients,
hence, a common carrier within the context of Article 1732 of the New Civil Code. 36
Noting that Wyeth-Suaco adduced evidence that the cargoes were delivered to petitioner in good order and
condition but were in a damaged state when delivered to Wyeth-Suaco, the appellate court held that Sanchez Brokerage
is presumed negligent and upon it rested the burden of proving that it exercised extraordinary negligence not only in
instances when negligence is directly proven but also in those cases when the cause of the damage is not known or
unknown.37
The appellate court thus disposed:
“IN THE LIGHT OF ALL THE FOREGOING, the appeal of the Appellant is GRANTED. The Decision of the Court a quo is
REVERSED. Another Decision is hereby rendered in favor of the Appellant and against the Appellee as follows:

1.The Appellee is hereby ordered to pay the Appellant the principal amount of P181, 431.49, with interest thereupon at
the rate of 6% per annum, from the date of the Decision of the Court, until the said amount is paid in full;

2.The Appellee is hereby ordered to pay to the Appellant the amount of P20,000.00 as and by way of attorney’s fees; and

3.The counterclaims of the Appellee are DISMISSED.”38

Sanchez Brokerage’s Motion for Reconsideration having been denied by the appellate court’s Resolution of December 8,
2000 which was received by petitioner on January 5, 2001, it comes to this Court on petition for certiorari filed on March
6, 2001.
In the main, petitioner asserts that the appellate court committed grave and reversible error tantamount to abuse of
discretion when it found petitioner a “common carrier” within the context of Article 1732 of the New Civil Code.
Respondent FGU Insurance avers in its Comment that the proper course of action which petitioner should have
taken was to file a petition for review on certiorari since the sole office of a writ of certiorari is the correction of errors of
jurisdiction including the commission of grave abuse of discretion amounting to lack or excess of jurisdiction and does
not include correction of the appellate court’s evaluation of the evidence and factual findings thereon.
On the merits, respondent FGU Insurance contends that petitioner, as a common carrier, failed to overcome the
presumption of negligence, it being documented that petitioner withdrew from the warehouse of PSI the subject
shipment entirely in good order and condition.39

The petition fails.

Rule 45 is clear that decisions, final orders or resolutions of the Court of Appeals in any case, i.e., regardless of the
nature of the action or proceedings involved, may be appealed to this Court by filing a petition for review, which would
be but a continuation of the appellate process over the original case. 40
The Resolution of the Court of Appeals dated December 8, 2000 denying the motion for reconsideration of its
Decision of August 10, 2000 was received by petitioner on January 5, 2001. Since petitioner failed to appeal within 15 days
or on or before January 20, 2001, the appellate court’s decision had become final and executory. The filing by petitioner
of a petition for certiorari on March 6, 2001 cannot serve as a substitute for the lost remedy of appeal.
In another vein, the rule is well settled that in a petition for certiorari, the petitioner must prove not merely
reversible error but also grave abuse of discretion amounting to lack or excess of jurisdiction.
Petitioner alleges that the appellate court erred in reversing and setting aside the decision of the trial court based on its
finding that petitioner is liable for the damage to the cargo as a common carrier.  What petitioner is ascribing is an error of
judgment, not of jurisdiction, which is properly the subject of an ordinary appeal.
 67
Where the issue or question involves or affects the wisdom or legal soundness of the decision—not the jurisdiction
of the court to render said decision—the same is beyond the province of a petition for certiorari. 41 The supervisory
jurisdiction of this Court to issue a cert writ cannot be exercised in order to review the judgment of lower courts as to its
intrinsic correctness, either upon the law or the facts of the case. 42
Procedural technicalities aside, the petition still fails.
The appellate court did not err in finding petitioner, a customs broker, to be also a common carrier, as defined under
Article 1732 of the Civil Code, to wit:
“Art. 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public.”

Anacleto F. Sanchez, Jr., the Manager and Principal Broker of Sanchez Brokerage, himself testified that the services the
firm offers include the delivery of goods to the warehouse of the consignee or importer.
ATTY. FLORES:
Q: What are the functions of these license brokers, license customs
broker?
WITNESS:
  As customs broker, we calculate the taxes that has to be paid in cargos,
and those upon approval of the importer, we prepare the entry
together for processing and claims from customs and finally deliver the
goods to the warehouse of the importer.43
Article 1732 does not distinguish between one whose principal business activity is the carrying of goods and one who
does such carrying only as an ancillary activity. 44 The contention, therefore, of petitioner that it is not a common carrier
but a customs broker whose principal function is to prepare the correct customs declaration and proper shipping
documents as required by law is bereft of merit. It suffices that petitioner undertakes to deliver the goods for pecuniary
consideration.
In this light, petitioner as a common carrier is mandated to observe, under Article 1733 45 of the Civil Code,
extraordinary diligence in the vigilance over the goods it transports according to all the circumstances of each case. In
the event that the goods are lost, destroyed or deteriorated, it is presumed to have been at fault or to have acted
negligently, unless it proves that it observed extraordinary diligence. 46
The concept of “extra-ordinary diligence” was explained in Compania Maritima v. Court of Appeals:47
The extraordinary diligence in the vigilance over the goods tendered for shipment requires the common carrier to know
and to follow the required precaution for avoiding damage to, or destruction of the goods entrusted to it for sale,
carriage and delivery. It requires common carriers to render service with the greatest skill and foresight and “to use all
reasonable means to ascertain the nature and characteristics of goods tendered for shipment, and to exercise due care in
the handling and stowage, including such methods as their nature requires.” 48

In the case at bar, it was established that petitioner received the cargoes from the PSI warehouse in NAIA in good order
and condition;49 and that upon delivery by petitioner to Hizon Laboratories Inc., some of the cargoes were found to be in
bad order, as noted in the Delivery Receipt 50 issued by petitioner, and as indicated in the Survey Report of Elite
Surveyors51 and the Destruction Report of Hizon Laboratories, Inc.52
In an attempt to free itself from responsibility for the damage to the goods, petitioner posits that they were damaged
due to the fault or negligence of the shipper for failing to properly pack them and to the inherent characteristics of the
goods;53 and that it should not be faulted for following the instructions of Calicdan of Wyeth-Suaco to proceed with the
delivery despite information conveyed to the latter that some of the cartons, on examination outside the PSI warehouse,
were found to be wet.54
While paragraph No. 4 of Article 1734 55 of the Civil Code exempts a common carrier from liability if the loss or
damage is due to the character of the goods or defects in the packing or in the containers, the rule is that if the improper
packing is known to the carrier or his employees or is apparent upon ordinary observation, but he nevertheless accepts
the same without protest or exception notwithstanding such condition, he is not relieved of liability for the resulting
damage.56
If the claim of petitioner that some of the cartons were already damaged upon delivery to it were true, then it should
naturally have received the cargo under protest or with reservations duly noted on the receipt issued by PSI. But it made
no such protest or reservation.57
Moreover, as observed by the appellate court, if indeed petitioner’s employees only examined the cargoes outside the
PSI warehouse and found some to be wet, they would certainly have gone back to PSI, showed to the warehouseman the
damage, and demanded then and there for Bad Order documents or a certification confirming the damage. 58 Or,
petitioner would have presented, as witness, the employees of the PSI from whom Morales and Domingo took delivery
of the cargo to prove that, indeed, part of the cargoes was already damaged when the container was allegedly opened
outside the warehouse.59
 68
Petitioner goes on to posit that contrary to the report of Elite Surveyors, no rain fell that day. Instead, it asserts that
some of the cargoes were already wet on delivery by PSI outside the PSI warehouse but such notwithstanding Calicdan
directed Morales to proceed with the delivery to Hizon Laboratories, Inc.
While Calicdan testified that he received the purported telephone call of Morales on July 29, 1992, he failed to
specifically declare what time he received the call. As to whether the call was made at the PSI warehouse when the
shipment was stripped from the airport containers, or when the cargoes were already in transit to Antipolo, it is not
determinable. Aside from that phone call, petitioner admitted that it had no documentary evidence to prove that at the
time it received the cargoes, a part of it was wet, damaged or in bad condition. 60
The 4-page weather data furnished by PAGASA 61 on request of Sanchez Brokerage hardly impresses, no witness having
identified it and interpreted the technical terms thereof.
The possibility on the other hand that, as found by Hizon Laboratories, Inc., the oral contraceptives were damaged
by rainwater while in transit to Antipolo City is more likely then. Sanchez himself testified that in the past, there was a
similar instance when the shipment of Wyeth-Suaco was also found to be wet by rain.
ATTY. FLORES:
Q: Was there any instance that a shipment of this nature, oral
contraceptives, that arrived at the NAIA were damaged and claimed by
the Wyeth-Suaco without any question?
WITNESS:
A: Yes sir, there was an instance that one cartoon (sic) were wetted (sic)
but Wyeth-Suaco did not claim anything against us.
ATTY. FLORES:
Q: HOW IS IT?
WITNESS:
A: We experienced, there was a time that we experienced that there was a
cartoon (sic) wetted (sic) up to the bottom are wet specially during rainy
season.62
Since petitioner received all the cargoes in good order and condition at the time they were turned over by the PSI
warehouseman, and upon their delivery to Hizon Laboratories, Inc. a portion thereof was found to be in bad order, it
was incumbent on petitioner to prove that it exercised extraordinary diligence in the carriage of the goods. It did not,
however.
Hence, its presumed negligence under Article 1735 of the Civil Code remains unrebutted.
WHEREFORE, the August 10, 2000 Decision of the Court of Appeals is hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.
     Panganiban  (Chairman), Sandoval-Gutierrez and Garcia, JJ., concur.
     Corona, J., On Leave.

Judgment affirmed.
Note.—Certiorari is not a substitute for lost appeal. (Ong vs. Court of Appeals, 356 SCRA 768 [2001])

15. Ganzon vs. Court of Appeals, 161 SCRA 646, May 30, 1988

No. L-48757. May 30, 1988.*
MAURO GANZON, petitioner, vs. COURT OF APPEALS and GELACIO E. TUMAMBING, respondents.

Civil Law;  Obligations;  Contracts; Common Carriers;  Perfection of contract of carriage; Extraordinary responsibility

of carrier for loss, destruction or deterioration of the goods, when it commences and ceases.—By the said act of delivery,
the scraps were unconditionally placed in the possession and control of the common carrier, and upon their receipt by
the carrier for transportation, the contract of carriage was deemed perfected. Consequently, the petitioner-carrier’s
extraordinary responsibility for the loss, destruction, or deterioration of the goods commenced, Pursuant to Art. 1736,
such extraordinary responsibility would cease only upon the delivery, actual or constructive, by the carrier to the
consignee, or to the person who has a right to receive them. The fact that part of the shipment had not been loaded on
board the lighter did not impair the said contract of transportation as the goods remained in the custody and control of
the carrier, albeit still unloaded.
Same;  Same; Same;  Failure of petitioner to show that the loss of the goods was due to causes under Art. 1734 of the
Civil Code.—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.

Same;  Same; Same;  Same; Presumption that petitioner acted negligently for his failure to show that the loss of the
goods was due to causes under Art. 1734 of the Civil Code; Effect of the presumption; Failure of petitioner to prove the
 69
exercise of extraordinary diligence.—Hence, the petitioner is presumed to have been at fault or to have acted negligently.
By reason of this presumption, the court is not even required to make an express finding of fault or negligence before it
could hold the petitioner answerable for the breach. of the contract of carriage, Still, the petitioner could have been
exempted from any liability had he been able to prove that he observed extraordinary diligence in the vigilance over the
goods in his custody, according to all the circumstances of the case, or that the loss was due to an unforeseen event or to
force majeure. As it was, there was hardly any attempt on the part of the petitioner to prove that he exercised such
extraordinary diligence.

Same;  Same; Same;  Same; Loss of the scraps not due to caso fortuito.—We cannot sustain the theory of caso
fortuito. In the courts below, the petitioner’s defense was that the loss of the scraps was due to an “order or act of
competent public authority,” and this contention was correctly passed upon by the Court of Appeals.

Same;  Same; Same;  Same; Change of theory on appeal, not allowed; Intervention of municipal officials, not of a
character that would render impossible the fulfillment by the carrier of its obligations. —Now the petitioner is changing his
theory to caso fortuito. Such a change of theory on appeal we cannot, however, allow. In any case, the intervention of the
municipal officials was not of a character that would render impossible the fulfillment by the carrier of its obligation.
The petitioner was not duty bound to obey the illegal order to dump into the sea the scrap iron. Moreover, there is
absence of sufficient proof that the issuance of the same order was attended with such force or intimidation as to
completely overpower the will of the petitioner’s employees. The mere difficulty in the fulfillment of the obligation is not
considered force majeure. We agree with the private respondent that the scraps could have been properly unloaded at
the shore or at the NASSCO compound, so that after the dispute with the local officials concerned was settled, the
scraps could then be delivered in accordance with the contract of carriage.
Same;  Same; Same;  Absence of incompatibility between the provisions on common carriers and of the Code of
Commerce;  Articles 1734 and 1735 of the Civil Code, interpreted; Requirement for the exercise of carrier of ordinary
diligence, deemed modified by Art. 1733 of the Civil Code.—There is no incompatibility between the Civil Code provisions
on common carriers and Articles 361 and 362 of the Code of Commerce which were the basis for this Court’s ruling in
Government of the Philippine Islands vs. Ynchausti & Co. and which the petitioner invokes in this petition. For Art. 1735
of the Civil Code, conversely stated, means that the shipper will suffer the losses and deterioration arising from the
causes enumerated in Art. 1734; and in these instances, the burden of proving that damages were caused by the fault or
negligence of the carrier rests upon him. However, the carrier must first establish that the loss or deterioration was
occasioned by one of the excepted causes or was due to an unforeseen event or to force majeure. Be that as it may,
insofar as Art. 362 appears to require of the carrier only ordinary diligence, the same is deemed to have been modified by
Art. 1733 of the Civil Code.

Same;  Same; Same;  Damages;  Award of actual and exemplary damages, proper, as they were not sufficiently
controverted.—Finding the award of actual and exemplary damages to be proper, the same will not be disturbed by us.
Besides, these were not sufficiently controverted by the petitioner.

PETITION for certiorari to review the decision of the Court of Appeals. Pascual, J.
The facts are stated in the opinion of the Court.
     Antonio B. Abinoja for petitioner.
     Quijano,  Arroyo & Padilla Law Office for respondents.

SARMIENTO, J.:

The private respondent instituted in the Court of First Instance of Manila 1 an action against the petitioner for damages
based on culpa contractual. The antecedent facts, as found by the respondent Court, 2 are undisputed:

On November 28, 1956, Gelacio Tumambing contracted the services of Mauro B. Ganzon to haul 305 tons of scrap iron
from Mariveles, Bataan, to the port of Manila on board the lighter LCT “Batman” (Exhibit 1, Stipulation of Facts,
Amended Record on Appeal, p. 38). Pursuant to this agreement, Mauro B. Ganzon sent his lighter “Batman” to Mariveles
where it docked in three feet of water (t.s.n., September 28, 1972, p. 31). On December 1, 1956, Gelacio Tumambing
delivered the scrap iron to defendant Filomeno Niza, captain of the lighter, for loading which was actually begun on the
same date by the crew of the lighter under the captain’s supervision. When about half of the scrap iron was already
loaded (t.s.n., December 14, 1972, p. 20), Mayor Jose Advincula of Mariveles, Bataan, arrived and demanded P5,000.00
from Gelacio Tumambing. The latter resisted the shakedown and after a heated argument between them, Mayor Jose
Advincula drew his gun and fired at Gelacio Tumambing (t.s.n., March 19, 1971, p. 9; September 28, 1972, pp. 6–7). The
gunshot was not fatal but Tumambing had to be taken to a hospital in Balanga, Bataan, for treatment (t.s.n., March 19,
1971, p. 13; September 28, 1972, p. 15).
After sometime, the loading of the scrap iron was resumed. But on December 4, 1956, Acting Mayor Basilio Rub,
accompanied by three policemen, ordered captain Filomeno Niza and his crew to dump the scrap iron (t.s.n., June 16,
1972, pp. 8–9) where the lighter was docked (t.s.n., September 28, 1972, p. 31). The rest was brought to the compound of
 70
NASSCO (Record on Appeal, pp. 20–22). Later on Acting Mayor Rub issued a receipt stating that the Municipality of
Mariveles had taken custody of the scrap iron (Stipulation of Facts, Record on Appeal, p. 40; t.s.n., September 28, 1972, p.
10.)

On the basis of the above findings, the respondent Court rendered a decision, the dispositive portion of which states:
WHEREFORE, the decision appealed from is hereby reversed and set aside and a new one entered ordering defendant-
appellee Mauro Ganzon to pay plaintiff-appellant Gelacio E. Tumambing the sum of P5,895.00 as actual damages, the
sum of P5,000.00 as exemplary damages, and the amount of P2,000.00 as attorney’s fees. Costs against defendant-
appellee Ganzon.3

In this petition for review on certiorari, the alleged errors in the decision of the Court of Appeals are:
I

THE COURT OF APPEALS FINDING THE HEREIN PETITIONER GUILTY OF BREACH OF THE CONTRACT OF
TRANSPORTATION AND IN IMPOSING A LIABILITY AGAINST HIM COMMENCING FROM THE TIME THE SCRAP
WAS PLACED IN HIS CUSTODY AND CONTROL HAVE NO BASIS IN FACT AND IN LAW.

II

THE APPELLATE COURT ERRED IN CONDEMNING THE PETITIONER FOR THE ACTS OF HIS EMPLOYEES IN
DUMPING THE SCRAP INTO THE SEA DESPITE THAT IT WAS ORDERED BY THE LOCAL GOVERNMENT OFFICIAL
WITHOUT HIS PARTICIPATION.

III

THE APPELLATE COURT FAILED TO CONSIDER THAT THE LOSS OF THE SCRAP WAS DUE TO A
FORTUITOUS EVENT AND THE PETITIONER IS THEREFORE NOT LIABLE FOR ANY LOSSES AS A CONSEQUENCE
THEREOF.4

The petitioner, in his first assignment of error, insists that the scrap iron had not been unconditionally placed under his
custody and control to make- him liable. However, he completely agrees with the respondent Court’s finding that on
December 1, 1956, the private respondent delivered the scraps to Captain Filomeno Niza for loading in the lighter
“Batman.” That the petitioner, thru his employees, actually received the scraps is freely admitted. Significantly, there is
not the slightest allegation or showing of any condition, qualification, or restriction accompanying the delivery by the
private respondent-shipper of the scraps, or the receipt of the same by the petitioner. On the contrary, soon after the
scraps were delivered to and received by the petitioner-common carrier, loading was commenced.
By the said act of delivery, the scraps were unconditionally placed in the possession and control of the common
carrier, and upon their receipt by the carrier for transportation, the contract of carriage was deemed perfected.
Consequently, the petitioner-carrier’s extraordinary responsibility for the loss, destruction, or deterioration of the goods
commenced, Pursuant to Art. 1736, such extraordinary responsibility would cease only upon the delivery, actual or
constructive, by the carrier to the consignee, or to the person who has a right to receive them. 5 The fact that part of the
shipment had not been loaded on board the lighter did not impair the said contract of transportation as the goods
remained in the custody and control of the carrier, albeit still unloaded.
The petitioner has failed to show that the loss of the scraps was due to any of the following causes enumerated in
Article 1734 of the Civil Code, namely:

1. (1)Flood, storm, earthquake, lightning, or other natural disaster or calamity;

2. (2)Act of the public enemy in war, whether international or civil;

3. (3)Act or omission of the shipper or owner of the goods;

4. (4)The character of the goods or defects in the packing or in the containers;

5. (5)Order or act of competent public authority.

Hence, the petitioner is presumed to have been at fault or to have acted negligently. 6 By reason of this presumption, the
court is not even required to make an express finding of fault or negligence before it could hold the petitioner
answerable for the breach of the contract of carriage. Still, the petitioner could have been exempted from any liability
had he been able to prove that he observed extraordinary diligence in the vigilance over the goods in his custody,
 71
according to all the circumstances or the case, or that the loss was due to an unforseen event or to force majeure, As it
was, there was hardly any attempt on the part of the petitioner to prove that he exercised such extraordinary diligence.
It is in the second and third assignments of error where the petitioner maintains that he is exempt from any liability
because the loss of the scraps was due mainly to the intervention of the municipal officials of Mariveles which
constitutes a caso fortuito as defined in Article 1174 of the Civil Code.7
We cannot sustain the theory of caso fortuito. In the courts below, the petitioner’s defense was that the loss of the
scraps was due to an “order or act of competent public authority,” and this contention was correctly passed upon by the
Court of Appeals which ruled that:
x x x In the second place, before the appellee Ganzon could be absolved from responsibility on the ground that he was
ordered by competent public authority to unload the scrap iron, it must be shown that Acting Mayor Basilio Rub had the
power to issue the disputed order, or that it was lawful, or that it was issued under legal process of authority. The
appellee failed to establish this. Indeed, no authority or power of the acting mayor to issue such an order was given in
evidence. Neither has it been shown that the cargo of scrap iron belonged to the Municipality of Mariveles. What we
have in the record is the stipulation of the parties that the cargo of scrap iron was accumulated by the appellant through
separate purchases here and there from private individuals (Record on Appeal, pp. 38–39). The fact remains that the
order given by the acting mayor to dump the scrap iron into the sea was part of the pressure applied by Mayor Jose
Advincula to shakedown the appellant for P5,000.00. The order of the acting mayor did not constitute valid authority for
appellee Mauro Ganzon and his representatives to carry out.

Now the petitioner is changing his theory to caso fortuito. Such a change of theory on appeal we cannot, however, allow.
In any case, the intervention of the municipal officials was not of a character that would render impossible the
fulfillment by the carrier of its obligation. The petitioner was not duty bound to obey the illegal order to dump into the
sea the scrap iron. Moreover, there is absence of sufficient proof that the issuance of the same order was attended with
such force or intimidation as to completely overpower the will of the petitioner’s employees. The mere difficulty in the
fulfillment of the obligation is not considered force majeure. We agree with the private respondent that the scraps could
have been properly unloaded at the shore or at the NASSCO compound, so that after the dispute with the local officials
concerned was settled, the scraps could then be delivered in accordance with the contract of carriage.
There is no incompatibility between the Civil Code provisions on common carriers and Articles 361 8 and 3629 of the
Code of Commerce which were the basis for this Court’s ruling in Government of the Philippine vs. Ynchausti &
Co.10 which the petitioner invokes in this petition. For Art. 1735 of the Civil Code, conversely stated, means that the
shipper will suffer the losses and deterioration arising from the causes enumerated in Art. 1734; and in these instances,
the burden of proving that damages were caused by the fault or negligence of the carrier rests upon him. However, the
carrier must first establish that the loss or deterioration was occasioned by one of the excepted causes or was due to an
unforeseen event or to force majeure. Be that as it may, insofar as Art. 362 appears to require of the carrier only ordinary
diligence, the same is deemed to have been modified by Art. 1733 of the Civil Code.
Finding the award of actual and exemplary damages to be proper, the same will not be disturbed by us. Besides,
these were not sufficiently controverted by the petitioner.
WHEREFORE, the petition is DENIED; the assailed decision of the Court of Appeals is hereby AFFIRMED. Costs
against the petitioner,
This decision is IMMEDIATELY EXECUTORY.
     Yap (C.J.),  Paras and Padilla, JJ., concur.
     Melencio-Herrera, J., with dissent attached.

MELENCIO-HERRERA, J., dissenting:

I am constrained to dissent.
It is my view that petitioner can not be held liable in damages for the loss and destruction of the scrap iron. The loss
of said cargo was due to an excepted cause—an “order or act of competent public authority” (Article 1734[5], Civil Code).
The loading of the scrap iron on the lighter had to be suspended because of Municipal Mayor Jose Advincula’s
intervention, who was a “competent public authority.” Petitioner had no control over the situation as, in fact,
Tumambing himself, the owner of the cargo, was impotent to stop the “act” of said official and even suffered a gunshot
wound on the occasion.
When loading was resumed, this time it was Acting Mayor Basilio Rub, accompanied by three policemen, who
ordered the dumping of the scrap iron into the sea right where the lighter was docked in three feet of water. Again,
could the captain of the lighter and his crew have defied said order?
Through the “order” or “act” of “competent public authority,” therefore, the performance of a contractual obligation
was rendered impossible. The scrap iron that was dumped into the sea was “destroyed” while the rest of the cargo was
“seized.” The seizure is evidenced by the receipt issued by Acting Mayor Rub stating that the Municipality of Mariveles
had taken custody of the scrap iron. Apparently, therefore, the seizure and destruction of the goods was done under
legal process or authority so that petitioner should be freed from responsibility.
“Art. 1743. If through order of public authority the goods are seized or destroyed, the common carrier is not responsible,
provided said public authority had power to issue the order.”
 72
Petition denied. Decision affirmed.
Note.—Carrier is liable over goods discharged by it in bad order condition, and of the arrastre operator for goods
damaged under its custody. (Metro Port Service, Inc. vs. Court of Appeals, 131 SCRA 365).

16. Compañia Maritima vs. Insurance Company of North America,  12 SCRA 213, October 30, 1964
No. L-18965. October 30, 1964.
COMPAÑIA MARITIMA, petitioner, vs. INSURANCE COMPANY OF NORTH AMERICA, respondent.

Contract of carriage; When contract completed; Loading of cargo on carrier’s barge preparatory to loading on ship.—
Where the shipper delivered the cargo to the carrier and the latter took possession thereof by placing it on a lighter or
barge manned by its authorized employees, it is held that there existed a complete contract of carriage the
consummation of which had already begun.
Same;  Same; Bill of lading not indispensable to contract.—A bill of lading is not indispensable for the creation of a
contract of carriage.
Same;  Same; Carrier’s liability for damage to cargo; When storm deemed to exist.—Winds of 11 miles per hour,
although stronger than the average 4–6 miles per hour then prevailing in the port where the lighter sank on the night in
question, cannot be classified as a storm. For according to Beaufort’s wind scale, a storm has wind velocities of from 64
to 75 miles per hour; and by Philippine Weather Bureau standards winds should have a velocity of from 55 to 74 miles
per hour to be classified as a storm.
Same;  Same; Implied admission by carrier of charges in waiving its right to have books of accounts of shipper
produced in court.—The act of the carrier in waiving its right to have the books of account of the shipper presented in
Court is tantamount to an admission that the statements contained therein concerning the charges the latter made for
the loss of the damaged cargo are correct and their verification is not necessary, because its main defense was that it was
not liable for the damage since there was no contract of carriage between it and the shipper and the loss caused, if any,
was due to a fortuitous event.
Insurance;  Right of insurer to sue carrier as assignee of shipper; Defect in insurance policy no defense.—An insurance
company can sue the carrier under its insurance contract as assignee of the shipper, and the carrier cannot set up as a
defense any defect in the insurance policy.
Same;  Same; When proof of personality of foreign insurance company not important.—The question of the
personality of a foreign insurance company to sue in this jurisdiction becomes of no importance where the carrier’s
attorney admitted in open court that it is a foreign insurance company doing business in the Philippines with a
personality to file the present action.

PETITION for review of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

     Rafael Dinglasan for petitioner.
     Ozaeta, Gibbs & Ozaeta for respondent.

BAUTISTA ANGELO, J.:

Sometime in October, 1952, Macleod and Company of the Philippines contracted by telephone the services of the
Compañia Maritima, a shipping corporation, for the shipment of 2,645 bales of hemp from the former’s Sasa private pier
at Davao City to Manila and for their subsequent transhipment to Boston, Massachusetts, U.S.A. on board the S.S. Steel
Navigator, This oral contract was later on confirmed by a formal and written booking issued by Macleod’s branch office
in Sasa and handcarried to Compañia Maritima’s branch office in Davao in compliance with which the latter sent to
Macleod’s private wharf LCT Nos, 1023 and 1025 on which the loading of the hemp was completed on October 29, 1952.
These two lighters were manned each by a patron and an assistant patron. The patrons of both barges issued the
corresponding carrier’s receipts and that issued by the patron of Barge No. 1025 reads in part:
“Received in behalf of S.S. Bowline Knot in good order and condition from MACLEOD AND COMPANY OF
PHILIPPINES, Sasa, Davao, for transhipment at Manila onto S.S. Steel Navigator.
“FINAL DESTINATION: Boston.”

Thereafter, the two loaded barges left Macleod’s wharf and proceeded to and moored at the government’s marginal
wharf in the same place to await the arrival of the S.S. Bowline Knot belonging to Compañia Maritima on which the
hemp was to be loaded. During the night of October 29, 1952, or at the early hours of October 30, LCT No. 1025 sank,
resulting in the damage or loss of 1,162 bales of hemp loaded therein. On October 30, 1952, Macleod promptly notified
the carrier’s main office in Manila and its branch in Davao advising it of its liability. The damaged hemp was brought to
Odell Plantation in Madaum, Davao, for cleaning, washing, reconditioning, and redrying. During the period from
November 1–15, 1952, the carrier’s trucks and lighters hauled from Odell to Macleod at Sasa a total of 2,197.75 piculs of
the reconditioned hemp out of the original cargo of 1,162 bales weighing 2,324 piculs which had a total value of
P116,835.00. After reclassification, the value of the reconditioned hemp was reduced to P84,887.28, or a loss in value of
 73
P31,947.72. Adding to this last amount the sum of P8,863.30 representing Macleod’s expenses in checking, grading,
rebaling, and other fees for washing, cleaning and redrying in the amount of P19,610.00, the total loss adds up to
P60,421.02.
All abaca shipments of Macleod, including the 1,162 bales loaded on the carrier’s LCT No. 1025, were insured with the
Insurance Company of North America against all losses and damages. In due time, Macleod filed a claim for the loss it
suffered as above stated with said insurance company, and after the same had been processed, the sum of P64,018.55 was
paid, which was noted down in a document which, aside from being a receipt of the amount paid, was a subrogation
agreement between Macleod and the insurance company wherein the former assigned to the latter its rights over the
insured and damaged cargo. Having failed to recover from the carrier the sum of P60,421.02, which is the only amount
supported by receipts, the insurance company instituted the present action on October 28, 1953.
After trial, the court a quo rendered judgment ordering the carrier to pay the insurance company the sum of
P60,421.02, with legal interest thereon from the date of the filing of the complaint until fully paid, and the costs. This
judgment was affirmed by the Court of Appeals on December 14, 1960. Hence, this petition for review.
The issues posed before us are: (1) Was there a contract of carriage between the carrier and the shipper even if the
loss occurred when the hemp was loaded on a barge owned by the carrier which was loaded free of charge and was not
actually loaded on the S.S. Bowline Knot which would carry the hemp to Manila and no bill of lading was issued
therefor?; (2) Was the damage caused to the cargo or the sinking of the barge where it was loaded due to a fortuitous
event, storm or natural disaster that would exempt the carrier from liability?; (3) Can respondent insurance company
sue the carrier under its insurance contract as assignee of Macleod in spite of the fact that the liability of the carrier as
insurer is not recognized in this jurisdiction?; (4) Has the Court of Appeals erred in regarding Exhibit NNN-1 as an
implied admission by the carrier of the correctness and sufficiency of the shipper’s statement of accounts contrary to the
burden of proof rule?; and (5) Can the insurance company maintain this suit without proof of its personality to do so?
1. This issue should be answered in the affirmative. As found by the Court of Appeals, Macleod and Company
contracted by telephone the services of petitioner to ship the hemp in question from the former’s private pier at Sasa,
Davao City, to Manila, to be subsequently transhipped to Boston, Massachusetts, U.S.A., which oral contract was later
confirmed by a formal and written booking issued by the shipper’s branch office, Davao City, in virtue of which the
carrier sent two of its lighters to undertake the service. It also appears that the patrons of said lighters were employees of
the carrier with due authority to undertake the transportation and to sign the documents that may be necessary therefor
so much so that the patron of LCT No. 1025 signed the receipt covering the cargo of hemp loaded therein as follows:
“Received in behalf of S.S. Bowline Knot in good order and condition from MACLEOD AND COMPANY OF
PHILIPPINES, Sasa, Davao, for transhipment at Manila onto S.S. Steel Navigator.
“FINAL DESTINATION: Boston.”

The fact that the carrier sent its lighters free of charge to take the hemp f rom Macleod’s wharf at Sasa preparatory to its
loading onto the ship Bowline Knot does not in any way impair the contract of carriage already entered into between the
carrier and the shipper, for that preparatory step is but part and parcel of said contract of carriage. The lighters were
merely employed as the first step of the voyage, but once that step was taken and the hemp delivered to the carrier’s
employees, the rights and obligations of the parties attached thereby subjecting them to the principles and usages of the
maritime law. In other words, here we have a complete contract of carriage the consummation of which has already
begun: the shipper delivering the cargo to the carrier, and the latter taking possession thereof by placing it on a lighter
manned by its authorized employees, under which Macleod became entitled to the privilege secured to him by law for
its safe transportation and delivery, and the carrier to the full payment of its f freight upon completion of the voyage.
“The receipt of goods by the carrier has been said to lie at the foundation of the contract to carry and deliver, and if
actually no goods are received there can be no such contract. The liability and responsibility of the carrier under a
contract for the carriage of goods commence on their actual delivery to, or receipt by, the carrier or an authorized
agent. x x x and delivery to a lighter in charge of a vessel for shipment on the vessel, where it is, the custom to deliver in
that way, is a good delivery and binds the vessel receiving the freight, the liability commencing at the time of delivery to
the lighter. x x x and, similarly, where there is a contract to carry goods from one port to another, and they cannot be
loaded directly on the vessel, and lighters are sent by the vessel to bring the goods to it, the lighters are for the time its
substitutes, so that the bill of lading is applicable to the goods as soon as they are placed on the lighters.” (80 C.J.S., p. 901,
italics supplied)
“x x x The test as to whether the relation of shipper and carrier had been established is, Had the control and
possession of the cotton been completely surrendered by the shipper to the railroad company? Whenever the control
and possession of goods passes to the carrier and nothing remains to be done by the shipper, then it can be said with
certainty that the relation of shipper and carrier has been established. Railroad Co. v. Murphy, 60 Ark. 333, 30 S.W. 419,
46 A. St. Rep. 202; Pine Bluff & Arkansas River Ry. v. MaKenzie, 74 Ark. 100, 86 S.W. 834; Matthews & Hood v. St. L., I.M.
& S.R. Co., 123 Ark. 365, 185 S.W. 461, L.R.A. 1916E, 1194." (W.F. Bogart & Co., et al. v. Wade, et al., 200 S.W. 148).

The claim that there can be no contract of affreightment because the hemp was not actually loaded on the ship that was
to take it from Davao City to Manila is of no moment, for, as already stated, the delivery of the hemp to the carrier’s
lighter is in line with the contract. In fact, the receipt signed by the patron of the lighter that carried the hemp stated
 74
that he was receiving the cargo “in behalf of S.S. Bowline Knot in good order and condition.” On the other hand, the
authorities are to the effect that a bill of lading is not indispensable for the creation of a contract of carriage.
“Bill of lading not indispensable to contract of carriage.—As to the issuance of a bill of lading, although article 350 of the
Code of Commerce provides that ‘the shipper as well as the carrier of merchandise or goods may mutually demand that
a bill of lading is not indispensable. ‘As regards the form of the contract of carriage it can be said that provided that
there is a meeting of the minds and from such meeting arise rights and obligations, there should be no limitations as to
form.’ The bill of lading is not essential to the contract, although it may become obligatory by reason of the regulations
of railroad companies, or as a condition imposed in the contract by the agreement of the parties themselves. The bill of
lading is juridically a documentary proof of the stipulations and conditions agreed upon by both parties. (Del Viso, pp.
314–315; Robles vs. Santos, 44 O.G., 2268). In other words, the Code does not demand, as necessary requisite in the
contract of transportation, the delivery of the bill of lading to the shipper, but gives right to both the carrier and the
shipper to mutually demand of each other the delivery of said bill. (Sp. Sup. Ct. Decision, May 6, 1895)." (Martin,
Philippine Commercial Laws, Vol. II, Revised Edition, pp. 12–13)
“The liability of the carrier as common carrier begins with the actual delivery of the goods for transportation, and not
merely with the formal execution of a receipt or bill of lading; ,the issuance of a bill of lading is not necessary to
complete delivery and acceptance. Even where it is provided by statute that liability commences with the issuance of the
bill of lading, actual delivery and acceptance are sufficient to bind the carrier.” (13 C.J.S., p. 288)

2. Petitioner disclaims responsibility for the damage of the cargo in question shielding itself behind the claim of  force
majeure or storm which occurred on the night of October 29, 1952. But the evidence fails to bear this out.

Rather, it shows that the mishap that caused the damage or loss was due, not to force majeure, but to lack of adequate
precautions or measures taken by the carrier to prevent the loss as may be inferred from the following findings of the
Court of Appeals:
“Aside from the fact that, as admitted by appellant’s own witness, the ill-fated barge had cracks on its bottom (pp. 18–19,
t s.n., Sept. 13, 1959) which admitted sea water in the same manner as rain entered ‘thru tank manholes’, according to the
patron of LCT No. 1023 (exh. JJJ-4)—conclusively showing that the barge was not seaworthy—it should be noted that on
the night of the nautical accident there was no storm, flood, or other natural disaster or calamity. Certainly, winds of 11
miles per hour, although stronger than the average 4.6 miles per hour then prevailing in Davao on October 29, 1952
(exh. 5), cannot be classified as storm. For according to Beaufort’s wind scale, a storm has wind velocities of from 64 to
75 miles per hour; and by Philippine Weather Bureau standards winds should have a velocity of from 55 to 74 miles per
hour in order to be classified as storm (Northern Assurance Co., Ltd. vs. Visayan Stevedore Transportation Co.,  CA-G.R.
No. 23167-R, March 12, 1959)."

The Court of Appeals further added: “the report of R.J. del Pan & Co., Inc., marine surveyors, attributes the sinking of
LCT No. 1025 to the ‘non-watertight conditions of various buoyancy compartments’ (exh. JJJ); and this report finds
confirmation on the above-mentioned admission of two witnesses for appellant concerning the cracks of the lighter’s
bottom and the entrance of the rain water ‘thru manholes'." We are not prepared to dispute this finding of the Court of
Appeals.
3. There can also be no doubt that the insurance company can recover from the carrier as assignee of the owner of
the cargo f or the insurance amount it paid to the latter under the insurance contract. And this is so because since the
cargo that was damaged was insured with respondent company and the latter paid the amount represented by the loss,
it is but fair that it be given the right to recover from the party responsible for the loss. The instant case, therefore, is not
one between the insured and the insurer, but one between the shipper and the carrier, because the insurance company
merely stepped into the shoes of the shipper. And since the shipper has a direct cause of action against the carrier on
account of the damage of the cargo, no valid reason is seen why such action cannot be asserted or availed of by the
insurance company as a subrogee of the shipper. Nor can the carrier set up as a defense any defect in the insurance
policy not only because it is not a privy to it but also because it cannot avoid its liability to the shipper under the
contract of carriage which binds it to pay any loss that may be caused to the cargo involved therein. Thus, we find fitting
the following comments of the Court of Appeals:
“It was not imperative and necessary for the trial court to pass upon .the question of whether or not the disputed abaca
cargo was covered by Marine Open Cargo Policy No. MK-134 issued by appellee. Appellant was neither a party nor privy
to this insurance contract, and therefore cannot avail itself of any defect in the policy which may constitute a valid
reason for appellee, as the insurer, to reject the claim of Macleod, as the insured. Anyway, whatever defect the policy
contained, if any, is deemed to have been waived by the subsequent payment of Macleod’s claim by appellee. Besides,
appellant is herein sued in its capacity as a common carrier, and appellee is suing as the assignee of the shipper pursuant
to exhibit MM. Since, as above demonstrated, appellant is liable to Macleod and Company of the Philippines for the loss
or damage to the 1,162 bales of hemp after these were received in good order and condition by the patron of appellant’s
LCT No. 1025, it necessarily follows that appellant is likewise liable to appellee who, as assignee of Macleod, merely
stepped into the shoes of and substituted the latter in demanding from appellant the payment for the loss and damage
aforecited.”
 75
4. It should be recalled in connection with this issue that during the trial of this case the carrier asked the lower court to
order the production of the books of accounts of the Odell Plantation containing the charges it made for the the loss loss
of the damaged hemp for verification of its accountants, but later ter it desisted therefrom on the claim that it finds their
production no longer necessary. This desistance notwithstanding, the shipper however presented other documents to
prove the damage it suffered in connection with the cargo and on the strength thereof the court  a quo ordered the
carrier to pay the sum of P60,421.02. And having the Court of Appeals affirmed this award upon the theory that the
desistance of the carrier from producing the books of accounts of Odell Plantation implies an admission of the
correctness of the statements of accounts contained therein, petitioner now contends that the Court of Appeals erred in
basing the affirmance of the award on such erroneous interpretation.
There is reason to believe that the act of petitioner in waiving its right to have the books of accounts of Odell
Plantation presented in court is tantamount to an admission that the statements contained therein are correct and their
verification not necessary because its main defense here, as well as below, was that it is not liable for the loss because
there was no contract of carriage between it and the shipper and the loss caused, if any, was due to a fortuitous event.
Hence, under the carrier’s theory, the correctness of the account representing the loss was not so material as would
necessitate the presentation of the books in question. At any rate, even if the books of accounts were not produced, the
correctness of the accounts cannot now be disputed f or the same is supported by the original documents on which the
-entries in said books were based which were presented by the shipper as part of its evidence. And according to the
Court of Appeals, these documents alone sufficiently establish the award of P60,412.02 made in favor of respondent.
5. Finally, with regard to the question concerning the personality of the insurance company to maintain this action,
we find the same of no importance, for the attorney himself of the carrier admitted in open court that it is a foreign
corporation doing business in the Philippines with a personality to file the present action.
WHEREFORE, the decision appealed from is affirmed, with costs against petitioner.
     Bengzon, C.J.,  Concepcion,  Reyes, J.B.L.,  Barrera, Paredes, Dizon, Regala,  Makalintal, Bengzon,
J.P., and Zaldivar, JJ., concur.

Decision affirmed.

17. Lu Do & Lu Ym Corp. vs. Binamira, 101 Phil. 120, April 22, 1957

No. L-9840. April 22, 1957]
Lu Do & LU YM CORPORATION, petitioner and defendant, vs. I. V. BINAMIRA, respondent and plaintiff.

1. CONTRACT OF CARRIAGE; LlABILITY OF CARRIERS WHILE THE GOODS ARE IN THE CUSTODY

OF CUSTOMS AUTHORITIES.—While delivery of the cargo to the customs authorities is not delivery
to the consignee, or "to the person who has a right to receive them", contemplated in Article 1736 of
the New Civil Code, because in such case the goods are still in the hands of the Government and the
owner cannot exercise dominion over them, however the parties may agree to limit the liability of the
carrier considering that the goods have still to go through the inspection of the customs authorities
before they are actually turned over to the consignee. This is a situation where the carrier loses control
of the goods because of a custom regulation and it is unfair that it be made responsible for any loss or
damage that may be caused to the goods during the interregnum.

PETITION for review by certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.
Ross,  Selph,  Carrascoso & Janda for petitioner.
I. V. Binamira in his own behalf.

BAUTISTA ANGELO, J.:

On April 4, 1954, plaintiff filed an action in the Court of First Instance of Cebu against defendant to recover the sum of
P324.63 as value of certain missing shipment, P150 as actual and compensatory damages, and P600 as moral and
pecuniary damages. After trial, the court rendered judgment ordering defendant to pay plaintiff the sum of P216.84, with
legal interest. On appeal, the Court of Appeals affirmed the judgment, hence the present petition for review.
On August 10, 1951, the Delta Photo Supply Company of New York shipped on board the M/S "FERNSIDE" at New
York, U.S.A., six cases of films and/or photographic supplies consigned to the order of respondent I. V. Binamira. For
this shipment, Bill of Lading No. 29 was issued. The ship arrived at the port of Cebu on September 23, 1951 and
discharged her cargo on September 23 and 24, 1951, including the shipment in question, placing it in the possession and
custody of the arrastre operator of" said port, the Visayan Cebu Terminal Company, Inc.
Petitioner, as agent of the carrier, hired the Cebu Stevedoring Company, Inc. to unload its cargo. During the
discharge, good order cargo was separated from the bad order cargo on board the ship, and a separate list of bad order
cargo was prepared by Pascual Villamor, checker of the stevedoring company. All the cargo unloaded was received at the
pier by the Visayan Cebu Terminal Company, Inc., arrastre operator of the port. This terminal company had also its own
 76
checker, Romeo Quijano, who also recorded and noted down the good cargo from the bad one. The shipment in
question was not included in the report of bad order cargo of both checkers, indicating that it was discharged from the
ship in good order and condition.
On September 26, 1951, three days after the goods were unloaded from the ship, respondent took delivery of his six
cases of photographic supplies from the arrastre operator. He discovered that the cases showed ,signs of pilferage and,
consequently, he hired marine surveyors, R. J. del Pan & Company, Inc. to examine them. The surveyors examined the
cases and made a physical count of their contents in the presence of representatives of petitioner, respondent and the
stevedoring company. The finding of the surveyors showed that some films and photographic supplies were missing
valued at P324.63.
It appears from the evidence that the six cases of films and photographic supplies were discharged from the ship at
the port of Cebu by the stevedoring company hired by petitioner as agent of the carrier. All the unloaded cargo,
including the shipment in question, was received by the Visayan Cebu Terminal Company, Inc., the arrastre operator
appointed by the Bureau of Customs. It also appears that during the discharge, the cargo was checked both by the
stevedoring company hired by petitioner as well as by the arrastre operator of the port, and the shipment in question,
when discharged from the ship, was found to be in good order and condition. But after it was delivered to respondent
three days later, the same was examined by a marine surveyor who found that some films and supplies were missing
valued at P324.63.

The question now to be determined is: Is the carrier responsible for the loss considering that the same occurred after the
shipment was discharged from the ship and placed in the possession and custody of the customs authorities?
The Court of Appeals found for the affirmative, making on this point the following comment:
"In this jurisdiction, a common carrier has the legal duty to deliver goods to a consignee in the same condition in which
it received them. Except where the loss, destruction or deterioration of the merchandise was due to any of the cases
enumerated in Article 1734 of the new Civil Code, a carrier is presumed to have been at fault and to have acted
negligently, unless it could prove that it observed extraordinary diligence in the care and handling of the goods (Article
1735, supra). Such presumption and the liability of the carrier attach until the goods are delivered actually or
constructively, to the consignee, or to the person who has a right to receive them (Article 1736,  supra), and we believe
delivery to the customs authorities is not the delivery contemplated by Article 1736, supra, in connection with the
second paragraph of Article 1498, supra,, because, in such a case, the goods are then still in the hands of the Government
and their owner could not exercise dominion whatever over them until the duties are paid. In the case at bar, the
presumption against the carrier, represented by appellant as its agent, has not been successfully rebutted."

It is now contended that the Court of Appeals erred in its finding not only because it made a wrong interpretation of the
law on the matter, but also because it ignored the provisions of the bill of lading covering the shipment wherein it was
stipulated that the responsibility of the carrier is limited only to losses that may occur while the cargo is still under its
custody and control.
We believe this contention is well taken. It is true that, as a rule, a common carrier is responsible for the loss,
destruction or deterioration of the goods it assumes to carry from one place to another unless the same is due to any of
the causes mentioned in Article 1734 of the new Civil Code, and that, if the goods are lost, destroyed or deteriorated, for
causes other than those mentioned, the common carrier is presumed to have been at fault or to have acted negligently,
unless it proves that it has observed extraordinary diligence in their care (Article 1735, Idem.), and that this extraordinary
liability lasts from the time the goods are placed in the possession of the carrier until they are delivered to the consignee,
or "to the person who has the right to receive them" (Article 1736, Idem.), but these provisions only apply when the loss,
destruction or deterioration takes place while the goods are in the possession of the carrier, and not after it has lost
control of them. The reason is obvious. While the goods are in its possession, it is but fair that it exercise extraordinary
diligence in protecting them from damage, and if loss occurs, the law presumes that it was due to its fault or negligence.
This is necessary to protect the interest of the owner who is at its mercy. The situation changes after the goods are
delivered to the consignee.
While we agree with the Court of Appeals that while delivery of the cargo to the customs authorities is not delivery
to the consignee, or "to the person who has a right to receive them", contemplated in Article 1736, because in such case
the goods are still in the hands of the Government and the owner cannot exercise dominion over them, we believe
however that the parties may agree to limit the liability of the carrier considering that the goods have still to go through
the inspection of the customs authorities before they are actually turned over to the consignee. This is a situation where
we may say that the carrier loses control of the goods because of a custom regulation and it is unfair that it be made
responsible for what may happen during the interregnum. And this is precisely what was done by the parties herein. In
the bill of lading that was issued covering the shipment in question, both the carrier and the consignee have stipulated
to limit the responsibility of the carrier for the loss or damage that may be caused to the goods before they are actually
delivered by inserting therein the following provisions:
1 "* * * The carrier shall not be liable in any capacity whatsoever for any delay, nondelivery or misdelivery, or loss of or
damage to the goods occurring while the goods are not in the actual custody of the Carrier.  * * *" (Italics ours.)

(Paragraph 1, Exhibit "1")

 77
2. "* * * The responsibility of the Carrier in any capacity shall altogether cease and the goods shall be considered to
be delivered and at their own risk and expense in every respect when taken into the custody of customs or other
authorities. The Carrier shall not be required to give any notification of disposition of the goods. * * *" (Italics ours.)

(Paragraph 12, Exhibit "1")

3. "Any provisions herein to the contrary notwithstanding, goods may be * * * delivered by Carrier at ship's tackle * *
* and delivery beyond ship's tackle shall be entirely at the option of the Carrier and solely at the expense of the shipper
or consignee."

(Paragraph 22, Exhibit "1")

It therefore appears clear that the carrier does not assume liability for any loss or damage to the goods once they have
been "taken into the custody of customs or other authorities", or when they have been delivered at ship's tackle. These
stipulations are clear. They have been adopted precisely to mitigate the responsibility of the carrier considering the
present law on the matter, and we find nothing therein that is contrary to morals or public policy that may justify their
nullification. We are therefore persuaded to conclude that the carrier is not responsible for the loss in question, it
appearing that the same happened after the shipment had been delivered to the customs authorities.
Wherefore, the decision appealed from is reversed, without pronouncement as to costs.
Bengzon, Padilla, Montemayor, Reyes, A., Labrador, Concepcion, Reyes, J. B. L.,  Endencia, and Felix, JJ., concur.

Decision reversed.

18. Servando vs. Philippine Steam Navigation Co.,  117 SCRA 832, October 23, 1982
Nos. L-36481-2. October 23, 1982.*
AMPARO C. SERVANDO, CLARA UY BICO, plaintiffs-appellees, vs. PHILIPPINE STEAM NAVIGATION CO., defendant-
appellant.

Civil Law; Common Carriers; Limitation of carrier's liability for loss or damage to goods, valid: Reason.—It should be
pointed out, however, that in the bills of lading issued for the cargoes in question, the parties agreed to limit the
responsibility of the carrier for the loss or damage that may be caused to the shipment. x x x We sustain the validity of
the above stipulation; there is nothing therein that is contrary to law, morals or public policy.

Same;  Same; Same;  Agreement on limitation of liability of carrier, binding upon the parties; Reason; Contracts of
adhesion not entirely prohibited.—Appellees would contend that the above stipulation does not bind them because it
was printed in fine letters on the back of the bills of lading; and that they did not sign the same. This argument
overlooks the pronouncement of this Court in Ong Yiu vs. Court of Appeals, promulgated June 29, 1979, where the same
issue was resolved in this wise: "While it may be true that petitioner had not signed the plane ticket (Exh. '12'), he is
nevertheless bound by the provisions thereof. 'Such provisions have been held to be a part of the contract of carriage,
and valid and binding upon the passenger regardless of the latter's lack of knowledge or assent to the regulation.' It is
what is known as a contract of 'adhesion', in regards which it has been said that contracts of adhesion wherein one party
imposes a ready made form of contract on the other, as the plane ticket in the case at bar, are contracts not entirely
prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent."
(Tolentino, Civil Code, Vol. IV, 1962 Ed., p. 462, citing Mr. Justice J.B.L. Reyes, Lawyer's Journal, Jan. 31, 1951, p. 49).

Same;  Same; Exemption from liability; Fortuitous event or force majeure, concept and nature of; Obligor exempt
from liability for non-performance of obligation due to a fortuitous event; Burning of customs warehouse, a fortuitous
event; Case at bar.—Thus, where fortuitous event or force majeure is the immediate and proximate cause of the loss, the
obligor is exempt from liability for non-performance. The Partidas, the antecedent of Article 1174 of the Civil Code,
defines 'caso fortuito' as 'an event that takes place by accident and could not have been foreseen. Examples of this are
destruction of houses, unexpected fire, shipwreck, violence of robbers.' In its dissertation of the phrase 'caso fortuito' the
Enciclopedia Juridicada Española says: "In a legal sense and, consequently, also in relation to contracts, a 'caso fortuito'
presents the following essential characteristics: (1) the cause of the unforeseen and unexpected occurrence, or of the
failure of the debtor to comply with his obligation, must be independent of the human will; (2) it may 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.
Same;  Same; Same;  Absence of delay of carrier in the performance of its obligation and negligence of its employees
exempt carrier from liability for loss of goods due to fire.—There is nothing in the record to show that appellant carrier
incurred in delay in the performance of its obligation. It appears that appellant had not only notified appellees of the
 78
arrival of their shipment, but had demanded that the same be withdrawn. In fact, pursuant to such demand, appellee Uy
Bico had taken delivery of 907 cavans of rice before the burning of the warehouse. Nor can the appellant or its
employees be charged with negligence. The storage of the goods in the Customs warehouse pending withdrawal thereof
by the appellees was undoubtedly made with their knowledge and consent. Since the warehouse belonged to and was
maintained by the government, it would be unfair to impute negligence to the appellant, the latter having no control
whatsoever over the same.

Aquino, J., concurring:

Common Carrier; No extraordinary diligence by the carrier could have prevented the loss of the goods after they had
been deposited in the warehouse of the Bureau of Customs.—From the time the goods in question were deposited in the
Bureau of Customs' warehouse in the morning of their arrival up to two o'clock in the afternoon of the same day, when
the warehouse was burned, Amparo C. Servando and Clara Uy Bico, the consignees, had reasonable opportunity to
remove the goods. Clara had removed more than onehalf of the rice consigned to her. Moreover, the shipping company
had no more control and responsibility over the goods after they were deposited in the customs warehouse by the
arrastre and stevedoring operator. No amount of extraordinary diligence on the part of the carrier could have prevented
the loss of the goods by fire which was of accidental origin.

APPEAL from the decision of the Court of First Instance of Negros Occidental.

The facts are stated in the opinion of the Court.

     Zoilo de la Cruz, Jr. & Associate for plaintiff-appellee Amparo Servando.
     Benedicto, Sumbingco & Associate for appellee Clara Uy Bico.
     Ross,  Salcedo,  del Rosario, Bito & Misa for defendant-appellant.

ESCOLIN, J.:

This appeal, originally brought to the Court of Appeals, seeks to set aside the decision of the Court of First Instance of
Negros Occidental in Civil Cases Nos. 7354 and 7428, declaring appellant Philippine Steam Navigation liable for damages
for the loss of the appellees' cargoes as a result of a fire which gutted the Bureau of Customs' warehouse in Pulupandan,
Negros Occidental.
The Court of Appeals certified the case to Us because only pure questions of law are raised therein.
The facts culled from the pleadings and the stipulations submitted by the parties are as follows:
On November 6, 1963, appellees Clara Uy Bico and Amparo Servando loaded on board the appellant's vessel, FS-176,
for carriage from Manila to Pulupandan, Negros Occidental, the following cargoes, to wit:
Clara Uy Bico—
     1,528 cavans of rice valued
          at P40,907.50;

Amparo Servando—
     44 cartons of colored paper,
          toys and general merchandise valued at P1,070.50;

as evidenced by the corresponding bills of lading issued by the appellant. 1

Upon arrival of the vessel at Pulupandan in the morning of November 18, 1963, the cargoes were discharged,
complete and in good order, unto the warehouse of the Bureau of Customs. At about 2:00 in the afternoon of the same
day, said warehouse was razed by a fire of unknown origin, destroying appellees' cargoes. Before the fire, however,
appellee Uy Bico was able to take delivery of 907 cavans of rice. 2 Appellees' claims for the value of said goods were
rejected by the appellant.
On the bases of the foregoing facts, the lower court rendered a decision, the decretal portion of which reads as
follows:
"WHEREFORE, judgment is rendered as follows:

1. "1.In case No. 7354, the defendant is hereby ordered to pay the plaintiff Amparo C. Servando the
aggregate sum of P1,070.50 with legal interest thereon from the date of the filing of the complaint until
fully paid, and to pay the costs.

2. "2.In case No. 7428, the defendant is hereby ordered to pay to plaintiff Clara Uy Bico the aggregate
sum of P16,625.00 with legal interest thereon from the date of the filing of the complaint until fully
paid, and to pay the costs."
 79
Article 1736 of the Civil Code imposes upon common carriers the duty to observe extraordinary diligence from the
moment the goods are unconditionally placed in their possession "until the same are delivered, actually or
constructively, by the carrier to the consignee or to the person who has a right to receive them, without prejudice to the
provisions of Article 1738."
The court a quo held that the delivery of the shipment in question to the warehouse of the Bureau of Customs is not
the delivery contemplated by Article 1736; and since the burning of the warehouse occurred before actual or constructive
delivery of the goods to the appellees, the loss is chargeable against the appellant.
It should be pointed out, however, that in the bills of lading issued for the cargoes in question, the parties agreed to
limit the responsibility of the carrier for the loss or damage that may be caused to the shipment by inserting therein the
following stipulation:
"Clause 14. Carrier shall not be responsible for loss or damage to shipments billed 'owner's risk' unless such loss or
damage is due to negligence of carrier. Nor shall carrier be responsible for loss or damage caused by force majeure,
dangers or accidents of the sea or other waters; war; public enemies; x x x fire x x x."

We sustain the validity of the above stipulation; there is nothing therein that is contrary to law, morals or public policy.
Appellees would contend that the above stipulation does not bind them because it was printed in fine letters on the
back of the bills of lading; and that they did not sign the same. This argument overlooks the pronouncement of this
Court in Ong Yiu vs. Court of Appeals, promulgated June 29, 19793, where the same issue was resolved in this wise:
"While it may be true that petitioner had not signed the plane ticket (Exh. '12'), he is nevertheless bound by the
provisions thereof. 'Such provisions have been held to be a part of the contract of car-riage, and valid and binding upon
the passenger regardless of the latter's lack of knowledge or assent to the regulation'. It is what is known as a contract of
'adhesion', in regards which it has been said that contracts of adhesion wherein one party imposes a ready made form of
contract on the other, as the plane ticket in the case at bar, are contracts not entirely prohibited. The one who adheres
to the contract is in reality free to reject it entirely; if he adheres, he gives his consent." (Tolentino, Civil Code, Vol. IV,
1962 Ed., p. 462, citing Mr. Justice J.B.L. Reyes, Lawyer's Journal, Jan. 31, 1951, p. 49).

Besides, the agreement contained in the above quoted Clause 14 is a mere iteration of the basic principle of law written
in Article 1174 of the Civil Code:
"Article 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the
nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not
be foreseen, or which, though foreseen, were inevitable."

Thus, where fortuitous event or force majeure is the immediate and proximate cause of the loss, the obligor is exempt
from liability for non-performance. The Partidas 4, the antecedent of Article 1174 of the Civil Code, defines 'caso fortuito'
as 'an event that takes place by accident and could not have been foreseen. Examples of this are destruction of houses,
unexpected fire, shipwreck, violence of robbers.'
In its dissertation of the phrase 'caso fortuito' the Enciclopedia Juridicada Española 5 says: "In a legal sense and,
consequently, also in relation to contracts, a 'caso fortuito' presents the following essential characteristics: (1) the cause
of the unforeseen and unexpected occurrence, or of the failure of the debtor to comply with his obligation, must be
independent of the human will; (2) it must be impossible to foresee the event which constitutes the 'caso fortuito', or if it
can be foreseen, it must be impossible to avoid; (3) the occurrence must be such as to render it impossible for the debtor
to fulfill his obligation in a normal manner; and (4) the obligor must be free from any participation in the aggravation of
the injury resulting to the creditor." In the case at bar, the burning of the customs warehouse was an extraordinary event
which happened independently of the will of the appellant. The latter could not have foreseen the event.
There is nothing in the record to show that appellant carrier incurred in delay in the performance of its obligation. It
appears that appellant had not only notified appellees of the arrival of their shipment, but had demanded that the same
be withdrawn. In fact, pursuant to such demand, appellee Uy Bico had taken delivery of 907 cavans of rice before the
burning of the warehouse.
Nor can the appellant or its employees be charged with negligence. The storage of the goods in the Customs
warehouse pending withdrawal thereof by the appellees was undoubtedly made with their knowledge and consent. Since
the warehouse belonged to and was maintained by the government, it would be unfair to impute negligence to the
appellant, the latter having no control whatsoever over the same.
The lower court in its decision relied on the ruling laid down in Yu Biao Sontua vs. Ossorio 6, where this Court held
the defendant liable for damages arising from a fire caused by the negligence of the defendant's employees while loading
cases of gasoline and petroleon products. But unlike in the said case, there is not a shred of proof in the present case that
the cause of the fire that broke out in the Custom's warehouse was in any way attributable to the negligence of the
appellant or its employees. Under the circumstances, the appellant is plainly not responsible.
WHEREFORE, the judgment appealed from is hereby set aside. No costs.
SO ORDERED.
     Makasiar (Chairman),  Concepcion Jr.,  Guerrero, Abad Santos and De Castro, JJ., concur.
     Aquino, J., see concurring opinion.
 80
AQUINO, J., concurring:

I concur. Under article 1738 of the Civil Code "the extraordinary liability of the common carrier continues to be operative
even during the time the goods are stored in the 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".
From the time the goods in question were deposited in the Bureau of Customs' warehouse in the morning of their arrival
up to two o'clock in the afternoon of the same day, when the warehouse was burned, Amparo C. Servando and Clara Uy
Bico, the consignees, had reasonable opportunity to remove the goods. Clara had removed more than one-half of the
rice consigned to her.
Moreover, the shipping company had no more control and responsibility over the goods after they were deposited in
the customs warehouse by the arrastre and stevedoring operator.
No amount of extraordinary diligence on the part of the carrier could have prevented the loss of the goods by fire
which was of accidental origin.
Under those circumstances, it would not be legal and just to hold the carrier liable to the consignees for the loss of
the goods. The consignees should bear the loss which was due to a fortuitous event.
Judgment set aside.

19. Samar Mining Co., Inc. vs. Nordeutscher Lloyd,  132 SCRA 529, October 23, 1984
No. L-28673. October 23, 1984.*
SAMAR MINING COMPANY, INC., plaintiff-appellee, vs. NORDEUTSCHER LLOYD and CF. SHARP & COMPANY, INC.,
defendants-appellants.

Contracts;  Common Carriers; Bill of Lading both a receipt and a contract.—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. Being a contract, it is the law between the parties thereto, who are
bound by its terms and conditions provided that these are not contrary to law, morals, good customs, public order and
public policy.
Same;  Same; A stipulation in the bill of lading exempting the carrier from liability for loss of goods not in its actual
custody, i.e., after their discharge from the ship, is valid.—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 bill of lading.
Same;  Same; Liability of international common carriers governed primarily by New Civil Code.—The liability of the
common carrier for the loss, destruction or deterioration of goods transported from a foreign country to the Philippines
is governed primarily by the New Civil Code. In all matters not regulated by said Code, the rights and obligations of
common carriers shall be governed by the Code of Commerce and by special laws.
Same;  Same; Art. 1738 of N.C.C. makes a carrier liable for loss of goods even after ship discharge only if such goods
were deposited in a warehouse of the carrier.—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.
Same;  Same; Art. 1736 of N.C.C. applies to case at bar. Said article relieves a carrier of responsibility upon actual or
constructive delivery of goods to consignee.—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. By the same token, there is actual delivery in contracts for the transport of goods when possession has been
turned over to the consignee or to his duly authorized agent and a reasonable time is given him to remove the goods.
The court a quo found that there was actual delivery to the consignee through its duly authorized agent, the carrier.
Same;  Same; Agency; Appellant’s liability as a common carrier was effective only for the transport of goods from
Germany to Manila, the point of discharge. From Manila to Davao, upon transshipment of the same goods the carrier is
transformed into an agent of the consignee and ceases to be liable as a carrier for loss or damage to goods transshipped.—
It becomes necessary at this point to dissect the complex relationship that had developed between appellant and
appellee in the course of the transactions that gave birth to the present suit. Two undertakings appeared embodied
and/or provided for in the Bill of Lading in question. The first is FOR THE TRANSPORT OF GOODS from Bremen,
Germany to Manila. The second, THE TRANSSHIPMENT OF THE SAME GOODS from Manila to Davao, with appellant
 81
acting as agent of the consignee. At the hiatus between these two undertakings of appellant which is the moment when
the subject goods are discharged in Manila, its personality changes from that of carrier to that of agent of the consignee.
Thus, the character of appellant’s possession also changes, from possession in its own name as carrier, into possession in
the name of consignee as the latter’s agent. Such being the case, there was, in effect, actual delivery of the goods from
appellant as carrier to the same appellant as agent of the consignee. Upon such delivery, the appellant, as erstwhile
carrier, ceases to be responsible for any loss or damage that may befall the goods from that point onwards. This is the
full import of Article 1736, as applied to the case before Us.
Same;  Same; Same;  After a common carrier’s status has passed from that of carrier to that of agent of consignee, loss
of goods in its hands for cause beyond its control and without its negligence being proved, relieves carrier of civil liability
for such loss or damage.—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.
Same;  Same; Same;  Same.—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.

APPEAL by certiorari to review the decision of the Court of First Instance of Manila.

The facts are stated in the opinion of the Court.

CUEVAS, J.:

This is an appeal taken directly to Us on certiorari from the decision of the defunct Court of First Instance of Manila,
finding defendants carrier and agent, liable for the value of goods never delivered to plaintiff consignee. The issue raised
is a pure question of law, which is, the liability of the defendants, now appellants, under the bill of lading covering the
subject shipment.
The case arose from an importation made by plaintiff, now appellee, SAMAR MINING COMPANY, INC., of one (1) crate
Optima welded wedge wire sieves through the M/S SCHWABENSTEIN, a vessel owned by defendant-appellant
NORDEUTSCHER LLOYD, (represented in the Philippines by its agent, CF. SHARP & CO., INC.), which shipment is
covered by Bill of Lading No. 18 duly issued to consignee SAMAR MINING COMPANY, INC.. Upon arrival of the
aforesaid vessel at the port of Manila, the aforementioned importation was unloaded and delivered in good order and
condition to the bonded warehouse of AMCYL. 1 The goods were however never delivered to, nor received by, the
consignee at the port of destination—Davao.
When the letters of complaint sent to defendants failed to elicit the desired response, consignee herein appellee,
filed a formal claim for P1,691.93, the equivalent of $424.00 at the prevailing rate of exchange at that time, against the
former, but neither paid. Hence, the filing of the instant suit to enforce payment. Defendants-appellants brought in
AMCYL as third party defendant.
The trial court rendered judgment in favor of plaintiff, ordering defendants to pay the amount of P1,691.93 plus
attorney’s fees and costs. However, the Court stated that defendants may recoup whatever they may pay plaintiff by
enforcing the judgment against third-party defendant AMCYL which had earlier been declared in default. Only the
defendants appealed from said decision.
The issue at hand demands a close scrutiny of Bill of Lading No. 18 and its various clauses and stipulations which
should be examined in the light of pertinent legal provisions and settled jurisprudence. This undertaking is not only
proper but necessary as well because of the nature of the bill of lading which operates both as a receipt for the goods;
and more importantly, as a contract to transport and deliver the same as stipulated therein. 2 Being a contract, it is the
law between the parties thereto, 3 who are bound by its terms and conditions 4 provided that these are not contrary to
law, morals, good customs, public order and public policy.5
Bill of Lading No. 18 sets forth in page 2 thereof 6 that one (1) crate of Optima welded wedge wire sieves was received
by the carrier NORDEUTSCHER LLOYD at the “port of loading” which is Bremen, Germany, while the freight had been
prepaid up to the port of destination or the “port of discharge of goods”, in this case, Davao, the carrier undertook to
transport the goods in its vessel, M/S SCHWABENSTEIN, only up to the “port of discharge from ship”—Manila.
Thereafter, the goods were to be transshipped by the carrier to the port of destination or “port of discharge of goods”.
The stipulation is plainly indicated on the face of the bill which contains the following phrase printed below the space
provided for the “port of discharge from ship”, thus:
“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”:
“PORT OF DISCHARGE OF GOODS: DAVAO
FREIGHT PREPAID”8
 82
It is clear, then, that in discharging the goods from the ship at the port of Manila, and delivering the same into the
custody of AMCYL, the bonded warehouse, appellants were acting in full accord with the contractual stipulations
contained in Bill of Lading No. 18. The delivery of the goods to AMCYL was part of appellants’ duty to transship the
goods from Manila to their port of destination—Davao. The word “transship” means: “to transfer for further
transportation from one ship or conveyance to another.”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:
“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 x x x.” (Italics
supplied)

and in Section 11 of the same Bill, which provides:

“Whenever the carrier or master may deem it advisable or in any case where the goods are placed at carrier’s disposal at
or consigned to a point where the ship does not expect to load or discharge, the carrier or master may, without notice,
forward the whole or any part of the goods before or after loading at the original port of shipment. x x x  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. x x x 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” (Italics 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:
“The carrier shall not be liable in any capacity whatsoever for any loss or damage to the goods while the goods are not in
its actual custody. (Par. 2, last subpar.)
x x x      x x x      x x x
The carrier or master, in making arrangements with any person for or in connection with all transshipping or
forwarding of the goods or the use of any means of transportation or forwarding of goods not used or operated by the
carrier, shall be considered solely the agent of the shipper and consignee and without any other responsibility
whatsoever or for the cost thereof x x x (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:
“x x x 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. x x x x.” (Italics
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:
“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.”
 83
Article 1738 referred to in the foregoing provision runs thus:
“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 Lading19 in question. The first is FOR THE TRANSPORT OF GOODS from Bremen,
Germany to Manila. The second, THE TRANSSHIPMENT OF THE SAME GOODS from Manila to Davao, with appellant
acting as agent of the consignee. 20 At the hiatus between these two undertakings of appellant which is the moment when
the subject goods are discharged in Manila, its personality changes from that of carrier to that of agent of the consignee.
Thus, the character of appellant’s possession also changes, from possession in its own name as carrier, into possession in
the name of consignee as the latter’s agent. Such being the case, there was, in effect, actual delivery of the goods from
appellant as carrier to the same appellant as agent of the consignee. Upon such delivery, the appellant, as erstwhile
carrier, ceases to be responsible for any loss or damage that may befall the goods from that point onwards. This is the
full import of Article 1736, as applied to the case before Us.
But even as agent of the consignee, the appellant cannot be made answerable for the value of the missing goods. It is
true that the transshipment of the goods, which was the object of the agency, was not fully performed. However,
appellant had commenced said performance, the completion of which was aborted by circumstances beyond its control.
An agent who carries out the orders and instructions of the principal without being guilty of negligence, deceit or fraud,
cannot be held responsible for the failure of the principal to accomplish the object of the agency, 21 This can be gleaned
from the following provisions of the New Civil Code on the obligations of the agent:
“Article 1884. The agent is bound by his acceptance to carry out the agency, and is liable for the damages which, through
his non-performance, the principal may suffer.
x x x      x x x      x x x
Article 1889. The agent shall be liable for damages if, there being a conflict between his interests and those of the
principal, he should prefer his own.
Article 1892. The agent may appoint a substitute if the principal has not prohibited him from doing so; but he shall
be responsible for the acts of the substitute:

1. (1)When he was not given the power to appoint one;

2. (2)When he was given such power but without designating the person and the person appointed was
notoriously incompetent or insolvent.

x x x      x x x      x x x
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 AMCYL 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.
     Makasiar (Chairman),  Guerrero, Abad Santos and Escolin, JJ., concur.
     Aquino, J., in the result as to defendants. AMCYL is liable.
     Concepcion, Jr., J., no part.
 84
Decision reversed. Complaint dismissed.
Notes.—Where the shipper delivered the cargo to the carrier and the latter took possession thereof, by placing it on
a lighter or barge manned by its authorized employees, it is held that there existed a complete contract of carriage the
consummation of which had already begun. (Compania Maritima vs. Insurance Co. of North America, 12 SCRA 213.)
Appellant having received the questioned cargoes in good order when unloaded from the ship, the inference is
obvious that the damage happened while in its possession and should be liable therefore, because by law, loss or damage
while on possession of an obligor is presumed due to its fault in the absence of contrary proof. ( Atlantic Mutual
Insurance Co. vs. Macondray & Co., Inc., 2 SCRA 603.)

20. Macam vs. Court of Appeals, 313 SCRA 77, August 25, 1999

G.R. No. 125524. August 25, 1999.*
BENITO MACAM doing business under the name and style BEN-MAC ENTERPRISES, petitioner, vs. COURT OF
APPEALS, CHINA OCEAN SHIPPING CO., and/or WALLEM PHILIPPINES SHIPPING, INC., respondents.

Common Carriers; The extraordinary responsibility of the common carriers lasts until actual or constructive delivery
of the cargoes to the consignee or to the person who has a right to receive them.—We emphasize that the extraordinary
responsibility of the common carriers lasts until actual or constructive delivery of the cargoes to the consignee  or to the
person who has a right to receive them. PAKISTAN BANK was indicated in the bills of lading as consignee whereas GPC
was the notify party. However, in the export invoices GPC was clearly named as buyer/importer. Petitioner also referred
to GPC as such in his demand letter to respondent WALLEM and in his complaint before the trial court. This premise
draws us to conclude that the delivery of the cargoes to GPC as buyer/importer which, conformably with Art. 1736 had,
other than the consignee, the right to receive them was proper.

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

     Salonga, Hernandez & Mendoza for petitioner.
     Oben, Ventura, Defensor & Associates and Benjamin C. Santos & Ofelia Calcetas-Santos Law Offices for private
respondents.

BELLOSILLO, J.:

On 4 April 1989 petitioner Benito Macam, doing business under the name and style Ben-Mac Enterprises, shipped on
board the vessel Nen Jiang, owned and operated by respondent China Ocean Shipping Co., through local agent
respondent Wallem Philippines Shipping, Inc. (hereinafter WALLEM), 3,500 boxes of watermelons valued at
US$5,950.00 covered by Bill of Lading No. HKG 99012 and exported through Letter of Credit No. HK 1031/30 issued by
National Bank of Pakistan, Hongkong (hereinafter PAKISTAN BANK) and 1,611 boxes of fresh mangoes with a value of
US$14,273.46 covered by Bill of Lading No. HKG 99013 and exported through Letter of Credit No. HK 1032/30 also issued
by PAKISTAN BANK. The Bills of Lading contained the following pertinent provision: “One of the Bills of Lading must
be surrendered duly endorsed in exchange for the goods or delivery order.” 1 The shipment was bound for Hongkong
with PAKISTAN BANK as consignee and Great Prospect Company of Kowloon, Hongkong (hereinafter GPC) as notify
party.
On 6 April 1989, per letter of credit requirement, copies of the bills of lading and commercial invoices were
submitted to petitioner’s depository bank, Consolidated Banking Corporation (hereinafter SOLIDBANK), which paid
petitioner in advance the total value of the shipment of US$20,223.46.
Upon arrival in Hongkong, the shipment was delivered by respondent WALLEM directly to GPC, not to PAKISTAN
BANK, and without the required bill of lading having been surrendered. Subsequently, GPC failed to pay PAKISTAN
BANK such that the latter, still in possession of the original bills of lading, refused to pay petitioner through SOLID-
BANK. Since SOLIDBANK already pre-paid petitioner the value of the shipment, it demanded payment from respondent
WALLEM through five (5) letters but was refused. Petitioner was thus allegedly constrained to return the amount
involved to SOLIDBANK, then demanded payment from respondent WALLEM in writing but to no avail.
On 25 September 1991 petitioner sought collection of the value of the shipment of US$20,223.46 or its equivalent of
P546,033.42 from respondents before the Regional Trial Court of Manila, based on delivery of the shipment to GPC
without presentation of the bills of lading and bank guarantee.
Respondents contended that the shipment was delivered to GPC without presentation of the bills of lading and bank
guarantee per request of petitioner himself because the shipment consisted of perishable goods. The telex dated 5 April
1989 conveying such request read—
AS PER SHPR’S REQUEST KINDLY ARRANGE DELIVERY OF A/M SHIPT TO RESPECTIVE CNEES WITHOUT
PRESENTATION OF OB/L2 and bank guarantee since for prepaid shipt ofrt charges already fully paid our end x x x x 3

Respondents explained that it is a standard maritime practice, when immediate delivery is of the essence, for the shipper
to request or instruct the carrier to deliver the goods to the buyer upon arrival at the port of destination without
 85
requiring presentation of the bill of lading as that usually takes time. As proof thereof, respondents apprised the trial
court that for the duration of their two-year business relationship with petitioner concerning similar shipments to GPC
deliveries were effected without presentation of the bills of lading. 4 Respondents advanced next that the refusal of
PAKISTAN BANK to pay the letters of credit to SOLIDBANK was due to the lat-ter’s failure to submit a Certificate of
Quantity and Quality. Respondents counterclaimed for attorney’s fees and costs of suit.
On 14 May 1993 the trial court ordered respondents to pay, jointly and severally, the following amounts: (1)
P546,033.42 plus legal interest from 6 April 1989 until full payment; (2) P10,000.00 as attorney’s fees; and, (3) the costs.
The counter-claims were dismissed for lack of merit. 5 The trial court opined that respondents breached the provision in
the bill of lading requiring that “one of the Bills of Lading must be surrendered duly endorsed in exchange for the goods
or delivery order,” when they released the shipment to GPC without presentation of the bills of lading and the bank
guarantee that should have been issued by PAKISTAN BANK in lieu of the bills of lading. The trial court added that the
shipment should not have been released to GPC at all since the instruction contained in the telex was to arrange delivery
to the respective consignees and not to any party. The trial court observed that the only role of GPC in the transaction as
notify party was precisely to be notified of the arrival of the cargoes in Hongkong so it could in turn duly advise the
consignee.
Respondent Court of Appeals appreciated the evidence in a different manner. According to it, as established by
previous similar transactions between the parties, shipped cargoes were sometimes actually delivered not to the
consignee but to notify party GPC without need of the bills of lading or bank guarantee. 6 Moreover, the bills of lading
were viewed by respondent court to have been properly superseded by the telex instruction and to implement the
instruction, the delivery of the shipment must be to GPC, the real importer/buyer of the goods as shown by the export
invoices,7 and not to PAKISTAN BANK since the latter could very well present the bills of lading in its possession;
likewise, if it were the PAKISTAN BANK to which the cargoes were to be strictly delivered it would no longer be proper
to require a bank guarantee. Respondent court noted that besides, GPC was listed as a consignee in the telex. It observed
further that the demand letter of petitioner to respondents never complained of misdelivery of goods. Lastly, respondent
court found that petitioner’s claim of having reimbursed the amount involved to SOLID-BANK was unsubstantiated.
Thus, on 13 March 1996 respondent court set aside the decision of the trial court and dismissed the complaint together
with the counterclaims.8 On 5 July 1996 reconsideration was denied.9
Petitioner submits that the fact that the shipment was not delivered to the consignee as stated in the bill of lading or
to a party designated or named by the consignee constitutes a misdelivery thereof. Moreover, petitioner argues that
from the text of the telex, assuming there was such an instruction, the delivery of the shipment without the required bill
of lading or bank guarantee should be made only to the designated consignee, referring to PAKISTAN BANK.
We are not persuaded. The submission of petitioner that “the fact that the shipment was not delivered to the
consignee as stated in the Bill of Lading or to a party designated or named by the consignee constitutes a misdelivery
thereof” is a deviation from his cause of action before the trial court. It is clear from the allegation in his complaint that
it does not deal with misdelivery of the cargoes but of delivery to GPC without the required bills of lading and bank
guarantee—
6. The goods arrived in Hongkong and were released by the defendant Wallem directly to the buyer/notify party, Great
Prospect Company and not to the consignee, the National Bank of Pakistan, Hongkong, without the required bills of
lading and bank guarantee for the release of the shipment issued by the consignee of the goods x x x x 10

Even going back to an event that transpired prior to the filing of the present case or when petitioner wrote respondent
WALLEM demanding payment of the value of the cargoes, misdelivery of the cargoes did not come into the picture—
We are writing you on behalf of our client, Ben-Mac Enterprises who informed us that Bills of Lading No. 99012 and
99013 with a total value of US$20,223.46 were released to Great Prospect, Hongkong without the necessary bank
guarantee. We were further informed that the consignee of the goods, National Bank of Pakistan, Hongkong, did not
release or endorse the original bills of lading. As a result thereof, neither the consignee, National Bank of Pakistan,
Hongkong, nor the importer, Great Prospect Company, Hongkong, paid our client for the goods x x x x 11
At any rate, we shall dwell on petitioner’s submission only as a prelude to our discussion on the imputed liability of
respondents concerning the shipped goods. Article 1736 of the Civil Code provides—
Art. 1736. The extraordinary responsibility of the common carriers lasts from the time the goods are unconditionally
placed in the possession of, and received by the carrier for transportation until the same are delivered, actually or
constructively, by the carrier to the consignee, or to the person who has a right to receive them, without prejudice to the
provisions of article 1738.12

We emphasize that the extraordinary responsibility of the common carriers lasts until actual or constructive delivery of
the cargoes to the consignee or to the person who has a right to receive them. PAKISTAN BANK was indicated in the bills
of lading as consignee whereas GPC was the notify party. However, in the export invoices GPC was clearly named as
buyer/importer. Petitioner also referred to GPC as such in his demand letter to respondent WALLEM and in his
complaint before the trial court. This premise draws us to conclude that the delivery of the cargoes to GPC as
buyer/importer which, conformably with Art. 1736 had, other than the consignee, the right to receive them 13 was proper.
The real issue is whether respondents are liable to petitioner for releasing the goods to GPC without the bills of
lading or bank guarantee.
 86
Respondents submitted in evidence a telex dated 5 April 1989 as basis for delivering the cargoes to GPC without the
bills of lading and bank guarantee. The telex instructed delivery of various shipments to the respective consignees
without need of presenting the bill of lading and bank guarantee per the respective shipper’s request since “for prepaid
shipt ofrt charges already fully paid.” Petitioner was named therein as shipper and GPC as consignee with respect to Bill
of Lading Nos. HKG 99012 and HKG 99013. Petitioner disputes the existence of such instruction and claims that this
evidence is self-serving.
From the testimony of petitioner, we gather that he has been transacting with GPC as buyer/importer for around two
(2) or three (3) years already. When mangoes and watermelons are in season, his shipment to GPC using the facilities of
respondents is twice or thrice a week. The goods are released to GPC. It has been the practice of petitioner to request the
shipping lines to immediately release perishable cargoes such as watermelons and fresh mangoes through telephone
calls by himself or his “people.” In transactions covered by a letter of credit, bank guarantee is normally required by the
shipping lines prior to releasing the goods. But for buyers using telegraphic transfers, petitioner dispenses with the bank
guarantee because the goods are already fully paid. In his several years of business relationship with GPC and
respondents, there was not a single instance when the bill of lading was first presented before the release of the cargoes.
He admitted the existence of the telex of 3 July 1989 containing his request to deliver the shipment to the consignee
without presentation of the bill of lading 14 but not the telex of 5 April 1989 because he could not remember having made
such request.
Consider pertinent portions of petitioner’s testimony—
Q: Are you aware of any document which would indicate or show that
your request to the defendant Wallem for the immediate release of
your fresh fruits, perishable goods, to Great Prospect without the
presentation of the original Bill of Lading?
A: Yes, by telegraphic transfer, which means that it is fully paid. And I
requested the immediate release of the cargo because there was
immediate payment.
Q: And you are referring, therefore, to this copy Telex release that you
mentioned where your Company’s name appears Ben-Mac?
Atty. Hernandez: Just for the record, Your Honor, the witness
     is showing a Bill of Lading referring to SKG (sic) 93023
     and 93026 with Great Prospect Company.
Atty. Ventura:
Q: Is that the telegraphic transfer?
A: Yes, actually, all the shippers partially request for the immediate
release of the goods when they are perishable. I thought Wallem
Shipping Lines is not neophyte in the business. As far as LC is
concerned, Bank guarantee is needed for the immediate release of the
goods x x x x15
Q: Mr. Witness, you testified that it is the practice of the shipper of the
perishable goods to ask the shipping lines to release immediately the
shipment. Is that correct?
A: Yes, sir.
Q: Now, it is also the practice of the shipper to allow the shipping lines to
release the perishable goods to the importer of goods without a Bill of
Lading or Bank guarant ee?
A: No, it cannot be without the Bank Guarantee.
Atty. Hernandez:
Q: Can you tell us an instance when you will allow the release of the
perishable goods by the shipping lines to the importer without the
Bank guarantee and without the Bill of Lading?
A: As far as telegraphic transfer is concerned.
Q: Can you explain (to) this Honorable Court what telegraphic transfer is?
A: Telegraphic transfer, it means advance payment that I am already fully
paid x x x x
Q: Mr. Macam, with regard to Wallem and to Great Prospect, would you
know and can you recall that any of your shipment was released to
 87
Great Prospect by Wallem through telegraphic transfer?
A: I could not recall but there were so many instances sir.
Q: Mr. Witness, do you confirm before this Court that in previous
shipments of your goods through Wallem, you requested Wallem to
release immediately your perishable goods to the buyer?
A: Yes, that is the request of the shippers of the perishable goods x x x x 16
Q: Now, Mr. Macam, if you request the Shipping Lines for the release of
your goods immediately even without the presentation of OBL, how do
you course it?
A: Usually, I call up the Shipping Lines, sir x x x x17
Q: You also testified you made this request through phone calls. Who of
you talked whenever you made such phone call?
A: Mostly I let my people to call, sir. (sic)
Q: So everytime you made a shipment on perishable goods you let your
people to call? (sic)
A: Not everytime, sir.
Q: You did not make this request in writing?
A: No, sir. I think I have no written request with Wallem
  x x x x18
Against petitioner’s claim of “not remembering” having made a request for delivery of subject cargoes to GPC without
presentation of the bills of lading and bank guarantee as reflected in the telex of 5 April 1989 are damaging disclosures in
his testimony. He declared that it was his practice to ask the shipping lines to immediately release shipment of
perishable goods through telephone calls by himself or his “people.” He no longer required presentation of a bill of
lading nor of a bank guarantee as a condition to releasing the goods in case he was already fully paid. Thus, taking into
account that subject shipment consisted of perishable goods and SOLIDBANK prepaid the full amount of the value
thereof, it is not hard to believe the claim of respondent WALLEM that petitioner indeed requested the release of the
goods to GPC without presentation of the bills of lading and bank guarantee.
The instruction in the telex of 5 April 1989 was “to deliver the shipment to respective consignees.” And so petitioner
argues that, assuming there was such an instruction, the consignee referred to was PAKISTAN BANK. We find the
argument too simplistic. Respondent court analyzed the telex in its entirety and correctly arrived at the conclusion that
the consignee referred to was not PAKISTAN BANK but GPC—
There is no mistake that the originals of the two (2) subject Bills of Lading are still in the possession of the Pakistani
Bank. The appealed decision affirms this fact. Conformably, to implement the said telex instruction, the delivery of the
shipment must be to GPC, the notify party or real importer/buyer of the goods and not the Pakistani Bank since the
latter can very well present the original Bills of Lading in its possession. Likewise, if it were the Pakistani Bank to whom
the cargoes were to be strictly delivered, it will no longer be proper to require a bank guarantee as a substitute for the
Bill of Lading. To construe otherwise will render meaningless the telex instruction. After all, the cargoes consist of
perishable fresh fruits and immediate delivery thereof to the buyer/importer is essentially a factor to reckon with.
Besides, GPC is listed as one among the several consignees in the telex (Exhibit 5-B) and the instruction in the telex was
to arrange delivery of A/M shipment (not any party) to respective consignees without presentation of OB/L and bank
guarantee x x x x19

Apart from the foregoing obstacles to the success of petitioner’s cause, petitioner failed to substantiate his claim that he
returned to SOLIDBANK the full amount of the value of the cargoes. It is not far-fetched to entertain the notion, as did
respondent court, that he merely accommodated SOLIDBANK in order to recover the cost of the shipped cargoes from
respondents. We note that it was SOLIDBANK which initially demanded payment from respondents through five (5)
letters. SOLIDBANK must have realized the absence of privity of contract between itself and respondents. That is why
petitioner conveniently took the cudgels for the bank.
In view of petitioner’s utter failure to establish the liability of respondents over the cargoes, no reversible error was
committed by respondent court in ruling against him.
WHEREFORE, the petition is DENIED. The decision of respondent Court of Appeals of 13 March 1996 dismissing the
complaint of petitioner Benito Macam and the counterclaims of respondents China Ocean Shipping Co. and/or Wallem
Philippines Shipping, Inc., as well as its resolution of 5 July 1996 denying reconsideration, is AFFIRMED.
SO ORDERED.
     Mendoza, Quisumbing and Buena, JJ., concur.

Petition denied; Assailed decision affirmed.

 88
Notes.—While common carriers are required to observe extraordinary diligence and are presumed at fault, no such
presumption applies to private carriers. (Planters Products, Inc. vs. Court of Appeals, 226 SCRA 476 [1993])
When the goods shipped either are lost or arrive in damaged condition, a presumption arises against the carrier of its
failure to observe that requisite diligence, and there need not be an express finding of negligence to hold it liable.
(Eastern Shipping Lines, Inc. vs. Court of Appeals, 234 SCRA 78 [1994])
Mere proof of delivery of goods in good order to a carrier and the subsequent arrival of the same goods at the place
of destination in bad order makes for a prima facie case against the carrier. (Coastwise Lighterage Corporation vs. Court
of Appeals, 245 SCRA 796 [1995])

22. H. E. Heacock Co. vs. Macondray & Co., 42 Phil., 205, October 03, 1921
[No. 16598. October 3, 1921]
H. E. HEACOCK COMPANY, plaintiff and appellant, vs. MACONDRAY & COMPANY, INC., defendant and appellant.

1.COMMON CARRIER; BILL OF LADING; STIPULATIONS REGARDING LIABILITY OF CARRIER FOR LOSS OF OR DAMAGE TO CARGO;
VALIDITY OF SUCH STIPULATIONS.—Three kinds of stipulation have often been made in a bill of lading. The first is one
exempting the carrier from any and all liability for loss or damage occasioned by its own negligence. The second is
one providing for an unqualified limitation of such liability to an agreed valuation. And the third is one limiting the
liability of the carrier to an agreed valuation unless the shipper declare a higher value and pays a. higher rate of
freight. According to an almost uniform weight of authority, the first and second kinds of stipulations are invalid as
being contrary to public policy, but the third is valid and enforceable.
2.ID.; ID.; ID.—A stipulation in a bill of lading which either exempts the carrier from liability for loss or damage
occasioned by its negligence, or provides for an unqualified limitation of such liability to an agreed valuation, is
invalid as being contrary to public policy.
3.ID.; ID.; ID.—But a stipulation in such bill of lading which limits the liability of the carrier to a specified amount unless
the shipper declares a higher value and pays a higher rate of freight, is valid and enforceable. Thus, if a common
carrier gives to a shipper the choice of two rates, the lower of them conditioned upon his agreeing to a stipulated
valuation of his property in case of loss, even by the carrier's negligence, if the shipper makes the choice
understandingly and freely, and names his valuation, he cannot thereafter recover more than the value which he
thus places upon his property.
4.CONTRACT; CONSTRUCTION OF, IN CASE OF DOUBT.—A written contract, in case of doubt, should be interpreted againts
the party who has drawn the contract. It is a well-known principle of construction that ambiguity or uncertainty in
an agreement must be construed most strongly against the party causing it. There rules are applicable to contracts
contained in bills of lading. In construing a bill of lading given by the carrier for the safe transportation and delivery
of goods shipped by a consignor, the contract will be construed most strongly against the carrier, and favorably to
the consignor, in case of doubt in any matter of construction.

APPEAL from a judgment of the Court of First Instance of Manila. Harvey, J.

The facts are stated in the opinion of the court.
Fisher & DeWitt for plaintiff and appellant.
Wolf son, Wolfson & Schwarzkopf for defendant and appellant.

JOHNSON, J.:
This action was commenced in the Court of First Instance of the City of Manila to recover the sum of P420 together
with interest thereon. The facts are stipulated by the parties, and are, briefly, as follows:
(1) On or about the 5th day of June, 1919, the plaintiff caused to be delivered on board the steamship Bolton Castle.
then in the harbor of New York, four cases of merchandise, one of which contained twelve (12) 8-day Edmond clocks,
properly boxed and marked for transportation to Manila, and paid freight on said clocks from New York to Manila in
advance. The said steamship arrived in the port of Manila on or about the 10th day of September, 1919, con signed to the
defendant herein as agent and representative of said vessel in said port. Neither the master of said vessel nor the
defendant herein, as its agent, delivered to the plaintiff the aforesaid twelve 8-day Edmond clocks, although demand was
made upon them for their delivery.
(2) The invoice value of the said twelve 8-day Edmond clocks in the city of New York was P22 and the market value
of the same in the City of Manila at the time when they should have been delivered to the plaintiff was P420. 
(3) The bill of lading issued and delivered to the plaintiff by the master of the said steamship Bolton Castle con-
tained, among others, the following clauses: 
"1. It is mutually agreed that the value of the goods receipted for above does not exceed $500 per freight ton, or, in
proportion for any part of a ton, unless the value be expressly stated herein and ad valorem freight paid thereon."
"9. Also, that in the event of claims for short delivery of, or damage to, cargo being made, the carrier shall not be
liable for more than the net invoice price plus freight and insurance less all charges saved, and any loss or damage for
which the carrier may be liable shall be adjusted pro rata on the said basis."
(4) The case containing the aforesaid twelve 8-day Edmond clocks measured 3 cubic feet, and the freight ton value
thereof was $1,480, U. S. currency. 
 89
(5) No greater value than $500, U. S. currency, per freight ton was declared by the plaintiff on the aforesaid clocks,
and no ad valorem freight was paid thereon. 
(6) On or about October 9, 1919, the defendant tendered to the plaintiff P76.36, the proportionate freight ton value of
the aforesaid twelve 8-day Edmond clocks, in payment of plaintiff's claim, which tender plaintiff rejected.

The lower court, in accordance with clause 9 of the bill of lading above quoted, rendered judgment in favor of the
plaintiff against the defendant for the sum of P226.02, this being the invoice value of the clocks in question plus the
freight and insurance thereon, with legal interest thereon from November 20, 1919, the date of the complaint, together
with costs. From that judgment both parties appealed to this court.
The plaintiff-appellant insists that it is entitled to recover from the defendant the market value of the clocks in ques-
tion, to wit: the sum of P420. The defendant-appellant, on the other hand, contends that, in accordance with clause 1 of
the bill of lading, the plaintiff is entitled to recover only the sum of P76.36, the proportionate freight ton value of the
said clocks. The claim of the plaintiff is based upon the argument that the two clauses in the bill of lading above quoted,
limiting the liability of the carrier, are contrary to public order and, therefore, null and void. The defendant, on the other
hand, contends that both of said clauses are valid, and that clause 1 should have been ap plied by the lower court instead
of clause 9.
I. The appeal of the plaintiff presents this question: May a common carrier, by stipulations inserted in the bill of
lading, limit its liability for the loss of or damage to the cargo to an agreed valuation of the latter?
Three kinds of stipulations have often been made in a bill of lading. The first is one exempting the carrier from any
and all liability for loss or damage occasioned by its own negligence. The second is one providing for an unqualified
limitation of such liability to an agreed valuation. And the third is one limiting the liability of the carrier to an agreed
valuation unless the shipper declares a higher value and pays a higher rate of freight. According to an almost uniform
weight of authority, the first and second kinds of stipulations are invalid as being contrary to public policy, but the third
is valid and enforceable.
The authorities relied upon by the plaintiff-appellant (the Harter Act [Act of Congress of February 13, 1893];
Louisville Ry. Co. vs. Wynn, 88 Tenn., 320; and Gait vs. Adams Express Co., 4 McAr., 124; 48 Am. Rep., 742) support the
proposition that the first and second stipulations in a bill of lading are invalid which either exempt the carrier from
liability for loss or damage occasioned by its negligence, or provide for an unqualified limitation of such liability to an
agreed valuation.
A reading of clauses 1 and 9 of the bill of lading here in question, however, clearly shows that the present case falls
within the third stipulation, to wit: That a clause in a bill of lading limiting the liability of the carrier to a cer tain amount
unless the shipper declares a higher value and pays a higher rate of freight, is valid and enforceable. This proposition is
supported by a uniform lien of decisions of the Supreme Court of the United States rendered both prior and subsequent
to the passage of the Harter Act, from the case of Hart vs. Pennsylvania R. R. Co. (decided Nov. 24, 1884; 112 U. S., 331), to
the case of the Union Pacific Ry. Co. vs.-Burke (decided Feb. 28, 1921, Advance Opinions, 1920-1921, p. 318).
In the case of Hart vs. Pennsylvania R. R. Co., supra, it was held that "where a contract of carriage, signed by the
shipper, is fairly made with a railroad company, agreeing on a valuation of the property carried, with the rate of freight
based on the condition that the carrier assumes liability only to the extent of the agreed valuation, even in case of loss or
damage by the negligence of the carrier, the contract will be upheld as proper and lawful mode of securing a due
proportion between the amount for which the carrier may be responsible and the freight he receives, and protecting
himself against extravagant and fanciful valuations."
In the case of Union Pacific Railway Co. vs. Burke, supra, the court said: "In many cases, from the decision in
Hart vs. Pennsylvania R. R. Co. (112 U. S., 331; 28 L. ed., 717; 5 Sup. Ct. Rep., 151, decided in 1884), to Boston & M.
18746414 R. Co. vs. Piper (246 U. S., 439; 62 L. ed., 820; 38 Sup. Ct. Rep., 354; Ann. Cas. 1918 E, 469, decided in 1918), it
has been declared to be the settled Federal law that if a common carrier gives to a shipper the choice of two rates, the
lower of them conditioned upon his agreeing to a stipulated valuation of his property in case of loss, even by the carrier's
negligence, if the shipper makes such a choice, understandingly and freely, and names his valuation, he cannot there -
after recover more than the value which he thus places upon his property. As a matter of legal distinction, estoppel is
made the basis of this ruling,—that, having accepted the benefit of the lower rate, in common honesty the shipper may
not repudiate the conditions on which it was obtained,—but the rule and the effect of it are clearly established."

The syllabus of the same case reads as follows: "A carrier may not, by a valuation agreement with a shipper, limit its
liability in case of the loss by negligence of an interstate shipment to less than the real value thereof, unless the shipper
is given a choice of rates, based on valuation."
"A limitation of liability based upon an agreed value to obtain a lower rate does not conflict with any sound prin ciple
of public policy; and it is not conformable to plain principles of justice that a shipper may understate value in order to
reduce the rate and then recover a larger value in case of loss." (Adams Express Co. vs. Croninger, 226 U. S., 491,
492.) See also Reid vs. Fargo (130 C. C. A., 285); Jennings vs. Smith (45 C. C. A., 249); George N. Pierce Co. vs. Wells,
Fargo & Co. (236 U. S., 278); Wells, Fargo & Co. vs. Neiman-Marcus Co. (227 U. S., 469).

It seems clear from the foregoing authorities that the clauses (1 and 9) of the bill of lading here in question are not
contrary to public order. Article 1255 of the Civil Code provides that "the contracting parties may establish any
 90
agreements, terms and conditions they may deem advisable, provided they are not contrary to law, morals or public
order." Said clauses of the bill of lading are, therefore, valid and binding upon the parties thereto.
II. The question presented by the appeal of the defendant is whether clause 1 or clause 9 of the bill of lading here in
question is to be adopted as the measure of defendant's liability. Clause 1 provides as follows:
"1. It is mutually agreed that the value of the goods receipted for above does not exceed $500 per freight ton, or, in
proportion for any part of a ton, unless the value be expressly stated herein and ad valorem freight paid thereon." Clause
9 provides:
"9. Also, that in the event of claims for short delivery of, or damage to, cargo being made, the carrier shall not be
liable for more than the net invoice price plus freight and insurance less all charges saved, and any loss or damage for
which the carrier may be liable shall be adjusted pro rata on the said basis."

The defendant-appellant contends that these two clauses, if construed together, mean that the shipper and the
carrier stipulate and agree that the value of the goods receipted for does not exceed $500 per freight ton, but should the
invoice value of the goods be less than $500 per freight ton, then the invoice value governs; that since in this case the
invoice value is more than $500 per freight ton, the latter valuation should be adopted and that according to that
valuation, the proportionate value of the clocks in question is only P76.36, which the defendant is ready and willing to
pay to the plaintiff.
It will be noted, however, that whereas clause 1 contains only an implied undertaking to settle in case of loss on the
basis of not exceeding $500 per freight ton, clause 9 contains an express undertaking to settle on the basis of the net
invoice price plus freight and insurance less all charges saved. "Any loss or damage for which the carrier may be
liable shall be adjusted pro rata on the said basis," clause 9 expressly provides. It seems to us that there is an irre-
concilable conflict between the two clauses with regard to the measure of defendant's liability. It is difficult to reconcile
them without doing violence to the language used and read ing exceptions and conditions into the undertaking
contained in clause 9 that are not there. This being the case, the bill of lading in question should be interpreted against
the defendant carrier, which drew said contract. "A written contract should, in case of doubt, be interpreted against the
party who has drawn the contract." (6 R. C. L. 854.) It is a well-known principle of construction that ambiguity or
uncertainty in an agreement must be construed most strongly against the party causing it. (6 R. C. L., 855.) These rules
as applicable to contracts contained in bills of lading. "In construing a bill of lading given by the carrier for the safe
transportation and delivery of goods shipped by a consignor, the contract will be construed most strongly against the
carrier, and favorably to the consignor, in case of doubt in any matter of construction." (Alabama, etc. R. R. Co. vs.
Thomas, 89 Ala., 294; 18 Am. St. Rep., 119.)

It follows from all of the foregoing that the judgment appealed from should be affirmed, without any finding as to
costs. So ordered.

23. Shewaram vs. Philippine Air Lines Inc., 17 SCRA 606, July 07, 1966
No. L-20099. July 7, 1966.
PARMANAND SHEWARAM, plaintiff and appellee, vs. PHILIPPINE AIR LINES, INC., defendant and appellant.

Common carriers;  When limitation of carrier’s liability clause printed at the back of the ticket stub is not binding.—
Under Article 1760 of the New Civil Code, the pecuniary liability of a common carrier may by contract be limited to a f
ixed amount provided that the contract is reasonable and just under the circumstances and has been fairly and freely
agreed upon. Where the conditions printed at the back of a ticket stub are in letters so small that they are hard to read,
this would not warrant the presumption that the passenger was aware of those conditions such that he had “fairly and
freely agreed” to them. He is not and cannot, therefore, be bound, by the conditions of carriage found at the back of the
ticket stub.
Same;  Carrier cannot limit its liability for loss due to its negligence.—Where the transistor radio and the camera of
the passenger was lost as a result of the negligence of the common carrier, its liability is clear—it must pay the passenger
the value of those two articles. The carrier cannot limit its liability for injury to or loss of goods shipped where such
injury or loss was caused by its own negligence. (Ysmael and Co. vs. Barretto, 51 Phil. 90.)

APPEAL from a decision of the Court of First Instance of Zamboanga City. Montejo, J.

The facts are stated in the opinion of the Court.

     Ponce Enrile, Siguion Reyna, Montecillo & Belo for defendant and appellant
     Climaco and Associates for plaintiff and appellee.

ZALDIVAR, J.:

Before the municipal court of Zamboanga City, plaintiffappellee Parmanand Shewaram instituted an action to recover
damages suffered by him due to the alleged failure of defendant-appellant Philippines Air Lines, Inc, to observe
 91
extraordinary diligence in the vigilance and carriage of his luggage. After trial the municipal court of Zamboanga City
rendered judgment ordering the appellant to pay appellee P373.00 as actual damages, P100.00 as exemplary damages,
P150.00 as attorney’s fees, and the costs of the action.
Appellant Philippine Air Lines appealed to the Court of First Instance of Zamboanga City. After hearing the Court of
First Instance of Zamboanga City modified the judgment of the inferior court by ordering the appellant to pay the
appellee only the sum of P373.00 as actual damages, with legal interest from May 6, 1960 and the sum of P150.00 as
attorney’s fees, eliminating the award of exemplary damages.
From the decision of the Court of First Instance of Zamboanga City, appellant appeals to this Court on a question of
law, assigning two errors allegedly committed by the lower court a quo, to wit:

1.The lower court erred in not holding that plaintiff-appellee was bound by the provisions of the tariff regulations filed
by defendant-appellant with the civil aeronautics board and the conditions of carriage printed at the back of the plane
ticket stub.

2.The lower court erred in not dismissing this case or limiting the liability of the defendant-appellant to P100.00.

The facts of this case, as found by the trial court, quoted from the decision appealed from, are as follows:
“That Parmanand Shewaram, the plaintiff herein, was on November 23, 1959, a paying passenger with ticket No. 4–
30976, on defendant’s aircraft flight No. 976/910 from Zamboanga City bound for Manila; that defendant is a common
carrier engaged in air line transportation in the Philippines, offering its services to the public to carry and transport
passengers and cargoes from and to different points in the Philippines; that on the above-mentioned date of November
23, 1959, he checked in three (3) pieces of baggages—a suitcase and two (2) other pieces; that the suitcase was mistagged
by defendant’s personnel in Zamboanga City, as I.G.N. (for Iligan) with claim check No. B-3883, instead of MNL (for
Manila). When plaintiff Parmanand Shewaram arrived in Manila on the date of November 23, 1959, his suitcase did not
arrive with his flight because it was sent to Iligan. So, he made a claim with defendant’s personnel in Manila airport and
another suitcase similar to his own which was the only baggage left for that flight, the rest having been claimed and
released to the other passengers of said flight, was given to the plaintiff for him to take delivery but he did not and
refused to take delivery of the same on the ground that it was not his, alleging that all his clothes were white and the
National transistor 7 and a Rollflex camera were not found inside the suitcase, and moreover, it contained a pistol which
he did not have nor placed inside his suitcase; that after inquiries made by defendant’s personnel in Manila from diff
erent airports where the suitcase in question must have been sent, it was found to have reached Iligan and the station
agent of the PAL in Iligan caused the same to be sent to Manila for delivery to Mr. Shewaram and which suitcase
belonging to the plaintiff herein arrived in Manila airport on November 24, 1959; that it was also found out that the
suitcase shown to and given to the plaintiff for delivery which he refused to take delivery belonged to a certain Del
Rosario who was bound for Iligan in the same flight with Mr. Shewaram; that when the plaintiff’s suitcase arrived in
Manila as stated above on November 24, 1959, he was informed by Mr. Tomas Blanco, Jr., the acting station agent of the
Manila airport of the arrival of his suitcase but of course minus his Transistor Radio 7 and the Rollflex Camera; that
Shewaram made demand for these two (2) items or for the value thereof but the same was not complied with by
defendant.”

xx      xx      xx xx
“It is admitted by defendant that there was mistake in tagging the suitcase of plaintiff as IGN. The tampering of the
suitcase is more apparent when on November 24, 1959, when the suitcase arrived in Manila, defendant’s personnel could
open the same in spite of the fact that plaintiff had it under key when he delivered the suitcase to defendant’s personnel
in Zamboanga City. Moreover, it was established during the hearing that there was space in the suitcase where the two
items in question could have been placed. It was also shown that as early as November 24, 1969, when plaintiff was
notified by phone of the arrival of the suitcase, plaintiff asked that check of the things inside his suitcase be made and
defendant admitted that the two items could not be found inside the suitcase. There was no evidence on record
sufficient to show that plaintiff’s suitcase was never opened during the time it was placed in defendant’s possession and
prior to its recovery by the plaintiff. However, def endant had presented evidence that it had authority to open
passengers’ baggage to verify and find its ownership or identity. Exhibit “1" of the defendant would show that the
baggage that was offered to plaintiff as his own was opened and the plaintiff denied ownership of the contents of the
baggage. This proven fact that baggage may and could be opened without the necessary authorization and presence of
its owner, applied too, to the suitcase of plaintiff which was mis-sent to Iligan City because of mistagging. The possibility
of what happened in the baggage of Mr. Del Rosario at the Manila Airport in his absence could have also happened to
plaintiff’s suitcase at Iligan City in the absence of plaintiff. Hence, the Court believes that these two items were really in
plaintiff’s suitcase and defendant should be held liable for the same by virtue of its contract of carriage.”

It is clear from the above-quoted portions of the decision of the trial court that said court had found that the suitcase of
the appellee was tampered, and the transistor radio and the camera contained therein were lost, and that the loss of
 92
those articles was due to the negligence of the employees of the appellant. The evidence shows that the transistor radio
cost P197.00 and the camera cost P176.00, so the total value of the two articles was P373.00.
There is no question that the appellant is a common carrier. 1 As such common carrier the appellant, from the nature
of its business and for reasons of public policy, is bound to observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported by it according to the circumstances of each case. 2 It having been
shown that the loss of the transistor radio and the camera of the appellee, costing P373.00, was due to the negligence of
the employees of the appellant, it is clear that the appellant should be held liable for the payment of said loss. 3
It is, however, contended by the appellant that its liability should be limited to the amount stated in the conditions
of carriage printed at the back of the plane ticket stub which was issued to the appellee, which conditions are embodied
in Domestic Tariff Regulations No. 2 which was filed with the Civil Aeronautics Board. One of those conditions, which is
pertinent to the issue raised by the appellant in this case provides as follows:
“The liability, if any, for loss or damage to checked baggage or for delay in the delivery thereof is limited to its value and,
unless the passenger declares in advance a higher valuation and pay an additional charge therefor, the value shall be
conclusively deemed not to exceed P100.00 for each ticket.”

The appellant maintains that in view of the failure of the appellee to declare a higher value for his luggage, and pay the
freight on the basis of said declared value when he checked such luggage at the Zamboanga City airport, pursuant to the
abovequoted condition, appellee can not demand payment f rom the appellant of an amount in excess of P100.00.

The law that may be invoked, in this connection, is Article 1750 of the New Civil Code which provides as follows:
“A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction, or deterioration of
the goods is valid, if it is reasonable and just under the circumstances, and has been fairly and freely agreed upon.”

In accordance with the above-quoted provision of Article 1750 of the New Civil Code, the pecuniary liability of a
common carrier may, by contract, be limited to a fixed amount. It is required, however, that the contract must be
“reasonable and just under the circumstances and has been fairly and freely agreed upon.”
The requirements provided in Article 1750 of the New Civil Code must be complied with before a common carrier
can claim a limitation of its pecuniary liability in case of loss, destruction or deterioration of the goods it has undertaken
to transport. In the case before us We believe that the requirements of said article have not been met. It can not be said
that the appellee had actually entered into a contract with the appellant, embodying the conditions as printed at the
back of the ticket stub that was issued by the appellant to the appellee. The f act that those conditions are printed at the
back of the ticket stub in letters so small that they are hard to read would not warrant the presumption that the appellee
was aware of those conditions such that he had “fairly and freely agreed” to those conditions. The trial court has
categorically stated in its decision that the “Defendant admits that passengers do not sign the ticket, much less did
plaintiff herein sign his ticket when he made the flight on November 23, 1959." We hold, therefore, that the appellee is
not, and can not be, bound by the conditions of carriage found at the back of the ticket stub issued to him when he
made the flight on appellant’s plane on November 23, 1959.
The liability of the appellant in the present case should be governed by the provisions of Articles 1734 and 1735 of the
New Civil Code, which We quote as follows:
“ART. 1734. Common carries are responsible for the loss, destruction, or deterioration of the goods, unless the same is
due to any of the following causes only:

1. (1)Flood, storm, earthquake, or other natural disaster or calamity;

2. (2)Act of the public enemy in war, whether international or civil;

3. (3)Act or omission of the shipper or owner of the goods;

4. (4)The character of the goods or defects in the packing or in the containers;

5. (5)Order or act of competent public authority.”

“ART. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4 and 5 of the preceding article, if the goods are lost,
destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they
prove that they observed extraordinary diligence as required in Article 1733."

It having been clearly found by the trial court that the transistor radio and the camera of the appellee were lost as a
result of the negligence of the appellant as a common carrier, the liability of the appellant is clear—it must pay the
appellee the value of those two articles.
 93
In the case of Ysmael and Co. vs. Barreto, 51 Phil. 90, cited by the trial court in support of its decision, this Court had
laid down the rule that the carrier can not limit its liability for injury to or loss of goods shipped where such injury or
loss was caused by its own negligence.
“Corpus Juris, volume 10, p. 154, says:
‘Par. 194. 6. Reasonableness of Limitations.—The validity of stipulations limiting the carrier’s liability is to be
determined by their reasonableness and their conformity to the sound public policy, in accordance with which the
obligations of the carrier to the public are settled. It cannot lawfully stipulate for exemption from liability, unless such
exemption is just and reasonable, and unless the contract is freely and fairly made. No contractual limitation is
reasonable which is subversive of public policy.
‘Par. 195. 7. What Limitations of Liability Permissible.—a. Negligence—(1) Rule in America—(a) In Absence of Organic
or Statutory Provisions Regulating Subject—aa. Majority Rule.—ln the absence of statute, it is settled by the weight of
authority in the United States, that whatever limitations against its common-law liability are permissible to a carrier, it
cannot limit its liability for injury to or loss of goods shipped, where such injury or loss is caused by its own negligence.
This is the common law doctrine and it makes no difference that there is no statutory prohibition against contracts of
this character.

‘Par. 196. bb. Considerations on which Rule Based.—The rule, it is said, rests on considerations of public policy. The
undertaking is to carry the goods, and to relieve the shipper from all liability for loss or damage arising from negligence
in performing its contract is to ignore the contract itself. The natural effect of a limitation of liability against negligence
is to induce want of care on the part of the carrier in the performance of its duty. The shipper and the common carrier
are not on equal terms; the shipper must send his freight by the common carrier, or not at all; he is therefore entirely at
the mercy of the carrier unless protected by the higher power of the law against being forced into contracts limiting the
carrier’s liability. Such contracts are wanting in the element of voluntary assent.
‘Par. 197. cc. Application and Extent of Rule—(aa) Negligence of Servants.—The rule prohibiting limitation of liability
for negligence is often stated as a prohibition of any contract relieving the carrier from loss or damage caused by its own
negligence or misfeasance, or that of its servants; and it has been specifically decided in many cases that no contract
limitation will relieve the carrier from responsibility for the negligence, unskillfulness, or carelessness of its employer.'"
(Cited in Ysmael and Co. vs. Barreto, 61 Phil. 90, 98, 99).

In view of the foregoing, the decision appealed from is affirmed, with costs against the appellant.
Chief Justice Concepcion and Justices J.B.L. Reyes, Barrera,  Dizon,  Regala, Makalintal,  J.P.
Bengzon and Sanchez, concur.

Decision affirmed.
Note.—In Mirasol vs. Robert Dollar Co., 53 Phil. 124, where it was held that a bill of lading, containing a clause,
limiting the carrier’s liability, printed in fine letters on the back thereof, which the shipper did not sign and of which he
was not advised, does not bind the shipper.

24. Ong Yiu vs. Court of Appeals, 91 SCRA 223, June 29, 1979
No. L-40597. June 29, 1979.*
AGUSTINO B. ONG YIU, petitioner vs. HONORABLE COURT OF APPEALS and PHILIPPINE AIR LINES, INC.,
respondents.

Civil Law; Transportation; Breach of contract of transportation; Bad faith, Concept of; No bad faith committed when
airline company exerted due diligence with its duty in locating a passenger’s lost luggage; Case at bar .—From the facts of
the case, we agree with respondent Court that PAL had not acted in bad faith. Bad faith means a breach of a known duty
through some motive of interest or ill will. It was the duty of PAL to look for petitioner’s luggage which had been
miscarried. PAL exerted due diligence in complying with such duty.
Same;  Same; Same;  Same; Moral Damages; No award of moral damages when bad faith is absent.—In the absence
of a wrongful act or omission or of fraud or bad faith, petitioner is not entitled to moral damages.
Same;  Same; Same;  Same; Exemplary Damages; Exemplary damages not awarded when defendant had not acted
fraudulently or oppressively.—Petitioner is neither entitled to exemplary damages. In contracts, as provided for in Article
2232 of the Civil Code, exemplary damages can be granted if the defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner, which has not been proven in this case.
Same;  Same; Same;  Contracts of adhesion;  Philippine Air Lines’ limited carriage liability of P100.00 for loss or delay
of its passengers’ baggage held valid and binding absent higher value declared for luggage and actual value of goods lost .—
While it may be true that petitioner had not signed the plane ticket (Exh. “12”), he is nevertheless bound by the
provisions thereof. “Such provisions have been held to be a part of the contract of carriage, and valid and binding upon
the passenger regardless of the latter’s lack of knowledge or assent to the regulation”. It is what is known as a contract of
“adhesion”, in regards which it has been said that contracts of adhesion wherein one party imposes a ready made form of
contract on the other, as the plane ticket in the case at bar, are contracts not entirely prohibited. The one who adheres
to the contract is in reality free to reject it entirely; if he adheres, he gives his consent. And as held in  Randolph v.
 94
American Airlines, 103 Ohio App. 172, 144 N.E. 2d 878; Rosenchein vs. Trans World Airlines, Inc., 349 S.W. 2d 483, “a
contract limiting liability upon an agreed valuation does not offend against the policy of the law forbidding one from
contracting against his own negligence.” Considering, therefore, that petitioner had failed to declare a higher value for
his baggage, he cannot be permitted a recovery in excess of P100.00. Besides, passengers are advised not to place
valuable items inside their baggage but “to avail of our V-cargo service” (Exh. “1”). It is likewise to be noted that there is
nothing in the evidence to show the actual value of the goods allegedly lost by petitioner.

MELENCIO-HERRERA, J.:

In this Petition for Review by Certiorari, petitioner, a practicing lawyer and businessman, seeks a reversal of the Decision
of the Court of Appeals in CA-G.R. No. 45005-R, which reduced his claim for damages for breach of contract of
transportation.
The facts are as follows:
On August 26, 1967, petitioner was a fare paying passenger of respondent Philippine Air Lines, Inc. (PAL), on board
Flight No. 463-R, from Mactan, Cebu, bound for Butuan City. He was scheduled to attend the trial of  Civil Case No.
1005 and Spec. Procs. No. 1125 in the Court of First Instance, Branch II, thereat, set for hearing on August 28-31, 1967. As a
passenger, he checked in one piece of luggage, a blue “maleta” for which he was issued Claim Check No. 2106-R (Exh.
“A”). The plane left Mactan Airport, Cebu, at about 1:00 o’clock P.M., and arrived at Bancasi airport, Butuan City, at past
2:00 o’clock P.M., of the same day. Upon arrival, petitioner claimed his luggage but it could not be found. According to
petitioner, it was only after reacting indignantly to the loss that the matter was attended to by the porter clerk, Maximo
Gomez, which, however, the latter denies. At about 3:00 o’clock P.M., PAL Butuan, sent a message to PAL, Cebu,
inquiring about the missing luggage, which message was, in turn, relayed in full to the Mactan Airport teletype operator
at 3:45 P.M. (Exh. “2”) that same afternoon. It must have been transmitted to Manila immediately, for at 3:59 that same
afternoon, PAL Manila wired PAL Cebu advising that the luggage had been overcarried to Manila aboard Flight No. 156
and that it would be forwarded to Cebu on Flight No. 345 of the same day. Instructions were also given that the luggage
be immediately forwarded to Butuan City on the first available flight (Exh. “3”). At 5:00 P.M. of the same afternoon, PAL
Cebu sent a message to PAL Butuan that the luggage would be forwarded on Flight No. 963 the following day, August 27,
1967. However, this message was not received by PAL Butuan as all the personnel had already left since there were no
more incoming flights that afternoon.
In the meantime, petitioner was worried about the missing luggage because it contained vital documents needed for
trial the next day. At 10:00 o’clock that evening, petitioner wired PAL Cebu demanding the delivery of his baggage before
noon the next day, otherwise, he would hold PAL liable for damages, and stating that PAL’s gross negligence had caused
him undue inconvenience, worry, anxiety and extreme embarrassment (Exh. “B”). This telegram was received by the
Cebu PAL supervisor but the latter felt no need to wire petitioner that his luggage had already been forwarded on the
assumption that by the time the message reached Butuan City, the luggage would have arrived.
Early in the morning of the next day, August 27, 1967, petitioner went to the Bancasi Airport to inquire about his
luggage. He did not wait, however, for the morning flight which arrived at 10:00 o’clock that morning. This flight carried
the missing luggage. The porter clerk, Maximo Gomez, paged petitioner, but the latter had already left. A certain Emilio
Dagorro, a driver of a “colorum” car, who also used to drive for petitioner, volunteered to take the luggage to petitioner.
As Maximo Gomez knew Dagorro to be the same driver used by petitioner whenever the latter was in Butuan City,
Gomez took the luggage and placed it on the counter. Dagorro examined the lock, pressed it, and it opened. After calling
the attention of Maximo Gomez, the “maleta” was opened, Gomez took a look at its contents, but did not touch them.
Dagorro then delivered the “maleta” to petitioner, with the information that the lock was open. Upon inspection,
petitioner found that a folder containing certain exhibits, transcripts and private documents in Civil Case No. 1005 and
Sp. Procs. No. 1126 were missing, aside from two gift items for his parents-in-law. Petitioner refused to accept the
luggage. Dagorro returned it to the porter clerk, Maximo Gomez, who sealed it and forwarded the same to PAL Cebu.
Meanwhile, petitioner asked for postponement of the hearing of Civil Case No. 1005 due to loss of his documents,
which was granted by the Court (Exhs. “C” and “C-1”). Petitioner returned to Cebu City on August 28, 1967. In a letter
dated August 29, 1967 addressed to PAL, Cebu, petitioner called attention to his telegram (Exh. “D”), demanded that his
luggage be produced intact, and that he be compensated in the sum of P250,000.00 for actual and moral damages within
five days from receipt of the letter, otherwise, he would be left with no alternative but to file suit (Exh. “D”).
On August 31, 1967, Messrs. de Leon, Navarsi, and Agustin, all of PAL Cebu, went to petitioner’s office to deliver the
“maleta”. In the presence of Mr. Jose Yap and Atty. Manuel Maranga, the contents were listed and receipted for by
petitioner (Exh. “E”).
On September 5, 1967, petitioner sent a tracer letter to PAL Cebu inquiring about the results of the investigation
which Messrs. de Leon, Navarsi and Agustin had promised to conduct to pinpoint responsibility for the unauthorized
opening of the “maleta” (Exh. “F”).
The following day, September 6, 1967, PAL sent its reply hereinunder quoted verbatim:
“Dear Atty. Ong Yiu:
“This is with reference to your September 5, 1967, letter to Mr. Ricardo G. Paloma, Acting Manager, Southern
Philippines.
 95
“First of all, may we apologize for the delay in informing you of the result of our investigation since we visited you in
your office last August 31, 1967. Since there are stations other than Cebu which are involved in your case, we have to
communicate and await replies from them. We regret to inform you that to date we have not found the supposedly lost
folder of papers nor have we been able to pinpoint the personnel who allegedly pilferred your baggage.

“You must realize that no inventory was taken of the cargo upon loading them on any plane. Consequently, we have
no way of knowing the real contents of your baggage when same was loaded.
“We realized the inconvenience you encountered of this incident but we trust that you will give us another
opportunity to be of better service to you.
Very truly yours,           
PHILIPPINE AIR LINES, INC.
(Sgd) JEREMIAS S. AGUSTIN
Branch Supervisor           
Cebu”                     
(Exhibit G, Folder of Exhibits)”1

On September 13, 1967, petitioner filed a Complaint against PAL for damages for breach of contract of transportation
with the Court of First Instance of Cebu, Branch V, docketed as Civil Case No. R-10188, which PAL traversed. After due
trial, the lower Court found PAL to have acted in bad faith and with malice and declared petitioner entitled to moral
damages in the sum of P80,000.00, exemplary damages of P30,000.00, attorney’s fees of P5,000.00, and costs.
Both parties appealed to the Court of Appeals—petitioner in so far as he was awarded only the sum of P80,000.00 as
moral damages; and defendant because of the unfavorable judgment rendered against it.
On August 22, 1974, the Court of Appeals, * finding that PAL was guilty only of simple negligence, reversed the
judgment of the trial Court granting petitioner moral and exemplary damages, but ordered PAL to pay plaintiff the sum
of P100.00, the baggage liability assumed by it under the condition of carriage printed at the back of the ticket.
Hence, this Petition for Review by Certiorari, filed on May 2, 1975, with petitioner making the following Assignments
of Error:

“I.THE HONORABLE COURT OF APPEALS ERRED IN HOLDING RESPONDENT PAL GUILTY ONLY OF SIMPLE
NEGLIGENCE AND NOT BAD FAITH IN THE BREACH OF ITS CONTRACT OF TRANSPORTATION WITH
PETITIONER.

“II.THE HONORABLE COURT OF APPEALS MISCONSTRUED THE EVIDENCE AND THE LAW WHEN IT REVERSED
THE DECISION OF THE LOWER COURT AWARDING TO PETITIONER MORAL DAMAGES IN THE AMOUNT OF
P80,000.00, EXEMPLARY DAMAGES OF P30,000.00, AND P5,000.00 REPRESENTING ATTORNEY’S FEES, AND
ORDERED RESPONDENT PAL TO COMPENSATE PLAINTIFF THE SUM OF P100.00 ONLY, CONTRARY TO THE
EXPLICIT PROVISIONS OF ARTICLES 2220, 2229, 2232 AND 2234 OF THE CIVIL CODE OF THE PHILIPPINES.

On July 16, 1975, this Court gave due course to the Petition.
There is no dispute that PAL incurred in delay in the delivery of petitioner’s luggage. The question is the correctness
of respondent Court’s conclusion that there was no gross negligence on the part of PAL and that it had not acted
fraudulently or in bad faith as to entitle petitioner to an award of moral and exemplary damages.
From the facts of the case, we agree with respondent Court that PAL had not acted in bad faith. Bad faith means a
breach of a known duty through some motive of interest or ill will. 2 It was the duty of PAL to look for petitioner’s
luggage which had been miscarried. PAL exerted due diligence in complying with such duty.
As aptly stated by the appellate Court:
“We do not find any evidence of bad faith in this. On the contrary, We find that the defendant had exerted diligent
effort to locate plaintiff’s baggage. The trial court saw evidence of bad faith because PAL sent the telegraphic message to
Mactan only at 3:00 o’clock that same afternoon, despite plaintiff’s indignation for the non-arrival of his baggage. The
message was sent within less than one hour after plaintiff’s luggage could not be located. Efforts had to be exerted to
locate plaintiff’s maleta. Then the Bancasi airport had to attend to other incoming passengers and to the outgoing
passengers. Certainly, no evidence of bad faith can be inferred from these facts. Cebu office immediately wired Manila
inquiring about the missing baggage of the plaintiff. At 3:59 P.M., Manila station agent at the domestic airport wired
Cebu that the baggage was overcarried to Manila. And this message was received in Cebu one minute thereafter, or at
4:00 P.M. The baggage was in fact sent back to Cebu City that same afternoon. His Honor stated that the fact that the
message was sent at 3:59 P.M. from Manila and completely relayed to Mactan at 4:00 P.M., or within one minute, made
the message appear spurious. This is a forced reasoning. A radio message of about 50 words can be completely
transmitted in even less than one minute, depending upon atmospheric conditions. Even if the message was sent from
Manila or other distant places, the message can be received within a minute, that is a scientific fact which cannot be
questioned.”3
 96
Neither was the failure of PAL Cebu to reply to petitioner’s rush telegram indicative of bad faith. The telegram (Exh. B)
was dispatched by petitioner at around 10:00 P.M. of August 26, 1967. The PAL supervisor at Mactan Airport was notified
of it only in the morning of the following day. At that time the luggage was already to be forwarded to Butuan City.
There was no bad faith, therefore, in the assumption made by said supervisor that the plane carrying the bag would
arrive at Butuan earlier than a reply telegram. Had petitioner waited or caused someone to wait at the Bancasi airport for
the arrival of the morning flight, he would have been able to retrieve his luggage sooner.
In the absence of a wrongful act or omission or of fraud or bad faith, petitioner is not entitled to moral damages.
“Art. 2217. Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, and similar injury. Though incapable of pecuniary computation,
moral damages may be recovered if they are the proximate result of the defendant’s wrongful act of omission.”
“Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that,
under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the
defendant acted fraudulently or in bad faith.”
Petitioner is neither entitled to exemplary damages. In contracts, as provided for in Article 2232 of the Civil Code,
exemplary damages can be granted if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner, which has not been proven in this case.
Petitioner further contends that respondent Court committed grave error when it limited PAL’s carriage liability to
the amount of P100.00 as stipulated at the back of the ticket. In this connection, respondent Court opined:
“As a general proposition, the plaintiff’s maleta having been pilfered while in the custody of the defendant, it is
presumed that the defendant had been negligent. The liability, however, of PAL for the loss, in accordance with the
stipulation written on the back of the ticket, Exhibit 12, is limited to P100.00 per baggage plaintiff not having declared a
greater value, and not having called the attention of the defendant on its true value and paid the tariff therefor. The
validity of this stipulation is not questioned by the plaintiff. They are printed in reasonably and fairly big letters, and are
easily readable. Moreover, plaintiff had been a frequent passenger of PAL from Cebu to Butuan City and back, and he,
being a lawyer and businessman, must be fully aware of these conditions.” 4

We agree with the foregoing finding. The pertinent Condition of Carriage printed at the back of the plane ticket reads:
“8. BAGGAGE LIABILITY . . . The total liability of the Carrier for lost or damaged baggage of the passenger is LIMITED
TO P100.00 for each ticket unless a passenger declares a higher valuation in excess of P100.00, but not in excess,
however, of a total valuation of P 1,000.00 and additional charges are paid pursuant to Carrier’s tariffs.”

There is no dispute that petitioner did not declare any higher value for his luggage, much less did he pay any additional
transportation charge.

But petitioner argues that there is nothing in the evidence to show that he had actually entered into a contract with PAL
limiting the latter’s liability for loss or delay of the baggage of its passengers, and that Article 1750 * of the Civil Code has
not been complied with.
While it may be true that petitioner had not signed the plane ticket (Exh. “12”), he is nevertheless bound by the
provisions thereof. “Such provisions have been held to be a part of the contract of carriage, and valid and binding upon
the passenger regardless of the latter’s lack of knowledge or assent to the regulation”. 5 It is what is known as a contract
of “adhesion”, in regards which it has been said that contracts of adhesion wherein one party imposes a ready made form
of contract on the other, as the plane ticket in the case at bar, are contracts not entirely prohibited. The one who
adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent. 6 And as held in Randolph
v. American Airlines, 103 Ohio App. 172, 144 N.E. 2d 878; Rosenchein vs. Trans World Airlines, Inc., 349 S.W. 2d 483, “a
contract limiting liability upon an agreed valuation does not offend against the policy of the law forbidding one from
contracting against his own negligence.”
Considering, therefore, that petitioner had failed to declare a higher value for his baggage, he cannot be permitted a
recovery in excess of P100.00. Besides, passengers are advised not to place valuable items inside their baggage but “to
avail of our V-cargo service” (Exh. “1”). It is likewise to be noted that there is nothing in the evidence to show the actual
value of the goods allegedly lost by petitioner.

There is another matter involved, raised as an error by PAL—the fact that on October 24, 1974 or two months after the
promulgation of the Decision of the appellate Court, petitioner’s widow filed a Motion for Substitution claiming that
petitioner died on January 6, 1974 and that she only came to know of the adverse Decision on October 23, 1974 when
petitioner’s law partner informed her that he received copy of the Decision on August 28, 1974. Attached to her Motion
was an Affidavit of petitioner’s law partner reciting facts constitutive of excusable negligence. The appellate Court noting
that all pleadings had been signed by petitioner himself allowed the widow “to take such steps as she or counsel may
deem necessary.” She then filed a Motion for Reconsideration over the opposition of PAL which alleged that the Court of
Appeals Decision, promulgated on August 22, 1974, had already become final and executory since no appeal had been
interposed therefrom within the reglementary period.
 97
Under the circumstances, considering the demise of petitioner himself, who acted as his own counsel, it is best that
technicality yields to the interests of substantial justice. Besides, in the last analysis, no serious prejudice has been
caused respondent PAL.
In fine, we hold that the conclusions drawn by respondent Court from the evidence on record are not erroneous.
WHEREFORE, for lack of merit, the instant Petition is hereby denied, and the judgment sought to be reviewed
hereby affirmed in toto.
No costs.
SO ORDERED.
     Teehankee, (Chairman),  Makasiar, Fernandez,  Guerrero and De Castro, JJ., concur.

Petition denied and judgment affirmed.

Notes.—The rude and rough reception plaintiff received from the hands of Sitton or Cpt. Tentner when the latter
met him at the ramp, the menacing attitude of Tentner or Sitton and the supercilious manner in which he had asked
plaintiff to open his bags and when told that a fourth bag was missing, etc., justify an award of moral damages. (Zulueta
vs. Pan American World Airways, 43 SCRA 397).
If “gross negligence” warrants the award of exemplary damages, with more reason is its imposition justified when the
act performed is deliberate, malicious and tainted with bad faith. (Danilo vs. Phil. Air Lines, 49 SCRA 497).
The transferee of a common carrier is liable to the registered owner of the vehicles for damages caused the
passengers. (Perez vs. Gutierrez, 53 SCRA 149).
An unreasonable obstinacy and desistence to pay legitimate insurance claim entitle’s the insured’s heirs to moral
damages even if such obstinacy and desistance were not made in bad faith. (Evangelista vs. GSIS, 66 SCRA 71).
Stipulation in the bill of lading limiting carrier’s liability to the value of goods appearing therein, unless shipper
declares a greater value, is valid and binding. (St Paul Fire & Marine Insurance Co. vs. Macondray & Co., 70 SCRA 122).
Where defendant in an action for breach of contract of carriage shows by affidavit, in a motion for summary
judgment, that cause of death of its passenger was due to fortuitous event, the plaintiff has burden of proof to show by
opposing affidavits and other papers that the cause of the said accidental death was attributable to the common carriers.
(Estrada vs. Consolacion, 71 SCRA 523).
Common carriers are liable for the missing goods for failure to comply with its duty. (American Insurance Co., Inc.
vs. Macondray & Co., Inc., 39 SCRA 494).
Breach by common carrier to contract of carriage justifies award of damages to passenger. (Zulueta vs. Pan American
World Airways, Inc., 43 SCRA 397; Davila vs. Philippine Air Lines, 49 SCRA 497).
Registered owner of common carrier is liable for damages resulting from breach of contract of carriage. ( Perez vs.
Gutierrez, 53 SCRA 149).

25. Pan American World Airways, Inc. vs. IAC, 164 SCRA 268, August 11, 1988
No. L-70462. August 11, 1988.*
PAN AMERICAN WORLD AIRWAYS, INC., petitioner, vs. INTERMEDIATE APPELLATE COURT, RENE V. PANGAN,
SOTANG BASTOS PRODUCTIONS and ARCHER PRODUCTIONS, respondents.

Civil Law; Common Carrier;  Liability for lost of baggage; Ruling in Ong Yiu vs. Court of Appeals sustaining the
validity of a printed stipulation at the back of an airline ticket limiting liability of the carrier for lost baggage to a specified
amount and that the liability limited to said amount since the passenger did not declare a higher value much less pay
additional charges squarely applicable to the instant case.—We find the ruling in Ong Yiu squarely applicable to the
instant case. In said case the Court, through Justice Melencio-Herrera, stated: Petitioner further contends that
respondent Court committed grave error when it limited PAL’s carriage liability to the amount of P100.00 as stipulated
at the back of the ticket. . . . We agree with the foregoing finding. The pertinent Condition of Carnage printed at the
back of the plane ticket reads: 8 BAGGAGE LIABILITY. . . The total liability of the Carrier for lost or damaged baggage of
the passenger is LIMITED TO P100.00 for each ticket unless a passenger declares a higher valuation in excess of P100.00,
but not in excess, however of a total valuation of P1,000.00 and additional charges are paid pursuant to Carrier’s tariffs.
There is no dispute that petitioner did not declare any higher value for his luggage, much less did he pay any additional
transportation charge.
Same;  Same; Same;  Same; Fact that petitioner had not signed the plane ticket he is nevertheless bound by the
provisions thereof.—While, it may be true that petitioner had not signed the plane ticket (Exh. “12”), he is nevertheless
bound by the provisions thereof. “Such provisions have been held to be a part of the contract of carriage, and valid and
binding upon the passenger regardless of the latter’s lack of knowledge or assent to the regulation.” [Tannebaum v.
National Airline, Inc., 13 Misc. 2d 450, 176 N.Y.S. 2d 400; Lichten v. Eastern Airlines, 87 Fed. Supp. 691; Migoski v. Eastern
Air Lines, Inc., Fla., 63 So. 2d 634.] It is what is known as a contract of “adhesion,” in regards which it has been said that
contracts of adhesion wherein one party imposes a ready made form of contract on the other, as the plane ticket in the
case at bar, are contracts not entirely prohibited, the one who adheres to the contract is in reality free to reject it
entirely; if he adheres, he gives his consent [Tolentino, Civil Code, Vol IV, 1962 ed., p. 462, citing Mr. Justice J.B.L. Reyes,
Lawyer’s Journal, Jan. 31, 1951, p. 49]. And as held in Randolph v. American Airlines, 103 Ohio App. 172, 144 N.E. 2d 878;
 98
Rosenchein v. Trans World Airlines, Inc., 349 S.W. 2d 483, “a contract limiting liability upon an agreed valuation does
not offend against the policy of the law forbidding one from contracting against his own negligence.”
Same;  Same; Same;  Ruling in Shewaram vs. PAL Inc. that the stipulation limiting the carrier’s liability to a specified
amount was invalid finds no application in the instant case.—On the other hand, the ruling in Shewaram v. Philippine Air
Lines, Inc. [G.R. No. L-20099, July 2, 1966, 17 SCRA 606], where the court held that the stipulation limiting the carrier’s
liability to a specified amount was invalid, finds no application in the instant case, as the ruling in said case was
premised on the finding that the conditions printed at the back of the ticket were so small and hard to read that they
would not warrant the presumption that the passenger was aware of the conditions and that he had freely and fairly
agreed thereto. In the instant case, similar facts that would make the case fall under the exception have not been alleged,
much less shown to exist.
Same;  Same; Same;  Damages;  Court inable to agree with decision of the trial court and affirmed by the Court of
Appeals awarding private respondents damages as and for lost profits.—The Court finds itself unable to agree with the
decision of the trial court, and affirmed by the Court of Appeals, awarding private respondents damages as and for lost
profits when their contracts to show the films in Guam and San Francisco, California were cancelled. The rule laid down
in Mendoza v. Philippine Air Lines, Inc. [90 Phil. 836 (1952)] cannot be any clearer:. . . Under Art. 1107 of the Civil Code, a
debtor in good faith like the defendant herein, may be held liable only for damages that were foreseen or might have
been foreseen at the time the contract of transportation was entered into. The trial court correctly found that the
defendant company could not have foreseen the damages that would be suffered by Mendoza upon failure to deliver the
can of film on the 17th of September, 1948 for the reason that the plans of Mendoza to exhibit that film during the two
fiesta and his preparations, specially the announcement of said exhibition by posters and advertisement in the
newspaper, were not called to the defendant’s attention.
Same;  Same; Same;  Same; Same;  Petitioner cannot be held liable for the cancellation of private respondents’
contract.—Thus, applying the foregoing ruling to the facts of the instant case, in the absence of a showing that
petitioner’s attention was called to the special circumstances requiring prompt delivery of private respondent Pangan’s
luggages, petitioner cannot be held liable for the cancellation of private respondents’ contracts as it could not have
foreseen such an eventuality when it accepted the luggages for transit.
Same;  Same; Same;  Attorney’s fees; Award of Attorney’s fees losses support and must be set aside.—With the Court’s
holding that petitioner’s liability is limited to the amount stated in the ticket, the award of attorney’s fees, which is
grounded on the alleged unjustified refusal of petitioner to satisfy private respondent’s just and valid claim, loses
support and must be set aside.

PETITION to review the decision of the Intermediate Appellate Court.

The facts are stated in the opinion of the Court.

     Guerrero & Torres for petitioner.
     Jose B. Layug for private respondents.

CORTES, J.:

Before the Court is a petition filed by an international air carrier seeking to limit its liability for lost baggage, containing
promotional and advertising materials for films to be exhibited in Guam and the U.S.A., clutch bags, barong tagalogs
and personal belongings, to the amount specified in the airline ticket absent a declaration of a higher valuation and the
payment of additional charges.
The undisputed facts of the case, as found by the trial court and adopted by the appellate court, are as follows:
On April 25, 1978, plaintiff Rene V. Pangan, president and general manager of the plaintiffs Sotang Bastos and Archer
Productions, while in San Francisco, California and Primo Quesada of Prime Films, San Francisco, California, entered
into an agreement (Exh. A) whereby the former, for and in consideration of the amount of US $2,500.00 per picture,
bound himself to supply the latter with three films. ‘Ang Mabait, Masungit at ang Pangit,’ ‘Big Happening with Chikiting
and Iking,’ and ‘Kambal Dragon’ for exhibition in the United States. It was also their agreement that plaintiffs would
provide the necessary promotional and advertising materials for said films on or before May 30, 1978.

On his way home to the Philippines, plaintiff Pangan visited Guam where he contacted Leo Slutchnick of the Hafa
Adai Organization. Plaintiff Pangan likewise entered into a verbal agreement with Slutchnick for the exhibition of two of
the films above-mentioned at the Hafa Adai Theater in Guam on May 30, 1978 for the consideration of P7,000.00 per
picture (p. 11, tsn, June 20, 1979). Plaintiff Pangan undertook to provide the necessary promotional and advertising
materials for said films on or before the exhibition date on May 30, 1978.
By virtue of the above agreements, plaintiff Pangan caused the preparation of the requisite promotional handbills
and still pictures for which he paid the total sum of P12,900.00 (Exhs. B, B-1, C and C-1). Likewise in preparation for his
trip abroad to comply with his contracts, plaintiff Pangan purchased fourteen clutch bags, four capiz lamps and four
barong tagalog, with a total value of P4,400.00 (Exhs. D, D-1, E, and F).
On May 18, 1978, plaintiff Pangan obtained from defendant Pan Am’s Manila Office, through the Your Travel Guide,
an economy class airplane ticket with No. 0269207406324 (Exh. G) for passage from Manila to Guam on defendant’s
 99
Flight No. 842 of May 27, 1978, upon payment by said plaintiff of the regular fare. The Your Travel Guide is a tour and
travel office owned and managed by plaintiff’s witness Mila de la Rama.
On May 27, 1978, two hours before departure time plaintiff Pangan was at the defendant’s ticket counter at the
Manila International Airport and presented his ticket and checked in his two luggages, for which he was given baggage
claim tickets Nos. 963633 and 963649 (Exhs. H and H-1). The two luggages contained the promotional and advertising
materials, the clutch bags, barong tagalog and his personal belongings. Subsequently, Pangan was informed that his
name was not in the manifest and so he could not take Flight No. 842 in the economy class. Since there was no space in
the economy class, plaintiff Pangan took the first class because he wanted to be on time in Guam to comply with his
commitment, paying an additional sum of $112.00.

When plaintiff Pangan arrived in Guam on the date of May 27, 1978, his two luggages did not arrive with his flight, as
a consequence of which his agreements with Slutchnick and Quesada for the exhibition of the films in Guam and in the
United States were cancelled (Exh. L). Thereafter, he filed a written claim (Exh. J) for his missing luggages.
Upon arrival in the Philippines, Pangan contacted his lawyer, who made the necessary representations to protest as
to the treatment which he received from the employees of the defendant and the loss of his two luggages (Exh. M, O, Q,
S, and T). Defendant Pan Am assured plaintiff Pangan that his grievances would be investigated and given its immediate
consideration (Exhs. N, P and R). Due to the defendant’s failure to communicate with Pangan about the action taken on
his protests, the present complaint was filed by the plaintiff. (Pages 4-7, Record On Appeal). [Rollo, pp. 27-29.]

On the basis of these facts, the Court of First Instance found petitioner liable and rendered judgment as follows:

(1)Ordering defendant Pan American World Airways, Inc. to pay all the plaintiffs the sum of P83,000.00, for actual
damages, with interest thereon at the rate of 14% per annum from December 6, 1978, when the complaint was filed, until
the same is fully paid, plus the further sum of P10,000.00 as attorney’s fees;

(2)Ordering defendant Pan American World Airways, Inc. to pay plaintiff Rene V. Pangan the sum of P8,123.34, for
additional actual damages, with interest thereon at the rate of 14% per annum from December 6, 1978, until the same is
fully paid;

(3)Dismissing the counterclaim interposed by defendant Pan American World Airways, Inc.; and

(4)Ordering defendant Pan American World Airways, Inc. to pay the costs of suit. [Rollo, pp. 106-107.]

On appeal, the then Intermediate Appellate Court affirmed the trial court decision.
Hence, the instant recourse to this Court by petitioner.
The petition was given due course and the parties, as required, submitted their respective memoranda. In due time
the case was submitted for decision.
In assailing the decision of the Intermediate Appellate Court petitioner assigned the following errors:

1.The respondent court erred as a matter of law in affirming the trial court’s award of actual damages beyond the
limitation of liability set forth in the Warsaw Convention and the contract of carriage.

2.The respondent court erred as a matter of law in affirming the trial court’s award of actual damages consisting of
alleged lost profits in the face of this Court’s ruling concerning special or consequential damages as set forth in Mendoza
v. Philippine Airlines [90 Phil. 836 (1952).]

The assigned errors shall be discussed seriatim.

1.The airline ticket (Exh. “G”) contains the following conditions:

NOTICE

If the passenger’s journey involves an ultimate destination or stop in a country other than the country of departure the
Warsaw Convention may be applicable and the Convention governs and in most cases limits the liability of carriers for
death or personal injury and in respect of loss of or damage to baggage. See also notice headed “Advice to International
Passengers on Limitation of Liability.”

CONDITIONS OF CONTRACT
 100
1.As used in this contract “ticket” means this passenger ticket and baggage check of which these conditions and the
notices form part, “carriage” is equivalent to “transportation,” “carrier” means all air carriers that carry or undertake to
carry the passenger or his baggage hereunder or perform any other service incidental to such air carriage. “WARSAW
CONVENTION” means the convention for the Unification of Certain Rules Relating to International Carriage by Air
signed at Warsaw, 12th October 1929, or that Convention as amended at The Hague, 28th September 1955, whichever
may be applicable.

2.Carriage hereunder is subject to the rules and limitations relating to liability established by the Warsaw Convention
unless such carriage is not “international carriage” as defined by that Convention.

3.To the extent not in conflict with the foregoing carriage and other services performed by each carrier are subject to: (i)
provisions contained in this ticket, (ii) applicable tariffs, (iii) carrier’s conditions of carriage and related regulations
which are made part hereof (and are available on application at the offices of carrier), except in transportation between a
place in the United States or Canada and any place outside thereof to which tariffs in force in those countries apply.

xxx

NOTICE OF BAGGAGE LIABILITY LIMITATIONS

Liability for loss, delay, or damage to baggage is limited as follows unless a higher value is declared in advance and
additional charges are paid: (1) for most international travel (including domestic portions of international journeys) to
approximately $9.07 per pound ($20.00 per kilo) for checked baggage and $400 per passenger for unchecked baggage: (2)
for travel wholly between U.S. points, to $750 per passenger on most carriers (a few have lower limits). Excess valuation
may not be declared on certain types of valuable articles. Carriers assume no liability for fragile or perishable articles,
further information may be obtained from the carrier. [Italics supplied.].

On the basis of the foregoing stipulations printed at the back of the ticket, petitioner contends that its liability for the
lost baggage of private respondent Pangan is limited to $600.00 ($20.00 x 30 kilos) as the latter did not declare a higher
value for his baggage and pay the corresponding additional charges.
To support this contention, petitioner cites the case of Ong Yiu v. Court of Appeals [G.R. No. L-40597, June 29,
1979, 91 SCRA 223), where the Court sustained the validity of a printed stipulation at the back of an airline ticket limiting
the liability of the carrier for lost baggage to a specified amount and ruled that the carrier’s liability was limited to said
amount since the passenger did not declare a higher value, much less pay additional charges.
We find the ruling in Ong Yiu squarely applicable to the instant case. In said case, the Court, through Justice
Melencio-Herrera, stated:
Petitioner further contends that respondent Court committed grave error when it limited PAL’s carriage liability to the
amount of P100.00 as stipulated at the back of the ticket. . . .
We agree with the foregoing finding. The pertinent Condition of Carriage printed at the back of the plane ticket
reads:
8. BAGGAGE LIABILITY . . . The total liability of the Carrier for lost or damage baggage of the passenger is LIMITED TO
P100.00 for each ticket unless a passenger declares a higher valuation in excess of P100.00, but not in excess, however, of
a total valuation of P1,000.00 and additional charges are paid pursuant to Carrier’s tariffs.

There is no dispute that petitioner did not declare any higher value for his luggage, much less did he pay any
additional transportation charge.
But petitioner argues that there is nothing in the evidence to show that he had actually entered into a contract with
PAL limiting the latter’s liability for loss or delay of the baggage of its passengers, and that Article 1750 ** of the Civil Code
has not been complied with.
While it may be true that petitioner had not signed the plane ticket (Exh. “12”), he is nevertheless bound by the
provisions thereof. “Such provisions have been held to be a part of the contract of carriage, and valid and binding upon
the passenger regardless of the latter’s lack of knowledge or assent to the regulation.” [Tannebaum v. National Airline,
Inc., 13 Misc. 2d 450, 176 N.Y.S. 2d 400; Lichten v. Eastern Airlines, 87 Fed. Supp. 691; Migoski v. Eastern Air Lines, Inc.,
Fla., 63 So. 2d 634.] It is what is known as a contract of “adhesion,” in regards which it has been said that contracts of
adhesion wherein one party imposes a ready made form of contract on the other, as the plane ticket in the case at bar,
are contracts not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he
adheres, he gives his consent [Tolentino, Civil Code, Vol. IV, 1962 ed., p. 462, citing Mr. Justice J.B.L. Reyes, Lawyer’s
Journal, Jan. 31, 1951, p. 49]. And as held in Randolph v. American Airlines, 103 Ohio App. 172, 144 N.E. 2d 878;
Rosenchein v. Trans World Airlines, Inc., 349 S.W. 2d 483, “a contract limiting liability upon an agreed valuation does
not offend against the policy of the law forbidding one from contracting against his own negligence.”
Considering, therefore, that petitioner had failed to declare a higher value for his baggage, he cannot be permitted a
recovery in excess of P100.00. . . .
 101
On the other hand, the ruling in Shewaram v. Philippine Air Lines, Inc. [G.R. No. L-20099, July 2, 1966, 17 SCRA 606],
where the Court held that the stipulation limiting the carrier’s liability to a specified amount was invalid, finds no
application in the instant case, as the ruling in said case was premised on the finding that the conditions printed at the
back of the ticket were so small and hard to read that they would not warrant the presumption that the passenger was
aware of the conditions and that he had freely and fairly agreed thereto. In the instant case, similar facts that would
make the case fall under the exception have not been alleged, much less shown to exist.
In view thereof petitioner’s liability for the lost baggage is limited to $20.00 per kilo or $600.00, as stipulated at the
back of the ticket.
At this juncture, in order to rectify certain misconceptions the Court finds it necessary to state that the Court of
Appeal’s reliance on a quotation from Northwest Airlines, Inc. v. Cuenca [G.R. No. L-22425, August 31, 1965, 14 SCRA
1063] to sustain the view that “to apply the Warsaw Convention which limits a carrier’s liability to US$9.07 per pound or
US$20.00 per kilo in cases of contractual breach of carriage *** is against public policy” is utterly misplaced, to say the
least. In said case, while the Court, as quoted in the Intermediate Appellate Court’s decision, said:
Petitioner argues that pursuant to those provisions, an air “carrier is liable only” in the event of death of a passenger or
injury suffered by him, or of destruction or loss of, or damages to any checked baggage or any goods, or of delay in the
transportation by air of passengers, baggage or goods. This pretense is not borne out by the language of said Articles.
The same merely declare the carrier liable for damages in enumerated cases, if the conditions therein specified are
present. Neither said provisions nor others in the aforementioned Convention regulate or exclude liability for other
breaches of contract by the carrier. Under petitioner’s theory, an air carrier would be exempt from any liability for
damages in the event of its absolute refusal, in bad faith, to comply with a contract of carriage, which is absurd.
it prefaced this statement by explaining that:
. . . The case is now before us on petition for review by certiorari, upon the ground that the lower court has erred: (1) in
holding that the Warsaw Convention of October 12, 1929, relative to transportation by air is not in force in the
Philippines: (2) in not holding that respondent has no cause of action; and (3) in awarding P20,000 as nominal damages.
We deem it unnecessary to pass upon the first assignment of error because the same is the basis of the second
assignment of error, and the latter is devoid of merit, even if we assumed the former to be well-taken. (Italics supplied.)

Thus, it is quite clear that the Court never intended to, and in fact never did, rule against the validity of provisions of
the Warsaw Convention. Consequently, by no stretch of the imagination may said quotation from Northwest be
considered as supportive of the appellate court’s statement that the provisions of the Warsaw Convention limited a
carrier’s liability are against public policy.

2.The Court finds itself unable to agree with the decision of the trial court, and affirmed by the Court of Appeals,
awarding private respondents damages as and for lost profits when their contracts to show the films in Guam and San
Francisco, California were cancelled.

The rule laid down in Mendoza v. Philippine Air Lines, Inc. [90 Phil. 836 (1952)] cannot be any clearer:
. . . Under Art. 1107 of the Civil Code, a debtor in good faith like the defendant herein, may be held liable only for damages
that were foreseen or might have been foreseen at the time the contract of transportation was entered into. The trial court
correctly found that the defendant company could not have foreseen the damages that would be suffered by Mendoza upon
failure to deliver the can of film on the 17th of September, 1948 for the reason that the plans of Mendoza to exhibit that
film during the town fiesta and his preparations, specially the announcement of said exhibition by posters and
advertisement in the newspaper, were not called to the defendant’s attention.

In our research for authorities we have found a case very similar to the one under consideration. In the case of
Chapman vs. Fargo, L.R.A. (1918 F) p. 1049, the plaintiff in Troy, New York, delivered motion picture films to the
defendant Fargo, an express company, consigned and to be delivered to him in Utica. At the time of shipment the
attention of the express company was called to the fact that the shipment involved motion picture films to be exhibited
in Utica, and that they should be sent to their destination, rush. There was delay in their delivery and it was found that
the plaintiff because of his failure to exhibit the film in Utica due to the delay suffered damages or loss of profits. But the
highest court in the State of New York refused to award him special damages. Said appellate court observed:
But before defendant could be held to special damages, such as the present alleged loss of profits on account of delay or
failure of delivery, it must have appeared that he had notice at the time of delivery to him of the particular circumstances
attending the shipment, and which probably would lead to such special loss if he defaulted. Or, as the rule has been stated
in another form, in order to impose on the defaulting party further liability than for damages naturally and directly, i.e., in
the ordinary course of things, arising from a breach of contract, such unusual or extraordinary damages must have been
brought within the contemplation of the parties as the probable result of breach at the time of or prior to contacting.
Generally, notice then of any special circumstances which will show that the damages to be anticipated from a breach
would be enhanced has been held sufficient for this effect.
 102
As may be seen, that New York case is a stronger one than the present case for the reason that the attention of the
common carrier in said case was called to the nature of the articles shipped, the purpose of shipment, and the desire to
rush the shipment, circumstances and facts absent in the present case. [Italics supplied.]

Thus, applying the foregoing ruling to the facts of the instant case, in the absence of a showing that petitioner’s
attention was called to the special circumstances requiring prompt delivery of private respondent Pangan’s luggages,
petitioner cannot be held liable for the cancellation of private respondents’ contracts as it could not have foreseen such
an eventuality when it accepted the luggages for transit.
The Court is unable to uphold the Intermediate Appellate Court’s disregard of the rule laid down in  Mendoza and
affirmance of the trial court’s conclusion that petitioner is liable for damages based on the finding that “[t]he undisputed
fact is that the contracts of the plaintiffs for the exhibition of the films in Guam and California were cancelled because of
the loss of the two luggages in question.” [Rollo, p. 36] The evidence reveals that the proximate cause of the cancellation
of the contracts was private respondent Pangan’s failure to deliver the promotional and advertising materials on the
dates agreed upon. For this petitioner cannot be held liable. Private respondent Pangan had not declared the value of
the two luggages he had checked in and paid additional charges. Neither was petitioner privy to respondents’ contracts
nor was its attention called to the condition therein requiring delivery of the promotional and advertising materials on
or before a certain date.

3.With the Court’s holding that petitioner’s liability is limited to the amount stated in the ticket, the award of attorney’s
fees, which is grounded on the alleged unjustified refusal of petitioner to satisfy private respondent’s just and valid
claim, loses support and must be set aside.

WHEREFORE, the Petition is hereby GRANTED and the Decision of the Intermediate Appellate Court is SET ASIDE and
a new judgment is rendered ordering petitioner to pay private respondents damages in the amount of US$600.00 or its
equivalent in Philippine currency at the time of actual payment.
SO ORDERED.
     Fernan, (C.J.),  Feliciano and Bidin, JJ., concur.
     Gutierrez, Jr., J., no part as I was on leave during the deliberation.

Petition granted. Decision set aside.

Notes.—Stipulation in the bill of lading limiting carrier’s liability to the value of goods appearing therein, unless
shipper declares a quarter value, is valid and binding. (St. Paul Fire and Marine Insurance Co. vs. Macondray and Co., 70
SCRA 122.)
Limitations of carrier’s liability for lose or damage to goods is valid. (Servando vs. Philippine Steam Navigation Co., 117
SCRA 832.)

26. Eastern Shipping Lines, Inc. vs. Intermediate Appellate Court,  150 SCRA 463, May 29, 1987

G.R. No. L-69044 May 29, 1987

EASTERN SHIPPING LINES, INC., petitioner, vs. INTERMEDIATE APPELLATE COURT and DEVELOPMENT
INSURANCE & SURETY CORPORATION, respondents.

No. 71478 May 29, 1987

EASTERN SHIPPING LINES, INC., petitioner, vs. mTHE NISSHIN FIRE AND MARINE INSURANCE CO., and
DOWA FIRE & MARINE INSURANCE CO., LTD., respondents.

MELENCIO-HERRERA, J.:

These two cases, both for the recovery of the value of cargo insurance, arose from the same incident, the sinking of the
M/S ASIATICA when it caught fire, resulting in the total loss of ship and cargo.

The basic facts are not in controversy:

In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel operated by petitioner Eastern
Shipping Lines, Inc., (referred to hereinafter as Petitioner Carrier) loaded at Kobe, Japan for transportation to Manila,
5,000 pieces of calorized lance pipes in 28 packages valued at P256,039.00 consigned to Philippine Blooming Mills Co.,
 103
Inc., and 7 cases of spare parts valued at P92,361.75, consigned to Central Textile Mills, Inc. Both sets of goods were
insured against marine risk for their stated value with respondent Development Insurance and Surety Corporation.

In G.R. No. 71478, during the same period, the same vessel took on board 128 cartons of garment fabrics and accessories,
in two (2) containers, consigned to Mariveles Apparel Corporation, and two cases of surveying instruments consigned to
Aman Enterprises and General Merchandise. The 128 cartons were insured for their stated value by respondent Nisshin
Fire & Marine Insurance Co., for US $46,583.00, and the 2 cases by respondent Dowa Fire & Marine Insurance Co., Ltd.,
for US $11,385.00.

Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total loss of ship and cargo. The
respective respondent Insurers paid the corresponding marine insurance values to the consignees concerned and were
thus subrogated unto the rights of the latter as the insured.

G.R. NO. 69044

On May 11, 1978, respondent Development Insurance & Surety Corporation (Development Insurance, for short), having
been subrogated unto the rights of the two insured companies, filed suit against petitioner Carrier for the recovery of the
amounts it had paid to the insured before the then Court of First instance of Manila, Branch XXX (Civil Case No. 6087).

Petitioner-Carrier denied liability mainly on the ground that the loss was due to an extraordinary fortuitous event,
hence, it is not liable under the law.

On August 31, 1979, the Trial Court rendered judgment in favor of Development Insurance in the amounts of
P256,039.00 and P92,361.75, respectively, with legal interest, plus P35,000.00 as attorney's fees and costs. Petitioner
Carrier took an appeal to the then Court of Appeals which, on August 14, 1984, affirmed.

Petitioner Carrier is now before us on a Petition for Review on Certiorari.

G.R. NO. 71478

On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN for short), and Dowa Fire & Marine
Insurance Co., Ltd. (DOWA, for brevity), as subrogees of the insured, filed suit against Petitioner Carrier for the recovery
of the insured value of the cargo lost with the then Court of First Instance of Manila, Branch 11 (Civil Case No. 116151),
imputing unseaworthiness of the ship and non-observance of extraordinary diligence by petitioner Carrier.

Petitioner Carrier denied liability on the principal grounds that the fire which caused the sinking of the ship is an
exempting circumstance under Section 4(2) (b) of the Carriage of Goods by Sea Act (COGSA); and that when the loss of
fire is established, the burden of proving negligence of the vessel is shifted to the cargo shipper.

On September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN and DOWA in the amounts of US
$46,583.00 and US $11,385.00, respectively, with legal interest, plus attorney's fees of P5,000.00 and costs. On appeal by
petitioner, the then Court of Appeals on September 10, 1984, affirmed with modification the Trial Court's judgment by
decreasing the amount recoverable by DOWA to US $1,000.00 because of $500 per package limitation of liability under
the COGSA.

Hence, this Petition for Review on certiorari by Petitioner Carrier.

Both Petitions were initially denied for lack of merit. G.R. No. 69044 on January 16, 1985 by the First Division, and G. R.
No. 71478 on September 25, 1985 by the Second Division. Upon Petitioner Carrier's Motion for Reconsideration, however,
G.R. No. 69044 was given due course on March 25, 1985, and the parties were required to submit their respective
Memoranda, which they have done.

On the other hand, in G.R. No. 71478, Petitioner Carrier sought reconsideration of the Resolution denying the Petition
for Review and moved for its consolidation with G.R. No. 69044, the lower-numbered case, which was then pending
resolution with the First Division. The same was granted; the Resolution of the Second Division of September 25, 1985
was set aside and the Petition was given due course.

At the outset, we reject Petitioner Carrier's claim that it is not the operator of the M/S Asiatica but merely a charterer
thereof. We note that in G.R. No. 69044, Petitioner Carrier stated in its Petition:
 104
There are about 22 cases of the "ASIATICA" pending in various courts where various plaintiffs are represented by various
counsel representing various consignees or insurance companies. The common defendant in these cases is petitioner
herein, being the operator of said vessel. ... 1

Petitioner Carrier should be held bound to said admission. As a general rule, the facts alleged in a party's pleading are
deemed admissions of that party and binding upon it. 2 And an admission in one pleading in one action may be received
in evidence against the pleader or his successor-in-interest on the trial of another action to which he is a party, in favor
of a party to the latter action. 3

The threshold issues in both cases are: (1) which law should govern — the Civil Code provisions on Common carriers or
the Carriage of Goods by Sea Act? and (2) who has the burden of proof to show negligence of the carrier?

On the Law Applicable

The law of the country to which the goods are to be transported governs the liability of the common carrier in case of
their loss, destruction or deterioration. 4 As the cargoes in question were transported from Japan to the Philippines, the
liability of Petitioner Carrier is governed primarily by the Civil Code. 5 However, in all matters not regulated by said
Code, the rights and obligations of common carrier shall be governed by the Code of Commerce and by special
laws. 6 Thus, the Carriage of Goods by Sea Act, a special law, is suppletory to the provisions of the Civil Code. 7

On the Burden of Proof

Under the Civil Code, common carriers, from the nature of their business and for reasons of public policy, are bound to
observe extraordinary diligence in the vigilance over goods, according to all the circumstances of each case.  8 Common
carriers are responsible for the loss, destruction, or deterioration of the goods unless the same is due to any of the
following causes only:

(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;

xxx xxx xxx 9

Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability under the phrase "natural disaster or
calamity. " However, we are of the opinion that fire may not be considered a natural disaster or calamity. This must be
so as it arises almost invariably from some act of man or by human means. 10 It does not fall within the category of an
act of God unless caused by lightning 11 or by other natural disaster or calamity. 12 It may even be caused by the actual
fault or privity of the carrier. 13

Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to leases of rural lands
where a reduction of the rent is allowed when more than one-half of the fruits have been lost due to such event,
considering that the law adopts a protection policy towards agriculture. 14

As the peril of the fire is not comprehended within the exception in Article 1734, supra, Article 1735 of the Civil Code
provides that all cases than those mention in Article 1734, the common carrier shall be presumed to have been at fault or
to have acted negligently, unless it proves that it has observed the extraordinary deligence required by law.

In this case, the respective Insurers. as subrogees of the cargo shippers, have proven that the transported goods have
been lost. Petitioner Carrier has also proved that the loss was caused by fire. The burden then is upon Petitioner Carrier
to proved that it has exercised the extraordinary diligence required by law. In this regard, the Trial Court, concurred in
by the Appellate Court, made the following Finding of fact:

The cargoes in question were, according to the witnesses defendant placed in hatches No, 2 and 3 cf the vessel,
Boatswain Ernesto Pastrana noticed that smoke was coming out from hatch No. 2 and hatch No. 3; that where the smoke
was noticed, the fire was already big; that the fire must have started twenty-four 24) our the same was noticed; that
carbon dioxide was ordered released and the crew was ordered to open the hatch covers of No, 2 tor commencement of
fire fighting by sea water: that all of these effort were not enough to control the fire.

Pursuant to Article 1733, common carriers are bound to extraordinary diligence in the vigilance over the goods. The
evidence of the defendant did not show that extraordinary vigilance was observed by the vessel to prevent the
occurrence of fire at hatches numbers 2 and 3. Defendant's evidence did not likewise show he amount of diligence made
by the crew, on orders, in the care of the cargoes. What appears is that after the cargoes were stored in the hatches, no
 105
regular inspection was made as to their condition during the voyage. Consequently, the crew could not have even
explain what could have caused the fire. The defendant, in the Court's mind, failed to satisfactorily show that
extraordinary vigilance and care had been made by the crew to prevent the occurrence of the fire. The defendant, as a
common carrier, is liable to the consignees for said lack of deligence required of it under Article 1733 of the Civil Code. 15

Having failed to discharge the burden of proving that it had exercised the extraordinary diligence required by law,
Petitioner Carrier cannot escape liability for the loss of the cargo.

And even if fire were to be considered a "natural disaster" within the meaning of Article 1734 of the Civil Code, it is
required under Article 1739 of the same Code that the "natural disaster" must have been the "proximate and only cause
of the loss," and that the carrier has "exercised due diligence to prevent or minimize the loss before, during or after the
occurrence of the disaster. " This Petitioner Carrier has also failed to establish satisfactorily.

Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods by Sea Act, It is provided therein that:

Sec. 4(2). Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from

(b) Fire, unless caused by the actual fault or privity of the carrier.

xxx xxx xxx

In this case, both the Trial Court and the Appellate Court, in effect, found, as a fact, that there was "actual fault" of the
carrier shown by "lack of diligence" in that "when the smoke was noticed, the fire was already big; that the fire must have
started twenty-four (24) hours before the same was noticed; " and that "after the cargoes were stored in the hatches, no
regular inspection was made as to their condition during the voyage." The foregoing suffices to show that the
circumstances under which the fire originated and spread are such as to show that Petitioner Carrier or its servants were
negligent in connection therewith. Consequently, the complete defense afforded by the COGSA when loss results from
fire is unavailing to Petitioner Carrier.

On the US $500 Per Package Limitation:

Petitioner Carrier avers that its liability if any, should not exceed US $500 per package as provided in section 4(5) of the
COGSA, which reads:

(5) Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with
the transportation of goods in an amount exceeding $500 per package lawful money of the United States, or in case of
goods not shipped in packages, per customary freight unit, or the equivalent of that sum in other currency, unless the
nature and value of such goods have been declared by the shipper before shipment and inserted in bill of lading. This
declaration if embodied in the bill of lading shall be prima facie evidence, but all be conclusive on the carrier.

By agreement between the carrier, master or agent of the carrier, and the shipper another maximum amount than that
mentioned in this paragraph may be fixed: Provided, That such maximum shall not be less than the figure above named.
In no event shall the carrier be Liable for more than the amount of damage actually sustained.

xxx xxx xxx

Article 1749 of the New Civil Code also allows the limitations of liability in this wise:

Art. 1749. A stipulation that the common carrier's liability as limited to the value of the goods appearing in the bill of
lading, unless the shipper or owner declares a greater value, is binding.

It is to be noted that the Civil Code does not of itself limit the liability of the common carrier to a fixed amount per
package although the Code expressly permits a stipulation limiting such liability. Thus, the COGSA which is suppletory
to the provisions of the Civil Code, steps in and supplements the Code by establishing a statutory provision limiting the
carrier's liability in the absence of a declaration of a higher value of the goods by the shipper in the bill of lading. The
provisions of the Carriage of Goods by.Sea Act on limited liability are as much a part of a bill of lading as though
physically in it and as much a part thereof as though placed therein by agreement of the parties. 16
 106
In G.R. No. 69044, there is no stipulation in the respective Bills of Lading (Exhibits "C-2" and "I-3") 1 7 limiting the
carrier's liability for the loss or destruction of the goods. Nor is there a declaration of a higher value of the goods. Hence,
Petitioner Carrier's liability should not exceed US $500 per package, or its peso equivalent, at the time of payment of the
value of the goods lost, but in no case "more than the amount of damage actually sustained."

The actual total loss for the 5,000 pieces of calorized lance pipes was P256,039 (Exhibit "C"), which was exactly the
amount of the insurance coverage by Development Insurance (Exhibit "A"), and the amount affirmed to be paid by
respondent Court. The goods were shipped in 28 packages (Exhibit "C-2") Multiplying 28 packages by $500 would result
in a product of $14,000 which, at the current exchange rate of P20.44 to US $1, would be P286,160, or "more than the
amount of damage actually sustained." Consequently, the aforestated amount of P256,039 should be upheld.

With respect to the seven (7) cases of spare parts (Exhibit "I-3"), their actual value was P92,361.75 (Exhibit "I"), which is
likewise the insured value of the cargo (Exhibit "H") and amount was affirmed to be paid by respondent Court. however,
multiplying seven (7) cases by $500 per package at the present prevailing rate of P20.44 to US $1 (US $3,500 x P20.44)
would yield P71,540 only, which is the amount that should be paid by Petitioner Carrier for those spare parts, and not
P92,361.75.

In G.R. No. 71478, in so far as the two (2) cases of surveying instruments are concerned, the amount awarded to DOWA
which was already reduced to $1,000 by the Appellate Court following the statutory $500 liability per package, is in order.

In respect of the shipment of 128 cartons of garment fabrics in two (2) containers and insured with NISSHIN, the
Appellate Court also limited Petitioner Carrier's liability to $500 per package and affirmed the award of $46,583 to
NISSHIN. it multiplied 128 cartons (considered as COGSA packages) by $500 to arrive at the figure of $64,000, and
explained that "since this amount is more than the insured value of the goods, that is $46,583, the Trial Court was
correct in awarding said amount only for the 128 cartons, which amount is less than the maximum limitation of the
carrier's liability."

We find no reversible error. The 128 cartons and not the two (2) containers should be considered as the shipping unit.

In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the consignees of tin ingots and the shipper of
floor covering brought action against the vessel owner and operator to recover for loss of ingots and floor covering,
which had been shipped in vessel — supplied containers. The U.S. District Court for the Southern District of New York
rendered judgment for the plaintiffs, and the defendant appealed. The United States Court of Appeals, Second Division,
modified and affirmed holding that:

When what would ordinarily be considered packages are shipped in a container supplied by the carrier and the number
of such units is disclosed in the shipping documents, each of those units and not the container constitutes the "package"
referred to in liability limitation provision of Carriage of Goods by Sea Act. Carriage of Goods by Sea Act, 4(5), 46
U.S.C.A.& 1304(5).

Even if language and purposes of Carriage of Goods by Sea Act left doubt as to whether carrier-furnished containers
whose contents are disclosed should be treated as packages, the interest in securing international uniformity would
suggest that they should not be so treated. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A. 1304(5).

... After quoting the statement in Leather's Best, supra, 451 F 2d at 815, that treating a container as a package is
inconsistent with the congressional purpose of establishing a reasonable minimum level of liability, Judge Beeks wrote,
414 F. Supp. at 907 (footnotes omitted):

Although this approach has not completely escaped criticism, there is, nonetheless, much to commend it. It gives
needed recognition to the responsibility of the courts to construe and apply the statute as enacted, however great might
be the temptation to "modernize" or reconstitute it by artful judicial gloss. If COGSA's package limitation scheme suffers
from internal illness, Congress alone must undertake the surgery. There is, in this regard, obvious wisdom in the Ninth
Circuit's conclusion in Hartford that technological advancements, whether or not forseeable by the COGSA
promulgators, do not warrant a distortion or artificial construction of the statutory term "package." A ruling that these
large reusable metal pieces of transport equipment qualify as COGSA packages — at least where, as here, they were
carrier owned and supplied — would amount to just such a distortion.

Certainly, if the individual crates or cartons prepared by the shipper and containing his goods can rightly be considered
"packages" standing by themselves, they do not suddenly lose that character upon being stowed in a carrier's container. I
would liken these containers to detachable stowage compartments of the ship. They simply serve to divide the ship's
 107
overall cargo stowage space into smaller, more serviceable loci. Shippers' packages are quite literally "stowed" in the
containers utilizing stevedoring practices and materials analogous to those employed in traditional on board stowage.

In Yeramex International v. S.S. Tando,, 1977 A.M.C. 1807 (E.D. Va.) rev'd on other grounds, 595 F 2nd 943 (4 Cir. 1979),
another district with many maritime cases followed Judge Beeks' reasoning in Matsushita and similarly rejected the
functional economics test. Judge Kellam held that when rolls of polyester goods are packed into cardboard cartons
which are then placed in containers, the cartons and not the containers are the packages.

xxx xxx xxx

The case of Smithgreyhound v. M/V Eurygenes, 18 followed the Mitsui test:

Eurygenes concerned a shipment of stereo equipment packaged by the shipper into cartons which were then placed by
the shipper into a carrier- furnished container. The number of cartons was disclosed to the carrier in the bill of lading.
Eurygenes followed the Mitsui test and treated the cartons, not the container, as the COGSA packages.  However,
Eurygenes indicated that a carrier could limit its liability to $500 per container if the bill of lading failed to disclose the
number of cartons or units within the container, or if the parties indicated, in clear and unambiguous language, an
agreement to treat the container as the package.

(Admiralty Litigation in Perpetuum: The Continuing Saga of Package Limitations and Third World Delivery Problems by
Chester D. Hooper & Keith L. Flicker, published in Fordham International Law Journal, Vol. 6, 1982-83, Number 1)
(Emphasis supplied)

In this case, the Bill of Lading (Exhibit "A") disclosed the following data:

2 Containers

(128) Cartons)

Men's Garments Fabrics and Accessories Freight Prepaid

Say: Two (2) Containers Only.

Considering, therefore, that the Bill of Lading clearly disclosed the contents of the containers, the number of cartons or
units, as well as the nature of the goods, and applying the ruling in the Mitsui  and Eurygenes cases it is clear that the 128
cartons, not the two (2) containers should be considered as the shipping unit subject to the $500 limitation of liability.

True, the evidence does not disclose whether the containers involved herein were carrier-furnished or not. Usually,
however, containers are provided by the carrier. 19 In this case, the probability is that they were so furnished for
Petitioner Carrier was at liberty to pack and carry the goods in containers if they were not so packed. Thus, at the dorsal
side of the Bill of Lading (Exhibit "A") appears the following stipulation in fine print:

11. (Use of Container) Where the goods receipt of which is acknowledged on the face of this Bill of Lading are not already
packed into container(s) at the time of receipt, the Carrier shall be at liberty to pack and carry them in any type of
container(s).

The foregoing would explain the use of the estimate "Say: Two (2) Containers Only" in the Bill of Lading, meaning that
the goods could probably fit in two (2) containers only. It cannot mean that the shipper had furnished the containers for
if so, "Two (2) Containers" appearing as the first entry would have sufficed. and if there is any ambiguity in the Bill of
Lading, it is a cardinal principle in the construction of contracts that the interpretation of obscure words or stipulations
in a contract shall not favor the party who caused the obscurity. 20 This applies with even greater force in a contract of
adhesion where a contract is already prepared and the other party merely adheres to it, like the Bill of Lading in this
case, which is draw. up by the carrier. 21

On Alleged Denial of Opportunity to Present Deposition of Its Witnesses: (in G.R. No. 69044 only)

Petitioner Carrier claims that the Trial Court did not give it sufficient time to take the depositions of its witnesses in
Japan by written interrogatories.
 108
We do not agree. petitioner Carrier was given- full opportunity to present its evidence but it failed to do so. On this
point, the Trial Court found:

xxx xxx xxx

Indeed, since after November 6, 1978, to August 27, 1979, not to mention the time from June 27, 1978, when its answer
was prepared and filed in Court, until September 26, 1978, when the pre-trial conference was conducted for the last time,
the defendant had more than nine months to prepare its evidence. Its belated notice to take deposition on written
interrogatories of its witnesses in Japan, served upon the plaintiff on August 25th, just two days before the hearing set for
August 27th, knowing fully well that it was its undertaking on July 11 the that the deposition of the witnesses would be
dispensed with if by next time it had not yet been obtained, only proves the lack of merit of the defendant's motion for
postponement, for which reason it deserves no sympathy from the Court in that regard. The defendant has told the
Court since February 16, 1979, that it was going to take the deposition of its witnesses in Japan. Why did it take until
August 25, 1979, or more than six months, to prepare its written interrogatories. Only the defendant itself is to blame for
its failure to adduce evidence in support of its defenses.

xxx xxx xxx 22

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

On the Award of Attorney's Fees:

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

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

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

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

SO ORDERED.

Narvasa, Cruz, Feliciano and Gancayco, JJ., concur.

Separate Opinions

YAP, J.,  concurring and dissenting:

With respect to G.R. No. 71478, the majority opinion holds that the 128 cartons of textile materials, and not the two (2)
containers, should be considered as the shipping unit for the purpose of applying the $500.00 limitation under the
Carriage of Goods by Sea Act (COGSA).

The majority opinion followed and applied the interpretation of the COGSA "package" limitation adopted by the Second
Circuit, United States Court of Appeals, in Mitsui & Co., Ltd. vs. American Export Lines, Inc., 636 F. 2d 807 (1981) and
the Smithgreyhound v. M/V Eurygenes, 666, F 2nd, 746. Both cases adopted the rule that carrier-furnished containers
whose contents are fully disclosed are not "packages" within the meaning of Section 4 (5) of COGSA.

I cannot go along with the majority in applying the Mitsui and Eurygenes decisions to the present case, for the following
reasons: (1) The facts in those cases differ materially from those obtaining in the present case; and (2) the rule laid down
in those two cases is by no means settled doctrine.
 109
In Mitsui and Eurygenes, the containers were supplied by the carrier or shipping company. In Mitsui the Court held:
"Certainly, if the individual crates or cartons prepared by the shipper and containing his goods can rightly be considered
"packages" standing by themselves, they do not suddenly lose that character upon being stowed in a carrier's container. I
would liken these containers to detachable stowage compartments of the ship." Cartons or crates placed inside carrier-
furnished containers are deemed stowed in the vessel itself, and do not lose their character as individual units simply by
being placed inside container provided by the carrier, which are merely "detachable stowage compartments of the ship.

In the case at bar, there is no evidence showing that the two containers in question were carrier-supplied. This fact
cannot be presumed. The facts of the case in fact show that this was the only shipment placed in containers. The other
shipment involved in the case, consisting of surveying instruments, was packed in two "cases."

We cannot speculate on the meaning of the words "Say: Two (2) Containers Only, " which appear in the bill of lading.
Absent any positive evidence on this point, we cannot say that those words constitute a mere estimate that the shipment
could fit in two containers, thereby showing that when the goods were delivered by the shipper, they were not yet
placed inside the containers and that it was the petitioner carrier which packed the goods into its own containers, as
authorized under paragraph 11 on the dorsal side of the bill of lading, Exhibit A. Such assumption cannot be made in
view of the following words clearly stamped in red ink on the face of the bill of lading: "Shipper's Load, Count and Seal
Said to Contain." This clearly indicates that it was the shipper which loaded and counted the goods placed inside the
container and sealed the latter.

The two containers were delivered by the shipper to the carrier already sealed for shipment, and the number of cartons
said to be contained inside them was indicated in the bill of lading, on the mere say-so of the shipper. The freight paid
to the carrier on the shipment was based on the measurement (by volume) of the two containers at $34.50 per cubic
meter. The shipper must have saved on the freight charges by using containers for the shipment. Under the
circumstances, it would be unfair to the carrier to have the limitation of its liability under COGSA fixed on the number
of cartons inside the containers, rather than on the containers themselves, since the freight revenue was based on the
latter.

The Mitsui and Eurygenes decisions are not the last word on the subject. The interpretation of the COGSA package
limitation is in a state of flux, 1 as the courts continue to wrestle with the troublesome problem of applying the statutory
limitation under COGSA to containerized shipments. The law was adopted before modern technological changes have
revolutionized the shipping industry. There is need for the law itself to be updated to meet the changes brought about
by the container revolution, but this is a task which should be addressed by the legislative body. Until then, this Court,
while mindful of American jurisprudence on the subject, should make its own interpretation of the COGSA provisions,
consistent with what is equitable to the parties concerned. There is need to balance the interests of the shipper and
those of the carrier.

In the case at bar, the shipper opted to ship the goods in two containers, and paid freight charges based on the freight
unit, i.e., cubic meters. The shipper did not declare the value of the shipment, for that would have entailed higher
freight charges; instead of paying higher freight charges, the shipper protected itself by insuring the shipment. As
subrogee, the insurance company can recover from the carrier only what the shipper itself is entitled to recover, not the
amount it actually paid the shipper under the insurance policy.

In our view, under the circumstances, the container should be regarded as the shipping unit or "package" within the
purview of COGSA. However, we realize that this may not be equitable as far as the shipper is concerned. If the
container is not regarded as a "package" within the terms of COGSA, then, the $500.00 liability limitation should be
based on "the customary freight unit." Sec. 4 (5) of COGSA provides that in case of goods not shipped in packages, the
limit of the carrier's liability shall be $500.00 "per customary freight unit." In the case at bar, the petitioner's liability for
the shipment in question based on "freight unit" would be $21,950.00 for the shipment of 43.9 cubic meters.

I concur with the rest of the decision.

Sarmiento, J., concur.

27. Sea-Land Service, Inc. vs. Intermediate Appellate Court,  153 SCRA 552, August 31, 1987
No. L-75118. August 31, 1987. *

SEA-LAND SERVICE, INC., petitioner, vs. INTERMEDIATE APPELLATE COURT and PAULINO CUE,

doing business under the name and style of "SEN HIAP HING," respondents.
 110
Transportation; Contract of Carriage; Damages; Liability of a common carrier under a contract of
carriage is governed by the laws of the country of destination.—Since the liability of a common carrier for
loss of or damage to goods transported by it under a contract of carriage is governed by the laws of the
country of destination and the goods in question were shipped from the United States to the Philippines, the
liability of petitioner Sea-Land to the respondent consignee is governed primarily by the Civil Code, and as
ordained by the said Code, suppletorily, in all matters not determined thereby, by the Code of Commerce
and special laws. One of these suppletory special laws is the Carriage of Goods by Sea Act, U.S. Public Act
No. 521 which was made applicable to all contracts for the carriage of goods by sea to and from Philippine
ports in foreign trade by Commonwealth Act No. 65, approved on October 22, 1936.
Same;  Same; Liability; A stipulation that the common carrier's liability is limited to the value of goods
appearing in the bill of lading, unless the shipper or owner declares a greater value in binding. Art 1759-
c.c. A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction or
deterioration of the goods is valid, if it is reasonable and just under the circumstances and has been fairly
and freely agreed upon.—Nothing contained in section 4(5) of the Carriage of Goods by Sea Act already
quoted is repugnant to or inconsistent with any of the just-cited provisions of the Civil Code. Said section
merely gives more flesh and greater specificity to the rather general terms of Article 1749 (without doing
any violence to the plain intent thereof) and of Article 1750, to give effect to just agreements limiting
carriers' liability for loss or damages which are freely and fairly entered into.
Same;  Same; Consignee by making claim for loss on the basis of the bill of lading, to all intents and
purposes accepted said bill.—Private respondent, by making claim for loss on the basis of the bill of lading,
to all intents and purposes accepted said bill. Having done so, he—"x x x becomes bound by all stipulations
contained therein whether on the front or the back thereof. Respondent cannot elude its provisions simply
because they prejudice him and take advantage of those that are beneficial. Secondly, the fact that
respondent shipped his goods on board the ship of petitioner and paid the corresponding freight thereon
shows that he impliedly accepted the bill of lading which was issued in connection with the shipment in
question, and so it may be said that the same is binding upon him as if it had been actually signed by him or
by any other person in his behalf. x x x"

PETITION to review the decision of the Court of Appeals.

The f acts are stated in the opinion of the Court.

NARVASA, J.:

The main issue here is whether or not the consignee of seaborne freight is bound by stipulations in the
covering bill of lading limiting to a fixed amount the liability of the carrier for loss or damage to the cargo
where its value is not declared in the bill.
The factual antecedents, for the most part, are not in dispute.
On or about January 8, 1981, Sea-Land Service, Inc. (Sea-Land for brevity), a foreign shipping and
forwarding company licensed to do business in the Philippines, received from Seaborne Trading Company
in Oakland, California a shipment consigned to Sen Hiap Hing, the business name used by Paulino Cue in
the wholesale and retail trade which he operated out of an establishment located on Borromeo and Plaridel
Streets, Cebu City.
The shipper not having declared the value of the shipment, no value was indicated in the bill of lading.
The bill described the shipment only as "8 CTNS on 2 SKIDS-FILES."  Based on volume measurements
1

Sea-land charged the shipper the total amount of US$209.28  for freightage and other charges. The shipment
2

was loaded on board the MS Patriot, a vessel owned and operated by Sea-Land, for discharge at the Port of
Cebu.
The shipment arrived in Manila on February 12, 1981, and there discharged in Container No. 310996 into
the custody of the arrastre contractor and the customs and port authorities.  Sometime between February 13
3

and 16, 1981, after the shipment had been transferred, along with other cargoes to Container No. 40158 near
Warehouse 3 at Pier 3 in South Harbor, Manila, awaiting trans-shipment to Cebu, it was stolen by pilferers
and has never been recovered. 4

On March 10,1981, Paulino Cue, the consignee, made formal claim upon Sea-Land for the value of the
lost shipment allegedly amounting to P179,643.48.  Sea-Land offered to settle for US$4,000.00, or its then
5
 111
Philippine peso equivalent of P30,600.00. asserting that said amount represented its maximum liability for
the loss of the shipment under the package limitation clause in the covering bill of lading.  Cue rejected the
6

offer and thereafter brought suit for damages against SeaLand in the then Court of First Instance of Cebu,
Branch X.  Said Court, after trial, rendered judgment in favor of Cue, sentencing Sea-Land to pay him
7

P186,048.00 representing the Philippine currency value of the lost cargo, P55,814.00 for unrealized profit
with one (1%) percent monthly interest from the filing of the complaint until fully paid, P25,000.00 for
attorney's fees and P2,000,00 as litigation expenses. 8

Sea-Land appealed to the Intermediate Appellate Court.  That Court however affirmed the decision of the
9

Trial Court "x x x in all its parts xxx."  Sea-Land thereupon filed the present petition for review which, as
10

already stated, poses the question of whether, upon the facts above set forth, it can be held liable for the loss
of the shipment in any amount beyond the limit of US$500.00 per package stipulated in the bill of lading.
To begin with, there is no question of the right, in principle, of a consignee in a bill of lading to recover
from the carrier or shipper for loss of, or damage to, goods being transported under said bill, although that
document may have been—as in practice it oftentimes is—drawn up only by the consignor and the
carrier without the intervention of the consignee. In Mendoza vs. Philippine Air Lines, Inc.  the Court 11

delved at some length into the reasons behind this when, upon a claim made by the consignee of a motion
picture film shipped by air that he was never a party to the contract of transportation and was a complete
stranger thereto, it said:
"But appellant now contends that he is not suing on a breach of contract but on a tort as provided for in Art. 1902 of
the Civil Code. We are a little perplexed as to this new theory of the appellant. First, he insists that the articles of the
Code of Commerce should be applied: that he invokes the provisions of aid Code governing the obligations of a
common carrier to make prompt delivery of goods given to it under a contract of transportation. Later, as already said,
he says that he was never a party to the contract of transportation and was a complete stranger to it, and that he is now
suing on a tort or a violation of his rights as a stranger (culpa aquiliana). If he does not invoke the contract of carriage
entered into with the defendant company, then he would hardly have any leg to stand on. His right to prompt delivery
of the can of film at the Phil. Air Port stems and is derived from the contract of carriage under which contract, the
PAL undertook to carry the can of film safely and to deliver it to him promptly. Take away or ignore that contract and
the obligation to carry and to deliver and right to prompt delivery disappear. Common carriers are not obligated by
law to carry and to deliver merchandise, and persons are not vested with the right to prompt delivery, unless such
common carriers previously assume the obligation. Said rights and obligations are created by a specific contract
entered into by the parties. In the present case, the findings of the trial court which as already stated, are accepted by
the parties and which we must accept are to the effect that the LVN Pictures Inc. and Jose Mendoza on one side, and
the defendant company on the other, entered into a contract of transportation (p. 29, Rec. on Appeal). One
interpretation of said finding is that the LVN Pictures Inc. through previous agreement with Mendoza acted as the
latter's agent. When he negotiated with the LVN Pictures Inc. to rent the film 'Himala ng Birhen' and show it during
the Naga town fiesta, he most probably authorized and enjoined the Picture Company to ship the film for him on the
PAL on September 17th. Another interpretation is that even if the LVN Pictures Inc. as consignor of its own initiative,
and acting independently of Mendoza for the time being, made Mendoza as consignee, a stranger to the contract if that
is possible, nevertheless when he, Mendoza appeared at the Phil Air Port armed with the copy of the Air Way Bill
(Exh. 1) demanding the delivery of the shipment to him, he thereby made himself a party to the contract of
transportation. The very citation made by appellant in his memorandum supports this view. Speaking of the possibility
of a conflict between the order of the shipper on the one hand and the order of the consignee on the other, as when the
shipper orders the shipping company to return or retain the goods shipped while the consignee demands their delivery,
Malagarriga in his book Codigo de Comercio Comentado, Vol. 1, p. 400, citing a decision of the Argentina Court of
Appeals on commercial matters, cited by Tolentino in Vol. II of his book entitled 'Commentaries and Jurisprudence on
the Commercial Laws of the Philippines' p. 209, says that the right of the shipper to countermand the shipment
terminates when the consignee or legitimate holder of the bill of lading appears with such bill of lading before the
carrier and makes himself a party to the contract. Prior to that time he is a stranger to the contract.

Still another view of this phase of the case is that contemplated in Art. 1257, paragraph 2, of the old Civil Code
(now Art. 1311, second paragraph) which reads thus:
Should the contract contain any stipulation in favor of a third person, he may demand its fulfillment provided he has given notice
of his acceptance to the person bound before the stipulation has been revoked.'

Here, the contract of carriage between the LVN Pictures Inc. and the defendant carrier contains the stipulations of
delivery to Mendoza as consignee. His demand for the delivery of the can of film to him at the Phil Air Port may be
regarded as a notice of his acceptance of the stipulation of the delivery in his favor contained in the contract of
 112
carriage and delivery. In this case he also made himself a party to the contract, or at least has come to court to enforce
it. His cause of action must necessarily be founded on its breach."

Since the liability of a common carrier for loss of or damage to goods transported by it under a contract of
carriage is governed by the laws of the country of destination  and the goods in question were shipped from
12

the United States to the Philippines, the liability of petitioner Sea-Land to the respondent consignee is
governed primarily by the Civil Code, and as ordained by the said Code, suppletorily, in all matters not
determined thereby, by the Code of Commerce and special laws.  One of these suppletory special laws is the
13

Carriage of Goods by Sea Act, U.S. Public Act No. 521 which was made applicable to all contracts for the
carriage of goods by sea to and from Philippine ports in foreign trade by Commonwealth Act No. 65,
approved on October 22, 1936. Sec. 4(5) of said Act in part reads:
"(5) Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection
with the transportation of goods in an amount exceeding $500 per package lawful money of the United States, or in
case of goods not shipped in packages, per customary freight unit, or the equivalent of that sum in other currency,
unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of
lading. This declaration, if embodied in the bill of lading, shall be prima facie evidence, but shall not be conclusive on
the carrier. By agreement between the carrier, master, or agent of the carrier, and the shipper another maximum
amount than that mentioned in this paragraph may be fixed: Provided, That such maximum shall not be less than the
figure above named. In no event shall the carrier be liable for more than the amount of damage actually sustained. X X
X."

Clause 22, first paragraph, of the long-form bill of lading customarily issued by Sea-Land to its shipping
clients  is a virtual copy of the first paragraph of the foregoing provision. It says:
14

"22. VALUATION. In the event of any loss, damage or delay to or in connection with goods exceeding in actual value
$500 per package, lawful money of the United States, or in case of goods not shipped in packages, per customary
freight unit, the value of the goods shall be deemed to be $500 per package or per customary freight unit, as the case
may be, and the carrier's liability, if any, shall be determined on the basis of a value of $500 per package or customary
freight unit, unless the nature and a higher value shall be declared by the shipper in writing before shipment and
inserted in this Bill of Lading.''

And in its second paragraph, the bill states:

"If a value higher than $500 shall have been declared in writing by the shipper upon delivery to the carrier and
inserted in this bill of lading and extra freight paid, if required and in such case if the actual value of the goods per
package or per customary freight unit shall exceed such declared value, the value shall nevertheless be deemed to be
declared value and the carrier's liability, if any, shall not exceed the declared value and any partial loss or damage
shall be adjusted pro rata on the basis of such declared value.''

Since, as already pointed out, Article 1766 of the Civil Code expressly subjects the rights and obligations of
common carriers to the provisions of the Code of Commerce and of special laws in matters not regulated by
said (Civil) Code, the Court fails to fathom the reason or justification for the Appellate Court's
pronouncement in its appealed Decision that the Carriage of Goods by Sea Act "x x x has no application
whatsoever in this case."  Not only is there nothing in the Civil Code which absolutely prohibits agreements
15

between shipper and carrier limiting the latter's liability for loss of or damage to cargo shipped under
contracts of carriage; it is also quite clear that said Code in fact has agreements of such character in
contemplation in providing, in its Articles 1749 and 1750, that:
"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 fairly and freely
agreed upon."

Nothing contained in section 4(5) of the Carriage of Goods by Sea Act already quoted is repugnant to or
inconsistent with any of the just-cited provisions of the Civil Code. Said section merely gives more flesh and
greater specificity to the rather general terms of Article 1749 (without doing any violence to the plain intent
thereof) and of Article 1750, to give effect to just agreements limiting carriers' liability for loss or damage
which are freely and fairly entered into.
 113
It seems clear that even if said section 4(5) of the Carriage of Goods by Sea Act did not exist, the validity
and binding effect of the liability limitation clause in the bill of lading here are nevertheless fully sustainable
on the basis alone of the cited Civil Code provisions. That said stipulation is just and reasonable is arguable
from the fact that it echoes Art. 1750 itself in providing a limit to liability only if a greater value is not
declared for the shipment in the bill of lading. To hold otherwise would amount to questioning the justice
and fairness of that law itself, and this the private respondent does not pretend to do. But over and above that
consideration, the just and reasonable character of such stipulation is implicit in it giving the shipper or
owner the option of avoiding acrrual of liability limitation by the simple and surely far from onerous
expedient of declaring the nature and value of the shipment in the bill of lading. And since the shipper here
has not been heard to complaint of having been "rushed," imposed upon or deceived in any significant way
into agreeing to ship the cargo under a bill of lading carrying such a stipulation—in fact, it does not appear
that said party has been heard from at all insofar as this dispute is concerned—there is simply no ground for
assuming that its agreement thereto was not as the law would require, freely and fairly sought and given.
The private respondent had no direct part or intervention in the execution of the contract of carriage
between the shipper and the carrier as set forth in the bill of lading in question. As pointed out in Mendoza
vs. PAL, supra, the right of a party in the same situation as respondent here, to recover for loss of a shipment
consigned to him under a bill of lading drawn up only by and between the shipper and the carrier, springs
from either a relation of agency that may exist between him and the shipper or consignor, or his status as a
stranger in whose favor some stipulation is made in said contract, and who becomes a party thereto when he
demands fulfillment of that stipulation, in this case the delivery of the goods or cargo shipped. In neither
capacity can he assert personally, in bar to any provision of the bill of lading, the alleged circumstance that
fair and free agreement to such provision was vitiated by its being in such fine print as to be hardly readable.
Parenthetically, it may be observed that in one comparatively recent case  where this Court found that a
16

similar package limitation clause was "(printed in the smallest type on the back of the bill of lading," it
nonetheless ruled that the consignee was bound thereby on the strength of authority holding that such
provisions on liability limitation are as much a part of a bill of lading as though physically in it and as
though placed therein by agreement of the parties.
There can, therefore, be no doubt or equivocation about the validity and enforceability of freely-agreed-
upon stipulations in a contract of carriage or bill of lading limiting the liability of the carrier to an agreed
valuation unless the shipper declares a higher value and inserts it into said contract or bill. This proposition,
moreover, rests upon an almost uniform weight of authority. 17

The issue of alleged deviation is also settled by Clause 13 of the bill of lading which expressly authorizes
transshipment of the goods at any point in the voyage in these terms:
"13. THROUGH CARGO AND TRANSSHIPMENT. The carrier or master, in the exercise of its or his discretion and
although transshipment or forwarding of the goods may not have been contemplated or provided for herein, may at
port of discharge or any other place whatsoever transship or forward the goods or any part thereof by any means at the
risk and expense of the goods and at any time, whether before or after loading on the ship named herein and by any
route, whether within or outside the scope of the voyage or beyond the port of discharge or destination of the goods
and without notice to the shipper or consignee. The carrier or master may delay such transshipping or forwarding for
any reason, including but not limited to awaiting a vessel or other means of transportation whether by the carrier or
others,"

Said provision obviates the necessity to offer any other justification for offloading the shipment in question
in Manila for transshipment to Cebu City, the port of destination stipulated in the bill of lading. Nonetheless,
the Court takes note of Sea-Land's explanation that it only directly serves the Port of Manila from abroad in
the usual course of voyage of its carriers, hence its maintenance of arrangements with a local forwarder.
Aboitiz and Company, for delivery of its imported cargo to the agreed final point of destination within the
Philippines, such arrangements not being prohibited, but in fact recognized, by law. 18

Furthermore, this Court has also ruled  that the Carriage of Goods by Sea Act is applicable up to the final
19

port of destination and that the fact that transshipment was made on an interisland vessel did not remove the
contract of carriage of goods from the operation of said Act.
Private respondent also contends that the aforecited Clauses 22 and 13 of the bill of lading relied upon by
petitioner Sea-Land form no part of the short-form bill of lading attached to his complaint before the Trial
Court and appear only in the long form of that document which, he claims. Sea-Land offered (as its Exhibit
2) as an unused blank form with no entries or signatures therein. He, however, admitted in the Trial Court
 114
that several times in the past shipments had been delivered to him through Sea-Land,  from which the 20

assumption may fairly f ollow that by the time of the consignment now in question, he was already
reasonably apprised of the usual terms covering contracts of carriage with said petitioner.
At any rate, as observed earlier, it has already been held that the provisions of the Carriage of Goods by
Sea Act on package limitation [sec. 4(5) of the Act hereinabove referred to] are as much a part of a bill of
lading as though actually placed therein by agreement of the parties. 21

Private respondent, by making claim for loss on the basis of the bill of lading, to all intents and purposes
accepted said bill. Having done so, he—
"x x x becomes bound by all stipulations contained therein whether on the front or the back thereof. Respondent
cannot elude its provisions simply because they prejudice him and take advantage of those that are beneficial.
Secondly, the fact that respondent shipped his goods on board the ship of petitioner and paid the corresponding freight
thereon shows that he impliedly accepted the bill of lading which was issued in connection with the shipment in
question, and so it may be said that the same is finding upon him as if it had been actually signed by him or by any
other person in his behalf. x x x.
22

There is one final consideration. The private respondent admits  that as early as on April 22, 1981, Sea-Land
23

had offered to settle his claim for US$4,000.00, the limit of said carrier's liability for loss of the shipment
under the bill of lading. This Court having reached the conclusion that said sum is all that is justly due said
respondent, it does not appear just or equitable that Sea-Land, which offered that amount in good faith as
early as six years ago, should, by being made to pay at the current conversion rate of the dollar to the peso,
bear for its own account all of the increase in said rate since the time of the offer of settlement. The decision
of the Regional Trial Court awarding the private respondent P186,048.00 as the peso value of the lost
shipment is clearly based on a conversion rate of P8.00 to US$1.00, said respondent having claimed a dollar
value of $23,256.00 for said shipment.  All circumstances considered, it is just and fair that Sea-Land's
24

dollar obligation be convertible at the same rate.

WHEREFORE, the Decision of the Intermediate Appellate Court complained of is reversed and set
aside. The stipulation in the questioned bill of lading limiting Sea-Land's liability for loss of or damage to
the shipment covered by said bill to US$500.00 per package is held valid and binding on private respondent.
There being no question of the fact that said shipment consisted of eight (8) cartons or packages, for the loss
of which Sea-Land is therefore liable in the aggregate amount of US$4,000.00, it is the judgment of the
Court that said petitioner discharge that obligation by paying private respondent the sum of P32,000.00, the
equivalent in Philippine currency of US$4,000.00 at the conversion rate of P8.00 to $1.00. Costs against
private respondent.
SO ORDERED.
     Teehankee (C.J.), Cruz, Paras and Gancayco, JJ., concur.

Decision reversed and set aside.

Notes.—Liability and responsibility of the carrier commence on their actual delivery to, or receipt by, the
carrier or an authorized agent. (Compañia Maritima vs. Insurance Company of North America, 12 SCRA
213.)
When a consignee, or its subrogee, is not certain as to the authenticity of the verifax copies of the receipts
showing that the shipping company had delivered the missing cargo to the arrastre operator, it may sue the
shipping company and the arrastre operator as alternative defendants. (Fireman's Fund Insurance Co. vs.
Compañia General de Tabacos de Filipinas, 19 SCRA 874.)

28. Sarkies Tours Philippines, Inc. vs. Court of Appeals (10th Division,  280 SCRA 58, October 02, 1997
G.R. No. 108897. October 2, 1997. *

SARKIES TOURS PHILIPPINES, INC., petitioner, vs. HONORABLE COURT OF APPEALS (TENTH

DIVISION), DR. ELINO G. FORTADES, MARISOL A. FORTADES and FATIMA MINERVA A.
FORTADES, respondents.

Common Carriers; Damages; 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, by the carrier to the person who has a right to
receive them.”—Petitioner’s receipt of Fatima’s personal luggage having been thus established, it must now be
 115
determined if, as a common carrier, it is responsible for their loss. Under the Civil Code, “(c)ommon carriers, from the
nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance
over the goods x x x 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, by the carrier to x x x the person who has a right to receive them,” unless the loss is due to any of the
excepted causes under Article 1734 thereof.
Same; Same; Moral damages and exemplary damages are due where the negligence and bad faith of a common
carrier has been duly established.—Petitioner questions the award of actual damages to respondents. On this point,
we likewise agree with the trial and appellate courts’ conclusions. There is no dispute that of the three pieces of
luggage of Fatima, only one was recovered. The other two contained optometry books, materials, equipment, as well
as vital documents and personal belongings. Respondents had to shuttle between Bicol and Manila in their efforts to
be compensated for the loss. During the trial, Fatima and Marisol had to travel from the United States just to be able to
testify. Expenses were also incurred in reconstituting their lost documents. Under these circumstances, the Court
agrees with the Court of Appeals in awarding P30,000.00 for the lost items and P30,000.00 for the transportation
expenses, but disagrees with the deletion of the award of moral and exemplary damages which, in view of the
foregoing proven facts, with negligence and bad faith on the fault of petitioner having been duly established, should be
granted to respondents in the amount of P20,000.00 and P5,000.00, respectively.

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

     Cruz, Durian, Agabin & Alday for petitioner.
     Jose B. Ramos for private respondents.

ROMERO, J.:

This petition for review is seeking the reversal of the decision of the Court of Appeals in CA-G.R. CV No.
18979 promulgated on January 13, 1993, as well as its resolution of February 19, 1993, denying petitioner’s
motion for reconsideration for being a mere rehash of the arguments raised in the appellant’s brief.
The case arose from a damage suit filed by private respondents Elino, Marisol, and Fatima Minerva, all
surnamed Fortades, against petitioner for breach of contract of carriage allegedly attended by bad faith.
On August 31, 1984, Fatima boarded petitioner’s De Luxe Bus No. 5 in Manila on her way to Legazpi
City. Her brother Raul helped her load three pieces of luggage containing all of her optometry review books,
materials and equipment, trial lenses, trial contact lenses, passport and visa, as well as her mother Marisol’s
U.S. immigration (green) card, among other important documents and personal belongings. Her belongings
were kept in the baggage compartment of the bus, but during a stopover at Daet, it was discovered that only
one bag remained in the open compartment. The others, including Fatima’s things, were missing and might
have dropped along the way. Some of the passengers suggested retracing the route of the bus to try to
recover the lost items, but the driver ignored them and proceeded to Legazpi City.
Fatima immediately reported the loss to her mother who, in turn, went to petitioner’s office in Legazpi
City and later at its head office in Manila. Petitioner, however, merely offered her P1,000.00 for each piece
of luggage lost, which she turned down. After returning to Bicol, disappointed but not defeated, mother and
daughter asked assistance from the radio stations and even from Philtranco bus drivers who plied the same
route on August 31st. The effort paid off when one of Fatima’s bags was recovered. Marisol further reported
the incident to the National Bureau of Investigation’s field office in Legazpi City and to the local police.
On September 20, 1984, respondents, through counsel, formally demanded satisfaction of their complaint
from petitioner. In a letter dated October 1, 1984, the latter apologized for the delay and said that “(a) team
has been sent out to Bicol for the purpose of recovering or at least getting the full detail”  of the incident.
1

After more than nine months of fruitless waiting, respondents decided to file the case below to recover
the value of the remaining lost items, as well as moral and exemplary damages, attorney’s fees and expenses
of litigation. They claimed that the loss was due to petitioner’s failure to observe extraordinary diligence in
the care of Fatima’s luggage and that petitioner dealt with them in bad faith from the start. Petitioner, on the
other hand, disowned any liability for the loss on the ground that Fatima allegedly did not declare any excess
baggage upon boarding its bus.
On June 15, 1988, after trial on the merits, the court a quo adjudged the case in favor of respondents, viz.:
 116
“PREMISES CONSIDERED, judgment is hereby rendered in favor of the plaintiffs (herein respondents) and against
the herein defendant Sarkies Tours Philippines, Inc., ordering the latter to pay to the former the following sums of
money, to wit:

1. 1.The sum of P30,000.00 equivalent to the value of the personal belongings of plaintiff Fatima
Minerva Fortades, etc. less the value of one luggage recovered;

2. 2.The sum of P90,000.00 for the transportation expenses, as well as moral damages;

3. 3.The sum of P10,000.00 by way of exemplary damages;

4. 4.The sum of P5,000.00 as attorney’s fees; and

5. 5.The sum of P5,000.00 as litigation expenses or a total of One Hundred Forty Thousand
(P140,000.00) Pesos. to be paid by herein defendant Sarkies Tours Philippines, Inc. to the herein
plaintiffs within 30 days from receipt of this Decision.

SO ORDERED.”

On appeal, the appellate court affirmed the trial court’s judgment, but deleted the award of moral and
exemplary damages. Thus,
“WHEREFORE, premises considered, except as above modified, fixing the award for transportation expenses at
P30,000.00 and the deletion of the award for moral and exemplary damages, the decision appealed from is
AFFIRMED, with costs against defendant-appellant.
SO ORDERED.”

Its motion for reconsideration was likewise rejected by the Court of Appeals, so petitioner elevated its case
to this Court for a review.
After a careful scrutiny of the records of this case, we are convinced that the trial and appellate courts
resolved the issues judiciously based on the evidence at hand.
Petitioner claims that Fatima did not bring any piece of luggage with her, and even if she did, none was
declared at the start of the trip. The documentary and testimonial evidence presented at the trial, however,
established that Fatima indeed boarded petitioner’s De Luxe Bus No. 5 in the evening of August 31, 1984,
and she brought three pieces of luggage with her, as testified by her brother Raul,  who helped her pack her
2

things and load them on said bus. One of the bags was even recovered by a Philtranco bus driver. In its letter
dated October 1, 1984, petitioner tacitly admitted its liability by apologizing to respondents and assuring
them that efforts were being made to recover the lost items.
The records also reveal that respondents went to great lengths just to salvage their loss. The incident was
reported to the police, the NBI, and the regional and head offices of petitioner. Marisol even sought the
assistance of Philtranco bus drivers and the radio stations. To expedite the replacement of her mother’s lost
U.S. immigration documents, Fatima also had to execute an affidavit of loss.  Clearly, they would not have
3

gone through all that trouble in pursuit of a fancied loss.

Fatima was not the only one who lost her luggage. Apparently, other passengers had suffered a similar
fate: Dr. Lita Samarista testified that petitioner offered her P1,000.00 for her lost baggage and she accepted
it;  Carleen Carullo-Magno lost her chemical engineering review materials, while her brother lost abaca
4

products he was transporting to Bicol. 5

Petitioner’s receipt of Fatima’s personal luggage having been thus established, it must now be
determined if, as a common carrier, it is responsible for their loss. Under the Civil Code, “(c)ommon
carriers, from the nature of their business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over the goods x x x transported by them,”  and this liability “lasts
6

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 x x x the person who
has a right to receive them,”  unless the loss is due to any of the excepted causes under Article 1734 thereof.
7 8

The cause of the loss in the case at bar was petitioner’s negligence in not ensuring that the doors of the
baggage compartment of its bus were securely fastened. As a result of this lack of care, almost all of the
luggage was lost, to the prejudice of the paying passengers. As the Court of Appeals correctly observed:
 117
“x x x. Where the common carrier accepted its passenger’s baggage for transportation and even had it placed in the
vehicle by its own employee, its failure to collect the freight charge is the common carrier’s own lookout. It is
responsible for the consequent loss of the baggage. In the instant case, defendant appellant’s employee even helped
Fatima Minerva Fortades and her brother load the luggages/baggages in the bus’ baggage compartment, without
asking that they be weighed, declared, receipted or paid for (TSN, August 4, 1986, pp. 29, 34, 54, 57, 70; December
23, 1987, p. 35). Neither was this required of the other passengers (TSN, August 4, 1986, p. 104; February 5, 1988, p.
13).”

Finally, petitioner questions the award of actual damages to respondents. On this point, we likewise agree
with the trial and appellate courts’ conclusions. There is no dispute that of the three pieces of luggage of
Fatima, only one was recovered. The other two contained optometry books, materials, equipment, as well as
vital documents and personal belongings.

Respondents had to shuttle between Bicol and Manila in their efforts to be compensated for the loss. During
the trial, Fatima and Marisol had to travel from the United States just to be able to testify. Expenses were
also incurred in reconstituting their lost documents. Under these circumstances, the Court agrees with the
Court of Appeals in awarding P30,000.00 for the lost items and P30,000.00 for the transportation expenses,
but disagrees with the deletion of the award of moral and exemplary damages which, in view of the
foregoing proven facts, with negligence and bad faith on the fault of petitioner having been duly established,
should be granted to respondents in the amount of P20,000.00 and P5,000.00, respectively.
WHEREFORE, the assailed decision of the Court of Appeals dated January 13, 1993, and its resolution
dated February 19, 1993, are hereby AFFIRMED with the MODIFICATION that petitioner is ordered to
pay respondents an additional P20,000.00 as moral damages and P5,000.00 as exemplary damages. Costs
against petitioner.
SO ORDERED.
     Narvasa (C.J., Chairman), Melo,  Francisco and Panganiban, JJ., concur.

Judgment affirmed with modification.

Notes.—Inattention to and lack of care for the interests of its passengers who are entitled to its utmost
consideration, particularly as to their convenience, amount to bad faith which entitles the passenger to an
award of moral damages. (Philippine Airlines, Inc. vs. Court of Appeals, 257 SCRA 33 [1996])
In a contract of carriage, it is presumed that the common carrier was at fault or was negligent when a
passenger dies or is injured. (Baliwag Transit, Inc. vs. Court of Appeals, 256 SCRA 746 [1996]).

——o0o——