Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 74811 September 30, 1988
CHUA YEK HONG, petitioner,
vs.
INTERMEDIATE APPELLATE COURT, MARIANO GUNO, and DOMINADOR OLIT, respondents.
Francisco D. Estrada for petitioner.
Purita Hontanosas-Cortes for private respondents.

MELENCIO-HERRERA, J.:
In this Petition for Review on certiorari petitioner seeks to set aside the Decision of respondent
Appellate Court in AC G.R. No. 01375 entitled "Chua Yek Hong vs. Mariano Guno, et al.,"
promulgated on 3 April 1986, reversing the Trial Court and relieving private respondents (defendants
below) of any liability for damages for loss of cargo.
The basic facts are not disputed:
Petitioner is a duly licensed copra dealer based at Puerta Galera, Oriental Mindoro, while private
respondents are the owners of the vessel, "M/V Luzviminda I," a common carrier engaged in
coastwise trade from the different ports of Oriental Mindoro to the Port of Manila.
In October 1977, petitioner loaded 1,000 sacks of copra, valued at P101,227.40, on board the vessel
"M/V Luzviminda I" for shipment from Puerta Galera, Oriental Mindoro, to Manila. Said cargo,
however, did not reach Manila because somewhere between Cape Santiago and Calatagan,
Batangas, the vessel capsized and sank with all its cargo.
On 30 March 1979, petitioner instituted before the then Court of First Instance of Oriental Mindoro, a
Complaint for damages based on breach of contract of carriage against private respondents (Civil
Case No. R-3205).
In their Answer, private respondents averred that even assuming that the alleged cargo was truly
loaded aboard their vessel, their liability had been extinguished by reason of the total loss of said
vessel.
On 17 May 1983, the Trial Court rendered its Decision, the dispositive portion of which follows:

WHEREFORE, in view of the foregoing considerations, the court believes and so

holds that the preponderance of evidence militates in favor of the plaintiff and against
the defendants by ordering the latter, jointly and severally, to pay the plaintiff the sum
of P101,227.40 representing the value of the cargo belonging to the plaintiff which
was lost while in the custody of the defendants; P65,550.00 representing
miscellaneous expenses of plaintiff on said lost cargo; attorney's fees in the amount
of P5,000.00, and to pay the costs of suit. (p. 30, Rollo).
On appeal, respondent Appellate Court ruled to the contrary when it applied Article 587 of the Code
of Commerce and the doctrine in Yangco vs. Lasema (73 Phil. 330 [1941]) and held that private
respondents' liability, as ship owners, for the loss of the cargo is merely co-extensive with their
interest in the vessel such that a total loss thereof results in its extinction. The decretal portion of that
Decision 1 reads:
IN VIEW OF THE FOREGOING CONSIDERATIONS, the decision appealed from is
hereby REVERSED, and another one entered dismissing the complaint against
defendants-appellants and absolving them from any and all liabilities arising from the
loss of 1,000 sacks of copra belonging to plaintiff-appellee. Costs against appellee.
(p. 19, Rollo).
Unsuccessful in his Motion for Reconsideration of the aforesaid Decision, petitioner has availed of
the present recourse.
The basic issue for resolution is whether or not respondent Appellate Court erred in applying the
doctrine of limited liability under Article 587 of the Code of Commerce as expounded in Yangco vs.
Laserna, supra.
Article 587 of the Code of Commerce provides:
Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third
persons which may arise from the conduct of the captain in the care of the goods
which he loaded on the vessel; but he may exempt himself therefrom by abandoning
the vessel with all the equipments and the freight it may have earned during the
voyage.
The term "ship agent" as used in the foregoing provision is broad enough to include the ship owner
(Standard Oil Co. vs. Lopez Castelo, 42 Phil. 256 [1921]). Pursuant to said provision, therefore, both
the ship owner and ship agent are civilly and directly liable for the indemnities in favor of third
persons, which may arise from the conduct of the captain in the care of goods transported, as well
as for the safety of passengers transported Yangco vs. Laserna, supra; Manila Steamship Co., Inc.
vs. Abdulhaman et al., 100 Phil. 32 [1956]).
However, under the same Article, this direct liability is moderated and limited by the ship agent's or
ship owner's right of abandonment of the vessel and earned freight. This expresses the universal
principle of limited liability under maritime law. The most fundamental effect of abandonment is the
cessation of the responsibility of the ship agent/owner (Switzerland General Insurance Co., Ltd. vs.

Ramirez, L-48264, February 21, 1980, 96 SCRA 297). It has thus been held that by necessary
implication, the ship agent's or ship owner's liability is confined to that which he is entitled as of right
to abandon the vessel with all her equipment and the freight it may have earned during the voyage,"
and "to the insurance thereof if any" (Yangco vs. Lasema, supra). In other words, the ship owner's or
agent's liability is merely co-extensive with his interest in the vessel such that a total loss thereof
results in its extinction. "No vessel, no liability" expresses in a nutshell the limited liability rule. The
total destruction of the vessel extinguishes maritime liens as there is no longer any res to which it
can attach (Govt. Insular Maritime Co. vs. The Insular Maritime, 45 Phil. 805, 807 [1924]).
As this Court held:
If the ship owner or agent may in any way be held civilly liable at all for injury to or
death of passengers arising from the negligence of the captain in cases of collisions
or shipwrecks, his liability is merely co-extensive with his interest in the vessel such
that a total loss thereof results in its extinction. (Yangco vs. Laserna, et al., supra).
The rationale therefor has been explained as follows:
The real and hypothecary nature of the liability of the ship owner or agent embodied
in the provisions of the Maritime Law, Book III, Code of Commerce, had its origin in
the prevailing conditions of the maritime trade and sea voyages during the medieval
ages, attended by innumerable hazards and perils. To offset against these adverse
conditions and to encourage ship building and maritime commerce, it was deemed
necessary to confine the liability of the owner or agent arising from the operation of a
ship to the vessel, equipment, and freight, or insurance, if any, so that if the ship
owner or agent abandoned the ship, equipment, and freight, his liability was
extinguished. (Abueg vs. San Diego, 77 Phil. 730 [1946])
0
Without the principle of limited liability, a ship owner and investor in maritime
commerce would run the risk of being ruined by the bad faith or negligence of his
captain, and the apprehension of this would be fatal to the interest of navigation."
Yangco vs. Lasema, supra).
0
As evidence of this real nature of the maritime law we have (1) the limitation of the
liability of the agents to the actual value of the vessel and the freight money, and (2)
the right to retain the cargo and the embargo and detention of the vessel even in
cases where the ordinary civil law would not allow more than a personal action
against the debtor or person liable. It will be observed that these rights are
correlative, and naturally so, because if the agent can exempt himself from liability by
abandoning the vessel and freight money, thus avoiding the possibility of risking his
whole fortune in the business, it is also just that his maritime creditor may for any
reason attach the vessel itself to secure his claim without waiting for a settlement of

his rights by a final judgment, even to the prejudice of a third person. (Phil. Shipping
Co. vs. Vergara, 6 Phil. 284 [1906]).
The limited liability rule, however, is not without exceptions, namely: (1) where the injury or death to
a passenger is due either to the fault of the ship owner, or to the concurring negligence of the ship
owner and the captain (Manila Steamship Co., Inc. vs. Abdulhaman supra); (2) where the vessel is
insured; and (3) in workmen's compensation claims Abueg vs. San Diego, supra). In this case, there
is nothing in the records to show that the loss of the cargo was due to the fault of the private
respondent as shipowners, or to their concurrent negligence with the captain of the vessel.
What about the provisions of the Civil Code on common carriers? Considering the "real and
hypothecary nature" of liability under maritime law, these provisions would not have any effect on the
principle of limited liability for ship owners or ship agents. As was expounded by this Court:
In arriving at this conclusion, the fact is not ignored that the illfated, S.S. Negros, as a
vessel engaged in interisland trade, is a common carrier, and that the relationship
between the petitioner and the passengers who died in the mishap rests on a
contract of carriage. But assuming that petitioner is liable for a breach of contract of
carriage, the exclusively 'real and hypothecary nature of maritime law operates to
limit such liability to the value of the vessel, or to the insurance thereon, if any. In the
instant case it does not appear that the vessel was insured. (Yangco vs. Laserila, et
al., supra).
Moreover, Article 1766 of the Civil Code provides:
Art. 1766. In all matters not regulated by this Code, the rights and obligations of
common carriers shall be governed by the Code of Commerce and by special laws.
In other words, the primary law is the Civil Code (Arts. 17321766) and in default thereof, the Code of
Commerce and other special laws are applied. Since the Civil Code contains no provisions
regulating liability of ship owners or agents in the event of total loss or destruction of the vessel, it is
the provisions of the Code of Commerce, more particularly Article 587, that govern in this case.
In sum, it will have to be held that since the ship agent's or ship owner's liability is merely coextensive with his interest in the vessel such that a total loss thereof results in its extinction (Yangco
vs. Laserna, supra), and none of the exceptions to the rule on limited liability being present, the
liability of private respondents for the loss of the cargo of copra must be deemed to have been
extinguished. There is no showing that the vessel was insured in this case.
WHEREFORE, the judgment sought to be reviewed is hereby AFFIRMED. No costs.
SO ORDERED.

Republic of the Philippines

Supreme Court
Manila
THIRD DIVISION
INSURANCE COMPANY OF NORTH
AMERICA,
Petitioner,
- versus -

G.R. No. 180784

Present:
CARPIO, * J.,
PERALTA, Acting Chairperson,
ABAD,
PEREZ, ** and
MENDOZA, JJ.

ASIAN TERMINALS, INC.,

Promulgated:
Respondent.
February 15, 2012
x-------------------------------------------------x

DECISION
PERALTA, J.:
This is a petition for review on certiorari[1] of the Decision of the Regional
Trial Court (RTC) of Makati City, Branch 138 (trial court) in Civil Case No. 05809 and its Order dated December 4, 2007 on the ground that the trial court
committed reversible error of law.
The trial court dismissed petitioners complaint for actual damages on the
ground of prescription under the Carriage of Goods by Sea Act (COGSA).
The facts are as follows:
On November 9, 2002, Macro-Lite Korea Corporation shipped to San
Miguel Corporation, through M/V "DIMI P" vessel, one hundred eighty-five (185)
packages (231,000 sheets) of electrolytic tin free steel, complete and in good order
condition and covered by Bill of Lading No. POBUPOHMAN20638.[2] The
shipment had a declared value of US$169,850.35[3] and was insured with petitioner
Insurance Company of North America against all risks under Marine Policy No.
MOPA-06310.[4]
The carrying vessel arrived at the port of Manila on November 19, 2002, and
when the shipment was discharged therefrom, it was noted that seven (7) packages
thereof were damaged and in bad order.[5] The shipment was then turned over to the
custody of respondent Asian Terminals, Inc. (ATI) on November 21, 2002 for
storage and safekeeping pending its withdrawal by the consignee's authorized
customs broker, R.V. Marzan Brokerage Corp. (Marzan).
On November 22, 23 and 29, 2002, the subject shipment was withdrawn by
Marzan from the custody of respondent. On November 29, 2002, prior to the last
withdrawal of the shipment, a joint inspection of the said cargo was conducted per
the Request for Bad Order Survey [6] dated November 29, 2002, and the
examination report, which was written on the same request, showed that an
additional five (5) packages were found to be damaged and in bad order.
On January 6, 2003, the consignee, San Miguel Corporation, filed separate
claims[7] against respondent and petitioner for the damage to 11,200 sheets of
electrolytic tin free steel.

Petitioner engaged the services of an independent adjuster/surveyor, BA

McLarens Phils., Inc., to conduct an investigation and evaluation on the claim and
to prepare the necessary report.[8] BA McLarens Phils., Inc. submitted to petitioner
an Survey Report[9] dated January 22, 2003 and another report[10] dated May 5,
2003 regarding the damaged shipment. It noted that out of the reported twelve (12)
damaged skids, nine (9) of them were rejected and three (3) skids were accepted by
the consignees representative as good order. BA McLarens Phils., Inc. evaluated
the total cost of damage to the nine (9) rejected skids (11,200 sheets of electrolytic
tin free steel) to be P431,592.14.
The petitioner, as insurer of the said cargo, paid the consignee the amount
of P431,592.14 for the damage caused to the shipment, as evidenced by the
Subrogation Receipt dated January 8, 2004. Thereafter, petitioner, formally
demanded reparation against respondent. As respondent failed to satisfy its
demand, petitioner filed an action for damages with the RTC of Makati City.
The trial court found, thus:
The Court finds that the subject shipment indeed suffered additional
damages. The Request for Bad Order Survey No. 56422 shows that prior to the
turn over of the shipment from the custody of ATI to the consignee, aside from the
seven (7) packages which were already damaged upon arrival at the port of
Manila, five (5) more packages were found with "dent, cut and crumple" while in
the custody of ATI. This document was issued by ATI and was jointly executed by
the representatives of ATI, consignee and customs, and the Shed Supervisor. Thus,
ATI is now estopped from claiming that there was no additional damage suffered
by the shipment. It is, therefore, only logical to conclude that the damage was
caused solely by the negligence of defendant ATI. This evidence of the plaintiff
was refuted by the defendant by merely alleging that "the damage to the 5 Tin
Plates is only in its external packaging. However, the fact remains that the
consignee has rejected the same as total loss for not being suitable for their
intended purpose. In addition, the photographs presented by the plaintiff show
that the shipment also suffered severe dents and some packages were even
critically crumpled.[11]

As to the extent of liability, ATI invoked the Contract for Cargo Handling
Services executed between the Philippine Ports Authority and Marina Ports
Services, Inc. (now Asian Terminals, Inc.). Under the said contract, ATI's liability
for damage to cargoes in its custody is limited to P5,000.00 for each package,
unless the value of the cargo shipment is otherwise specified or manifested or
communicated in writing, together with the declared Bill of Lading value and

supported by a certified packing list to the contractor by the interested party or

parties before the discharge or lading unto vessel of the goods.
The trial court found that there was compliance by the shipper and
consignee with the above requirement. The Bill of Lading, together with the
corresponding invoice and packing list, was shown to ATI prior to the discharge of
the goods from the vessel. Since the shipment was released from the custody of
ATI, the trial court found that the same was declared for tax purposes as well as for
the assessment of arrastre charges and other fees. For the purpose, the presentation
of the invoice, packing list and other shipping documents to ATI for the proper
assessment of the arrastre charges and other fees satisfied the condition of
declaration of the actual invoices of the value of the goods to overcome the
limitation of liability of the arrastre operator.[12]
Further, the trial court found that there was a valid subrogation between the
petitioner and the assured/consignee San Miguel Corporation. The respondent
admitted the existence of Global Marine Policy No. MOPA-06310 with San
Miguel Corporation and Marine Risk Note No. 3445, [13] which showed that the
cargo was indeed insured with petitioner. The trial court held that petitioners claim
is compensable because the Subrogation Receipt, 16 which was admitted as to its
existence by respondent, was sufficient to establish not only the relationship of the
insurer and the assured, but also the amount paid to settle the insurance claim.[14]
However, the trial court dismissed the complaint on the ground that the
petitioners claim was already barred by the statute of limitations. It held that
COGSA, embodied in Commonwealth Act (CA) No. 65, applies to this case, since
the goods were shipped from a foreign port to the Philippines. The trial court
stated that under the said law, particularly paragraph 4, Section 3 (6) [15] thereof, the
shipper has the right to bring a suit within one year after the delivery of the goods
or the date when the goods should have been delivered, in respect of loss or
damage thereto.
The trial court held:
In the case at bar, the records show that the shipment was delivered to the
consignee on 22, 23 and 29 of November 2002. The plaintiff took almost a year to
approve and pay the claim of its assured, San Miguel, despite the fact that it had

initially received the latter's claim as well as the inspection report and survey
report of McLarens as early as January 2003. The assured/consignee had only
until November of 2003 within which to file a suit against the defendant.
However, the instant case was filed only on September 7, 2005 or almost three (3)
years from the date the subject shipment was delivered to the consignee. The
plaintiff, as insurer of the shipment which has paid the claim of the insured, is
subrogated to all the rights of the said insured in relation to the reimbursement of
such claim. As such, the plaintiff cannot acquire better rights than that of the
insured. Thus, the plaintiff has no one but itself to blame for having acted
lackadaisically on San Miguel's claim.
WHEREFORE, the complaint and counterclaim are hereby DISMISSED.[16]

Petitioners motion for reconsideration was denied by the trial court in the
Order dated December 4, 2007.
[17]

Petitioner filed this petition under Rule 45 of the Rules of Court directly
before this Court, alleging that it is raising a pure question of law:
THE TRIAL COURT COMMITTED A PURE AND SERIOUS ERROR
OF LAW IN APPLYING THE ONE-YEAR PRESCRIPTIVE PERIOD FOR
FILING A SUIT UNDER THE CARRIAGE OF GOODS BY SEA ACT (COGSA)
TO AN ARRASTRE OPERATOR.[18]

Petitioner states that while it is in full accord with the trial court in finding
respondent liable for the damaged shipment, it submits that the trial courts
dismissal of the complaint on the ground of prescription under the COGSA is
legally erroneous. It contends that the one-year limitation period for bringing a suit
in court under the COGSA is not applicable to this case, because the prescriptive
period applies only to the carrier and the ship. It argues that respondent, which is
engaged in warehousing, arrastre and stevedoring business, is not a carrier as
defined by the COGSA, because it is not engaged in the business of transportation
of goods by sea in international trade as a common carrier. Petitioner asserts that
since the complaint was filed against respondent arrastre operator only, without
impleading the carrier, the prescriptive period under the COGSA is not applicable
to this case.

Moreover, petitioner contends that the term carriage of goods in the COGSA
covers the period from the time the goods are loaded to the vessel to the time they
are discharged therefrom. It points out that it sued respondent only for the
additional five (5) packages of the subject shipment that were found damaged
while in respondents custody, long after the shipment was discharged from the
vessel. The said damage was confirmed by the trial court and proved by the
Request for Bad Order Survey No. 56422.[19]
Petitioner prays that the decision of the trial court be reversed and set aside
and a new judgment be promulgated granting its prayer for actual damages.
The main issues are: (1) whether or not the one-year prescriptive period for
filing a suit under the COGSA applies to this action for damages against
respondent arrastre operator; and (2) whether or not petitioner is entitled to recover
actual damages in the amount of P431,592.14 from respondent.
To reiterate, petitioner came straight to this Court to appeal from the
decision of the trial court under Rule 45 of the Rules of Court on the ground that it
is raising only a question of law.
Microsoft Corporation v. Maxicorp, Inc.[20] explains the difference between
questions of law and questions of fact, thus:
The distinction between questions of law and questions of fact is settled. A
question of law exists when the doubt or difference centers on what the law is on a
certain state of facts. A question of fact exists if the doubt centers on the truth or
falsity of the alleged facts. Though this delineation seems simple, determining
the true nature and extent of the distinction is sometimes problematic. For
example, it is incorrect to presume that all cases where the facts are not in dispute
automatically
involve
purely questions
of
law.
There is a question of law if the issue raised is capable of being resolved without
need of reviewing the probative value of the evidence. The resolution of the issue
must rest solely on what the law provides on the given set of circumstances. Once
it is clear that the issue invites a review of the evidence presented, the question
posed is one of fact. If the query requires a re-evaluation of the credibility of
witnesses, or the existence or relevance of surrounding circumstances and their
relation to each other, the issue in that query is factual. x x x[21]

In this case, although petitioner alleged that it is merely raising a question of

law, that is, whether or not the prescriptive period under the COGSA applies to an

action for damages against respondent arrastre operator, yet petitioner prays for the
reversal of the decision of the trial court and that it be granted the relief sought,
which is the award of actual damages in the amount of P431,592.14. For a question
to be one of law, it must not involve an examination of the probative value of the
evidence presented by the litigants or any of them.[22] However, to resolve the issue
of whether or not petitioner is entitled to recover actual damages from respondent
requires the Court to evaluate the evidence on record; hence, petitioner is also
raising a question of fact.
Under Section 1, Rule 45, providing for appeals by certiorari before the
Supreme Court, it is clearly enunciated that only questions of law may be set forth.
[23]
The Court may resolve questions of fact only when the case falls under the
following exceptions:

(1) when the findings are grounded entirely on speculation, surmises, or

conjectures; (2) when the inference made is manifestly mistaken, absurd, or
impossible; (3) when there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of fact are
conflicting; (6) when in making its findings the Court of Appeals went beyond the
issues of the case, or its findings are contrary to the admissions of both the
appellant and the appellee; (7) when the findings are contrary to those of the trial
court; (8) when the findings are conclusions without citation of specific evidence
on which they are based; (9) when the facts set forth in the petition as well as in
the petitioner's main and reply briefs are not disputed by the respondent; and (10)
when the findings of fact are premised on the supposed absence of evidence and
contradicted by the evidence on record.[24]

In this case, the fourth exception cited above applies, as the trial court
rendered judgment based on a misapprehension of facts.
We first resolve the issue on whether or not the one-year prescriptive period
for filing a suit under the COGSA applies to respondent arrastre operator.
The Carriage of Goods by Sea Act (COGSA), Public Act No. 521 of the
74th US Congress, was accepted to be made applicable to all contracts for the
carriage of goods by sea to and from Philippine ports in foreign trade by virtue of
CA No. 65.
Section 1 of CA No. 65 states:

Section 1. That the provisions of Public Act Numbered Five hundred

and twenty-one of the Seventy-fourth Congress of the United States, approved on
April sixteenth, nineteen hundred and thirty-six, be accepted, as it is hereby
accepted to be made applicable to all contracts for the carriage of goods by
sea to and from Philippine ports in foreign trade: Provided, That nothing in the
Act shall be construed as repealing any existing provision of the Code of
Commerce which is now in force, or as limiting its application.

Section 1, Title I of CA No. 65 defines the relevant terms in Carriage of

Goods by Sea, thus:
Section 1. When used in this Act (a) The term "carrier" includes the owner or the charterer who enters into a
contract of carriage with a shipper.
(b) The term "contract of carriage" applies only to contracts of carriage
covered by a bill of lading or any similar document of title, insofar as such
document relates to the carriage of goods by sea, including any bill of lading or
any similar document as aforesaid issued under or pursuant to a charter party from
the moment at which such bill of lading or similar document of title regulates the
relations between a carrier and a holder of the same.
(c) The term "goods" includes goods, wares, merchandise, and articles of
every kind whatsoever, except live animals and cargo which by the contract of
carriage is stated as being carried on deck and is so carried.
(d) The term "ship" means any vessel used for the carriage of goods by sea.
(e) The term "carriage of goods" covers the period from the time when
the goods are loaded to the time when they are discharged from the ship.[25]

It is noted that the term carriage of goods covers the period from the time
when the goods are loaded to the time when they are discharged from the ship;
thus, it can be inferred that the period of time when the goods have been
discharged from the ship and given to the custody of the arrastre operator is not
covered by the COGSA.
The prescriptive period for filing an action for the loss or damage of the
goods under the COGSA is found in paragraph (6), Section 3, thus:
6) Unless notice of loss or damage and the general nature of such loss or
damage be given in writing to the carrier or his agent at the port of discharge
before or at the time of the removal of the goods into the custody of the person
entitled to delivery thereof under the contract of carriage, such removal shall be

prima facie evidence of the delivery by the carrier of the goods as described in the
bill of lading. If the loss or damage is not apparent, the notice must be given
within three days of the delivery.
Said notice of loss or damage maybe endorsed upon the receipt for the
goods given by the person taking delivery thereof.
The notice in writing need not be given if the state of the goods has at the
time of their receipt been the subject of joint survey or inspection.
In any event the carrier and the ship shall be discharged from all
liability in respect of loss or damage unless suit is brought within one year
after delivery of the goods or the date when the goods should have been
delivered: Provided, That if a notice of loss or damage, either apparent or
concealed, is not given as provided for in this section, that fact shall not affect or
prejudice the right of the shipper to bring suit within one year after the delivery of
the goods or the date when the goods should have been delivered.[26]

From the provision above, the carrier and the ship may put up the defense of
prescription if the action for damages is not brought within one year after the
delivery of the goods or the date when the goods should have been delivered. It has
been held that not only the shipper, but also the consignee or legal holder of the bill
may invoke the prescriptive period.[27] However, the COGSA does not mention that
an arrastre operator may invoke the prescriptive period of one year; hence, it does
not cover the arrastre operator.
Respondent arrastre operators responsibility and liability for losses and
damages are set forth in Section 7.01 of the Contract for Cargo Handling
Services executed between the Philippine Ports Authority and Marina Ports
Services, Inc. (now Asian Terminals, Inc.), thus:
Section 7.01 Responsibility and Liability for Losses and Damages;
Exceptions - The CONTRACTOR shall, at its own expense, handle all
merchandise in all work undertaken by it hereunder, diligently and in a skillful,
workman-like and efficient manner. The CONTRACTOR shall be solely
responsible as an independent contractor, and hereby agrees to accept
liability and to pay to the shipping company, consignees, consignors or other
interested party or parties for the loss, damage or non-delivery of cargoes in
its custody and control to the extent of the actual invoice value of each
package which in no case shall be more than FIVE THOUSAND PESOS
(P5,000.00) each, unless the value of the cargo shipment is otherwise specified
or manifested or communicated in writing together with the declared Bill of

Lading value and supported by a certified packing list to the

CONTRACTOR by the interested party or parties before the discharge or
loading unto vessel of the goods. This amount of Five Thousand Pesos
(P5,000.00) per package may be reviewed and adjusted by the AUTHORITY
from time to time. The CONTRACTOR shall not be responsible for the condition
or the contents of any package received, nor for the weight nor for any loss, injury
or damage to the said cargo before or while the goods are being received or
remains in the piers, sheds, warehouses or facility, if the loss, injury or damage is
caused by force majeure or other causes beyond the CONTRACTOR's control or
capacity to prevent or remedy; PROVIDED, that a formal claim together with
the necessary copies of Bill of Lading, Invoice, Certified Packing List and
Computation arrived at covering the loss, injury or damage or non-delivery
of such goods shall have been filed with the CONTRACTOR within fifteen
(15) days from day of issuance by the CONTRACTOR of a certificate of nondelivery; PROVIDED, however, that if said CONTRACTOR fails to issue
such certification within fifteen (15) days from receipt of a written request by
the shipper/consignee or his duly authorized representative or any interested
party, said certification shall be deemed to have been issued, and thereafter,
the fifteen (15) day period within which to file the claim
commences; PROVIDED, finally, that the request for certification of loss
shall be made within thirty (30) days from the date of delivery of the package
to the consignee.[28]

Based on the Contract above, the consignee has a period of thirty (30) days
from the date of delivery of the package to the consignee within which to request a
certificate of loss from the arrastre operator. From the date of the request for a
certificate of loss, the arrastre operator has a period of fifteen (15) days within
which to issue a certificate of non-delivery/loss either actually or constructively.
Moreover, from the date of issuance of a certificate of non-delivery/loss, the
consignee has fifteen (15) days within which to file a formal claim covering the
loss, injury, damage or non-delivery of such goods with all accompanying
documentation against the arrastre operator.
Petitioner clarified that it sued respondent only for the additional five (5)
packages of the subject shipment that were found damaged while in respondents
custody, which fact of damage was sustained by the trial court and proved by the
Request for Bad Order Survey No. 56422.[29]
Petitioner pointed out the importance of the Request for Bad Order Survey
by citing New Zealand Insurance Company Limited v. Navarro.[30] In the said
case, the Court ruled that the request for, and the result of, the bad order
examination, which were filed and done within fifteen days from the haulage of the

goods from the vessel, served the purpose of a claim, which is to afford the carrier
or depositary reasonable opportunity and facilities to check the validity of the
claims while facts are still fresh in the minds of the persons who took part in the
transaction and documents are still available. Hence, even if the consignee therein
filed a formal claim beyond the stipulated period of 15 days, the arrastre operator
was not relieved of liability as the purpose of a formal claim had already been
satisfied by the consignees timely request for the bad order examination of the
goods shipped and the result of the said bad order examination.
To elaborate, New Zealand Insurance Company, Ltd. v. Navarro held:
We took special note of the above pronouncement six (6) years later
in Firemans Fund Insurance Co. v. Manila Port Service Co., et al. There, fifteen
(15) cases of nylon merchandise had been discharged from the carrying vessel and
received by defendant Manila Port Service Co., the arrastre operator, on 7 July
1961. Out of those fifteen (15) cases, however, only twelve (12) had been
delivered to the consignee in good condition. Consequently, on 20 July 1961, the
consignee's broker requested a bad order examination of the shipment, which was
later certified by defendant's own inspector to be short of three (3) cases. On 15
August 1961, a formal claim for indemnity was then filed by the consignee, who
was later replaced in the action by plaintiff Fireman's Fund Insurance Co., the
insurer of the goods. Defendant, however, refused to honor the claim, arguing that
the same had not been filed within fifteen (15) days from the date of discharge of
the shipment from the carrying vessel, as required under the arrastre Management
Contract then in force between itself and the Bureau of Customs. The trial court
upheld this argument and hence dismissed the complaint. On appeal by the
consignee, this Court, speaking through Mr. Justice J.B.L. Reyes, reversed the
trial court and found the defendant arrastre operator liable for the value of the lost
cargo, explaining as follows:
However, the trial court has overlooked the significance of the request
for, and the result of, the bad order examination, which were filed and done
within fifteen days from the haulage of the goods from the vessel. Said request
and result, in effect, served the purpose of a claim, which is
to afford the carrier or depositary reasonable
opportunity and facilities to check the validity of the claims
while facts are still fresh in the minds of the persons who took
part in the transaction and documents are still available.
(Consunji vs. Manila Port Service, L-15551, 29 November
1960)
Indeed, the examination undertaken by the defendant's own inspector not only
gave the defendant an opportunity to check the goods but is itself a verification
of its own liability x x x.

In other words, what the Court considered as the crucial factor in declaring
the defendant arrastre operator liable for the loss occasioned, in the Fireman's
Fund case, was the fact that defendant, by virtue of the consignee's request for a
bad order examination, had been able formally to verify the existence and extent
of its liability within fifteen (15) days from the date of discharge of the shipment
from the carrying vessel -- i.e., within the same period stipulated under the
Management Contract for the consignee to file a formal claim. That a formal
claim had been filed by the consignee beyond the stipulated period of fifteen
(15) days neither relieved defendant of liability nor excused payment thereof,
the purpose of a formal claim, as contemplated in Consunji, having already
been fully served and satisfied by the consignee's timely request for, and the
eventual result of, the bad order examination of the nylon merchandise
shipped.
Relating the doctrine of Fireman's Fund to the case at bar, the record
shows that delivery to the warehouse of consignee Monterey Farms Corporation
of the 5,974 bags of soybean meal, had been completed by respondent Razon
(arrastre operator) on 9 July 1974. On that same day, a bad order examination of
the goods delivered was requested by the consignee and was, in fact, conducted
by respondent Razon's own inspector, in the presence of representatives of both
the Bureau of Customs and the consignee. The ensuing bad order examination
report what the trial court considered a "certificate of loss confirmed that out of
the 5,974 bags of soybean meal loaded on board the M/S "Zamboanga" and
shipped to Manila, 173 bags had been damaged in transitu while an additional 111
bags had been damaged after the entire shipment had been discharged from the
vessel and placed in the custody of respondent Razon. Hence, as early as 9 July
1974 (the date of last delivery to the consignee's warehouse), respondent Razon
had been able to verify and ascertain for itself not only the existence of its
liability to the consignee but, more significantly, the exact amount thereof
- i.e., P5,746.61, representing the value of 111 bags of soybean meal. We note
further that such verification and ascertainment of liability on the part of
respondent Razon, had been accomplished "within thirty (30) days from the
date of delivery of last package to the consignee, broker or importer" as well
as "within fifteen (15) days from the date of issuance by the Contractor
[respondent Razon] of a certificate of loss, damage or injury or certificate of
non-delivery" the periods prescribed under Article VI, Section 1 of the
Management Contract here involved, within which a request for certificate of loss
and a formal claim, respectively, must be filed by the consignee or his agent.
Evidently, therefore, the rule laid down by the Court in Fireman's Fund finds
appropriate application in the case at bar.[31]

In this case, the records show that the goods were deposited with the arrastre
operator on November 21, 2002. The goods were withdrawn from the arrastre
operator on November 22, 23 and 29, 2002. Prior to the withdrawal on November
29, 2002, the broker of the importer, Marzan, requested for a bad order survey in

the presence of a Customs representative and other parties concerned. The joint
inspection of cargo was conducted and it was found that an additional five (5)
packages were found in bad order as evidenced by the document entitled Request
for Bad Order Survey[32] dated November 29, 2002, which document also contained
the
examination
report,
signed
by
the
Customs
representative,
Supervisor/Superintendent, consignees representative, and the ATI Inspector.
Thus, as early as November 29, 2002, the date of the last withdrawal of the
goods from the arrastre operator, respondent ATI was able to verify that five (5)
packages of the shipment were in bad order while in its custody. The certificate of
non-delivery referred to in the Contract is similar to or identical with the
examination report on the request for bad order survey.[33] Like in the case of New
Zealand Insurance Company Ltd. v. Navarro, the verification and ascertainment
of liability by respondent ATI had been accomplished within thirty (30) days
from the date of delivery of the package to the consignee and within fifteen (15)
days from the date of issuance by the Contractor (respondent ATI) of the
examination report on the request for bad order survey. Although the formal
claim was filed beyond the 15-day period from the issuance of the examination
report on the request for bad order survey, the purpose of the time limitations for the
filing of claims had already been fully satisfied by the request of the consignees
broker for a bad order survey and by the examination report of the arrastre operator
on the result thereof, as the arrastre operator had become aware of and had verified
the facts giving rise to its liability.[34] Hence, the arrastre operator suffered no
prejudice by the lack of strict compliance with the 15-day limitation to file the
formal complaint.[35]
The next factual issue is whether or not petitioner is entitled to actual
damages in the amount of P431,592.14. The payment of the said amount by
petitioner to the assured/consignee was based on the Evaluation Report [36] of BA
McLarens Phils., Inc., thus:
xxxx
CIRCUMSTANCES OF LOSS
As reported, the shipment consisting of 185 packages (344.982 MT) Electrolytic
Tin Free Steel, JISG 3315SPTFS, MRT-4CA, Matte Finish arrived
Manila via Ocean Vessel, M/V DIMI P V-075 on November 9, 2002 and
subsequently docked alongside Pier No. 9, South Harbor, Manila. The cargo of
Electrolyic Tin Free Steel was discharged ex-vessel complete with seven (7)
skidsnoted in bad order condition by the vessel[s] representative. These skids
were identified as nos. 2HD804211, 2HD804460, SHD804251, SHD803784,
2HD803763, 2HD803765 and 2HD803783 and covered with Bad Order Tally

Receipts No. 3709, 3707, 3703 and 3704. Thereafter, the same were stored inside
the warehouse of Pier No. 9, South Harbor, Manila, pending delivery to the
consignees warehouse.
On November 22, 23 and 29, 2002, the subject cargo was withdrawn from the Pier
by the consignee authorized broker, R. V. Marzan Brokerage Corp. and the same
was delivered to the consignees final warehouse located at Silangan, Canlubang,
Laguna complete with twelve (12) skids in bad order condition.
VISUAL INSPECTION
We conducted an ocular inspection on the reported damaged Electrolytic Tin Free
Steel, Matte Finish at the consignees warehouse located at Brgy. Silangan,
Canlubang, Laguna and noted that out of the reported twelve (12) damaged
skids, nine (9) of them were rejected and three (3) skids were accepted by the
consignees representative as complete and without exceptions.
xxxx
EVALUATION OF INDEMNITY
We evaluated the loss/damage sustained by the subject shipments and
arrived as follows:
PRODUCT NOS. PRODUCTS NAMED NO. OF SHEETS NET WT. PER PACKING LIST

2HD803763 Electrolytic Tin Free 1,200 1,908

Steel JISG3315
2HD803783 -do- 1,200 1,908
2HD803784 -do- 1,200 1,908
2HD804460 -do- 1,400 1,698
2HD803765 -do- 1,200 1,908
2HD804522 -do- 1,200 1,987
2HD804461 -do- 1,400 1,698
2HD804540 -do- 1,200 1,987
2HD804549 -do- 1,200 1,987
9 SKIDS TOTAL 11,200 16,989 kgs.
P9,878,547.58 P478,959.88
------------------ = 42.7643 x 11,200
231,000
Less: Deductible 0.50% based on sum insured 49,392.74
Total P429,567.14
Add: Surveyors Fee 2,025.00
Sub-Total P431,592.14
Note: Above evaluation is Assureds tentative liability as the salvage proceeds on
the damaged stocks has yet to be determined.

RECOVERY ASPECT
Prospect of recovery would be feasible against the shipping company and
the Arrastre operator considering the copies of Bad Order Tally
Receipts and Bad Order Certificate issued by the subject parties.[37]

To clarify, based on the Evaluation Report, seven (7) skids were damaged
upon arrival of the vessel per the Bad Order Cargo Receipts[38] issued by the
shipping company, and an additional five (5) skids were damaged in the custody of
the arrastre operator per the Bad Order Certificate/Examination Report [39] issued by
the arrastre contractor. The Evaluation Report states that out of the
reported twelve damaged skids, only nine were rejected, and three were
accepted as good order by the consignees representative. Out of the nine skids
that were rejected, five skids were damaged upon arrival of the vessel as shown
by the product numbers in the Evaluation Report, which product numbers matched
those in the Bad Order Cargo Receipts[40] issued by the shipping company. It can
then be safely inferred that the four remaining rejected skids were damaged in
the custody of the arrastre operator, as the Bad Order Certificate/Examination
Report did not indicate the product numbers thereof.
Hence, it should be pointed out that the Evaluation Report shows that the
claim for actual damages in the amount of P431,592.14 covers five (5)[41] out of
the seven (7) skids that were found to be damaged upon arrival of the
vessel and covered by Bad Order Cargo Receipt Nos. 3704, 3706, 3707 and 3709,
[42]
which claim should have been filed with the shipping company. Petitioner must
have realized that the claim for the said five (5) skids was already barred under
COGSA; hence, petitioner filed the claim for actual damages only against
respondent arrastre operator.
As regards the four (4) skids that were damaged in the custody of the arrastre
operator, petitioner is still entitled to recover from respondent. The Court has ruled
that the Request for Bad Order Survey and the examination report on the said
request satisfied the purpose of a formal claim, as respondent was made aware of
and was able to verify that five (5) skids were damaged or in bad order while in its
custody before the last withdrawal of the shipment on November 29, 2002. Hence,
even if the formal claim was filed beyond the 15-day period stipulated in the

Contract, respondent was not prejudiced thereby, since it already knew of the
number of skids damaged in its possession per the examination report on the request
for bad order survey.
Remand of the case to the trial court for the determination of the liability of
respondent to petitioner is not necessary as the Court can resolve the same based on
the records before it.[43] The Court notes that petitioner, who filed this action for
damages for the five (5) skids that were damaged while in the custody of
respondent, was not forthright in its claim, as it knew that the damages it sought in
the amount of P431,592.14, which was based on the Evaluation Report of its
adjuster/surveyor, BA McLarens Phils., Inc., covered nine (9) skids. Based on the
same Evaluation Report, only four of the nine skids were damaged in the
custody of respondent. Petitioner should have been straightforward about its exact
claim, which is borne out by the evidence on record, as petitioner can be granted
only the amount of damages that is due to it.
Based on the Evaluation Report[44] of BA McLarens Phils., Inc., dated May 5,
2003, the four (4) skids damaged while in the custody of the arrastre operator and
the amount of actual damages therefore are as follows:
PRODUCT NOS. PRODUCTS NAMED NO. OF SHEETS NET WT. PER
PACKING LIST
2HD804522 Electrolytic Tin Free 1,200 1,987
Steel JISG3315
2HD804461 -do- 1,400 1,698
2HD804540 -do- 1,200 1,987
2HD804549 -do- 1,200 1,987
---------------------------------------------------------------------------------------------------------4 SKIDS TOTAL 5,000
P9,878,547.58 (Insured value)[45] P213,821.50
------------------ = 42.7643 x 5,000
231,000 (Total number of sheets)
Less: Deductible 0.50% based on sum insured[46] 49,392.74
Total P164,428.76

In view of the foregoing, petitioner is entitled to actual damages in the

amount of P164,428.76 for the four (4) skids damaged while in the custody of
respondent.
WHEREFORE, the petition is GRANTED. The Decision of the Regional
Trial Court of Makati City, Branch 138, dated October 17, 2006, in Civil Case No.

05-809, and its Order dated December 4, 2007, are hereby REVERSED and SET
ASIDE. Respondent Asian Terminals, Inc. is ORDERED to pay petitioner
Insurance Company of North America actual damages in the amount of One
Hundred Sixty-Four Thousand Four Hundred Twenty-Eight Pesos and Seventy-Six
Centavos (P164,428.76). Twelve percent (12%) interest per annum shall be imposed
on the amount of actual damages from the date the award becomes final and
executory until its full satisfaction.
Costs against petitioner.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
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.
THE NISSHIN FIRE AND MARINE INSURANCE CO., and DOWA FIRE & MARINE INSURANCE
CO., LTD., respondents.

MELENCIO-HERRERA, J.:
These two cases, both for the recovery of the value of cargo insurance, arose from the same
incident, the sinking of the M/S ASIATICA when it caught fire, resulting in the total loss of ship and
cargo.
The basic facts are not in controversy:
In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel operated by
petitioner Eastern Shipping Lines, Inc., (referred to hereinafter as Petitioner Carrier) loaded at Kobe,
Japan for transportation to Manila, 5,000 pieces of calorized lance pipes in 28 packages valued at

P256,039.00 consigned to Philippine Blooming Mills Co., Inc., and 7 cases of spare parts valued at
P92,361.75, consigned to Central Textile Mills, Inc. Both sets of goods were insured against marine
risk for their stated value with respondent Development Insurance and Surety Corporation.
In G.R. No. 71478, during the same period, the same vessel took on board 128 cartons of garment
fabrics and accessories, in two (2) containers, consigned to Mariveles Apparel Corporation, and two
cases of surveying instruments consigned to Aman Enterprises and General Merchandise. The 128
cartons were insured for their stated value by respondent Nisshin Fire & Marine Insurance Co., for
US $46,583.00, and the 2 cases by respondent Dowa Fire & Marine Insurance Co., Ltd., for US
$11,385.00.
Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total loss of ship
and cargo. The respective respondent Insurers paid the corresponding marine insurance values to
the consignees concerned and were thus subrogated unto the rights of the latter as the insured.
G.R. NO. 69044
On May 11, 1978, respondent Development Insurance & Surety Corporation (Development
Insurance, for short), having been subrogated unto the rights of the two insured companies, filed suit
against petitioner Carrier for the recovery of the amounts it had paid to the insured before the then
Court of First instance of Manila, Branch XXX (Civil Case No. 6087).
Petitioner-Carrier denied liability mainly on the ground that the loss was due to an extraordinary
fortuitous event, hence, it is not liable under the law.
On August 31, 1979, the Trial Court rendered judgment in favor of Development Insurance in the
amounts of P256,039.00 and P92,361.75, respectively, with legal interest, plus P35,000.00 as
attorney's fees and costs. Petitioner Carrier took an appeal to the then Court of Appeals which, on
August 14, 1984, affirmed.
Petitioner Carrier is now before us on a Petition for Review on Certiorari.
G.R. NO. 71478
On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN for short), and Dowa
Fire & Marine Insurance Co., Ltd. (DOWA, for brevity), as subrogees of the insured, filed suit against
Petitioner Carrier for the recovery of the insured value of the cargo lost with the then Court of First
Instance of Manila, Branch 11 (Civil Case No. 116151), imputing unseaworthiness of the ship and
non-observance of extraordinary diligence by petitioner Carrier.
Petitioner Carrier denied liability on the principal grounds that the fire which caused the sinking of the
ship is an exempting circumstance under Section 4(2) (b) of the Carriage of Goods by Sea Act
(COGSA); and that when the loss of fire is established, the burden of proving negligence of the
vessel is shifted to the cargo shipper.

On September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN and DOWA in the
amounts of US $46,583.00 and US $11,385.00, respectively, with legal interest, plus attorney's fees
of P5,000.00 and costs. On appeal by petitioner, the then Court of Appeals on September 10, 1984,
affirmed with modification the Trial Court's judgment by decreasing the amount recoverable by
DOWA to US $1,000.00 because of $500 per package limitation of liability under the COGSA.
Hence, this Petition for Review on certiorari by Petitioner Carrier.
Both Petitions were initially denied for lack of merit. G.R. No. 69044 on January 16, 1985 by the First
Division, and G. R. No. 71478 on September 25, 1985 by the Second Division. Upon Petitioner
Carrier's Motion for Reconsideration, however, G.R. No. 69044 was given due course on March 25,
1985, and the parties were required to submit their respective Memoranda, which they have done.
On the other hand, in G.R. No. 71478, Petitioner Carrier sought reconsideration of the Resolution
denying the Petition for Review and moved for its consolidation with G.R. No. 69044, the lowernumbered case, which was then pending resolution with the First Division. The same was granted;
the Resolution of the Second Division of September 25, 1985 was set aside and the Petition was
given due course.
At the outset, we reject Petitioner Carrier's claim that it is not the operator of the M/S Asiatica but
merely a charterer thereof. We note that in G.R. No. 69044, Petitioner Carrier stated in its Petition:
There are about 22 cases of the "ASIATICA" pending in various courts where various
plaintiffs are represented by various counsel representing various consignees or
insurance companies. The common defendant in these cases is petitioner herein,
being the operator of said vessel. ... 1
Petitioner Carrier should be held bound to said admission. As a general rule, the facts alleged in a
party's pleading are deemed admissions of that party and binding upon it. 2 And an admission in one
pleading in one action may be received in evidence against the pleader or his successor-in-interest on the
trial of another action to which he is a party, in favor of a party to the latter action. 3
The threshold issues in both cases are: (1) which law should govern the Civil Code provisions on
Common carriers or the Carriage of Goods by Sea Act? and (2) who has the burden of proof to show
negligence of the carrier?
On the Law Applicable
The law of the country to which the goods are to be transported governs the liability of the common
carrier in case of their loss, destruction or deterioration. 4 As the cargoes in question were transported
from Japan to the Philippines, the liability of Petitioner Carrier is governed primarily by the Civil
Code. 5 However, in all matters not regulated by said Code, the rights and obligations of common carrier
shall be governed by the Code of Commerce and by special laws. 6 Thus, the Carriage of Goods by Sea
Act, a special law, is suppletory to the provisions of the Civil Code. 7
On the Burden of Proof

Under the Civil Code, common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in the vigilance over goods, according to all the
circumstances of each case. 8 Common carriers are responsible for the loss, destruction, or deterioration
of the goods unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;
xxx xxx xxx 9
Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability under the phrase
"natural disaster or calamity. " However, we are of the opinion that fire may not be considered a
natural disaster or calamity. This must be so as it arises almost invariably from some act of man or
by human means. 10 It does not fall within the category of an act of God unless caused by lightning 11 or by other natural disaster or
calamity. 12 It may even be caused by the actual fault or privity of the carrier. 13

Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to
leases of rural lands where a reduction of the rent is allowed when more than one-half of the fruits
have been lost due to such event, considering that the law adopts a protection policy towards
agriculture. 14
As the peril of the fire is not comprehended within the exception in Article 1734, supra, Article 1735
of the Civil Code provides that all cases than those mention in Article 1734, the common carrier shall
be presumed to have been at fault or to have acted negligently, unless it proves that it has observed
the extraordinary deligence required by law.
In this case, the respective Insurers. as subrogees of the cargo shippers, have proven that the
transported goods have been lost. Petitioner Carrier has also proved that the loss was caused by
fire. The burden then is upon Petitioner Carrier to proved that it has exercised the extraordinary
diligence required by law. In this regard, the Trial Court, concurred in by the Appellate Court, made
the following Finding of fact:
The cargoes in question were, according to the witnesses defendant placed in
hatches No, 2 and 3 cf the vessel, Boatswain Ernesto Pastrana noticed that smoke
was coming out from hatch No. 2 and hatch No. 3; that where the smoke was
noticed, the fire was already big; that the fire must have started twenty-four 24) our
the same was noticed; that carbon dioxide was ordered released and the crew was
ordered to open the hatch covers of No, 2 tor commencement of fire fighting by sea
water: that all of these effort were not enough to control the fire.
Pursuant to Article 1733, common carriers are bound to extraordinary diligence in the
vigilance over the goods. The evidence of the defendant did not show that
extraordinary vigilance was observed by the vessel to prevent the occurrence of fire
at hatches numbers 2 and 3. Defendant's evidence did not likewise show he amount
of diligence made by the crew, on orders, in the care of the cargoes. What appears is
that after the cargoes were stored in the hatches, no regular inspection was made as
to their condition during the voyage. Consequently, the crew could not have even
explain what could have caused the fire. The defendant, in the Court's mind, failed to

satisfactorily show that extraordinary vigilance and care had been made by the crew
to prevent the occurrence of the fire. The defendant, as a common carrier, is liable to
the consignees for said lack of deligence required of it under Article 1733 of the Civil
Code. 15
Having failed to discharge the burden of proving that it had exercised the extraordinary diligence
required by law, Petitioner Carrier cannot escape liability for the loss of the cargo.
And even if fire were to be considered a "natural disaster" within the meaning of Article 1734 of the
Civil Code, it is required under Article 1739 of the same Code that the "natural disaster" must have
been the "proximate and only cause of the loss," and that the carrier has "exercised due diligence to
prevent or minimize the loss before, during or after the occurrence of the disaster. " This Petitioner
Carrier has also failed to establish satisfactorily.
Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods by Sea Act, It is
provided therein that:
Sec. 4(2). Neither the carrier nor the ship shall be responsible for loss or damage
arising or resulting from
(b) Fire, unless caused by the actual fault or privity of the carrier.
xxx xxx xxx
In this case, both the Trial Court and the Appellate Court, in effect, found, as a fact, that there was
"actual fault" of the carrier shown by "lack of diligence" in that "when the smoke was noticed, the fire
was already big; that the fire must have started twenty-four (24) hours before the same was noticed;
" and that "after the cargoes were stored in the hatches, no regular inspection was made as to their
condition during the voyage." The foregoing suffices to show that the circumstances under which the
fire originated and spread are such as to show that Petitioner Carrier or its servants were negligent
in connection therewith. Consequently, the complete defense afforded by the COGSA when loss
results from fire is unavailing to Petitioner Carrier.
On the US $500 Per Package Limitation:
Petitioner Carrier avers that its liability if any, should not exceed US $500 per package as provided in
section 4(5) of the COGSA, which reads:
(5) Neither the carrier nor the ship shall in any event be or become liable for any loss
or damage to or in connection with the transportation of goods in an amount
exceeding $500 per package lawful money of the United States, or in case of goods
not shipped in packages, per customary freight unit, or the equivalent of that sum in
other currency, unless the nature and value of such goods have been declared by
the shipper before shipment and inserted in bill of lading. This declaration if
embodied in the bill of lading shall be prima facie evidence, but all be conclusive on
the carrier.

By agreement between the carrier, master or agent of the carrier, and the shipper
another maximum amount than that mentioned in this paragraph may be fixed:
Provided, That such maximum shall not be less than the figure above named. In no
event shall the carrier be Liable for more than the amount of damage actually
sustained.
xxx xxx xxx
Article 1749 of the New Civil Code also allows the limitations of liability in this wise:
Art. 1749. A stipulation that the common carrier's liability as limited to the value of the
goods appearing in the bill of lading, unless the shipper or owner declares a greater
value, is binding.
It is to be noted that the Civil Code does not of itself limit the liability of the common carrier to a fixed
amount per package although the Code expressly permits a stipulation limiting such liability. Thus,
the COGSA which is suppletory to the provisions of the Civil Code, steps in and supplements the
Code by establishing a statutory provision limiting the carrier's liability in the absence of a declaration
of a higher value of the goods by the shipper in the bill of lading. The provisions of the Carriage of
Goods by.Sea Act on limited liability are as much a part of a bill of lading as though physically in it
and as much a part thereof as though placed therein by agreement of the parties. 16
In G.R. No. 69044, there is no stipulation in the respective Bills of Lading (Exhibits "C-2" and "I-3") 1
7 limiting the carrier's liability for the loss or destruction of the goods. Nor is there a declaration of a
higher value of the goods. Hence, Petitioner Carrier's liability should not exceed US $500 per
package, or its peso equivalent, at the time of payment of the value of the goods lost, but in no case
"more than the amount of damage actually sustained."
The actual total loss for the 5,000 pieces of calorized lance pipes was P256,039 (Exhibit "C"), which
was exactly the amount of the insurance coverage by Development Insurance (Exhibit "A"), and the
amount affirmed to be paid by respondent Court. The goods were shipped in 28 packages (Exhibit
"C-2") Multiplying 28 packages by $500 would result in a product of $14,000 which, at the current
exchange rate of P20.44 to US $1, would be P286,160, or "more than the amount of damage
actually sustained." Consequently, the aforestated amount of P256,039 should be upheld.
With respect to the seven (7) cases of spare parts (Exhibit "I-3"), their actual value was P92,361.75
(Exhibit "I"), which is likewise the insured value of the cargo (Exhibit "H") and amount was affirmed to
be paid by respondent Court. however, multiplying seven (7) cases by $500 per package at the
present prevailing rate of P20.44 to US $1 (US $3,500 x P20.44) would yield P71,540 only, which is
the amount that should be paid by Petitioner Carrier for those spare parts, and not P92,361.75.
In G.R. No. 71478, in so far as the two (2) cases of surveying instruments are concerned, the
amount awarded to DOWA which was already reduced to $1,000 by the Appellate Court following
the statutory $500 liability per package, is in order.

In respect of the shipment of 128 cartons of garment fabrics in two (2) containers and insured with
NISSHIN, the Appellate Court also limited Petitioner Carrier's liability to $500 per package and
affirmed the award of $46,583 to NISSHIN. it multiplied 128 cartons (considered as COGSA
packages) by $500 to arrive at the figure of $64,000, and explained that "since this amount is more
than the insured value of the goods, that is $46,583, the Trial Court was correct in awarding said
amount only for the 128 cartons, which amount is less than the maximum limitation of the carrier's
liability."
We find no reversible error. The 128 cartons and not the two (2) containers should be considered as
the shipping unit.
In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the consignees of tin
ingots and the shipper of floor covering brought action against the vessel owner and operator to
recover for loss of ingots and floor covering, which had been shipped in vessel supplied
containers. The U.S. District Court for the Southern District of New York rendered judgment for the
plaintiffs, and the defendant appealed. The United States Court of Appeals, Second Division,
modified and affirmed holding that:
When what would ordinarily be considered packages are shipped in a container
supplied by the carrier and the number of such units is disclosed in the shipping
documents, each of those units and not the container constitutes the "package"
referred to in liability limitation provision of Carriage of Goods by Sea Act. Carriage of
Goods by Sea Act, 4(5), 46 U.S.C.A.& 1304(5).
Even if language and purposes of Carriage of Goods by Sea Act left doubt as to
whether carrier-furnished containers whose contents are disclosed should be treated
as packages, the interest in securing international uniformity would suggest that they
should not be so treated. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A. 1304(5).
... After quoting the statement in Leather's Best, supra, 451 F 2d at 815, that treating
a container as a package is inconsistent with the congressional purpose of
establishing a reasonable minimum level of liability, Judge Beeks wrote, 414 F. Supp.
at 907 (footnotes omitted):
Although this approach has not completely escaped criticism, there
is, nonetheless, much to commend it. It gives needed recognition to
the responsibility of the courts to construe and apply the statute as
enacted, however great might be the temptation to "modernize" or
reconstitute it by artful judicial gloss. If COGSA's package limitation
scheme suffers from internal illness, Congress alone must undertake
the surgery. There is, in this regard, obvious wisdom in the Ninth
Circuit's conclusion in Hartford that technological advancements,
whether or not forseeable by the COGSA promulgators, do not
warrant a distortion or artificial construction of the statutory term
"package." A ruling that these large reusable metal pieces of transport
equipment qualify as COGSA packages at least where, as here,

they were carrier owned and supplied would amount to just such a
distortion.
Certainly, if the individual crates or cartons prepared by the shipper
and containing his goods can rightly be considered "packages"
standing by themselves, they do not suddenly lose that character
upon being stowed in a carrier's container. I would liken these
containers to detachable stowage compartments of the ship. They
simply serve to divide the ship's overall cargo stowage space into
smaller, more serviceable loci. Shippers' packages are quite literally
"stowed" in the containers utilizing stevedoring practices and
materials analogous to those employed in traditional on board
stowage.
In Yeramex International v. S.S. Tando,, 1977 A.M.C. 1807 (E.D. Va.) rev'd on other
grounds, 595 F 2nd 943 (4 Cir. 1979), another district with many maritime cases
followed Judge Beeks' reasoning in Matsushita and similarly rejected the functional
economics test. Judge Kellam held that when rolls of polyester goods are packed
into cardboard cartons which are then placed in containers, the cartons and not the
containers are the packages.
xxx xxx xxx
The case of Smithgreyhound v. M/V Eurygenes, 18 followed the Mitsui test:
Eurygenes concerned a shipment of stereo equipment packaged by the shipper into
cartons which were then placed by the shipper into a carrier- furnished
container. The number of cartons was disclosed to the carrier in the bill of lading.
Eurygenes followed the Mitsui test and treated the cartons, not the container, as the
COGSA packages. However, Eurygenes indicated that a carrier could limit its liability
to $500 per container if the bill of lading failed to disclose the number of cartons or
units within the container, or if the parties indicated, in clear and unambiguous
language, an agreement to treat the container as the package.
(Admiralty Litigation in Perpetuum: The Continuing Saga of Package
Limitations and Third World Delivery Problems by Chester D. Hooper
& Keith L. Flicker, published in Fordham International Law Journal,
Vol. 6, 1982-83, Number 1) (Emphasis supplied)
In this case, the Bill of Lading (Exhibit "A") disclosed the following data:
2 Containers
(128) Cartons)
Men's Garments Fabrics and Accessories Freight Prepaid

Say: Two (2) Containers Only.

Considering, therefore, that the Bill of Lading clearly disclosed the contents of the containers, the
number of cartons or units, as well as the nature of the goods, and applying the ruling in
the Mitsui and Eurygenes cases it is clear that the 128 cartons, not the two (2) containers should be
considered as the shipping unit subject to the $500 limitation of liability.
True, the evidence does not disclose whether the containers involved herein were carrier-furnished
or not. Usually, however, containers are provided by the carrier. 19 In this case, the probability is that they were so
furnished for Petitioner Carrier was at liberty to pack and carry the goods in containers if they were not so packed. Thus, at the dorsal side of
the Bill of Lading (Exhibit "A") appears the following stipulation in fine print:

11. (Use of Container) Where the goods receipt of which is acknowledged on the
face of this Bill of Lading are not already packed into container(s) at the time of
receipt, the Carrier shall be at liberty to pack and carry them in any type of
container(s).
The foregoing would explain the use of the estimate "Say: Two (2) Containers Only" in the Bill of
Lading, meaning that the goods could probably fit in two (2) containers only. It cannot mean that the
shipper had furnished the containers for if so, "Two (2) Containers" appearing as the first entry would
have sufficed. and if there is any ambiguity in the Bill of Lading, it is a cardinal principle in the
construction of contracts that the interpretation of obscure words or stipulations in a contract shall
not favor the party who caused the obscurity. 20 This applies with even greater force in a contract of
adhesion where a contract is already prepared and the other party merely adheres to it, like the Bill of
Lading in this case, which is draw. up by the carrier. 21
On Alleged Denial of Opportunity to Present Deposition of Its Witnesses: (in G.R. No. 69044 only)
Petitioner Carrier claims that the Trial Court did not give it sufficient time to take the depositions of its
witnesses in Japan by written interrogatories.
We do not agree. petitioner Carrier was given- full opportunity to present its evidence but it failed to
do so. On this point, the Trial Court found:
xxx xxx xxx
Indeed, since after November 6, 1978, to August 27, 1979, not to mention the time
from June 27, 1978, when its answer was prepared and filed in Court, until
September 26, 1978, when the pre-trial conference was conducted for the last time,
the defendant had more than nine months to prepare its evidence. Its belated notice
to take deposition on written interrogatories of its witnesses in Japan, served upon
the plaintiff on August 25th, just two days before the hearing set for August 27th,
knowing fully well that it was its undertaking on July 11 the that the deposition of the
witnesses would be dispensed with if by next time it had not yet been obtained, only
proves the lack of merit of the defendant's motion for postponement, for which
reason it deserves no sympathy from the Court in that regard. The defendant has
told the Court since February 16, 1979, that it was going to take the deposition of its

witnesses in Japan. Why did it take until August 25, 1979, or more than six months,
to prepare its written interrogatories. Only the defendant itself is to blame for its
failure to adduce evidence in support of its defenses.
xxx xxx xxx 22
Petitioner Carrier was afforded ample time to present its side of the case. 23 It cannot complain now
that it was denied due process when the Trial Court rendered its Decision on the basis of the evidence
adduced. What due process abhors is absolute lack of opportunity to be heard. 24
On the Award of Attorney's Fees:
Petitioner Carrier questions the award of attorney's fees. In both cases, respondent Court affirmed
the award by the Trial Court of attorney's fees of P35,000.00 in favor of Development Insurance in
G.R. No. 69044, and P5,000.00 in favor of NISSHIN and DOWA in G.R. No. 71478.
Courts being vested with discretion in fixing the amount of attorney's fees, it is believed that the
amount of P5,000.00 would be more reasonable in G.R. No. 69044. The award of P5,000.00 in G.R.
No. 71478 is affirmed.
WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in that petitioner Eastern Shipping
Lines shall pay the Development Insurance and Surety Corporation the amount of P256,039 for the
twenty-eight (28) packages of calorized lance pipes, and P71,540 for the seven (7) cases of spare
parts, with interest at the legal rate from the date of the filing of the complaint on June 13, 1978, plus
P5,000 as attorney's fees, and the costs.
2) In G.R.No.71478,the judgment is hereby affirmed.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 71238 March 19, 1992

LUFTHANSA GERMAN AIRLINES, petitioner,
vs.
INTERMEDIATE APPELLATE COURT and SPOUSES HENRY H. ALCANTARA and TERESITA
ALCANTARA, respondents.

BIDIN, J.:
This is a petition for review on certiorari decision of the then Intermediate Appellate Court * dated
May 31, 1984, affirming with modification the decision of the then Court of First Instance of Manila,
Sixth Judicial District, Branch XXIV, and the resolution dated June 18, 1985 denying the motion for
reconsideration of the said decision.
The antecedent facts of this case are as follows:
On January 21, 1979, respondent Henry H. Alcantara shipped thirteen (13) pieces of luggage
through petitioner Lufthansa from Teheran to Manila as evidenced by Lufthansa Air Waybill No. 2209776-2733 (Exhibit "A", also Exhibit "1"). The Air Waybill discloses that the actual gross weight of the
thirteen (13) pieces of luggage is 180 kilograms. Respondent Henry H. Alcantara did not declare an
inventory of the contents or the value of the luggages when he delivered them to Lufthansa.
On March 3, 1979, the thirteen (13) pieces of luggage were boarded in one of Lufthansa's flights
which arrived in Manila on the same date. After the luggages arrived in Manila, the consignee,
respondent Teresita Alcantara, was able to claim from the cargo broker Philippine Skylanders, Inc.
on March 6, 1979 only twelve (12) out of the thirteen (13) pieces of luggage with a total weight of
174 kilograms (Exhibits "20" and "20-A").
The private respondents advised Lufthansa of the loss of one of the luggages and of the contents
thereof (Exhibits "B", "C" and "D"). Petitioner Lufthansa sent telex tracing messages to different

stations and to the Philippine Airlines which actually carried the cargo (Exhibits "3", "5", "7", "9", "11",
"12", "13" and "14"). But all efforts in tracing the missing luggage were fruitless (Exhibits "4", "6", "8",
"10", "12" and "17").
Since efforts to trace the missing luggage yielded negative results, Lufthansa informed Henry
Alcantara accordingly and advised him to file a claim invoice (Exhibits "18" and "19").
On September 24, 1979, the private respondents wrote the petitioner demanding the production of
the missing luggage within then (10) days from receipt (Exhibit "E"). Since the petitioner did not
comply with said demand, the private respondents filed a complaint dated May 7, 1980, for breach of
contract with damages against the petitioner before the Court of First Instance of Manila, Sixth
Judicial District, Branch XXIV.
The petitioner filed its answer to the complaint alleging that the Warsaw Convention limits the liability
of the carrier, if any, with respect to cargo to a sum of 250 francs per kilo ($20.00 per kilo or $9.07
per pound), unless a higher value is declared in advance and additional charges are paid by the
passenger and the conditions of the contract as set forth in the air waybill expressly subject the
contract of carriage of cargo to the Warsaw Convention. The petitioner also alleged that it never
acted fraudulently or in bad faith so as to entitle respondent spouses to moral damages and
attorney's fees, nor did it act in a wanton, fraudulent, reckless, oppressive or malevolent manner as
to entitle spouses to exemplary damages.
After trial, on November 18, 1981, the trial court ** rendered its decision, the dispositive portion of
which reads as follows:
WHEREFORE, judgment is hereby rendered in favor of plaintiffs, spouses Henry H.
Alcantara and Teresita Alcantara, and against Lufthansa German Airlines.
(1) Ordering defendant to pay plaintiffs the sum of P200,000.00 for actual damages,
with interest thereon at the legal rate from the date of the filing of the complaint until
the principal sum is fully paid;
(2) Ordering defendant to pay plaintiffs the sum of P20,000.00 as attorney's fees; and
(3) Ordering defendant to pay the costs of suit.
SO ORDERED. (Rollo, pp. 62-63)
The petitioner appealed to the then Intermediate Appellate Court. On May 31, 1984, the appellate
promulgated its decision, the dispositive portion of which reads:
WHEREFORE, PREMISES CONSIDERED, the decision appealed from is hereby
AFFIRMED with the modification that the amount of P20,000.00 awarded as
attorney's fees shall be deleted, the costs to be borne by the respective parties.
SO ORDERED. (Rollo, p. 39).

Its motion for reconsideration having been denied, the petition filed the instant petition.
The main issue in this case is whether or not the private respondents are entitled to an award of
damages beyond the liability set forth in the Warsaw Convention and in the Airwaybill of Lading.
The petitioner contends that the Republic of the Philippines is a party to the "Convention for the
Unification of Certain Rules Relating to International Transportation by Air," otherwise known as the
Warsaw Convention. After the Senate of the Republic of the Philippines, by its Resolution No. 19 of
May 16, 1950, concurred in the adherence by the government of the Philippines to the said
Convention, and after the government of the Republic of the Philippines formally notified the
government of the Republic of Poland of such adherence on November 9, 1950, Presidential
Proclamation No. 201 signed by the late President Ramon Magsaysay on September 23, 1965
made public the adherence of the Republic of the Philippines to the said Warsaw Convention which
applies to all international transportation of persons, baggage or goods performed by aircraft for hire.
Since the contract between the petitioner and respondent Henry H. Alcantara embodied in Airwaybill
No. 220-9776-2733 is one of international carriage by air, it is subject to the Warsaw Convention,
which in Article 22 limits the liability of the carrier with respect to checked baggage to a sum of 250
French francs per kilo (equivalent to US $20.00/kilo) unless a higher value has been declared in
advance and additional charges are paid by the passenger. Respondent Henry H. Alcantara having
admitted that he did not declare the value or contents of the missing luggage, the liability of the
petitioner is therefore limited by the Warsaw Convention and the Airwaybill to US$20.00 per kilo.
The petitioner further argues that the award of P200,000.00 as actual damages is not borne by
evidence. It insists that the testimonial and documentary evidence of respondent spouses failed to
indicate the actual value of the alleged contents of the missing luggage and have not presented
actual proof as to the contents, total weight and value of the missing luggage as well as the actual
damage they suffered (Rollo, pp. 88-89, 95).
On the other hand, the private respondents maintain that the petitioner, as found by the trial and
appellate courts, waived the benefits of the Warsaw Convention when it offered a settlement in the
amount of $200.00 which is much higher than what the Convention prescribes and never raised
timely objections during the trial to the introduction of evidence regarding the actual claims and
damages sustained by respondent Alcantara.
The private respondents also claim that in the trial of the case, they proved a loss of P200,000.00
and an expense of $15,000.00 in vainly trying to locate the missing luggage all over Europe and the
trial court awarded less than what was proven (Rollo, p. 118).
The petition is without merit.
The loss of one luggage belonging to the private respondents while the same was in the custody of
the petitioner is not disputed. The contract of air carriage generates a relation attended with a public
duty. Neglect or malfeasance of the carrier's employees could given ground for an action for
damages (Zulueta v. Pan American World Airways, Inc., 43 SCRA 37 [1972]). Common carriers are
liable for the missing goods for failure to comply with its duty (American Insurance Co., Inc. v.
Macondray & Co., Inc., 39 SCRA 494 [171]).

In Alitalia vs. Intermediate Appellate Court (192 SCRA 9 [1990]) where petitioner Alitalia as carrier
failed to deliver a passenger's (Dr. Felipa Pablo's) baggage containing the papers she was
scheduled to read and the materials which would have enabled her to make scientific presentation
(consisting of slides, autoradiograms or films, tables and tabulations ) in a prestigious international
conference in Rome where she was invited to participate in the conference, extended by the Joint
FAO/IAEA Division of Atomic Energy in Food and Agriculture of the Untied Nations, as a
consequence of which she failed to participate in the conference, this Court held that the Warsaw
Convention does not exclude liability for other breaches of contract by the carrier. Thus:
The Convention does not thus operate as an exclusive enumeration of the instances
of an airline's liability, or as an absolute limit of the extent of that liability. Such a
proposition is not borne out by the language of the Convention, as this Court has
now, and at an earlier time, pointed out. Moreover, slight reflection readily leads to
the conclusion that it should be deemed a limit of liability only in those cases where
the cause of the death or injury to person, or destruction, loss or damage to property
or delay in its transport is not attributable to or attended by any wilfull misconduct,
bad faith, recklessness, or otherwise improper conduct on the part of any official or
employee for which the carrier is responsible, and there is otherwise no special or
extraordinary form of resulting injury. The Convention's provisions, in short, do not
"regulate or exclude liability for other breaches of contract by the carrier" or
misconduct of its officers and employees, or for some particular or exceptional type
of damage. Otherwise, "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." Nor may it for a moment be supposed that if a member of the
aircraft complement should inflict some physical injury on a passenger, or maliciously
destroy or damage the latter's property, the Convention might successfully be
pleaded as the sole gauge to determine the carrier's liability to the passenger.
Neither may the Convention invoked to justify the disregard of some extraordinary
sort of damage resulting to a passenger and preclude recovery therefor beyond the
limits set by said Convention. It is in this sense that the Convention has been
applied, or ignored, depending on the peculiar facts presented by each case.
xxx xxx xxx
In the case at bar, no bad faith or otherwise improper conduct may be ascribed to the
employees of petitioner airline; and Dr. Pablo's luggage was eventually returned to
her, belatedly, it is true, but without appreciable damage. The fact is, nevertheless,
that some species of injury was caused to Dr. Pablo because petitioner ALITALIA
misplaced her baggage and failed to deliver it to her at the time appointed a
breach of its contract of carriage, to be sure with the result that she was unable to
read the paper and make the scientific presentation (consisting of slides,
autoradiograms or films, tables and tabulations) that she had painstakingly labored
over, at the prestigious international conference, to attend which she had traveled
hundreds of miles, to her chagrin and embarrassment and the disappointment and
annoyance of the organizers. She felt, no unreasonably, that the invitation for her to
participate at the conference, extended by the Joint FAO/IAEA Division of Atomic

Energy in Food and Agriculture of the United Nations, was a singular honor not only
to herself, but to the University of the Philippines and the country as well, an
opportunity to make some sort of impression among her colleagues in that field of
scientific activity. The opportunity to claim this honor or distinction was irretrievably
lost to her because of Alitalia's breach of its contract.
Apart from this, there can be no doubt that Dr. Pablo underwent profound distress
and anxiety, which gradually turned to panic and finally despair, from the time she
learned that her suitcases were missing up to the time when, having gone to Rome,
she finally realized that she would no longer be able to take part in the conference.
As she herself put it, she "was really shocked and distraught and confused."
Certainly, the compensation for the injury suffered by Dr. Pablo cannot under the
circumstances be restricted to that prescribed by the Warsaw Convention for delay in
the transport of baggage.
She is not, of course, entitled to be compensated for loss or damage to her luggage.
As already mentioned, her baggage was ultimately delivered to her in Manila, tardily,
but safely. She is however entitled to nominal damages which, as the law says, is
adjudicated in order that a right of the plaintiff, which has been violated or invaded by
the defendant, may be vindicated and recognized, and not for the purpose of
indemnifying the plaintiff that for any loss suffered and this Court agrees that the
respondent Court of Appeals correctly set the amount thereof at P40,000.00.
In the case at bar, the trial court found that: (a) petitioners airline has not successfully refuted the
presumption established by Article 1735 of the Civil Code that the loss of the luggage in question
was due to the negligence or fault of its employees; (b) the contents of the missing luggage of
private respondents could not be replaced and were assessed at P200,000.00 by the latter;
(c) respondent Henry Alcantara spent about $15,000.00 in trying to locate said luggage in Frankfurt,
Germany, London, United Kingdom and Hongkong;
(d) there being no evidence to the contrary, the foregoing assessments made by private respondents
were fair and reasonable; and (e) private respondents were unable to present ample evidence to
prove fraud and bad faith and are therefore not entitled to moral damages under Article 2220 of the
Civil Code (Rollo, p. 61).
On the other hand, the Court of Appeals found that the lower court's award of P200,000.00 as actual
compensatory damages is well based factually and legally (Rollo, p. 37) except as to the deletion of
attorney's fees due to the absence of findings of gross and evident bad faith (Rollo, p. 39).
Under the circumstances, there appears to be no cogent reason to disturb the factual findings of
both the trial court and the Court of Appeals.
Furthermore, the respondent court found that petitioner waived the applicability of the Warsaw
Convention to the case at bar when it offered private respondent a higher amount than that which
is provided in the said law and failed to raise timely objections during the trial when questions and
answers were brought out regarding the actual claims and damages sustained by Alcantara which

were even subjected to lengthy cross examination by Lufthansa's counsel. In Abrenica v. Gonda (34
Phil. 739), this Court held:
. . . (I)t has been repeatedly laid down as a rule of evidence that a protest or
objection against the admission of any evidence must be made at the proper time,
and that if not so made it will be understood to have been waived. The proper time to
make a protest or objection is when, from the question addressed to the witness, or
from the answer thereto, or from the presentation of proof, the inadmissibility of
evidence is, or may be inferred.
It is also settled that the court cannot disregard evidence which would ordinarily be incompetent
under the rules but has been rendered admissible by the failure of a party to object thereto. Thus:
. . . The acceptance of an incompetent witness to testify in a civil suit, as well as the
allowance of improper questions that may be put to him while on the stand is a
matter resting in the discretion of the litigant. He may asset his right by timely
objection or he may waive it, expressly or by silence. In any case, the option rests
with him. Once admitted, the testimony is in the case for what it is worth and the
judge has no power to disregard it for the sole reason that it could have been
excluded, if it had been objected to, nor to strike it out on its own motion. (Cruz v. CA,
et al., 192 SCRA 209 [1990] citing Marella vs. Reyes, 12 Phil. 1). (Emphasis
supplied).
WHEREFORE, the petition is Dismissed and the questioned decision and resolution of the appellate
court are Affirmed. No costs.
SO ORDERED.

THIRD DIVISION
SPOUSES DANTE CRUZ and
LEONORA CRUZ,
Petitioners,

- versus SUN HOLIDAYS, INC.,

Respondent.

G.R. No. 186312

Present:
CARPIO MORALES, J.,
Chairperson,
BRION,
BERSAMIN,
ABAD,* and
VILLARAMA, JR., JJ.

Promulgated:
June 29, 2010
x-------------------------------------------------x

DECISION
CARPIO MORALES, J.:
Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on January 25,
2001[1] against Sun Holidays, Inc. (respondent) with the Regional Trial Court
(RTC) of Pasig City for damages arising from the death of their son Ruelito C.
Cruz (Ruelito) who perished with his wife on September 11, 2000 on board the
boat M/B Coco Beach III that capsized en route to Batangas from Puerto Galera,
Oriental Mindoro where the couple had stayed at Coco Beach Island Resort
(Resort) owned and operated by respondent.
The stay of the newly wed Ruelito and his wife at the Resort from September 9 to
11, 2000 was by virtue of a tour package-contract with respondent that included
transportation to and from the Resort and the point of departure in Batangas.
Miguel C. Matute (Matute),[2] a scuba diving instructor and one of the survivors,
gave his account of the incident that led to the filing of the complaint as follows:
Matute stayed at the Resort from September 8 to 11, 2000. He was originally
scheduled to leave the Resort in the afternoon of September 10, 2000, but was
advised to stay for another night because of strong winds and heavy rains.
On September 11, 2000, as it was still windy, Matute and 25 other Resort guests
including petitioners son and his wife trekked to the other side of
the Coco Beach mountain that was sheltered from the wind where they
boarded M/B Coco Beach III, which was to ferry them to Batangas.

Shortly after the boat sailed, it started to rain. As it moved farther away from
Puerto Galera and into the open seas, the rain and wind got stronger, causing the
boat to tilt from side to side and the captain to step forward to the front, leaving the
wheel to one of the crew members.
The waves got more unwieldy. After getting hit by two big waves which
came one after the other, M/B Coco Beach III capsized putting all passengers
underwater.
The passengers, who had put on their life jackets, struggled to get out of the
boat. Upon seeing the captain, Matute and the other passengers who reached the
surface asked him what they could do to save the people who were still trapped
under the boat. The captain replied Iligtas niyo na lang ang sarili niyo (Just save
yourselves).
Help came after about 45 minutes when two boats owned by Asia Divers in
Sabang, Puerto Galera passed by the capsized M/B Coco Beach III. Boarded on
those two boats were 22 persons, consisting of 18 passengers and four crew
members, who were brought to Pisa Island. Eight passengers, including petitioners
son and his wife, died during the incident.
At the time of Ruelitos death, he was 28 years old and employed as a contractual
worker for Mitsui Engineering & Shipbuilding Arabia, Ltd. in Saudi Arabia, with a
basic monthly salary of $900.[3]
Petitioners, by letter of October 26, 2000,[4] demanded indemnification from
respondent for the death of their son in the amount of at least P4,000,000.
Replying, respondent, by letter dated November 7, 2000,[5] denied any
responsibility for the incident which it considered to be a fortuitous event. It
nevertheless offered, as an act of commiseration, the amount of P10,000 to
petitioners upon their signing of a waiver.
As petitioners declined respondents offer, they filed the Complaint, as earlier
reflected, alleging that respondent, as a common carrier, was guilty of negligence
in allowing M/B Coco Beach III to sail notwithstanding storm warning bulletins
issued by the Philippine Atmospheric, Geophysical and Astronomical Services
Administration (PAGASA) as early as 5:00 a.m. of September 11, 2000.[6]

In its Answer,[7] respondent denied being a common carrier, alleging that its boats
are not available to the general public as they only ferry Resort guests and crew
members.Nonetheless, it claimed that it exercised the utmost diligence in ensuring
the safety of its passengers; contrary to petitioners allegation, there was no storm
on September 11, 2000as the Coast Guard in fact cleared the voyage; and M/B
Coco Beach III was not filled to capacity and had sufficient life jackets for its
passengers. By way of Counterclaim, respondent alleged that it is entitled to an
award for attorneys fees and litigation expenses amounting to not less
than P300,000.
Carlos Bonquin, captain of M/B Coco Beach III, averred that the Resort
customarily requires four conditions to be met before a boat is allowed to sail, to
wit: (1) the sea is calm, (2) there is clearance from the Coast Guard, (3) there is
clearance from the captain and (4) there is clearance from the Resorts assistant
manager.[8] He added that M/B Coco Beach III met all four conditions on
September 11, 2000,[9] but a subasco or squall, characterized by strong winds and
big waves, suddenly occurred, causing the boat to capsize.[10]
By Decision of February 16, 2005,[11] Branch 267 of the Pasig RTC dismissed
petitioners Complaint and respondents Counterclaim.
Petitioners Motion for Reconsideration having been denied by Order
dated September 2, 2005,[12] they appealed to the Court of Appeals.
By Decision of August 19, 2008,[13] the appellate court denied petitioners
appeal, holding, among other things, that the trial court correctly ruled that
respondent is a private carrier which is only required to observe ordinary diligence;
that respondent in fact observed extraordinary diligence in transporting its guests
on board M/B Coco Beach III; and that the proximate cause of the incident was a
squall, a fortuitous event.
Petitioners Motion for Reconsideration having been denied by Resolution
dated January 16, 2009,[14] they filed the present Petition for Review.[15]
Petitioners maintain the position they took before the trial court, adding that
respondent is a common carrier since by its tour package, the transporting of its

guests is an integral part of its resort business. They inform that another division of
the appellate court in fact held respondent liable for damages to the other survivors
of the incident.
Upon the other hand, respondent contends that petitioners failed to present
evidence to prove that it is a common carrier; that the Resorts ferry services for
guests cannot be considered as ancillary to its business as no income is derived
therefrom; that it exercised extraordinary diligence as shown by the conditions it
had imposed before allowing M/B Coco Beach III to sail; that the incident was
caused by a fortuitous event without any contributory negligence on its part; and
that the other case wherein the appellate court held it liable for damages involved
different plaintiffs, issues and evidence.[16]
The petition is impressed with merit.
Petitioners correctly rely on De Guzman v. Court of Appeals[17] in characterizing
respondent as a common carrier.
The Civil Code defines common carriers in the following terms:
Article 1732. Common carriers are persons, corporations,
firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or
air for compensation, offering their services to the public.
The above article makes no distinction between one whose principal
business activity is the carrying of persons or goods or both, and one
who does such carrying only as an ancillary activity (in local idiom,
as a sideline). Article 1732 also carefully avoids making any
distinction between a person or enterprise offering transportation
service on a regular or scheduled basis and one offering such service
on an occasional, episodic or unscheduled basis. Neither does Article
1732 distinguish between a carrier offering its services to the general
public, i.e., the general community or population, and one who offers
services or solicits business only from a narrow segment of the general
population. We think that Article 1733 deliberately refrained from
making such distinctions.

So understood, the concept of common carrier under Article 1732 may

be seen to coincide neatly with the notion of public service, under the
Public Service Act (Commonwealth Act No. 1416, as amended) which at
least partially supplements the law on common carriers set forth in the
Civil Code. Under Section 13, paragraph (b) of the Public Service Act,
public service includes:
. . . every person that now or hereafter may own, operate,
manage, or control in the Philippines, for hire or
compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general
business purposes, any common carrier, railroad, street
railway, traction railway, subway motor vehicle, either for
freight or passenger, or both, with or without fixed route
and whatever may be its classification, freight or carrier
service of any class, express service, steamboat, or
steamship line, pontines, ferries and water craft, engaged in
the transportation of passengers or freight or both, shipyard,
marine repair shop, wharf or dock, ice plant, icerefrigeration plant, canal, irrigation system, gas, electric
light, heat and power, water supply and power petroleum,
sewerage system, wire or wireless communications
systems, wire or wireless broadcasting stations and other
similar public services . . . [18] (emphasis and underscoring
supplied.)

Indeed, respondent is a common carrier. Its ferry services are so intertwined

with its main business as to be properly considered ancillary thereto. The
constancy of respondents ferry services in its resort operations is underscored by
its having its own Coco Beach boats. And the tour packages it offers, which
include the ferry services, may be availed of by anyone who can afford to pay the
same. These services are thus available to the public.
That respondent does not charge a separate fee or fare for its ferry services is
of no moment. It would be imprudent to suppose that it provides said services at a
loss. The Court is aware of the practice of beach resort operators offering tour
packages to factor the transportation fee in arriving at the tour package price. That

guests who opt not to avail of respondents ferry services pay the same amount is
likewise inconsequential. These guests may only be deemed to have overpaid.
As De Guzman instructs, Article 1732 of the Civil Code defining common carriers
has deliberately refrained from making distinctions on whether the carrying of
persons or goods is the carriers principal business, whether it is offered on a
regular basis, or whether it is offered to the general public. The intent of the law is
thus to not consider such distinctions. Otherwise, there is no telling how many
other distinctions may be concocted by unscrupulous businessmen engaged in the
carrying of persons or goods in order to avoid the legal obligations and liabilities
of common carriers.
Under the Civil Code, common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence for the
safety of the passengers transported by them, according to all the circumstances of
each case.[19] They are bound to carry the passengers safely as far as human care
and foresight can provide, using the utmost diligence of very cautious persons,
with due regard for all the circumstances.[20]

When a passenger dies or is injured in the discharge of a contract of carriage,

it is presumed that the common carrier is at fault or negligent. In fact, there is even
no need for the court to make an express finding of fault or negligence on the part
of the common carrier. This statutory presumption may only be overcome by
evidence that the carrier exercised extraordinary diligence.[21]
Respondent nevertheless harps on its strict compliance with the earlier mentioned
conditions of voyage before it allowed M/B Coco Beach III to sail on September
11, 2000.Respondents position does not impress.
The evidence shows that PAGASA issued 24-hour public weather forecasts and
tropical cyclone warnings for shipping on September 10 and 11, 2000 advising of
tropical depressions in Northern Luzon which would also affect
the province of Mindoro.[22] By the testimony of Dr. Frisco Nilo, supervising
weather specialist of PAGASA, squalls are to be expected under such weather
condition.[23]

A very cautious person exercising the utmost diligence would thus not brave such
stormy weather and put other peoples lives at risk. The extraordinary diligence
required of common carriers demands that they take care of the goods or lives
entrusted to their hands as if they were their own. This respondent failed to do.

Respondents insistence that the incident was caused by a fortuitous event

does not impress either.
The elements of a "fortuitous event" are: (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.[24]
To fully free a common carrier from any liability, the fortuitous event must have
been the proximate and only cause of the loss. And it should have exercised due
diligence to prevent or minimize the loss before, during and after the occurrence of
the fortuitous event.[25]
Respondent cites the squall that occurred during the voyage as the fortuitous event
that overturned M/B Coco Beach III. As reflected above, however, the occurrence
of squalls was expected under the weather condition of September 11,
2000. Moreover, evidence shows that M/B Coco Beach III suffered engine trouble
before it capsized and sank.[26]The incident was, therefore, not completely free
from human intervention.
The Court need not belabor how respondents evidence likewise fails to
demonstrate that it exercised due diligence to prevent or minimize the loss before,
during and after the occurrence of the squall.

Article 1764[27] vis--vis Article 2206[28] of the Civil Code holds the common
carrier in breach of its contract of carriage that results in the death of a passenger
liable to pay the following: (1) indemnity for death, (2) indemnity for loss of
earning capacity and (3) moral damages.
Petitioners are entitled to indemnity for the death of Ruelito which is fixed
at P50,000.[29]
As for damages representing unearned income, the formula for its
computation is:
Net Earning Capacity = life expectancy x (gross annual income reasonable and necessary living expenses).
Life expectancy is determined in accordance with the formula:
2 / 3 x [80 age of deceased at the time of death] [30]

The first factor, i.e., life expectancy, is computed by applying the formula
(2/3 x [80 age at death]) adopted in the American Expectancy Table of Mortality or
the Actuarial of Combined Experience Table of Mortality.[31]
The second factor is computed by multiplying the life expectancy by the net
earnings of the deceased, i.e., the total earnings less expenses necessary in the
creation of such earnings or income and less living and other incidental expenses.
[32]
The loss is not equivalent to the entire earnings of the deceased, but only such
portion as he would have used to support his dependents or heirs. Hence, to be
deducted from his gross earnings are the necessary expenses supposed to be used
by the deceased for his own needs.[33]
In computing the third factor necessary living expense, Smith Bell Dodwell
Shipping Agency Corp. v. Borja[34] teaches that when, as in this case, there is no
showing that the living expenses constituted the smaller percentage of the gross
income, the living expenses are fixed at half of the gross income.

Applying the above guidelines, the Court determines Ruelito's life

expectancy as follows:
Life expectancy = 2/3 x [80 - age of deceased at the time of death]
2/3 x [80 - 28]
2/3 x [52]
Life expectancy = 35

Documentary evidence shows that Ruelito was earning a basic monthly

salary of $900[35] which, when converted to Philippine peso applying the annual
average exchange rate of $1 = P44 in 2000,[36] amounts to P39,600. Ruelitos net
earning capacity is thus computed as follows:
Net Earning Capacity = life expectancy x (gross annual income reasonable and necessary living expenses).
= 35 x (P475,200 - P237,600)
= 35 x (P237,600)
Net Earning Capacity = P8,316,000

Respecting the award of moral damages, since respondent common carriers

breach of contract of carriage resulted in the death of petitioners son, following
Article 1764 vis--vis Article 2206 of the Civil Code, petitioners are entitled to
moral damages.
Since respondent failed to prove that it exercised the extraordinary diligence
required of common carriers, it is presumed to have acted recklessly, thus
warranting the award too of exemplary damages, which are granted in contractual
obligations if the defendant acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner.[37]

Under the circumstances, it is reasonable to award petitioners the amount

of P100,000 as moral damages and P100,000 as exemplary damages.[38]

Pursuant to Article 2208[39] of the Civil Code, attorney's fees may also be
awarded where exemplary damages are awarded. The Court finds that 10% of the
total amount adjudged against respondent is reasonable for the purpose.
Finally, Eastern Shipping Lines, Inc. v. Court of Appeals [40] teaches that
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 payment
of interest in the concept of actual and compensatory damages, subject to the
following rules, to wit
1. When the obligation is breached, and it consists in the payment
of a sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing. Furthermore,
the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12%
per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169
of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages awarded may
be imposed at the discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the judgment of
the court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally
adjudged.

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. (emphasis
supplied).

Since the amounts payable by respondent have been determined with certainty only
in the present petition, the interest due shall be computed upon the finality of this
decision at the rate of 12% per annum until satisfaction, in accordance with
paragraph number 3 of the immediately cited guideline in Easter Shipping Lines,
Inc.
WHEREFORE, the
Court
of
Appeals
Decision
of August
19,
2008 is REVERSED and SET ASIDE. Judgment is rendered in favor of
petitioners ordering respondent to pay petitioners the following: (1) P50,000 as
indemnity for the death of Ruelito Cruz; (2) P8,316,000 as indemnity for Ruelitos
loss of earning capacity; (3) P100,000 as moral damages; (4) P100,000 as
exemplary damages; (5) 10% of the total amount adjudged against respondent as
attorneys fees; and (6) the costs of suit.
The total amount adjudged against respondent shall earn interest at the rate of 12%
per annum computed from the finality of this decision until full payment.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 125948 December 29, 1998

FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner,
vs.
COURT OF APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS CITY and ADORACION
C. ARELLANO, in her official capacity as City Treasurer of Batangas, respondents.

MARTINEZ, J.:

This petition for review on certiorari assails the Decision of the Court of Appeals dated
November 29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the Regional Trial
Court of Batangas City, Branch 84, in Civil Case No. 4293, which dismissed petitioners'
complaint for a business tax refund imposed by the City of Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, to
contract, install and operate oil pipelines. The original pipeline concession was granted in
1967 1 and renewed by the Energy Regulatory Board in 1992. 2
Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the
Mayor of Batangas City. However, before the mayor's permit could be issued, the respondent
City Treasurer required petitioner to pay a local tax based on its gross receipts for the fiscal
year 1993 pursuant to the Local Government Code 3. The respondent City Treasurer assessed a
business tax on the petitioner amounting to P956,076.04 payable in four installments based on the
gross receipts for products pumped at GPS-1 for the fiscal year 1993 which amounted to
P181,681,151.00. In order not to hamper its operations, petitioner paid the tax under protest in the
amount of P239,019.01 for the first quarter of 1993.
On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City
Treasurer, the pertinent portion of which reads:
Please note that our Company (FPIC) is a pipeline operator with a government
concession granted under the Petroleum Act. It is engaged in the business of
transporting petroleum products from the Batangas refineries, via pipeline, to
Sucat and JTF Pandacan Terminals. As such, our Company is exempt from
paying tax on gross receipts under Section 133 of the Local Government Code
of 1991 . . . .
Moreover, Transportation contractors are not included in the enumeration of
contractors under Section 131, Paragraph (h) of the Local Government Code.
Therefore, the authority to impose tax "on contractors and other independent
contractors" under Section 143, Paragraph (e) of the Local Government Code
does not include the power to levy on transportation contractors.
The imposition and assessment cannot be categorized as a mere fee
authorized under Section 147 of the Local Government Code. The said section
limits the imposition of fees and charges on business to such amounts as may
be commensurate to the cost of regulation, inspection, and licensing. Hence,
assuming arguendo that FPIC is liable for the license fee, the imposition
thereof based on gross receipts is violative of the aforecited provision. The
amount of P956,076.04 (P239,019.01 per quarter) is not commensurate to the
cost of regulation, inspection and licensing. The fee is already a revenue
raising measure, and not a mere regulatory imposition. 4

On March 8, 1994, the respondent City Treasurer denied the protest contending that
petitioner cannot be considered engaged in transportation business, thus it cannot claim
exemption under Section 133 (j) of the Local Government Code. 5
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a
complaint 6 for tax refund with prayer for writ of preliminary injunction against respondents City of
Batangas and Adoracion Arellano in her capacity as City Treasurer. In its complaint, petitioner
alleged, inter alia, that: (1) the imposition and collection of the business tax on its gross receipts
violates Section 133 of the Local Government Code; (2) the authority of cities to impose and
collect a tax on the gross receipts of "contractors and independent contractors" under Sec. 141
(e) and 151 does not include the authority to collect such taxes on transportation contractors for,
as defined under Sec. 131 (h), the term "contractors" excludes transportation contractors; and, (3)
the City Treasurer illegally and erroneously imposed and collected the said tax, thus meriting the
immediate refund of the tax paid. 7
Traversing the complaint, the respondents argued that petitioner cannot be exempt from
taxes under Section 133 (j) of the Local Government Code as said exemption applies only to
"transportation contractors and persons engaged in the transportation by hire and common
carriers by air, land and water." Respondents assert that pipelines are not included in the
term "common carrier" which refers solely to ordinary carriers such as trucks, trains, ships
and the like. Respondents further posit that the term "common carrier" under the said code
pertains to the mode or manner by which a product is delivered to its destination. 8
On October 3, 1994, the trial court rendered a decision dismissing the complaint, ruling in
this wise:
. . . Plaintiff is either a contractor or other independent contractor.
. . . the exemption to tax claimed by the plaintiff has become unclear. It is a rule
that tax exemptions are to be strictly construed against the taxpayer, taxes
being the lifeblood of the government. Exemption may therefore be granted
only by clear and unequivocal provisions of law.
Plaintiff claims that it is a grantee of a pipeline concession under Republic Act
387. (Exhibit A) whose concession was lately renewed by the Energy
Regulatory Board (Exhibit B). Yet neither said law nor the deed of concession
grant any tax exemption upon the plaintiff.
Even the Local Government Code imposes a tax on franchise holders under
Sec. 137 of the Local Tax Code. Such being the situation obtained in this case
(exemption being unclear and equivocal) resort to distinctions or other
considerations may be of help:
1. That the exemption granted under Sec. 133 (j)
encompasses only common carriers so as not to
overburden the riding public or commuters with
taxes. Plaintiff is not a common carrier, but a

special carrier extending its services and facilities

to a single specific or "special customer" under a
"special contract."
2. The Local Tax Code of 1992 was basically
enacted to give more and effective local
autonomy to local governments than the previous
enactments, to make them economically and
financially viable to serve the people and
discharge their functions with a concomitant
obligation to accept certain devolution of
powers, . . . So, consistent with this policy even
franchise grantees are taxed (Sec. 137) and
contractors are also taxed under Sec. 143 (e) and
151 of the Code. 9
Petitioner assailed the aforesaid decision before this Court via a petition for review. On
February 27, 1995, we referred the case to the respondent Court of Appeals for consideration
and adjudication. 10 On November 29, 1995, the respondent court rendered a decision 11 affirming
the trial court's dismissal of petitioner's complaint. Petitioner's motion for reconsideration was
denied on July 18, 1996. 12
Hence, this petition. At first, the petition was denied due course in a Resolution dated
November 11, 1996. 13 Petitioner moved for a reconsideration which was granted by this Court in
a Resolution 14 of January 22, 1997. Thus, the petition was reinstated.
Petitioner claims that the respondent Court of Appeals erred in holding that (1) the petitioner
is not a common carrier or a transportation contractor, and (2) the exemption sought for by
petitioner is not clear under the law.
There is merit in the petition.
A "common carrier" may be defined, broadly, as one who holds himself out to the public as
engaged in the business of transporting persons or property from place to place, for
compensation, offering his services to the public generally.
Art. 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or
association engaged in the business of carrying or transporting passengers or goods or
both, by land, water, or air, for compensation, offering their services to the public."
The test for determining whether a party is a common carrier of goods is:
1. He must be engaged in the business of carrying
goods for others as a public employment, and
must hold himself out as ready to engage in the

transportation of goods for person generally as a

business and not as a casual occupation;
2. He must undertake to carry goods of the kind to
which his business is confined;
3. He must undertake to carry by the method by
which his business is conducted and over his
established roads; and
4. The transportation must be for hire. 15
Based on the above definitions and requirements, there is no doubt that petitioner is a
common carrier. It is engaged in the business of transporting or carrying goods, i.e.
petroleum products, for hire as a public employment. It undertakes to carry for all persons
indifferently, that is, to all persons who choose to employ its services, and transports the
goods by land and for compensation. The fact that petitioner has a limited clientele does not
exclude it from the definition of a common carrier. In De Guzman vs. Court of Appeals 16 we
ruled that:
The above article (Art. 1732, Civil Code) makes no distinction
between one whose principal business activity is the carrying of
persons or goods or both, and one who does such carrying only
as an ancillary activity (in local idiom, as a "sideline"). Article
1732 . . . avoids making any distinction between a person or
enterprise offering transportation service on
a regular or scheduled basis and one offering such service on
an occasional, episodic or unscheduled basis. Neither does
Article 1732 distinguish between a carrier offering its services to
the "general public," i.e., the general community or population,
and one who offers services or solicits business only from a
narrow segment of the general population. We think that Article
1877 deliberately refrained from making such distinctions.
So understood, the concept of "common carrier" under Article
1732 may be seen to coincide neatly with the notion of "public
service," under the Public Service Act (Commonwealth Act No.
1416, as amended) which at least partially supplements the law
on common carriers set forth in the Civil Code. Under Section
13, paragraph (b) of the Public Service Act, "public service"
includes:
every person that now or hereafter may own,
operate. manage, or control in the Philippines, for
hire or compensation, with general or limited
clientele, whether permanent, occasional or

accidental, and done for general business

purposes, any common carrier, railroad, street
railway, traction railway, subway motor vehicle,
either for freight or passenger, or both, with or
without fixed route and whatever may be its
classification, freight or carrier service of any
class, express service, steamboat, or steamship
line, pontines, ferries and water craft, engaged in
the transportation of passengers or freight or
both, shipyard, marine repair shop, wharf or dock,
ice plant, ice-refrigeration plant, canal, irrigation
system gas, electric light heat and power, water
supply and power petroleum, sewerage system,
wire or wireless communications systems, wire or
wireless broadcasting stations and other similar
public services. (Emphasis Supplied)
Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the
Local Government Code refers only to common carriers transporting goods and passengers
through moving vehicles or vessels either by land, sea or water, is erroneous.
As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code
makes no distinction as to the means of transporting, as long as it is by land, water or air. It
does not provide that the transportation of the passengers or goods should be by motor
vehicle. In fact, in the United States, oil pipe line operators are considered common
carriers. 17
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a
"common carrier." Thus, Article 86 thereof provides that:
Art. 86. Pipe line concessionaire as common carrier. A pipe
line shall have the preferential right to utilize installations for the
transportation of petroleum owned by him, but is obligated to
utilize the remaining transportation capacity pro rata for the
transportation of such other petroleum as may be offered by
others for transport, and to charge without discrimination such
rates as may have been approved by the Secretary of
Agriculture and Natural Resources.
Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion of
Article 7 thereof provides:
that everything relating to the exploration for and exploitation of
petroleum . . . and everything relating to the manufacture,
refining, storage, or transportation by special methods of

petroleum, is hereby declared to be a public utility. (Emphasis

Supplied)
The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In BIR
Ruling No. 069-83, it declared:
. . . since [petitioner] is a pipeline concessionaire that is
engaged only in transporting petroleum products, it is
considered a common carrier under Republic Act No. 387 . . . .
Such being the case, it is not subject to withholding tax
prescribed by Revenue Regulations No. 13-78, as amended.
From the foregoing disquisition, there is no doubt that petitioner is a "common carrier" and,
therefore, exempt from the business tax as provided for in Section 133 (j), of the Local
Government Code, to wit:
Sec. 133. Common Limitations on the Taxing Powers of Local
Government Units. Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:
xxx xxx xxx
(j) Taxes on the gross receipts of
transportation contractors and
persons engaged in the
transportation of passengers or
freight by hire and common carriers
by air, land or water, except as
provided in this Code.
The deliberations conducted in the House of Representatives on the Local Government Code
of 1991 are illuminating:
MR. AQUINO (A). Thank you, Mr. Speaker.
Mr. Speaker, we would like to proceed to page 95, line
1. It states: "SEC. 121 [now Sec. 131]. Common Limitations on
the Taxing Powers of Local Government Units." . . .
MR. AQUINO (A.). Thank you Mr. Speaker.
Still on page 95, subparagraph 5, on taxes on the business of
transportation. This appears to be one of those being deemed to
be exempted from the taxing powers of the local government

units. May we know the reason why the transportation business

is being excluded from the taxing powers of the local
government units?
MR. JAVIER (E.). Mr. Speaker, there is an exception contained in
Section 121 (now Sec. 131), line 16, paragraph 5. It states that
local government units may not impose taxes on the business of
transportation, except as otherwise provided in this code.
Now, Mr. Speaker, if the Gentleman would care to go to page 98
of Book II, one can see there that provinces have the power to
impose a tax on business enjoying a franchise at the rate of not
more than one-half of 1 percent of the gross annual receipts. So,
transportation contractors who are enjoying a franchise would
be subject to tax by the province. That is the exception, Mr.
Speaker.
What we want to guard against here, Mr. Speaker, is the
imposition of taxes by local government units on the carrier
business. Local government units may impose taxes on top of
what is already being imposed by the National Internal Revenue
Code which is the so-called "common carriers tax." We do not
want a duplication of this tax, so we just provided for an
exception under Section 125 [now Sec. 137] that a province may
impose this tax at a specific rate.
MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. . .
. 18
It is clear that the legislative intent in excluding from the taxing power of the local
government unit the imposition of business tax against common carriers is to prevent a
duplication of the so-called "common carrier's tax."
Petitioner is already paying three (3%) percent common carrier's tax on its gross
sales/earnings under the National Internal Revenue Code. 19 To tax petitioner again on its gross
receipts in its transportation of petroleum business would defeat the purpose of the Local
Government Code.
WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court of
Appeals dated November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET ASIDE.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-47822 December 22, 1988
PEDRO DE GUZMAN, petitioner,
vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.
Vicente D. Millora for petitioner.
Jacinto Callanta for private respondent.

FELICIANO, J.:
Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and scrap
metal in Pangasinan. Upon gathering sufficient quantities of such scrap material, respondent would
bring such material to Manila for resale. He utilized two (2) six-wheeler trucks which he owned for
hauling the material to Manila. On the return trip to Pangasinan, respondent would load his vehicles
with cargo which various merchants wanted delivered to differing establishments in Pangasinan. For
that service, respondent charged freight rates which were commonly lower than regular commercial
rates.
Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized dealer of
General Milk Company (Philippines), Inc. in Urdaneta, Pangasinan, contracted with respondent for

the hauling of 750 cartons of Liberty filled milk from a warehouse of General Milk in Makati, Rizal, to
petitioner's establishment in Urdaneta on or before 4 December 1970. Accordingly, on 1 December
1970, respondent loaded in Makati the merchandise on to his trucks: 150 cartons were loaded on a
truck driven by respondent himself, while 600 cartons were placed on board the other truck which
was driven by Manuel Estrada, respondent's driver and employee.
Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes never reached
petitioner, since the truck which carried these boxes was hijacked somewhere along the MacArthur
Highway in Paniqui, Tarlac, by armed men who took with them the truck, its driver, his helper and the
cargo.
On 6 January 1971, petitioner commenced action against private respondent in the Court of First
Instance of Pangasinan, demanding payment of P 22,150.00, the claimed value of the lost
merchandise, plus damages and attorney's fees. Petitioner argued that private respondent, being a
common carrier, and having failed to exercise the extraordinary diligence required of him by the law,
should be held liable for the value of the undelivered goods.
In his Answer, private respondent denied that he was a common carrier and argued that he could not
be held responsible for the value of the lost goods, such loss having been due to force majeure.
On 10 December 1975, the trial court rendered a Decision 1 finding private respondent to be a common
carrier and holding him liable for the value of the undelivered goods (P 22,150.00) as well as for P
4,000.00 as damages and P 2,000.00 as attorney's fees.
On appeal before the Court of Appeals, respondent urged that the trial court had erred in considering
him a common carrier; in finding that he had habitually offered trucking services to the public; in not
exempting him from liability on the ground of force majeure; and in ordering him to pay damages and
attorney's fees.
The Court of Appeals reversed the judgment of the trial court and held that respondent had been
engaged in transporting return loads of freight "as a casual
occupation a sideline to his scrap iron business" and not as a common carrier. Petitioner came to
this Court by way of a Petition for Review assigning as errors the following conclusions of the Court
of Appeals:
1. that private respondent was not a common carrier;
2. that the hijacking of respondent's truck was force majeure; and
3. that respondent was not liable for the value of the undelivered cargo. (Rollo, p.
111)
We consider first the issue of whether or not private respondent Ernesto Cendana may, under the
facts earlier set forth, be properly characterized as a common carrier.
The Civil Code defines "common carriers" in the following terms:

Article 1732. Common carriers are persons, corporations, firms or associations

engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air for compensation, offering their services to the public.
The above article makes no distinction between one whose principal business activity is the carrying
of persons or goods or both, and one who does such carrying only as an ancillary activity (in local
Idiom as "a sideline"). Article 1732 also carefully avoids making any distinction between a person or
enterprise offering transportation service on a regular or scheduled basis and one offering such
service on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish
between a carrier offering its services to the "general public," i.e., the general community or
population, and one who offers services or solicits business only from a narrow segment of the
general population. We think that Article 1733 deliberaom making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly
with the notion of "public service," under the Public Service Act (Commonwealth Act No. 1416, as
amended) which at least partially supplements the law on common carriers set forth in the Civil
Code. Under Section 13, paragraph (b) of the Public Service Act, "public service" includes:
... every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, subway motor vehicle, either
for freight or passenger, or both, with or without fixed route and whatever may be its
classification, freight or carrier service of any class, express service, steamboat, or
steamship line, pontines, ferries and water craft, engaged in the transportation of
passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power,
water supply and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and other similar
public services. ... (Emphasis supplied)
It appears to the Court that private respondent is properly characterized as a common carrier even
though he merely "back-hauled" goods for other merchants from Manila to Pangasinan, although
such back-hauling was done on a periodic or occasional rather than regular or scheduled manner,
and even though private respondent's principal occupation was not the carriage of goods for others.
There is no dispute that private respondent charged his customers a fee for hauling their goods; that
fee frequently fell below commercial freight rates is not relevant here.
The Court of Appeals referred to the fact that private respondent held no certificate of public
convenience, and concluded he was not a common carrier. This is palpable error. A certificate of
public convenience is not a requisite for the incurring of liability under the Civil Code provisions
governing common carriers. That liability arises the moment a person or firm acts as a common
carrier, without regard to whether or not such carrier has also complied with the requirements of the
applicable regulatory statute and implementing regulations and has been granted a certificate of
public convenience or other franchise. To exempt private respondent from the liabilities of a common
carrier because he has not secured the necessary certificate of public convenience, would be

offensive to sound public policy; that would be to reward private respondent precisely for failing to
comply with applicable statutory requirements. The business of a common carrier impinges directly
and intimately upon the safety and well being and property of those members of the general
community who happen to deal with such carrier. The law imposes duties and liabilities upon
common carriers for the safety and protection of those who utilize their services and the law cannot
allow a common carrier to render such duties and liabilities merely facultative by simply failing to
obtain the necessary permits and authorizations.
We turn then to the liability of private respondent as a common carrier.
Common carriers, "by the nature of their business and for reasons of public policy" 2 are held to a
very high degree of care and diligence ("extraordinary diligence") in the carriage of goods as well as of
passengers. The specific import of extraordinary diligence in the care of goods transported by a common
carrier is, according to Article 1733, "further expressed in Articles 1734,1735 and 1745, numbers 5, 6 and
7" of the Civil Code.
Article 1734 establishes the general rule that common carriers are responsible for the loss,
destruction or deterioration of the goods which they carry, "unless the same is due to any of the
following causes only:
(1) Flood, storm, earthquake, lightning or other natural disaster or
calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character-of the goods or defects in the packing or-in the
containers; and
(5) Order or act of competent public authority.
It is important to point out that the above list of causes of loss, destruction or deterioration which
exempt the common carrier for responsibility therefor, is a closed list. Causes falling outside the
foregoing list, even if they appear to constitute a species of force majeure fall within the scope of
Article 1735, which provides as follows:
In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the preceding
article, if the goods are lost, destroyed or deteriorated, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that
they observed extraordinary diligence as required in Article 1733. (Emphasis
supplied)
Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific cause alleged in
the instant case the hijacking of the carrier's truck does not fall within any of the five (5)
categories of exempting causes listed in Article 1734. It would follow, therefore, that the hijacking of
the carrier's vehicle must be dealt with under the provisions of Article 1735, in other words, that the
private respondent as common carrier is presumed to have been at fault or to have acted
negligently. This presumption, however, may be overthrown by proof of extraordinary diligence on
the part of private respondent.

Petitioner insists that private respondent had not observed extraordinary diligence in the care of
petitioner's goods. Petitioner argues that in the circumstances of this case, private respondent
should have hired a security guard presumably to ride with the truck carrying the 600 cartons of
Liberty filled milk. We do not believe, however, that in the instant case, the standard of extraordinary
diligence required private respondent to retain a security guard to ride with the truck and to engage
brigands in a firelight at the risk of his own life and the lives of the driver and his helper.
The precise issue that we address here relates to the specific requirements of the duty of
extraordinary diligence in the vigilance over the goods carried in the specific context of hijacking or
armed robbery.
As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under Article 1733,
given additional specification not only by Articles 1734 and 1735 but also by Article 1745, numbers 4,
5 and 6, Article 1745 provides in relevant part:
Any of the following or similar stipulations shall be considered unreasonable, unjust
and contrary to public policy:
xxx xxx xxx
(5) that the common carrier shall not be responsible for the acts or
omissions of his or its employees;
(6) that the common carrier's liability for acts committed by thieves, or
of robbers who do not act with grave or irresistible threat, violence or
force, is dispensed with or diminished; and
(7) that the common carrier shall not responsible for the loss,
destruction or deterioration of goods on account of the defective
condition of the car vehicle, ship, airplane or other equipment used in
the contract of carriage. (Emphasis supplied)
Under Article 1745 (6) above, a common carrier is held responsible and will not be allowed to
divest or to diminish such responsibility even for acts of strangers like thieves or
robbers, except where such thieves or robbers in fact acted "with grave or irresistible threat, violence
or force." We believe and so hold that the limits of the duty of extraordinary diligence in the vigilance
over the goods carried are reached where the goods are lost as a result of a robbery which is
attended by "grave or irresistible threat, violence or force."
In the instant case, armed men held up the second truck owned by private respondent which carried
petitioner's cargo. The record shows that an information for robbery in band was filed in the Court of
First Instance of Tarlac, Branch 2, in Criminal Case No. 198 entitled "People of the Philippines v.
Felipe Boncorno, Napoleon Presno, Armando Mesina, Oscar Oria and one John Doe." There, the
accused were charged with willfully and unlawfully taking and carrying away with them the second
truck, driven by Manuel Estrada and loaded with the 600 cartons of Liberty filled milk destined for
delivery at petitioner's store in Urdaneta, Pangasinan. The decision of the trial court shows that the

accused acted with grave, if not irresistible, threat, violence or force. 3 Three (3) of the five (5) holduppers were armed with firearms. The robbers not only took away the truck and its cargo but also
kidnapped the driver and his helper, detaining them for several days and later releasing them in another
province (in Zambales). The hijacked truck was subsequently found by the police in Quezon City. The
Court of First Instance convicted all the accused of robbery, though not of robbery in band. 4
In these circumstances, we hold that the occurrence of the loss must reasonably be regarded as
quite beyond the control of the common carrier and properly regarded as a fortuitous event. It is
necessary to recall that even common carriers are not made absolute insurers against all risks of
travel and of transport of goods, and are not held liable for acts or events which cannot be foreseen
or are inevitable, provided that they shall have complied with the rigorous standard of extraordinary
diligence.
We, therefore, agree with the result reached by the Court of Appeals that private respondent
Cendana is not liable for the value of the undelivered merchandise which was lost because of an
event entirely beyond private respondent's control.
ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and the Decision of the
Court of Appeals dated 3 August 1977 is AFFIRMED. No pronouncement as to costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 101503 September 15, 1993

PLANTERS PRODUCTS, INC., petitioner,

vs.
COURT OF APPEALS, SORIAMONT STEAMSHIP AGENCIES AND KYOSEI KISEN KABUSHIKI
KAISHA, respondents.
Gonzales, Sinense, Jimenez & Associates for petitioner.
Siguion Reyna, Montecillo & Ongsiako Law Office for private respondents.

BELLOSILLO, J.:
Does a charter-party 1 between a shipowner and a charterer transform a common carrier into a private
one as to negate the civil law presumption of negligence in case of loss or damage to its cargo?
Planters Products, Inc. (PPI), purchased from Mitsubishi International Corporation (MITSUBISHI) of
New York, U.S.A., 9,329.7069 metric tons (M/T) of Urea 46% fertilizer which the latter shipped in
bulk on 16 June 1974 aboard the cargo vessel M/V "Sun Plum" owned by private respondent Kyosei
Kisen Kabushiki Kaisha (KKKK) from Kenai, Alaska, U.S.A., to Poro Point, San Fernando, La Union,
Philippines, as evidenced by Bill of Lading No. KP-1 signed by the master of the vessel and issued
on the date of departure.
On 17 May 1974, or prior to its voyage, a time charter-party on the vessel M/V "Sun Plum" pursuant
to the Uniform General Charter 2 was entered into between Mitsubishi as shipper/charterer and KKKK as
shipowner, in Tokyo, Japan. 3 Riders to the aforesaid charter-party starting from par. 16 to 40 were
attached to the pre-printed agreement. Addenda Nos. 1, 2, 3 and 4 to the charter-party were also
subsequently entered into on the 18th, 20th, 21st and 27th of May 1974, respectively.
Before loading the fertilizer aboard the vessel, four (4) of her holds 4 were all presumably inspected by
the charterer's representative and found fit to take a load of urea in bulk pursuant to par. 16 of the charterparty which reads:
16. . . . At loading port, notice of readiness to be accomplished by certificate from
National Cargo Bureau inspector or substitute appointed by charterers for his
account certifying the vessel's readiness to receive cargo spaces. The vessel's hold
to be properly swept, cleaned and dried at the vessel's expense and the vessel to be
presented clean for use in bulk to the satisfaction of the inspector before daytime
commences. (emphasis supplied)
After the Urea fertilizer was loaded in bulk by stevedores hired by and under the supervision of the
shipper, the steel hatches were closed with heavy iron lids, covered with three (3) layers of tarpaulin,
then tied with steel bonds. The hatches remained closed and tightly sealed throughout the entire
voyage. 5

Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches were opened
with the use of the vessel's boom. Petitioner unloaded the cargo from the holds into its steelbodied
dump trucks which were parked alongside the berth, using metal scoops attached to the ship,
pursuant to the terms and conditions of the charter-partly (which provided for an F.I.O.S.
clause). 6 The hatches remained open throughout the duration of the discharge. 7
Each time a dump truck was filled up, its load of Urea was covered with tarpaulin before it was
transported to the consignee's warehouse located some fifty (50) meters from the wharf. Midway to
the warehouse, the trucks were made to pass through a weighing scale where they were individually
weighed for the purpose of ascertaining the net weight of the cargo. The port area was windy, certain
portions of the route to the warehouse were sandy and the weather was variable, raining
occasionally while the discharge was in progress. 8 The petitioner's warehouse was made of corrugated
galvanized iron (GI) sheets, with an opening at the front where the dump trucks entered and unloaded the
fertilizer on the warehouse floor. Tarpaulins and GI sheets were placed in-between and alongside the
trucks to contain spillages of the ferilizer. 9
It took eleven (11) days for PPI to unload the cargo, from 5 July to 18 July 1974 (except July 12th,
14th and 18th).10 A private marine and cargo surveyor, Cargo Superintendents Company Inc. (CSCI),
was hired by PPI to determine the "outturn" of the cargo shipped, by taking draft readings of the vessel
prior to and after discharge. 11 The survey report submitted by CSCI to the consignee (PPI) dated 19 July
1974 revealed a shortage in the cargo of 106.726 M/T and that a portion of the Urea fertilizer
approximating 18 M/T was contaminated with dirt. The same results were contained in a Certificate of
Shortage/Damaged Cargo dated 18 July 1974 prepared by PPI which showed that the cargo delivered
was indeed short of 94.839 M/T and about 23 M/T were rendered unfit for commerce, having been
polluted with sand, rust and
dirt. 12
Consequently, PPI sent a claim letter dated 18 December 1974 to Soriamont Steamship Agencies
(SSA), the resident agent of the carrier, KKKK, for P245,969.31 representing the cost of the alleged
shortage in the goods shipped and the diminution in value of that portion said to have been
contaminated with dirt. 13
Respondent SSA explained that they were not able to respond to the consignee's claim for payment
because, according to them, what they received was just a request for shortlanded certificate and
not a formal claim, and that this "request" was denied by them because they "had nothing to do with
the discharge of the shipment." 14Hence, on 18 July 1975, PPI filed an action for damages with the Court
of First Instance of Manila. The defendant carrier argued that the strict public policy governing common
carriers does not apply to them because they have become private carriers by reason of the provisions of
the charter-party. The court a quo however sustained the claim of the plaintiff against the defendant
carrier for the value of the goods lost or damaged when it ruled thus: 15
. . . Prescinding from the provision of the law that a common carrier is presumed
negligent in case of loss or damage of the goods it contracts to transport, all that a
shipper has to do in a suit to recover for loss or damage is to show receipt by the
carrier of the goods and to delivery by it of less than what it received. After that, the
burden of proving that the loss or damage was due to any of the causes which
exempt him from liability is shipted to the carrier, common or private he may be. Even

if the provisions of the charter-party aforequoted are deemed valid, and the
defendants considered private carriers, it was still incumbent upon them to prove that
the shortage or contamination sustained by the cargo is attributable to the fault or
negligence on the part of the shipper or consignee in the loading, stowing, trimming
and discharge of the cargo. This they failed to do. By this omission, coupled with
their failure to destroy the presumption of negligence against them, the defendants
are liable (emphasis supplied).
On appeal, respondent Court of Appeals reversed the lower court and absolved the carrier from
liability for the value of the cargo that was lost or damaged. 16 Relying on the 1968 case of Home
Insurance Co. v. American Steamship Agencies, Inc., 17 the appellate court ruled that the cargo vessel
M/V "Sun Plum" owned by private respondent KKKK was a private carrier and not a common carrier by
reason of the time charterer-party. Accordingly, the Civil Code provisions on common carriers which set
forth a presumption of negligence do not find application in the case at bar. Thus
. . . In the absence of such presumption, it was incumbent upon the plaintiff-appellee
to adduce sufficient evidence to prove the negligence of the defendant carrier as
alleged in its complaint. It is an old and well settled rule that if the plaintiff, upon
whom rests the burden of proving his cause of action, fails to show in a satisfactory
manner the facts upon which he bases his claim, the defendant is under no
obligation to prove his exception or defense (Moran, Commentaries on the Rules of
Court, Volume 6, p. 2, citing Belen v. Belen, 13 Phil. 202).
But, the record shows that the plaintiff-appellee dismally failed to prove the basis of
its cause of action, i.e. the alleged negligence of defendant carrier. It appears that
the plaintiff was under the impression that it did not have to establish defendant's
negligence. Be that as it may, contrary to the trial court's finding, the record of the
instant case discloses ample evidence showing that defendant carrier was not
negligent in performing its obligation . . . 18 (emphasis supplied).
Petitioner PPI appeals to us by way of a petition for review assailing the decision of the Court of
Appeals. Petitioner theorizes that the Home Insurance case has no bearing on the present
controversy because the issue raised therein is the validity of a stipulation in the charter-party
delimiting the liability of the shipowner for loss or damage to goods cause by want of due deligence
on its part or that of its manager to make the vessel seaworthy in all respects, and not whether the
presumption of negligence provided under the Civil Code applies only to common carriers and not to
private carriers. 19 Petitioner further argues that since the possession and control of the vessel remain
with the shipowner, absent any stipulation to the contrary, such shipowner should made liable for the
negligence of the captain and crew. In fine, PPI faults the appellate court in not applying the presumption
of negligence against respondent carrier, and instead shifting the onus probandi on the shipper to show
want of due deligence on the part of the carrier, when he was not even at hand to witness what transpired
during the entire voyage.
As earlier stated, the primordial issue here is whether a common carrier becomes a private carrier by
reason of a charter-party; in the negative, whether the shipowner in the instant case was able to
prove that he had exercised that degree of diligence required of him under the law.

It is said that etymology is the basis of reliable judicial decisions in commercial cases. This being so,
we find it fitting to first define important terms which are relevant to our discussion.
A "charter-party" is defined as a contract by which an entire ship, or some principal part thereof, is let
by the owner to another person for a specified time or use; 20 a contract of affreightment by which the
owner of a ship or other vessel lets the whole or a part of her to a merchant or other person for the
conveyance of goods, on a particular voyage, in consideration of the payment of freight; 21 Charter parties
are of two types: (a) contract of affreightment which involves the use of shipping space on vessels leased
by the owner in part or as a whole, to carry goods for others; and, (b) charter by demise or bareboat
charter, by the terms of which the whole vessel is let to the charterer with a transfer to him of its entire
command and possession and consequent control over its navigation, including the master and the crew,
who are his servants. Contract of affreightment may either be time charter, wherein the vessel is leased to
the charterer for a fixed period of time, or voyage charter, wherein the ship is leased for a single
voyage. 22 In both cases, the charter-party provides for the hire of vessel only, either for a determinate
period of time or for a single or consecutive voyage, the shipowner to supply the ship's stores, pay for the
wages of the master and the crew, and defray the expenses for the maintenance of the ship.
Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the Civil
Code. 23 The definition extends to carriers either by land, air or water which hold themselves out as ready
to engage in carrying goods or transporting passengers or both for compensation as a public employment
and not as a casual occupation. The distinction between a "common or public carrier" and a "private or
special carrier" lies in the character of the business, such that if the undertaking is a single transaction,
not a part of the general business or occupation, although involving the carriage of goods for a fee, the
person or corporation offering such service is a private carrier. 24
Article 1733 of the New Civil Code mandates that common carriers, by reason of the nature of their
business, should observe extraordinary diligence in the vigilance over the goods they carry. 25 In the
case of private carriers, however, the exercise of ordinary diligence in the carriage of goods will suffice.
Moreover, in the case of loss, destruction or deterioration of the goods, common carriers are presumed to
have been at fault or to have acted negligently, and the burden of proving otherwise rests on them. 26 On
the contrary, no such presumption applies to private carriers, for whosoever alleges damage to or
deterioration of the goods carried has the onus of proving that the cause was the negligence of the
carrier.
It is not disputed that respondent carrier, in the ordinary course of business, operates as a common
carrier, transporting goods indiscriminately for all persons. When petitioner chartered the vessel M/V
"Sun Plum", the ship captain, its officers and compliment were under the employ of the shipowner
and therefore continued to be under its direct supervision and control. Hardly then can we charge
the charterer, a stranger to the crew and to the ship, with the duty of caring for his cargo when the
charterer did not have any control of the means in doing so. This is evident in the present case
considering that the steering of the ship, the manning of the decks, the determination of the course
of the voyage and other technical incidents of maritime navigation were all consigned to the officers
and crew who were screened, chosen and hired by the shipowner. 27
It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the
whole or portion of a vessel by one or more persons, provided the charter is limited to the ship only,
as in the case of a time-charter or voyage-charter. It is only when the charter includes both the

vessel and its crew, as in a bareboat or demise that a common carrier becomes private, at least
insofar as the particular voyage covering the charter-party is concerned. Indubitably, a shipowner in
a time or voyage charter retains possession and control of the ship, although her holds may, for the
moment, be the property of the charterer. 28
Respondent carrier's heavy reliance on the case of Home Insurance Co. v. American Steamship
Agencies, supra, is misplaced for the reason that the meat of the controversy therein was the validity
of a stipulation in the charter-party exempting the shipowners from liability for loss due to the
negligence of its agent, and not the effects of a special charter on common carriers. At any rate, the
rule in the United States that a ship chartered by a single shipper to carry special cargo is not a
common carrier, 29 does not find application in our jurisdiction, for we have observed that the growing
concern for safety in the transportation of passengers and /or carriage of goods by sea requires a more
exacting interpretation of admiralty laws, more particularly, the rules governing common carriers.
We quote with approval the observations of Raoul Colinvaux, the learned barrister-at-law

30

As a matter of principle, it is difficult to find a valid distinction between cases in which

a ship is used to convey the goods of one and of several persons. Where the ship
herself is let to a charterer, so that he takes over the charge and control of her, the
case is different; the shipowner is not then a carrier. But where her services only are
let, the same grounds for imposing a strict responsibility exist, whether he is
employed by one or many. The master and the crew are in each case his servants,
the freighter in each case is usually without any representative on board the ship; the
same opportunities for fraud or collusion occur; and the same difficulty in discovering
the truth as to what has taken place arises . . .
In an action for recovery of damages against a common carrier on the goods shipped, the shipper or
consignee should first prove the fact of shipment and its consequent loss or damage while the same
was in the possession, actual or constructive, of the carrier. Thereafter, the burden of proof shifts to
respondent to prove that he has exercised extraordinary diligence required by law or that the loss,
damage or deterioration of the cargo was due to fortuitous event, or some other circumstances
inconsistent with its liability. 31
To our mind, respondent carrier has sufficiently overcome, by clear and convincing proof, the prima
facie presumption of negligence.
The master of the carrying vessel, Captain Lee Tae Bo, in his deposition taken on 19 April 1977
before the Philippine Consul and Legal Attache in the Philippine Embassy in Tokyo, Japan, testified
that before the fertilizer was loaded, the four (4) hatches of the vessel were cleaned, dried and
fumigated. After completing the loading of the cargo in bulk in the ship's holds, the steel pontoon
hatches were closed and sealed with iron lids, then covered with three (3) layers of serviceable
tarpaulins which were tied with steel bonds. The hatches remained close and tightly sealed while the
ship was in transit as the weight of the steel covers made it impossible for a person to open without
the use of the ship's boom. 32

It was also shown during the trial that the hull of the vessel was in good condition, foreclosing the
possibility of spillage of the cargo into the sea or seepage of water inside the hull of the
vessel. 33 When M/V "Sun Plum" docked at its berthing place, representatives of the consignee boarded,
and in the presence of a representative of the shipowner, the foreman, the stevedores, and a cargo
surveyor representing CSCI, opened the hatches and inspected the condition of the hull of the vessel.
The stevedores unloaded the cargo under the watchful eyes of the shipmates who were overseeing the
whole operation on rotation basis. 34
Verily, the presumption of negligence on the part of the respondent carrier has been efficaciously
overcome by the showing of extraordinary zeal and assiduity exercised by the carrier in the care of
the cargo. This was confirmed by respondent appellate court thus
. . . Be that as it may, contrary to the trial court's finding, the record of the instant
case discloses ample evidence showing that defendant carrier was not negligent in
performing its obligations. Particularly, the following testimonies of plaintiff-appellee's
own witnesses clearly show absence of negligence by the defendant carrier; that the
hull of the vessel at the time of the discharge of the cargo was sealed and nobody
could open the same except in the presence of the owner of the cargo and the
representatives of the vessel (TSN, 20 July 1977, p. 14); that the cover of the
hatches was made of steel and it was overlaid with tarpaulins, three layers of
tarpaulins and therefore their contents were protected from the weather (TSN, 5 April
1978, p. 24); and, that to open these hatches, the seals would have to be broken, all
the seals were found to be intact (TSN, 20 July 1977, pp. 15-16) (emphasis
supplied).
The period during which private respondent was to observe the degree of diligence required of it as
a public carrier began from the time the cargo was unconditionally placed in its charge after the
vessel's holds were duly inspected and passed scrutiny by the shipper, up to and until the vessel
reached its destination and its hull was reexamined by the consignee, but prior to unloading. This is
clear from the limitation clause agreed upon by the parties in the Addendum to the standard
"GENCON" time charter-party which provided for an F.I.O.S., meaning, that the loading, stowing,
trimming and discharge of the cargo was to be done by the charterer, free from all risk and expense
to the carrier. 35 Moreover, a shipowner is liable for damage to the cargo resulting from improper stowage
only when the stowing is done by stevedores employed by him, and therefore under his control and
supervision, not when the same is done by the consignee or stevedores under the employ of the latter. 36
Article 1734 of the New Civil Code provides that common carriers are not responsible for the loss,
destruction or deterioration of the goods if caused by the charterer of the goods or defects in the
packaging or in the containers. The Code of Commerce also provides that all losses and
deterioration which the goods may suffer during the transportation by reason of fortuitous
event, force majeure, or the inherent defect of the goods, shall be for the account and risk of the
shipper, and that proof of these accidents is incumbent upon the carrier. 37 The carrier, nonetheless,
shall be liable for the loss and damage resulting from the preceding causes if it is proved, as against him,
that they arose through his negligence or by reason of his having failed to take the precautions which
usage has established among careful persons. 38

Respondent carrier presented a witness who testified on the characteristics of the fertilizer shipped
and the expected risks of bulk shipping. Mr. Estanislao Chupungco, a chemical engineer working
with Atlas Fertilizer, described Urea as a chemical compound consisting mostly of ammonia and
carbon monoxide compounds which are used as fertilizer. Urea also contains 46% nitrogen and is
highly soluble in water. However, during storage, nitrogen and ammonia do not normally evaporate
even on a long voyage, provided that the temperature inside the hull does not exceed eighty (80)
degrees centigrade. Mr. Chupungco further added that in unloading fertilizer in bulk with the use of a
clamped shell, losses due to spillage during such operation amounting to one percent (1%) against
the bill of lading is deemed "normal" or "tolerable." The primary cause of these spillages is the
clamped shell which does not seal very tightly. Also, the wind tends to blow away some of the
materials during the unloading process.
The dissipation of quantities of fertilizer, or its daterioration in value, is caused either by an extremely
high temperature in its place of storage, or when it comes in contact with water. When Urea is
drenched in water, either fresh or saline, some of its particles dissolve. But the salvaged portion
which is in liquid form still remains potent and usable although no longer saleable in its original
market value.
The probability of the cargo being damaged or getting mixed or contaminated with foreign particles
was made greater by the fact that the fertilizer was transported in "bulk," thereby exposing it to the
inimical effects of the elements and the grimy condition of the various pieces of equipment used in
transporting and hauling it.
The evidence of respondent carrier also showed that it was highly improbable for sea water to seep
into the vessel's holds during the voyage since the hull of the vessel was in good condition and her
hatches were tightly closed and firmly sealed, making the M/V "Sun Plum" in all respects seaworthy
to carry the cargo she was chartered for. If there was loss or contamination of the cargo, it was more
likely to have occurred while the same was being transported from the ship to the dump trucks and
finally to the consignee's warehouse. This may be gleaned from the testimony of the marine and
cargo surveyor of CSCI who supervised the unloading. He explained that the 18 M/T of alleged "bar
order cargo" as contained in their report to PPI was just an approximation or estimate made by
them after the fertilizer was discharged from the vessel and segregated from the rest of the cargo.
The Court notes that it was in the month of July when the vessel arrived port and unloaded her
cargo. It rained from time to time at the harbor area while the cargo was being discharged according
to the supply officer of PPI, who also testified that it was windy at the waterfront and along the
shoreline where the dump trucks passed enroute to the consignee's warehouse.
Indeed, we agree with respondent carrier that bulk shipment of highly soluble goods like fertilizer
carries with it the risk of loss or damage. More so, with a variable weather condition prevalent during
its unloading, as was the case at bar. This is a risk the shipper or the owner of the goods has to face.
Clearly, respondent carrier has sufficiently proved the inherent character of the goods which makes it
highly vulnerable to deterioration; as well as the inadequacy of its packaging which further
contributed to the loss. On the other hand, no proof was adduced by the petitioner showing that the
carrier was remise in the exercise of due diligence in order to minimize the loss or damage to the
goods it carried.

WHEREFORE, the petition is DISMISSED. The assailed decision of the Court of Appeals, which
reversed the trial court, is AFFIRMED. Consequently, Civil Case No. 98623 of the then Court of the
First Instance, now Regional Trial Court, of Manila should be, as it is hereby DISMISSED.
Costs against petitioner.
SO ORDERED.