G.R. No. L-69044 May 29, 1987 Petitioner Carrier is now before us on a Petition for Review on Certiorari.

EASTERN SHIPPING LINES, INC., petitioner, G.R. NO. 71478

vs.
INTERMEDIATE APPELLATE COURT and DEVELOPMENT INSURANCE & SURETY
On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN for short), and Dowa
CORPORATION, respondents.
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
No. 71478 May 29, 1987 Instance of Manila, Branch 11 (Civil Case No. 116151), imputing unseaworthiness of the ship and
non-observance of extraordinary diligence by petitioner Carrier.
EASTERN SHIPPING LINES, INC., petitioner,
vs. Petitioner Carrier denied liability on the principal grounds that the fire which caused the sinking of
THE NISSHIN FIRE AND MARINE INSURANCE CO., and DOWA FIRE & MARINE INSURANCE the ship is an exempting circumstance under Section 4(2) (b) of the Carriage of Goods by Sea Act
CO., LTD., respondents. (COGSA); and that when the loss of fire is established, the burden of proving negligence of the
vessel is shifted to the cargo shipper.
MELENCIO-HERRERA, J.:
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
These two cases, both for the recovery of the value of cargo insurance, arose from the same
of P5,000.00 and costs. On appeal by petitioner, the then Court of Appeals on September 10, 1984,
incident, the sinking of the M/S ASIATICA when it caught fire, resulting in the total loss of ship and
affirmed with modification the Trial Court's judgment by decreasing the amount recoverable by
cargo.
DOWA to US $1,000.00 because of $500 per package limitation of liability under the COGSA.

The basic facts are not in controversy:

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

In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel operated by
Both Petitions were initially denied for lack of merit. G.R. No. 69044 on January 16, 1985 by the First
petitioner Eastern Shipping Lines, Inc., (referred to hereinafter as Petitioner Carrier) loaded at Kobe,
Division, and G. R. No. 71478 on September 25, 1985 by the Second Division. Upon Petitioner
Japan for transportation to Manila, 5,000 pieces of calorized lance pipes in 28 packages valued at
Carrier's Motion for Reconsideration, however, G.R. No. 69044 was given due course on March 25,
P256,039.00 consigned to Philippine Blooming Mills Co., Inc., and 7 cases of spare parts valued at
1985, and the parties were required to submit their respective Memoranda, which they have done.
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.
On the other hand, in G.R. No. 71478, Petitioner Carrier sought reconsideration of the Resolution
denying the Petition for Review and moved for its consolidation with G.R. No. 69044, the lower-
In G.R. No. 71478, during the same period, the same vessel took on board 128 cartons of garment
numbered case, which was then pending resolution with the First Division. The same was granted;
fabrics and accessories, in two (2) containers, consigned to Mariveles Apparel Corporation, and two
the Resolution of the Second Division of September 25, 1985 was set aside and the Petition was
cases of surveying instruments consigned to Aman Enterprises and General Merchandise. The 128
given due course.
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. 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:
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 There are about 22 cases of the "ASIATICA" pending in various courts where various
the consignees concerned and were thus subrogated unto the rights of the latter as the insured. 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
G.R. NO. 69044

Petitioner Carrier should be held bound to said admission. As a general rule, the facts alleged in a
On May 11, 1978, respondent Development Insurance & Surety Corporation (Development
party's pleading are deemed admissions of that party and binding upon it. 2 And an admission in one
Insurance, for short), having been subrogated unto the rights of the two insured companies, filed suit
pleading in one action may be received in evidence against the pleader or his successor-in-interest
against petitioner Carrier for the recovery of the amounts it had paid to the insured before the then
on the trial of another action to which he is a party, in favor of a party to the latter action. 3
Court of First instance of Manila, Branch XXX (Civil Case No. 6087).

The threshold issues in both cases are: (1) which law should govern — the Civil Code provisions on
Petitioner-Carrier denied liability mainly on the ground that the loss was due to an extraordinary
Common carriers or the Carriage of Goods by Sea Act? and (2) who has the burden of proof to
fortuitous event, hence, it is not liable under the law.
show negligence of the carrier?

On August 31, 1979, the Trial Court rendered judgment in favor of Development Insurance in the
On the Law Applicable
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.
1
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
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.

Under the Civil Code, common carriers, from the nature of their business and for reasons of public And even if fire were to be considered a "natural disaster" within the meaning of Article 1734 of the
policy, are bound to observe extraordinary diligence in the vigilance over goods, according to all the Civil Code, it is required under Article 1739 of the same Code that the "natural disaster" must have
circumstances of each case. 8 Common carriers are responsible for the loss, destruction, or been the "proximate and only cause of the loss," and that the carrier has "exercised due diligence to
deterioration of the goods unless the same is due to any of the following causes only: prevent or minimize the loss before, during or after the occurrence of the disaster. " This Petitioner
Carrier has also failed to establish satisfactorily.
(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;
Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods by Sea Act, It is
9 provided therein that:
xxx xxx xxx 

Sec. 4(2). Neither the carrier nor the ship shall be responsible for loss or damage arising or
Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability under the phrase
resulting from
"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 (b) Fire, unless caused by the actual fault or privity of the carrier.
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
xxx xxx xxx

Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to
In this case, both the Trial Court and the Appellate Court, in effect, found, as a fact, that there was
leases of rural lands where a reduction of the rent is allowed when more than one-half of the fruits
"actual fault" of the carrier shown by "lack of diligence" in that "when the smoke was noticed, the fire
have been lost due to such event, considering that the law adopts a protection policy towards
was already big; that the fire must have started twenty-four (24) hours before the same was noticed;
agriculture. 14
" 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
As the peril of the fire is not comprehended within the exception in Article 1734, supra, Article 1735 fire originated and spread are such as to show that Petitioner Carrier or its servants were negligent
of the Civil Code provides that all cases than those mention in Article 1734, the common carrier shall in connection therewith. Consequently, the complete defense afforded by the COGSA when loss
be presumed to have been at fault or to have acted negligently, unless it proves that it has observed results from fire is unavailing to Petitioner Carrier.
the extraordinary deligence required by law.
On the US $500 Per Package Limitation:
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
Petitioner Carrier avers that its liability if any, should not exceed US $500 per package as provided
fire. The burden then is upon Petitioner Carrier to proved that it has exercised the extraordinary
in section 4(5) of the COGSA, which reads:
diligence required by law. In this regard, the Trial Court, concurred in by the Appellate Court, made
the following Finding of fact:
(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
The cargoes in question were, according to the witnesses defendant placed in hatches No,
per package lawful money of the United States, or in case of goods not shipped in
2 and 3 cf the vessel, Boatswain Ernesto Pastrana noticed that smoke was coming out from
packages, per customary freight unit, or the equivalent of that sum in other currency, unless
hatch No. 2 and hatch No. 3; that where the smoke was noticed, the fire was already big;
the nature and value of such goods have been declared by the shipper before shipment and
that the fire must have started twenty-four 24) our the same was noticed; that carbon dioxide
inserted in bill of lading. This declaration if embodied in the bill of lading shall be prima facie
was ordered released and the crew was ordered to open the hatch covers of No, 2 tor
evidence, but all be conclusive on the carrier.
commencement of fire fighting by sea water: that all of these effort were not enough to
control the fire.
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
Pursuant to Article 1733, common carriers are bound to extraordinary diligence in the
maximum shall not be less than the figure above named. In no event shall the carrier be
vigilance over the goods. The evidence of the defendant did not show that extraordinary
Liable for more than the amount of damage actually sustained.
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 xxx xxx xxx
stored in the hatches, no regular inspection was made as to their condition during the

2
Article 1749 of the New Civil Code also allows the limitations of liability in this wise: 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
Art. 1749. A stipulation that the common carrier's liability as limited to the value of the goods
provision of Carriage of Goods by Sea Act. Carriage of Goods by Sea Act, 4(5), 46
appearing in the bill of lading, unless the shipper or owner declares a greater value, is
U.S.C.A.& 1304(5).
binding.

Even if language and purposes of Carriage of Goods by Sea Act left doubt as to whether
It is to be noted that the Civil Code does not of itself limit the liability of the common carrier to a fixed
carrier-furnished containers whose contents are disclosed should be treated as packages,
amount per package although the Code expressly permits a stipulation limiting such liability. Thus,
the interest in securing international uniformity would suggest that they should not be so
the COGSA which is suppletory to the provisions of the Civil Code, steps in and supplements the
treated. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A. 1304(5).
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 ... After quoting the statement in Leather's Best, supra, 451 F 2d at 815, that treating a
physically in it and as much a part thereof as though placed therein by agreement of the parties. 16 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):
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 Although this approach has not completely escaped criticism, there is, nonetheless,
package, or its peso equivalent, at the time of payment of the value of the goods lost, but in no case much to commend it. It gives needed recognition to the responsibility of the courts to
"more than the amount of damage actually sustained." 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.
The actual total loss for the 5,000 pieces of calorized lance pipes was P256,039 (Exhibit "C"), which
There is, in this regard, obvious wisdom in the Ninth Circuit's conclusion in Hartford
was exactly the amount of the insurance coverage by Development Insurance (Exhibit "A"), and the
that technological advancements, whether or not forseeable by the COGSA
amount affirmed to be paid by respondent Court. The goods were shipped in 28 packages (Exhibit
promulgators, do not warrant a distortion or artificial construction of the statutory
"C-2") Multiplying 28 packages by $500 would result in a product of $14,000 which, at the current
term "package." A ruling that these large reusable metal pieces of transport
exchange rate of P20.44 to US $1, would be P286,160, or "more than the amount of damage
equipment qualify as COGSA packages — at least where, as here, they were carrier
actually sustained." Consequently, the aforestated amount of P256,039 should be upheld.
owned and supplied — would amount to just such a distortion.

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."
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:

We find no reversible error. The 128 cartons and not the two (2) containers should be considered as
the shipping unit.
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
In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the consignees of tin
cartons was disclosed to the carrier in the bill of lading. Eurygenes followed the Mitsui test
ingots and the shipper of floor covering brought action against the vessel owner and operator to
and treated the cartons, not the container, as the COGSA packages. However, Eurygenes
recover for loss of ingots and floor covering, which had been shipped in vessel — supplied
indicated that a carrier could limit its liability to $500 per container if the bill of lading failed to
containers. The U.S. District Court for the Southern District of New York rendered judgment for the
disclose the number of cartons or units within the container, or if the parties indicated, in
plaintiffs, and the defendant appealed. The United States Court of Appeals, Second Division,
clear and unambiguous language, an agreement to treat the container as the package.
modified and affirmed holding that:

3
 (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
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.

(128) Cartons) xxx xxx xxx 22

Men's Garments Fabrics and Accessories Freight Prepaid 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
Say: Two (2) Containers Only.

On the Award of Attorney's Fees:

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 Petitioner Carrier questions the award of attorney's fees. In both cases, respondent Court affirmed
considered as the shipping unit subject to the $500 limitation of liability. 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.
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 Courts being vested with discretion in fixing the amount of attorney's fees, it is believed that the
that they were so furnished for Petitioner Carrier was at liberty to pack and carry the goods in amount of P5,000.00 would be more reasonable in G.R. No. 69044. The award of P5,000.00 in G.R.
containers if they were not so packed. Thus, at the dorsal side of the Bill of Lading (Exhibit "A") No. 71478 is affirmed.
appears the following stipulation in fine print:
WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in that petitioner Eastern Shipping
11. (Use of Container) Where the goods receipt of which is acknowledged on the face of this Lines shall pay the Development Insurance and Surety Corporation the amount of P256,039 for the
Bill of Lading are not already packed into container(s) at the time of receipt, the Carrier shall twenty-eight (28) packages of calorized lance pipes, and P71,540 for the seven (7) cases of spare
be at liberty to pack and carry them in any type of container(s). 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.
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 2) In G.R.No.71478,the judgment is hereby affirmed.
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
SO ORDERED.
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

4
G.R. No. 101538 June 23, 1992
AUGUSTO BENEDICTO SANTOS III, represented by his father and legal guardian, Augusto
Benedicto Santos, petitioner,
vs.
NORTHWEST ORIENT AIRLINES and COURT OF APPEALS, respondents.
CRUZ, J.:
This case involves the Proper interpretation of Article 28(1) of the Warsaw Convention, reading as
follows:
Art. 28. (1) An action for damage must be brought at the option of the plaintiff, in the territory
of one of the High Contracting Parties, either before the court of the domicile of the carrier or
of his principal place of business, or where he has a place of business through which the
contract has been made, or before the court at the place of destination.
The petitioner is a minor and a resident of the Philippines. Private respondent Northwest Orient
Airlines (NOA) is a foreign corporation with principal office in Minnesota, U.S.A. and licensed to do
business and maintain a branch office in the Philippines.
On October 21, 1986, the petitioner purchased from NOA a round-trip ticket in San Francisco.
U.S.A., for his flight from San Francisco to Manila via Tokyo and back. The scheduled departure
date from Tokyo was December 20, 1986. No date was specified for his return to San Francisco. 1
On December 19, 1986, the petitioner checked in at the NOA counter in the San Francisco airport
for his scheduled departure to Manila. Despite a previous confirmation and re-confirmation, he was
informed that he had no reservation for his flight from Tokyo to Manila. He therefore had to be wait-
listed.
On March 12, 1987, the petitioner sued NOA for damages in the Regional Trial Court of Makati. On
April 13, 1987, NOA moved to dismiss the complaint on the ground of lack of jurisdiction. Citing the
above-quoted article, it contended that the complaint could be instituted only in the territory of one of
the High Contracting Parties, before:
1. the court of the domicile of the carrier;
2. the court of its principal place of business;
3. the court where it has a place of business through which the contract had been made;
4. the court of the place of destination.
The private respondent contended that the Philippines was not its domicile nor was this its principal
place of business. Neither was the petitioner's ticket issued in this country nor was his destination
Manila but San Francisco in the United States.
On February 1, 1988, the lower court granted the motion and dismissed the case. 2 The petitioner
appealed to the Court of Appeals, which affirmed the decision of the lower court. 3 On June 26,
1991, the petitioner filed a motion for reconsideration, but the same was denied. 4 The petitioner
then came to this Court, raising substantially the same issues it submitted in the Court of Appeals.
The assignment of errors may be grouped into two major issues, viz:
(1) the constitutionality of Article 28(1) of the Warsaw Convention; and
(2) the jurisdiction of Philippine courts over the case.
The petitioner also invokes Article 24 of the Civil Code on the protection of minors.
I
THE ISSUE OF CONSTITUTIONALITY
A. The petitioner claims that the lower court erred in not ruling that Article 28(1) of the
Warsaw Convention violates the constitutional guarantees of due process and equal
protection.
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. It took
effect on February 13, 1933. The Convention was concurred in by the Senate, through its Resolution
No. 19, on May 16, 1950. The Philippine instrument of accession was signed by President Elpidio
Quirino on October 13, 1950, and was deposited with the Polish government on November 9, 1950.
The Convention became applicable to the Philippines on February 9, 1951. On September 23, 1955,
President Ramon Magsaysay issued Proclamation No. 201, declaring our formal adherence thereto.
"to the end that the same and every article and clause thereof may be observed and fulfilled in good
faith by the Republic of the Philippines and the citizens thereof." 5
The Convention is thus a treaty commitment voluntarily assumed by the Philippine government and,
as such, has the force and effect of law in this country.
The petitioner contends that Article 28(1) cannot be applied in the present case because it is
unconstitutional. He argues that there is no substantial distinction between a person who purchases
a ticket in Manila and a person who purchases his ticket in San Francisco. The classification of the
places in which actions for damages may be brought is arbitrary and irrational and thus violates the
due process and equal protection clauses.
It is well-settled that courts will assume jurisdiction over a constitutional question only if it is shown
that the essential requisites of a judicial inquiry into such a question are first satisfied. Thus, there
must be an actual case or controversy involving a conflict of legal rights susceptible of judicial
determination; the constitutional question must have been opportunely raised by the proper party;
and the resolution of the question is unavoidably necessary to the decision of the case itself. 6
Courts generally avoid having to decide a constitutional question. This attitude is based on the
doctrine of separation of powers, which enjoins upon the departments of the government a
becoming respect for each other's acts.
The treaty which is the subject matter of this petition was a joint legislative-executive act. The
presumption is that it was first carefully studied and determined to be constitutional before it was
adopted and given the force of law in this country.
The petitioner's allegations are not convincing enough to overcome this presumption. Apparently,
the Convention considered the four places designated in Article 28 the most convenient forums for
the litigation of any claim that may arise between the airline and its passenger, as distinguished from
all other places. At any rate, we agree with the respondent court that this case can be decided on
other grounds without the necessity of resolving the constitutional issue.
5
 B. The petitioner claims that the lower court erred in not ruling that Art. 28(1) of the Warsaw
Convention is inapplicable because of a fundamental change in the circumstances that
served as its basis.
The petitioner goes at great lengths to show that the provisions in the Convention were intended to
protect airline companies under "the conditions prevailing then and which have long ceased to
exist." He argues that in view of the significant developments in the airline industry through the
years, the treaty has become irrelevant. Hence, to the extent that it has lost its basis for approval, it
has become unconstitutional.
The petitioner is invoking the doctrine of rebus sic stantibus. According to Jessup, "this doctrine
constitutes an attempt to formulate a legal principle which would justify non-performance of a treaty
obligation if the conditions with relation to which the parties contracted have changed so materially
and so unexpectedly as to create a situation in which the exaction of performance would be
unreasonable." 7 The key element of this doctrine is the vital change in the condition of the
contracting parties that they could not have foreseen at the time the treaty was concluded.
The Court notes in this connection the following observation made in Day v. Trans World Airlines,
Inc.: 8
The Warsaw drafters wished to create a system of liability rules that would cover all the
hazards of air travel . . . The Warsaw delegates knew that, in the years to come, civil
aviation would change in ways that they could not foresee. They wished to design a system
of air law that would be both durable and flexible enough to keep pace with these
changes . . . The ever-changing needs of the system of civil aviation can be served within
the framework they created.
It is true that at the time the Warsaw Convention was drafted, the airline industry was still in its
infancy. However, that circumstance alone is not sufficient justification for the rejection of the treaty
at this time. The changes recited by the petitioner were, realistically, not entirely unforeseen
although they were expected in a general sense only. In fact, the Convention itself, anticipating such
developments, contains the following significant provision:
Article 41. Any High Contracting Party shall be entitled not earlier than two years after the
coming into force of this convention to call for the assembling of a new international
conference in order to consider any improvements which may be made in this convention.
To this end, it will communicate with the Government of the French Republic which will take
the necessary measures to make preparations for such conference.
But the more important consideration is that the treaty has not been rejected by the Philippine
government. The doctrine of rebus sic stantibus does not operate automatically to render the treaty
inoperative. There is a necessity for a formal act of rejection, usually made by the head of State,
with a statement of the reasons why compliance with the treaty is no longer required.
In lieu thereof, the treaty may be denounced even without an expressed justification for this action.
Such denunciation is authorized under its Article 39, viz:
Article 39. (1) Any one of the High Contracting Parties may denounce this convention by a
notification addressed to the Government of the Republic of Poland, which shall at once
inform the Government of each of the High Contracting Parties.
(2) Denunciation shall take effect six months after the notification of denunciation, and shall
operate only as regards the party which shall have proceeded to denunciation.
Obviously. rejection of the treaty, whether on the ground of rebus sic stantibus or pursuant to Article
39, is not a function of the courts but of the other branches of government. This is a political act. The
conclusion and renunciation of treaties is the prerogative of the political departments and may not be
usurped by the judiciary. The courts are concerned only with the interpretation and application of
laws and treaties in force and not with their wisdom or efficacy.
C. The petitioner claims that the lower court erred in ruling that the plaintiff must sue in the
United States, because this would deny him the right to access to our courts.
The petitioner alleges that the expenses and difficulties he will incur in filing a suit in the United
States would constitute a constructive denial of his right to access to our courts for the protection of
his rights. He would consequently be deprived of this vital guaranty as embodied in the Bill of Rights.
Obviously, the constitutional guaranty of access to courts refers only to courts with appropriate
jurisdiction as defined by law. It does not mean that a person can go to any court for redress of his
grievances regardless of the nature or value of his claim. If the petitioner is barred from filing his
complaint before our courts, it is because they are not vested with the appropriate jurisdiction under
the Warsaw Convention, which is part of the law of our land.
II
THE ISSUE OF JURISDICTION.
A. The petitioner claims that the lower court erred in not ruling that Article 28(1) of the
Warsaw Convention is a rule merely of venue and was waived by defendant when it did not
move to dismiss on the ground of improper venue.
By its own terms, the Convention applies to all international transportation of persons performed by
aircraft for hire.
International transportation is defined in paragraph (2) of Article 1 as follows:
(2) For the purposes of this convention, the expression "international transportation" shall
mean any transportation in which, according to the contract made by the parties, the place
of departure and the place of destination, whether or not there be a break in the
transportation or a transshipment, are situated [either] within the territories of two High
Contracting Parties . . .
Whether the transportation is "international" is determined by the contract of the parties, which in the
case of passengers is the ticket. When the contract of carriage provides for the transportation of the
passenger between certain designated terminals "within the territories of two High Contracting
Parties," the provisions of the Convention automatically apply and exclusively govern the rights and
liabilities of the airline and its passenger.
Since the flight involved in the case at bar is international, the same being from the United States to
the Philippines and back to the United States, it is subject to the provisions of the Warsaw
Convention, including Article 28(1), which enumerates the four places where an action for damages
may be brought.
Whether Article 28(1) refers to jurisdiction or only to venue is a question over which authorities are
sharply divided. While the petitioner cites several cases holding that Article 28(1) refers to venue
rather than jurisdiction, 9 there are later cases cited by the private respondent supporting the
conclusion that the provision is jurisdictional. 10
6
Venue and jurisdiction are entirely distinct matters. Jurisdiction may not be conferred by consent or
waiver upon d court which otherwise would have no jurisdiction over the subject-matter of an action;
but the venue of an action as fixed by statute may be changed by the consent of the parties and an
objection that the plaintiff brought his suit in the wrong county may be waived by the failure of the
defendant to make a timely objection. In either case, the court may render a valid judgment. Rules
as to jurisdiction can never be left to the consent or agreement of the parties, whether or not a
prohibition exists against their alteration. 11
A number of reasons tends to support the characterization of Article 28(1) as a jurisdiction and not a
venue provision. First, the wording of Article 32, which indicates the places where the action for
damages "must" be brought, underscores the mandatory nature of Article 28(1). Second, this
characterization is consistent with one of the objectives of the Convention, which is to "regulate in a
uniform manner the conditions of international transportation by air." Third, the Convention does not
contain any provision prescribing rules of jurisdiction other than Article 28(1), which means that the
phrase "rules as to jurisdiction" used in Article 32 must refer only to Article 28(1). In fact, the last
sentence of Article 32 specifically deals with the exclusive enumeration in Article 28(1) as
"jurisdictions," which, as such, cannot be left to the will of the parties regardless of the time when the
damage occurred.
This issue was analyzed in the leading case of Smith v. Canadian Pacific Airways, Ltd., 12 where it
was held:
. . . Of more, but still incomplete, assistance is the wording of Article 28(2), especially when
considered in the light of Article 32. Article 28(2) provides that "questions of procedure shall
be governed by the law of the court to which the case is submitted" (Emphasis supplied).
Section (2) thus may be read to leave for domestic decision questions regarding the
suitability and location of a particular Warsaw Convention case.
In other words, where the matter is governed by the Warsaw Convention, jurisdiction takes on a dual
concept. Jurisdiction in the international sense must be established in accordance with Article 28(1)
of the Warsaw Convention, following which the jurisdiction of a particular court must be established
pursuant to the applicable domestic law. Only after the question of which court has jurisdiction is
determined will the issue of venue be taken up. This second question shall be governed by the law
of the court to which the case is submitted.
The petitioner submits that since Article 32 states that the parties are precluded "before the
damages occurred" from amending the rules of Article 28(1) as to the place where the action may be
brought, it would follow that the Warsaw Convention was not intended to preclude them from doing
so "after the damages occurred."
Article 32 provides:
Art. 32. Any clause contained in the contract and all special agreements entered into before
the damage occurred by which the parties purport to infringe the rules laid down by this
convention, whether by deciding the law to be applied, or by altering the rules as to
jurisdiction, shall be null and void. Nevertheless for the transportation of goods, arbitration
clauses shall be allowed, subject to this convention, if the arbitration is to take place within
one of the jurisdictions referred to in the first paragraph of Article 28.
His point is that since the requirements of Article 28(1) can be waived "after the damages (shall
have) occurred," the article should be regarded as possessing the character of a "venue" and not of
a "jurisdiction" provision. Hence, in moving to dismiss on the ground of lack of jurisdiction, the
private respondent has waived improper venue as a ground to dismiss.
The foregoing examination of Article 28(1) in relation to Article 32 does not support this conclusion.
In any event, we agree that even granting arguendo that Article 28(1) is a venue and not a
jurisdictional provision, dismissal of the case was still in order. The respondent court was correct in
affirming the ruling of the trial court on this matter, thus:
Santos' claim that NOA waived venue as a ground of its motion to dismiss is not correct.
True it is that NOA averred in its MOTION TO DISMISS that the ground thereof is "the Court
has no subject matter jurisdiction to entertain the Complaint" which SANTOS considers as
equivalent to "lack of jurisdiction over the subject matter . . ." However, the gist of NOA's
argument in its motion is that the Philippines is not the proper place where SANTOS could
file the action — meaning that the venue of the action is improperly laid. Even assuming
then that the specified ground of the motion is erroneous, the fact is the proper ground of the
motion — improper venue — has been discussed therein.
Waiver cannot be lightly inferred. In case of doubt, it must be resolved in favor of non-waiver if there
are special circumstances justifying this conclusion, as in the petition at bar. As we observed
in Javier vs. Intermediate Court of Appeals: 13
Legally, of course, the lack of proper venue was deemed waived by the petitioners when
they failed to invoke it in their original motion to dismiss. Even so, the motivation of the
private respondent should have been taken into account by both the trial judge and the
respondent court in arriving at their decisions.
The petitioner also invokes KLM Royal Dutch Airlines v. RTC, 14 a decision of our Court of Appeals,
where it was held that Article 28(1) is a venue provision. However, the private respondent avers that
this was in effect reversed by the case of Aranas v. United Airlines, 15 where the same court held
that Article 28(1) is a jurisdictional provision. Neither of these cases is binding on this Court, of
course, nor was either of them appealed to us. Nevertheless, we here express our own preference
for the later case of Aranas insofar as its pronouncements on jurisdiction conform to the judgment
we now make in this petition.
B. The petitioner claims that the lower court erred in not ruling that under Article 28(1) of the
Warsaw Convention, this case was properly filed in the Philippines, because Manila was the
destination of the plaintiff.
The Petitioner contends that the facts of this case are analogous to those in Aanestad v. Air
Canada. 16 In that case, Mrs. Silverberg purchased a round-trip ticket from Montreal to Los Angeles
and back to Montreal. The date and time of departure were specified but not of the return flight. The
plane crashed while on route from Montreal to Los Angeles, killing Mrs. Silverberg. Her
administratrix filed an action for damages against Air Canada in the U.S. District Court of California.
The defendant moved to dismiss for lack of jurisdiction but the motion was denied thus:
. . . It is evident that the contract entered into between Air Canada and Mrs. Silverberg as
evidenced by the ticket booklets and the Flight Coupon No. 1, was a contract for Air Canada
to carry Mrs. Silverberg to Los Angeles on a certain flight, a certain time and a certain class,
but that the time for her to return remained completely in her power. Coupon No. 2 was only
a continuing offer by Air Canada to give her a ticket to return to Montreal between certain
dates. . . .
The only conclusion that can be reached then, is that "the place of destination" as used in
the Warsaw Convention is considered by both the Canadian C.T.C. and the United States
C.A.B. to describe at least two "places of destination," viz., the "place of destination" of
a particular flight either an "outward destination" from the "point of origin" or from the
"outward point of destination" to any place in Canada.
Thus the place of destination under Art. 28 and Art. 1 of the Warsaw Convention of the flight
on which Mrs. Silverberg was killed, was Los Angeles according to the ticket, which was the
contract between the parties and the suit is properly filed in this Court which has jurisdiction.
7
The Petitioner avers that the present case falls squarely under the above ruling because the date
and time of his return flight to San Francisco were, as in the Aanestad case, also left open.
Consequently, Manila and not San Francisco should be considered the petitioner's destination.
The private respondent for its part invokes the ruling in Butz v. British Airways, 17 where the United
States District Court (Eastern District of Pennsylvania) said:
. . . Although the authorities which addressed this precise issue are not extensive, both the
cases and the commentators are almost unanimous in concluding that the "place of
destination" referred to in the Warsaw Convention "in a trip consisting of several parts . . . is
the ultimate destination that is accorded treaty jurisdiction." . . .
But apart from that distinguishing feature, I cannot agree with the Court's analysis
in Aanestad; whether the return portion of the ticket is characterized as an option or a
contract, the carrier was legally bound to transport the passenger back to the place of origin
within the prescribed time and. the passenger for her part agreed to pay the fare and, in fact,
did pay the fare. Thus there was mutuality of obligation and a binding contract of carriage,
The fact that the passenger could forego her rights under the contract does not make it any
less a binding contract. Certainly, if the parties did not contemplate the return leg of the
journey, the passenger would not have paid for it and the carrier would not have issued a
round trip ticket.
We agree with the latter case. The place of destination, within the meaning of the Warsaw
Convention, is determined by the terms of the contract of carriage or, specifically in this case, the
ticket between the passenger and the carrier. Examination of the petitioner's ticket shows that his
ultimate destination is San Francisco. Although the date of the return flight was left open, the
contract of carriage between the parties indicates that NOA was bound to transport the petitioner to
San Francisco from Manila. Manila should therefore be considered merely an agreed stopping place
and not the destination.
The petitioner submits that the Butz case could not have overruled the Aanestad case because
these decisions are from different jurisdictions. But that is neither here nor there. In fact, neither of
these cases is controlling on this Court. If we have preferred the Butz case, it is because, exercising
our own freedom of choice, we have decided that it represents the better, and correct, interpretation
of Article 28(1).
Article 1(2) also draws a distinction between a "destination" and an "agreed stopping place." It is the
"destination" and not an "agreed stopping place" that controls for purposes of ascertaining
jurisdiction under the Convention.
The contract is a single undivided operation, beginning with the place of departure and ending with
the ultimate destination. The use of the singular in this expression indicates the understanding of the
parties to the Convention that every contract of carriage has one place of departure and one place
of destination. An intermediate place where the carriage may be broken is not regarded as a "place
of destination."
C. The petitioner claims that the lower court erred in not ruling that under Art. 28(1) of the
Warsaw Convention, this case was properly filed in the Philippines because the defendant
has its domicile in the Philippines.
The petitioner argues that the Warsaw Convention was originally written in French and that in
interpreting its provisions, American courts have taken the broad view that the French legal meaning
must govern. 18 In French, he says, the "domicile" of the carrier means every place where it has a
branch office.
The private respondent notes, however, that in Compagnie Nationale Air France vs. Giliberto, 19 it
was held:
The plaintiffs' first contention is that Air France is domiciled in the United States. They say
that the domicile of a corporation includes any country where the airline carries on its
business on "a regular and substantial basis," and that the United States qualifies under
such definition. The meaning of domicile cannot, however, be so extended. The domicile of
a corporation is customarily regarded as the place where it is incorporated, and the courts
have given the meaning to the term as it is used in article 28(1) of the Convention.
(See Smith v. Canadian Pacific Airways, Ltd. (2d Cir. 1971), 452 F2d 798, 802; Nudo v.
Societe Anonyme Belge d' Exploitation de la Navigation Aerienne Sabena Belgian World
Airlines (E.D. pa. 1962). 207 F. Supp, 191; Karfunkel v. Compagnie Nationale Air France
(S.D.N.Y. 1977), 427 F. Suppl. 971, 974). Moreover, the structure of article 28(1), viewed as
a whole, is also incompatible with the plaintiffs' claim. The article, in stating that places of
business are among the bases of the jurisdiction, sets out two places where an action for
damages may be brought; the country where the carrier's principal place of business is
located, and the country in which it has a place of business through which the particular
contract in question was made, that is, where the ticket was bought, Adopting the plaintiffs'
theory would at a minimum blur these carefully drawn distinctions by creating a third
intermediate category. It would obviously introduce uncertainty into litigation under the
article because of the necessity of having to determine, and without standards or criteria,
whether the amount of business done by a carrier in a particular country was "regular" and
"substantial." The plaintiff's request to adopt this basis of jurisdiction is in effect a request to
create a new jurisdictional standard for the Convention.
Furthermore, it was argued in another case 20 that:
. . . In arriving at an interpretation of a treaty whose sole official language is French, are we
bound to apply French law? . . . We think this question and the underlying choice of law
issue warrant some discussion
. . . We do not think this statement can be regarded as a conclusion that internal French law
is to be "applied" in the choice of law sense, to determine the meaning and scope of the
Convention's terms. Of course, French legal usage must be considered in arriving at an
accurate English translation of the French. But when an accurate English translation is
made and agreed upon, as here, the inquiry into meaning does not then revert to a quest for
a past or present French law to be "applied" for revelation of the proper scope of the terms.
It does not follow from the fact that the treaty is written in French that in interpreting it, we
are forever chained to French law, either as it existed when the treaty was written or in its
present state of development. There is no suggestion in the treaty that French law was
intended to govern the meaning of Warsaw's terms, nor have we found any indication to this
effect in its legislative history or from our study of its application and interpretation by other
courts. Indeed, analysis of the cases indicates that the courts, in interpreting and applying
the Warsaw Convention, have, not considered themselves bound to apply French law
simply because the Convention is written in French. . . .
We agree with these rulings.
Notably, the domicile of the carrier is only one of the places where the complaint is allowed to be
filed under Article 28(1). By specifying the three other places, to wit, the principal place of business
of the carrier, its place of business where the contract was made, and the place of destination, the
article clearly meant that these three other places were not comprehended in the term "domicile."
D. The petitioner claims that the lower court erred in not ruling that Art. 28(1) of the Warsaw
Convention does not apply to actions based on tort.
The petitioner alleges that the gravamen of the complaint is that private respondent acted arbitrarily
and in bad faith, discriminated against the petitioner, and committed a willful misconduct because it
8
canceled his confirmed reservation and gave his reserved seat to someone who had no better right CONCLUSION
to it. In short. the private respondent committed a tort.
A number of countries have signified their concern over the problem of citizens being denied access
Such allegation, he submits, removes the present case from the coverage of the Warsaw to their own courts because of the restrictive provision of Article 28(1) of the Warsaw Convention.
Convention. He argues that in at least two American cases, 21 it was held that Article 28(1) of the Among these is the United States, which has proposed an amendment that would enable the
Warsaw Convention does not apply if the action is based on tort. passenger to sue in his own domicile if the carrier does business in that jurisdiction. The reason for
this proposal is explained thus:
This position is negated by Husserl v. Swiss Air Transport Company, 22 where the article in
question was interpreted thus: In the event a US citizen temporarily residing abroad purchases a Rome to New York to
Rome ticket on a foreign air carrier which is generally subject to the jurisdiction of the US,
Article 28 would prevent that person from suing the carrier in the US in a "Warsaw Case"
. . . Assuming for the present that plaintiff's claim is "covered" by Article 17, Article 24 clearly
even though such a suit could be brought in the absence of the Convention.
excludes any relief not provided for in the Convention as modified by the Montreal
Agreement. It does not, however, limit the kind of cause of action on which the relief may be
founded; rather it provides that any action based on the injuries specified in Article 17 The proposal was incorporated in the Guatemala Protocol amending the Warsaw Convention, which
"however founded," i.e., regardless of the type of action on which relief is founded, can only was adopted at Guatemala City on March 8,
be brought subject to the conditions and limitations established by the Warsaw System. 1971. 24 But it is still ineffective because it has not yet been ratified by the required minimum
Presumably, the reason for the use of the phrase "however founded," in two-fold: to number of contracting parties. Pending such ratification, the petitioner will still have to file his
accommodate all of the multifarious bases on which a claim might be founded in different complaint only in any of the four places designated by Article 28(1) of the Warsaw Convention.
countries, whether under code law or common law, whether under contract or tort, etc.; and
to include all bases on which a claim seeking relief for an injury might be founded in any one
The proposed amendment bolsters the ruling of this Court that a citizen does not necessarily have
country. In other words, if the injury occurs as described in Article 17, any relief available is
the right to sue in his own courts simply because the defendant airline has a place of business in his
subject to the conditions and limitations established by the Warsaw System, regardless of
country.
the particular cause of action which forms the basis on which a plaintiff could seek
relief . . .
The Court can only sympathize with the petitioner, who must prosecute his claims in the United
States rather than in his own country at least inconvenience. But we are unable to grant him the
The private respondent correctly contends that the allegation of willful misconduct resulting in a tort
relief he seeks because we are limited by the provisions of the Warsaw Convention which continues
is insufficient to exclude the case from the comprehension of the Warsaw Convention. The petitioner
to bind us. It may not be amiss to observe at this point that the mere fact that he will have to litigate
has apparently misconstrued the import of Article 25(l) of the Convention, which reads as follows:
in the American courts does not necessarily mean he will litigate in vain. The judicial system of that
country in known for its sense of fairness and, generally, its strict adherence to the rule of law.
Art. 25 (1). The carrier shall not be entitled to avail himself of the provisions of this
Convention which exclude or limit his liability. if the damage is caused by his willful
WHEREFORE, the petition is DENIED, with costs against the petitioner. It is so ordered.
misconduct or by such default on his part as, in accordance with the law of the court to
which the case is submitted, is considered to be equivalent to willful misconduct.

It is understood under this article that the court called upon to determine the applicability of the
limitation provision must first be vested with the appropriate jurisdiction. Article 28(1) is the provision
in the Convention which defines that jurisdiction. Article 22 23 merely fixes the monetary ceiling for
the liability of the carrier in cases covered by the Convention. If the carrier is indeed guilty of willful
misconduct, it can avail itself of the limitations set forth in this article. But this can be done only if the
action has first been commenced properly under the rules on jurisdiction set forth in Article 28(1).

III

THE ISSUE OF PROTECTION TO MINORS

The petitioner calls our attention to Article 24 of the Civil Code, which states:

Art. 24. In all contractual property or other relations, when one of the parties is at a
disadvantage on account of his moral dependence, ignorance, indigence, mental weakness,
tender age or other handicap, the courts must be vigilant for his protection.

Application of this article to the present case is misplaced. The above provision assumes that the
court is vested with jurisdiction to rule in favor of the disadvantaged minor, As already explained,
such jurisdiction is absent in the case at bar.

9
G.R. No. L-18965            October 30, 1964
COMPAÑIA MARITIMA, petitioner,
vs.
INSURANCE COMPANY OF NORTH AMERICA, respondent.
BAUTISTA ANGELO, J.:
Sometime in October, 1952, Macleod and Company of the Philippines contracted by telephone the
services of the Compañia Maritima, a shipping corporation, for the shipment of 2,645 bales of hemp
from the former's Sasa private pier at Davao City to Manila and for their subsequent transhipment to
Boston, Massachusetts, U.S.A. on board the S.S. Steel Navigator. This oral contract was later on
confirmed by a formal and written booking issued by Macleod's branch office in Sasa and
handcarried to Compañia Maritima's branch office in Davao in compliance with which the latter sent
to Macleod's private wharf LCT Nos. 1023 and 1025 on which the loading of the hemp was
completed on October 29, 1952. These two lighters were manned each by a patron and an assistant
patron. The patrons of both barges issued the corresponding carrier's receipts and that issued by
the patron of Barge No. 1025 reads in part:
Received in behalf of S.S. Bowline Knot in good order and condition from MACLEOD AND
COMPANY OF PHILIPPINES, Sasa Davao, for transhipment at Manila onto S.S. Steel
Navigator.
FINAL DESTINATION: Boston.
Thereafter, the two loaded barges left Macleod's wharf and proceeded to and moored at the
government's marginal wharf in the same place to await the arrival of the S.S. Bowline Knot
belonging to Compañia Maritima on which the hemp was to be loaded. During the night of October
29, 1952, or at the early hours of October 30, LCT No. 1025 sank, resulting in the damage or loss of
1,162 bales of hemp loaded therein. On October 30, 1952, Macleod promptly notified the carrier's
main office in Manila and its branch in Davao advising it of its liability. The damaged hemp was
brought to Odell Plantation in Madaum, Davao, for cleaning, washing, reconditioning, and redrying.
During the period from November 1-15, 1952, the carrier's trucks and lighters hauled from Odell to
Macleod at Sasa a total of 2,197.75 piculs of the reconditioned hemp out of the original cargo of
1,162 bales weighing 2,324 piculs which had a total value of 116,835.00. After reclassification, the
value of the reconditioned hemp was reduced to P84,887.28, or a loss in value of P31,947.72.
Adding to this last amount the sum of P8,863.30 representing Macleod's expenses in checking,
grading, rebating, and other fees for washing, cleaning and redrying in the amount of P19.610.00,
the total loss adds up to P60,421.02.
All abaca shipments of Macleod, including the 1,162 bales loaded on the carrier's LCT No. 1025,
were insured with the Insurance Company of North America against all losses and damages. In due
time, Macleod filed a claim for the loss it suffered as above stated with said insurance company, and
after the same had been processed, the sum of P64,018.55 was paid, which was noted down in a
document which aside from being a receipt of the amount paid, was a subrogation agreement
between Macleod and the insurance company wherein the former assigned to the latter its rights
over the insured and damaged cargo. Having failed to recover from the carrier the sum of
P60,421.02, which is the only amount supported by receipts, the insurance company instituted the
present action on October 28, 1953. After trial, the court a quo rendered judgment ordering the
carrier to pay the insurance company the sum of P60,421.02, with legal interest thereon from the
date of the filing of the complaint until fully paid, and the costs. This judgment was affirmed by the
Court of Appeals on December 14, 1960. Hence, this petition for review.
The issues posed before us are: (1) Was there a contract of carriage between the carrier and the
shipper even if the loss occurred when the hemp was loaded on a barge owned by the carrier which
was loaded free of charge and was not actually loaded on the S.S. Bowline Knot which would carry
the hemp to Manila and no bill of lading was issued therefore?; (2) Was the damage caused to the
cargo or the sinking of the barge where it was loaded due to a fortuitous event, storm or natural
disaster that would exempt the carrier from liability?; (3) Can respondent insurance company sue
the carrier under its insurance contract as assignee of Macleod in spite of the fact that the liability of
the carrier as insurer is not recognized in this jurisdiction?; (4) Has the Court of Appeals erred in
regarding Exhibit NNN-1 as an implied admission by the carrier of the correctness and sufficiency of
the shipper's statement of accounts contrary to the burden of proof rule?; and (5) Can the insurance
company maintain this suit without proof of its personality to do so?
1. This issue should be answered in the affirmative. As found by the Court of Appeals, Macleod and
Company contracted by telephone the services of petitioner to ship the hemp in question from the
former's private pier at Sasa, Davao City, to Manila, to be subsequently transhipped to Boston,
Massachusetts, U.S.A., which oral contract was later confirmed by a formal and written booking
issued by the shipper's branch office, Davao City, in virtue of which the carrier sent two of its lighters
to undertake the service. It also appears that the patrons of said lighters were employees of the
carrier with due authority to undertake the transportation and to sign the documents that may be
necessary therefor so much so that the patron of LCT No. 1025 signed the receipt covering the
cargo of hemp loaded therein as follows: .
Received in behalf of S.S. Bowline Knot in good order and condition from MACLEOD AND
COMPANY OF PHILIPPINES, Sasa Davao, for transhipment at Manila onto S.S. Steel
Navigator.
FINAL DESTINATION: Boston.
The fact that the carrier sent its lighters free of charge to take the hemp from Macleod's wharf at
Sasa preparatory to its loading onto the ship Bowline Knot does not in any way impair the contract of
carriage already entered into between the carrier and the shipper, for that preparatory step is but
part and parcel of said contract of carriage. The lighters were merely employed as the first step of
the voyage, but once that step was taken and the hemp delivered to the carrier's employees, the
rights and obligations of the parties attached thereby subjecting them to the principles and usages of
the maritime law. In other words, here we have a complete contract of carriage the consummation of
which has already begun: the shipper delivering the cargo to the carrier, and the latter taking
possession thereof by placing it on a lighter manned by its authorized employees, under which
Macleod became entitled to the privilege secured to him by law for its safe transportation and
delivery, and the carrier to the full payment of its freight upon completion of the voyage.
The receipt of goods by the carrier has been said to lie at the foundation of the contract to
carry and deliver, and if actually no goods are received there can be no such contract.
The liability and responsibility of the carrier under a contract for the carriage of goods
commence on their actual delivery to, or receipt by, the carrier or an authorized agent. ...
and delivery to a lighter in charge of a vessel for shipment on the vessel, where it is the
custom to deliver in that way, is a good delivery and binds the vessel receiving the freight,
the liability commencing at the time of delivery to the lighter. ... and, similarly, where there
is a contract to carry goods from one port to another, and they cannot be loaded directly
on the vessel and lighters are sent by the vessel to bring the goods to it, the lighters are
for the time its substitutes, so that the bill of landing is applicable to the goods as soon as
they are placed on the lighters. (80 C.J.S., p. 901, emphasis supplied)
... The test as to whether the relation of shipper and carrier had been established is, Had
the control and possession of the cotton been completely surrendered by the shipper to
the railroad company? Whenever the control and possession of goods passes to the
carrier and nothing remains to be done by the shipper, then it can be said with certainty
that the relation of shipper and carrier has been established. Railroad Co. v. Murphy, 60
Ark. 333, 30 S.W. 419, 46 A. St. Rep. 202; Pine Bluff & Arkansas River Ry. v. MaKenzie,
74 Ark. 100, 86 S.W. 834; Matthews & Hood v. St. L., I.M. & S.R. Co., 123 Ark. 365, 185
S.W. 461, L.R.A. 1916E, 1194. (W.F. Bogart & Co., et al. v. Wade, et al., 200 S.W. 148).
10
The claim that there can be no contract of affreightment because the hemp was not actually loaded
on the ship that was to take it from Davao City to Manila is of no moment, for, as already stated, the
delivery of the hemp to the carrier's lighter is in line with the contract. In fact, the receipt signed by
the patron of the lighter that carried the hemp stated that he was receiving the cargo "in behalf of
S.S. Bowline Knot in good order and condition." On the other hand, the authorities are to the effect
that a bill of lading is not indispensable for the creation of a contract of carriage.
Bill of lading not indispensable to contract of carriage. — As to the issuance of a bill of
lading, although article 350 of the Code of Commerce provides that "the shipper as well as
the carrier of merchandise or goods may mutua-lly demand that a bill of lading is not
indispensable. As regards the form of the contract of carriage it can be said that provided
that there is a meeting of the minds and from such meeting arise rights and obligations,
there should be no limitations as to form." The bill of lading is not essential to the contract,
although it may become obligatory by reason of the regulations of railroad companies, or as
a condition imposed in the contract by the agreement of the parties themselves. The bill of
lading is juridically a documentary proof of the stipulations and conditions agreed upon by
both parties. (Del Viso, pp. 314-315; Robles vs. Santos, 44 O.G. 2268). In other words, the
Code does not demand, as necessary requisite in the contract of transportation, the delivery
of the bill of lading to the shipper, but gives right to both the carrier and the shipper to
mutually demand of each other the delivery of said bill. (Sp. Sup. Ct. Decision, May 6,
1895). (Martin, Philippine Commercial Laws, Vol. II, Revised Edition, pp. 12-13)
The liability of the carrier as common carrier begins with the actual delivery of the goods for
transportation, and not merely with the formal execution of a receipt or bill of lading; the
issuance of a bill of lading is not necessary to complete delivery and acceptance. Even
where it is provided by statute that liability commences with the issuance of the bill of lading,
actual delivery and acceptance are sufficient to bind the carrier. (13 C.J.S., p. 288)
2. Petitioner disclaims responsibility for the damage of the cargo in question shielding itself behind
the claim of force majeure or storm which occurred on the night of October 29, 1952. But the
evidence fails to bear this out.
Rather, it shows that the mishap that caused the damage or loss was due, not to force majeure, but
to lack of adequate precautions or measures taken by the carrier to prevent the loss as may be
inferred from the following findings of the Court of Appeals:
Aside from the fact that, as admitted by appellant's own witness, the ill-fated barge had
cracks on its bottom (pp. 18-19, t.s.n., Sept. 13, 1959) which admitted sea water in the same
manner as rain entered "thru tank man-holes", according to the patron of LCT No. 1023
(exh. JJJ-4) — conclusively showing that the barge was not seaworthy — it should be noted
that on the night of the nautical accident there was no storm, flood, or other natural disaster
or calamity. Certainly, winds of 11 miles per hour, although stronger than the average 4.6
miles per hour then prevailing in Davao on October 29, 1952 (exh. 5), cannot be classified
as storm. For according to Beaufort's wind scale, a storm has wind velocities of from 64 to
75 miles per hour; and by Philippine Weather Bureau standards winds should have a
velocity of from 55 to 74 miles per hour in order to be classified as storm (Northern
Assurance Co., Ltd. vs. Visayan Stevedore Transportation Co., CA-G.R. No. 23167-R,
March 12, 1959).
The Court of Appeals further added: "the report of R. J. del Pan & Co., Inc., marine surveyors,
attributes the sinking of LCT No. 1025 to the 'non-water-tight conditions of various buoyancy
compartments' (exh. JJJ); and this report finds confirmation on the above-mentioned admission of
two witnesses for appellant concerning the cracks of the lighter's bottom and the entrance of the rain
water 'thru manholes'." We are not prepared to dispute this finding of the Court of Appeals.
3. There can also be no doubt that the insurance company can recover from the carrier as assignee
of the owner of the cargo for the insurance amount it paid to the latter under the insurance contract.
And this is so because since the cargo that was damaged was insured with respondent company
and the latter paid the amount represented by the loss, it is but fair that it be given the right to
recover from the party responsible for the loss. The instant case, therefore, is not one between the
insured and the insurer, but one between the shipper and the carrier, because the insurance
company merely stepped into the shoes of the shipper. And since the shipper has a direct cause of
action against the carrier on account of the damage of the cargo, no valid reason is seen why such
action cannot be asserted or availed of by the insurance company as a subrogee of the shipper. Nor
can the carrier set up as a defense any defect in the insurance policy not only because it is not a
privy to it but also because it cannot avoid its liability to the shipper under the contract of carriage
which binds it to pay any loss that may be caused to the cargo involved therein. Thus, we find fitting
the following comments of the Court of Appeals:
It was not imperative and necessary for the trial court to pass upon the question of whether
or not the disputed abaca cargo was covered by Marine Open Cargo Policy No. MK-134
isued by appellee. Appellant was neither a party nor privy to this insurance contract, and
therefore cannot avail itself of any defect in the policy which may constitute a valid reason
for appellee, as the insurer, to reject the claim of Macleod, as the insured. Anyway,
whatever defect the policy contained, if any, is deemed to have been waived by the
subsequent payment of Macleod's claim by appellee. Besides, appellant is herein sued in its
capacity as a common carrier, and appellee is suing as the assignee of the shipper pursuant
to exhibit MM. Since, as above demonstrated, appellant is liable to Macleod and Company
of the Philippines for the los or damage to the 1,162 bales of hemp after these were
received in good order and condition by the patron of appellant's LCT No. 1025, it
necessarily follows that appellant is likewise liable to appellee who, as assignee of Macleod,
merely stepped into the shoes of and substi-tuted the latter in demanding from appellant the
payment for the loss and damage aforecited.
4. It should be recalled in connection with this issue that during the trial of this case the carrier asked
the lower court to order the production of the books of accounts of the Odell Plantation containing
the charges it made for the loss of the damaged hemp for verification of its accountants, but later it
desisted therefrom on the claim that it finds their production no longer necessary. This desistance
notwithstanding, the shipper however pre-sented other documents to prove the damage it suffered
in connection with the cargo and on the strength thereof the court a quo ordered the carrier to pay
the sum of P60,421.02. And after the Court of Appeals affirmed this award upon the theory that the
desistance of the carrier from producing the books of accounts of Odell Plantation implies an
admission of the correctness of the statements of accounts contained therein, petitioner now
contends that the Court of Appeals erred in basing the affirmance of the award on such erroneous
interpretation.
There is reason to believe that the act of petitioner in waiving its right to have the books of accounts
of Odell Plantation presented in court is tantamount to an admission that the statements contained
therein are correct and their verification not necessary because its main defense here, as well as
below, was that it is not liable for the loss because there was no contract of carriage between it and
the shipper and the loss caused, if any, was due to a fortuitous event. Hence, under the carrier's
theory, the correctness of the account representing the loss was not so material as would
necessitate the presentation of the books in question. At any rate, even if the books of accounts
were not produced, the correctness of the accounts cannot now be disputed for the same is
supported by the original documents on which the entries in said books were based which were
presented by the shipper as part of its evidence. And according to the Court of Appeals, these
documents alone sufficiently establish the award of P60,412.02 made in favor of respondent.
5. Finally, with regard to the question concerning the personality of the insurance company to
maintain this action, we find the same of no importance, for the attorney himself of the carrier
admitted in open court that it is a foreign corporation doing business in the Philippines with a
personality to file the present action.
WHEREFORE, the decision appealed from is affirmed, with costs against petitioner.
11
G.R. No. 95536 March 23, 1992
ANICETO G. SALUDO, JR., MARIA SALVACION SALUDO, LEOPOLDO G. SALUDO and
SATURNINO G. SALUDO, petitioners,
vs.
HON. COURT OF APPEALS, TRANS WORLD AIRLINES, INC., and PHILIPPINE AIRLINES,
INC., respondents.
REGALADO, J.:
Assailed in this petition for review on certiorari is the decision in CA-G.R. CV No. 20951 of
respondent Court of Appeals1 which affirmed the decision of the trial court2 dismissing for lack of
evidence herein petitioners' complaint in Civil Case No R-2101 of the then Court of First Instance of
Southern Leyte, Branch I.
The facts, as recounted by the court a quo and adopted by respondent court after "considering the
evidence on record," are as follows:
After the death of plaintiffs' mother, Crispina Galdo Saludo, in Chicago Illinois, (on) October
23, 1976 (Exh. A), Pomierski and Son Funeral Home of Chicago, made the necessary
preparations and arrangements for the shipment, of the remains from Chicago to the
Philippines. The funeral home had the remains embalmed (Exb. D) and secured a permit for
the disposition of dead human body on October 25, 1976 (Exh. C), Philippine Vice Consul in
Chicago, Illinois, Bienvenido M. Llaneta, at 3:00 p.m. on October 26, 1976 at the Pomierski
& Son Funeral Home, sealed the shipping case containing a hermetically sealed casket that
is airtight and waterproof wherein was contained the remains of Crispina Saludo Galdo (sic)
(Exb. B). On the same date, October 26, 1976, Pomierski brought the remains to C.M.A.S.
(Continental Mortuary Air Services) at the airport (Chicago) which made the necessary
arrangements such as flights, transfers, etc.; C.M.A.S. is a national service used by
undertakers to throughout the nation (U.S.A.), they furnish the air pouch which the casket is
enclosed in, and they see that the remains are taken to the proper air freight terminal (Exh.
6-TWA). C.M.A.S. booked the shipment with PAL thru the carrier's agent Air Care
International, with Pomierski F.H. as the shipper and Mario (Maria) Saludo as the
consignee. PAL Airway Bill No. 079-01180454 Ordinary was issued wherein the requested
routing was from Chicago to San Francisco on board TWA Flight 131 of October 27, 1976
and from San Francisco to Manila on board PAL Flight No. 107 of the same date, and from
Manila to Cebu on board PAL Flight 149 of October 29, 1976 (See Exh. E., Also Exh. 1-
PAL).
In the meantime, plaintiffs Maria Salvacion Saludo and Saturnino Saludo, thru a travel
agent, were booked with United Airlines from Chicago to California, and with PAL from
California to Manila. She then went to the funeral director of Pomierski Funeral Home who
had her mother's remains and she told the director that they were booked with United
Airlines. But the director told her that the remains were booked with TWA flight to California.
This upset her, and she and her brother had to change reservations from UA to the TWA
flight after she confirmed by phone that her mother's remains should be on that TWA flight.
They went to the airport and watched from the look-out area. She saw no body being
brought. So, she went to the TWA counter again, and she was told there was no body on
that flight. Reluctantly, they took the TWA flight upon assurance of her cousin, Ani Bantug,
that he would look into the matter and inform her about it on the plane or have it radioed to
her. But no confirmation from her cousin reached her that her mother was on the West
Coast.
Upon arrival at San Francisco at about 5:00 p.m., she went to the TWA counter there to
inquire about her mother's remains. She was told they did not know anything about it.
She then called Pomierski that her mother's remains were not at the West Coast terminal,
and Pomierski immediately called C.M.A.S., which in a matter of 10 minutes informed him
that the remains were on a plane to Mexico City, that there were two bodies at the terminal,
and somehow they were switched; he relayed this information to Miss Saludo in California;
later C.M.A.S. called and told him they were sending the remains back to California via
Texas (see Exh. 6-TWA).
It-turned out that TWA had carried a shipment under PAL Airway Bill No. 079-ORD-
01180454 on TWA Flight 603 of October 27, 1976, a flight earlier than TWA Flight 131 of the
same date. TWA delivered or transferred the said shipment said to contain human remains
to PAL at 1400H or 2:00 p.m. of the same date, October 27, 1976 (Bee Exh. 1- TWA). "Due
to a switch(ing) in Chicago", this shipment was withdrawn from PAL by CMAS at 1805H (or
6:05 p.m.) of the same date, October 27 (Exh. 3-PAL, see Exh. 3-a-PAL).
What transpired at the Chicago (A)irport is explained in a memo or incident report by
Pomierski (Exh. 6-TWA) to Pomierski's lawyers who in turn referred to said' memo and
enclosed it in their (Pomierski's lawyers) answer dated July 18, 1981 to herein plaintiff's
counsel (See Exh. 5-TWA). In that memo or incident report (Exh. 6-TWA), it is stated that
the remains (of Crispina Saludo) were taken to CMAS at the airport; that there were two
bodies at the (Chicago Airport) terminal, and somehow they were switched, that the remains
(of Crispina Saludo) were on a plane to Mexico City; that CMAS is a national service used
by undertakers throughout the nation (U.S.A.), makes all the necessary arrangements, such
as flights, transfers, etc., and see(s) to it that the remains are taken to the proper air freight
terminal.
The following day October 28, 1976, the shipment or remains of Crispina Saludo arrived (in)
San Francisco from Mexico on board American Airlines. This shipment was transferred to or
received by PAL at 1945H or 7:45 p.m. (Exh. 2-PAL, Exh. 2-a-PAL). This casket bearing the
remains of Crispina Saludo, which was mistakenly sent to Mexico and was opened (there),
was resealed by Crispin F. Patagas for shipment to the Philippines (See Exh. B-1). The
shipment was immediately loaded on PAL flight for Manila that same evening and arrived
(in) Manila on October 30, 1976, a day after its expected arrival on October 29, 1976. 3
In a letter dated December 15, 1976, 4 petitioners' counsel informed private respondent Trans World
Airlines (TWA) of the misshipment and eventual delay in the delivery of the cargo containing the
remains of the late Crispin Saludo, and of the discourtesy of its employees to petitioners Maria
Salvacion Saludo and Saturnino Saludo. In a separate letter on June 10, 1977 addressed to co-
respondent Philippine Airlines (PAL),5 petitioners stated that they were holding PAL liable for said
delay in delivery and would commence judicial action should no favorable explanation be given.
Both private respondents denied liability. Thus, a damage suit6 was filed by petitioners before the
then Court of First Instance, Branch III, Leyte, praying for the award of actual damages of
P50,000.00, moral damages of P1,000,000.00, exemplary damages, attorney's fees and costs of
suit.
As earlier stated, the court below absolved the two respondent airlines companies of liability. The
Court of Appeals affirmed the decision of the lower court in toto, and in a subsequent
resolution,7 denied herein petitioners' motion for reconsideration for lack of merit.
In predictable disagreement and dissatisfaction with the conclusions reached by respondent
appellate court, petitioners now urge this Court to review the appealed decision and to resolve
whether or not (1) the delay in the delivery of the casketed remains of petitioners' mother was due to
the fault of respondent airline companies, (2) the one-day delay in the delivery of the same
constitutes contractual breach as would entitle petitioners to damages, (3) damages are recoverable
by petitioners for the humiliating, arrogant and indifferent acts of the employees of TWA and PAL,
and (4) private respondents should be held liable for actual, moral and exemplary damages, aside
from attorney's fees and litigation expenses.8
12
At the outset and in view of the spirited exchanges of the parties on this aspect, it is to be stressed
that only questions of law may be raised in a petition filed in this Court to review on certiorari the
decision of the Court of Appeals. 9 This being so, the factual findings of the Court of Appeals are final
and conclusive and cannot be reviewed by the Supreme Court. The rule, however, admits of
established exceptions, to wit: (a) where there is grave abuse of discretion; (b) when the finding is
grounded entirely on speculations, surmises or conjectures;(c) when the inference made is
manifestly-mistaken, absurd or impossible; (d) when the judgment of the Court of Appeals was
based on a misapprehension of facts; (e) when the factual findings are conflicting; (f) when the Court
of Appeals, in making its findings, went beyond the issues of the case and the same are contrary to
the admissions of both appellant and appellee; 10 (g) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the parties and which, if properly considered,
would justify a different conclusion; 11 and (h) where the findings of fact of the Court of Appeals are
contrary to those of the trial court, or are mere conclusions without citation of specific evidence, or
where the facts of set forth by the petitioner are not disputed by the respondent, or where the
findings of fact of the Court of Appeals are premised on the absence of evidence and are
contradicted by the evidence on record. 12
To distinguish, a question of law is one which involves a doubt or controversy on what the law is on
a certain state of facts; and, a question of fact, contrarily, is one in which there is a doubt or
difference as to the truth or falsehood of the alleged facts. 13 One test, it has been held, is whether
the appellate court can determine the issue raised without reviewing or evaluating the evidence, in
which case it is a question of law, otherwise it will be a question of fact. 14
Respondent airline companies object to the present recourse of petitioners on the ground that this
petition raises only factual questions. 15 Petitioners maintain otherwise or, alternatively, they are of
the position that, assuming that the petition raises factual questions, the same are within the
recognized exceptions to the general rule as would render the petition cognizable and worthy of
review by the Court. 16
Since it is precisely the soundness of the inferences or conclusions that may be drawn from the
factual issues which are here being assayed, we find that the issues raised in the instant petition
indeed warrant a second look if this litigation is to come to a reasonable denouement. A
discussion seriatim of said issues will further reveal that the sequence of the events involved is in
effect disputed. Likewise to be settled is whether or not the conclusions of the Court of Appeals
subject of this review indeed find evidentiary and legal support.
I. Petitioners fault respondent court for "not finding that private respondents failed to exercise
extraordinary diligence required by law which resulted in the switching and/or misdelivery of the
remains of Crispina Saludo to Mexico causing gross delay in its shipment to the Philippines, and
consequently, damages to petitioners." 17
Petitioner allege that private respondents received the casketed remains of petitioners' mother on
October 26, 1976, as evidenced by the issuance of PAL Air Waybill No. 079-01180454 18 by Air
Care International as carrier's agent; and from said date, private respondents were charged with the
responsibility to exercise extraordinary diligence so much so that for the alleged switching of the
caskets on October 27, 1976, or one day after private respondents received the cargo, the latter
must necessarily be liable.
To support their assertion, petitioners rely on the jurisprudential dictum, both under American and
Philippine law, that "(t)he issuance of a bill of lading carries the presumption that the goods were
delivered to the carrier issuing the bill, for immediate shipment, and it is nowhere questioned that a
bill of lading is prima facie evidence of the receipt of the goods by the carrier. . . . In the absence of
convincing testimony establishing mistake, recitals in the bill of lading showing that the carrier
received the goods for shipment on a specified date control (13 C.J.S. 235)." 19
A bill of lading is a written acknowledgment of the receipt of the goods and an agreement to
transport and deliver them at a specified place to a person named or on his order. Such instrument
may be called a shipping receipt, forwarder's receipt and receipt for transportation. 20 The
designation, however, is immaterial. It has been hold that freight tickets for bus companies as well
as receipts for cargo transported by all forms of transportation, whether by sea or land, fall within the
definition. Under the Tariff and Customs Code, a bill of lading includes airway bills of lading. 21 The
two-fold character of a bill of lading is all too familiar; it is a receipt as to the quantity and description
of the goods shipped and a contract to transport the goods to the consignee or other person therein
designated, on the terms specified in such instrument. 22
Logically, since a bill of lading acknowledges receipt of goods to be transported, delivery of the
goods to the carrier normally precedes the issuance of the bill; or, to some extent, delivery of the
goods and issuance of the bill are regarded in commercial practice as simultaneous
acts. 23 However, except as may be prohibited by law, there is nothing to prevent an inverse order of
events, that is, the execution of the bill of lading even prior to actual possession and control by the
carrier of the cargo to be transported. There is no law which requires that the delivery of the goods
for carriage and the issuance of the covering bill of lading must coincide in point of time or, for that
matter, that the former should precede the latter.
Ordinarily, a receipt is not essential to a complete delivery of goods to the carrier for transportation
but, when issued, is competent and prima facie, but not conclusive, evidence of delivery to the
carrier. A bill of lading, when properly executed and delivered to a shipper, is evidence that the
carrier has received the goods described therein for shipment. Except as modified by statute, it is a
general rule as to the parties to a contract of carriage of goods in connection with which a bill of
lading is issued reciting that goods have been received for transportation, that the recital being in
essence a receipt alone, is not conclusive, but may be explained, varied or contradicted by parol or
other evidence. 24
While we agree with petitioners' statement that "an airway bill estops the carrier from denying receipt
of goods of the quantity and quality described in the bill," a further reading and a more faithful
quotation of the authority cited would reveal that "(a) bill of lading may contain constituent elements
of estoppel and thus become something more than a contract between the shipper and the
carrier. . . . (However), as between the shipper and the carrier, when no goods have been delivered
for shipment no recitals in the bill can estop the carrier from showing the true facts . . . Between the
consignor of goods and receiving carrier, recitals in a bill of lading as to the goods shipped raise
only a rebuttable presumption that such goods were delivered for shipment. As between the
consignor and a receiving carrier, the fact must outweigh the recital."  25 (Emphasis supplied)
For this reason, we must perforce allow explanation by private respondents why, despite the
issuance of the airway bill and the date thereof, they deny having received the remains of Crispina
Saludo on October 26, 1976 as alleged by petitioners.
The findings of the trial court, as favorably adopted by the Court of Appeals and which we have
earner quoted, provide us with the explanation that sufficiently over comes the presumption relied on
by petitioners in insisting that the remains of their mother were delivered to and received by private
respondents on October 26, 1976. Thus —
. . . Philippine Vice Consul in Chicago, Illinois, Bienvenido M. Llaneta, at 3:00 p.m. on
October 26, 1976 at the Pomierski & Son Funeral Home, sealed the shipping case
containing a hermetically sealed casket that is airtight and waterproof wherein was
contained the remains of Crispina Saludo Galdo (sic) (Exh. B). On the same date October
26, 1976, Pomierski brought the remains to C.M.A.S. (Continental Mortuary Air Services) at
the airport (Chicago) which made the necessary arrangements such as flights, transfers,
etc; C.M.A.S. is a national service used by undertakers throughout the nation (U.S.A.), they
furnish the air pouch which the casket is enclosed in, and they see that the remains are
taken to the proper air freight terminal (Exh. G-TWA). C.M.A.S. booked the shipment with
PAL thru the carrier's agent Air Care International, with Pomierski F.H. as the shipper and
Mario (Maria) Saludo as the consignee. PAL Airway Bill No. 079- 01180454 Ordinary was
issued wherein the requested routing was from Chicago to San Francisco on board TWA
Flight-131 of October 27;1976, and from San Francisco to Manila on board PAL Flight No.
13
 107 of the same date, and from Manila to Cebu on board PAL Flight 149 of October 29,
1976 (See Exh. E, also Exh. 1-PAL).26 (Emphasis ours.)
Moreover, we are persuaded to believe private respondent PAL's account as to what transpired
October 26, 1976:
. . . Pursuant thereto, on 26 October 1976, CMAS acting upon the instruction of Pomierski,
F.H., the shipper requested booking of the casketed remains of Mrs. Cristina (sic) Saludo on
board PAL's San Francisco-Manila Flight No. PR 107 on October 27, 1976.
2. To signify acceptance and confirmation of said booking, PAL issued to said Pomierski
F.H., PAL Airway Bill No. 079-01180454 dated October 27, 1976 (sic, "10/26/76"). PAL
confirmed the booking and transporting of the shipment on board of its Flight PR 107 on
October 27, 1976 on the basis of the representation of the shipper and/or CMAS that the
said cargo would arrive in San Francisco from Chicago on board United Airlines Flight US
121 on 27 October 1976.27
In other words, on October 26, 1976 the cargo containing the casketed remains of Crispina Saludo
was booked for PAL Flight Number PR-107 leaving San Francisco for Manila on October 27, 1976,
PAL Airway Bill No. 079-01180454 was issued, not as evidence of receipt of delivery of the cargo on
October 26, 1976, but merely as a confirmation of the booking thus made for the San Francisco-
Manila flight scheduled on October 27, 1976. Actually, it was not until October 28, 1976 that PAL
received physical delivery of the body at San Francisco, as duly evidenced by the Interline Freight
Transfer Manifest of the American Airline Freight System and signed for by Virgilio Rosales at
1945H, or 7:45 P.M. on said date. 28
Explicit is the rule under Article 1736 of the Civil Code that the extraordinary responsibility of the
common carrier begins from the time the goods are delivered to the carrier. This responsibility
remains in full force and effect even when they are temporarily unloaded or stored in transit, unless
the shipper or owner exercises the right of stoppage in transitu, 29 and terminates only after the
lapse of a reasonable time for the acceptance, of the goods by the consignee or such other person
entitled to receive them. 30 And, there is delivery to the carrier when the goods are ready for and
have been placed in the exclusive possession, custody and control of the carrier for the purpose of
their immediate transportation and the carrier has accepted them. 31 Where such a delivery has thus
been accepted by the carrier, the liability of the common carrier commences eo instanti. 32
Hence, while we agree with petitioners that the extraordinary diligence statutorily required to be
observed by the carrier instantaneously commences upon delivery of the goods thereto, for such
duty to commence there must in fact have been delivery of the cargo subject of the contract of
carriage. Only when such fact of delivery has been unequivocally established can the liability for
loss, destruction or deterioration of goods in the custody of the carrier, absent the excepting causes
under Article 1734, attach and the presumption of fault of the carrier under Article 1735 be invoked.
As already demonstrated, the facts in the case at bar belie the averment that there was delivery of
the cargo to the carrier on October 26, 1976. Rather, as earlier explained, the body intended to be
shipped as agreed upon was really placed in the possession and control of PAL on October 28,
1976 and it was from that date that private respondents became responsible for the agreed cargo
under their undertakings in PAL Airway Bill No. 079-01180454. Consequently, for the switching of
caskets prior thereto which was not caused by them, and subsequent events caused thereby,
private respondents cannot be held liable.
Petitioners, proceeding on the premise that there was delivery of the cargo to private respondents
on October 26,1976 and that the latter's extraordinary responsibility had by then become operative,
insist on foisting the blame on private respondents for the switching of the two caskets which
occurred on October 27, 1976. It is argued that since there is no clear evidence establishing the fault
Continental Mortuary Air Services (CMAS) for the mix-up, private respondents are presumably
negligent pursuant to Article 1735 of the Civil Code and, for failure to rebut such presumption, they
must necessarily be held liable; or, assuming that CMAS was at fault, the same does not absolve
private respondents of liability because whoever brought the cargo to the airport or loaded it on the
plane did so as agent of private respondents.
This contention is without merit. As pithily explained by the Court of Appeals:
The airway bill expressly provides that "Carrier certifies goods described below were
received for carriage", and said cargo was "casketed human remains of Crispina Saludo,"
with "Maria Saludo as Consignee; Pomierski F.H. as Shipper; Air Care International as
carrier's agent." On the face of the said airway bill, the specific flight numbers, specific
routes of shipment and dates of departure and arrival were typewritten, to wit: Chicago TWA
Flight 131/27 to San Francisco and from San Francisco by PAL 107 on, October 27, 1976 to
Philippines and to Cebu via PAL Flight 149 on October 29, 1976. The airway bill also
contains the following typewritten words, as follows: all documents have been examined
(sic). Human remains of Crispina Saludo. Please return back (sic) first available flight to
SFO.
But, as it turned out and was discovered later the casketed human remains which was
issued PAL Airway Bill #079-1180454 was not the remains of Crispina Saludo, the casket
containing her remains having been shipped to Mexico City.
However, it should be noted that, Pomierski F.H., the shipper of Mrs. Saludo's remains,
hired Continental Mortuary Services (hereafter referred to as C.M.A.S.), which is engaged in
the business of transporting and forwarding human remains. Thus, C.M.A.S. made all the
necessary arrangements such as flights, transfers, etc. — for shipment of the remains of
Crispina Saludo.
The remains were taken on October 26th, 1976, to C.M.A.S. at the airport. These
people made all the necessary arrangements, such as flights, transfers, etc. This is
a national service used by undertakers throughout the nation. They furnished the air
pouch which the casket is enclosed in, and they see that the remains are taken to
the proper air frieght terminal. I was very surprised when Miss Saludo called me to
say that the remains were not at the west coast terminal. I immediately called
C.M.A.S. They called me back in a matter of ten minutes to inform me that the
remains were on a plane to Mexico City. The man said that there were two bodies at
the terminal, and somehow they were switched. . . . (Exb. 6 — "TWA", which is the
memo or incident report enclosed in the stationery of Walter Pomierski & Sons Ltd.)
Consequently, when the cargo was received from C.M.A.S. at the Chicago airport terminal
for shipment, which was supposed to contain the remains of Crispina Saludo, Air Care
International and/or TWA, had no way of determining its actual contents, since the casket
was hermetically sealed by the Philippine Vice-Consul in Chicago and in an air pouch of
C.M.A.S., to the effect that Air Care International and/or TWA had to rely on the information
furnished by the shipper regarding the cargo's content. Neither could Air Care International
and/or TWA open the casket for further verification, since they were not only without
authority to do so, but even prohibited.
Thus, under said circumstances, no fault and/or negligence can be attributed to PAL (even if
Air Care International should be considered as an agent of PAL) and/or TWA, the entire fault
or negligence being exclusively with C.M.A.S.33 (Emphasis supplied.)
It can correctly and logically be concluded, therefore, that the switching occurred or, more
accurately, was discovered on October 27, 1976; and based on the above findings of the Court of
appeals, it happened while the cargo was still with CMAS, well before the same was place in the
custody of private respondents.
14
Thus, while the Air Cargo Transfer Manifest of TWA of October 27, 1976 34 was signed by Garry The deposition of Alberto A. Lim, PAL's cargo supervisor at San Francisco, as deponent-witness for
Marcial of PAL at 1400H, or 2:00 P.M., on the same date, thereby indicating acknowledgment by PAL, makes this further clarification:
PAL of the transfer to them by TWA of what was in truth the erroneous cargo, said misshipped cargo
was in fact withdrawn by CMAS from PAL as shown by the notation on another copy of said
ATTY. CESAR P. MANALAYSAY:
manifest35 stating "Received by CMAS — Due to switch in Chicago 10/27-1805H," the authenticity of
You mentioned Airway Bill, Mr. Lim. I am showing to you a PAL Airway Bill Number
which was never challenged. This shows that said misshipped cargo was in fact withdrawn by
01180454 which for purposes of evidence, I would like to request that the same be marked
CMAS from PAL and the correct shipment containing the body of Crispina Saludo was received by
as evidence Exhibit I for PAL.
PAL only on October 28, 1976, at 1945H, or 7:45 P.M., per American Airlines Interline Freight
Transfer Manifest No. AA204312. 36
x x x           x x x          x x x
In what circumstances did you encounter Exhibit I-PAL?
Witness the deposition of TWA's ramp serviceman, Michael Giosso, on this matter:
ALBERTO A. LIM:
If I recall correctly, I was queried by Manila, our Manila office with regard to a certain
ATTY. JUAN COLLAS, JR.:
complaint that a consignee filed that this shipment did not arrive on the day that the
On that date, do (sic) you have occasion to handle or deal with the transfer of cargo from
consignee expects the shipment to arrive.
TWA Flight No. 603 to PAL San Francisco?
ATTY CESAR P. MANALAYSAY:
MICHAEL GIOSSO:
Okay. Now, upon receipt of that query from your Manila office, did you conduct any
Yes, I did.
investigation to pinpoint the possible causes of mishandling?
ATTY. JUAN COLLAS, JR.:
ALBERTO A. LIM:
What was your participation with the transfer of the cargo?
Yes.
MICHAEL GIOSSO:
x x x           x x x          x x x
I manifested the freight on a transfer manifest and physically moved it to PAL and concluded
ATTY. CESAR P. MANALAYSAY:
the transfer by signing it off.
What is the result of your investigation?
ATTY. JUAN COLLAS, JR.:
ALBERTO A. LIM:
You brought it there yourself?
In the course of my investigation, I found that we received the body on October 28, 1976,
from American Airlines.
MICHAEL GIOSSO:
Yes sir.
ATTY. CESAR P. MANALAYSAY:
What body are you referring to?
ATTY. JUAN COLIAS, JR.:
Do you have anything to show that PAL received the cargo from TWA on October 27, 1976?
x x x           x x x          x x x
ALBERTO A. LIM:
MICHAEL GIOSSO:
The remains of Mrs. Cristina (sic) Saludo.
Yes, I do.
ATTY. CESAR P. MANALAYSAY:
(Witness presenting a document)
Is that the same body mentioned in this Airway Bill?
ATTY. JUAN COLLAS, JR.:
ALBERTO A. LIM:
For purposes of clarity, Exhibit I is designated as Exhibit I-TWA. Yes.

ATTY. CESAR P. MANALAYSAY:

x x x           x x x          x x x What time did you receive said body on October 28, 1976?

ATTY. JUAN COLLAS, JR.: ALBERTO A. LIM:

This Exhibit I-TWA, could you tell what it is, what it shows? If I recall correctly, approximately 7:45 of October 28, 1976.

MICHAEL GIOSSO: ATTY. CESAR P. MANALAYSAY:

It shows transfer of manifest on 10-27-76 to PAL at 1400 and verified with two signatures as Do you have any proof with you to back the statement?
it completed the transfer.
ALBERTO A. LIM:
ATTY. JUAN COLLAS, JR.: Yes. We have on our records a Transfer Manifest from American Airlines Number 204312
Very good,. Who was the PAL employee who received the cargo? showing that we received a human remains shipment belong to Mrs. Cristina (sic) Saludo or
the human remains of Mrs. Cristina (sic) Saludo.
MICHAEL GIOSSO:
The name is Garry Marcial." 37

15
 ATTY. CESAR P. MAIALAYSAY:
At this juncture, may I request that the Transfer Manifest referred to by the witness be
marked as an evidence as Exhibit II-PAL.
x x x           x x x          x x x
Mr. Lim, yesterday your co-defendant TWA presented as their Exhibit I evidence tending to
show that on October 27, 1976 at about 2:00 in the, afternoon they delivered to you a cargo
bearing human remains. Could you go over this Exhibit I and please give us your comments
as to that exhibit?
ATTY. ALBERTO C. MENDOZA:
That is a vague question. I would rather request that counsel propound specific questions
rather than asking for comments on Exhibit I-TWA.
ATTY. CESAR P. MANALAYSAY:
In that case, I will reform my question. Could you tell us whether TWA in fact delivered to
you the human remains as indicated in that Transfer Manifest?
ALBERTO A. LIM:
Yes, they did.
ATTY. CESAR P. MANALAYSAY:
I noticed that the Transfer Manifest of TWA marked as Exhibit I-TWA bears the same
numbers or the same entries as the Airway Bill marked as Exhibit I-A PAL tending to show
that this is the human remains of Mrs Cristina (sic) Saludo. Could you tell us whether this is
true?
ALBERTO A. LIM:
It is true that we received human remains shipment from TWA as indicated on this Transfer
Manifest. But in the course of investigation, it was found out that the human remains
transferred to us is not the remains of Mrs. Cristina (sic) Saludo this is the reason why we
did not board it on our flight. 38
Petitioners consider TWA's statement that "it had to rely on the information furnished by the shipper"
a lame excuse and that its failure to prove that its personnel verified and identified the contents of
the casket before loading the same constituted negligence on the part of TWA.39
We upbold the favorable consideration by the Court of Appeals of the following findings of the trial
court:
It was not (to) TWA, but to C.M.A.S. that the Pomierski & Son Funeral Home delivered the
casket containing the remains of Crispina Saludo. TWA would have no knowledge therefore
that the remains of Crispina Saludo were not the ones inside the casket that was being
presented to it for shipment. TWA would have to rely on there presentations of
C.M.A.S. The casket was hermetically sealed and also sealed by the Philippine Vice Consul
in Chicago. TWA or any airline for that matter would not have opened such a sealed casket
just for the purpose of ascertaining whose body was inside and to make sure that the
remains inside were those of the particular person indicated to be by C.M.A.S. TWA had to
accept whatever information was being furnished by the shipper or by the one presenting
the casket for shipment. And so as a matter of fact, TWA carried to San Francisco and
transferred to defendant PAL a shipment covered by or under PAL Airway Bill No. 079-
ORD-01180454, the airway bill for the shipment of the casketed remains of Crispina Saludo.
Only, it turned out later, while the casket was already with PAL, that what was inside the
casket was not the body of Crispina Saludo so much so that it had to be withdrawn by
C.M.A.S. from PAL. The body of Crispina Saludo had been shipped to Mexico. The casket
containing the remains of Crispina Saludo was transshipped from Mexico and arrived in San
Francisco the following day on board American Airlines. It was immediately loaded by PAL
on its flight for Manila.
The foregoing points at C.M.A.S., not defendant TWA much less defendant PAL, as the
ONE responsible for the switching or mix-up of the two bodies at the Chicago Airport
terminal, and started a chain reaction of the misshipment of the body of Crispina Saludo and
a one-day delay in the delivery thereof to its destination.40
Verily, no amount of inspection by respondent airline companies could have guarded against the
switching that had already taken place. Or, granting that they could have opened the casket to
inspect its contents, private respondents had no means of ascertaining whether the body therein
contained was indeed that of Crispina Saludo except, possibly, if the body was that of a male person
and such fact was visually apparent upon opening the casket. However, to repeat, private
respondents had no authority to unseal and open the same nor did they have any reason or
justification to resort thereto.
It is the right of the carrier to require good faith on the part of those persons who deliver goods to be
carried, or enter into contracts with it, and inasmuch as the freight may depend on the value of the
article to be carried, the carrier ordinarily has the right to inquire as to its value. Ordinarily, too, it is
the duty of the carrier to make inquiry as to the general nature of the articles shipped and of their
value before it consents to carry them; and its failure to do so cannot defeat the shipper's right to
recovery of the full value of the package if lost, in the absence of showing of fraud or deceit on the
part of the shipper. In the absence of more definite information, the carrier has a the right to accept
shipper's marks as to the contents of the package offered for transportation and is not bound to
inquire particularly about them in order to take advantage of a false classification and where a
shipper expressly represents the contents of a package to be of a designated character, it is not the
duty of the carrier to ask for a repetition of the statement nor disbelieve it and open the box and see
for itself. 41 However, where a common carrier has reasonable ground to suspect that the offered
goods are of a dangerous or illegal character, the carrier has the right to know the character of such
goods and to insist on an inspection, if reasonable and practical under the circumstances, as a
condition of receiving and transporting such goods.42
It can safely be said then that a common carrier is entitled to fair representation of the nature and
value of the goods to be carried, with the concomitant right to rely thereon, and further noting at this
juncture that a carrier has no obligation to inquire into the correctness or sufficiency of such
information. 43 The consequent duty to conduct an inspection thereof arises in the event that there
should be reason to doubt the veracity of such representations. Therefore, to be subjected to
unusual search, other than the routinary inspection procedure customarily undertaken, there must
exist proof that would justify cause for apprehension that the baggage is dangerous as to warrant
exhaustive inspection, or even refusal to accept carriage of the same; and it is the failure of the
carrier to act accordingly in the face of such proof that constitutes the basis of the common carrier's
liability. 44
In the case at bar, private respondents had no reason whatsoever to doubt the truth of the shipper's
representations. The airway bill expressly providing that "carrier certifies goods received below were
received for carriage," and that the cargo contained "casketed human remains of Crispina Saludo,"
was issued on the basis of such representations. The reliance thereon by private respondents was
reasonable and, for so doing, they cannot be said to have acted negligently. Likewise, no evidence
was adduced to suggest even an iota of suspicion that the cargo presented for transportation was
anything other than what it was declared to be, as would require more than routine inspection or call
for the carrier to insist that the same be opened for scrutiny of its contents per declaration.
Neither can private respondents be held accountable on the basis of petitioners' preposterous
proposition that whoever brought the cargo to the airport or loaded it on the airplane did so as agent
of private respondents, so that even if CMAS whose services were engaged for the transit
arrangements for the remains was indeed at fault, the liability therefor would supposedly still be
attributable to private respondents.
While we agree that the actual participation of CMAS has been sufficiently and correctly established,
to hold that it acted as agent for private respondents would be both an inaccurate appraisal and an
unwarranted categorization of the legal position it held in the entire transaction.
16
It bears repeating that CMAS was hired to handle all the necessary shipping arrangements for the must necessarily be presumed negligent and this presumption of negligence stands undisturbed
transportation of the human remains of Crispina Saludo to Manila. Hence, it was to CMAS that the unless rebutting evidence is presented to show that the switching or misdelivery was due to
Pomierski & Son Funeral Home, as shipper, brought the remains of petitioners' mother for shipment, circumstances that would exempt the carrier from liability.
with Maria Saludo as consignee. Thereafter, CMAS booked the shipment with PAL through the
carrier's agent, Air Care International. 45 With its aforestated functions, CMAS may accordingly be
Private respondent TWA professes otherwise. Having duly delivered or transferred the cargo to its
classified as a forwarder which, by accepted commercial practice, is regarded as an agent of the
co-respondent PAL on October 27, 1976 at 2:00 P.M., as supported by the TWA Transfer Manifest,
shipper and not of the carrier. As such, it merely contracts for the transportation of goods by carriers,
TWA faithfully complied with its obligation under the airway bill. Said faithful compliance was not
and has no interest in the freight but receives compensation from the shipper as his agent. 46
affected by the fact that the remains were shipped on an earlier flight as there was no fixed time for
completion of carriage stipulated on. Moreover, the carrier did not undertake to carry the cargo
At this point, it can be categorically stated that, as culled from the findings of both the trial court and aboard any specified aircraft, in view of the condition on the back of the airway bill which provides:
appellate courts, the entire chain of events which culminated in the present controversy was not due
to the fault or negligence of private respondents. Rather, the facts of the case would point to CMAS
CONDITIONS OF CONTRACT
as the culprit. Equally telling of the more likely possibility of CMAS' liability is petitioners' letter to and
demanding an explanation from CMAS regarding the statement of private respondents laying the
blame on CMAS for the incident, portions of which, reading as follows: xxx xxx xxx

. . . we were informed that the unfortunate a mix-up occurred due to your negligence. . . . It is agreed that no time is fixed for the completion of carriage hereunder and that Carrier
may without notice substitute alternate carriers or aircraft. Carrier assumes no obligation to
carry the goods by any specified aircraft or over any particular route or routes or to make
Likewise, the two airlines pinpoint the responsibility upon your agents. Evidence were
connection at any point according to any particular schedule, and Carrier is hereby
presented to prove that allegation.
authorized to select, or deviate from the route or routes of shipment, notwithstanding that
the same may be stated on the face hereof. The shipper guarantees payment of all charges
On the face of this overwhelming evidence we could and should have filed a case against and advances.48
you. . . . 47
Hence, when respondent TWA shipped the body on earlier flight and on a different aircraft, it was
clearly allude to CMAS as the party at fault. This is tantamount to an admission by petitioners that acting well within its rights. We find this argument tenable.
they consider private respondents without fault, or is at the very least indicative of the fact that
petitioners entertained serious doubts as to whether herein private respondents were responsible for
The contention that there was contractual breach on the part of private respondents is founded on
the unfortunate turn of events.
the postulation that there was ambiguity in the terms of the airway bill, hence petitioners' insistence
on the application of the rules on interpretation of contracts and documents. We find no such
Undeniably, petitioners' grief over the death of their mother was aggravated by the unnecessary ambiguity. The terms are clear enough as to preclude the necessity to probe beyond the apparent
inconvenience and anxiety that attended their efforts to bring her body home for a decent burial. intendment of the contractual provisions.
This is unfortunate and calls for sincere commiseration with petitioners. But, much as we would like
to give them consolation for their undeserved distress, we are barred by the inequity of allowing
The hornbook rule on interpretation of contracts consecrates the primacy of the intention of the
recovery of the damages prayed for by them at the expense of private respondents whose fault or
parties, the same having the force of law between them. When the terms of the agreement are clear
negligence in the very acts imputed to them has not been convincingly and legally demonstrated.
and explicit, that they do not justify an attempt to read into any alleged intention of the parties, the
terms are to be understood literally just as they appear on the face of the contract. 49 The various
Neither are we prepared to delve into, much less definitively rule on, the possible liability of CMAS stipulations of a contract shall be interpreted together50 and such a construction is to be adopted as
as the evaluation and adjudication of the same is not what is presently at issue here and is best will give effect to all provisions thereof. 51 A contract cannot be construed by parts, but its clauses
deferred to another time and addressed to another forum. should be interpreted in relation to one another. The whole contract must be interpreted or read
together in order to arrive at its true meaning. Certain stipulations cannot be segregated and then
made to control; neither do particular words or phrases necessarily determine the character of a
II. Petitioners further fault the Court of Appeals for ruling that there was no contractual breach on the
contract. The legal effect of the contract is not to be determined alone by any particular provision
part of private respondents as would entitle petitioners to damages.
disconnected from all others, but in the ruling intention of the parties as gathered from all the
language they have used and from their contemporaneous and subsequent acts. 52
Petitioners hold that respondent TWA, by agreeing to transport the remains of petitioners' mother on
its Flight 131 from Chicago to San Francisco on October 27, 1976, made itself a party to the contract
Turning to the terms of the contract at hand, as presented by PAL Air Waybill No. 079-01180454,
of carriage and, therefore, was bound by the terms of the issued airway bill. When TWA undertook
respondent court approvingly quoted the trial court's disquisition on the aforequoted condition
to ship the remains on its Flight 603, ten hours earlier than scheduled, it supposedly violated the
appearing on the reverse side of the airway bill and its disposition of this particular assigned error:
express agreement embodied in the airway bill. It was allegedly this breach of obligation which
compounded, if not directly caused, the switching of the caskets.
The foregoing stipulation fully answers plaintiffs' objections to the one-day delay and the
shipping of the remains in TWA Flight 603 instead of TWA Flight 131. Under the stipulation,
In addition, petitioners maintain that since there is no evidence as to who placed the body on board
parties agreed that no time was fixed to complete the contract of carriage and that the
Flight 603, or that CMAS actually put the cargo on that flight, or that the two caskets at the Chicago
carrier may, without notice, substitute alternate carriers or aircraft. The carrier did not
airport were to be transported by the same airline, or that they came from the same funeral home, or
assume the obligation to carry the shipment on any specified aircraft.
that both caskets were received by CMAS, then the employees or agents of TWA presumably
caused the mix-up by loading the wrong casket on the plane. For said error, they contend, TWA

17
 xxx xxx xxx
Furthermore, contrary to the claim of plaintiffs-appellants, the conditions of the Air Waybill
are big enough to be read and noticed. Also, the mere fact that the cargo in question was
shipped in TWA Flight 603, a flight earlier on the same day than TWA Flight 131, did not in
any way cause or add to the one-day delay complained of and/or the switching or mix-up of
the bodies.53
Indubitably, that private respondent can use substitute aircraft even without notice and without the
assumption of any obligation whatsoever to carry the goods on any specified aircraft is clearly
sanctioned by the contract of carriage as specifically provided for under the conditions thereof.
Petitioners' invocation of the interpretative rule in the Rules of Court that written words control
printed words in documents, 54 to bolster their assertion that the typewritten provisions regarding the
routing and flight schedule prevail over the printed conditions, is tenuous. Said rule may be
considered only when there is inconsistency between the written and printed words of the contract.
As previously stated, we find no ambiguity in the contract subject of this case that would call for the
application of said rule. In any event, the contract has provided for such a situation by explicitly
stating that the above condition remains effective "notwithstanding that the same (fixed time for
completion of carriage, specified aircraft, or any particular route or schedule) may be stated on the
face hereof." While petitioners hinge private respondents' culpability on the fact that the carrier
"certifies goods described below were received for carriage," they may have overlooked that the
statement on the face of the airway bill properly and completely reads —
Carrier certifies goods described below were received for carriage subject to the Conditions
on the reverse hereof the goods then being in apparent good order and condition except as
noted hereon. 55 (Emphasis ours.)
Private respondents further aptly observe that the carrier's certification regarding receipt of the
goods for carriage "was of a smaller print than the condition of the Air Waybill, including Condition
No. 5 — and thus if plaintiffs-appellants had recognized the former, then with more reason they were
aware of the latter. 56
In the same vein, it would also be incorrect to accede to the suggestion of petitioners that the
typewritten specifications of the flight, routes and dates of departures and arrivals on the face of the
airway bill constitute a special contract which modifies the printed conditions at the back thereof. We
reiterate that typewritten provisions of the contract are to be read and understood subject to and in
view of the printed conditions, fully reconciling and giving effect to the manifest intention of the
parties to the agreement.
The oft-repeated rule regarding a carrier's liability for delay is that in the absence of a special
contract, a carrier is not an insurer against delay in transportation of goods. When a common carrier
undertakes to convey goods, the law implies a contract that they shall be delivered at destination
within a reasonable time, in the absence, of any agreement as to the time of delivery. 57 But where a
carrier has made an express contract to transport and deliver property within a specified time, it is
bound to fulfill its contract and is liable for any delay, no matter from what cause it may have
arisen. 58 This result logically follows from the well-settled rule that where the law creates a duty or
charge, and the party is disabled from performing it without any default in himself, and has no
remedy over, then the law will excuse him, but where the party by his own contract creates a duty or
charge upon himself, he is bound to make it good notwithstanding any accident or delay by
inevitable necessity because he might have provided against it by contract. Whether or not there
has been such an undertaking on the part of the carrier to be determined from the circumstances
surrounding the case and by application of the ordinary rules for the interpretation of contracts. 59
Echoing the findings of the trial court, the respondent court correctly declared that —
In a similar case of delayed delivery of air cargo under a very similar stipulation contained in
the airway bill which reads: "The carrier does not obligate itself to carry the goods by any
specified aircraft or on a specified time. Said carrier being hereby authorized to deviate from
the route of the shipment without any liability therefor", our Supreme Court ruled that
common carriers are not obligated by law to carry and to deliver merchandise, and persons
are not vested with the right to prompt delivery, unless such common carriers previously
assume the obligation. Said rights and obligations are created by a specific contract entered
into by the parties (Mendoza vs. PAL, 90 Phil. 836).
There is no showing by plaintiffs that such a special or specific contract had been entered
into between them and the defendant airline companies.
And this special contract for prompt delivery should call the attention of the carrier to the
circumstances surrounding the case and the approximate amount of damages to be
suffered in case of delay (See Mendoza vs. PAL, supra). There was no such contract
entered into in the instant case.60
Also, the theory of petitioners that the specification of the flights and dates of departure and arrivals
constitute a special contract that could prevail over the printed stipulations at the back of the airway
bill is vacuous. To countenance such a postulate would unduly burden the common carrier for that
would have the effect of unilaterally transforming every single bill of lading or trip ticket into a special
contract by the simple expedient of filling it up with the particulars of the flight, trip or voyage, and
thereby imposing upon the carrier duties and/or obligations which it may not have been ready or
willing to assume had it been timely, advised thereof.
Neither does the fact that the challenged condition No. 5 was printed at the back of the airway bill
militate against its binding effect on petitioners as parties to the contract, for there were sufficient
indications on the face of said bill that would alert them to the presence of such additional condition
to put them on their guard. Ordinary prudence on the part of any person entering or contemplating to
enter into a contract would prompt even a cursory examination of any such conditions, terms and/or
stipulations.
There is a holding in most jurisdictions that the acceptance of a bill of lading without dissent raises a
presumption that all terms therein were brought to the knowledge of the shipper and agreed to by
him, and in the absence of fraud or mistake, he is estopped from thereafter denying that he
assented to such terms. This rule applies with particular force where a shipper accepts a bill of
lading with full knowledge of its contents, and acceptance under such circumstances makes it a
binding contract. In order that any presumption of assent to a stipulation in a bill of lading limiting the
liability of a carrier may arise, it must appear that the clause containing this exemption from liability
plainly formed a part of the contract contained in the bill of lading. A stipulation printed on the back
of a receipt or bill of lading or on papers attached to such receipt will be quite as effective as if
printed on its face, if it is shown that the consignor knew of its terms. Thus, where a shipper accepts
a receipt which states that its conditions are to be found on the back, such receipt comes within the
general rule, and the shipper is held to have accepted and to be bound by the conditions there to be
found. 61
Granting arguendo that Condition No. 5 partakes of the nature of a contract of adhesion and as
such must be construed strictly against the party who drafted the same or gave rise to any ambiguity
therein, it should be borne in mind that a contract of adhesion may be struck down as void and
unenforceable, for being subversive of public policy, only when the weaker party is imposed upon in
dealing with the dominant bargaining party and is reduced to the alternative of taking it or leaving it,
completely deprived of the opportunity to bargain on equal footing. 62 However, Ong Yiu vs. Court of
Appeals, et al  63 instructs us that contracts of adhesion are not entirely prohibited. The one who
adheres to the contract is in reality free to reject it entirely; if he adheres, be gives his consent.
Accordingly, petitioners, far from being the weaker party in this situation, duly signified their
presumed assent to all terms of the contract through their acceptance of the airway bill and are
consequently bound thereby. It cannot be gainsaid that petitioners' were not without several choices
as to carriers in Chicago with its numerous airways and airliner servicing the same.
18
We wish to allay petitioners' apprehension that Condition No. 5 of the airway bill is productive of Respondent appellate court found merit in and reproduced the trial court's refutation of this assigned
mischief as it would validate delay in delivery, sanction violations of contractual obligations with error:
impunity or put a premium on breaches of contract.
About the only evidence of plaintiffs that may have reference to the manner with which the
Just because we have said that condition No. 5 of the airway bill is binding upon the parties to and personnel of defendants treated the two plaintiffs at the San Francisco Airport are the
fully operative in this transaction, it does not mean, and let this serve as fair warning to respondent following pertinent portions of Maria Saludo's testimony:
carriers, that they can at all times whimsically seek refuge from liability in the exculpatory sanctuary
of said Condition No. 5 or arbitrarily vary routes, flights and schedules to the prejudice of their
Q When you arrived there, what did you do, if any?
customers. This condition only serves to insulate the carrier from liability in those instances when
changes in routes, flights and schedules are clearly justified by the peculiar circumstances of a
particular case, or by general transportation practices, customs and usages, or by contingencies or A I immediately went to the TWA counter and I inquired about whether my mother
emergencies in aviation such as weather turbulence, mechanical failure, requirements of national was there or if' they knew anything about it.
security and the like. And even as it is conceded that specific routing and other navigational
arrangements for a trip, flight or voyage, or variations therein, generally lie within the discretion of
Q What was the answer?
the carrier in the absence of specific routing instructions or directions by the shipper, it is plainly
incumbent upon the carrier to exercise its rights with due deference to the rights, interests and
convenience of its customers. A They said they do not know. So, we waited.

A common carrier undertaking to transport property has the implicit duty to carry and deliver it within Q About what time was that when you reached San Francisco from Chicago?
reasonable time, absent any particular stipulation regarding time of delivery, and to guard against
delay. In case of any unreasonable delay, the carrier shall be liable for damages immediately and
proximately resulting from such neglect of duty. 64 As found by the trial court, the delay in the A I think 5 o'clock. Somewhere around that in the afternoon.
delivery of the remains of Crispina Saludo, undeniable and regrettable as it was, cannot be
attributed to the fault, negligence or malice of private respondents, 65 a conclusion concurred in by Q You made inquiry it was immediately thereafter?
respondent court and which we are not inclined to disturb.
A Right after we got off the plane.
We are further convinced that when TWA opted to ship the remains of Crispina Saludo on an earlier
flight, it did so in the exercise of sound discretion and with reasonable prudence, as shown by the
explanation of its counsel in his letter of February 19, 1977 in response to petitioners' demand letter: Q Up to what time did you stay in the airport to wait until the TWA people could tell
you the whereabouts?

Investigation of TWA's handling of this matter reveals that although the shipment was
scheduled on TWA Flight 131 of October 27, 1976, it was actually boarded on TWA Flight A Sorry, Sir, but the TWA did not tell us anything. We stayed there until about 9
603 of the same day, approximately 10 hours earlier, in order to assure that the shipment o'clock. They have not heard anything about it. They did not say anything.
would be received in San Francisco in sufficient time for transfer to PAL. This transfer was
effected in San Francisco at 2:00 P.M. on October 27, 1976. 66 Q Do you want to convey to the Court that from 5 up to 9 o'clock in the evening you
yourself went back to the TWA and they could not tell you where the remains of your
Precisely, private respondent TWA knew of the urgency of the shipment by reason of this notation mother were?
on the lower portion of the airway bill: "All documents have been certified. Human remains of
Cristina (sic) Saludo. Please return bag first available flight to SFO." Accordingly, TWA took it upon A Yes sir.
itself to carry the remains of Crispina Saludo on an earlier flight, which we emphasize it could do
under the terms of the airway bill, to make sure that there would be enough time for loading said
remains on the transfer flight on board PAL. Q And after nine o'clock, what did you do?

III. Petitioners challenge the validity of respondent court's finding that private respondents are not
liable for tort on account of the humiliating, arrogant and indifferent acts of their officers and
personnel. They posit that since their mother's remains were transported ten hours earlier than
originally scheduled, there was no reason for private respondents' personnel to disclaim knowledge
of the arrival or whereabouts of the same other than their sheer arrogance, indifference and extreme
insensitivity to the feelings of petitioners. Moreover, being passengers and not merely consignors of
goods, petitioners had the right to be treated with courtesy, respect, kindness and due
consideration.
A I told my brother my Mom was supposed to be on the Philippine Airlines flight.
"Why don't" we check with PAL instead to see if she was there?" We tried to comfort
each other. I told him anyway that was a shortest flight from Chicago to California.
We will be with our mother on this longer flight. So, we checked with the PAL.
Q What did you find?
A We learned, Yes, my Mom would be on the flight.

In riposte, TWA claims that its employees have always dealt politely with all clients, customers and
the public in general. PAL, on the other hand, declares that in the performance of its obligation to the Q Who was that brother?
riding public, other customers and clients, it has always acted with justice, honesty, courtesy and
good faith. A Saturnino Saludo.

19
 Q And did you find what was your flight from San Francisco to the Philippines?
A I do not know the number. It was the evening flight of the Philippine Airline(s) from
San Francisco to Manila.
Q You took that flight with your mother?
A We were scheduled to, Sir.
Q Now, you could not locate the remains of your mother in San Francisco could you
tell us what did you feel?
A After we were told that my mother was not there?
Q After you learned that your mother could not fly with you from Chicago to
California?
A Well, I was very upset. Of course, I wanted the confirmation that my mother was in
the West Coast. The fliqht was about 5 hours from Chicago to California. We waited
anxiously all that time on the plane. I wanted to be assured about my mother's
remains. But there was nothing and we could not get any assurance from anyone
about it.
Q Your feeling when you reached San Francisco and you could not find out from the
TWA the whereabouts of the remains, what did you feel?
A Something nobody would be able to describe unless he experiences it himself. It
is a kind of panic. I think it's a feeling you are about to go crazy. It is something I do
not want to live through again. (Inting, t.s.n., Aug. 9, 1983, pp. 14-18).
The foregoing does not show any humiliating or arrogant manner with which the personnel
of both defendants treated the two plaintiffs. Even their alleged indifference is not clearly
established. The initial answer of the TWA personnel at the counter that they did not know
anything about the remains, and later, their answer that they have not heard anything about
the remains, and the inability of the TWA counter personnel to inform the two plaintiffs of the
whereabouts of the remains, cannot be said to be total or complete indifference to the said
plaintiffs. At any rate, it is any rude or discourteous conduct, malfeasance or neglect, the
use of abusive or insulting language calculated to humiliate and shame passenger or had
faith by or on the part of the employees of the carrier that gives the passenger an action for
damages against the carrier (Zulueta vs. Pan American World Airways, 43 SCRA 397; Air
France vs. Carrascoso, et al., 18 SCRA 155; Lopez, et al. vs. Pan American World Airways,
16 SCRA 431; Northwest Airlines, Inc. vs. Cuenca, 14 SCRA 1063), and none of the above
is obtaining in the instant case. 67
We stand by respondent court's findings on this point, but only to the extent where it holds that the
manner in which private respondent TWA's employees dealt with petitioners was not grossly
humiliating, arrogant or indifferent as would assume the proportions of malice or bad faith and lay
the basis for an award of the damages claimed. It must however, be pointed out that the lamentable
actuations of respondent TWA's employees leave much to be desired, particularly so in the face of
petitioners' grief over the death of their mother, exacerbated by the tension and anxiety wrought by
the impasse and confusion over the failure to ascertain over an appreciable period of time what
happened to her remains.
Airline companies are hereby sternly admonished that it is their duty not only to cursorily instruct but
to strictly require their personnel to be more accommodating towards customers, passengers and
the general public. After all, common carriers such as airline companies are in the business of
rendering public service, which is the primary reason for their enfranchisement and recognition in
our law. Because the passengers in a contract of carriage do not contract merely for transportation,
they have a right to be treated with kindness, respect, courtesy and consideration. 68 A contract to
transport passengers is quite different in kind and degree from any other contractual relation, and
generates a relation attended with public duty. The operation of a common carrier is a business
affected with public interest and must be directed to serve the comfort and convenience of
passengers. 69 Passengers are human beings with human feelings and emotions; they should not be
treated as mere numbers or statistics for revenue.
The records reveal that petitioners, particularly Maria and Saturnino Saludo, agonized for nearly five
hours, over the possibility of losing their mother's mortal remains, unattended to and without any
assurance from the employees of TWA that they were doing anything about the situation. This is not
to say that petitioners were to be regaled with extra special attention. They were, however, entitled
to the understanding and humane consideration called for by and commensurate with the
extraordinary diligence required of common carriers, and not the cold insensitivity to their
predicament. It is hard to believe that the airline's counter personnel were totally helpless about the
situation. Common sense would and should have dictated that they exert a little extra effort in
making a more extensive inquiry, by themselves or through their superiors, rather than just shrug off
the problem with a callous and uncaring remark that they had no knowledge about it. With all the
modern communications equipment readily available to them, which could have easily facilitated
said inquiry and which are used as a matter of course by airline companies in their daily operations,
their apathetic stance while not legally reprehensible is morally deplorable.
Losing a loved one, especially one's, parent, is a painful experience. Our culture accords the
tenderest human feelings toward and in reverence to the dead. That the remains of the deceased
were subsequently delivered, albeit belatedly, and eventually laid in her final resting place is of little
consolation. The imperviousness displayed by the airline's personnel, even for just that fraction of
time, was especially condemnable particularly in the hour of bereavement of the family of Crispina
Saludo, intensified by anguish due to the uncertainty of the whereabouts of their mother's remains.
Hence, it is quite apparent that private respondents' personnel were remiss in the observance of that
genuine human concern and professional attentiveness required and expected of them.
The foregoing observations, however, do not appear to be applicable or imputable to respondent
PAL or its employees. No attribution of discourtesy or indifference has been made against PAL by
petitioners and, in fact, petitioner Maria Saludo testified that it was to PAL that they repaired after
failing to receive proper attention from TWA. It was from PAL that they received confirmation that
their mother's remains would be on the same flight to Manila with them.
We find the following substantiation on this particular episode from the deposition of Alberto A. Lim,
PAL's cargo supervisor earlier adverted to, regarding their investigation of and the action taken on
learning of petitioner's problem:
ATTY. ALBERTO C. MENDOZA:
Yes.
Mr. Lim, what exactly was your procedure adopted in your so called investigation?
ALBERTO A. LIM:
I called the lead agent on duty at that time and requested for a copy of airway bill,
transfer manifest and other documents concerning the shipment.
20
 ATTY ALBERTO C. MENDOZA:

Then, what?

ALBERTO A. LIM:

They proceeded to analyze exactly where PAL failed, if any, in forwarding the human
remains of Mrs. Cristina (sic) Saludo. And I found out that there was not (sic) delay in
shipping the remains of Mrs. Saludo to Manila. Since we received the body from
American Airlines on 28 October at 7:45 and we expedited the shipment so that it could
have been loaded on our flight leaving at 9:00 in the evening or just barely one hour and
15 minutes prior to the departure of the aircraft. That is so (sic) being the case, I
reported to Manila these circumstances. 70

IV. Finally, petitioners insist, as a consequence of the delay in the shipment of their mother's
remains allegedly caused by wilful contractual breach, on their entitlement to actual, moral and
exemplary damages as well as attorney's fees, litigation expenses, and legal interest.

The uniform decisional tenet in our jurisdiction bolds that moral damages may be awarded for wilful
or fraudulent breach of contract 71 or when such breach is attended by malice or bad
faith. 72 However, in the absence of strong and positive evidence of fraud, malice or bad faith, said
damages cannot be awarded.73 Neither can there be an award of exemplary damages 74 nor of
attorney's fees 75 as an item of damages in the absence of proof that defendant acted with malice,
fraud or bad faith.

The censurable conduct of TWA's employees cannot, however, be said to have approximated the
dimensions of fraud, malice or bad faith. It can be said to be more of a lethargic reaction produced
and engrained in some people by the mechanically routine nature of their work and a racial or
societal culture which stultifies what would have been their accustomed human response to a
human need under a former and different ambience.

Nonetheless, the facts show that petitioners' right to be treated with due courtesy in accordance with
the degree of diligence required by law to be exercised by every common carrier was violated by
TWA and this entitles them, at least, to nominal damages from TWA alone. Articles 2221 and 2222
of the Civil Code make it clear that nominal damages are not intended for indemnification of loss
suffered but for the vindication or recognition of a right violated of invaded. They are recoverable
where some injury has been done but the amount of which the evidence fails to show, the
assessment of damages being left to the discretion of the court according to the circumstances of
the case.76 In the exercise of our discretion, we find an award of P40,000.00 as nominal damages in
favor of, petitioners to be a reasonable amount under the circumstances of this case.

WHEREFORE, with the modification that an award of P40,000.00 as and by way of nominal
damages is hereby granted in favor of petitioners to be paid by respondent Trans World Airlines, the
appealed decision is AFFIRMED in all other respects.

SO ORDERED.

21
G.R. No. 116863 February 12, 1998
KENG HUA PAPER PRODUCTS CO. INC., petitioner,
vs.
COURT OF APPEALS; REGIONAL TRIAL COURT OF MANILA, BR. 21; and SEA-LAND
SERVICE, INC., respondents.
PANGANIBAN, J.:
What is the nature of a bill of lading? When does a bill of lading become binding on a consignee?
Will an alleged overshipment justify the consignee's refusal to receive the goods described in the bill
of lading? When may interest be computed on unpaid demurrage charges?
Statement of the Case
These are the main questions raised in this petition assailing the Decision 1 of the Court of
Appeals 2 promulgated on May 20, 1994 in C.A.-G.R. CV No. 29953 affirming in toto the
decision 3 dated September 28, 1990 in Civil Case No. 85-33269 of the Regional Trial Court of
Manila, Branch 21. The dispositive portion of the said RTC decision reads:
WHEREFORE, the Court finds by preponderance of evidence that Plaintiff has proved its
cause of action and right to relief. Accordingly, judgment is hereby rendered in favor of the
Plaintiff and against Defendant, ordering the Defendant to pay plaintiff:
1. The sum of P67,340.00 as demurrage charges, with interest at the legal rate from the
date of the extrajudicial demand until fully paid;
2. A sum equivalent to ten (10%) percent of the total amount due as Attorney's fees and
litigation expenses.
Send copy to respective counsel of the parties. SO ORDERED.4
The Facts
The factual antecedents of this case as found by the Court of Appeals are as follows:
Plaintiff (herein private respondent), a shipping company, is a foreign corporation licensed to
do business in the Philippines. On June 29, 1982, plaintiff received at its Hong Kong
terminal a sealed container, Container No. SEAU 67523, containing seventy-six bales of
"unsorted waste paper" for shipment to defendant (herein petitioner), Keng Hua Paper
Products, Co. in Manila. A bill of lading (Exh. A) to cover the shipment was issued by the
plaintiff.
On July 9, 1982, the shipment was discharged at the Manila International Container Port.
Notices of arrival were transmitted to the defendant but the latter failed to discharge the
shipment from the container during the "free time" period or grace period. The said shipment
remained inside the plaintiff's container from the moment the free time period expired on
July 29, 1982 until the time when the shipment was unloaded from the container on
November 22, 1983, or a total of four hundred eighty-one (481) days. During the 481-day
period, demurrage charges accrued. Within the same period, letters demanding payment
were sent by the plaintiff to the defendant who, however, refused to settle its obligation
which eventually amounted to P67,340.00. Numerous demands were made on the
defendant but the obligation remained unpaid. Plaintiff thereafter commenced this civil
action for collection and damages.
In its answer, defendant, by way of special and affirmative defense, alleged that it
purchased fifty (50) tons of waste paper from the shipper in Hong Kong, Ho Kee Waste
Paper, as manifested in Letter of Credit No. 824858 (Exh. 7. p. 110. Original Record) issued
by Equitable Banking Corporation, with partial shipment permitted; that under the letter of
credit, the remaining balance of the shipment was only ten (10) metric tons as shown in
Invoice No. H-15/82 (Exh. 8, p. 111, Original Record); that the shipment plaintiff was asking
defendant to accept was twenty (20) metric tons which is ten (10) metric tons more than the
remaining balance; that if defendant were to accept the shipment, it would be violating
Central Bank rules and regulations and custom and tariff laws; that plaintiff had no cause of
action against the defendant because the latter did not hire the former to carry the
merchandise; that the cause of action should be against the shipper which contracted the
plaintiff's services and not against defendant; and that the defendant duly notified the
plaintiff about the wrong shipment through a letter dated January 24, 1983 (Exh. D for
plaintiff, Exh. 4 for defendant, p. 5. Folder of Exhibits).
As previously mentioned, the RTC found petitioner liable for demurrage; attorney's fees and
expenses of litigation. The petitioner appealed to the Court of Appeals, arguing that the lower court
erred in (1) awarding the sum of P67,340 in favor of the private respondent, (2) rejecting petitioner's
contention that there was overshipment, (3) ruling that petitioner's recourse was against the shipper,
and (4) computing legal interest from date of extrajudicial demand. 5
Respondent Court of Appeals denied the appeal and affirmed the lower court's decision in toto. In a
subsequent resolution,6 it also denied the petitioner's motion for reconsideration.
Hence, this petition for review. 7
The Issues
In its memorandum, petitioner submits the following issues:
I. Whether or not petitioner had accepted the bill of lading;
II. Whether or not the award of the sum of P67,340.00 to private respondent was proper;
III. Whether or not petitioner was correct in not accepting the overshipment;
IV. Whether or not the award of legal interest from the date of private respondent's
extrajudicial demand was proper;8
In the main, the case revolves around the question of whether petitioner bound by the bill of lading.
We shall, thus, discuss the above four issues as they intertwine with this main question.
The Court's Ruling
The petition is partly meritorious. We affirm petitioner's liability for demurrage, but modify the interest
rate thereon.
Main Issue: Liability Under the Bill of Lading
A bill of lading serves two functions. First, it is a receipt for the goods shipped. Second, it is a
contract by which three parties, namely, the shipper, the carrier, and the consignee undertake
specific responsibilities and assume stipulated obligations. 9 A "bill of lading delivered and accepted
constitutes the contract of carriage even though not signed," 10 because the "(a)cceptance of a paper
22
containing the terms of a proposed contract generally constitutes an acceptance of the contract and
of all of its terms and conditions of which the acceptor has actual or constructive notice." 11 In a
nutshell, the acceptance of a bill of lading by the shipper and the consignee, with full knowledge of
its contents, gives rise to the presumption that the same was a perfected and binding contract. 12
In the case at bar, both lower courts held that the bill of lading was a valid and perfected contract
between the shipper (Ho Kee), the consignee (Petitioner Keng Hua), and the carrier (Private
Respondent Sea-Land). Section 17 of the bill of lading provided that the shipper and the consignee
were liable for the payment of demurrage charges for the failure to discharge the containerized
shipment beyond the grace period allowed by tariff rules. Applying said stipulation, both lower courts
found petitioner liable. The aforementioned section of the bill of lading reads:
17. COOPERAGE FINES. The shipper and consignee shall be liable for, indemnify the
carrier and ship and hold them harmless against, and the carrier shall have a lien on the
goods for, all expenses and charges for mending cooperage, baling, repairing or
reconditioning the goods, or the van, trailers or containers, and all expenses incurred in
protecting, caring for or otherwise made for the benefit of the goods, whether the goods be
damaged or not, and for any payment, expense, penalty fine, dues, duty, tax or impost, loss,
damage, detention, demurrage, or liability of whatsoever nature, sustained or incurred by or
levied upon the carrier or the ship in connection with the goods or by reason of the goods
being or having been on board, or because of shipper's failure to procure consular or other
proper permits, certificates or any papers that may be required at any port or place or
shipper's failure to supply information or otherwise to comply with all laws, regulations and
requirements of law in connection with the goods of from any other act or omission of the
shipper or consignee: (Emphasis supplied.)
Petitioner contends, however, that it should not be bound by the bill of lading because it never gave
its consent thereto. Although petitioner admits "physical acceptance" of the bill of lading, it argues
that its subsequent actions belie the finding that it accepted the terms and conditions printed
therein. 13 Petitioner cites as support the "Notice of Refused or On Hand Freight" it received on
November 2, 1982 from private respondent, which acknowledged that petitioner declined to accept
the shipment. Petitioner adds that it sent a copy of the said notice to the shipper on December 23,
1982. Petitioner points to its January 24, 1983 letter to the private respondent, stressing "that its
acceptance of the bill of lading would be tantamount to an act of smuggling as the amount it had
imported (with full documentary support) was only (at that time) for 10,000 kilograms and not for
20,313 kilograms as stated in the bill of lading" and "could lay them vulnerable to legal sanctions for
violation of customs and tariff as well as Central Bank laws." 14 Petitioner further argues that the
demurrage "was a consequence of the shipper's mistake" of shipping more than what was bought.
The discrepancy in the amount of waste paper it actually purchased, as reflected in the invoice vis-
a-vis the excess amount in the bill of lading, allegedly justifies its refusal to accept the shipment. 15
Petitioner Bound by the Bill of Lading
We are not persuaded. Petitioner admits that it "received the bill of lading immediately after the
arrival of the shipment" 16 on July 8, 1982. 17 Having been afforded an opportunity to examine the
said document, petitioner did not immediately object to or dissent from any term or stipulation
therein. It was only six months later, on January 24, 1983, that petitioner sent a letter to private
respondent saying that it could not accept the shipment. Petitioner's inaction for such a long period
conveys the clear inference that it accepted the terms and conditions of the bill of lading. Moreover,
said letter spoke only of petitioner's inability to use the delivery permit, i.e. to pick up the cargo, due
to the shipper's failure to comply with the terms and conditions of the letter of credit, for which
reason the bill of lading and other shipping documents were returned by the "banks" to the
shipper. 18 The letter merely proved petitioner's refusal to pick up the cargo, not its rejection of the
bill of lading.
Petitioner's reliance on the Notice of Refused or On Hand Freight, as proof of its nonacceptance of
the bill of lading, is of no consequence. Said notice was not written by petitioner; it was sent by
private respondent to petitioner in November 1982, or four months after petitioner received the bill of
lading. If the notice has any legal significance at all, it is to highlight petitioner's prolonged failure to
object to the bill of lading. Contrary to petitioner's contention, the notice and the letter support — not
belie — the findings of the two lower courts that the bill of lading was impliedly accepted by
petitioner.
As aptly stated by Respondent Court of Appeals:
In the instant case, (herein petitioner) cannot and did not allege non-receipt of its copy of the
bill of lading from the shipper. Hence, the terms and conditions as well as the various entries
contained therein were brought to its knowledge. (Herein petitioner) accepted the bill of
lading without interposing any objection as to its contents. This raises the presumption that
(herein petitioner) agreed to the entries and stipulations imposed therein.
Moreover, it is puzzling that (herein petitioner) allowed months to pass, six (6) months to be
exact, before notifying (herein private respondent) of the "wrong shipment". It was only on
January 24, 1983 that (herein petitioner) sent (herein private respondent) such a letter of
notification (Exh D for plaintiff, Exh. 4 for defendant; p. 5, Folder of Exhibits). Thus, for the
duration of those six months (herein private respondent never knew the reason for (herein
petitioner's) refusal to discharge the shipment.
After accepting the bill of lading, receiving notices of arrival of the shipment, failing to object
thereto, (herein petitioner) cannot now deny that it is bound by the terms in the bill of lading.
If it did not intend to be bound, (herein petitioner) would not have waited for six months to
lapse before finally bringing the matter to (herein private respondent's attention. The most
logical reaction in such a case would be to immediately verify the matter with the other
parties involved. In this case, however, (herein petitioner) unreasonably detained (herein
private respondent's) vessel to the latter's prejudice. 19
Petitioner's attempt to evade its obligation to receive the shipment on the pretext that this may cause
it to violate customs, tariff and central bank laws must likewise fail. Mere apprehension of violating
said laws, without a clear demonstration that taking delivery of the shipment has become legally
impossible, 20 cannot defeat the petitioner's contractual obligation and liability under the bill of lading.
In any event, the issue of whether petitioner accepted the bill of lading was raised for the first time
only in petitioner's memorandum before this Court. Clearly, we cannot now entertain an issue raised
for the very first time on appeal, in deference to the well-settled doctrine that "(a)n issue raised for
the first time on appeal and not raised timely in the proceedings in the lower court is barred by
estoppel. Questions raised on appeal must be within the issues framed by the parties and,
consequently, issues not raised in the trial court cannot be raised for the first time on appeal." 21
In the case at bar, the prolonged failure of petitioner to receive and discharge the cargo from the
private respondent's vessel constitutes a violation of the terms of the bill of lading. It should thus be
liable for demurrage to the former.
In The Apollon, 22 Justice Story made the following relevant comment on the nature of demurrage:
In truth, demurrage is merely an allowance or compensation for the delay or detention of a
vessel. It is often a matter of contract, but not necessarily so. The very circumstance that in
ordinary commercial voyages, a particular sum is deemed by the parties a fair compensation
for delays, is the very reason why it is, and ought to be, adopted as a measure of
compensation, in cases ex delicto. What fairer rule can be adopted than that which founds
itself upon mercantile usage as to indemnity, and fixes a recompense upon the deliberate
consideration of all the circumstances attending the usual earnings and expenditures in
common voyages? It appears to us that an allowance, by way of demurrage, is the true
measure of damages in all cases of mere detention, for that allowance has reference to the
ship's expenses, wear and tear, and common employment. 23
23
 Amount of Demurrage Charges
Petitioner argues that it is not obligated to pay any demurrage charges because, prior to the filing of
the complaint, private respondent made no demand for the sum of P67,340. Moreover, private
respondent's loss and prevention manager, Loi Gillera, demanded P50,260; but its counsel,
Sofronio Larcia, subsequently asked for a different amount of P37,800.
Petitioner's position is puerile. The amount of demurrage charges in the sum of P67,340 is a factual
conclusion of the trial court that was affirmed by the Court of Appeals and, thus, binding on this
Court. 24 Besides, such factual finding is supported by the extant evidence. 25 The apparent
discrepancy was a result of the variance of the dates when the two demands were made.
Necessarily, the longer the cargo remained unclaimed, the higher the demurrage. Thus, while in his
letter dated April 24, 1983, 26 private respondent's counsel demanded payment of only P37,800, the
additional demurrage incurred petitioner due to its continued refusal to receive delivery of the cargo
ballooned to P67,340 by November 22, 1983. The testimony of Counsel Sofronio Larcia as regards
said letter of April 24, 1983 elucidates, viz:
Q Now, after you sent this letter, do you know what happened?
A Defendant continued to refuse to take delivery of the shipment and the shipment
stayed at the port for a longer period.
Q So, what happened to the shipment?
A The shipment incurred additional demurrage charges which amounted to P67,340.00
as of November 22, 1983 or more than a year after — almost a year after the shipment
arrived at the port.
Q So, what did you do?
A We requested our collection agency to pursue the collection of this amount. 27
Bill of Lading Separate from
Other Letter of Credit Arrangements
In a letter of credit, there are three distinct and independent contracts:
(1) the contract of sale between the buyer and the seller, (2) the contract of the buyer with the
issuing bank, and (3) the letter of credit proper in which the bank promises to pay the seller pursuant
to the terms and conditions stated therein. "Few things are more clearly settled in law than that the
three contracts which make up the letter of credit arrangement are to be maintained in a state of
perpetual separation." 28 A transaction involving the purchase of goods may also require, apart from
a letter of credit, a contract of transportation specially when the seller and the buyer are not in the
same locale or country, and the goods purchased have to be transported to the latter.
Hence, the contract of carriage, as stipulated in the bill of lading in the present case, must be treated
independently of the contract of sale between the seller and the buyer, and the contract for the
issuance of a letter of credit between the buyer and the issuing bank. Any discrepancy between the
amount of the goods described in the commercial invoice in the contract of sale and the amount
allowed in the letter of credit will not affect the validity and enforceability of the contract of carriage
as embodied in the bill of lading. As the bank cannot be expected to look beyond the documents
presented to it by the seller pursuant to the letter of credit, 29 neither can the carrier be expected to
go beyond the representations of the shipper in the bill of lading and to verify their accuracy vis-a-
viz the commercial invoice and the letter of a credit. Thus, the discrepancy between the amount of
goods indicated in the invoice and the amount in the bill of lading cannot negate petitioner's
obligation to private respondent arising from the contract of transportation. Furthermore, private
respondent, as carrier, had no knowledge of the contents of the container. The contract of carriage
was under the arrangement known as "Shipper's Load And Count," and shipper was solely
responsible for the loading of the container while carrier was oblivious to the contents of the
shipment. Petitioner's remedy in case of overshipment lies against the seller/shipper, not against the
carrier.
Payment of Interest
Petitioner posits that it "first knew" of the demurrage claim of P67,340 only when it received, by
summons, private respondent's complaint. Hence, interest may not be allowed to run from the date
of private respondent's extrajudicial demands on March 8, 1983 for P50,260 or on April 24, 1983 for
P37,800, considering that, in both cases, "there was no demand for interest." 30 We agree.
Jurisprudence teaches us:
2. When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the court
at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims
or damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil
Code) but when such certainty cannot be so reasonably established at the time the demand
is made, the interest shall begin to run only from the date the judgment of the court is made
(at which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on
the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above,
shall be 12% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.31
The case before us involves an obligation not arising from a loan or forbearance of money; thus,
pursuant to Article 2209 of the Civil Code, the applicable interest rate is six percent per annum.
Since the bill of lading did not specify the amount of demurrage, and the sum claimed by private
respondent increased as the days went by, the total amount demanded cannot be deemed to have
been established with reasonable certainty until the trial court rendered its judgment. Indeed,
"(u)nliquidated damages or claims, it is said, are those which are not or cannot be known until
definitely ascertained, assessed and determined by the courts after presentation of proof.
" 32 Consequently, the legal interest rate is six percent, to be computed from September 28, 1990,
the date of the trial court's decision. And in accordance with Philippine National Bank 33 and Eastern
Shipping, 34 the rate of twelve percent per annum shall be charged on the total then outstanding,
from the time the judgment becomes final and executory until its satisfaction.
Finally, the Court notes that the matter of attorney's fees was taken up only in the dispositive portion
of the trial court's decision. This falls short of the settled requirement that the text of the decision
should state the reason for the award of attorney's fees, for without such justification, its award
would be a "conclusion without a premise, its basis being improperly left to speculation and
conjecture."35
WHEREFORE, the assailed Decision is hereby AFFIRMED with the MODIFICATION that the legal
interest of six percent per annum shall be computed from September 28, 1990 until its full payment
before finality of judgment. The rate of interest shall be adjusted to twelve percent per annum,
24
computed from the time said judgment became final and executory until full satisfaction. The award
of attorney's fees is DELETED.
SO ORDERED.
G.R. No. 110581 September 21, 1994
TELENGTAN BROTHERS & SONS, INC. (LA SUERTE CIGAR & CIGARETTE), petitioner,
vs.
THE COURT OF APPEALS, KAWASAKI KISHEN KAISHA, LTD. and SMITH, BELL & CO.,
INC., respondents.
MENDOZA, J.:
This is a petition for review of the decision of the Court of Appeals, 1 in CA-G.R. CV No. 09514,
affirming with modification the decision of the Regional Trial Court in a case for specific performance
brought by petitioner.
Private respondent Kawasaki Kishen Kaisha, Ltd. (K-Line) is a foreign shipping company doing
business in the Philippines, its shipping agent being respondent the Smith, Bell & Co., Inc. It is a
member of the Far East Conference, the body which fixes rates by agreement of its member-
shipowners. The conference is registered with the U.S. Federal Maritime Commission. 2
On May 8, 1979, the Van Reekum Paper, Inc. entered into a contract of affreightment with the K-
Line for the shipment of 468 rolls of container board liners from Savannah, Georgia to Manila. The
shipment was consigned to herein petitioner La Suerte Cigar & Cigarette Factory. The contract of
affreightment was embodied in Bill of Lading No. 602 issued by the carrier to the shipper. The
expenses of loading and unloading were for the account of the consignee.
The shipment was packed in 12 container vans and loaded on board the carrier's vessel,
SS Verrazano Bridge. At Tokyo, Japan, the cargo was transhipped on two vessels of the K-Line.
Ten container vans were loaded on the SS Far East Friendship, while two were loaded on the
SS Hangang Glory.
Shortly thereafter, the consignee (herein petitioner) received from the shipper photocopies of the bill
of lading, consular invoice and packing list, as well as notice of the estimated time of arrival of the
cargo.
On June 11, 1979, the SS Far East Friendship arrived at the port of Manila. Aside from the regular
advertisements in the shipping section of the Bulletin Today announcing the arrival of its vessels,
petitioner was notified in writing of the ship's arrival, together with information that container
demurrage at the rate of P4.00 per linear foot per day for the first 5 days and P8.00 per linear foot
per day after the 5th day would be charged unless the consignee took delivery of the cargo within
ten days.
On June 21, 1979, the other vessel SS Hangang Glory, carrying petitioner's two other vans, arrived
and was discharged of its contents the next day. On the same day the shipping agent Smith, Bell &
Co. released the Delivery Permit for twelve (12) containers to the broker upon payment of freight
charges on the bill of lading.
The next day, June 22, 1979, the Island Brokerage Co. presented, in behalf of petitioner, the
shipping documents to the Customs Marine Division of the Bureau of Customs. But the latter
refused to act on them because the manifest of the SS Far East Friendship covered only 10
containers, whereas the bill of lading covered 12 containers.
The broker, therefore, sent back the manifest to the shipping agent with the request that the
manifest be amended. Smith, Bell & Co. refused on the ground that an amendment, as requested,
would violate §1005 of the Tariff and Customs Code relating to unmanifested cargo. Later, however,
it agreed to add a footnote reading "Two container vans carried by the SS Hangang Glory to
complete the shipment of twelve containers under the bill of lading."
On June 29, 1979 the manifest was picked up from the office of respondent shipping agent by an
employee of the IBC and filed with the Bureau of Customs. The manifest was approved for release
on July 3, 1979. IBC wrote Smith, Bell & Co. to make of record that entry of the shipment had been
delayed by the error in the manifest.
On July 11, 1979, when the IBC tried to secure the release of the cargo, it was informed by private
respondents' collection agent, the CBCS Guaranteed Fast Collection Services, that the free time for
removing the containers from the container yard had expired on June 26, 1979, in the case of the
SS Far East Friendship, and on July 9, in the case of the SS Hangang Glory, 3 and that demurrage
charges had begun to run on June 27, 1979 with respect to the 10 containers on the SS Far East
Friendship and on July 10, 1979 with respect to the 2 containers shipped on board the SS Hangang
Glory.
On July 13, 1979, petitioner paid P47,680.00 representing the total demurrage charges on all the
containers, but it was not able to obtain its goods. On July 16, 1979 it was able to obtain the release
of two containers and on
July 17, 1979 of one more container. It was able to obtain only a partial release of the cargo
because of the breakdown of the arrastre's equipment at the container yard.
This matter was reported by IBC in letters of complaint sent to the Philippine Ports Authority. In
addition, on July 16, 1979, petitioner sent a letter dated July 12, 1979 (Exh. I) to Smith, Bell & Co.,
requesting reconsideration of the demurrage charges, on the ground that the delay in claiming the
goods was due to the alleged late arrival of the shipping documents, the delay caused by the
amendment of the manifest, and the fact that two of the containers arrived separately from the other
ten containers.
On July 19, 1979, petitioner paid additional charges in the amount of P20,160.00 for the period July
14-19, 1979 to secure the release of its cargo, but still petitioner was unable to get any cargo from
the remaining nine container vans. It was only the next day, July 20, 1979, that it was able to have
two more containers released from the container yard, bringing to five the total number of containers
whose contents had been delivered to it.
Subsequently, petitioner refused to pay any more demurrage charges on the ground that there was
agreement for their payment in the bill of lading and that the delay in the release of the cargo was
not due to its fault but to the breakdown of the equipment at the container yard. In all, petitioner had
paid demurrage charges from June 27 to July 19, 1979, in the total amount of P67,840.00,
computed as follows:
A. Container demurrage paid on July 13, 1979
1. Far East Friendship (Exh. H-1) June 27 — July 13 (17 days)
1st 5 days @ P4/day/foot
5 days x P40 ft. x 10 ctrns. P 8,000.00
Next 12 days @ P8/day/foot
12 days x P8 x 40 ft. x 10 ctrns. P 38,400.00
—————
P 46,400.00
25
 over the world and that it was in conformity with Republic Act No. 1407, otherwise known as the
2. Hangang Glory (Exh. H) July 10 — July 13 (4 days) Philippine Overseas Shipping Act of 1955.
1st 4 days:
4 days x P4 x 40 ft. x 2 ctnrs. P 1,280.00
Thereafter, a writ was issued after petitioner had posted a bond of P50,000.00 and the container
—————
vans were released to the petitioner. On March 19, 1986, however, the RTC dismissed petitioner's
TOTAL PAID ON JULY 13 P 47,680.00
complaint. It cited the bill of lading which provided:
(Exh. H-2)
B. Container demurrage paid on July 19, 1979 23. The ocean carrier shall have a lien on the goods, which shall survive delivery, for
1. Far East Friendship all freight, dead freight, demurrage, damages, loss, charges, expenses and any other
a. on 2 containers released July 16 sums whatsoever payable or chargeable to or for the account of the Merchant under
3 days x P8 x 40 ft. x 2 ctnrs. P 1,920.00 this bill of lading . . . .

(Exh. L-2)
It likewise invoked clause 29 of the bill of lading which provided:
b. on 1 container released July 17
4 days x P8 x 40 ft. x 7 cntrs. P 1,280.00
29. . . .The terms of the ocean carrier's applicable tariff, including tariffs covering
(Exh. L-3) intermodal transportation on file with the Federal Maritime Commission and the
c. remaining 7 containers as of July 19 Interstate Commission or any other regulatory body which governs a portion of the
6 days x P8 x 40 ft. x 7 cntrs. P 13,440.00 carriage of goods, are incorporated herein.

(Exh. L-1)
2. Hangang Glory Rule 21 of the Far East Conference Tariff No. 28-FMC No. 12 Rules and Regulations, referred to
a. 5th day (July 14) above, provides:
1 day x P4.00 x 40 ft. x 2 cntrs. P 320.00
b. July 15-19: (D) Free Time, Demurrage, and Equipment Detention at Ports in the Philippines.
5 days x P8.00 x 40 ft. x 2 cntrs. P 3,200.00
(Exh. L)
————— Note: Philippine Customs Law prescribes all cargo discharged from vessels to be given into
TOTAL P 20,160.00 custody of the Government Arrastre Contractor, appointed by Philippine Customs who
undertakes delivery to the consignee.
(Exh. L-4)
————— xxx xxx xxx
OVERALL TOTAL P 67,840.00
=========
Demurrage charges on Containers with CY Cargo.

On July 20, 1979 petitioner wrote private respondent for a refund of the demurrage charges, but
private respondent replied on July 25, 1979 that, as member of the Far East Conference, it could not 1. Free time will commence at 8:00 a.m. on the first working calendar day following
modify the rules or authorize refunds of the stipulated tariffs. completion of discharge of the vessel. It shall expire at 12:00 p.m. (midnight) on the tenth
working calendar day, excluding Saturdays, Sundays and holidays.

Petitioner, therefore, filed this suit in the RTC for specific performance to compel private respondent
carrier, through it s shipping agent, the Smith, Bell & Co., to release 7 container vans consigned to it
free of charge and for a refund of P67,840.00 which it had paid, plus attorney's fees and other
expenses of litigation. Petitioner also asked for the issuance of a writ of preliminary injunction to
restrain private respondents from charging additional demurrage.
In their amended answer, private respondents claimed that collection of container charges was
authorized by §§ 2, 23 and 29 of the bill of lading and that they were not free to waive these charges
because under the United States Shipping Act of 1916 it was unlawful for any common carrier
engaged in transportation involving the foreign commerce of the United States to charge or collect a
greater or lesser compensation that the rates and charges specified in its tariffs on file with the
Federal Maritime Commission.
Work stoppage at a terminal due to labor dispute or other force majeure as defined by the
conference preventing delivery of cargo or containers shall be excluded from the calculation
of the free time for the period of the work stoppage.
2. Demurrage charges are incurred before the container leaves the carrier's designated CY,
and shall be applicable on the container commencing the next working calendar day
following expiration of the allowable free time until the consignee has taken delivery of the
container or has fully striped the container of its contents in the carrier's designated CY.
Demurrage charges shall be assessed hereunder:

Private respondents alleged that petitioner knew that the contract of carriage was subject to the Far
East Conference rules and that the publication of the notice of reimposition of container demurrage
charges published in the shipping section of the Bulletin Today and Businessday newspapers from
February 19 — February 25, 1979 was binding upon petitioner. They contended further that the
collection of container demurrage was an international practice which is widely accepted in ports all
Ordinary containers — P4.00 per linear foot of the container per day for the first five
days; P8.00 per linear foot of the container per day, thereafter.
The RTC held that the bill of lading was the contract between the parties and, therefore, petitioner
was liable for demurrage charges. It rejected petitioner's claim of force majeure. It held:

26
 This Court cannot also accord faith and credit on the plaintiff's claim that the delay in the
delivery of the containers was caused by the breaking down of the equipment of the arrastre
operator. Such claim was not supported with competent evidence. Let us assume the fact
that the arrastre operator's equipment broke down still plaintiff has to pay the corresponding
demurrage charges. The possibility that the equipment would break down was not only
foreseeable, but actually, foreseen, and was not caso fortuito. 4
The RTC, therefore, ordered:
WHEREFORE, finding the preponderance of evidence in favor of the defendants and
against the plaintiff, judgment is hereby rendered dismissing the complaint with costs
against it. Plaintiff is hereby ordered to pay defendants the sum of P36,480.00 representing
demurrage charges for the detention of the seven (7) forty-footer container vans from July
20 to August 7, 1979, with legal interest commencing on August 7, 1979 until fully paid. And
plaintiff has to pay the sum of P10,000.00, by way of attorney's fees.
SO ORDERED.
On appeal, the case was affirmed with modification by the Court of Appeals as follows:
WHEREFORE, modified as indicated above deleting the award of attorney's fees, the
decision appealed from is hereby AFFIRMED in all other respects.
Costs against plaintiff-appellant.
SO ORDERED. 5
Hence, this petition for review in which it is contended:
1 that no demurrage lies in the absence of any showing that the vessels had been
improperly detained or that loss or damage had been incurred as a consequence of
improper detention;
2 that respondent Court's finding that private respondent Smith Bell had promptly and on
the same day amended the defective manifest is contrary to the evidence of record.
3 that respondent Court manifestly over-looked undisputed evidence presented by
petitioner showing that the breakdown in the facilities and equipment of the arrastre
operator further delayed petitioner's withdrawal of the cargo. 6
Petitioner prays for a reversal of the decision of the Court of Appeals and the refund to it of the
demurrage charges paid by it, with interest, as well as to pay attorney's fees and expenses of
litigation.
Our decision will be presently explained, but in brief it is this: petitioner is liable for demurrage for
delay in removing its cargo from the containers but only for the period July 3 to 13, 1979 with
respect to ten containers and from July 10 to July 13, 1979, in respect of two other containers.
First. With respect to petitioner's liability for demurrage, petitioner's contention is that the bill of
lading does not provide for the payment of container demurrage, as Clause 23 of the bill of lading
only says "demurrage," i.e., damages for the detention of vessels, and here there is no detention of
vessels. Petitioner invokes the ruling in Magellan Manufacturing Marketing Corp. v. Court of
Appeals  7, where we defined "demurrage" as follows:
Demurrage, in its strict sense, is the compensation provided for in the contract of
affreightment for the detention of the vessel beyond the time agreed on for loading and
unloading. Essentially, demurrage is the claim for damages for failure to accept delivery. In
a broad sense, every improper detention of a vessel may be considered a demurrage.
Liability for demurrage, using the word in its strictly technical sense, exists only when
expressly stipulated in the contract. Using the term in [its broader sense, damages in the]
nature of demurrage are recoverable for a breach of the implied obligation to load or unload
the cargo with reasonable dispatch, but only by the party to whom the duty is owed and only
against one who is a party to the shipping contract.
Whatever may be the merit of petitioner's contention as to the meaning of the word "demurrage" in
clause 23 of the bill of lading, the fact is that clause 29(a) also of the bill of lading, in relation to Rule
21 of the Far East Conference Tariff No. 28-FMC No. 12, as quoted above, specifically provides for
the payment by the consignee of demurrage for the detention of containers and other equipment
after the so-called "free time."
Now a bill of lading is both a receipt and a contract. As a contract, its terms and conditions are
conclusive on the parties, including the consignee. What we said in one case mutatis
mutandis applies to this case:
A bill of lading operates both as a receipt and a contract . . . As a contract, it names the
contracting parties which include the consignee, fixes the route, destination, freight rate or
charges, and stipulates the right and obligations assumed by the parties . . . . By receiving
the bill of lading, Davao Parts and Services, Inc. assented to the terms of the consignment
contained therein, and became bound thereby, so far as the conditions named are
reasonable in the eyes of the law. Since neither appellant nor appellee alleges that any
provision therein is contrary to law, morals, good customs, public policy or public order —
and indeed we found none — the validity of the Bill of Lading must be sustained and the
provisions therein properly applies to resolve the conflict between the parties. 8
As the Court of Appeals pointed out in its appealed decision, the enforcement of the rules of the Far
East Conference and the Federal Maritime Commission is in accordance with Republic Act No.
1407, §1 of which declares that the Philippines, in common with other maritime nations, recognizes
the international character of shipping in foreign trade and existing international practices in maritime
transportation and that it is part of the national policy to cooperate with other friendly nations in the
maintenance and improvement of such practices.
Petitioner's argument that it is not bound by the bill of lading issued by K-Line because it is a
contract of adhesion, whose terms as set forth at the back are in small prints and are hardly
readable, is without merit. As we held in Servando v. Philippine Steam Navigation:  9
While it may be true that petitioner had not signed the plane ticket (Exh. 12), he is
nevertheless bound by the provisions thereof. "Such provisions have been held to be a part
of the contract of carriage, and valid and binding upon the passenger regardless of the
latter's lack of knowledge or assent to the regulation". It is what is known as a contract of
"adhesion," in regards to which it has been said that contracts of adhesion wherein one
party imposes a ready made form of contract on the other, as the plane ticket in the case at
bar, are contracts not entirely prohibited. The one who adheres to the contract is in reality
free to reject it entirely; if he adheres, he gives his consent. (Tolentino, Civil Code, Vol. IV,
1962 Ed., p. 462, citing Mr. Justice JBL Reyes, Lawyer's Journal, Jan. 31, 1951, p. 49).
Second. With respect to the period of petitioner's liability, private respondent's position is that the
"free time" expired on June 26, 1979 and demurrage began to toll on June 27, 1979, with respect to
10 containers which were unloaded from the SS Far East Friendship, while with respect to the 2
containers which were unloaded from the SS Hangang Glory, the free time expired on July 9, 1979
and demurrage began to run on July 10, 1979.
27
This contention is without merit. Petitioner cannot be held liable for demurrage starting June 27, 6 days x P8 x 40 ft. x 10 cntrs. P 19,200 P 27,200
1979 on the 10 containers which arrived on the SS Far East Friendship because the delay in
obtaining release of the goods was not due to its fault. The evidence shows that because the
————
manifest issued by the respondent K-Line, through the Smith, Bell & Co., stated only 10 containers,
whereas the bill of lading also issued by the K-Line showed there were 12 containers, the Bureau of
Customs refused to give an entry permit to petitioner. For this reason, petitioner's broker, the IBC, B. 2 containers ex Hangang Glory (July 10-13, 1979)
had to see the respondent's agent (Smith, Bell & Co.) on June 22, 1979 but the latter did not
immediately do something to correct the manifest. Smith, Bell & Co. was asked to "amend" the
1st 4 days @ P4.00/day/foot
manifest, but it refused to do so on the ground that this would violate the law. It was only on June
29, 1979 that it thought of adding instead a footnote to indicate that two other container vans — to
account for a total of 12 container vans consigned to petitioner — had been loaded on the other 4 days x P4 x 40 ft. x 10 cntrs. P 1,280
vessel
SS Hangang Glory.
————

It is not true that the necessary correction was made on June 22, 1979, the same day the manifest
was presented to Smith, Bell & Co. There is nothing in the testimonies of witnesses of either party to TOTAL DEMURRAGE DUE P 28,480
support the appellate court's finding that the footnote, explaining the apparent discrepancy between
the bill of lading and the manifest, was added on June 22, 1979 but that petitioner's representative =======
did not return to pick up the manifesst until June 29, 1979. To the contrary, it is more probable to
believe the petitioner's claim that the manifest was corrected only on June 29, 1979 (by which time
the "free time" had already expired), because Smith, Bell & Co. did not immediately know what to do LESS: TOTAL PAID (P 67,840)
as it insisted it could not amend the manifest and only thought of adding a footnote on June 29,
1979 upon the suggestion of the IBC. OVERPAYMENT (P 39,360)

Now June 29, 1979 was a Friday. Again it is probable the correct manifest was presented to the
Bureau of Customs only on Monday, July 2, 1979 and, therefore, it was only on July 3 that it was
approved. It was, therefore, only from this date (July 3, 1979) that petitioner could have claimed its
cargo and charged for any delay in removing its cargo from the containers. With respect to the other
two containers which arrived on the SS Hangang Glory, demurrage was properly considered to have
accrued on July 10, 1979 since the "free time" expired on July 9.
As shown above there is an overpayment of P39,360.00 which should be refunded to
petitioner.
WHEREFORE, the decision appealed from is SET ASIDE and another one is RENDERED,
ORDERING the private respondents to pay to petitioner the sum of P39,360.00 by way of
refund, with legal interest.

The period of delay, however, for all the 12 containers must be deemed to have stopped on July 13,
1979, because on this date petitioner paid P47,680.00. If it was not able to get its cargo from the SO ORDERED.
container vans, it was because of the breakdown of the shifter or cranes. This breakdown cannot be
blamed on petitioners since these were cranes of the arrastre service operator. It would be unjust to
charge demurrage after July 13, 1979 since the delay in emptying the containers was not due to the
fault of the petitioner.

Indeed, there is no reason why petitioner should not get its cargo after paying all demurrage charges
due on July 13, 1979. If it paid P20,180.00 more in demurrage charges after July 13, 1979 it was
only because respondents would not release the goods. Even then petitioner was able to obtain the
release of cargo from five container vans. Its trucks were unable to load anymore cargo and
returned to petitioner's premises empty.

In sum, we hold that petitioner can be held liable for demurrage only for the period July 3-13, 1979
and that in accordance with the stipulation in its bill of lading, it is liable for demurrage only in the
amount of P28,480.00 computed as follows;

A. 10 containers ex Far East Friendship (July 3-13, 1979)

1. 1st 5 days @ P4.00/day/foot

5 days x P4 x 40 ft. x 10 ctnrs. P 8,000

2. Next 6 days @ P8.00/day/foot

28
G.R. No. 94761 May 17, 1993
MAERSK LINE, petitioner,
vs.
COURT OF APPEALS AND EFREN V. CASTILLO, doing business under the name and style of
Ethegal Laboratories, respondents.
BIDIN, J.:
Petitioner Maersk Line is engaged in the transportation of goods by sea, doing business in the
Philippines through its general agent Compania General de Tabacos de Filipinas.
Private respondent Efren Castillo, on the other hand, is the proprietor of Ethegal Laboratories, a firm
engaged in the manutacture of pharmaceutical products.
On November 12, 1976, private respondent ordered from Eli Lilly. Inc. of Puerto Rico through its (Eli
Lilly, Inc.'s) agent in the Philippines, Elanco Products, 600,000 empty gelatin capsules for the
manufacture of his pharmaceutical products. The capsules were placed in six (6) drums of 100,000
capsules each valued at US $1,668.71.
Through a Memorandum of Shipment (Exh. "B"; AC GR CV No.10340, Folder of Exhibits, pp. 5-6),
the shipper Eli Lilly, Inc. of Puerto Rico advised private respondent as consignee that the 600,000
empty gelatin capsules in six (6) drums of 100,000 capsules each, were already shipped on board
MV "Anders Maerskline" under Voyage No. 7703 for shipment to the Philippines via Oakland,
California. In said Memorandum, shipper Eli Lilly, Inc. specified the date of arrival to be April 3,
1977.
For reasons unknown, said cargo of capsules were mishipped and diverted to Richmond, Virginia,
USA and then transported back Oakland, Califorilia. The goods finally arrived in the Philippines on
June 10, 1977 or after two (2) months from the date specified in the memorandum. As a
consequence, private respondent as consignee refused to take delivery of the goods on account of
its failure to arrive on time.
Private respondent alleging gross negligence and undue delay in the delivery of the goods, filed an
action before the court a quo for rescission of contract with damages against petitioner and Eli Lilly,
Inc. as defendants.
Denying that it committed breach of contract, petitioner alleged in its that answer that the subject
shipment was transported in accordance with the provisions of the covering bill of lading and that its
liability under the law on transportation of good attaches only in case of loss, destruction or
deterioration of the goods as provided for in Article 1734 of Civil Code (Rollo, p. 16).
Defendant Eli Lilly, Inc., on the other hand, filed its answer with compulsory and cross-claim. In its
cross-claim, it alleged that the delay in the arrival of the the subject merchandise was due solely to
the gross negligence of petitioner Maersk Line.
The issues having been joined, private respondent moved for the dismissal of the complaint against
Eli Lilly, Inc.on the ground that the evidence on record shows that the delay in the delivery of the
shipment was attributable solely to petitioner.
Acting on private respondent's motion, the trial court dismissed the complaint against Eli Lilly, Inc.
Correspondingly, the latter withdraw its cross-claim against petitioner in a joint motion dated
December 3, 1979.
After trial held between respondent and petitioner, the court a quo rendered judgment dated January
8, 1982 in favor of respondent Castillo, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, this Court believe (sic) and so hold (sic) that there was a
breach in the performance of their obligation by the defendant Maersk Line consisting of
their negligence to ship the 6 drums of empty Gelatin Capsules which under their own
memorandum shipment would arrive in the Philippines on April 3, 1977 which under Art.
1170 of the New Civil Code, they stood liable for damages.
Considering that the only evidence presented by the defendant Maersk line thru its agent
the Compania de Tabacos de Filipinas is the testimony of Rolando Ramirez who testified on
Exhs. "1" to "5" which this Court believe (sic) did not change the findings of this Court in its
decision rendered on September 4, 1980, this Court hereby renders judgment in favor of the
plaintiff Efren Castillo as against the defendant Maersk Line thru its agent, the COMPANIA
GENERAL DE TABACOS DE FILIPINAS and ordering:
(a) Defendant to pay the plaintiff Efren V. Castillo the amount of THREE HUNDRED SIXTY
NINE THOUSAND PESOS, (P369,000.00) as unrealized profit;.
(b) Defendant to pay plaintiff the sum of TWO HUNDRED THOUSAND PESOS
(P200,000.00), as moral damages;
(c) Defendant to pay plaintiff the sum of TEN THOUSAND PESOS (P10,000.00) as
exemplary damages;
(d) Defendant to pay plaintiff the sum of ELEVEN THOUSAND SIX HUNDRED EIGHTY
PESOS AND NINETY SEVEN CENTAVOS (P11,680.97) as cost of credit line; and
(e) Defendant to pay plaintiff the sum of FIFTY THOUSAND PESOS (P50,000.00), as
attorney's fees and to pay the costs of suit.
That the above sums due to the plaintiff will bear the legal rate of interest until they are fully
paid from the time the case was filed.
SO ORDERED. (AC-GR CV No. 10340, Rollo, p. 15).
On appeal, respondent court rendered its decision dated August 1, 1990 affirming with modifications
the lower court's decision as follows:
WHEREFORE, the decision appealed from is affirmed with a modification, and, as modified,
the judgment in this case should read as follows:
Judgment is hereby rendered ordering defendant-appellant Maersk Line to pay plaintiff-
appellee (1) compensatory damages of P11,680.97 at 6% annual interest from filing of the
complaint until fully paid, (2) moral damages of P50,000.00, (3) exemplary damages of
P20,000,00, (3) attorney's fees, per appearance fees, and litigation expenses of P30,000.00,
(4) 30% of the total damages awarded except item (3) above, and the costs of suit.
SO ORDERED. (Rollo, p. 50)
In its Memorandum, petitioner submits the following "issues" for resolution of the court :
I
29
 Whether or not the respondent Court of Appeals committed an error when it ruled that a
defendant's cross-claim against a co-defendant survives or subsists even after the dismissal
of the complaint against defendant-cross claimant.
II
Whether or not respondent Castillo is entitled to damages resulting from delay in the
delivery of the shipment in the absence in the bill of lading of a stipulation on the period of
delivery.
III
Whether or not the respondent appellate court erred in awarding actual, moral and
exemplary damages and attorney's fees despite the absence of factual findings and/or legal
bases in the text of the decision as support for such awards.
IV
Whether or not the respondent Court of Appeals committed an error when it rendered an
ambiguous and unexplained award in the dispositive portion of the decision which is not
supported by the body or the text of the decision. (Rollo, pp.94-95).
With regard to the first issue raised by petitioner on whether or not a defendant's cross-claim against
co-defendant (petitioner herein) survives or subsists even after the dismissal of the complaint
against defendant-cross-claimant (petitioner herein), we rule in the negative.
Apparently this issue was raised by reason of the declaration made by respondent court in its
questioned decision, as follows:
Re the first assigned error: What should be rescinded in this case is not the "Memorandum
of Shipment" but the contract between appellee and defendant Eli Lilly (embodied in three
documents, namely: Exhs. A, A-1 and A-2) whereby the former agreed to buy and the latter
to sell those six drums of gelatin capsules. It is by virtue of the cross-claim by appellant Eli
Lilly against defendant Maersk Line for the latter's gross negligence in diverting the
shipment thus causing the delay and damage to appellee that the trial court found appellant
Maersk Line liable. . . .
xxx xxx xxx
Re the fourth assigned error: Appellant Maersk Line's insistence that appellee has no cause
of action against it and appellant Eli Lilly because the shipment was delivered in good order
and condition, and the bill of lading in question contains "stipulations, exceptions and
conditions" Maersk Line's liability only to the "loss, destruction or deterioration," indeed, this
issue of lack of cause of action has already been considered in our foregoing discussion on
the second assigned error, and our resolution here is still that appellee has a cause of
action against appellant Eli Lilly. Since the latter had filed a cross-claim against appellant
Maersk Line, the trial court committed no error, therefore, in holding the latter appellant
ultimately liable to appellee. (Rollo, pp. 47-50; Emphasis supplied)
Reacting to the foregoing declaration, petitioner submits that its liability is predicated on the cross-
claim filed its co-defendant Eli Lilly, Inc. which cross-claim has been dismissed, the original
complaint against it should likewise be dismissed. We disagree. It should be recalled that the
complaint was filed originally against Eli Lilly, Inc. as shipper-supplier and petitioner as carrier.
Petitioner being an original party defendant upon whom the delayed shipment is imputed cannot
claim that the dismissal of the complaint against Eli Lilly, Inc. inured to its benefit.
Respondent court, erred in declaring that the trial court based petitioner's liability on the cross-claim
of Eli Lilly, Inc. As borne out by the record, the trial court anchored its decision on petitioner's delay
or negligence to deliver the six (6) drums of gelatin capsules within a reasonable time on the basis
of which petitioner was held liable for damages under Article 1170 of the New Civil Code which
provides that those who in the performance of their obligations are guilty of fraud, negligence, or
delay and those who in any manner contravene the tenor thereof, are liable for damages.
Nonetheless, petitioner maintains that it cannot be held for damages for the alleged delay in the
delivery of the 600,000 empty gelatin capsules since it acted in good faith and there was no special
contract under which the carrier undertook to deliver the shipment on or before a specific date
(Rollo, p. 103).
On the other hand, private respondent claims that during the period before the specified date of
arrival of the goods, he had made several commitments and contract of adhesion. Therefore,
petitioner can be held liable for the damages suffered by private respondent for the cancellation of
the contracts he entered into.
We have carefully reviewed the decisions of respondent court and the trial court and both of them
show that, in finding petitioner liable for damages for the delay in the delivery of goods, reliance was
made on the rule that contracts of adhesion are void. Added to this, the lower court stated that the
exemption against liability for delay is against public policy and is thus, void. Besides, private
respondent's action is anchored on Article 1170 of the New Civil Code and not under the law on
Admiralty (AC-GR CV No. 10340, Rollo, p. 14).
The bill of lading covering the subject shipment among others, reads:
6. GENERAL
(1) The Carrier does not undertake that the goods shall arive at the port of discharge or the
place of delivery at any particular time or to meet any particular market or use and save as
is provided in clause 4 the Carrier shall in no circumstances be liable for any direct, indirect
or consequential loss or damage caused by delay. If the Carrier should nevertheless be held
legally liable for any such direct or indirect or consequential loss or damage caused by
delay, such liability shall in no event exceed the freight paid for the transport covered by this
Bill of Lading. (Exh. "1-A"; AC-G.R. CV No. 10340, Folder of Exhibits, p. 41)
It is not disputed that the aforequoted provision at the back of the bill of lading, in fine print, is a
contract of adhesion. Generally, contracts of adhesion are considered void since almost all the
provisions of these types of contracts are prepared and drafted only by one party, usually the carrier
(Sweet Lines v. Teves, 83 SCRA 361 [1978]). The only participation left of the other party in such a
contract is the affixing of his signature thereto, hence the term "Adhesion" (BPI Credit Corporation v.
Court of Appeals, 204 SCRA 601 [1991]; Angeles v. Calasanz, 135 SCRA 323 [1985]).
Nonetheless, settled is the rule that bills of lading are contracts not entirely prohibited (Ong Yiu v.
Court of Appeals, et al., 91 SCRA 223 [1979]; Servando, et al. v. Philippine Steam Navigation Co.,
117 SCRA 832 [1982]). One who adheres to the contract is in reality free to reject it in its entirety; if
he adheres, he gives his consent (Magellan Manufacturing Marketing Corporation v. Court of
Appeals, et al., 201 SCRA 102 [1991]).
30
In Magellan, (supra), we ruled:
It is a long standing jurisprudential rule that a bill of lading operates both as a receipt and as
contract to transport and deliver the same a therein stipulated. As a contract, it names the
parties, which includes the consignee, fixes the route, destination, and freight rates or
charges, and stipulates the rights and obligations assumed by the parties. Being a contract,
it is the law between the parties who are bound by its terms and conditions provided that
these are not contrary to law, morals, good customs, public order and public policy. A bill of
lading usually becomes effective upon its delivery to and acceptance by the shipper. It is
presumed that the stipulations of the bill were, in the absence of fraud, concealment or
improper conduct, known to the shipper, and he is generally bound by his acceptance
whether he reads the bill or not. (Emphasis supplied)
However, the aforequoted ruling applies only if such contracts will not create an absurd situation as
in the case at bar. The questioned provision in the subject bill of lading has the effect of practically
leaving the date of arrival of the subject shipment on the sole determination and will of the carrier.
While it is true that common carriers are not obligated by law to carry and to deliver merchandise,
and persons are not vested with the right to prompt delivery, unless such common carriers
previously assume the obligation to deliver at a given date or time (Mendoza v. Philippine Air Lines,
Inc., 90 Phil. 836 [1952]), delivery of shipment or cargo should at least be made within a reasonable
time.
In Saludo, Jr. v. Court of Appeals (207 SCRA 498 [1992]) this Court held:
The oft-repeated rule regarding a carrier's liability for delay is that in the absence of a
special contract, a carrier is not an insurer against delay in transportation of goods. When a
common carrier undertakes to convey goods, the law implies a contract that they shall be
delivered at destination within a reasonable time, in the absence, of any agreement as to
the time of delivery. But where a carrier has made an express contract to transport and
deliver properly within a specified time, it is bound to fulfill its contract and is liable for any
delay, no matter from what cause it may have arisen. This result logically follows from the
well-settled rule that where the law creates a duty or charge, and the default in himself, and
has no remedy over, then his own contract creates a duty or charge upon himself, he is
bound to make it good notwithstanding any accident or delay by inevitable necessity
because he might have provided against it by contract. Whether or not there has been such
an undertaking on the part of the carrier is to be determined from the circumstances
surrounding the case and by application of the ordinary rules for the interpretation of
contracts.
An examination of the subject bill of lading (Exh. "1"; AC GR CV No. 10340, Folder of Exhibits, p.
41) shows that the subject shipment was estimated to arrive in Manila on April 3, 1977. While there
was no special contract entered into by the parties indicating the date of arrival of the subject
shipment, petitioner nevertheless, was very well aware of the specific date when the goods were
expected to arrive as indicated in the bill of lading itself. In this regard, there arises no need to
execute another contract for the purpose as it would be a mere superfluity.
Petition maintains that the award of actual, moral and exemplary dames and attorney's fees are not
valid since there are no factual findings or legal bases stated in the text of the trial court's decision to
support the award thereof.
Indeed, it is settled that actual and compensataory damages requires substantial proof (Capco v.
Macasaet. 189 SCRA 561 [1990]). In the case at bar, private respondent was able to sufficiently
prove through an invoice (Exh. 'A-1'), certification from the issuer of the letter of credit (Exh.'A-2')
and the Memorandum of Shipment (Exh. "B"), the amount he paid as costs of the credit line for the
subject goods. Therefore, respondent court acted correctly in affirming the award of eleven
thousand six hundred eighty pesos and ninety seven centavos (P11,680.97) as costs of said credit
line.
As to the propriety of the award of moral damages, Article 2220 of the Civil Code provides that moral
damages may be awarded in "breaches of contract where the defendant acted fraudulently or in bad
faith" (Pan American World Airways v. Intermediate Appellate Court, 186 SCRA 687 [1990]).
In the case before us, we that the only evidence presented by petitioner was the testimony of Mr.
Rolando Ramirez, a claims manager of its agent Compania General de Tabacos de Filipinas, who
merely testified on Exhs. '1' to '5' (AC-GR CV No. 10340, p. 2) and nothing else. Petitioner never
even bothered to explain the course for the delay, i.e. more than two (2) months, in the delivery of
subject shipment. Under the circumstances of the case, we hold that petitioner is liable for breach of
contract of carriage through gross negligence amounting to bad faith. Thus, the award of moral
damages if therefore proper in this case.
In line with this pronouncement, we hold that exemplary damages may be awarded to the private
respondent. In contracts, exemplary damages may be awarded if the defendant acted in a wanton,
fraudulent, reckless, oppresive or malevolent manner. There was gross negligence on the part of the
petitioner in mishiping the subject goods destined for Manila but was inexplicably shipped to
Richmond, Virginia, U.S.A. Gross carelessness or negligence contitutes wanton misconduct, hence,
exemplary damages may be awarded to the aggrieved party (Radio Communication of the Phils.,
Inc. v. Court of Appeals, 195 SCRA 147 [1991]).
Although attorney's fees are generally not recoverable, a party can be held lible for such if
exemplary damages are awarded (Artice 2208, New Civil Code). In the case at bar, we hold that
private respondent is entitled to reasonable attorney`s fees since petitioner acte with gross
negligence amounting to bad faith.
However, we find item 4 in the dispositive portion of respondent court`s decision which awarded
thirty (30) percent of the total damages awarded except item 3 regarding attorney`s fees and
litigation expenses in favor of private respondent, to be unconsionable, the same should be deleted.
WHEREFORE, with the modification regarding the deletion of item 4 of respondent court`s decision,
the appealed decision is is hereby AFFIRMED in all respects.
SO ORDERED.

In the case before us, we find that a delay in the delivery of the goods spanning a period of two (2)
months and seven (7) days falls was beyond the realm of reasonableness. Described as gelatin
capsules for use in pharmaceutical products, subject shipment was delivered to, and left in, the
possession and custody of petitioner-carrier for transport to Manila via Oakland, California. But
through petitioner's negligence was mishipped to Richmond, Virginia. Petitioner's insitence that it
cannot be held liable for the delay finds no merit.

31
G.R. No. 95529               August 22, 1991
MAGELLAN MANUFACTURING MARKETING CORPORATION,* petitioner,
vs.
COURT OF APPEALS, ORIENT OVERSEAS CONTAINER LINES and F.E. ZUELLIG,
INC. respondents.
REGALADO, J.:
Petitioner, via this petition for review on certiorari, seeks the reversal of the judgment of respondent
Court of Appeals in CA-G.R. CV No. 18781,1 affirming in part the decision of the trial court,2 the
dispositive portion of which reads:
Premises considered, the decision appealed from is affirmed insofar as it dismisses the
complaint. On the counter-claim, however, appellant is ordered to pay appellees the
amount of P52,102.45 with legal interest from date of extra-judicial demand. The award of
attorney's fees is deleted.3
The facts as found by respondent appellate court are as follows:
On May 20, 1980, plaintiff-appellant Magellan Manufacturers Marketing Corp. (MMMC)
entered into a contract with Choju Co. of Yokohama, Japan to export 136,000 anahaw
fans for and in consideration of $23,220.00. As payment thereof, a letter of credit was
issued to plaintiff MMMC by the buyer. Through its president, James Cu, MMMC then
contracted F.E. Zuellig, a shipping agent, through its solicitor, one Mr. King, to ship the
anahaw fans through the other appellee, Orient Overseas Container Lines, Inc., (OOCL)
specifying that he needed an on-board bill of lading and that transhipment is not allowed
under the letter of credit (Exh. B-1). On June 30, 1980, appellant MMMC paid F.E. Zuellig
the freight charges and secured a copy of the bill of lading which was presented to Allied
Bank. The bank then credited the amount of US$23,220.00 covered by the letter of credit
to appellant's account. However, when appellant's president James Cu, went back to the
bank later, he was informed that the payment was refused by the buyer allegedly because
there was no on-board bill of lading, and there was a transhipment of goods. As a result of
the refusal of the buyer to accept, upon appellant's request, the anahaw fans were
shipped back to Manila by appellees, for which the latter demanded from appellant
payment of P246,043.43. Appellant abandoned the whole cargo and asked appellees for
damages.
In their Partial Stipulation of Facts, the parties admitted that a shipment of 1,047 cartons
of 136,000 pieces of Anahaw Fans contained in 1 x 40 and 1 x 20 containers was loaded
at Manila on board the MV 'Pacific Despatcher' freight prepaid, and duly covered by Bill of
Lading No. MNYK201T dated June 27, 1980 issued by OOCL; that the shipment was
delivered at the port of discharge on July 19, 1980, but was subsequently returned to
Manila after the consignee refused to accept/pay the same.4
Elaborating on the above findings of fact of respondent court and without being disputed by herein
private respondents, petitioner additionally avers that:
When petitioner informed private respondents about what happened, the latter issued a
certificate stating that its bill of lading it issued is an on board bill of lading and that there
was no actual transhipment of the fans. According to private respondents when the goods
are transferred from one vessel to another which both belong to the same owner which
was what happened to the Anahaw fans, then there is (no) transhipment. Petitioner sent
this certification to Choju Co., Ltd., but the said company still refused to accept the goods
which arrived in Japan on July 19, 1980.
Private respondents billed petitioner in the amount of P16,342.21 for such shipment and
P34,928.71 for demurrage in Japan from July 26 up to August 31, 1980 or a total of
P51,271.02. In a letter dated March 20, 1981, private respondents gave petitioner the
option of paying the sum of P51,271.02 or to abandon the Anahaw fans to enable private
respondents to sell them at public auction to cover the cost of shipment and demurrages.
Petitioner opted to abandon the goods. However, in a letter dated June 22, 1981 private
respondents demanded for payment of P298,150.93 from petitioner which represents the
freight charges from Japan to Manila, demurrage incurred in Japan and Manila from
October 22, 1980 up to May 20, 1981; and charges for stripping the container van of the
Anahaw fans on May 20, 1981.
On July 20, 1981 petitioner filed the complaint in this case praying that private
respondents be ordered to pay whatever petitioner was not able to earn from Choju Co.,
Ltd., amounting to P174,150.00 and other damages like attorney's fees since private
respondents are to blame for the refusal of Choju Co., Ltd. to accept the Anahaw fans. In
answer thereto the private respondents alleged that the bill of lading clearly shows that
there will be a transhipment and that petitioner was well aware that MV (Pacific)
Despatcher was only up to Hongkong where the subject cargo will be transferred to
another vessel for Japan. Private respondents also filed a counterclaim praying that
petitioner be ordered to pay freight charges from Japan to Manila and the demurrages in
Japan and Manila amounting to P298,150.93.
The lower court decided the case in favor of private respondents. It dismissed the
complaint on the ground that petitioner had given its consent to the contents of the bill of
lading where it is clearly indicated that there will be transhipment. The lower court also
said that petitioner is liable to pay to private respondent the freight charges from Japan to
Manila and demurrages since it was the former which ordered the reshipment of the cargo
from Japan to Manila.
On appeal to the respondent court, the finding of the lower (court) that petitioner agreed to
a transhipment of the goods was affirmed but the finding that petitioner is liable for
P298,150.93 was modified. It was reduced to P52,102.45 which represents the freight
charges and demurrages incurred in Japan but not for the demurrages incurred in Marta.
According to the respondent (court) the petitioner can not be held liable for the
demurrages incurred in Manila because Private respondents did not timely inform
petitioner that the goods were already in Manila in addition to the fact that private
respondent had given petitioner the option of abandoning the goods in exchange for the
demurrages.5
Petitioner, being dissatisfied with the decision of respondent court and the motion for
reconsideration thereof having been denied, invokes the Court's review powers for the resolution of
the issues as to whether or not respondent court erred (1) in affirming the decision of the trial court
which dismissed petitioner's complaint; and (2) in holding petitioner liable to private respondents in
the amount of P52,102.45.6
I. Petitioner obstinately faults private respondents for the refusal of its buyer, Choju Co., Ltd., to take
delivery of the exported anahaw fans resulting in a loss of P174,150.00 representing the purchase
price of the said export items because of violation of the terms and conditions of the letter of credit
issued in favor of the former which specified the requirement for an on board bill of lading and the
prohibition against transhipment of goods, inasmuch as the bill of lading issued by the latter bore the
notation "received for shipment" and contained an entry indicating transhipment in Hongkong.
We find no fault on the part of private respondents. On the matter of transhipment, petitioner
maintains that "... while the goods were transferred in Hongkong from MV Pacific Despatcher, the
feeder vessel, to MV Oriental Researcher, a mother vessel, the same cannot be considered
transhipment because both vessels belong to the same shipping company, the private respondent
Orient Overseas Container Lines, Inc."7 Petitioner emphatically goes on to say: "To be sure, there
was no actual transhipment of the Anahaw fans. The private respondents have executed a
32
certification to the effect that while the Anahaw fans were transferred from one vessel to another in
Hong Kong, since the two vessels belong to one and the same company then there was no
transhipment.8
Transhipment, in maritime law, is defined as "the act of taking cargo out of one ship and loading it in
another,"9 or "the transfer of goods from the vessel stipulated in the contract of affreightment to
another vessel before the place of destination named in the contract has been reached," 10 or "the
transfer for further transportation from one ship or conveyance to another." 11 Clearly, either in its
ordinary or its strictly legal acceptation, there is transhipment whether or not the same person, firm
or entity owns the vessels. In other words, the fact of transhipment is not dependent upon the
ownership of the transporting ships or conveyances or in the change of carriers, as the petitioner
seems to suggest, but rather on the fact of actual physical transfer of cargo from one vessel to
another.
That there was transhipment within this contemplation is the inescapable conclusion, as there
unmistakably appears on the face of the bill of lading the entry "Hong Kong" in the blank space
labeled "Transhipment," which can only mean that transhipment actually took place. 12 This fact is
further bolstered by the certification13 issued by private respondent F.E. Zuellig, Inc. dated July 19,
1980, although it carefully used the term "transfer" instead of transhipment. Nonetheless, no amount
of semantic juggling can mask the fact that transhipment in truth occurred in this case.
Petitioner insists that "(c)onsidering that there was no actual transhipment of the Anahaw fans, then
there is no occasion under which the petitioner can agree to the transhipment of the Anahaw fans
because there is nothing like that to agree to" and "(i)f there is no actual transhipment but there
appears to be a transhipment in the bill of lading, then there can be no possible reason for it but a
mistake on the part of the private respondents. 14
Petitioner, in effect, is saying that since there was a mistake in documentation on the part of private
respondents, such a mistake militates against the conclusiveness of the bill of lading insofar as it
reflects the terms of the contract between the parties, as an exception to the parol evidence rule,
and would therefore permit it to explain or present evidence to vary or contradict the terms of the
written agreement, that is, the bill of lading involved herein.
It is a long standing jurisprudential rule that a bill of lading operates both as a receipt and as a
contract. It is a receipt for the goods shipped and a contract to transport and deliver the same as
therein stipulated. As a contract, it names the parties, which includes the consignee, fixes the route,
destination, and freight rates or charges, and stipulates the rights and obligations assumed by the
parties.15 Being a contract, it is the law between the parties who are bound by its terms and
conditions provided that these are not contrary to law, morals, good customs, public order and public
policy.16 A bill of lading usually becomes effective upon its delivery to and acceptance by the
shipper. It is presumed that the stipulations of the bill were, in the absence of fraud, concealment or
improper conduct, known to the shipper, and he is generally bound by his acceptance whether he
reads the bill or not.17
The holding in most jurisdictions has been that a shipper who receives a bill of lading without
objection after an opportunity to inspect it, and permits the carrier to act on it by proceeding with the
shipment is presumed to have accepted it as correctly stating the contract and to have assented to
its terms. In other words, the acceptance of the bill without dissent raises the presumption that all
the terms therein were brought to the knowledge of the shipper and agreed to by him and, in the
absence of fraud or mistake, he is estopped from thereafter denying that he assented to such terms.
This rule applies with particular force where a shipper accepts a bill of lading with full knowledge of
its contents and acceptance under such circumstances makes it a binding contract.18
In the light of the series of events that transpired in the case at bar, there can be no logical
conclusion other than that the petitioner had full knowledge of, and actually consented to, the terms
and conditions of the bill of lading thereby making the same conclusive as to it, and it cannot now be
heard to deny having assented thereto. As borne out by the records, James Cu himself, in his
capacity as president of MMMC, personally received and signed the bill of lading. On practical
considerations, there is no better way to signify consent than by voluntarry signing the document
which embodies the agreement. As found by the Court of Appeals —
Contrary to appellant's allegation that it did not agree to the transhipment, it could be
gleaned from the record that the appellant actually consented to the transhipment when it
received the bill of lading personally at appellee's (F.E. Zuellig's) office. There clearly
appears on the face of the bill of lading under column "PORT OF TRANSHIPMENT" an
entry "HONGKONG' (Exhibits'G-l'). Despite said entries he still delivered his voucher (Exh.
F) and the corresponding check in payment of the freight (Exhibit D), implying that he
consented to the transhipment (Decision, p. 6, Rollo).19
Furthermore and particularly on the matter of whether or not there was transhipment, James Cu, in
his testimony on crossexamination, categorically stated that he knew for a fact that the shipment
was to be unloaded in Hong Kong from the MV Pacific Despatcher to be transferred to a mother
vessel, the MV Oriental Researcher in this wise:
Q Mr. Cu, are you not aware of the fact that your shipment is to be transferred or
transhipped at the port of Hongkong?
A I know. It's not transport, they relay, not trans... yes, that is why we have an agreement
if they should not put a transhipment in Hongkong, that's why they even stated in the
certification.
x x x           x x x          x x x
Q In layman's language, would you agree with me that transhipment is the transfer of a
cargo from one vessel to the other?
A As a layman, yes.
Q So, you know for a fact that your shipment is going to be unloaded in Hongkong from
M. V. Dispatcher (sic) and then transfer (sic) to another vessel which was the Oriental
Dispatcher, (sic) you know that for a fact?
A Yes, sir. (Emphasis supplied.)20
Under the parol evidence rule,21 the terms of a contract are rendered conclusive upon the parties,
and evidence aliunde is not admissible to vary or contradict a complete and enforceable agreement
embodied in a document, subject to well defined exceptions which do not obtain in this case. The
parol evidence rule is based on the consideration that when the parties have reduced their
agreement on a particular matter into writing, all their previous and contemporaneous agreements
on the matter are merged therein. Accordingly, evidence of a prior or contemporaneous verbal
agreement is generally not admissible to vary, contradict or defeat the operation of a valid
instrument.22 The mistake contemplated as an exception to the parol evidence rule is one which is a
mistake of fact mutual to the parties. 23 Furthermore, the rules on evidence, as amended, require that
in order that parol evidence may be admitted, said mistake must be put in issue by the pleadings,
such that if not raised inceptively in the complaint or in the answer, as the case may be, a party can
not later on be permitted to introduce parol evidence thereon. 24 Needless to say, the mistake
adverted to by herein petitioner, and by its own admission, was supposedly committed by private
respondents only and was raised by the former rather belatedly only in this instant petition. Clearly
then, and for failure to comply even only with the procedural requirements thereon, we cannot admit
evidence to prove or explain the alleged mistake in documentation imputed to private respondents
by petitioner.
33
Petitioner further argues that assuming that there was transhipment, it cannot be deemed to have A Yes, sir.
agreed thereto even if it signed the bill of lading containing such entry because it had made known
to private respondents from the start that transhipment was prohibited under the letter of credit and
Q What did you say?
that, therefore, it had no intention to allow transhipment of the subject cargo. In support of its stand,
petitioner relies on the second paragraph of Article 1370 of the Civil Code which states that "(i)f the
words appear to be contrary to the evident intention of the parties, the latter shall prevail over the A I requested to issue me on board bill of lading.
former," as wen as the supposed ruling in Caltex Phil., Inc. vs. Intermediate Appellate Court, et
al.25 that "where the literal interpretation of a contract is contrary to the evident intention of the
Q When?
parties, the latter shall prevail."

A In the same date of June 30.

As between such stilted thesis of petitioner and the contents of the bill of lading evidencing the
intention of the parties, it is irremissible that the latter must prevail. Petitioner conveniently overlooks
the first paragraph of the very article that he cites which provides that "(i)f the terms of the contract Q What did they say?
are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of the
stipulations shall control." In addition, Article 1371 of the same Code provides that "(i)n order to
judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be A They said, they cannot.
principally considered."
x x x           x x x          x x x
The terms of the contract as embodied in the bill of lading are clear and thus obviates the need for
any interpretation. The intention of the parties which is the carriage of the cargo under the terms Q Do you know the difference between a "received for shipment bill of lading" and "on
specified thereunder and the wordings of the bill of lading do not contradict each other. The terms of board bill of lading"?
the contract being conclusive upon the parties and judging from the contemporaneous and
subsequent actuations of petitioner, to wit, personally receiving and signing the bill of lading and
paying the freight charges, there is no doubt that petitioner must necessarily be charged with full A Yes, sir.
knowledge and unqualified acceptance of the terms of the bill of lading and that it intended to be
bound thereby. Q What's the difference?

Moreover, it is a well-known commercial usage that transhipment of freight without legal excuse, A Received for shipment, you can receive the cargo even you don't ship on board, that is
however competent and safe the vessel into which the transfer is made, is a violation of the contract placed in the warehouse; while on-board bill of lading means that is loaded on the vessel,
and an infringement of the right of the shipper, and subjects the carrier to liability if the freight is lost the goods.
even by a cause otherwise excepted.26 It is highly improbable to suppose that private respondents,
having been engaged in the shipping business for so long, would be unaware of such a custom of
the trade as to have undertaken such transhipment without petitioner's consent and unnecessarily x x x           x x x          x x x
expose themselves to a possible liability. Verily, they could only have undertaken transhipment with
the shipper's permission, as evidenced by the signature of James Cu. Q In other words, it was not yet on board the vessel?

Another ground for the refusal of acceptance of the cargo of anahaw fans by Choju Co., Ltd. was A During that time, not yet.
that the bill of lading that was issued was not an on board bill of lading, in clear violation of the terms
of the letter of credit issued in favor of petitioner. On cross-examination, it was likewise established
that petitioner, through its aforesaid president, was aware of this fact, thus: x x x           x x x          x x x

Q If the container van, the loaded container van, was transported back to South Harbor on Q Do you know, Mr. Cu, that under the law, if your shipment is received on board a vessel
June 27, 1980, would you tell us, Mr. Cu, when the Bill of Lading was received by you? you can demand an on-board bill of lading not only a received for shipment bill of lading.?

A I received on June 30, 1980. I received at the same time so then I gave the check. A Yes sir.

x x x           x x x          x x x Q And did you demand from F.E. Zuellig the substitution of that received for shipment bill
of lading with an on-board bill of lading?

Q So that in exchange of the Bill of Lading you issued your check also dated June 30,
1980? A Of course, instead they issue me a certification.

A Yes, sir. Q They give you a ... ?

Q And June 27, 1980 was the date of the Bill of Lading, did you notice that the Bill of A ... a certification that it was loaded on board on June 30.
Lading states: 'Received for shipment'only? .

34
 x x x           x x x          x x x
Q Mr. Cu, are you aware of the conditions of the Letter of Credit to the effect that there
should be no transhipment and that it should also get an on board bill of lading.?
A Yes sir.27
Undoubtedly, at the outset, petitioner knew that its buyer, Choju Co., Ltd., particularly required that
there be an on board bill of lading, obviously due to the guaranty afforded by such a bill of lading
over any other kind of bill of lading. The buyer could not have insisted on such a stipulation on a
pure whim or caprice, but rather because of its reliance on the safeguards to the cargo that having
an on board bill of lading ensured. Herein petitioner cannot feign ignorance of the distinction
between an "on board" and a "received for shipment" bill of lading, as manifested by James Cu's
testimony. It is only to be expected that those long engaged in the export industry should be familiar
with business usages and customs.
In its petition, MMMC avers that "when petitioner teamed of what happened, it saw private
respondent F.E. Zuellig which, in turn, issued a certification that as of June 30, 1980, the Anahaw
fans were already on board MV Pacific Despatcher (which means that the bill of lading is an on-
board-bill of lading or 'shipped' bill of lading as distinguished from a 'received for shipment'bill of
lading as governed by Sec. 3, par. 7, Carriage of Goods by Sea Act) ...."28 What the petitioner would
suggest is that said certification issued by F.E. Zuellig, Inc., dated July 19, 1980, had the effect of
converting the original "received for shipment only" bill of lading into an "on board" bill of lading as
required by the buyer and was, therefore, by substantial compliance, not violative of the contract.
An on board bill of lading is one in which it is stated that the goods have been received on board the
vessel which is to carry the goods, whereas a received for shipment bill of lading is one in which it is
stated that the goods have been received for shipment with or without specifying the vessel by
which the goods are to be shipped. Received for shipment bills of lading are issued whenever
conditions are not normal and there is insufficiency of shipping space.29 An on board bill of lading is
issued when the goods have been actually placed aboard the ship with every reasonable
expectation that the shipment is as good as on its way.30 It is, therefore, understandable that a party
to a maritime contract would require an on board bill of lading because of its apparent guaranty of
certainty of shipping as well as the seaworthiness of the vessel which is to carry the goods.
It cannot plausibly be said that the aforestated certification of F.E. Zuellig, Inc. can qualify the bill of
lading, as originally issued, into an on board bill of lading as required by the terms of the letter of
credit issued in favor of petitioner. For one, the certification was issued only on July 19, 1980, way
beyond the expiry date of June 30, 1980 specified in the letter of credit for the presentation of an on
board bill of lading. Thus, even assuming that by a liberal treatment of the certification it could have
the effect of converting the received for shipment bill of lading into an on board of bill of lading, as
petitioner would have us believe, such an effect may be achieved only as of the date of its issuance,
that is, on July 19, 1980 and onwards.
The fact remains, though, that on the crucial date of June 30, 1980 no on board bill of lading was
presented by petitioner in compliance with the terms of the letter of credit and this default
consequently negates its entitlement to the proceeds thereof. Said certification, if allowed to operate
retroactively, would render illusory the guaranty afforded by an on board bill of lading, that is,
reasonable certainty of shipping the loaded cargo aboard the vessel specified, not to mention that it
would indubitably be stretching the concept of substantial compliance too far.
Neither can petitioner escape hability by adverting to the bill of lading as a contract of adhesion, thus
warranting a more liberal consideration in its favor to the extent of interpreting ambiguities against
private respondents as allegedly being the parties who gave rise thereto. The bill of lading is clear
on its face. There is no occasion to speak of ambiguities or obscurities whatsoever. All of its terms
and conditions are plainly worded and commonly understood by those in the business.
It will be recalled that petitioner entered into the contract with Choju Co., Ltd. way back on May
20,1980 or over a month before the expiry date of the letter of credit on June 30, 1980, thus giving it
more than ample time to find a carrier that could comply with the requirements of shipment under
the letter of credit. It is conceded that bills of lading constitute a class of contracts of adhesion.
However, as ruled in the earlier case of Ong Yiu vs. Court of Appeals, et al.31 and reiterated
in Servando, et al. vs. Philippine Steam Navigation Co.,32 plane tickets as well as bills of lading are
contracts not entirely prohibited. The one who adheres to the contract is in reality free to reject it
entirely; if he adheres, he gives his consent. The respondent court correctly observed in the present
case that "when the appellant received the bill of lading, it was tantamount to appellant's adherence
to the terms and conditions as embodied therein. 33
In sum, petitioner had full knowledge that the bill issued to it contained terms and conditions clearly
violative of the requirements of the letter of credit. Nonetheless, perhaps in its eagerness to
conclude the transaction with its Japanese buyer and in a race to beat the expiry date of the letter of
credit, petitioner took the risk of accepting the bill of lading even if it did not conform with the
indicated specifications, possibly entertaining a glimmer of hope and imbued with a touch of daring
that such violations may be overlooked, if not disregarded, so long as the cargo is delivered on time.
Unfortunately, the risk did not pull through as hoped for. Any violation of the terms and conditions of
the letter of credit as would defeat its right to collect the proceeds thereof was, therefore, entirely of
the petitioner's making for which it must bear the consequences. As finally averred by private
respondents, and with which we agree, "... the questions of whether or not there was a violation of
the terms and conditions of the letter of credit, or whether or not such violation was the cause or
motive for the rejection by petitioner's Japanese buyer should not affect private respondents therein
since they were not privies to the terms and conditions of petitioner's letter of credit and cannot
therefore be held liable for any violation thereof by any of the parties thereto." 34
II. Petitioner contends that respondent court erred in holding it liable to private respondents for
P52,102.45 despite its exercise of its option to abandon the cargo. It will be recalled that the trial
court originally found petitioner liable for P298,150.93, which amount consists of P51,271.02 for
freight, demurrage and other charges during the time that the goods were in Japan and for its
reshipment to Manila, P831.43 for charges paid to the Manila International Port Terminal, and
P246,043.43 for demurrage in Manila from October 22, 1980 to June 18, 1981. On appeal, the Court
of Appeals limited petitioner's liability to P52,102.45 when it ruled:
As regards the amount of P51,271.02, which represents the freight charges for the return
shipment to Manila and the demurrage charges in Japan, the same is supported by
appellant's own letter request (Exh. 2) for the return of the shipment to Manila at its
(appellant's) expense, and hence, it should be held liable therefor. The amount of P831.43
was paid to the Manila International Port Terminal upon arrival of the shipment in Manila
for appellant's account. It should properly be charged to said appellant. 35
However, respondent court modified the trial court's decision by excluding the award for
P246,043.43 for demurrage in Manila from October 22, 1980 to June 18, 1981.
Demurrage, in its strict sense, is the compensation provided for in the contract of affreightment for
the detention of the vessel beyond the time agreed on for loading and unloading. Essentially,
demurrage is the claim for damages for failure to accept delivery. In a broad sense, every improper
detention of a vessel may be considered a demurrage. Liability for demurrage, using the word in its
strictly technical sense, exists only when expressly stipulated in the contract. Using the term in its
broader sense, damages in the nature of demurrage are recoverable for a breach of the implied
obligation to load or unload the cargo with reasonable dispatch, but only by the party to whom the
duty is owed and only against one who is a party to the shipping contract. 36 Notice of arrival of
vessels or conveyances, or of their placement for purposes of unloading is often a condition
precedent to the right to collect demurrage charges.
Private respondents, admittedly, have adopted the common practice of requiring prior notice of
arrival of the goods shipped before the shipper can be held liable for demurrage, as declared by
35
Wilfredo Hans, head of the accounting department of F.E. Zuellig, Inc., on cross-examination as a
witness for private respondents:
Q ... you will agree with me that before one could be charged with demurrage the shipper
should be notified of the arrival of the shipment?
A Yes sir.
Q Without such notification, there is no way by which the shipper would know (of) such
arrival?
A Yes.
Q And no charges of demurrage before the arrival of the cargo?
A Yes sir.37
Accordingly, on this score, respondent court ruled:
However, insofar as the demurrage charges of P246,043.43 from October up to May
1980, arriv(al) in Manila, are concerned, We are of the view that appellant should not be
made to shoulder the same, as it was not at fault nor was it responsible for said
demurrage charges. Appellee's own witness (Mabazza) testified that while the goods
arrived in Manila in October 1980, appellant was notified of said arrival only in March
1981. No explanation was given for the delay in notifying appellant. We agree with
appellant that before it could be charged for demurrage charges it should have been
notified of the arrival of the goods first.1âwphi1 Without such notification it could not- be
so charged because there was no way by which it would know that the goods had already
arrived for it to take custody of them. Considering that it was only in March 1981 (Exh. K)
that appellant was notified of the arrival of the goods, although the goods had actually
arrived in October 1980 (tsn, Aug. 14, 1986, pp. 10-14), appellant cannot be charged for
demurrage from October 1980 to March 1981. ...38
While being satisfied with the exclusion of demurrage charges in Manila for the period from October
22,1980 to June 18,1981, petitioner nevertheless assails the Court of Appeals' award of P52,102.43
in favor of private respondents, consisting of P51,271.01 as freight and demurrage charges in Japan
and P831.43 for charges paid at the Manila International Port Termninal.
Petitioner asserts that by virtue of the exercise of its option to abandon the goods so as to allow
private respondents to sell the same at a public auction and to apply the proceeds thereof as
payment for the shipping and demurrage charges, it was released from liability for the sum of
P52,102.43 since such amount represents the shipping and demurrage charges from which it is
considered to have been released due to the abandonment of goods. It further argues that the
shipping and demurrage charges from which it was released by the exercise of the option to
abandon the goods in favor of private respondents could not have referred to the demurrage
charges in Manila because respondent court ruled that the same were not chargeable to petitioner.
Private respondents would rebut this contention by saying in their memorandum that the
abandonment of goods by petitioner was too late and made in bad faith. 39
On this point, we agree with petitioner. Ordinarily, the shipper is liable for freightage due to the fact
that the shipment was made for its benefit or under its direction and, correspondingly, the carrier is
entitled to collect charges for its shipping services. This is particularly true in this case where the
reshipment of the goods was made at the instance of petitioner in its letter of August 29, 1980. 40
However, in a letter dated March 20, 1981, 41 private respondents belatedly informed petitioner of the
arrival of its goods from Japan and that if it wished to take delivery of the cargo it would have to pay
P51,271.02, but with the last paragraph thereof stating as follows:
Please can you advise within 15 days of receipt of this letter whether you intend to take
delivery of this shipment, as alternatively we will have to take legal proceedings in order to
have the cargo auctioned to recover the costs involved, as well as free the container
which are (sic) urgently required for export cargoes.
Clearly, therefore, private respondents unequivocally offered petitioner the option of paying the
shipping and demurrage charges in order to take delivery of the goods or of abandoning the same
so that private respondents could sell them at public auction and thereafter apply the proceeds in
payment of the shipping and other charges.
Responding thereto, in a letter dated April 3, 1981, petitioner seasonably communicated its decision
to abandon to the goods in favor of private respondents with the specific instruction that any excess
of the proceeds over the legal costs and charges be turned over to petitioner. Receipt of said letter
was acknowledged by private respondents, as revealed by the testimony of Edwin Mabazza, a claim
officer of F.E. Zuellig, Inc., on cross-examination. 42
Despite petitioner's exercise of the option to abandon the cargo, however, private respondents sent
a demand letter on June 22, 198143 insisting that petitioner should pay the entire amount of
P298,150.93 and, in another letter dated Apiril 30, 1981, 44 they stated that they win not accept the
abandonment of the goods and demanded that the outstanding account be settled. The testimony of
said Edwin Mabazza definitely admits and bears this out. 45
Now, there is no dispute that private respondents expressly and on their own volition granted
petitioner an option with respect to the satisfaction of freightage and demurrage charges. Having
given such option, especially since it was accepted by petitioner, private respondents are estopped
from reneging thereon. Petitioner, on its part, was well within its right to exercise said option. Private
respondents, in giving the option, and petitioner, in exercising that option, are concluded by their
respective actions. To allow either of them to unilaterally back out on the offer and on the exercise of
the option would be to countenance abuse of rights as an order of the day, doing violence to the
long entrenched principle of mutuality of contracts.
It will be remembered that in overland transportation, an unreasonable delay in the delivery of
transported goods is sufficient ground for the abandonment of goods. By analogy, this can also
apply to maritime transportation. Further, with much more reason can petitioner in the instant case
properly abandon the goods, not only because of the unreasonable delay in its delivery but because
of the option which was categorically granted to and exercised by it as a means of settling its liability
for the cost and expenses of reshipment. And, said choice having been duly communicated, the
same is binding upon the parties on legal and equitable considerations of estoppel.
WHEREFORE, the judgment of respondent Court of Appeals is AFFIRMED with the
MODIFICATION that petitioner is likewise absolved of any hability and the award of P52,102.45 with
legal interest granted by respondent court on private respondents' counterclaim is SET ASIDE, said
counterclaim being hereby DISMISSED, without pronouncement as to costs.
SO ORDERED.
36
G.R. No. 122494 October 8, 1998
EVERETT STEAMSHIP CORPORATION, petitioner,
vs.
COURT OF APPEALS and HERNANDEZ TRADING CO. INC., respondents.
MARTINEZ, J.:
Petitioner Everett Steamship Corporation, through this petition for review, seeks the reversal of the
decision1 of the Court of Appeals, dated June 14, 1995, in CA-G.R. No. 428093, which affirmed the
decision of the Regional Trial Court of Kalookan City, Branch 126, in Civil Case No. C-15532, finding
petitioner liable to private respondent Hernandez Trading Co., Inc. for the value of the lost cargo.
Private respondent imported three crates of bus spare parts marked as MARCO C/No. 12, MARCO
C/No. 13 and MARCO C/No. 14, from its supplier, Maruman Trading Company, Ltd. (Maruman
Trading), a foreign corporation based in Inazawa, Aichi, Japan. The crates were shipped from
Nagoya, Japan to Manila on board "ADELFAEVERETTE," a vessel owned by petitioner's principal,
Everett Orient Lines. The said crates were covered by Bill of Lading No. NGO53MN.
Upon arrival at the port of Manila, it was discovered that the crate marked MARCO C/No. 14 was
missing. This was confirmed and admitted by petitioner in its letter of January 13, 1992 addressed to
private respondent, which thereafter made a formal claim upon petitioner for the value of the lost
cargo amounting to One Million Five Hundred Fifty Two Thousand Five Hundred (Y1,552,500.00)
Yen, the amount shown in an Invoice No. MTM-941, dated November 14, 1991. However, petitioner
offered to pay only One Hundred Thousand (Y100,000.00) Yen, the maximum amount stipulated
under Clause 18 of the covering bill of lading which limits the liability of petitioner.
Private respondent rejected the offer and thereafter instituted a suit for collection docketed as Civil
Case No. C-15532, against petitioner before the Regional Trial Court of Caloocan City, Branch 126.
At the pre-trial conference, both parties manifested that they have no testimonial evidence to offer
and agreed instead to file their respective memoranda.
On July 16, 1993, the trial court rendered judgment 2 in favor of private respondent, ordering
petitioner to pay: (a) Y1,552,500.00; (b) Y20,000.00 or its peso equivalent representing the actual
value of the lost cargo and the material and packaging cost; (c) 10% of the total amount as an award
for and as contingent attorney's fees; and (d) to pay the cost of the suit. The trial court ruled:
Considering defendant's categorical admission of loss and its failure to overcome the
presumption of negligence and fault, the Court conclusively finds defendant liable to the
plaintiff. The next point of inquiry the Court wants to resolve is the extent of the liability of the
defendant. As stated earlier, plaintiff contends that defendant should be held liable for the
whole value for the loss of the goods in the amount of Y1,552,500.00 because the terms
appearing at the back of the bill of lading was so written in fine prints and that the same was
not signed by plaintiff or shipper thus, they are not bound by clause stated in paragraph 18
of the bill of lading. On the other hand, defendant merely admitted that it lost the shipment
but shall be liable only up to the amount of Y100,000.00.
The Court subscribes to the provisions of Article 1750 of the New Civil Code —
Art. 1750. "A contract fixing the sum that may be recovered by the owner or shipper
for the loss, destruction or deterioration of the goods is valid, if it is reasonable and
just under the circumstances, and has been fairly and freely agreed upon."
It is required, however, that the contract must be reasonable and just under the
circumstances and has been fairly and freely agreed upon. The requirements
provided in Art. 1750 of the New Civil Code must be complied with before a
common carrier can claim a limitation of its pecuniary liability in case of loss,
destruction or deterioration of the goods it has undertaken to transport.
In the case at bar, the Court is of the view that the requirements of said article have not
been met. The fact that those conditions are printed at the back of the bill of lading in letters
so small that they are hard to read would not warrant the presumption that the plaintiff or its
supplier was aware of these conditions such that he had "fairly and freely agreed" to these
conditions. It can not be said that the plaintiff had actually entered into a contract with the
defendant, embodying the conditions as printed at the back of the bill of lading that was
issued by the defendant to plaintiff.
On appeal, the Court of Appeals deleted the award of attorney's fees but affirmed the trial court's
findings with the additional observation that private respondent can not be bound by the terms and
conditions of the bill of lading because it was not privy to the contract of carriage. It said:
As to the amount of liability, no evidence appears on record to show that the appellee
(Hernandez Trading Co.) consented to the terms of the Bill of Lading. The shipper named in
the Bill of Lading is Maruman Trading Co., Ltd. whom the appellant (Everett Steamship
Corp.) contracted with for the transportation of the lost goods.
Even assuming arguendo that the shipper Maruman Trading Co., Ltd. accepted the terms of
the bill of lading when it delivered the cargo to the appellant, still it does not necessarily
follow that appellee Hernandez Trading, Company as consignee is bound thereby
considering that the latter was never privy to the shipping contract.
x x x           x x x          x x x
Never having entered into a contract with the appellant, appellee should therefore not be
bound by any of the terms and conditions in the bill of lading.
Hence, it follows that the appellee may recover the full value of the shipment lost, the basis
of which is not the breach of contract as appellee was never a privy to the any contract with
the appellant, but is based on Article 1735 of the New Civil Code, there being no evidence to
prove satisfactorily that the appellant has overcome the presumption of negligence provided
for in the law.
Petitioner now comes to us arguing that the Court of Appeals erred (1) in ruling that the consent of
the consignee to the terms and conditions of the bill of lading is necessary to make such stipulations
binding upon it; (2) in holding that the carrier's limited package liability as stipulated in the bill of
lading does not apply in the instant case; and (3) in allowing private respondent to fully recover the
full alleged value of its lost cargo.
We shall first resolve the validity of the limited liability clause in the bill of lading.
A stipulation in the bill of lading limiting the common carrier's liability for loss or destruction of a
cargo to a certain sum, unless the shipper or owner declares a greater value, is sanctioned by law,
particularly Articles 1749 and 1750 of the Civil Code which provide:
Art. 1749. A stipulation that the common carrier's liability is limited to the value of the
goods appearing in the bill of lading, unless the shipper or owner declares a greater
value, is binding.
37
 Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper for
the loss, destruction, or deterioration of the goods is valid, if it is reasonable and just
under the circumstances, and has been freely and fairly agreed upon.
Such limited-liability clause has also been consistently upheld by this Court in a number of
cases.3 Thus, in Sea Land Service, Inc. vs. Intermediate Appellate Court 4, we ruled:
It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea Act did not
exist, the validity and binding effect of the liability limitation clause in the bill of lading here
are nevertheless fully sustainable on the basis alone of the cited Civil Code Provisions. That
said stipulation is just and reasonable is arguable from the fact that it echoes Art. 1750 itself
in providing a limit to liability only if a greater value is not declared for the shipment in the bill
of lading. To hold otherwise would amount to questioning the justness and fairness of the
law itself, and this the private respondent does not pretend to do. But over and above that
consideration, the just and reasonable character of such stipulation is implicit in it giving the
shipper or owner the option of avoiding accrual of liability limitation by the simple and surely
far from onerous expedient of declaring the nature and value of the shipment in the bill of
lading.
Pursuant to the afore-quoted provisions of law, it is required that the stipulation limiting the common
carrier's liability for loss must be "reasonable and just under the circumstances, and has been freely
and fairly agreed upon."
The bill of lading subject of the present controversy specifically provides, among others:
18. All claims for which the carrier may be liable shall be adjusted and settled on the basis of
the shipper's net invoice cost plus freight and insurance premiums, if paid, and in no event
shall the carrier be liable for any loss of possible profits or any consequential loss.
The carrier shall not be liable for any loss of or any damage to or in any connection with,
goods in an amount exceeding One Hundred thousand Yen in Japanese Currency
(Y100,000.00) or its equivalent in any other currency per package or customary freight unit
(whichever is least) unless the value of the goods higher than this amount is declared in
writing by the shipper before receipt of the goods by the carrier and inserted in the Bill of
Lading and extra freight is paid as required. (Emphasis supplied)
The above stipulations are, to our mind, reasonable and just. In the bill of lading, the carrier made it
clear that its liability would only be up to One Hundred Thousand (Y100,000.00) Yen. However, the
shipper, Maruman Trading, had the option to declare a higher valuation if the value of its cargo was
higher than the limited liability of the carrier. Considering that the shipper did not declare a higher
valuation, it had itself to blame for not complying with the stipulations.
The trial court's ratiocination that private respondent could not have "fairly and freely" agreed to the
limited liability clause in the bill of lading because the said conditions were printed in small letters
does not make the bill of lading invalid.
We ruled in PAL, Inc. vs. Court of Appeals5 that the "jurisprudence on the matter reveals the
consistent holding of the court that contracts of adhesion are not invalid per se and that it has on
numerous occasions upheld the binding effect thereof." Also, in Philippine American General
Insurance Co., Inc. vs. Sweet Lines, Inc.  6 this Court, speaking through the learned Justice Florenz
D. Regalado, held:
. . . Ong Yiu vs. Court of Appeals, et. al., instructs us that "contracts of adhesion wherein
one party imposes a ready-made form of contract on the other . . . are contracts not entirely
prohibited. The one who adheres to the contract is in reality free to reject it entirely; if the
adheres he gives his consent." In the present case, not even an allegation of ignorance of a
party excuses non-compliance with the contractual stipulations since the responsibility for
ensuring full comprehension of the provisions of a contract of carriage devolves not on the
carrier but on the owner, shipper, or consignee as the case may be. (Emphasis supplied)
It was further explained in Ong Yiu vs. Court of Appeals 7 that stipulations in contracts of adhesion
are valid and binding.
While it may be true that petitioner had not signed the plane
ticket . . ., he is nevertheless bound by the provisions thereof. "Such provisions have been
held to be a part of the contract of carriage, and valid and binding upon the passenger
regardless of the latter's lack of knowledge or assent to the regulation." It is what is known
as a contract of "adhesion," in regards which it has been said that contracts of adhesion
wherein one party imposes a ready-made form of contract on the other, as the plane ticket
in the case at bar, are contracts not entirely prohibited. The one who adheres to the contract
is in reality free to reject it entirely; if he adheres, he gives his consent. . . ., a contract
limiting liability upon an agreed valuation does not offend against the policy of the law
forbidding one from contracting against his own negligence. (Emphasis supplied)
Greater vigilance, however, is required of the courts when dealing with contracts of adhesion in that
the said contracts must be carefully scrutinized "in order to shield the unwary (or weaker party) from
deceptive schemes contained in ready-made covenants," 8 such as the bill of lading in question. The
stringent requirement which the courts are enjoined to observe is in recognition of Article 24 of the
Civil Code which mandates that "(i)n all contractual, property or other relations, when one of the
parties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental
weakness, tender age or other handicap, the courts must be vigilant for his protection."
The shipper, Maruman Trading, we assume, has been extensively engaged in the trading business.
It can not be said to be ignorant of the business transactions it entered into involving the shipment of
its goods to its customers. The shipper could not have known, or should know the stipulations in the
bill of lading and there it should have declared a higher valuation of the goods shipped. Moreover,
Maruman Trading has not been heard to complain that it has been deceived or rushed into agreeing
to ship the cargo in petitioner's vessel. In fact, it was not even impleaded in this case.
The next issue to be resolved is whether or not private respondent, as consignee, who is not a
signatory to the bill of lading is bound by the stipulations thereof.
Again, in Sea-Land Service, Inc. vs. Intermediate Appellate Court (supra), we held that even if the
consignee was not a signatory to the contract of carriage between the shipper and the carrier, the
consignee can still be bound by the contract. Speaking through Mr. Chief Justice Narvasa, we ruled:
To begin with, there is no question of the right, in principle, of a consignee in a bill of lading
to recover from the carrier or shipper for loss of, or damage to goods being transported
under said bill, although that document may have been-as in practice it oftentimes is-drawn
up only by the consignor and the carrier without the intervention of the
onsignee. . . . .
. . . the right of a party in the same situation as respondent here, to recover for loss of a
shipment consigned to him under a bill of lading drawn up only by and between the shipper
and the carrier, springs from either a relation of agency that may exist between him and the
shipper or consignor, or his status as stranger in whose favor some stipulation is made in
said contract, and who becomes a party thereto when he demands fulfillment of that
stipulation, in this case the delivery of the goods or cargo shipped. In neither capacity can
he assert personally, in bar to any provision of the bill of lading, the alleged circumstance
that fair and free agreement to such provision was vitiated by its being in such fine print as
to be hardly readable. Parenthetically, it may be observed that in one comparatively recent
38
 case (Phoenix Assurance Company vs. Macondray & Co., Inc., 64 SCRA 15) where this
Court found that a similar package limitation clause was "printed in the smallest type on the
back of the bill of lading," it nonetheless ruled that the consignee was bound thereby on the
strength of authority holding that such provisions on liability limitation are as much a part of
a bill of lading as through physically in it and as though placed therein by agreement of the
parties.

There can, therefore, be no doubt or equivocation about the validity and

enforceability of freely-agreed-upon stipulations in a contract of carriage or bill
of lading limiting the liability of the carrier to an agreed valuation unless the
shipper declares a higher value and inserts it into said contract or bill. This
proposition, moreover, rests upon an almost uniform weight of authority.
(Emphasis supplied).

When private respondent formally claimed reimbursement for the missing goods from petitioner and
subsequently filed a case against the latter based on the very same bill of lading, it (private
respondent) accepted the provisions of the contract and thereby made itself a party thereto, or at
least has come to court to enforce it.9 Thus, private respondent cannot now reject or disregard the
carrier's limited liability stipulation in the bill of lading. In other words, private respondent is bound by
the whole stipulations in the bill of lading and must respect the same.

Private respondent, however, insists that the carrier should be liable for the full value of the lost
cargo in the amount of Y1,552,500.00, considering that the shipper, Maruman Trading, had "fully
declared the shipment . . ., the contents of each crate, the dimensions, weight and value of the
contents," 10 as shown in the commercial Invoice No. MTM-941.

This claim was denied by petitioner, contending that it did not know of the contents, quantity and
value of "the shipment which consisted of three pre-packed crates described in Bill of Lading No.
NGO-53MN merely as '3 CASES SPARE PARTS.'" 11

The bill of lading in question confirms petitioner's contention. To defeat the carrier's limited liability,
the aforecited Clause 18 of the bill of lading requires that the shipper should have declared in writing
a higher valuation of its goods before receipt thereof by the carrier and insert the said declaration in
the bill of lading, with extra freight paid. These requirements in the bill of lading were never complied
with by the shipper, hence, the liability of the carrier under the limited liability clause stands. The
commercial Invoice No. MTM-941 does not in itself sufficiently and convincingly show that petitioner
has knowledge of the value of the cargo as contended by private respondent. No other evidence
was proffered by private respondent to support is contention. Thus, we are convinced that petitioner
should be liable for the full value of the lost cargo.

In fine, the liability of petitioner for the loss of the cargo is limited to One Hundred Thousand
(Y100,000.00) Yen, pursuant to Clause 18 of the bill of lading.

WHEREFORE, the decision of the Court of Appeals dated June 14, 1995 in C.A.-G.R. CV No.
42803 is hereby REVERSED and SET ASIDE.

SO ORDERED.

39
G.R. No. 87434 August 5, 1992
PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC. and TAGUM PLASTICS,
INC., petitioners,
vs.
SWEET LINES, INC., DAVAO VETERANS ARRASTRE AND PORT SERVICES, INC. and HON.
COURT OF APPEALS, respondents.
REGALADO, J.:
A maritime suit 1 was commenced on May 12, 1978 by herein Petitioner Philippine American
General Insurance Co., Inc. (Philamgen) and Tagum Plastics, Inc. (TPI) against private respondents
Sweet Lines, Inc. (SLI) and Davao Veterans Arrastre and Port Services, Inc. (DVAPSI), along with
S.C.I. Line (The Shipping Corporation of India Limited) and F.E. Zuellig, Inc., as co-defendants in
the court a quo, seeking recovery of the cost of lost or damaged shipment plus exemplary damages,
attorney's fees and costs allegedly due to defendants' negligence, with the following factual
backdrop yielded by the findings of the court below and adopted by respondent court:
It would appear that in or about March 1977, the vessel SS "VISHVA YASH" belonging to or
operated by the foreign common carrier, took on board at Baton Rouge, LA, two (2)
consignments of cargoes for shipment to Manila and later for transhipment to Davao City,
consisting of 600 bags Low Density Polyethylene 631 and another 6,400 bags Low Density
Polyethylene 647, both consigned to the order of Far East Bank and Trust Company of
Manila, with arrival notice to Tagum Plastics, Inc., Madaum, Tagum, Davao City. Said
cargoes were covered, respectively, by Bills of Lading Nos. 6 and 7 issued by the foreign
common carrier (Exhs. E and F). The necessary packing or Weight List (Exhs. A and B), as
well as the Commercial Invoices (Exhs. C and D) accompanied the shipment. The cargoes
were likewise insured by the Tagum Plastics Inc. with plaintiff Philippine American General
Insurance Co., Inc., (Exh. G).
In the course of time, the said vessel arrived at Manila and discharged its cargoes in the
Port of Manila for transhipment to Davao City. For this purpose, the foreign carrier awaited
and made use of the services of the vessel called M/V "Sweet Love" owned and operated by
defendant interisland carrier.
Subject cargoes were loaded in Holds Nos. 2 and 3 of the interisland carrier. These were
commingled with similar cargoes belonging to Evergreen Plantation and also Standfilco.
On May 15, 1977, the shipment(s) were discharged from the interisland carrier into the
custody of the consignee. A later survey conducted on July 8, 1977, upon the instance of
the plaintiff, shows the following:
Of the cargo covered by Bill of Lading No. 25 or (2)6, supposed to contain 6,400 bags of
Low Density Polyethylene 647 originally inside 160 pallets, there were delivered to the
consignee 5,413 bags in good order condition. The survey shows shortages, damages and
losses to be as follows:
Undelivered/Damaged bags as tallied during discharge from vessel-173 bags;
undelivered and damaged as noted and observed whilst stored at the pier-699 bags;
and shortlanded-110 bags (Exhs. P and P-1).
Of the 600 bags of Low Density Polyethylene 631, the survey conducted on the same day
shows an actual delivery to the consignee of only 507 bags in good order condition.
Likewise noted were the following losses, damages and shortages, to wit:
Undelivered/damaged bags and tally sheets during discharge from vessel-17 bags.
Undelivered and damaged as noted and observed whilst stored at the pier-66 bags;
Shortlanded-10 bags.
Therefore, of said shipment totalling 7,000 bags, originally contained in 175 pallets, only a
total of 5,820 bags were delivered to the consignee in good order condition, leaving a
balance of 1,080 bags. Such loss from this particular shipment is what any or all defendants
may be answerable to (sic).
As already stated, some bags were either shortlanded or were missing, and some of the
1,080 bags were torn, the contents thereof partly spilled or were fully/partially emptied, but,
worse, the contents thereof contaminated with foreign matters and therefore could no longer
serve their intended purpose. The position taken by the consignee was that even those bags
which still had some contents were considered as total losses as the remaining contents
were contaminated with foreign matters and therefore did not (sic) longer serve the intended
purpose of the material. Each bag was valued, taking into account the customs duties and
other taxes paid as well as charges and the conversion value then of a dollar to the peso, at
P110.28 per bag (see Exhs. L and L-1 M and O). 2
Before trial, a compromise agreement was entered into between petitioners, as plaintiffs, and
defendants S.C.I. Line and F.E. Zuellig, upon the latter's payment of P532.65 in settlement of the
claim against them. Whereupon, the trial court in its order of August 12, 1981 3 granted plaintiffs'
motion to dismiss grounded on said amicable settlement and the case as to S.C.I. Line and F.E.
Zuellig was consequently "dismissed with prejudice and without pronouncement as to costs."
The trial court thereafter rendered judgment in favor of herein petitioners on this dispositive portion:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff Philippine General
American Insurance Company Inc. and against the remaining defendants, Sweet Lines Inc.
and Davao Veterans Arrastre Inc. as follows:
Defendant Sweet Lines, Inc. is ordered to pay said plaintiff the sum of P34,902.00, with legal
interest thereon from date of extrajudicial demand on April 28, 1978 (Exh. M) until fully paid;
Defendant Sweet Lines Inc. and Davao Veterans Arrastre and (Port) Services Inc. are
directed to pay jointly and severally, the plaintiff the sum of P49,747.55, with legal interest
thereon from April 28, 1978 until fully paid;
Each of said defendants are ordered to pay the plaintiffs the additional sum of P5,000 is
reimbursable attorney's fees and other litigation expenses;
Each of said defendants shall pay one-fourth (1/4) costs. 4
Due to the reversal on appeal by respondent court of the trial court's decision on the ground of
prescription, 5 in effect dismissing the complaint of herein petitioners, and the denial of their motion
for reconsideration, 6 petitioners filed the instant petition for review on certiorari, faulting respondent
appellate court with the following errors: (1) in upholding, without proof, the existence of the so-
called prescriptive period; (2) granting arguendo that the said prescriptive period does exist, in not
finding the same to be null and void; and (3) assuming arguendo that the said prescriptive period is
valid and legal, in failing to conclude that petitioners substantially complied therewith. 7
Parenthetically, we observe that herein petitioners are jointly pursuing this case, considering their
common interest in the shipment subject of the present controversy, to obviate any question as to
40
who the real party in interest is and to protect their respective rights as insurer and insured. In any
case, there is no impediment to the legal standing of Petitioner Philamgen, even if it alone were to
sue herein private respondents in its own capacity as insurer, it having been subrogated to all rights
of recovery for loss of or damage to the shipment insured under its Marine Risk Note No. 438734
dated March 31, 1977 8 in view of the full settlement of the claim thereunder as evidenced by the
subrogation receipt 9 issued in its favor by Far East Bank and Trust Co., Davao Branch, for the
account of petitioner TPI.
Upon payment of the loss covered by the policy, the insurer's entitlement to subrogation pro tanto,
being of the highest equity, equips it with a cause of action against a third party in case of
contractual breach. 10 Further, the insurer's subrogatory right to sue for recovery under the bill of
lading in case of loss of or damage to the cargo is jurisprudentially upheld. 11 However, if an insurer,
in the exercise of its subrogatory right, may proceed against the erring carrier and for all intents and
purposes stands in the place and in substitution of the consignee, a fortiori such insurer is presumed
to know and is just as bound by the contractual terms under the bill of lading as the insured.
On the first issue, petitioners contend that it was error for the Court of Appeals to reverse the
appealed decision on the supposed ground of prescription when SLI failed to adduce any evidence
in support thereof and that the bills of lading said to contain the shortened periods for filing a claim
and for instituting a court action against the carrier were never offered in evidence. Considering that
the existence and tenor of this stipulation on the aforesaid periods have allegedly not been
established, petitioners maintain that it is inconceivable how they can possibly comply
therewith. 12 In refutation, SLI avers that it is standard practice in its operations to issue bills of lading
for shipments entrusted to it for carriage and that it in fact issued bills of lading numbered MD-25
and MD-26 therefor with proof of their existence manifest in the records of the case. 13 For its part,
DVAPSI insists on the propriety of the dismissal of the complaint as to it due to petitioners' failure to
prove its direct responsibility for the loss of and/or damage to the cargo. 14
On this point, in denying petitioner's motion for reconsideration, the Court of Appeals resolved that
although the bills of lading were not offered in evidence, the litigation obviously revolves on such
bills of lading which are practically the documents or contracts sued upon, hence, they are inevitably
involved and their provisions cannot be disregarded in the determination of the relative rights of the
parties thereto. 15
Respondent court correctly passed upon the matter of prescription, since that defense was so
considered and controverted by the parties. This issue may accordingly be taken cognizance of by
the court even if not inceptively raised as a defense so long as its existence is plainly apparent on
the face of relevant pleadings. 16 In the case at bar, prescription as an affirmative defense was
seasonably raised by SLI in its answer, 17 except that the bills of lading embodying the same were
not formally offered in evidence, thus reducing the bone of contention to whether or not prescription
can be maintained as such defense and, as in this case, consequently upheld on the strength of
mere references thereto.
As petitioners are suing upon SLI's contractual obligation under the contract of carriage as
contained in the bills of lading, such bills of lading can be categorized as actionable documents
which under the Rules must be properly pleaded either as causes of action or defenses, 18 and the
genuineness and due execution of which are deemed admitted unless specifically denied under oath
by the adverse party. 19 The rules on actionable documents cover and apply to both a cause of
action or defense based on said documents. 20
In the present case and under the aforestated assumption that the time limit involved is a
prescriptive period, respondent carrier duly raised prescription as an affirmative defense in its
answer setting forth paragraph 5 of the pertinent bills of lading which comprised the stipulation
thereon by parties, to wit:
5. Claims for shortage, damage, must be made at the time of delivery to consignee or agent,
if container shows exterior signs of damage or shortage. Claims for non-delivery,
misdelivery, loss or damage must be filed within 30 days from accrual. Suits arising from
shortage, damage or loss, non-delivery or misdelivery shall be instituted within 60 days from
date of accrual of right of action. Failure to file claims or institute judicial proceedings as
herein provided constitutes waiver of claim or right of action. In no case shall carrier be
liable for any delay, non-delivery, misdelivery, loss of damage to cargo while cargo is not in
actual custody of carrier. 21
In their reply thereto, herein petitioners, by their own assertions that —
2. In connection with Pars. 14 and 15 of defendant Sweet Lines, Inc.'s Answer, plaintiffs
state that such agreements are what the Supreme Court considers as contracts of adhesion
(see Sweet Lines, Inc. vs. Hon. Bernardo Teves, et al., G.R. No. L-37750, May 19, 1978)
and, consequently, the provisions therein which are contrary to law and public policy cannot
be availed of by answering defendant as valid defenses. 22
thereby failed to controvert the existence of the bills of lading and the aforequoted provisions
therein, hence they impliedly admitted the same when they merely assailed the validity of subject
stipulations.
Petitioners' failure to specifically deny the existence, much less the genuineness and due execution,
of the instruments in question amounts to an admission. Judicial admissions, verbal or written, made
by the parties in the pleadings or in the course of the trial or other proceedings in the same case are
conclusive, no evidence being required to prove the same, and cannot be contradicted unless
shown to have been made through palpable mistake or that no such admission was
made. 23 Moreover, when the due execution and genuineness of an instrument are deemed admitted
because of the adverse party's failure to make a specific verified denial thereof, the instrument need
not be presented formally in evidence for it may be considered an admitted fact. 24
Even granting that petitioners' averment in their reply amounts to a denial, it has the procedural
earmarks of what in the law on pleadings is called a negative pregnant, that is, a denial pregnant
with the admission of the substantial facts in the pleading responded to which are not squarely
denied. It is in effect an admission of the averment it is directed to. 25 Thus, while petitioners
objected to the validity of such agreement for being contrary to public policy, the existence of the
bills of lading and said stipulations were nevertheless impliedly admitted by them.
We find merit in respondent court's comments that petitioners failed to touch on the matter of the
non-presentation of the bills of lading in their brief and earlier on in the appellate proceedings in this
case, hence it is too late in the day to now allow the litigation to be overturned on that score, for to
do so would mean an over-indulgence in technicalities. Hence, for the reasons already advanced,
the non-inclusion of the controverted bills of lading in the formal offer of evidence cannot, under the
facts of this particular case, be considered a fatal procedural lapse as would bar respondent carrier
from raising the defense of prescription. Petitioners' feigned ignorance of the provisions of the bills of
lading, particularly on the time limitations for filing a claim and for commencing a suit in court, as
their excuse for non-compliance therewith does not deserve serious attention.
It is to be noted that the carriage of the cargo involved was effected pursuant to an "Application for
Delivery of Cargoes without Original Bill of Lading" issued on May 20, 1977 in Davao City 26 with the
notation therein that said application corresponds to and is subject to the terms of bills of lading MD-
25 and MD-26. It would be a safe assessment to interpret this to mean that, sight unseen,
petitioners acknowledged the existence of said bills of lading. By having the cargo shipped on
respondent carrier's vessel and later making a claim for loss on the basis of the bills of lading,
petitioners for all intents and purposes accepted said bills. Having done so they are bound by all
stipulations contained therein. 27 Verily, as petitioners are suing for recovery on the contract, and in
fact even went as far as assailing its validity by categorizing it as a contract of adhesion, then they
necessarily admit that there is such a contract, their knowledge of the existence of which with its
attendant stipulations they cannot now be allowed to deny.
41
On the issue of the validity of the controverted paragraph 5 of the bills of lading above quoted which
unequivocally prescribes a time frame of thirty (30) days for filing a claim with the carrier in case of
loss of or damage to the cargo and sixty (60) days from accrual of the right of action for instituting an
action in court, which periods must concur, petitioners posit that the alleged shorter prescriptive
period which is in the nature of a limitation on petitioners' right of recovery is unreasonable and that
SLI has the burden of proving otherwise, citing the earlier case of Southern Lines, Inc. vs. Court of
Appeals, et al. 28 They postulate this on the theory that the bills of lading containing the same
constitute contracts of adhesion and are, therefore, void for being contrary to public policy,
supposedly pursuant to the dictum in Sweet Lines, Inc. vs. Teves, et al. 29
Furthermore, they contend, since the liability of private respondents has been clearly established, to
bar petitioners' right of recovery on a mere technicality will pave the way for unjust
enrichment. 30 Contrarily, SLI asserts and defends the reasonableness of the time limitation within
which claims should be filed with the carrier; the necessity for the same, as this condition for the
carrier's liability is uniformly adopted by nearly all shipping companies if they are to survive the
concomitant rigors and risks of the shipping industry; and the countervailing balance afforded by
such stipulation to the legal presumption of negligence under which the carrier labors in the event of
loss of or damage to the cargo. 31
It has long been held that Article 366 of the Code of Commerce applies not only to overland and
river transportation but also to maritime
transportation. 32 Moreover, we agree that in this jurisdiction, as viewed from another angle, it is
more accurate to state that the filing of a claim with the carrier within the time limitation therefor
under Article 366 actually constitutes a condition precedent to the accrual of a right of action against
a carrier for damages caused to the merchandise. The shipper or the consignee must allege and
prove the fulfillment of the condition and if he omits such allegations and proof, no right of action
against the carrier can accrue in his favor. As the requirements in Article 366, restated with a slight
modification in the assailed paragraph 5 of the bills of lading, are reasonable conditions precedent,
they are not limitations of action. 33 Being conditions precedent, their performance must precede a
suit for enforcement 34 and the vesting of the right to file spit does not take place until the happening
of these conditions. 35
Now, before an action can properly be commenced all the essential elements of the cause of action
must be in existence, that is, the cause of action must be complete. All valid conditions precedent to
the institution of the particular action, whether prescribed by statute, fixed by agreement of the
parties or implied by law must be performed or complied with before commencing the action, unless
the conduct of the adverse party has been such as to prevent or waive performance or excuse non-
performance of the condition. 36
It bears restating that a right of action is the right to presently enforce a cause of action, while a
cause of action consists of the operative facts which give rise to such right of action. The right of
action does not arise until the performance of all conditions precedent to the action and may be
taken away by the running of the statute of limitations, through estoppel, or by other circumstances
which do not affect the cause of action. 37 Performance or fulfillment of all conditions precedent upon
which a right of action depends must be sufficiently alleged, 38 considering that the burden of proof
to show that a party has a right of action is upon the person initiating the suit. 39
More particularly, where the contract of shipment contains a reasonable requirement of giving notice
of loss of or injury to the goods, the giving of such notice is a condition precedent to the action for
loss or injury or the right to enforce the carrier's liability. Such requirement is not an empty
formalism. The fundamental reason or purpose of such a stipulation is not to relieve the carrier from
just liability, but reasonably to inform it that the shipment has been damaged and that it is charged
with liability therefor, and to give it an opportunity to examine the nature and extent of the injury. This
protects the carrier by affording it an opportunity to make an investigation of a claim while the matter
is fresh and easily investigated so as to safeguard itself from false and fraudulent claims. 40
Stipulations in bills of lading or other contracts of shipment which require notice of claim for loss of
or damage to goods shipped in order to impose liability on the carrier operate to prevent the
enforcement of the contract when not complied with, that is, notice is a condition precedent and the
carrier is not liable if notice is not given in accordance with the stipulation, 41 as the failure to comply
with such a stipulation in a contract of carriage with respect to notice of loss or claim for damage
bars recovery for the loss or damage suffered. 42
On the other hand, the validity of a contractual limitation of time for filing the suit itself against a
carrier shorter than the statutory period therefor has generally been upheld as such stipulation
merely affects the shipper's remedy and does not affect the liability of the carrier. In the absence of
any statutory limitation and subject only to the requirement on the reasonableness of the stipulated
limitation period, the parties to a contract of carriage may fix by agreement a shorter time for the
bringing of suit on a claim for the loss of or damage to the shipment than that provided by the statute
of limitations. Such limitation is not contrary to public policy for it does not in any way defeat the
complete vestiture of the right to recover, but merely requires the assertion of that right by action at
an earlier period than would be necessary to defeat it through the operation of the ordinary statute of
limitations. 43
In the case at bar, there is neither any showing of compliance by petitioners with the requirement for
the filing of a notice of claim within the prescribed period nor any allegation to that effect. It may then
be said that while petitioners may possibly have a cause of action, for failure to comply with the
above condition precedent they lost whatever right of action they may have in their favor or, token in
another sense, that remedial right or right to relief had prescribed.44
The shipment in question was discharged into the custody of the consignee on May 15, 1977, and it
was from this date that petitioners' cause of action accrued, with thirty (30) days therefrom within
which to file a claim with the carrier for any loss or damage which may have been suffered by the
cargo and thereby perfect their right of action. The findings of respondent court as supported by
petitioners' formal offer of evidence in the court below show that the claim was filed with SLI only on
April 28, 1978, way beyond the period provided in the bills of lading 45 and violative of the contractual
provision, the inevitable consequence of which is the loss of petitioners' remedy or right to sue. Even
the filing of the complaint on May 12, 1978 is of no remedial or practical consequence, since the
time limits for the filing thereof, whether viewed as a condition precedent or as a prescriptive period,
would in this case be productive of the same result, that is, that petitioners had no right of action to
begin with or, at any rate, their claim was time-barred.
What the court finds rather odd is the fact that petitioner TPI filed a provisional claim with DVAPSI as
early as June 14, 1977 46 and, as found by the trial court, a survey fixing the extent of loss of and/or
damage to the cargo was conducted on July 8, 1977 at the instance of petitioners. 47 If petitioners
had the opportunity and awareness to file such provisional claim and to cause a survey to be
conducted soon after the discharge of the cargo, then they could very easily have filed the
necessary formal, or even a provisional, claim with SLI itself 48 within the stipulated period therefor,
instead of doing so only on April 28, 1978 despite the vessel's arrival at the port of destination on
May 15, 1977. Their failure to timely act brings us to no inference other than the fact that petitioners
slept on their rights and they must now face the consequences of such inaction.
The ratiocination of the Court of Appeals on this aspect is worth reproducing:
xxx xxx xxx
It must be noted, at this juncture, that the aforestated time limitation in the presentation of
claim for loss or damage, is but a restatement of the rule prescribed under Art. 366 of the
Code of Commerce which reads as follows:
Art. 366. Within the twenty-four hours following the receipt of the merchandise, the
claim against the carrier for damage or average which may be found therein upon
opening the packages, may be made, provided that the indications of the damage or
average which gives rise to the claim cannot be ascertained from the outside part of
42
 the packages, in which case the claims shall be admitted only at the time of the
receipt.
After the periods mentioned have elapsed, or the transportation charges have
been paid, no claim shall be admitted against the carrier with regard to the
condition in which the goods transported were delivered.
Gleanable therefrom is the fact that subject stipulation even lengthened the period for
presentation of claims thereunder. Such modification has been sanctioned by the Supreme
Court. In the case of Ong Yet (M)ua Hardware Co., Inc. vs. Mitsui Steamship Co., Ltd., et
al., 59 O.G. No. 17, p. 2764, it ruled that Art. 366 of the Code of Commerce can be modified
by a bill of lading prescribing the period of 90 days after arrival of the ship, for filing of written
claim with the carrier or agent, instead of the 24-hour time limit after delivery provided in the
aforecited legal provision.
Tested, too, under paragraph 5 of said Bill of Lading, it is crystal clear that the
commencement of the instant suit on May 12, 1978 was indeed fatally late. In view of the
express provision that "suits arising from
. . . damage or loss shall be instituted within 60 days from date of accrual of right of action,"
the present action necessarily fails on ground of prescription.
In the absence of constitutional or statutory prohibition, it is usually held or
recognized that it is competent for the parties to a contract of shipment to agree on
a limitation of time shorter than the statutory period, within which action for breach of
the contract shall be brought, and such limitation will be enforced if reasonable . . .
(13 C.J.S. 496-497)
A perusal of the pertinent provisions of law on the matter would disclose that there is no
constitutional or statutory prohibition infirming paragraph 5 of subject Bill of Lading. The
stipulated period of 60 days is reasonable enough for appellees to ascertain the facts and
thereafter to sue, if need be, and the 60-day period agreed upon by the parties which
shortened the statutory period within which to bring action for breach of contract is valid and
binding. . . . (Emphasis in the original text.) 49
As explained above, the shortened period for filing suit is not unreasonable and has in fact been
generally recognized to be a valid business practice in the shipping industry. Petitioners' advertence
to the Court's holding in the Southern Lines case, supra, is futile as what was involved was a claim
for refund of excess payment. We ruled therein that non-compliance with the requirement of filing a
notice of claim under Article 366 of the Code of Commerce does not affect the consignee's right of
action against the carrier because said requirement applies only to cases for recovery of damages
on account of loss of or damage to cargo, not to an action for refund of overpayment, and on the
further consideration that neither the Code of Commerce nor the bills of lading therein provided any
time limitation for suing for refund of money paid in excess, except only that it be filed within a
reasonable time.
The ruling in Sweet Lines categorizing the stipulated limitation on venue of action provided in the
subject bill of lading as a contract of adhesion and, under the circumstances therein, void for being
contrary to public policy is evidently likewise unavailing in view of the discrete environmental facts
involved and the fact that the restriction therein was unreasonable. In any case, Ong Yiu vs. Court
of Appeals, et al., 50 instructs us that "contracts of adhesion wherein one party imposes a ready-
made form of contract on the other . . . are contracts not entirely prohibited. The one who adheres to
the contract is in reality free to reject it entirely; if he adheres he gives his consent." In the present
case, not even an allegation of ignorance of a party excuses non-compliance with the contractual
stipulations since the responsibility for ensuring full comprehension of the provisions of a contract of
carriage devolves not on the carrier but on the owner, shipper, or consignee as the case may be.
While it is true that substantial compliance with provisions on filing of claim for loss of or damage to
cargo may sometimes suffice, the invocation of such an assumption must be viewed vis-a-vis the
object or purpose which such a provision seeks to attain and that is to afford the carrier a
reasonable opportunity to determine the merits and validity of the claim and to protect itself against
unfounded impositions. 51 Petitioners' would nevertheless adopt an adamant posture hinged on the
issuance by SLI of a "Report on Losses and Damages," dated May 15, 1977, 52 from which
petitioners theorize that this charges private respondents with actual knowledge of the loss and
damage involved in the present case as would obviate the need for or render superfluous the filing
of a claim within the stipulated period.
Withal, it has merely to be pointed out that the aforementioned report bears this notation at the lower
part thereof: "Damaged by Mla. labor upon unloading; B/L noted at port of origin," as an explanation
for the cause of loss of and/or damage to the cargo, together with an iterative note stating that "(t)his
Copy should be submitted together with your claim invoice or receipt within 30 days from date of
issue otherwise your claim will not be honored."
Moreover, knowledge on the part of the carrier of the loss of or damage to the goods deducible from
the issuance of said report is not equivalent to nor does it approximate the legal purpose served by
the filing of the requisite claim, that is, to promptly apprise the carrier about a consignee's intention
to file a claim and thus cause the prompt investigation of the veracity and merit thereof for its
protection. It would be an unfair imposition to require the carrier, upon discovery in the process of
preparing the report on losses or damages of any and all such loss or damage, to presume the
existence of a claim against it when at that time the carrier is expectedly concerned merely with
accounting for each and every shipment and assessing its condition. Unless and until a notice of
claim is therewith timely filed, the carrier cannot be expected to presume that for every loss or
damage tallied, a corresponding claim therefor has been filed or is already in existence as would
alert it to the urgency for an immediate investigation of the soundness of the claim. The report on
losses and damages is not the claim referred to and required by the bills of lading for it does not fix
responsibility for the loss or damage, but merely states the condition of the goods shipped. The
claim contemplated herein, in whatever form, must be something more than a notice that the goods
have been lost or damaged; it must contain a claim for compensation or indicate an intent to
claim. 53
Thus, to put the legal effect of respondent carrier's report on losses or damages, the preparation of
which is standard procedure upon unloading of cargo at the port of destination, on the same level as
that of a notice of claim by imploring substantial compliance is definitely farfetched. Besides, the
cited notation on the carrier's report itself makes it clear that the filing of a notice of claim in any case
is imperative if carrier is to be held liable at all for the loss of or damage to cargo.
Turning now to respondent DVAPSI and considering that whatever right of action petitioners may
have against respondent carrier was lost due to their failure to seasonably file the requisite claim, it
would be awkward, to say the least, that by some convenient process of elimination DVAPSI should
proverbially be left holding the bag, and it would be pure speculation to assume that DVAPSI is
probably responsible for the loss of or damage to cargo. Unlike a common carrier, an arrastre
operator does not labor under a presumption of negligence in case of loss, destruction or
deterioration of goods discharged into its custody. In other words, to hold an arrastre operator liable
for loss of and/or damage to goods entrusted to it there must be preponderant evidence that it did
not exercise due diligence in the handling and care of the goods.
Petitioners failed to pinpoint liability on any of the original defendants and in this seemingly wild
goose-chase, they cannot quite put their finger down on when, where, how and under whose
responsibility the loss or damage probably occurred, or as stated in paragraph 8 of their basic
complaint filed in the court below, whether "(u)pon discharge of the cargoes from the original
carrying vessel, the SS VISHVA YASH," and/or upon discharge of the cargoes from the interisland
vessel the MV "SWEET LOVE," in Davao City and later while in the custody of defendant arrastre
operator. 54
43
The testimony of petitioners' own witness, Roberto Cabato, Jr., Marine and Aviation Claims Manager SO ORDERED.
of petitioner Philamgen, was definitely inconclusive and the responsibility for the loss or damage
could still not be ascertained therefrom:

Q In other words, Mr. Cabato, you only computed the loss on the basis of the figures
submitted to you and based on the documents like the survey certificate and the certificate
of the arrastre?

A Yes, sir.

Q Therefore, Mr. Cabato, you have no idea how or where these losses were incurred?

A No, sir.

x x x           x x x          x x x

Q Mr. Witness, you said that you processed and investigated the claim involving the
shipment in question. Is it not a fact that in your processing and investigation you considered
how the shipment was transported? Where the losses could have occurred and what is the
extent of the respective responsibilities of the bailees and/or carriers involved?

x x x           x x x          x x x

A With respect to the shipment being transported, we have of course to get into it in order to
check whether the shipment coming in to this port is in accordance with the policy condition,
like in this particular case, the shipment was transported to Manila and transhipped through
an interisland vessel in accordance with the policy. With respect to the losses, we have a
general view where losses could have occurred. Of course we will have to consider the
different bailees wherein the shipment must have passed through, like the ocean vessel, the
interisland vessel and the arrastre, but definitely at that point and time we cannot determine
the extent of each liability. We are only interested at that point and time in the liability as
regards the underwriter in accordance with the policy that we issued.

x x x           x x x          x x x

Q Mr. Witness, from the documents, namely, the survey of Manila Adjusters and Surveyors
Company, the survey of Davao Arrastre contractor and the bills of lading issued by the
defendant Sweet Lines, will you be able to tell the respective liabilities of the bailees and/or
carriers concerned?

A No, sir. (Emphasis ours.) 55

Neither did nor could the trial court, much less the Court of Appeals, precisely establish the stage in
the course of the shipment when the goods were lost, destroyed or damaged. What can only be
inferred from the factual findings of the trial court is that by the time the cargo was discharged to
DVAPSI, loss or damage had already occurred and that the same could not have possibly occurred
while the same was in the custody of DVAPSI, as demonstrated by the observations of the trial court
quoted at the start of this opinion.

ACCORDINGLY, on the foregoing premises, the instant petition is DENIED and the dismissal of the
complaint in the court a quo as decreed by respondent Court of Appeals in its challenged judgment
is hereby AFFIRMED.

44
G.R. No. 172822               Petitioner, Ruling of the Metropolitan Trial Court

MOF COMPANY, INC., Petitioner, On June 16, 2004, the MeTC of Pasay City, Branch 48 rendered its Decision4 in favor of MOF. It
vs. ruled that Shin Yang cannot disclaim being a party to the contract of affreightment because:
SHIN YANG BROKERAGE CORPORATION Respondent.
x x x it would appear that defendant has business transactions with plaintiff. This is evident from
DECISION defendant’s letters dated 09 May 2002 and 13 May 2002 (Exhibits "1" and "2", defendant’s Position
Paper) where it requested for the release of refund of container deposits x x x. [In] the mind of the
Court, by analogy, a written contract need not be necessary; a mutual understanding [would suffice].
DEL CASTILLO, J.:
Further, plaintiff would have not included the name of the defendant in the bill of lading, had there
been no prior agreement to that effect.
The necessity of proving lies with the person who sues.
In sum, plaintiff has sufficiently proved its cause of action against the defendant and the latter is
The refusal of the consignee named in the bill of lading to pay the freightage on the claim that it is obliged to honor its agreement with plaintiff despite the absence of a written contract. 5
not privy to the contract of affreightment propelled the shipper to sue for collection of money,
stressing that its sole evidence, the bill of lading, suffices to prove that the consignee is bound to
The dispositive portion of the MeTC Decision reads:
pay. Petitioner now comes to us by way of Petition for Review on Certiorari1 under Rule 45 praying
for the reversal of the Court of Appeals' (CA) judgment that dismissed its action for sum of money for
insufficiency of evidence. WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff and against
the defendant, ordering the latter to pay plaintiff as follows:
Factual Antecedents
1. ₱57,646.00 plus legal interest from the date of demand until fully paid,
On October 25, 2001, Halla Trading Co., a company based in Korea, shipped to Manila secondhand
cars and other articles on board the vessel Hanjin Busan 0238W. The bill of lading covering the 2. ₱10,000.00 as and for attorney’s fees and
shipment, i.e., Bill of Lading No. HJSCPUSI14168303, 2 which was prepared by the carrier Hanjin
Shipping Co., Ltd. (Hanjin), named respondent Shin Yang Brokerage Corp. (Shin Yang) as the
3. the cost of suit.
consignee and indicated that payment was on a "Freight Collect" basis, i.e., that the
consignee/receiver of the goods would be the one to pay for the freight and other charges in the
total amount of ₱57,646.00.3 SO ORDERED.6

The shipment arrived in Manila on October 29, 2001. Thereafter, petitioner MOF Company, Inc. Ruling of the Regional Trial Court
(MOF), Hanjin’s exclusive general agent in the Philippines, repeatedly demanded the payment of
ocean freight, documentation fee and terminal handling charges from Shin Yang. The latter,
The Regional Trial Court (RTC) of Pasay City, Branch 108 affirmed in toto the Decision of the
however, failed and refused to pay contending that it did not cause the importation of the goods, that
MeTC. It held that:
it is only the Consolidator of the said shipment, that the ultimate consignee did not endorse in its
favor the original bill of lading and that the bill of lading was prepared without its consent.
MOF and Shin Yang entered into a contract of affreightment which Black’s Law Dictionary defined
as a contract with the ship owner to hire his ship or part of it, for the carriage of goods and generally
Thus, on March 19, 2003, MOF filed a case for sum of money before the Metropolitan Trial Court of
take the form either of a charter party or a bill of lading.
Pasay City (MeTC Pasay) which was docketed as Civil Case No. 206-03 and raffled to Branch 48.
MOF alleged that Shin Yang, a regular client, caused the importation and shipment of the goods and
assured it that ocean freight and other charges would be paid upon arrival of the goods in Manila. The bill of lading contain[s] the information embodied in the contract.
Yet, after Hanjin's compliance, Shin Yang unjustly breached its obligation to pay. MOF argued that
Shin Yang, as the named consignee in the bill of lading, entered itself as a party to the contract and
bound itself to the "Freight Collect" arrangement. MOF thus prayed for the payment of ₱57,646.00 Article 652 of the Code of Commerce provides that the charter party must be in writing; however,
representing ocean freight, documentation fee and terminal handling charges as well as damages Article 653 says: "If the cargo should be received without charter party having been signed, the
and attorney’s fees. contract shall be understood as executed in accordance with what appears in the bill of lading, the
sole evidence of title with regard to the cargo for determining the rights and obligations of the ship
agent, of the captain and of the charterer". Thus, the Supreme Court opined in the Market
Claiming that it is merely a consolidator/forwarder and that Bill of Lading No. HJSCPUSI14168303 Developers, Inc. (MADE) vs. Honorable Intermediate Appellate Court and Gaudioso Uy, G.R. No.
was not endorsed to it by the ultimate consignee, Shin Yang denied any involvement in shipping the 74978, September 8, 1989, this kind of contract may be oral. In another case, Compania Maritima
goods or in promising to shoulder the freightage. It asserted that it never authorized Halla Trading vs. Insurance Company of North America, 12 SCRA 213 the contract of affreightment by telephone
Co. to ship the articles or to have its name included in the bill of lading. Shin Yang also alleged that was recognized where the oral agreement was later confirmed by a formal booking.
MOF failed to present supporting documents to prove that it was Shin Yang that caused the
importation or the one that assured payment of the shipping charges upon arrival of the goods in
Manila. xxxx

45
Defendant is liable to pay the sum of ₱57,646.00, with interest until fully paid, attorney’s fees of
₱10,000.00 [and] cost of suit.
Considering all the foregoing, this Court affirms in toto the decision of the Court a quo.
SO ORDERED.7
Ruling of the Court of Appeals
Seeing the matter in a different light, the CA dismissed MOF’s complaint and refused to award any
form of damages or attorney’s fees. It opined that MOF failed to substantiate its claim that Shin
Yang had a hand in the importation of the articles to the Philippines or that it gave its consent to be a
consignee of the subject goods. In its March 22, 2006 Decision, 8 the CA said:
This Court is persuaded [that except] for the Bill of Lading, respondent has not presented any other
evidence to bolster its claim that petitioner has entered [into] an agreement of affreightment with
respondent, be it verbal or written. It is noted that the Bill of Lading was prepared by Hanjin
Shipping, not the petitioner. Hanjin is the principal while respondent is the former’s agent. (p. 43,
rollo)
The conclusion of the court a quo, which was upheld by the RTC Pasay City, Branch 108 xxx is
purely speculative and conjectural. A court cannot rely on speculations, conjectures or guesswork,
but must depend upon competent proof and on the basis of the best evidence obtainable under the
circumstances. Litigation cannot be properly resolved by suppositions, deductions or even
presumptions, with no basis in evidence, for the truth must have to be determined by the hard rules
of admissibility and proof (Lagon vs. Hooven Comalco Industries, Inc. 349 SCRA 363).
While it is true that a bill of lading serves two (2) functions: first, it is a receipt for the goods shipped;
second, it is a contract by which three parties, namely, the shipper, the carrier and the consignee
who undertake specific responsibilities and assume stipulated obligations (Belgian Overseas
Chartering and Shipping N.V. vs. Phil. First Insurance Co., Inc., 383 SCRA 23), x x x if the same is
not accepted, it is as if one party does not accept the contract. Said the Supreme Court:
"A bill of lading delivered and accepted constitutes the contract of carriage[,] even though not
signed, because the acceptance of a paper containing the terms of a proposed contract generally
constitutes an acceptance of the contract and of all its terms and conditions of which the acceptor
has actual or constructive notice" (Keng Hua Paper Products Co., Inc. vs. CA, 286 SCRA 257).
In the present case, petitioner did not only [refuse to] accept the bill of lading, but it likewise
disown[ed] the shipment x x x. [Neither did it] authorize Halla Trading Company or anyone to ship or
export the same on its behalf.
It is settled that a contract is upheld as long as there is proof of consent, subject matter and cause
(Sta. Clara Homeowner’s Association vs. Gaston, 374 SCRA 396). In the case at bar, there is not
even any iota of evidence to show that petitioner had given its consent.
"He who alleges a fact has the burden of proving it and a mere allegation is not evidence" (Luxuria
Homes Inc. vs. CA, 302 SCRA 315).
The 40-footer van contains goods of substantial value. It is highly improbable for petitioner not to
pay the charges, which is very minimal compared with the value of the goods, in order that it could
work on the release thereof.
For failure to substantiate its claim by preponderance of evidence, respondent has not established
its case against petitioner.9
Petitioners filed a motion for reconsideration but it was denied in a Resolution 10 dated May 25, 2006.
Hence, this petition for review on certiorari.
Petitioner’s Arguments
In assailing the CA’s Decision, MOF argues that the factual findings of both the MeTC and RTC are
entitled to great weight and respect and should have bound the CA. It stresses that the appellate
court has no justifiable reason to disturb the lower courts’ judgments because their conclusions are
well-supported by the evidence on record.
MOF further argues that the CA erred in labeling the findings of the lower courts as purely
‘speculative and conjectural’. According to MOF, the bill of lading, which expressly stated Shin Yang
as the consignee, is the best evidence of the latter’s actual participation in the transportation of the
goods. Such document, validly entered, stands as the law among the shipper, carrier and the
consignee, who are all bound by the terms stated therein. Besides, a carrier’s valid claim after it
fulfilled its obligation cannot just be rejected by the named consignee upon a simple denial that it
ever consented to be a party in a contract of affreightment, or that it ever participated in the
preparation of the bill of lading. As against Shin Yang’s bare denials, the bill of lading is the sufficient
preponderance of evidence required to prove MOF’s claim. MOF maintains that Shin Yang was the
one that supplied all the details in the bill of lading and acquiesced to be named consignee of the
shipment on a ‘Freight Collect’ basis.
Lastly, MOF claims that even if Shin Yang never gave its consent, it cannot avoid its obligation to
pay, because it never objected to being named as the consignee in the bill of lading and that it only
protested when the shipment arrived in the Philippines, presumably due to a botched transaction
between it and Halla Trading Co. Furthermore, Shin Yang’s letters asking for the refund of container
deposits highlight the fact that it was aware of the shipment and that it undertook preparations for
the intended release of the shipment.
Respondent’s Arguments
Echoing the CA decision, Shin Yang insists that MOF has no evidence to prove that it consented to
take part in the contract of affreightment. Shin Yang argues that MOF miserably failed to present
any evidence to prove that it was the one that made preparations for the subject shipment, or that it
is an ‘actual shipping practice’ that forwarders/consolidators as consignees are the ones that provide
carriers details and information on the bills of lading.
Shin Yang contends that a bill of lading is essentially a contract between the shipper and the carrier
and ordinarily, the shipper is the one liable for the freight charges. A consignee, on the other hand,
is initially a stranger to the bill of lading and can be liable only when the bill of lading specifies that
the charges are to be paid by the consignee. This liability arises from either a) the contract of
agency between the shipper/consignor and the consignee; or b) the consignee’s availment of the
stipulation pour autrui drawn up by and between the shipper/ consignor and carrier upon the
consignee’s demand that the goods be delivered to it. Shin Yang contends that the fact that its name
was mentioned as the consignee of the cargoes did not make it automatically liable for the
freightage because it never benefited from the shipment. It never claimed or accepted the goods, it
was not the shipper’s agent, it was not aware of its designation as consignee and the original bill of
lading was never endorsed to it.
46
 Issue Argentina Court of Appeals on commercial matters, cited by Tolentino in Vol. II of his book entitled
'Commentaries and Jurisprudence on the Commercial Laws of the Philippines' p. 209, says that the
right of the shipper to countermand the shipment terminates when the consignee or
The issue for resolution is whether a consignee, who is not a signatory to the bill of lading, is bound
legitimate holder of the bill of lading appears with such bill of lading before the carrier and
by the stipulations thereof. Corollarily, whether respondent who was not an agent of the shipper and
makes himself a party to the contract. Prior to that time he is a stranger to the contract.
who did not make any demand for the fulfillment of the stipulations of the bill of lading drawn in its
favor is liable to pay the corresponding freight and handling charges.
Still another view of this phase of the case is that contemplated in Art. 1257, paragraph 2, of
the old Civil Code (now Art. 1311, second paragraph) which reads thus:
Our Ruling

‘Should the contract contain any stipulation in favor of a third person, he may demand its
Since the CA and the trial courts arrived at different conclusions, we are constrained to depart from
fulfillment provided he has given notice of his acceptance to the person bound before the
the general rule that only errors of law may be raised in a Petition for Review on Certiorari under
stipulation has been revoked.'
Rule 45 of the Rules of Court and will review the evidence presented. 11

Here, the contract of carriage between the LVN Pictures Inc. and the defendant carrier
The bill of lading is oftentimes drawn up by the shipper/consignor and the carrier without the
contains the stipulations of delivery to Mendoza as consignee. His demand for the delivery of
intervention of the consignee. However, the latter can be bound by the stipulations of the bill of
the can of film to him at the Pili Air Port may be regarded as a notice of his acceptance of the
lading when a) there is a relation of agency between the shipper or consignor and the consignee or
stipulation of the delivery in his favor contained in the contract of carriage and delivery. In
b) when the consignee demands fulfillment of the stipulation of the bill of lading which was drawn up
this case he also made himself a party to the contract, or at least has come to court to
in its favor.12
enforce it. His cause of action must necessarily be founded on its breach. 15 (Emphasis Ours)

In Keng Hua Paper Products Co., Inc. v. Court of Appeals, 13 we held that once the bill of lading is
In sum, a consignee, although not a signatory to the contract of carriage between the shipper and
received by the consignee who does not object to any terms or stipulations contained therein, it
the carrier, becomes a party to the contract by reason of either a) the relationship of agency
constitutes as an acceptance of the contract and of all of its terms and conditions, of which the
between the consignee and the shipper/ consignor; b) the unequivocal acceptance of the bill of
acceptor has actual or constructive notice.1avvphi1
lading delivered to the consignee, with full knowledge of its contents or c) availment of the
stipulation pour autrui, i.e., when the consignee, a third person, demands before the carrier the
In Mendoza v. Philippine Air Lines, Inc.,14 the consignee sued the carrier for damages but fulfillment of the stipulation made by the consignor/shipper in the consignee’s favor, specifically the
nevertheless claimed that he was never a party to the contract of transportation and was a complete delivery of the goods/cargoes shipped.16
stranger thereto. In debunking Mendoza’s contention, we held that:
In the instant case, Shin Yang consistently denied in all of its pleadings that it authorized Halla
x x x First, he insists that the articles of the Code of Commerce should be applied; that he invokes Trading, Co. to ship the goods on its behalf; or that it got hold of the bill of lading covering the
the provisions of said Code governing the obligations of a common carrier to make prompt delivery shipment or that it demanded the release of the cargo. Basic is the rule in evidence that the burden
of goods given to it under a contract of transportation. Later, as already said, he says that he was of proof lies upon him who asserts it, not upon him who denies, since, by the nature of things, he
never a party to the contract of transportation and was a complete stranger to it, and that he is now who denies a fact cannot produce any proof of it.17 Thus, MOF has the burden to controvert all these
suing on a tort or a violation of his rights as a stranger (culpa aquiliana). If he does not invoke the denials, it being insistent that Shin Yang asserted itself as the consignee and the one that caused
contract of carriage entered into with the defendant company, then he would hardly have any leg to the shipment of the goods to the Philippines.
stand on. His right to prompt delivery of the can of film at the Pili Air Port stems and is derived from
the contract of carriage under which contract, the PAL undertook to carry the can of film safely and
In civil cases, the party having the burden of proof must establish his case by preponderance of
to deliver it to him promptly. Take away or ignore that contract and the obligation to carry and to
evidence,18 which means evidence which is of greater weight, or more convincing than that which is
deliver and right to prompt delivery disappear. Common carriers are not obligated by law to carry
offered in opposition to it.19 Here, MOF failed to meet the required quantum of proof. Other than
and to deliver merchandise, and persons are not vested with the right to prompt delivery, unless
presenting the bill of lading, which, at most, proves that the carrier acknowledged receipt of the
such common carriers previously assume the obligation. Said rights and obligations are created by a
subject cargo from the shipper and that the consignee named is to shoulder the freightage, MOF
specific contract entered into by the parties. In the present case, the findings of the trial court
has not adduced any other credible evidence to strengthen its cause of action. It did not even
which as already stated, are accepted by the parties and which we must accept are to the
present any witness in support of its allegation that it was Shin Yang which furnished all the details
effect that the LVN Pictures Inc. and Jose Mendoza on one side, and the defendant company
indicated in the bill of lading and that Shin Yang consented to shoulder the shipment costs. There is
on the other, entered into a contract of transportation (p. 29, Rec. on Appeal). One
also nothing in the records which would indicate that Shin Yang was an agent of Halla Trading Co.
interpretation of said finding is that the LVN Pictures Inc. through previous agreement with
or that it exercised any act that would bind it as a named consignee. Thus, the CA correctly
Mendoza acted as the latter's agent. When he negotiated with the LVN Pictures Inc. to rent
dismissed the suit for failure of petitioner to establish its cause against respondent.
the film 'Himala ng Birhen' and show it during the Naga town fiesta, he most probably
authorized and enjoined the Picture Company to ship the film for him on the PAL on
September 17th. Another interpretation is that even if the LVN Pictures Inc. as consignor of WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals dated March
its own initiative, and acting independently of Mendoza for the time being, made Mendoza a 22, 2006 dismissing petitioner’s complaint and the Resolution dated May 25, 2006 denying the
consignee. [Mendoza made himself a party to the contract of transportaion when he motion for reconsideration are AFFIRMED.
appeared at the Pili Air Port armed with the copy of the Air Way Bill (Exh. 1) demanding the
delivery of the shipment to him.] The very citation made by appellant in his memorandum
SO ORDERED.
supports this view. Speaking of the possibility of a conflict between the order of the shipper on the
one hand and the order of the consignee on the other, as when the shipper orders the shipping
company to return or retain the goods shipped while the consignee demands their delivery,
Malagarriga in his book Codigo de Comercio Comentado, Vol. 1, p. 400, citing a decision of the

47
G.R. No. L-73490 impliedly, be viewed as an exception to the provisions of Sections 1005 and 2521 of the Tariff and
Customs Code imposing a mandatory duty on vessels from foreign ports to have on board true and
accurate manifests of their cargoes. Besides, Customs Administrative Order No. 8-75 is merely an
UNITED STATES LINES, INC., petitioner ,
administrative order and the same cannot certainly modify or amend a law or statute like the Tariff
vs.
and Customs Code, and defeat the purpose of its enactment. (p. 39, Rollo) .
COMMISSIONER OF CUSTOMS. respondent.

Petitioner now seeks before Us the determination of the following issues: .

PARAS, J.:

This is a petition for review of the decision of the Court of Tax Appeals dated September 27, 1985,
which affirmed the decision of respondent Commissioner of Customs dated April 5, 1984, imposing
an administrative fine of P 10,000.00 against petitioner's vessel, MV "American Venture," for
violation of Sec. 1005 of the Tariff and Customs Code as amended, in relation to Sec. 2521 of the
same Code. .
On October 15, 1976, the vessel "American Venture" arrived in Manila from Hongkong. Among the
shipments on board were cargoes consigned by the same shipper and from the same loading port
consisting of two (2) containers which were described in the respective bills of lading BL No. 38 and
BL No. 39 as follows: .
"Shipper's Load and Count" .
1. Whether or not CAO No. 8-75 is irrelevant and contrary to Sec. 1005 of the Tariff and
Customs Code. .
2. Whether or not a carrier of containerized cargo should be held liable for a fine under
Sec. 2521 in relation to Sec. 1005 of the Tariff and Customs Code upon a clerical error
imputable to the Shipper alone, and not discoverable by the carrier until after examination
by Customs of the importation. .
3. Whether or not appellant had violated Sec. 1005 of the Tariff and Customs Code
notwithstanding that the total content of the two-container shipment in question (78 bales
is exactly the same quantity (78 bales of the merchandise described in the bills of lading
and the Inward Foreign Manifest. .

Sec. 1124 of Customs Administrative Order No. 8-75 reads as follows: .

1 Container (Part) Cont. 2020984 Seal 601-04725 38 cases 100% Cotton brushed denim broken
twill.
Shipper's 'Load and Count' a container packed with cargo by one shipper where the quantity,
description and conditions of the cargo is the sole responsibility of the shipper. (emphasis
1 Container Cont. 2101730 Seal 601-04707 40 Cases 100% Cotton Sulphur Dyed denim .
supplied); .

Total: One Container Only "Shipper's Load and Count" .

and quoted hereunder are the relevant provisions of the Tariff and Customs Code: .

The aforestated information as furnished by the Shipper, was copied or entered into the vessel's
SEC. 1005. Every vessel from a foreign port must have on board a complete manifest of all her
Inward Foreign Manifest. Upon opening of the containers by the Bureau of
cargo. .

Customs, it was discovered that a) Container No. USLU-2020984 contained 34 cases of cotton
x x x           x x x          x x x
denim instead of 38 cases and b) Container No. USLU-2101730 contained 44 cases of cotton denim
instead of 40 cases. The total number of cases in the two containers was the same, however, to wit,
78 cases. Having been informed of the differences herein petitioner had the Manifest amended with Each manifest shall include the port of departure and the port of delivery with the marks, numbers,
the consent of the customs authorities on November 3, 1976 to reflect the actual quantity of the quantity and description of the packages and the names of the consignee thereof. .
cases in each of the containers. Subsequently, the Collector of Customs instituted proceedings
against herein petitioner for alleged violation of Sec. 1005 in relation to Sec. 2521 of the Tariff and
x x x           x x x          x x x
Customs Code. Not finding the explanation of the herein petitioner satisfactory, the Collector of
Customs found petitioner guilty of violating said provisions of the Tariff and Customs Code and
ordered it to pay a fine of P 10,000.00. Appeal was made by the petitioner to the Commissioner of A cargo manifest shall in no case be changed or altered after entry of the vessel except by
Customs, who affirmed the said decision in toto. Upon a petition to review the decision of the means of an amendment by the master, consignee or agent thereof, under oath, and
Commissioner of Customs, the Court of Tax Appeals (CTA) affirmed the assailed decision. . attached to the original manifest: Provided, however, that after the invoice and/or entry
covering an importation have been received and recorded in the office of the Appraiser,
no amendment of the Manifest shall be allowed, except when it is obvious that a clerical
In its petition for review before the Court of Tax Appeals, petitioner assails the Commissioner of
error or any other discrepancy has been committed in the preparation of the manifest
Customs, in disregarding Customs Administrative Order (CAO) No. 8-75 particularly in not applying
without any fraudulent intent, discovery of which could not have been made until after
Sec. 1124 thereof and in not treating each container as the unit of cargo. Acting on these issues, the
examination of the importation has been completed. (Emphasis supplied)
Court of Tax Appeals ruled that Customs Administrative Order No. 8-75 is irrelevant and contrary to
Sec. 1005 of the Tariff and Customs Code, We quote the tax tribunal: .
SEC. 2521. Failure to Supply Requisite Manifests. - If any vessel or aircraft enters or departs from a
port of entry without submitting the proper manifests to the customs authorities, or shall enter or
Customs Administrative Order (CAO) No. 8-75 simply defines the term "Shipper's Load and Count"
depart conveying unmanifested cargo other than as stated in the next preceding section hereof,
without any further provisions or explicit explanation as to the scope of its applicability. While the
such vessel or aircraft shall be fined in a sum not less than ten thousand pesos (P10,000.00) but not
concept may be relevant in determining responsibility in case of injury or damage to the cargo
exceeding thirty thousand P30,000.00 pesos. .
arising from loading, handling or movement of the cargo, the same cannot positively, or even

48
The same fine shall be imposed upon any arriving or departing vessel or aircraft if the master or pilot
in command shall fail to deliver or mail to the Commission on Audit a true copy of the manifest of the
incoming or outgoing cargo, as required by law..

It is petitioner's contention that Sec. 24 of Customs Administrative Order No. 8-75 was promulgated
in line with the government policy of encouraging containerization which results in the laudable
decongestion of ports of entry. Such arrangement has been sanctioned worldwide by international
ports to cope up with the ever-increasing volume of cargoes of the shipping industry. Hence, the
containerization system was devised to facilitate the expeditious and economical loading, carriage
and unloading of cargoes. Under this system, the shipper loads his cargoes in a specially designed
container, seals the container and delivers it to the carrier for transportation. The carrier does not
participate in the counting of the merchandise for loading into the container, the actual loading
thereof nor the sealing of the container. Having no actual knowledge of the kind, quantity or
condition of the contents of the container, the carrier issues the corresponding bill of lading based on
the declaration of the shipper. The bill of lading describes the cargo as a container simply and it
states the contents of the container either as advised by the shipper or prefaced by the phrase "said
to contain." Clearly then, the matter quantity, description and conditions of the cargo is the sole
responsibility of the shipper. .

The case at bar involves a situation intended precisely to be covered by Sec. 24 of CAO No. 8-75.
An examination of said Customs Administrative Order in relacion to Sec. 1005 and Sec. 2521 shows
that containerized cargoes on "Shipper's Load and Count" shipping arrangement are not required to
be checked and inventoried by the carrier at the port of loading or before said Carrier enters the port
of unloading in the Philippines since it is the shipper who has the sole responsibility for the quantity,
description and condition of the cargoes shipped in container vans, each container van considered
as a unit of transport. .

Petitioner's vessel, the "American Venture" faithfully complied with the requirements of Sec. 1005 of
the Tariff and Customs Code. Said vessel submitted a complete manifest of all her cargoes.
However there was a slight error thru no fraudulent intent or negligence of the vessel. Said vessel
relied on the information in the bill of lading submitted by the shipper in making the Manifest. There
was no way for the vessel to discover until after the opening of the containers and the inventory of
their contents, that the first container contained 34 cases and the second container contained 44
cases. Furthermore, noteworthy is the fact that Container No. 2020984 is described expressly in
both the bill of lading and the vessel's manifest as a "Part" of the goods contained in the second
Container No. 2101730, an important indication that the contents of Container No. 2020984 and
Container No. 2101730 are parts of the same importation coming from one and the same shipper
and destined to the same consignee and that in the examination of contents for Customs purposes,
the number of cases should be the total in the 2 containers, to wit 78 cases. .

Considering therefore, that the total number of cases of cotton denims as declared by the shipper in
the manifest is 78 as borne on two containers, and considering the undisputed fact that the same
total number of 78 cases of cotton denims were found by the Bureau of Customs on board
petitioner's vessel, it is clear that the vessel's Manifest reflects a complete and substantially accurate
statement of the cargoes contained therein in accordance with the requirement of Sec. 1005 in
relation to Sec. 2521 of the Tariff and Customs Code. Accordingly, therefore, the imposition by
respondent-appellee of a fine of P10,000.00 upon petitioner-appellant's vessel allegedly for the
failure of the latter to have on board a complete manifest of all her cargoes is patently baseless,
unfair, inconsiderate, and illegal. Besides the clerical error cannot be attributed to the shipper.
Finally, there was no financial loss for the government. .

WHEREFORE, finding the instant petition meritorious, the assailed decision of the Court of Tax
Appeals imposing a fine of P 10,000.00 on petitioner's vessel, MV "American Venture" for alleged
violation of Sec. 1005 in relation to Sec. 2521 of the Tariff and Customs Code, as amended, is
hereby REVERSED and SET ASIDE. .

SO ORDERED.

49
G.R. No. 93464 October 7, 1991
REYMA BROKERAGE, INC., petitioner,
vs.
PHILIPPINE HOME ASSURANCE CORPORATION, and THE HONORABLE COURT OF
APPEALS, respondents.
SARMIENTO, J.:
Assailed in this petition for review on certiorari is the decision of the Court of Appeals in CA-G.R. CV
No. 14550, 1 promulgated on November 29, 1988, which affirmed in toto the decision of the Regional
Trial Court, National Capital Judicial Region, Branch 31, Manila. 2
The challenged decision of the trial court disposes as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant as
follows:
a. To pay the sum of P88,650.22 plus legal interest thereon from the date of the filing of the
Complaint until the same is fully paid;
b. To pay a sum equivalent to 25% of the entire amount as attorney's fees; and
c. To pay the costs of this suit.
SO ORDERED.
The facts of the ease found by the court a quo and adopted by the respondent court, are, in brief:
On October 2, 1979, the vessel 'MS Malmros Monsoon' received onboard at Fremantle, Brisbane
Queensland, Australia from shipper Craig Mostyn & Co., Pty. Ltd. (of Brisbane, Queensland) a
shipment of 2,680 cartons of hard frozen boneless beef contained in five (5) containers complete
and in good order and condition for transport to Manila in favor of the eventual consignee RFM
Corp. under Bill of Lading No. 53149, dated October 2, 1979. On October 13, 1979, the MS
'Malmros Monsoon' arrived at Pier 3 of the Port of Manila and discharged the shipment into the
possession and custody of the defendant, the arrastre operator in the case at bar (Exh. 'A'). From
Pier 3, the shipment was transferred to the Reefer Van Area of Pier 13 and on October 22, 1979, the
defendant arrastre contractor loaded the containers in two (2) trucks and delivered them to Grech
Food Industries Cold Storage in Pasig, Rizal arriving there at 1:00 o'clock A.M., the following
morning, October 23, 1979. Four (4) personnel of defendant, a driver and a helper in each truck
made the delivery. On October 23, 1979 at 9:00 o'clock in the morning, the containers were stripped
and the representative of the defendant and consignee counted the contents of five (5) containers
and after an inventory of Container No. BROU-430656[1], it was discovered that 203 cartons were
found short out of the loaded 2,680 cartons of hard frozen boneless beef which according to the
consignee was totally attributable to the defendant as it occurred while the said container in question
was in the custody and responsibility of the defendant. Consignee filed claim for the recovery of the
missing 203 cartons but the same was denied and consequently, consignee filed the claim with the
plaintiff under its Marine Cargo Insurance Policy. The consignee was paid by plaintiff the amount of
P88,658.22 (Exhs.'F' and 'G'). The payment of consignee's claim by the plaintiff had subrogated the
latter to file this instant claim for the recovery of the said amount (Exh. 'H').
As earlier indicated, the lower courts ruled against the herein petitioner despite its pleas specifically
the following:
I. That, in the light of US Lines case (G.R. NO. 73490, June 18, 1987), a "said-to-contain" bill of
lading for sealed containers is "receipt' only of the containers but not of their contents which the
carrier was not in a position to verify.
II. That, since there is no evidence of tampering of seals, presumptions cannot take the place of
proof in a due-process system where the burden of proof lies on the plaintiff (private respondent),
and [where] the rule is that plaintiff must rely on the strength of his own evidence and not on the
weakness of the defense.
III. That, if, as claimed by private respondent, the "tampering" was ingeniously done and the
tampered seal cannot be determined unless "separated" from the container, then plaintiff (private
respondent) virtually admits that the containers could have been tampered from the very start (i.e.,
before petitioner took possession of them) but nobody noticed the tampering.
IV. That, in the light of the foregoing, it was not procedurally and equitably sound of private
respondent to sue petitioner alone without joining the carrier and the arrastre contractor as
alternative defendants; petitioner should not be singled out as defendant.
V. That, this case is barred by prescription, as previously alleged in petitioner's Answer in the lower
court; as a mere subrogee, private respondent cannot have more rights than the consignee itself
who could not have brought this action beyond the one-year prescriptive period (one year from
October 22, 1979) fixed by the carriage of goods by sea act.
The issue presented is whether or not the respondent court committed a reversible error in declaring
the petitioner liable for the short delivery of 203 cartons from the containerized shipments.The
petition is without merit.The petitioner insists that the ruling of United States Lines Inc. vs.
Commissioner of Customs 6 which held that:
It is petitioner's contention that Sec. 24 of Customs Administrative Order No. 8-75 * was
promulgated in the with the government policy of encouraging containerization which results
in the laudable decongestion of ports of entry. Such arrangement has been sanctioned
worldwide by international ports to cope [up] with the ever-increasing volume of cargoes of
the shipping industry. Hence, the containerization system was devised to facilitate the
expeditious and economical loading, carriage and unloading of cargoes. Under this system,
the shipper loads his cargoes in a specially designed container, seals the container and
delivers it to the carrier for transportation. The carrier does not participate in the counting of
the merchandise for loading into the container, the actual loading thereof nor the sealing of
the container. Having no actual knowledge of the kind, quantity or condition of the contents
of the container, the carrier issues the corresponding bill of lading based on the declaration
of the shipper. The bill of lading describes the cargo as a container simply and it states the
contents of the container either as advised by the shipper or prefaced by the phrase "said to
contain." Clearly then, the matter quantity, description and conditions of the cargo is the sole
responsibility of the shipper.
is controlling in the case at bar because the transactions are Identical, in that, in the present case,
the cargoes in question are containerized. And the bill of lading, has, among others, the following
entries:
SHIPPED ON BOARD FIVE SHIPPER PACKED CONTAINERS SAID TO CONTAIN 2680
CARTONS HARD FROZEN BONELESS 72938 kgs = 160800 lbs nett
536 CARTONS - CONTAINER NO: BROU 430915 (4) 536 CARTONS - CONTAINER NO:
ITLU 780480 (2) 536 CARTONS - CONTAINER NO: BROU 430773 (7) 536 CARTONS -
CONTAINER NO: ITLU 780254 (3) 536 CARTONS - CONTAINER NO: BROU 4306561
50
Moreover, we must note also that the bill of lading itself contains the printed stipulations: ... prima facie evidence is of course, like all evidence susceptible to rebuttal; but unrebutted
it remains sufficient, as a matter of law to establish the ultimate proposition it purports to
prove. It goes without saving that such evidence can only be overcome by contrary proof
xxx xxx xxx
and not by mere surmises and speculations.

Weight, measurement marks and numbers (except loading marks for which the carrier is only
We have gone over the records and we find that the petitioner had not overthrown this presumption
responsible if stamped or otherwise shown clearly in letters at least 50 mm high) quality contents
by contrary evidence. Therefore, the respondent court did not commit any reversible error in
and value shown above are furnished by the Merchant and have not been checked and are to be
agreeing with the trial court that the loss of the 203 cartons is attributable to the petitioner.
considered unknown, unless expressly acknowledged and agreed to. 8

On this score, the respondent court found that:

And in the bottom portion of the bill of lading there appears the statement:

xxx xxx xxx

This bill of lading is a receipt only for the number of packages shown above. 9 which was duly
signed by the carrier.
... The fact remains that on October 13, 1979, the vessel MS 'Malmroo Monsoon" arrived at
Pier 3 of the Port of Manila and the shipment was discharged into possession and custody
Evidently, the carrier, by signifying in the bill of lading that "it is a receipt ... for the number of
of the arrastre operator with the seals of the containers intact on same date (Exh, 'H'). It was
packages shown above," had explicitly admitted that the containerized shipments had actually the
only on October 22, 1979 when defendant withdrew the containers to be delivered to the
number of packages declared by the shipper in the bill of lading. And this conclusion is bolstered by
Grech Food Industries Cold Storage arriving at 1:00 o'clock in the morning of the following
the stipulation printed in the bill of lading, "unless expressly acknowledged and agreed to."
day October 23, 1979 that the contents of Container No. BROU 306561 was counted and
Therefore, the phrase "said to contain" also appearing in the bill of lading must give way to this
there it was discovered that the shipment was short of 203 cartons (Exhs. 'A', 'D' and 'E'). In
reality.
other words, the containers were delivered to the consignee's warehouse at Grech Food
Industries Cold Storage in Pasig, Rizal after more than nine (9) hours which is highly
Hence, this express acknowledgment of the carrier makes the case at bar an exception to the auspicious as the trip from the piers to Pasig, takes only one (1) hours and there were (sic)
doctrine enunciated in United States Lines. The rule enunciated by United States Lines applies to a no heavy traffic along the route. This will militate against the stand of the defendant that the
situation where the carrier of the containerized cargo simply admits the information furnished by the loss of the 203 cartons of hard frozen boneless beef meat occurred while it was outside its
shipper with regard to the goods it shipped as reflected in the bill of lading ("said to contain") but not custody as the contrary had been proven by plaintiff.
where the carrier of the containerized cargo makes an explicit admission as to the weight,
measurement marks, numbers, quality contents, and value, and more so. inscribed these
xxx xxx xxx
admissions as stipulations in the bill of lading itself, or made them an addendum thereto, to which
the carrier affixed its express acknowledgment as what happened in this case. In its stead, the
dictum that the bill of lading shall be prima facie evidence of the receipt by the carrier of the goods There being no showing that the respondent court overlooked certain facts of substance and value,
as therein described 10 governs. We have already held that: which if taken into account would affect the result of this case necessitating its reversal, we must
deny the petition for review.
... [a] bill of lading operates both as a receipt and as a contract. It is a receipt for the goods
shipped and a contract to transport and deliver the same as therein stipulated. As a receipt, Belatedly, the petitioner raises the issue of prescription citing sec. 2(6), paragraph 4 of the Carriage
it recites the date and place of shipment, describes the goods as to quantity, weight, of Goods by Sea Act which provides:
dimensions, Identification marks and condition, quality, and value. As a contract it names
the contracting parties, which include the consignee, fixes the route, destination, and freight
... the carrier and the ship shall be discharged from all liability in respect of loss or damage
rates or charges, and stipulates the rights and obligations assumed by the parties.
unless suit is brought within one year after delivery of the goods or the date when the goods
should have been delivered: ...
In addition, the petitioner contends that it can not possibly be held liable for the shortage of the
containerized goods because before the same came into its custody the same had already passed
This defense had been waived and/or abandoned by the petitioner. Other than the allegation of
through different hands. And passing the buck, so to speak, it surmises that the shortfall occurred
prescription in the answer, the petitioner never pursued this matter either in the later proceedings of
either in Brisbane, or on board the carrier, or at the piers (Piers 3 and 13), or at the consignee's
the trial court or in the Court of Appeals. The petitioner can not now be allowed to raise this issue to
warehouse in Pasig. But wherever, the shortage could not be blamed on the petitioner.
this Court after such waiver or abandonment.

The petitioner contradicts itself for contrary to these posturings, it included allegations in its answer
Granting arguendo that petitioner can still put up prescription as its defense, nonetheless it will not
that all the containerized shipments arrived in Manila with the seals intact, 12 and that the petitioner
prosper considering that the petitioner is not a carrier or a vessel or a charterer or the legal holder of
received the said sealed containers of the shipments, particularly container No. BROU-4306561
the bill of lading. The petitioner is the broker. And the private respondent is the insurer. The
which sustained the loss of 203 cartons from the arrastre operator, also with the seals intact. 13 It
prescriptive period of this cause of action is ten years. In the present case, ten years have not yet
can therefore be concluded that the petitioner received all the shipments as itemized in the bill of
lapsed from the delivery of the shipment.
lading. For the rule is well-established that the facts alleged in a party's pleading are deemed
admissions of that party and binding upon it.
WHEREFORE, the petition is hereby DENIED. Costs against the petitioner.
As the petitioner prima facie received all the shipments in the sealed containers, it has the burden to
rebut the conclusion that it received the same without shortage, It has been authoritatively said that: SO ORDERED.

51
G.R. No. 80256 October 2, 1992 surveyors reported, that checked against the packing list, the shipment in Container No.
OOLU2552969 was short of seven cases (see p. 18, Rollo).
BANKERS & MANUFACTURERS ASSURANCE CORP., petitioner,
vs. Under the prevailing circumstances, it is therefore, not surprising why the Court of Appeals in
COURT OS APPEALS, F. E. ZUELLIG & CO., INC. and E. RAZON, INC., respondents. sustaining the trial court, simply quoted the latter, thus:

MELO, J.: It must be also considered that the subject container was not stripped of its content at the
pier zone. The two unstripped containers (together with the 19 cases removed from the
stripped third container) were delivered to, and received by, the customs broker for the
After the Court of Appeals in CA-G.R. CV No. 08226 (July 8, 1987, Kapunan, Puno (P),
consignee without any exception or notation of bad order of shortlanding (Exhs. 1, 2 and 3
Marigomen, JJ.) affirmed the dismissal by Branch XVI of the Regional Trial Court of Manila of
Vessel). If there was any suspicion or indication of irregularity or theft or pilferage, plaintiff or
petitioner's complaint for recovery of the amount it had paid its insured concerning the loss of a
consignee's representatives should have noted the same on the gate passes or insisted that
portion of a shipment, petitioner has interposed the instant petition for review on certiorari.
some form of protest form part of the documents concerning the shipment. Yet, no such step
was taken. The shipment appears to have been delivered to the customs broker in good
Petitioner presents the following bare operative facts: 108 cases of copper tubings were imported by order and condition and complete save for the three cases noted as being apparently in bad
Ali Trading Company. The tubings were insured by petitioner and arrived in Manila on board and order.
vessel S/S "Oriental Ambassador" on November 4, 1978, and turned over the private respondent E.
Razon, the Manila arrastre operator upon discharge at the waterfront. The carrying vessel is
Consider further that the stripping of the subject container was done at the consignee's
represented in the Philippines by its agent, the other private respondent, F. E. Zuellig and Co., Inc.,
warehouse where, according to plaintiff's surveyor, the loss of the seven cases was
Upon inspection by the importer, the shipment was allegedly found to have sustained loses by way
discovered. The evidence is not settled as whether the defendants' representative were
of theft and pilferage for which petitioner, as insurer, compensated the importer in the amount of
notified of, and were present at, the unsealing and opening of the container in the bodega.
P31,014.00.
Nor is the evidence clear how much time elapsed between the release of the shipment from
the pier and the stripping of the containers at consignee bodega. All these fail to discount
Petitioner, in subrogation of the importer-consignee and on the basis of what it asserts had been the possibility that the loss in question could have taken place after the container had left the
already established — that a portion of that shipment was lost through theft and pilferage — pier. (pp. 20-21, Rollo)
forthwith concludes that the burden of proof of proving a case of non-liability shifted to private
respondents, one of whom, the carrier, being obligated to exercise extraordinary diligence in the
Verily, if any of the vans found in bad condition, or if any inspection of the goods was to be done in
transport and care of the shipment. The implication of petitioner's statement is that private
order to determine the condition thereof, the same should have been done at the pierside, the pier
respondents have not shown why they are not liable. The premises of the argument of petitioner
warehouse, or at any time and place while the vans were under the care and custody of the carrier
may be well-taken but the conclusions are not borne out or supported by the record.
or of the arrastre operator. Unfortunately for petitioner, even as one of the three vans was inspected
and stripped, the two other vans and the contents of the owner previously stripped were accepted
It must be underscored that the shipment involved in the case at bar was "containerized". The goods without exception as to any supposed bad order or condition by petitioner's own broker. To all
under this arrangement are stuffed, packed, and loaded by the shipper at a place of his choice, appearances, therefore, the shipment was accepted by petitioner in good order.
usually his own warehouse, in the absence of the carrier. The container is sealed by the shipper and
thereafter picked up by the carrier. Consequently, the recital of the bill of lading for goods thus
It logically follows that the case at bar presents no occasion for the necessity of discussing the
transported ordinarily would declare "Said to Contain", "Shipper's Load and Count", "Full Container
diligence required of a carrier or of the theory of prima facie liability of the carrier, for from all
Load", and the amount or quantity of goods in the container in a particular package is only prima
indications, the shipment did not suffer loss or damage while it was under the care of the carrier, or
facie evidence of the amount or quantity which may be overthrown by parol evidence.
of the arrastre operator, it must be added.

A shipment under this arrangement is not inspected or inventoried by the carrier whose duty is only
WHEREFORE, the petition is hereby DISMISSED and the decision of the Court of Appeals
to transport and deliver the containers in the same condition as when the carrier received and
AFFIRMED, with costs against petitioner.
accepted the containers for transport. In the case at bar, the copper tubings were placed in three
containers. Upon arrival in Manila on November 4, 1978, the shipment was discharged in apparent
good order and condition and from the pier's docking apron, the containers were shifted to the SO ORDERED.
container yard of Pier 3 for safekeeping. Three weeks later, one of the container vans, said to
contain 19 cases of the cargo, was "stripped" in the presence of petitioner's surveyors, and three
cases were found to be in bad order. The 19 cases of the van stripped were then kept inside
Warehouse No. 3 of Pier 3 pending delivery. It should be stressed at this point, that the three cases
found in bad order are not the cases for which the claim below was presented, for although the
three cases appeared to be in bad order, the contents remained good and intact.

The two other container vans were not moved from the container yard and they were not stripped.
On December 8, 1978, the cargo was released to the care of the consignee's authorized customs
broker, the RGS Customs Brokerage. The broker, accepting the shipment without exception as to
bad order, caused the delivery of the vans to the consignee's warehouse in Makati. It was at that
place, when the contents of the two containers were removed and inspected, that petitioner's

52
G.R. No. L-28673 October 23, 1984
SAMAR MINING COMPANY, INC., plaintiff-appellee,
vs.
NORDEUTSCHER LLOYD and C.F. SHARP & COMPANY, INC., defendants-appellants.
CUEVAS, J.:
This is an appeal taken directly to Us on certiorari from the decision of the defunct Court of First
Instance of Manila, finding defendants carrier and agent, liable for the value of goods never
delivered to plaintiff consignee. The issue raised is a pure question of law, which is, the liability of
the defendants, now appellants, under the bill of lading covering the subject shipment.
The case arose from an importation made by plaintiff, now appellee, SAMAR MINING COMPANY,
INC., of one (1) crate Optima welded wedge wire sieves through the M/S SCHWABENSTEIN a
vessel owned by defendant-appellant NORDEUTSCHER LLOYD, (represented in the Philippines by
its agent, C.F. SHARP & CO., INC.), which shipment is covered by Bill of Lading No. 18 duly issued
to consignee SAMAR MINING COMPANY, INC. Upon arrival of the aforesaid vessel at the port of
Manila, the aforementioned importation was unloaded and delivered in good order and condition to
the bonded warehouse of AMCYL.  The goods were however never delivered to, nor received by,
the consignee at the port of destination — Davao.
When the letters of complaint sent to defendants failed to elicit the desired response, consignee
herein appellee, filed a formal claim for P1,691.93, the equivalent of $424.00 at the prevailing rate of
exchange at that time, against the former, but neither paid. Hence, the filing of the instant suit to
enforce payment. Defendants-appellants brought in AMCYL as third party defendant.
The trial court rendered judgment in favor of plaintiff, ordering defendants to pay the amount of
P1,691.93 plus attorney's fees and costs. However, the Court stated that defendants may recoup
whatever they may pay plaintiff by enforcing the judgment against third party defendant AMCYL
which had earlier been declared in default. Only the defendants appealed from said decision.
The issue at hand demands a close scrutiny of Bill of Lading No. 18 and its various clauses and
stipulations which should be examined in the light of pertinent legal provisions and settled
jurisprudence. This undertaking is not only proper but necessary as well because of the nature of
the bill of lading which operates both as a receipt for the goods; and more importantly, as a contract
to transport and deliver the same as stipulated therein. 2 Being a contract, it is the law between the
parties thereto 3 who are bound by its terms and conditions 4 provided that these are not contrary to
law, morals, good customs, public order and public policy. 5
Bill of Lading No. 18 sets forth in page 2 thereof 6 that one (1) crate of Optima welded wedge wire
sieves was received by the carrier NORDEUTSCHER LLOYD at the "port of loading" which is
Bremen, Germany, while the freight had been prepaid up to the port of destination or the "port of
discharge of goods in this case, Davao, the carrier undertook to transport the goods in its vessel,
M/S SCHWABENSTEIN only up to the "port of discharge from ship-Manila. Thereafter, the goods
were to be transshipped by the carrier to the port of destination or "port of discharge of goods The
stipulation is plainly indicated on the face of the bill which contains the following phrase printed
below the space provided for the port of discharge from ship", thus: 
if goods are to be transshipped at port of discharge, show destination under the column for
"description of contents" 7
As instructed above, the following words appeared typewritten under the column for "description of
contents":
PORT OF DISCHARGE OF GOODS: DAVAO
FREIGHT PREPAID 8
It is clear, then, that in discharging the goods from the ship at the port of Manila, and delivering the
same into the custody of AMCYL, the bonded warehouse, appellants were acting in full accord with
the contractual stipulations contained in Bill of Lading No. 18. The delivery of the goods to AMCYL
was part of appellants' duty to transship the goods from Manila to their port of destination-Davao.
The word "transship" means: 
to transfer for further transportation from one ship or conveyance to another 9
The extent of appellant carrier's responsibility and/or liability in the transshipment of the goods in
question are spelled out and delineated under Section 1, paragraph 3 of Bill of Lading No. 18, to
wit: têñ.
The carrier shall not be liable in any capacity whatsoever for any delay, loss or damage
occurring before the goods enter ship's tackle to be loaded or after the goods leave ship's
tackle to be discharged, transshipped or forwarded ... (Emphasis supplied)
and in Section 11 of the same Bill, which provides: 
Whenever the carrier or m aster may deem it advisable or in any case where the goods are
placed at carrier's disposal at or consigned to a point where the ship does not expect to load
or discharge, the carrier or master may, without notice, forward the whole or any part of the
goods before or after loading at the original port of shipment, ... This carrier, in making
arrangements for any transshipping or forwarding vessels or means of transportation not
operated by this carrier shall be considered solely the forwarding agent of the shipper and
without any other responsibility whatsoever even though the freight for the whole transport
has been collected by him. ... Pending or during forwarding or transshipping the carrier may
store the goods ashore or afloat solely as agent of the shipper and at risk and expense of
the goods and the carrier shall not be liable for detention nor responsible for the acts,
neglect, delay or failure to act of anyone to whom the goods are entrusted or delivered for
storage, handling or any service incidental thereto (Emphasis supplied) 
Defendants-appellants now shirk liability for the loss of the subject goods by claiming that they have
discharged the same in full and good condition unto the custody of AMCYL at the port of discharge
from ship — Manila, and therefore, pursuant to the aforequoted stipulation (Sec. 11) in the bill of
lading, their responsibility for the cargo had ceased. 
We find merit in appellants' stand. The validity of stipulations in bills of lading exempting the carrier
from liability for loss or damage to the goods when the same are not in its actual custody has been
upheld by Us in PHOENIX ASSURANCE CO., LTD. vs. UNITED STATES LINES, 22 SCRA 674
(1968). Said case matches the present controversy not only as to the material facts but more
importantly, as to the stipulations contained in the bill of lading concerned. As if to underline their
awesome likeness, the goods in question in both cases were destined for Davao, but were
discharged from ship in Manila, in accordance with their respective bills of lading.
The stipulations in the bill of lading in the PHOENIX case which are substantially the same as the
subject stipulations before Us, provides: 
The carrier shall not be liable in any capacity whatsoever for any loss or damage to the
goods while the goods are not in its actual custody. (Par. 2, last subpar.)
xxx xxx xxx
53
 The carrier or master, in making arrangements with any person for or in connection with all goods.  The court a quo found that there was actual delivery to the consignee through its duly
transshipping or forwarding of the goods or the use of any means of transportation or authorized agent, the carrier.
forwarding of goods not used or operated by the carrier, shall be considered solely the agent
of the shipper and consignee and without any other responsibility whatsoever or for the cost
It becomes necessary at this point to dissect the complex relationship that had developed between
thereof ... (Par. 16). 
appellant and appellee in the course of the transactions that gave birth to the present suit. Two
undertakings appeared embodied and/or provided for in the Bill of Lading 19 in question. The first is
Finding the above stipulations not contrary to law, morals, good customs, public order or public FOR THE TRANSPORT OF GOODS from Bremen, Germany to Manila. The second, THE
policy, We sustained their validity  Applying said stipulations as the law between the parties in the TRANSSHIPMENT OF THE SAME GOODS from Manila to Davao, with appellant acting as agent of
aforecited case, the Court concluded that:  the consignee. 20 At the hiatus between these two undertakings of appellant which is the moment
when the subject goods are discharged in Manila, its personality changes from that of carrier to that
of agent of the consignee. Thus, the character of appellant's possession also changes, from
... The short form Bill of Lading ( ) states in no uncertain terms that the port of discharge of
possession in its own name as carrier, into possession in the name of consignee as the latter's
the cargo is Manila, but that the same was to be transshipped beyond the port of discharge
agent. Such being the case, there was, in effect, actual delivery of the goods from appellant as
to Davao City. Pursuant to the terms of the long form Bill of Lading ( ), appellee's
carrier to the same appellant as agent of the consignee. Upon such delivery, the appellant, as
responsibility as a common carrier ceased the moment the goods were unloaded in Manila
erstwhile carrier, ceases to be responsible for any loss or damage that may befall the goods from
and in the matter of transshipment, appellee acted merely as an agent of the shipper and
that point onwards. This is the full import of Article 1736, as applied to the case before Us.
consignee. ... (Emphasis supplied) 

But even as agent of the consignee, the appellant cannot be made answerable for the value of the
Coming now to the case before Us, We hold, that by the authority of the above pronouncements,
missing goods, It is true that the transshipment of the goods, which was the object of the agency,
and in conformity with the pertinent provisions of the New Civil Code, Section 11 of Bill of Lading No.
was not fully performed. However, appellant had commenced said performance, the completion of
18 and the third paragraph of Section 1 thereof are valid stipulations between the parties insofar as
which was aborted by circumstances beyond its control. An agent who carries out the orders and
they exempt the carrier from liability for loss or damage to the goods while the same are not in the
instructions of the principal without being guilty of negligence, deceit or fraud, cannot be held
latter's actual custody.
responsible for the failure of the principal to accomplish the object of the agency, 21 This can be
gleaned from the following provisions of the New Civil Code on the obligations of the agent: 
The liability of the common carrier for the loss, destruction or deterioration of goods transported from
a foreign country to the Philippines is governed primarily by the New Civil Code. 15 In all matters not
Article 1884. The agent is bound by his acceptance to carry out the agency, and is liable for
regulated by said Code, the rights and obligations of common carriers shall be governed by the
the damages which, through his non-performance, the principal may suffer.
Code of Commerce and by special laws. 16 A careful perusal of the provisions of the New Civil
Code on common carriers (Section 4, Title VIII, Book IV) directs our attention to Article 1736 thereof,
which reads:  Article 1889. The agent shall be liable for damages if, there being a conflict between his
interests and those of the principal, he should prefer his own.
Article 1736. The extraordinary responsibility of the common carrier lasts from the time the
goods are unconditionally placed in the possession of, and received by the carrier for Article 1892. The agent may appoint a substitute if the principal has not prohibited him from
transportation until the same are delivered, actually or constructively, by the carrier to the doing so; but he shall be responsible for the acts of the substitute:
consignee, or to the person who has a right to receive them, without prejudice to the
provisions of article 1738.
(1) When he was not given the power to appoint one;
(2) When he was given such power but without designating the person and the
Article 1738 referred to in the foregoing provision runs thus:  person appointed was notoriously incompetent or insolvent.

Article 1738. The extraordinary liability of the common carrier continues to be operative even
during the time the goods are stored in a warehouse of the carrier at the place of
destination, until the consignee has been advised of the arrival of the goods and has had
reasonable opportunity thereafter to remove them or otherwise dispose of them.
There is no doubt that Art. 1738 finds no applicability to the instant case. The said article
contemplates a situation where the goods had already reached their place of destination and are
stored in the warehouse of the carrier. The subject goods were still awaiting transshipment to their
port of destination, and were stored in the warehouse of a third party when last seen and/or heard
of. However, Article 1736 is applicable to the instant suit. Under said article, the carrier may be
relieved of the responsibility for loss or damage to the goods upon actual or constructive delivery of
the same by the carrier to the consignee, or to the person who has a right to receive them. In sales,
actual delivery has been defined as the ceding of corporeal possession by the seller, and the actual
apprehension of corporeal possession by the buyer or by some person authorized by him to receive
the goods as his representative for the purpose of custody or disposal. 17 By the same token, there
is actual delivery in contracts for the transport of goods when possession has been turned over to
the consignee or to his duly authorized agent and a reasonable time is given him to remove the
Article 1909. The agent is responsible not only for fraud, but also for negligence which shall
be judged with more or less rigor by the courts, according to whether the agency was or was
not for a compensation.
The records fail to reveal proof of negligence, deceit or fraud committed by appellant or by its
representative in the Philippines. Neither is there any showing of notorious incompetence or
insolvency on the part of AMCYT, which acted as appellant's substitute in storing the goods awaiting
transshipment.
The actions of appellant carrier and of its representative in the Philippines being in full faith with the
lawful stipulations of Bill of Lading No. 18 and in conformity with the provisions of the New Civil
Code on common carriers, agency and contracts, they incur no liability for the loss of the goods in
question.
WHEREFORE, the appealed decision is hereby REVERSED. Plaintiff-appellee's complaint is hereby
DISMISSED. No costs. SO ORDERED.

54
G.R. No. 125524           August 25, 1999
BENITO MACAM doing business under the name and style BEN-MAC
ENTERPRISES, petitioner,
vs.
COURT OF APPEALS, CHINA OCEAN SHIPPING CO., and/or WALLEM PHILIPPINES
SHIPPING, INC., respondents.
BELLOSILLO, J.:
On 4 April 1989 petitioner Benito Macam, doing business under the name and style Ben-Mac
Enterprises, shipped on board the vessel Nen Jiang, owned and operated by respondent China
Ocean Shipping Co., through local agent respondent Wallem Philippines Shipping, Inc. (hereinafter
WALLEM), 3,500 boxes of watermelons valued at US$5,950.00 covered by Bill of Lading No. HKG
99012 and exported through Letter of Credit No. HK 1031/30 issued by National Bank of Pakistan,
Hongkong (hereinafter PAKISTAN BANK) and 1,611 boxes of fresh mangoes with a value of
US$14,273.46 covered by Bill of Lading No. HKG 99013 and exported through Letter of Credit No.
HK 1032/30 also issued by PAKISTAN BANK. The Bills of Lading contained the following pertinent
provision: "One of the Bills of Lading must be surrendered duly endorsed in exchange for the goods
or delivery order.1 The shipment was bound for Hongkong with PAKISTAN BANK as consignee and
Great Prospect Company of Kowloon, Hongkong (hereinafter GPC) as notify party.
On 6 April 1989, per letter of credit requirement, copies of the bills of lading and commercial invoices
were submitted to petitioner's depository bank, Consolidated Banking Corporation (hereinafter
SOLIDBANK), which paid petitioner in advance the total value of the shipment of
US$20,223.46.1âwphi1.nêt
Upon arrival in Hongkong, the shipment was delivered by respondent WALLEM directly to GPC, not
to PAKISTAN BANK, and without the required bill of lading having been surrendered. Subsequently,
GPC failed to pay PAKISTAN BANK such that the latter, still in possession of the original bills of
lading, refused to pay petitioner through SOLIDBANK. Since SOLIDBANK already pre-paid
petitioner the value of the shipment, it demanded payment from respondent WALLEM through five
(5) letters but was refused. Petitioner was thus allegedly constrained to return the amount involved
to SOLIDBANK, then demanded payment from respondent WALLEM in writing but to no avail.
On 25 September 1991 petitioner sought collection of the value of the shipment of US$20,223.46 or
its equivalent of P546,033.42 from respondents before the Regional Trial Court of Manila, based on
delivery of the shipment to GPC without presentation of the bills of lading and bank guarantee.
Respondents contended that the shipment was delivered to GPC without presentation of the bills of
lading and bank guarantee per request of petitioner himself because the shipment consisted of
perishable goods. The telex dated 5 April 1989 conveying such request read —
AS PER SHPR'S REQUEST KINDLY ARRANGE DELIVERY OF A/M SHIPT TO
RESPECTIVE CNEES WITHOUT PRESENTATION OF OB/L2 and bank guarantee since
for prepaid shipt ofrt charges already fully paid our end . . . .3
Respondents explained that it is a standard maritime practice, when immediate delivery is of the
essence, for the shipper to request or instruct the carrier to deliver the goods to the buyer upon
arrival at the port of destination without requiring presentation of the bill of lading as that usually
takes time. As proof thereof, respondents apprised the trial court that for the duration of their two-
year business relationship with petitioner concerning similar shipments to GPC deliveries were
effected without presentation of the bills of lading. 4 Respondents advanced next that the refusal of
PAKISTAN BANK to pay the letters of credit to SOLIDBANK was due to the latter's failure to submit
a Certificate of Quantity and Quality. Respondents counterclaimed for attorney's fees and costs of
suit.
On 14 May 1993 the trial court ordered respondents to pay, jointly and severally, the following
amounts: (1) P546,033.42 plus legal interest from 6 April 1989 until full payment; (2) P10,000.00 as
attorney's fees; and, (3) the costs. The counterclaims were dismissed for lack of merit.5 The trial
court opined that respondents breached the provision in the bill of lading requiring that "one of the
Bills of Lading must be surrendered duly endorsed in exchange for the goods or delivery order,"
when they released the shipment to GPC without presentation of the bills of lading and the bank
guarantee that should have been issued by PAKISTAN BANK in lieu of the bills of lading. The trial
court added that the shipment should not have been released to GPC at all since the instruction
contained in the telex was to arrange delivery to the respective consignees and not to any party. The
trial court observed that the only role of GPC in the transaction as notify party was precisely to be
notified of the arrival of the cargoes in Hongkong so it could in turn duly advise the consignee.
Respondent Court of Appeals appreciated the evidence in a different manner. According to it, as
established by previous similar transactions between the parties, shipped cargoes were sometimes
actually delivered not to the consignee but to notify party GPC without need of the bills of lading or
bank guarantee.6 Moreover, the bills of lading were viewed by respondent court to have been
properly superseded by the telex instruction and to implement the instruction, the delivery of the
shipment must be to GPC, the real importer/buyer of the goods as shown by the export
invoices,7 and not to PAKISTAN BANK since the latter could very well present the bills of lading in
its possession; likewise, if it were the PAKISTAN BANK to which the cargoes were to be strictly
delivered it would no longer be proper to require a bank guarantee. Respondent court noted that
besides, GPC was listed as a consignee in the telex. It observed further that the demand letter of
petitioner to respondents never complained of misdelivery of goods. Lastly, respondent court found
that petitioner's claim of having reimbursed the amount involved to SOLIDBANK was
unsubstantiated. Thus, on 13 March 1996 respondent court set aside the decision of the trial court
and dismissed the complaint together with the counterclaims.8 On 5 July 1996 reconsideration was
denied.9
Petitioner submits that the fact that the shipment was not delivered to the consignee as stated in the
bill of lading or to a party designated or named by the consignee constitutes a misdelivery thereof.
Moreover, petitioner argues that from the text of the telex, assuming there was such an instruction,
the delivery of the shipment without the required bill of lading or bank guarantee should be made
only to the designated consignee, referring to PAKISTAN BANK.
We are not persuaded. The submission of petitioner that "the fact that the shipment was not
delivered to the consignee as stated in the Bill of Lading or to a party designated or named by the
consignee constitutes a misdelivery thereof" is a deviation from his cause of action before the trial
court. It is clear from the allegation in his complaint that it does not deal with misdelivery of the
cargoes but of delivery to GPC without the required bills of lading and bank guarantee —
6. The goods arrived in Hongkong and were released by the defendant Wallem directly to
the buyer/notify party, Great Prospect Company and not to the consignee, the National
Bank of Pakistan, Hongkong, without the required bills of lading and bank guarantee for
the release of the shipment issued by the consignee of the goods . . . .10
Even going back to an event that transpired prior to the filing of the present case or when petitioner
wrote respondent WALLEM demanding payment of the value of the cargoes, misdelivery of the
cargoes did not come into the picture —
We are writing you on behalf of our client, Ben-Mac Enterprises who informed us that Bills
of Lading No. 99012 and 99013 with a total value of US$20,223.46 were released to
Great Prospect, Hongkong without the necessary bank guarantee. We were further
informed that the consignee of the goods, National Bank of Pakistan, Hongkong, did not
release or endorse the original bills of lading. As a result thereof, neither the consignee,
National Bank of Pakistan, Hongkong, nor the importer, Great Prospect Company,
Hongkong, paid our client for the goods . . . .11
55
At any rate, we shall dwell on petitioner's submission only as a prelude to our discussion on the Atty. Hernandez: Just for the record, Your Honor, the witness is showing a Bill
imputed liability of respondents concerning the shipped goods. Article 1736 of the Civil Code of Lading referring to SKG (sic) 93023 and 93026 with Great Prospect
provides — Company.

Art. 1736. The extraordinary responsibility of the common carriers lasts from the time the Atty. Ventura:
goods are unconditionally placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or constructively, by the carrier to the
Q: Is that the telegraphic transfer?
consignee, or to the person who has a right to receive them, without prejudice to the
provisions of article 1738.12
A: Yes, actually, all the shippers partially request for the immediate release of the goods
when they are perishable. I thought Wallem Shipping Lines is not neophyte in the
We emphasize that the extraordinary responsibility of the common carriers lasts until actual or
business. As far as LC is concerned, Bank guarantee is needed for the immediate release
constructive delivery of the cargoes to the consignee or to the person who has a right to receive
of the goods . . . .15
them. PAKISTAN BANK was indicated in the bills of lading as consignee whereas GPC was the
notify party. However, in the export invoices GPC was clearly named as buyer/importer. Petitioner
also referred to GPC as such in his demand letter to respondent WALLEM and in his complaint Q: Mr. Witness, you testified that if is the practice of the shipper of the perishable goods to
before the trial court. This premise draws us to conclude that the delivery of the cargoes to GPC as ask the shipping lines to release immediately the shipment. Is that correct?
buyer/importer which, conformably with Art. 1736 had, other than the consignee, the right to receive
them14 was proper.
A: Yes, sir.

The real issue is whether respondents are liable to petitioner for releasing the goods to GPC without
Q: Now, it is also the practice of the shipper to allow the shipping lines to release the
the bills of lading or bank guarantee.
perishable goods to the importer of goods without a Bill of Lading or Bank guarantee?

Respondents submitted in evidence a telex dated 5 April 1989 as basis for delivering the cargoes to
A: No, it cannot be without the Bank Guarantee.
GPC without the bills of lading and bank guarantee. The telex instructed delivery of various
shipments to the respective consignees without need of presenting the bill of lading and bank
guarantee per the respective shipper's request since "for prepaid shipt ofrt charges already fully Atty. Hernandez:
paid." Petitioner was named therein as shipper and GPC as consignee with respect to Bill of Lading
Nos. HKG 99012 and HKG 99013. Petitioner disputes the existence of such instruction and claims
that this evidence is self-serving. Q: Can you tell us an instance when you will allow the release of the perishable goods by
the shipping lines to the importer without the Bank guarantee and without the Bill of
Lading?
From the testimony of petitioner, we gather that he has been transacting with GPC as
buyer/importer for around two (2) or three (3) years already. When mangoes and watermelons are in
season, his shipment to GPC using the facilities of respondents is twice or thrice a week. The goods A: As far as telegraphic transfer is concerned.
are released to GPC. It has been the practice of petitioner to request the shipping lines to
immediately release perishable cargoes such as watermelons and fresh mangoes through Q: Can you explain (to) this Honorable Court what telegraphic transfer is?
telephone calls by himself or his "people." In transactions covered by a letter of credit, bank
guarantee is normally required by the shipping lines prior to releasing the goods. But for buyers
using telegraphic transfers, petitioner dispenses with the bank guarantee because the goods are A: Telegraphic transfer, it means advance payment that I am already fully paid . . . .
already fully paid. In his several years of business relationship with GPC and respondents, there
was not a single instance when the bill of lading was first presented before the release of the Q: Mr. Macam, with regard to Wallem and to Great Prospect, would you know and can
cargoes. He admitted the existence of the telex of 3 July 1989 containing his request to deliver the you recall that any of your shipment was released to Great Prospect by Wallem through
shipment to the consignee without presentation of the bill of lading15 but not the telex of 5 April 1989 telegraphic transfer?
because he could not remember having made such request.
A: I could not recall but there were so many instances sir.
Consider pertinent portions of petitioner's testimony —
Q: Mr. Witness, do you confirm before this Court that in previous shipments of your goods
Q: Are you aware of any document which would indicate or show that your request to the through Wallem, you requested Wallem to release immediately your perishable goods to
defendant Wallem for the immediate release of your fresh fruits, perishable goods, to the buyer?
Great Prospect without the presentation of the original Bill of Lading?
A: Yes, that is the request of the shippers of the perishable goods . . . .16
A: Yes, by telegraphic transfer, which means that it is fully paid. And I requested
immediate release of the cargo because there was immediate payment.
Q: Now, Mr. Macam, if you request the Shipping Lines for the release of your goods
immediately even without the presentation of OBL, how do you course it?
Q: And you are referring, therefore, to this copy Telex release that you mentioned where
your Company's name appears Ben-Mac?
A: Usually, I call up the Shipping Lines, sir . . . .17

56
 Q: You also testified you made this request through phone calls. Who of you talked WHEREFORE, the petition is DENIED. The decision of respondent Court of Appeals of 13 March
whenever you made such phone call? 1996 dismissing the complaint of petitioner Benito Macam and the counterclaims of respondents
China Ocean Shipping Co. and/or Wallem Philippines Shipping, Inc., as well as its resolution of 5
July 1996 denying reconsideration, is AFFIRMED.1âwphi1.nêt
A: Mostly I let my people to call, sir. (sic)

SO ORDERED.
Q: So everytime you made a shipment on perishable goods you let your people to call?
(sic)

A: Not everytime, sir.

Q: You did not make this request in writing?

A: No, sir. I think I have no written request with Wallem . . . .18

Against petitioner's claim of "not remembering" having made a request for delivery of subject
cargoes to GPC without presentation of the bills of lading and bank guarantee as reflected in the
telex of 5 April 1989 are damaging disclosures in his testimony. He declared that it was his practice
to ask the shipping lines to immediately release shipment of perishable goods through telephone
calls by himself or his "people." He no longer required presentation of a bill of lading nor of a bank
guarantee as a condition to releasing the goods in case he was already fully paid. Thus, taking into
account that subject shipment consisted of perishable goods and SOLIDBANK pre-paid the full
amount of the value thereof, it is not hard to believe the claim of respondent WALLEM that petitioner
indeed requested the release of the goods to GPC without presentation of the bills of lading and
bank guarantee.

The instruction in the telex of 5 April 1989 was "to deliver the shipment to respective consignees."
And so petitioner argues that, assuming there was such an instruction, the consignee referred to
was PAKISTAN BANK. We find the argument too simplistic. Respondent court analyzed the telex in
its entirety and correctly arrived at the conclusion that the consignee referred to was not PAKISTAN
BANK but GPC —

There is no mistake that the originals of the two (2) subject Bills of Lading are still in the
possession of the Pakistani Bank. The appealed decision affirms this fact. Conformably, to
implement the said telex instruction, the delivery of the shipment must be to GPC, the
notify party or real importer/buyer of the goods and not the Pakistani Bank since the latter
can very well present the original Bills of Lading in its possession. Likewise, if it were the
Pakistani Bank to whom the cargoes were to be strictly delivered, it will no longer be
proper to require a bank guarantee as a substitute for the Bill of Lading. To construe
otherwise will render meaningless the telex instruction. After all, the cargoes consist of
perishable fresh fruits and immediate delivery thereof to the buyer/importer is essentially a
factor to reckon with. Besides, GPC is listed as one among the several consignees in the
telex (Exhibit 5-B) and the instruction in the telex was to arrange delivery of A/M shipment
(not any party) to respective consignees without presentation of OB/L and bank guarantee
. . . .20

Apart from the foregoing obstacles to the success of petitioner's cause, petitioner failed to
substantiate his claim that he returned to SOLIDBANK the full amount of the value of the cargoes. It
is not far-fetched to entertain the notion, as did respondent court, that he merely accommodated
SOLIDBANK in order to recover the cost of the shipped cargoes from respondents. We note that it
was SOLIDBANK which initially demanded payment from respondents through five (5) letters.
SOLIDBANK must have realized the absence of privity of contract between itself and respondents.
That is why petitioner conveniently took the cudgels for the bank.

In view of petitioner's utter failure to establish the liability of respondents over the cargoes, no
reversible error was committed by respondent court in ruling against him.

57
G.R. No. L-9840             April 22, 1957
LU DO & LU YM CORPORATION, petitioner-defendant,
vs.
I. V. BINAMIRA, respondent-plaintiff.
BAUTISTA ANGELO, J.:
On April 4, 1954, plaintiff filed an action in the Court of First Instance of Cebu against defendant to
recover the sum of P324.63 as value of certain missing shipment, P150 as actual and compensatory
damages, and P600 as moral and pecuniary damages. After trial, the court rendered judgment
ordering defendant to pay plaintiff the sum of P216.84, with legal interest. On appeal, the Court of
Appeals affirmed the judgment, hence the present petition for review.
On August 10, 1951, the Delta Photo Supply Company of New York shipped on board the M/S
"FERNSIDE" at New York, U.S.A., six cases of films and/or photographic supplies consigned to the
order of respondent I. V. Binamira. For this shipment, Bill of Lading No. 29 was issued. The ship
arrived at the port of Cebu on September 23, 1951 and discharged her cargo on September 23, and
24, 1951, including the shipment in question, placing it in the possession and custody of the arrastre
operator of said port, the Visayan Cebu Terminal Company, Inc.
Petitioner, as agent of the carrier, hired the Cebu Stevedoring Company, Inc. to unload its cargo.
During the discharge, good order cargo was separated from the bad order cargo on board the ship,
and a separate list of bad order cargo was prepared by Pascual Villamor, checker of the stevedoring
company. All the cargo unloaded was received at the pier by the Visayan Cebu Terminal Company
Inc, arrastre operator of the port. This terminal company had also its own checker, Romeo Quijano,
who also recorded and noted down the good cargo from the bad one. The shipment in question, was
not included in the report of bad order cargo of both checkers, indicating that it was discharged from
the, ship in good order and condition.
On September 26, 1951, three days after the goods were unloaded from the ship, respondent took
delivery of his six cases of photographic supplies from the arrastre operator. He discovered that the
cases showed signs of pilferage and, consequently, he hired marine surveyors, R. J. del Pan &
Company, Inc., to examine them. The surveyors examined the cases and made a physical count of
their contents in the presence of representatives of petitioner, respondent and the stevedoring
company. The surveyors examined the cases and made a physical count of their contents in the
presence of representatives of petitioner, respondent and the stevedoring company. The finding of
the surveyors showed that some films and photographic supplies were missing valued at P324.63.
It appears from the evidence that the six cases of films and photographic supplies were discharged
from the ship at the port of Cebu by the stevedoring company hired by petitioner as agent of the
carrier. All the unloaded cargo, including the shipment in question, was received by the Visayan
Cebu Terminal Company Inc., the arrastre operator appointed by the Bureau of Customs. It also
appears that during the discharge, the cargo was checked both by the stevedoring company hired
by petitioner as well as by the arrastre operator of the port, and the shipment in question, when
discharged from the ship, was found to be in good order and condition. But after it was delivered to
respondent three days later, the same was examined by a marine surveyor who found that some
films and supplies were missing valued at P324.63.
The question now to be considered is: Is the carrier responsible for the loss considering that the
same occurred after the shipment was discharged from the ship and placed in the possession and
custody of the customs authorities?
The Court of Appeals found for the affirmative, making on this point the following comment:
In this jurisdiction, a common carrier has the legal duty to deliver goods to a consignee in
the same condition in which it received them. Except where the loss, destruction or
deterioration of the merchandise was due to any of the cases enumerated in Article 1734
of the new Civil Code, a carrier is presumed to have been at fault and to have acted
negligently, unless it could prove that it observed extraordinary diligence in the care and
handling of the goods (Article 1735, supra). Such presumption and the liability of the
carrier attach until the goods are delivered actually or constructively, to the consignee, or
to the person who has a right to receive them (Article 1736, supra), and we believe
delivery to the customs authorities is not the delivery contemplated by Article 1736, supra,
in connection with second paragraph of Article 1498, supra, because, in such a case, the
goods are then still in the hands of the Government and their owner could not exercise
dominion whatever over them until the duties are paid. In the case at bar, the presumption
against the carrier, represented appellant as its agent, has not been successfully rebutted.
It is now contended that the Court of Appeals erred in its finding not only because it made wrong
interpretation of the law on the matter, but also because it ignored the provisions of the bill of lading
covering the shipment wherein it was stipulated that the responsibility of the carrier is limited only to
losses that may occur while the cargo is still under its custody and control.
We believe this contention is well taken. It is true that, as a rule, a common carrier is responsible for
the loss, destruction or deterioration of the goods it assumes to carry from one place to another
unless the same is due to any to any of the causes mentioned in Article 1734 on the new Civil Code,
and that, if the goods are lost, destroyed or deteriorated, for causes other that those mentioned, the
common carrier is presumed to have been at fault or to have acted negligently, unless it proves that
it has observed extraordinary diligence in their care (Article 1735, Idem.), and that this extraordinary
liability lasts from the time the goods are placed in the possession of the carrier until they are
delivered to the consignee, or "to the person who has the right to receive them" (Article
1736, Idem.), but these provisions only apply when the loss, destruction or deterioration takes place
while the goods are in the possession of the carrier, and not after it has lost control of them. The
reason is obvious. While the goods are in its possession, it is but fair that it exercise extraordinary
diligence in protecting them from damage, and if loss occurs, the law presumes that it was due to its
fault or negligence. This is necessary to protect the interest the interest of the owner who is at its
mercy. The situation changes after the goods are delivered to the consignee.
While we agree with the Court of Appeals that while delivery of the cargo to the consignee, or to the
person who has a right to receive them", contemplated in Article 1736, because in such case the
goods are still in the hands of the Government and the owner cannot exercise dominion over them,
we believe however that the parties may agree to limit the liability of the carrier considering that the
goods have still to through the inspection of the customs authorities before they are actually turned
over to the consignee. This is a situation where we may say that the carrier losses control of the
goods because of a custom regulation and it is unfair that it be made responsible for what may
happen during the interregnum. And this is precisely what was done by the parties herein. In the bill
of lading that was issued covering the shipment in question, both the carrier and the consignee have
stipulated to limit the responsibility of the carrier for the loss or damage that may because to the
goods before they are actually delivered by insert in therein the following provisions:
1. . . . The Carrier shall not be liable in any capacity whatsoever for any delay, nondelivery
or misdelivery, or loss of or damage to the goods occurring while the goods are not in the
actual custody of the Carrier. . . . (Emphasis ours.)
(Paragraph 1, Exhibit "1")
2. . . . The responsibility of the Carrier in any capacity shall altogether cease and the
goods shall be considered to be delivered and at their own risk and expense in every
respect when taken into the custody of customs or other authorities. The Carrier shall not
be required to give any notification of disposition of the goods. . . . (Emphasis ours.)
58
 (Paragraph 12, Exhibit "1")
3. Any provisions herein to the contrary notwithstanding, goods may be . . . by Carrier at
ship's tackle . . . and delivery beyond ship's tackle shall been tirely at the option of the
Carrier and solely at the expense of the shipper or consignee.
(Paragraph 22, Exhibit "1")
It therefore appears clear that the carrier does not assume liability for any loss or damage to the
goods once they have been "taken into the custody of customs or other authorities", or when they
have been delivered at ship's tackle. These stipulations are clear. They have been adopted precisely
to mitigate the responsibility of the carrier considering the present law on the matter, and we find
nothing therein that is contrary to morals or public policy that may justify their nullification. We are
therefore persuaded to conclude that the carrier is not responsible for the loss in question, it
appearing that the same happened after the shipment had been delivered to the customs
authorities.
Wherefore, the decision appealed from is reversed, without pronouncement as to costs.
G.R. No. L-31379 August 29, 1988
COMPAÑIA MARITIMA, petitioner,
vs.
COURT OF APPEALS and VICENTE CONCEPCION, respondents.
FERNAN, C.J.:
Petitioner Compañia Maritima seeks to set aside through this petition for review on certiorari the
decision 1 of the Court of Appeals dated December 5, 1965, adjudging petitioner liable to private
respondent Vicente E. Concepcion for damages in the amount of P24,652.97 with legal interest from
the date said decision shall have become final, for petitioner's failure to deliver safely private
respondent's payloader, and for costs of suit. The payloader was declared abandoned in favor of
petitioner.
The facts of the case are as follows:
Private respondent Vicente E. Concepcion, a civil engineer doing business under the name and
style of Consolidated Construction with office address at Room 412, Don Santiago Bldg., Taft
Avenue, Manila, had a contract with the Civil Aeronautics Administration (CAA) sometime in 1964
for the construction of the airport in Cagayan de Oro City Misamis Oriental.
Being a Manila — based contractor, Vicente E. Concepcion had to ship his construction equipment
to Cagayan de Oro City. Having shipped some of his equipment through petitioner and having
settled the balance of P2,628.77 with respect to said shipment, Concepcion negotiated anew with
petitioner, thru its collector, Pacifico Fernandez, on August 28, 1964 for the shipment to Cagayan de
Oro City of one (1) unit payloader, four (4) units 6x6 Reo trucks and two (2) pieces of water tanks.
He was issued Bill of Lading 113 on the same date upon delivery of the equipment at the Manila
North Harbor. 2
These equipment were loaded aboard the MV Cebu in its Voyage No. 316, which left Manila on
August 30, 1964 and arrived at Cagayan de Oro City in the afternoon of September 1, 1964. The
Reo trucks and water tanks were safely unloaded within a few hours after arrival, but while the
payloader was about two (2) meters above the pier in the course of unloading, the swivel pin of the
heel block of the port block of Hatch No. 2 gave way, causing the payloader to fall. 3 The payloader
was damaged and was thereafter taken to petitioner's compound in Cagayan de Oro City.
On September 7, 1964, Consolidated Construction, thru Vicente E. Concepcion, wrote Compañia
Maritima to demand a replacement of the payloader which it was considering as a complete loss
because of the extent of damage. 4 Consolidated Construction likewise notified petitioner of its claim
for damages. Unable to elicit response, the demand was repeated in a letter dated October 2,
1964. 5
Meanwhile, petitioner shipped the payloader to Manila where it was weighed at the San Miguel
Corporation. Finding that the payloader weighed 7.5 tons and not 2.5 tons as declared in the B-111
of Lading, petitioner denied the claim for damages of Consolidated Construction in its letter dated
October 7, 1964, contending that had Vicente E. Concepcion declared the actual weight of the
payloader, damage to their ship as well as to his payloader could have been prevented. 6
To replace the damaged payloader, Consolidated Construction in the meantime bought a new one
at P45,000.00 from Bormaheco Inc. on December 3, 1964, and on July 6, 1965., Vicente E.
Concepcion filed an action for damages against petitioner with the then Court of First Instance of
Manila, Branch VII, docketed as Civil Case No. 61551, seeking to recover damages in the amount of
P41,225.00 allegedly suffered for the period of 97 days that he was not able to employ a payloader
in the construction job at the rate of P450.00 a day; P34,000.00 representing the cost of the
damaged payloader; Pl 1, 000. 00 representing the difference between the cost of the damaged
payloader and that of the new payloader; P20,000.00 representing the losses suffered by him due to
the diversion of funds to enable him to buy a new payloader; P10,000.00 as attorney's fees;
P5,000.00 as exemplary damages; and cost of the suit. 7
After trial, the then Court of First Instance of Manila, Branch VII, dismissed on April 24, 1968 the
complaint with costs against therein plaintiff, herein private respondent Vicente E. Concepcion,
stating that the proximate cause of the fall of the payloader was Vicente E. Concepcion's act or
omission in having misrepresented the weight of the payloader as 2.5 tons instead of its true weight
of 7.5 tons, which underdeclaration was intended to defraud Compañia Maritima of the payment of
the freight charges and which likewise led the Chief Officer of the vessel to use the heel block of
hatch No. 2 in unloading the payloader. 8
From the adverse decision against him, Vicente E. Concepcion appealed to the Court of Appeals
which, on December 5, 1965 rendered a decision, the dispositive portion of which reads:
IN VIEW WHEREOF, judgment must have to be as it is hereby reversed; defendant is
condemned to pay unto plaintiff the sum in damages of P24,652.07 with legal interest from
the date the present decision shall have become final; the payloader is declared abandoned
to defendant; costs against the latter. 9
Hence, the instant petition.
The principal issue in the instant case is whether or not the act of private respondent Vicente E.
Concepcion in furnishing petitioner Compañia Maritima with an inaccurate weight of 2.5 tons instead
of the payloader's actual weight of 7.5 tons was the proximate and only cause of the damage on the
Oliver Payloader OC-12 when it fell while being unloaded by petitioner's crew, as would absolutely
exempt petitioner from liability for damages under paragraph 3 of Article 1734 of the Civil Code,
which provides:
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the
goods, unless the same is due to any of the following causes only:
59
 xxx xxx xxx
(3) Act or omission of the shipper or owner of the goods.
Petitioner claims absolute exemption under this provision upon the reasoning that private
respondent's act of furnishing it with an inaccurate weight of the payloader constitutes
misrepresentation within the meaning of "act or omission of the shipper or owner of the goods"
under the above- quoted article. It likewise faults the respondent Court of Appeals for reversing the
decision of the trial court notwithstanding that said appellate court also found that by representing
the weight of the payloader to be only 2.5 tons, private respondent had led petitioner's officer to
believe that the same was within the 5 tons capacity of the heel block of Hatch No. 2. Petitioner
would thus insist that the proximate and only cause of the damage to the payloader was private
respondent's alleged misrepresentation of the weight of the machinery in question; hence, any
resultant damage to it must be borne by private respondent Vicente E. Concepcion.
The general rule under Articles 1735 and 1752 of the Civil Code is that common carriers are
presumed to have been at fault or to have acted negligently in case the goods transported by them
are lost, destroyed or had deteriorated. To overcome the presumption of liability for the loss,
destruction or deterioration of the goods under Article 1735, the common carriers must prove that
they observed extraordinary diligence as required in Article 1733 of the Civil Code. The
responsibility of observing extraordinary diligence in the vigilance over the goods is further
expressed in Article 1734 of the same Code, the article invoked by petitioner to avoid liability for
damages.
Corollary is the rule that mere proof of delivery of the goods in good order to a common carrier, and
of their arrival at the place of destination in bad order, makes out prima facie case against the
common carrier, so that if no explanation is given as to how the loss, deterioration or destruction of
the goods occurred, the common carrier must be held responsible. 10 Otherwise stated, it is
incumbent upon the common carrier to prove that the loss, deterioration or destruction was due to
accident or some other circumstances inconsistent with its liability.
In the instant case, We are not persuaded by the proferred explanation of petitioner alleged to be
the proximate cause of the fall of the payloader while it was being unloaded at the Cagayan de Oro
City pier. Petitioner seems to have overlooked the extraordinary diligence required of common
carriers in the vigilance over the goods transported by them by virtue of the nature of their business,
which is impressed with a special public duty.
Thus, Article 1733 of the Civil Code provides:
Art. 1733. Common carriers, from the nature of their business and for reason of public
policy, are bound to observe extraordinary diligence in the vigilance over the goods and for
the safety of the passengers transported by them according to all the circumstances of each
case.
Such extraordinary diligence in the vigilance over the goods is further expressed in Articles
1734, 1735 and 1745, Nos. 5, 6 and 7, ...
The extraordinary diligence in the vigilance over the goods tendered for shipment requires the
common carrier to know and to follow the required precaution for avoiding damage to, or destruction
of the goods entrusted to it for safe carriage and delivery. It requires common carriers to render
service with the greatest skill and foresight and "to use all reasonable means to ascertain the nature
and characteristic of goods tendered for shipment, and to exercise due care in the handling and
stowage including such methods as their nature requires." 11 Under Article 1736 of the Civil Code, the
responsibility to observe extraordinary diligence commences and lasts from the time the goods are
unconditionally placed in the possession of, and received by the carrier for transportation until the
same are delivered, actually or constructively, by the carrier to the consignee, or to the person who
has the right to receive them without prejudice to the provisions of Article 1738.
Where, as in the instant case, petitioner, upon the testimonies of its own crew, failed to take the
necessary and adequate precautions for avoiding damage to, or destruction of, the payloader
entrusted to it for safe carriage and delivery to Cagayan de Oro City, it cannot be reasonably
concluded that the damage caused to the payloader was due to the alleged misrepresentation of
private respondent Concepcion as to the correct and accurate weight of the payloader. As found by
the respondent Court of Appeals, the fact is that petitioner used a 5-ton capacity lifting apparatus to
lift and unload a visibly heavy cargo like a payloader. Private respondent has, likewise, sufficiently
established the laxity and carelessness of petitioner's crew in their methods of ascertaining the
weight of heavy cargoes offered for shipment before loading and unloading them, as is customary
among careful persons.
It must be noted that the weight submitted by private respondent Concepcion appearing at the left-
hand portion of Exhibit 8 12 as an addendum to the original enumeration of equipment to be shipped
was entered into the bill of lading by petitioner, thru Pacifico Fernandez, a company collector,
without seeing the equipment to be shipped.13 Mr. Mariano Gupana, assistant traffic manager of
petitioner, confirmed in his testimony that the company never checked the information entered in the
bill of lading. 14 Worse, the weight of the payloader as entered in the bill of lading was assumed to be
correct by Mr. Felix Pisang, Chief Officer of MV Cebu. 15
The weights stated in a bill of lading are prima facie evidence of the amount received and the fact
that the weighing was done by another will not relieve the common carrier where it accepted such
weight and entered it on the bill of lading. 16 Besides, common carriers can protect themselves
against mistakes in the bill of lading as to weight by exercising diligence before issuing the same. 17
While petitioner has proven that private respondent Concepcion did furnish it with an inaccurate
weight of the payloader, petitioner is nonetheless liable, for the damage caused to the machinery
could have been avoided by the exercise of reasonable skill and attention on its part in overseeing
the unloading of such a heavy equipment. And circumstances clearly show that the fall of the
payloader could have been avoided by petitioner's crew. Evidence on record sufficiently show that
the crew of petitioner had been negligent in the performance of its obligation by reason of their
having failed to take the necessary precaution under the circumstances which usage has
established among careful persons, more particularly its Chief Officer, Mr. Felix Pisang, who is
tasked with the over-all supervision of loading and unloading heavy cargoes and upon whom rests
the burden of deciding as to what particular winch the unloading of the payloader should be
undertaken. 18 While it was his duty to determine the weight of heavy cargoes before accepting
them. Mr. Felix Pisang took the bill of lading on its face value and presumed the same to be correct
by merely "seeing" it. 19 Acknowledging that there was a "jumbo" in the MV Cebu which has the
capacity of lifting 20 to 25 ton cargoes, Mr. Felix Pisang chose not to use it, because according to
him, since the ordinary boom has a capacity of 5 tons while the payloader was only 2.5 tons, he did
not bother to use the "jumbo" anymore. 20
In that sense, therefore, private respondent's act of furnishing petitioner with an inaccurate weight of
the payloader upon being asked by petitioner's collector, cannot be used by said petitioner as an
excuse to avoid liability for the damage caused, as the same could have been avoided had
petitioner utilized the "jumbo" lifting apparatus which has a capacity of lifting 20 to 25 tons of heavy
cargoes. It is a fact known to the Chief Officer of MV Cebu that the payloader was loaded aboard the
MV Cebu at the Manila North Harbor on August 28, 1964 by means of a terminal crane. 21 Even if
petitioner chose not to take the necessary precaution to avoid damage by checking the correct
weight of the payloader, extraordinary care and diligence compel the use of the "jumbo" lifting
apparatus as the most prudent course for petitioner.
While the act of private respondent in furnishing petitioner with an inaccurate weight of the
payloader cannot successfully be used as an excuse by petitioner to avoid liability to the damage
thus caused, said act constitutes a contributory circumstance to the damage caused on the
60
payloader, which mitigates the liability for damages of petitioner in accordance with Article 1741 of
the Civil Code, to wit:

Art. 1741. If the shipper or owner merely contributed to the loss, destruction or deterioration
of the goods, the proximate cause thereof being the negligence of the common carrier, the
latter shall be liable in damages, which however, shall be equitably reduced.

We find equitable the conclusion of the Court of Appeals reducing the recoverable amount of
damages by 20% or 1/5 of the value of the payloader, which at the time the instant case arose, was
valued at P34,000. 00, thereby reducing the recoverable amount at 80% or 4/5 of P34,000.00 or the
sum of P27,200.00. Considering that the freight charges for the entire cargoes shipped by private
respondent amounting to P2,318.40 remained unpaid.. the same would be deducted from the
P27,000.00 plus an additional deduction of P228.63 representing the freight charges for the
undeclared weight of 5 tons (difference between 7.5 and 2.5 tons) leaving, therefore, a final
recoverable amount of damages of P24,652.97 due to private respondent Concepcion.

Notwithstanding the favorable judgment in his favor, private respondent assailed the Court of
Appeals' decision insofar as it limited the damages due him to only P24,652.97 and the cost of the
suit. Invoking the provisions on damages under the Civil Code, more particularly Articles 2200 and
2208, private respondent further seeks additional damages allegedly because the construction
project was delayed and that in spite of his demands, petitioner failed to take any steps to settle his
valid, just and demandable claim for damages.

We find private respondent's submission erroneous. It is well- settled that an appellee, who is not an
appellant, may assign errors in his brief where his purpose is to maintain the judgment on other
grounds, but he may not do so if his purpose is to have the judgment modified or reversed, for, in
such case, he must appeal. 22 Since private respondent did not appeal from the judgment insofar as
it limited the award of damages due him, the reduction of 20% or 1/5 of the value of the payloader
stands.

WHEREFORE, in view of the foregoing, the petition is DENIED. The decision of the Court of
Appeals is hereby AFFIRMED in all respects with costs against petitioner. In view of the length of
time this case has been pending, this decision is immediately executory.

61
G.R. No. 119197 May 16, 1997
TABACALERA INSURANCE CO., PRUDENTIAL GUARANTEE & ASSURANCE, INC., and NEW
ZEALAND INSURANCE CO., LTD., petitioners,
vs.
NORTH FRONT SHIPPING SERVICES, INC., and COURT OF APPEALS, respondents.
BELLOSILLO, J.:
TABACALERA INSURANCE CO., Prudential Guarantee & Assurance, Inc., and New Zealand
Insurance Co., Ltd., in this petition for review on certiorari, assail the 22 December 1994 decision of
the Court of Appeals and its Resolution of 16 February 1995 which affirmed the 1 June 1993
decision of the Regional Trial Court dismissing their complaint for damages against North Front
Shipping Services, Inc.
tarpaulins were doubled and brand new and the hatches were properly sealed. They did not
encounter big waves hence it was not possible for water to seep in. He further averred that the corn
grains were farm wet and not properly dried when loaded.
The court below dismissed the complaint and ruled that the contract entered into between North
Front Shipping Services, Inc., and Republic Flour Mills Corporation was a charter-party agreement.
As such, only ordinary diligence in the care of goods was required of North Front Shipping Services,
Inc. The inspection of the barge by the shipper and the representatives of the shipping company
before actual loading, coupled with the Permit to Sail issued by the Coast Guard, sufficed to meet
the degree of diligence required of the carrier.
On the other hand, the Court of Appeals ruled that as a common carrier required to observe a higher
degree of diligence North Front 777 satisfactorily complied with all the requirements hence was
issued a Permit to Sail after proper inspection. Consequently, the complaint was dismissed and the
motion for reconsideration rejected.

On 2 August 1990, 20,234 sacks of corn grains valued at P3,500,640.00 were shipped on
The charter-party agreement between North Front Shipping Services, Inc., and Republic Flour Mills
board North Front 777, a vessel owned by North Front Shipping Services, Inc. The cargo was
Corporation did not in any way convert the common carrier into a private carrier. We have already
consigned to Republic Flour Mills Corporation in Manila under Bill of Lading No. 001 1 and insured
resolved this issue with finality in Planters Products, Inc. v. Court of Appeals 2 thus —
with the herein mentioned insurance companies. The vessel was inspected prior to actual loading by
representatives of the shipper and was found fit to carry the merchandise. The cargo was covered
with tarpaulins and wooden boards. The hatches were sealed and could only be opened by A "charter-party" is defined as a contract by which an entire ship, or some principal part
representatives of Republic Flour Mills Corporation. thereof, is let by the owner to another person for a specified time or use; 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
The vessel left Cagayan de Oro City on 2 August 1990 and arrived Manila on 16 August 1990.
consideration of the payment of freight . . . Contract of affreightment may either be time
Republic Flour Mills Corporation was advised of its arrival but it did not immediately commence the
charter, wherein the vessel is leased to the charterer for a fixed period of time, or voyage
unloading operations. There were days when unloading had to be stopped due to variable weather
charter, wherein the ship is leased for a single voyage. In both cases, the charter-party
conditions and sometimes for no apparent reason at all. When the cargo was eventually unloaded
provides for the hire of the vessel only, either for a determinate period of time or for a single
there was a shortage of 26.333 metric tons. The remaining merchandise was already moldy, rancid
or consecutive voyage, the ship owner to supply the ship's store, pay for the wages of the
and deteriorating. The unloading operations were completed on 5 September 1990 or twenty (20)
master of the crew, and defray the expenses for the maintenance of the ship.
days after the arrival of the barge at the wharf of Republic Flour Mills Corporation in Pasig City.

Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the Civil
Precision Analytical Services, Inc., was hired to examine the corn grains and determine the cause of
Code. The definition extends to carriers either by land, air or water which hold themselves
deterioration. A Certificate of Analysis was issued indicating that the corn grains had 18.56%
out as ready to engage in carrying goods or transporting passengers or both for
moisture content and the wetting was due to contact with salt water. The mold growth was only
compensation as a public employment and not as a casual occupation . . .
incipient and not sufficient to make the corn grains toxic and unfit for consumption. In fact the mold
growth could still be arrested by drying.
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
Republic Flour Mills Corporation rejected the entire cargo and formally demanded from North Front
limited to the shin only, as in the case of a time-charter or voyage-
Shipping Services, Inc., payment for the damages suffered by it. The demands however were
charter (emphasis supplied).
unheeded. The insurance companies were perforce obliged to pay Republic Flour Mills Corporation
P2,189,433.40.
North Front Shipping Services, Inc., is a corporation engaged in the business of transporting cargo
and offers its services indiscriminately to the public. It is without doubt a common carrier. As such it
By virtue of the payment made by the insurance companies they were subrogated to the rights of
is required to observe extraordinary diligence in its vigilance over the goods it transports. 3 When
Republic Flour Mills Corporation. Thusly, they lodged a complaint for damages against North Front
goods placed in its care are lost or damaged, the carrier is presumed to have been at fault or to
Shipping Services, Inc., claiming that the loss was exclusively attributable to the fault and
have acted negligently. 4 North Front Shipping Services, Inc., therefore has the burden of proving
negligence of the carrier. The Marine Cargo Adjusters hired by the insurance companies conducted
that it observed extraordinary diligence in order to avoid responsibility for the lost cargo.
a survey and found cracks in the bodega of the barge and heavy concentration of molds on the
tarpaulins and wooden boards. They did not notice any seals in the hatches. The tarpaulins were not
brand new as there were patches on them, contrary to the claim of North Front Shipping Services, North Front Shipping Services, Inc., proved that the vessel was inspected prior to actual loading by
Inc., thus making it possible for water to seep in. They also discovered that the bulkhead of the representatives of the shipper and was found fit to take a load of corn grains. They were also
barge was rusty. issued Permit to Sail by the Coast Guard. The master of the vessel testified that the corn grains
were farm wet when loaded. However, this testimony was disproved by the clean bill of lading
issued by North Front Shipping Services, Inc., which did not contain a notation that the corn grains
North Front Shipping Services, Inc., averred in refutation that it could not be made culpable for the
were wet and improperly dried. Having been in the service since 1968, the master of the vessel
loss and deterioration of the cargo as it was never negligent. Captain Solomon Villanueva, master of
would have known at the outset that corn grains that were farm wet and not properly dried would
the vessel, reiterated that the barge was inspected prior to the actual loading and was found
eventually deteriorate when stored in sealed and hot compartments as in hatches of a ship.
adequate and seaworthy. In addition, they were issued a permit to sail by the Coast Guard. The

62
Equipped with this knowledge, the master of the vessel and his crew should have undertaken
precautionary measures to avoid or lessen the cargo's possible deterioration as they were presumed
knowledgeable about the nature of such cargo. But none of such measures was taken.
In Compania Maritima v. Court of Appeals 5 we ruled —
WHEREFORE, the Decision of the Court of Appeals of 22 December 1994 and its Resolution of 16
February 1995 are REVERSED and SET ASIDE. Respondent North Front Shipping Services, Inc.,
is ordered to pay petitioners Tabacalera Insurance Co., Prudential Guarantee & Assurance, Inc.,
and New Zealand Insurance Co. Ltd., P1,313,660.00 which is 60% of the amount paid by the
insurance companies to Republic Flour Mills Corporation, plus interest at the rate of 12% per
annum from the time this judgment becomes final until full payment.

. . . Mere proof of delivery of the goods in good order to a common carrier, and of their
SO ORDERED.
arrival at the place of destination in bad order, makes out prima facie case against the
common carrier, so that if no explanation is given as to how the loss, deterioration or
destruction of the goods occurred, the common carrier must be held responsible.
Otherwise stated, it is incumbent upon the common carrier to prove that the loss,
deterioration or destruction was due to accident or some other circumstances
inconsistent with its liability . . .

The extraordinary diligence in the vigilance over the goods tendered for shipment
requires the common carrier to know and to follow the required precaution for avoiding
damage to, or destruction of the goods entrusted to it for safe carriage and delivery. It
requires common carriers to render service with the greatest skill and foresight and "to
use all reasonable means to ascertain the nature and characteristics of goods tendered
for shipment, and to exercise due care in the handling and stowage, including such
methods as their nature requires" (emphasis supplied).

In fine, we find that the carrier failed to observe the required extraordinary diligence in the vigilance
over the goods placed in its care. The proofs presented by North Front Shipping Services, Inc., were
insufficient to rebut the prima facie presumption of private respondent's negligence, more so if we
consider the evidence adduced by petitioners.

It is not denied by the insurance companies that the vessel was indeed inspected before actual
loading and that North Front 777 was issued a Permit to Sail. They proved the fact of shipment and
its consequent loss or damage while in the actual possession of the carrier. Notably, the carrier
failed to volunteer any explanation why there was spoilage and how it occurred. On the other hand,
it was shown during the trial that the vessel had rusty bulkheads and the wooden boards and
tarpaulins bore heavy concentration of molds. The tarpaulins used were not new, contrary to the
claim of North Front Shipping Services, Inc., as there were already several patches on them, hence,
making it highly probable for water to enter.

Laboratory analysis revealed that the corn grains were contaminated with salt water. North Front
Shipping Services, Inc., failed to rebut all these arguments. It did not even endeavor to establish that
the loss, destruction or deterioration of the goods was due to the following: (a) flood, storm,
earthquake, lightning, or other natural disaster or calamity; (b) act of the public enemy in war,
whether international or civil; (c) act or omission of the shipper or owner of the goods; (d) the
character of the goods or defects in the packing or in the containers; (e) order or act of competent
public authority. 6 This is a closed list. If the cause of destruction, loss or deterioration is other than
the enumerated circumstances, then the carrier is rightly liable therefor.

However, we cannot attribute the destruction, loss or deterioration of the cargo solely to the carrier.
We find the consignee Republic Flour Mills Corporation guilty of contributory negligence. It was
seasonably notified of the arrival of the barge but did not immediately start the unloading operations.
No explanation was proffered by the consignee as to why there was a delay of six (6) days. Had the
unloading been commenced immediately the loss could have been completely avoided or at least
minimized. As testified to by the chemist who analyzed the corn samples, the mold growth was only
at its incipient stage and could still be arrested by drying. The corn grains were not yet toxic or unfit
for consumption. For its contributory negligence, Republic Flour Mills Corporation should share at
least 40% of the loss. 7

63
G.R. No. 97412 July 12, 1994
said:
EASTERN SHIPPING LINES, INC., petitioner,
vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents.
VITUG, J.:
The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a
shipment of goods can be a solidary, or joint and several, liability of the common carrier, the arrastre
operator and the customs broker; (b) whether the payment of legal interest on an award for loss or
damage is to be computed from the time the complaint is filed or from the date the decision
appealed from is rendered; and (c) whether the applicable rate of interest, referred to above, is
twelve percent (12%) or six percent (6%).
The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed
facts that have led to the controversy are hereunder reproduced:
This is an action against defendants shipping company, arrastre operator and broker-
forwarder for damages sustained by a shipment while in defendants' custody, filed by the
insurer-subrogee who paid the consignee the value of such losses/damages.
On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan
for delivery vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines
under Bill of Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No.
81/01177 for P36,382,466.38.
Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the
custody of defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in
bad order, which damage was unknown to plaintiff.
On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from
defendant Metro Port Service, Inc., one drum opened and without seal (per "Request for
Bad Order Survey." Exh. D).
On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the
shipment to the consignee's warehouse. The latter excepted to one drum which contained
spillages, while the rest of the contents was adulterated/fake (per "Bad Order Waybill" No.
10649, Exh. E).
Plaintiff contended that due to the losses/damage sustained by said drum, the consignee
suffered losses totaling P19,032.95, due to the fault and negligence of defendants. Claims
were presented against defendants who failed and refused to pay the same (Exhs. H, I, J, K,
L).
As a consequence of the losses sustained, plaintiff was compelled to pay the consignee
P19,032.95 under the aforestated marine insurance policy, so that it became subrogated to
all the rights of action of said consignee against defendants (per "Form of Subrogation",
"Release" and Philbanking check, Exhs. M, N, and O). (pp. 85-86, Rollo.)
There were, to be sure, other factual issues that confronted both courts. Here, the appellate court
Defendants filed their respective answers, traversing the material allegations of the
complaint contending that: As for defendant Eastern Shipping it alleged that the shipment
was discharged in good order from the vessel unto the custody of Metro Port Service so that
any damage/losses incurred after the shipment was incurred after the shipment was turned
over to the latter, is no longer its liability (p. 17, Record); Metroport averred that although
subject shipment was discharged unto its custody, portion of the same was already in bad
order (p. 11, Record); Allied Brokerage alleged that plaintiff has no cause of action against
it, not having negligent or at fault for the shipment was already in damage and bad order
condition when received by it, but nonetheless, it still exercised extra ordinary care and
diligence in the handling/delivery of the cargo to consignee in the same condition shipment
was received by it.
From the evidence the court found the following:
The issues are:
1. Whether or not the shipment sustained losses/damages;
2. Whether or not these losses/damages were sustained while in the custody of
defendants (in whose respective custody, if determinable);
3. Whether or not defendant(s) should be held liable for the losses/damages (see
plaintiff's pre-Trial Brief, Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's
Records, p. 38).
As to the first issue, there can be no doubt that the shipment sustained
losses/damages. The two drums were shipped in good order and condition, as
clearly shown by the Bill of Lading and Commercial Invoice which do not indicate
any damages drum that was shipped (Exhs. B and C). But when on December 12,
1981 the shipment was delivered to defendant Metro Port Service, Inc., it excepted
to one drum in bad order.
Correspondingly, as to the second issue, it follows that the losses/damages were
sustained while in the respective and/or successive custody and possession of
defendants carrier (Eastern), arrastre operator (Metro Port) and broker (Allied
Brokerage). This becomes evident when the Marine Cargo Survey Report (Exh. G),
with its "Additional Survey Notes", are considered. In the latter notes, it is stated that
when the shipment was "landed on vessel" to dock of Pier # 15, South Harbor,
Manila on December 12, 1981, it was observed that "one (1) fiber drum (was) in
damaged condition, covered by the vessel's Agent's Bad Order Tally Sheet
No. 86427." The report further states that when defendant Allied Brokerage
withdrew the shipment from defendant arrastre operator's custody on January 7,
1982, one drum was found opened without seal, cello bag partly torn but contents
intact. Net unrecovered spillages was
15 kgs. The report went on to state that when the drums reached the consignee,
one drum was found with adulterated/faked contents. It is obvious, therefore, that
these losses/damages occurred before the shipment reached the consignee while
under the successive custodies of defendants. Under Art. 1737 of the New Civil
Code, the common carrier's duty to observe extraordinary diligence in the vigilance
of goods remains in full force and effect even if the goods are temporarily unloaded
and stored in transit in the warehouse of the carrier at the place of destination, until
the consignee has been advised and has had reasonable opportunity to remove or
dispose of the goods (Art. 1738, NCC). Defendant Eastern Shipping's own exhibit,
64
 the "Turn-Over Survey of Bad Order Cargoes" (Exhs. 3-Eastern) states that on
December 12, 1981 one drum was found "open".
and thus held:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:
A. Ordering defendants to pay plaintiff, jointly and severally:
1. The amount of P19,032.95, with the present legal interest of 12% per annum from
October 1, 1982, the date of filing of this complaints, until fully paid (the liability of
defendant Eastern Shipping, Inc. shall not exceed US$500 per case or the CIF
value of the loss, whichever is lesser, while the liability of defendant Metro Port
Service, Inc. shall be to the extent of the actual invoice value of each package, crate
box or container in no case to exceed P5,000.00 each, pursuant to Section 6.01 of
the Management Contract);
2. P3,000.00 as attorney's fees, and
3. Costs.
B. Dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied
Brokerage Corporation.
SO ORDERED. (p. 207, Record).
Dissatisfied, defendant's recourse to US.
The appeal is devoid of merit.
After a careful scrutiny of the evidence on record. We find that the conclusion drawn
therefrom is correct. As there is sufficient evidence that the shipment sustained damage
while in the successive possession of appellants, and therefore they are liable to the
appellee, as subrogee for the amount it paid to the consignee. (pp. 87-89, Rollo.)
The Court of Appeals thus affirmed in toto the judgment of the court
a quo.
In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of
discretion on the part of the appellate court when —
I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE
ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE
RESPONDENT AS GRANTED IN THE QUESTIONED DECISION;
II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE
RESPONDENT SHOULD COMMENCE FROM THE DATE OF THE FILING OF THE
COMPLAINT AT THE RATE OF TWELVE PERCENT PER ANNUM INSTEAD OF FROM
THE DATE OF THE DECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF SIX
PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEING INDISPUTABLY
UNLIQUIDATED.
The petition is, in part, granted.
In this decision, we have begun by saying that the questions raised by petitioner carrier are not all
that novel. Indeed, we do have a fairly good number of previous decisions this Court can merely
tack to.
The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the
time the articles are surrendered to or unconditionally placed in the possession of, and received by,
the carrier for transportation until delivered to, or until the lapse of a reasonable time for their
acceptance by, the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court
of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods
shipped either are lost or arrive in damaged condition, a presumption arises against the carrier of its
failure to observe that diligence, and there need not be an express finding of negligence to hold it
liable (Art. 1735, Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro
Port Service vs. Court of Appeals, 131 SCRA 365). There are, of course, exceptional cases when
such presumption of fault is not observed but these cases, enumerated in Article 1734 1 of the Civil
Code, are exclusive, not one of which can be applied to this case.
The question of charging both the carrier and the arrastre operator with the obligation of properly
delivering the goods to the consignee has, too, been passed upon by the Court. In Fireman's Fund
Insurance vs. Metro Port Services (182 SCRA 455), we have explained, in holding the carrier and
the arrastre operator liable in solidum, thus:
The legal relationship between the consignee and the arrastre operator is akin to that of a
depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The
relationship between the consignee and the common carrier is similar to that of the
consignee and the arrastre operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil.
253 [1960]). Since it is the duty of the ARRASTRE to take good care of the goods that are in
its custody and to deliver them in good condition to the consignee, such responsibility also
devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore
charged with the obligation to deliver the goods in good condition to the consignee.
We do not, of course, imply by the above pronouncement that the arrastre operator and the customs
broker are themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that
attendant facts in a given case may not vary the rule. The instant petition has been brought solely by
Eastern Shipping Lines, which, being the carrier and not having been able to rebut the presumption
of fault, is, in any event, to be held liable in this particular case. A factual finding of both the court a
quo and the appellate court, we take note, is that "there is sufficient evidence that the shipment
sustained damage while in the successive possession of appellants" (the herein petitioner among
them). Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this
case, is inevitable regardless of whether there are others solidarily liable with it.
It is over the issue of legal interest adjudged by the appellate court that deserves more than just a
passing remark.
Let us first see a chronological recitation of the major rulings of this Court:
The early case of Malayan Insurance Co., Inc., vs. Manila Port
Service,2 decided3 on 15 May 1969, involved a suit for recovery of money arising out of short
deliveries and pilferage of goods. In this case, appellee Malayan Insurance (the plaintiff in the lower
court) averred in its complaint that the total amount of its claim for the value of the undelivered
goods amounted to P3,947.20. This demand, however, was neither established in its totality nor
definitely ascertained. In the stipulation of facts later entered into by the parties, in lieu of proof, the
amount of P1,447.51 was agreed upon. The trial court rendered judgment ordering the appellants
(defendants) Manila Port Service and Manila Railroad Company to pay appellee Malayan Insurance
the sum of P1,447.51 with legal interest thereon from the date the complaint was filed on 28
65
December 1962 until full payment thereof. The appellants then assailed, inter alia, the award of legal
interest. In sustaining the appellants, this Court ruled:
Interest upon an obligation which calls for the payment of money, absent a stipulation, is the
legal rate. Such interest normally is allowable from the date of demand, judicial or
extrajudicial. The trial court opted for judicial demand as the starting point.
But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be recovered
upon unliquidated claims or damages, except when the demand can be established with
reasonable certainty." And as was held by this Court in Rivera vs. Perez,4 L-6998, February
29, 1956, if the suit were for damages, "unliquidated and not known until definitely
ascertained, assessed and determined by the courts after proof (Montilla c. Corporacion de
P.P. Agustinos, 25 Phil. 447; Lichauco v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis supplied)
The case of Reformina vs. Tomol,5 rendered on 11 October 1985, was for "Recovery of Damages
for Injury to Person and Loss of Property." After trial, the lower court decreed:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party
defendants and against the defendants and third party plaintiffs as follows:
Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay
jointly and severally the following persons:
xxx xxx xxx
(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00
which is the value of the boat F B Pacita III together with its accessories, fishing gear
and equipment minus P80,000.00 which is the value of the insurance recovered and the
amount of P10,000.00 a month as the estimated monthly loss suffered by them as a
result of the fire of May 6, 1969 up to the time they are actually paid or already the total
sum of P370,000.00 as of June 4, 1972 with legal interest from the filing of the
complaint until paid and to pay attorney's fees of P5,000.00 with costs against
defendants and third party plaintiffs. (Emphasis supplied.)
On appeal to the Court of Appeals, the latter modified the amount of damages awarded but
sustained the trial court in adjudging legal interest from the filing of the complaint until fully
paid. When the appellate court's decision became final, the case was remanded to the lower
court for execution, and this was when the trial court issued its assailed resolution which
applied the 6% interest per annum prescribed in Article 2209 of the Civil Code. In their
petition for review on certiorari, the petitioners contended that Central Bank Circular
No. 416, providing thus —
By virtue of the authority granted to it under Section 1 of Act 2655, as amended,
Monetary Board in its Resolution No. 1622 dated July 29, 1974, has prescribed that
the rate of interest for the loan, or forbearance of any money, goods, or credits and
the rate allowed in judgments, in the absence of express contract as to such rate of
interest, shall be twelve (12%) percent per annum. This Circular shall take effect
immediately. (Emphasis found in the text) —
should have, instead, been applied. This Court6 ruled:
The judgments spoken of and referred to are judgments in litigations involving loans
or forbearance of any money, goods or credits. Any other kind of monetary
judgment which has nothing to do with, nor involving loans or forbearance of any
money, goods or credits does not fall within the coverage of the said law for it is not
within the ambit of the authority granted to the Central Bank.
xxx xxx xxx
Coming to the case at bar, the decision herein sought to be executed is one rendered in
an Action for Damages for injury to persons and loss of property and does not involve
any loan, much less forbearances of any money, goods or credits. As correctly argued
by the private respondents, the law applicable to the said case is Article 2209 of the
New Civil Code which reads —
Art. 2209. — If the obligation consists in the payment of a sum of money, and the
debtor incurs in delay, the indemnity for damages, there being no stipulation to the
contrary, shall be the payment of interest agreed upon, and in the absence of
stipulation, the legal interest which is six percent per annum.
The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz,7 promulgated on 28 July
1986. The case was for damages occasioned by an injury to person and loss of property. The trial
court awarded private respondent Pedro Manabat actual and compensatory damages in the amount
of P72,500.00 with legal interest thereon from the filing of the complaint until fully paid. Relying on
the Reformina v. Tomol case, this Court8 modified the interest award from 12% to 6% interest per
annum but sustained the time computation thereof, i.e., from the filing of the complaint until fully
paid.
In Nakpil and Sons vs. Court of Appeals,9 the trial court, in an action for the recovery of damages
arising from the collapse of a building, ordered,
inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November
29, 1968, the date of the filing of the complaint until full payment . . . ." Save from the modification of
the amount granted by the lower court, the Court of Appeals sustained the trial court's decision.
When taken to this Court for review, the case, on 03 October 1986, was decided, thus:
WHEREFORE, the decision appealed from is hereby MODIFIED and considering the
special and environmental circumstances of this case, we deem it reasonable to render a
decision imposing, as We do hereby impose, upon the defendant and the third-party
defendants (with the exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00)
Pesos to cover all damages (with the exception to attorney's fees) occasioned by the loss of
the building (including interest charges and lost rentals) and an additional ONE HUNDRED
THOUSAND (P100,000.00) Pesos as and for attorney's fees, the total sum being payable
upon the finality of this decision. Upon failure to pay on such finality, twelve (12%) per cent
interest per annum shall be imposed upon aforementioned amounts from finality until paid.
Solidary costs against the defendant and third-party defendants (Except Roman Ozaeta).
(Emphasis supplied)
A motion for reconsideration was filed by United Construction, contending that "the interest of
twelve (12%) per cent per annum imposed on the total amount of the monetary award was in
contravention of law." The Court10 ruled out the applicability of the Reformina and Philippine
Rabbit Bus Lines cases and, in its resolution of 15 April 1988, it explained:
There should be no dispute that the imposition of 12% interest pursuant to Central
Bank Circular No. 416 . . . is applicable only in the following: (1) loans; (2)
forbearance of any money, goods or credit; and
(3) rate allowed in judgments (judgments spoken of refer to judgments involving
loans or forbearance of any money, goods or credits. (Philippine Rabbit Bus Lines
Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v. Tomol, Jr., 139 SCRA 260
66
 [1985]). It is true that in the instant case, there is neither a loan or a forbearance, but
then no interest is actually imposed provided the sums referred to in the judgment
are paid upon the finality of the judgment. It is delay in the payment of such final
judgment, that will cause the imposition of the interest.
It will be noted that in the cases already adverted to, the rate of interest is imposed
on the total sum, from the filing of the complaint until paid; in other words, as part of
the judgment for damages. Clearly, they are not applicable to the instant case.
(Emphasis supplied.)
The subsequent case of American Express International, Inc., vs. Intermediate Appellate
Court11 was a petition for review on certiorari from the decision, dated 27 February 1985, of the then
Intermediate Appellate Court reducing the amount of moral and exemplary damages awarded by the
trial court, to P240,000.00 and P100,000.00, respectively, and its resolution, dated 29 April 1985,
restoring the amount of damages awarded by the trial court, i.e., P2,000,000.00 as moral damages
and P400,000.00 as exemplary damages with interest thereon at 12% per annum from notice of
judgment, plus costs of suit. In a decision of 09 November 1988, this Court, while recognizing the
right of the private respondent to recover damages, held the award, however, for moral damages by
the trial court, later sustained by the IAC, to be inconceivably large. The Court 12 thus set aside the
decision of the appellate court and rendered a new one, "ordering the petitioner to pay private
respondent the sum of One Hundred Thousand (P100,000.00) Pesos as moral damages, with
six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis
supplied)
Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz13 which arose
from a breach of employment contract. For having been illegally dismissed, the petitioner was
awarded by the trial court moral and exemplary damages without, however, providing any legal
interest thereon. When the decision was appealed to the Court of Appeals, the latter held:
WHEREFORE, except as modified hereinabove the decision of the CFI of Negros
Oriental dated October 31, 1972 is affirmed in all respects, with the modification that
defendants-appellants, except defendant-appellant Merton Munn, are ordered to pay,
jointly and severally, the amounts stated in the dispositive portion of the decision,
including the sum of P1,400.00 in concept of compensatory damages, with interest at
the legal rate from the date of the filing of the complaint until fully paid (Emphasis
supplied.)
The petition for review to this Court was denied. The records were thereupon transmitted to
the trial court, and an entry of judgment was made. The writ of execution issued by the trial
court directed that only compensatory damages should earn interest at 6% per annum from
the date of the filing of the complaint. Ascribing grave abuse of discretion on the part of the
trial judge, a petition for certiorari assailed the said order. This Court said:
. . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the
legal rate" from the time of the filing of the complaint. . . Said circular [Central Bank
Circular No. 416] does not apply to actions based on a breach of employment contract
like the case at bar. (Emphasis supplied)
The Court reiterated that the 6% interest per annum on the damages should be computed
from the time the complaint was filed until the amount is fully paid.
Quite recently, the Court had another occasion to rule on the matter. National Power Corporation
vs. Angas,14 decided on 08 May 1992, involved the expropriation of certain parcels of land. After
conducting a hearing on the complaints for eminent domain, the trial court ordered the petitioner to
pay the private respondents certain sums of money as just compensation for their lands so
expropriated "with legal interest thereon . . . until fully paid." Again, in applying the 6% legal
interest per annum under the Civil Code, the Court15 declared:
. . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or
credits but expropriation of certain parcels of land for a public purpose, the payment of
which is without stipulation regarding interest, and the interest adjudged by the trial
court is in the nature of indemnity for damages. The legal interest required to be paid
on the amount of just compensation for the properties expropriated is manifestly in the
form of indemnity for damages for the delay in the payment thereof. Therefore, since
the kind of interest involved in the joint judgment of the lower court sought to be
enforced in this case is interest by way of damages, and not by way of earnings from
loans, etc. Art. 2209 of the Civil Code shall apply.
Concededly, there have been seeming variances in the above holdings. The cases can perhaps be
classified into two groups according to the similarity of the issues involved and the corresponding
rulings rendered by the court. The "first group" would consist of the cases of Reformina
v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz (1986), Florendo v. Ruiz (1989)
and National Power Corporation v. Angas (1992). In the "second group" would be Malayan
Insurance Company v. Manila Port Service (1969), Nakpil and Sons v. Court of
Appeals (1988), and American Express International v. Intermediate Appellate Court (1988).
In the "first group", the basic issue focuses on the application of either the 6% (under the Civil Code)
or 12% (under the Central Bank Circular) interest per annum. It is easily discernible in these cases
that there has been a consistent holding that the Central Bank Circular imposing the 12%
interest per annum applies only to loans or forbearance16 of money, goods or credits, as well as to
judgments involving such loan or forbearance of money, goods or credits, and that the 6% interest
under the Civil Code governs when the transaction involves the payment of indemnities in the
concept of damage arising from the breach or a delay in the performance of obligations in general.
Observe, too, that in these cases, a common time frame in the computation of the 6% interest per
annum has been applied, i.e., from the time the complaint is filed until the adjudged amount is fully
paid.
The "second group", did not alter the pronounced rule on the application of the 6% or 12%
interest per annum,17 depending on whether or not the amount involved is a loan or forbearance, on
the one hand, or one of indemnity for damage, on the other hand. Unlike, however, the "first group"
which remained consistent in holding that the running of the legal interest should be from the time of
the filing of the complaint until fully paid, the "second group" varied on the commencement of the
running of the legal interest.
Malayan held that the amount awarded should bear legal interest from the date of the decision of
the court a quo, explaining that "if the suit were for damages, 'unliquidated and not known until
definitely ascertained, assessed and determined by the courts after proof,' then, interest 'should be
from the date of the decision.'" American Express International v. IAC, introduced a different time
frame for reckoning the 6% interest by ordering it to be "computed from the finality of (the) decision
until paid." The Nakpil and Sons case ruled that 12% interest per annum should be imposed from
the finality of the decision until the judgment amount is paid.
The ostensible discord is not difficult to explain. The factual circumstances may have called for
different applications, guided by the rule that the courts are vested with discretion, depending on the
equities of each case, on the award of interest. Nonetheless, it may not be unwise, by way of
clarification and reconciliation, to suggest the following rules of thumb for future guidance.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-
delicts18 is breached, the contravenor can be held liable for damages.19 The provisions under Title
XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. 20
67
II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

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

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on

the amount of damages awarded may be imposed at the discretion of the court24 at the rate of
6% per annum.25 No interest, however, shall be adjudged on unliquidated claims or damages except
when or until the demand can be established with reasonable certainty. 26 Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be
so reasonably established at the time the demand is made, the interest shall begin to run only from
the date the judgment of the court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for the computation of legal interest
shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate
of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.

WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the
MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due
computed from the decision, dated
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX
PERCENT (6%), shall be imposed on such amount upon finality of this decision until the payment
thereof.

SO ORDERED.

68
G.R. No. 114167 July 12, 1995 shipment of molasses from Negros Oriental to Manila and refers to this contract as a "charter
agreement". It then proceeds to cite the case of Home Insurance Company vs. American Steamship
Agencies, Inc.2 wherein this Court held: ". . . a common carrier undertaking to carry a special cargo
COASTWISE LIGHTERAGE CORPORATION, petitioner,
or chartered to a special person only becomes a private carrier."
vs.
COURT OF APPEALS and the PHILIPPINE GENERAL INSURANCE COMPANY, respondents.
Petitioner's reliance on the aforementioned case is misplaced. In its entirety, the conclusions of the
court are as follows:
RESOLUTION

Accordingly, the charter party contract is one of affreightment over the whole vessel, rather
FRANCISCO, R., J.:
than a demise. As such, the liability of the shipowner for acts or negligence of its captain
and crew, would remain in the absence of stipulation.3
This is a petition for review of a Decision rendered by the Court of Appeals, dated December 17,
1993, affirming Branch 35 of the Regional Trial Court, Manila in holding that herein petitioner is
The distinction between the two kinds of charter parties (i.e. bareboat or demise and contract of
liable to pay herein private respondent the amount of P700,000.00, plus legal interest thereon,
affreightment) is more clearly set out in the case of Puromines, Inc. vs. Court of Appeals,4 wherein
another sum of P100,000.00 as attorney's fees and the cost of the suit.
we ruled:

The factual background of this case is as follows:

Pag-asa Sales, Inc. entered into a contract to transport molasses from the province of Negros to
Manila with Coastwise Lighterage Corporation (Coastwise for brevity), using the latter's dumb
barges. The barges were towed in tandem by the tugboat MT Marica, which is likewise owned by
Coastwise.
Upon reaching Manila Bay, while approaching Pier 18, one of the barges, "Coastwise 9", struck an
unknown sunken object. The forward buoyancy compartment was damaged, and water gushed in
through a hole "two inches wide and twenty-two inches long"1 As a consequence, the molasses at
the cargo tanks were contaminated and rendered unfit for the use it was intended. This prompted
the consignee, Pag-asa Sales, Inc. to reject the shipment of molasses as a total loss. Thereafter,
Pag-asa Sales, Inc. filed a formal claim with the insurer of its lost cargo, herein private respondent,
Philippine General Insurance Company (PhilGen, for short) and against the carrier, herein petitioner,
Coastwise Lighterage. Coastwise Lighterage denied the claim and it was PhilGen which paid the
consignee, Pag-asa Sales, Inc., the amount of P700,000.00, representing the value of the damaged
cargo of molasses.
Under the demise or bareboat charter of the vessel, the charterer will generally be regarded
as the owner for the voyage or service stipulated. The charterer mans the vessel with his
own people and becomes the owner pro hac vice, subject to liability to others for damages
caused by negligence. To create a demise, the owner of a vessel must completely and
exclusively relinquish possession, command and navigation thereof to the
charterer, anything short of such a complete transfer is a contract of affreightment (time or
voyage charter party) or not a charter party at all.
On the other hand a contract of affreightment is one in which the owner of the vessel leases
part or all of its space to haul goods for others. It is a contract for special service to be
rendered by the owner of the vessel and under such contract the general owner retains the
possession, command and navigation of the ship, the charterer or freighter merely having
use of the space in the vessel in return for his payment of the charter hire. . . . .
. . . . An owner who retains possession of the ship though the hold is the property of the
charterer, remains liable as carrier and must answer for any breach of duty as to the care,
loading and unloading of the cargo. . . .

In turn, PhilGen then filed an action against Coastwise Lighterage before the Regional Trial Court of
Although a charter party may transform a common carrier into a private one, the same however is
Manila, seeking to recover the amount of P700,000.00 which it paid to Pag-asa Sales, Inc. for the
not true in a contract of affreightment on account of the aforementioned distinctions between the
latter's lost cargo. PhilGen now claims to be subrogated to all the contractual rights and claims
two.
which the consignee may have against the carrier, which is presumed to have violated the contract
of carriage.
Petitioner admits that the contract it entered into with the consignee was one of affreightment. 5 We
agree. Pag-asa Sales, Inc. only leased three of petitioner's vessels, in order to carry cargo from one
The RTC awarded the amount prayed for by PhilGen. On Coastwise Lighterage's appeal to the
point to another, but the possession, command and navigation of the vessels remained with
Court of Appeals, the award was affirmed.
petitioner Coastwise Lighterage.

Hence, this petition.

Pursuant therefore to the ruling in the aforecited Puromines case, Coastwise Lighterage, by the
contract of affreightment, was not converted into a private carrier, but remained a common carrier
There are two main issues to be resolved herein. First, whether or not petitioner Coastwise and was still liable as such.
Lighterage was transformed into a private carrier, by virtue of the contract of affreightment which it
entered into with the consignee, Pag-asa Sales, Inc. Corollarily, if it were in fact transformed into a
The law and jurisprudence on common carriers both hold that the mere proof of delivery of goods in
private carrier, did it exercise the ordinary diligence to which a private carrier is in turn bound?
good order to a carrier and the subsequent arrival of the same goods at the place of destination in
Second, whether or not the insurer was subrogated into the rights of the consignee against the
bad order makes for a prima facie case against the carrier.
carrier, upon payment by the insurer of the value of the consignee's goods lost while on board one
of the carrier's vessels.
It follows then that the presumption of negligence that attaches to common carriers, once the goods
it transports are lost, destroyed or deteriorated, applies to the petitioner. This presumption, which is
On the first issue, petitioner contends that the RTC and the Court of Appeals erred in finding that it
overcome only by proof of the exercise of extraordinary diligence, remained unrebutted in this case.
was a common carrier. It stresses the fact that it contracted with Pag-asa Sales, Inc. to transport the

69
The records show that the damage to the barge which carried the cargo of molasses was caused by
its hitting an unknown sunken object as it was heading for Pier 18. The object turned out to be a
submerged derelict vessel. Petitioner contends that this navigational hazard was the efficient cause
of the accident. Further it asserts that the fact that the Philippine Coastguard "has not exerted any
effort to prepare a chart to indicate the location of sunken derelicts within Manila North Harbor to
avoid navigational accidents"6 effectively contributed to the happening of this mishap. Thus, being
unaware of the hidden danger that lies in its path, it became impossible for the petitioner to avoid the
same. Nothing could have prevented the event, making it beyond the pale of even the exercise of
extraordinary diligence.
Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the
insured property is destroyed or damaged through the fault or negligence of a party other
than the assured, then the insurer, upon payment to the assured will be subrogated to the
rights of the assured to recover from the wrongdoer to the extent that the insurer has been
obligated to pay. Payment by the insurer to the assured operated as an equitable
assignment to the former of all remedies which the latter may have against the third party
whose negligence or wrongful act caused the loss. The right of subrogation is not dependent
upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It
accrues simply upon payment of the insurance claim by the insurer.

However, petitioner's assertion is belied by the evidence on record where it appeared that far from
having rendered service with the greatest skill and utmost foresight, and being free from fault, the
carrier was culpably remiss in the observance of its duties.
Jesus R. Constantino, the patron of the vessel "Coastwise 9" admitted that he was not licensed. The
Code of Commerce, which subsidiarily governs common carriers (which are primarily governed by
the provisions of the Civil Code) provides:
Art. 609. — Captains, masters, or patrons of vessels must be Filipinos, have legal capacity
to contract in accordance with this code, and prove the skill capacity and qualifications
necessary to command and direct the vessel, as established by marine and navigation laws,
ordinances or regulations, and must not be disqualified according to the same for the
discharge of the duties of the position. . . .
Undoubtedly, upon payment by respondent insurer PhilGen of the amount of P700,000.00 to Pag-
asa Sales, Inc., the consignee of the cargo of molasses totally damaged while being transported by
petitioner Coastwise Lighterage, the former was subrogated into all the rights which Pag-asa Sales,
Inc. may have had against the carrier, herein petitioner Coastwise Lighterage.
WHEREFORE, premises considered, this petition is DENIED and the appealed decision affirming
the order of Branch 35 of the Regional Trial Court of Manila for petitioner Coastwise Lighterage to
pay respondent Philippine General Insurance Company the "principal amount of P700,000.00 plus
interest thereon at the legal rate computed from March 29, 1989, the date the complaint was filed
until fully paid and another sum of P100,000.00 as attorney's fees and costs"10 is likewise hereby
AFFIRMED
SO ORDERED.

Clearly, petitioner Coastwise Lighterage's embarking on a voyage with an unlicensed patron violates
this rule. It cannot safely claim to have exercised extraordinary diligence, by placing a person whose
navigational skills are questionable, at the helm of the vessel which eventually met the fateful
accident. It may also logically, follow that a person without license to navigate, lacks not just the skill
to do so, but also the utmost familiarity with the usual and safe routes taken by seasoned and legally
authorized ones. Had the patron been licensed, he could be presumed to have both the skill and the
knowledge that would have prevented the vessel's hitting the sunken derelict ship that lay on their
way to Pier 18.

As a common carrier, petitioner is liable for breach of the contract of carriage, having failed to
overcome the presumption of negligence with the loss and destruction of goods it transported, by
proof of its exercise of extraordinary diligence.

On the issue of subrogation, which petitioner contends as inapplicable in this case, we once more
rule against the petitioner. We have already found petitioner liable for breach of the contract of
carriage it entered into with Pag-asa Sales, Inc. However, for the damage sustained by the loss of
the cargo which petitioner-carrier was transporting, it was not the carrier which paid the value
thereof to Pag-asa Sales, Inc. but the latter's insurer, herein private respondent PhilGen.

Article 2207 of the Civil Code is explicit on this point:

Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who violated the contract. . . .

This legal provision containing the equitable principle of subrogation has been applied in a long line
of cases including Compania Maritima v. Insurance Company of North America;7 Fireman's Fund
Insurance Company v. Jamilla & Company, Inc.,8 and Pan Malayan Insurance Corporation v. Court
of Appeals,9 wherein this Court explained:

70
G.R. No. 168151               September 4, 2009
REGIONAL CONTAINER LINES (RCL) OF SINGAPORE and EDSA SHIPPING
AGENCY, Petitioners,
vs.
THE NETHERLANDS INSURANCE CO. (PHILIPPINES), INC., Respondent.
DECISION
BRION, J.:
For our resolution is the petition for review on certiorari filed by petitioners Regional Container Lines
of Singapore (RCL) and EDSA Shipping Agency (EDSA Shipping) to annul and set aside the
decision1 and resolution2 of the Court of Appeals (CA) dated May 26, 2004 and May 10, 2005,
respectively, in CA-G.R. CV No. 76690.
RCL is a foreign corporation based in Singapore. It does business in the Philippines through its
agent, EDSA Shipping, a domestic corporation organized and existing under Philippine laws.
Respondent Netherlands Insurance Company (Philippines), Inc. (Netherlands Insurance) is likewise
a domestic corporation engaged in the marine underwriting business.
FACTUAL ANTECEDENTS
The pertinent facts, based on the records are summarized below.
On October 20, 1995, 405 cartons of Epoxy Molding Compound were consigned to be shipped from
Singapore to Manila for Temic Telefunken Microelectronics Philippines (Temic). U-Freight Singapore
PTE Ltd.3 (U-Freight Singapore), a forwarding agent based in Singapore, contracted the services of
Pacific Eagle Lines PTE. Ltd. (Pacific Eagle) to transport the subject cargo. The cargo was packed,
stored, and sealed by Pacific Eagle in its Refrigerated Container No. 6105660 with Seal No. 13223.
As the cargo was highly perishable, the inside of the container had to be kept at a temperature of 0º
Celsius. Pacific Eagle then loaded the refrigerated container on board the M/V Piya Bhum, a vessel
owned by RCL, with which Pacific Eagle had a slot charter agreement. RCL duly issued its own Bill
of Lading in favor of Pacific Eagle.
To insure the cargo against loss and damage, Netherlands Insurance issued a Marine Open Policy
in favor of Temic, as shown by MPO-21-05081-94 and Marine Risk Note MRN-21 14022, to cover all
losses/damages to the shipment.
On October 25, 1995, the M/V Piya Bhum docked in Manila. After unloading the refrigerated
container, it was plugged to the power terminal of the pier to keep its temperature constant. Fidel
Rocha (Rocha), Vice-President for Operations of Marines Adjustment Corporation, accompanied by
two surveyors, conducted a protective survey of the cargo. They found that based on the
temperature chart, the temperature reading was constant from October 18, 1995 to October 25,
1995 at 0º Celsius. However, at midnight of October 25, 1995 – when the cargo had already been
unloaded from the ship – the temperature fluctuated with a reading of 33º Celsius. Rocha believed
the fluctuation was caused by the burnt condenser fan motor of the refrigerated container.
On November 9, 1995, Temic received the shipment. It found the cargo completely damaged. Temic
filed a claim for cargo loss against Netherlands Insurance, with supporting claims documents. The
Netherlands Insurance paid Temic the sum of ₱1,036,497.00 under the terms of the Marine Open
Policy. Temic then executed a loss and subrogation receipt in favor of Netherlands Insurance.
Seven months from delivery of the cargo or on June 4, 1996, Netherlands Insurance filed a
complaint for subrogation of insurance settlement with the Regional Trial Court, Branch 5, Manila,
against "the unknown owner of M/V Piya Bhum" and TMS Ship Agencies (TMS), the latter thought to
be the local agent of M/V Piya Bhum’s unknown owner.4 The complaint was docketed as Civil Case
No. 96-78612.
Netherlands Insurance amended the complaint on January 17, 1997 to implead EDSA Shipping,
RCL, Eagle Liner Shipping Agencies, U-Freight Singapore, and U-Ocean (Phils.), Inc. (U-Ocean), as
additional defendants. A third amended complaint was later made, impleading Pacific Eagle in
substitution of Eagle Liner Shipping Agencies.
TMS filed its answer to the original complaint. RCL and EDSA Shipping filed their answers with
cross-claim and compulsory counterclaim to the second amended complaint. U-Ocean likewise filed
an answer with compulsory counterclaim and cross-claim. During the pendency of the case, U-
Ocean, jointly with U-Freight Singapore, filed another answer with compulsory counterclaim. Only
Pacific Eagle and TMS filed their answers to the third amended complaint.
The defendants all disclaimed liability for the damage caused to the cargo, citing several reasons
why Netherland Insurance’s claims must be rejected. Specifically, RCL and EDSA Shipping denied
negligence in the transport of the cargo; they attributed any negligence that may have caused the
loss of the shipment to their co-defendants. They likewise asserted that no valid subrogation exists,
as the payment made by Netherlands Insurance to the consignee was invalid. By way of affirmative
defenses, RCL and EDSA Shipping averred that the Netherlands Insurance has no cause of action,
and is not the real party-in-interest, and that the claim is barred by laches/prescription.
After Netherlands Insurance had made its formal offer of evidence, the defendants including RCL
and EDSA Shipping sought leave of court to file their respective motions to dismiss based on
demurrer to evidence.
RCL and EDSA Shipping, in their motion, insisted that Netherlands Insurance had (1) failed to prove
any valid subrogation, and (2) failed to establish that any negligence on their part or that the loss
was sustained while the cargo was in their custody.
On May 22, 2002, the trial court handed down an Order dismissing Civil Case No. 96-78612 on
demurrer to evidence. The trial court ruled that while there was valid subrogation, the defendants
could not be held liable for the loss or damage, as their respective liabilities ended at the time of the
discharge of the cargo from the ship at the Port of Manila.
Netherlands Insurance seasonably appealed the order of dismissal to the CA.
On May 26, 2004, the CA disposed of the appeal as follows:
WHEREFORE, in view of the foregoing, the dismissal of the complaint against defendants Regional
Container Lines and Its local agent, EDSA Shipping Agency, is REVERSED and SET ASIDE. The
dismissal of the complaint against the other defendants is AFFIRMED. Pursuant to Section 1, Rule
33 of the 1997 Rules of Civil Procedure, defendants Regional Container Lines and EDSA Shipping
Agency are deemed to have waived the right to present evidence.
As such, defendants Regional Container Lines and EDSA Shipping Agency are ordered to
reimburse plaintiff in the sum of ₱1,036,497.00 with interest from date hereof until fully paid.
No costs.
SO ORDERED. [Emphasis supplied.]
71
The CA dismissed Netherland Insurance’s complaint against the other defendants after finding that
the claim had already been barred by prescription. 5
Having been found liable for the damage to the cargo, RCL and EDSA Shipping filed a motion for
reconsideration, but the CA maintained its original conclusions.
The sole issue for our resolution is whether the CA correctly held RCL and EDSA Shipping liable as
common carriers under the theory of presumption of negligence.
THE COURT’S RULING
The present case is governed by the following provisions of the Civil Code:
ART. 1733. Common carriers, from the nature of their business and for reasons of public policy, are
bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them according to all the circumstances of each case.
Such extraordinary diligence in the vigilance over the goods is further expressed in articles 1734,
1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the passengers
is further set forth in articles1755 and 1756.
ART. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods,
unless the same is due to any of the following causes only:
1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
2) Act of the public enemy in war, whether international or civil;
3) Act of omission of the shipper or owner of the goods;
4) The character of the goods or defects in the packing or in the containers;
5) Order or act of competent public authority.
ART. 1735. In all cases other that those mentioned in Nos. 1, 2, 3, 4 and 5 of the preceding article, if
the goods are lost, destroyed, or deteriorated, common carriers are presumed to have been at fault
or to have acted negligently, unless they prove that they observed extraordinary diligence as
required by article 1733.
ART. 1736. The extraordinary responsibility of the common carrier lasts from the time the goods are
unconditionally placed in the possession of, and received by the carrier for transportation until the
sane are delivered, actually or constructively, by the carrier to the consignee, or to the person who
has a right to receive them, without prejudice to the provisions of articles 1738.
ART. 1738. The extraordinary liability of the common carrier continues to be operative even during
the time the goods are stored in a warehouse of the carrier at the place of destination, until the
consignee has been advised of the arrival of the goods and has had reasonable opportunity
thereafter to remove them or otherwise dispose of them.
ART. 1742. Even if the loss, destruction, or deterioration of the goods should be caused by the
character of the goods, or the faulty nature of the packing or of the containers, the common carrier
must exercise due diligence to forestall or lessen the loss.
In Central Shipping Company, Inc. v. Insurance Company of North America,6 we reiterated the rules
for the liability of a common carrier for lost or damaged cargo as follows:
(1) Common carriers are bound to observe extraordinary diligence over the goods they
transport, according to all the circumstances of each case;
(2) In the event of loss, destruction, or deterioration of the insured goods, common
carriers are responsible, unless they can prove that such loss, destruction, or deterioration
was brought about by, among others, "flood, storm, earthquake, lightning, or other natural
disaster or calamity"; and
(3) In all other cases not specified under Article 1734 of the Civil Code, common carriers
are presumed to have been at fault or to have acted negligently, unless they observed
extraordinary diligence.7
In the present case, RCL and EDSA Shipping disclaim any responsibility for the loss or damage to
the goods in question. They contend that the cause of the damage to the cargo was the "fluctuation
of the temperature in the reefer van," which fluctuation occurred after the cargo had already been
discharged from the vessel; no fluctuation, they point out, arose when the cargo was still on board
M/V Piya Bhum. As the cause of the damage to the cargo occurred after the same was already
discharged from the vessel and was under the custody of the arrastre operator (International
Container Terminal Services, Inc. or ICTSI), RCL and EDSA Shipping posit that the presumption of
negligence provided in Article 1735 of the Civil Code should not apply. What applies in this case is
Article 1734, particularly paragraphs 3 and 4 thereof, which exempts the carrier from liability for loss
or damage to the cargo when it is caused either by an act or omission of the shipper or by the
character of the goods or defects in the packing or in the containers. Thus, RCL and EDSA Shipping
seek to lay the blame at the feet of other parties.
We do not find the arguments of RCL and EDSA Shipping meritorious.
A common carrier is presumed to have been negligent if it fails to prove that it exercised
extraordinary vigilance over the goods it transported.8 When the goods shipped are either lost or
arrived in damaged condition, a presumption arises against the carrier of its failure to observe that
diligence, and there need not be an express finding of negligence to hold it liable. 91avvphi1
To overcome the presumption of negligence, the common carrier must establish by adequate proof
that it exercised extraordinary diligence over the goods. It must do more than merely show that
some other party could be responsible for the damage. 10
In the present case, RCL and EDSA Shipping failed to prove that they did exercise that degree of
diligence required by law over the goods they transported. Indeed, there is sufficient evidence
showing that the fluctuation of the temperature in the refrigerated container van, as recorded in the
temperature chart, occurred after the cargo had been discharged from the vessel and was already
under the custody of the arrastre operator, ICTSI. This evidence, however, does not disprove that
the condenser fan – which caused the fluctuation of the temperature in the refrigerated container –
was not damaged while the cargo was being unloaded from the ship. It is settled in maritime law
jurisprudence that cargoes while being unloaded generally remain under the custody of the
carrier;11 RCL and EDSA Shipping failed to dispute this.1avvphi1
RCL and EDSA Shipping could have offered evidence before the trial court to show that the damage
to the condenser fan did not occur: (1) while the cargo was in transit; (2) while they were in the act of
discharging it from the vessel; or (3) while they were delivering it actually or constructively to the
consignee. They could have presented proof to show that they exercised extraordinary care and
diligence in the handling of the goods, but they opted to file a demurrer to evidence. As the order
granting their demurrer was reversed on appeal, the CA correctly ruled that they are deemed to
have waived their right to present evidence, 12 and the presumption of negligence must stand.
72
It is for this reason as well that we find RCL and EDSA Shipping’s claim that the loss or damage to
the cargo was caused by a defect in the packing or in the containers. To exculpate itself from liability
for the loss/damage to the cargo under any of the causes, the common carrier is burdened to prove
any of the causes in Article 1734 of the Civil Code claimed by it by a preponderance of evidence. If
the carrier succeeds, the burden of evidence is shifted to the shipper to prove that the carrier is
negligent.13 RCL and EDSA Shipping, however, failed to satisfy this standard of evidence and in fact
offered no evidence at all on this point; a reversal of a dismissal based on a demurrer to evidence
bars the defendant from presenting evidence supporting its allegations.
WHEREFORE, we DENY the petition for review on certiorari filed by the Regional Container Lines
of Singapore and EDSA Shipping Agency. The decision of the Court of Appeals dated May 26, 2004
in CA-G.R. CV No. 76690 is AFFIRMED IN TOTO. Costs against the petitioners.
SO ORDERED.
G.R. No. 70481 December 11, 1992
PHILIPPINE AIRLINES, INC., petitioner,
vs.
THE INTERMEDIATE APPELLATE COURT, GEORGE LORENZANA and VERONICA G.
LORENZANA, respondents.
MELO, J.:
According to the court of origin, petitioner's liability for the missing luggage owned by private
respondent can be attributed to the non-delivery thereof to the Pan Am Office in Tokyo after it was
received by petitioner's office at the Manila International Airport (Page 11, Record on Appeal; Page
38, Rollo). Both petitioner and Pan American World Airways, Inc. appealed the adverse finding but
the First Civil Cases Division of the then Intermediate Appellate Court, (P.J. Gaviola, Caguioa (P),
Quetulio-Losa, Ines-Luciano, JJ.), was far from persuaded.
The decretal portion rendered by the appellate court which petitioner impugns via the petition
for certiorari before Us reads:
WHEREFORE, No. 1 of the dispositive portion of the judgment of the trial court, dated
January 31, 1979 is hereby modified so as to read:
1) Ordering defendants, jointly and severally, to pay plaintiffs as actual damages the sum of
$5,000 or its equivalent in Philippine currency computed according to the rate of exchange
of the date of the promulgation of this decision, with interest thereon at the legal rate of 12%
per annum from the date of the filing of the complaint until the amount of this judgment is
fully paid.
The rest of the dispositive portion from pars. 2 to par. 5 are hereby affirmed. (Page 14,
Decision; Page 53, Rollo)
Before boarding petitioner's airplane on August 4, 1974 for their business sojourn from Manila to
Honolulu via Tokyo, private respondents, the spouses George and Veronica Lorenzana, checked in
two pieces of baggage for which they were given baggage claim tickets. George's personal effects
and some of Veronica's things were in one baggage while the other luggage contained Veronica's
other personal items and samples of women's apparel intended to be shown to prospective
customers in America and Canada. On the Tokyo-Honolulu leg, they changed planes from PAL to
Pan Am. When they arrived in Honolulu, only the luggage containing George's personal effects was
located. Efforts exerted to report and claim the missing bag were futile and instead, private
respondents were requested to follow-up the matter during their stay in Honolulu.
After staying in Honolulu for three days, without the missing luggage being delivered to them,
George and Veronica decided to fly to Los Angeles where they stayed for more than a week before
leaving for San Francisco where they spent two days. Thereafter, the couple proceeded to
Vancouver and Toronto, Canada and returned to Manila on September 24, 1974.
It was sometime in April, 1975 when the couple was informed that the luggage was located and on
December 5, 1975, the luggage was finally delivered to them. It turned out that the missing luggage
was not turned over by the employees of the Philippines Airlines to the Pan Am Office in Tokyo and
that the baggage was returned to Manila on September 16, 1974.
In the suit for breach of contract, Pan Am interposed the defense that it did not receive the baggage
from the Philippine Airlines. For its part, PAL admitted that it failed to deliver one of the pieces of
luggage at the destination of private respondents in the United States and during the entire trip
(paragraph 6, Answer). Nevertheless, it proferred the excuse that private respondents omitted to
retrieve the bag after George was informed of its discovery and that at any rate, the carrier's liability
under the Warsaw Convention is limited, in the absence of a declaration from the passenger, of a
higher value (paragraph 15, Answer).
After due hearing, the trial court pronounced petitioner accountable for the non-delivery mainly due
to its frank representation that it breached the contract with private respondent's (Page 4, Decision;
page 38, Record on Appeal). On the other hand, the appellate court relied more on the presumption
of culpa which neither PAL nor Pan Am was able to overcome by the requisite quantum of evidence.
Regarding the exculpation raised by petitioner premised on the caveat under the Warsaw
Convention, respondents court expressed the view that the proviso which concerns limited
culpability for damage, loss or delay in transportation of the goods is inapplicable since the bag was
not delivered to private respondent during the whole trip.
On the expenses incurred by private respondent, the appellate court sustained the claim of $5,000
asserted by private respondent George Lorenzana on the witness stand representing the cost of the
tickets and travelling expenses, in default of any evidence to the contrary. The so-called unrealized
income was perceived as speculative while the trial court's refusal to grant moral and exemplary
damages was affirmed by the reviewing authority.
In the petition at bar, petitioner ascribes five errors which were supposedly committed by the
appellate court yet, a serious study of the different angles for possible reversal fails to muster the
desired conclusion.
Petitioner begins with the hypothesis that it is private respondents who should be faulted for the
alleged "delay in delivery" because an appreciable length of time elapsed from the moment they
were informed of the whereabouts of the bag until an effort was exerted to retrieve it. However, an
argument of this nature, which springs from petitioner's incongruous interpretation of "delay", is far
from persuasive, since it is designed to toss the onus probandi on the admitted fact of non-delivery
by the carrier to the passenger's shoulders. To be sure, it was ingeniously crafted for the purpose of
extricating petitioner from the fatal aftermath of its admission in judicio for it was explicitly stated in
its Answer that petitioner failed to deliver the baggage to private respondents during the entire
length of the trip (paragraph 6, Answer; Article 1431, new Civil Code; Section 4, Rule 129; Section
2(a). Rule 131, Revised Rules on Evidence). Indeed, petitioner is quite candid in conceding at this
stage that "the baggage was meant to travel with respondents Lorenzanas all the way until their
return to Manila" (Page 12, petition; Page 23, Rollo) which stance is enough to negate petitioner's
concept of delay. By parity of reasoning:
73
 "Delay", as used in a contract exempting a telegraph company from all liability for any delay,
error, or remissness in sending a message, implies that the message was or would be sent
at some time, but not sent or delivered promptly, and the company is not exempt from
liability for a total failure to send and deliver a message. (Balduin vs. U.S., Tel. Co., N.Y., 54
Barb. 505, 512, 6 Abb. Prac. N.S., 405, 423; 11-A Words and Phrases, Permanent Edition,
1971, page 414).
To bring the case within the ambit of the limited liability clause for loss, damage, or delay under
Article 22 in conjunction with the second paragraph of Article 26 of the Warsaw Convention,
petitioner is inclined to construe its accountability by arguing that the missing bag was merely
delayed. Petitioner is categorical in its disputation that since the bag was neither lost nor damaged,
the baggage was merely delayed, hence the caveat must perforce apply. (Page 10, Memorandum;
Page 133 Rollo). This process of exclusion typifies the classic fallacy of non-sequitur because the
fact of the matter is that the missing luggage was not turned over by the employees of petitioner to
the Pan Am Office in Tokyo and was returned to Manila on September 16, 1974 (page 3, Decision in
Civil Case No. 103684; Page 38, Record on Appeal). Still worse, the luggage was not forthwith
delivered to private respondents who returned from their trip to the U.S. and Canada on September
24, 1974. It was not until more than a year thereafter, or on December 5, 1975, when the luggage
was finally delivered to private respondents. There is thus no occasion to speak of delay since the
baggage was not delivered at all to the passenger for purposes of the trip in contravention of a
common carrier's undertaking to transport the goods from the place of embarkation to the ultimate
point of destination. In point of law, petitioner cannot therefore ascribe an alleged reversible error on
the part of respondent court for adhering to the pronouncement of this Court in Northwest Airlines,
Inc. vs. Cuenca (14 SCRA 1063 [1965]) when the exculpatory clauses raised by the common carrier
therein, predicated on the limited liability provisions under the Warsaw Pact, were brushed aside in
this manner:
Regalado, Remedial Law Compendium, Sixth Revised Edition, 1989, Page 553). It has been
repeatedly emphasized in adjective law that a factual query similar to the challenge posed by
petitioner is proscribed by and is anathema to the second paragraph of Section 2, Rule 45 of the
Revised Rules of Court, absent any convincing demonstration from petitioner of an exceptional
circumstance that could have justified deviation from the rule (1 Regalado, Remedial Law
Compendium, Fifth Revised Edition, 1988, page 53; Universal Motors Corporation vs. Court of
Appeals (205 SCRA 448; 455 [1992]). And because of these precepts, petitioners may not likewise
assail the award of attorney's fees which respondent court deemed appropriate to uphold.
Lastly, contrary to the opinion expressed by petitioner concerning the pronouncement made by
respondent court in requiring petitioner to pay damages in the sum of $5,000.00, We believe and so
hold that there was no transgression of the Uniform Currency Act since, assuming that Republic Act
No. 529, as amended, applies, the obligation itself is still valid to be discharged by payment in legal
tender (Vitug, Pandect of Commercial Law and Jurisprudence, Revised Edition, 1990, page 72)
which was what respondent court did in requiring petitioner to pay the $5,000.00 or its equivalent in
Philippine Currency.
WHEREFORE, the petition is hereby DISMISSED, and decision of the respondent court
AFFIRMED, with costs against petitioner.
SO ORDERED.

Petitioner argues that pursuant to those provisions, an air "carrier is liable only" in the event
of death of a passenger or injury suffered by him, or of destruction or loss of, or damage to
any checked baggage or any goods, or of delay in the transportation by air of passengers,
baggage or goods. This pretense is not borne out by the language of said Articles. The
same merely declare the carrier liable for damages in the enumerated cases, if conditions
therein specified are present. Neither said provisions nor others in the aforementioned
Convention regulate or exclude liability for other breaches of contract by the carrier. Under
petitioner's theory, an air carrier would be exempt from any liability for damages in the event
of its absolute refusal, in bad faith, to comply with a contract of carriage, which is absurd. (at
p. 1065).

Petitioner argues next that the award of damages is bereft of factual foundation. But the record in
the court of origin, as synthesized by respondent court, reflects the bases for entitlement thereto:

Plaintiffs' stand on actual damages is sustained by the law and the evidence. Because of the
non-delivery of the luggage during the entire length of plaintiffs' stay abroad, the entire
purpose of their trip was frustrated. This conclusion is borne by the testimonies of plaintiffs
who declared without contradiction that plaintiff Veronica G. Lorenzana was not able to
promote the sale of her ready made dresses through outlets in the United States and
Canada to whom plaintiffs have been supplying Philippine food products (pp. 19-20, tsn.,
Feb. 16, 1977; pp. 4 and 11, tsn., March 4, 1977), resulting in loss to plaintiff of an expected
profit estimated at US $14,000.00 (p. 26, tsn., Dec. 10, 1976). It has been proven, too, by
the declaration of plaintiff George Lorenzana that they spent US $5,000.00 for their round
trip tickets and other travelling expenses (p. 26, Id.). Computed at the exchange rate of
P7.43 to US $1.00, which appears to be accepted by the parties as the prevailing rate when
the loss of business income occurred, the actual damages sustained by plaintiffs would
amount to P141,170.00 in Philippine Currency. (Page 9, Decision; Page 48, Rollo)

The belated notion advanced by petitioner relative to the absence of credibility on the part of private
respondents along this line is also devoid of substance because the conclusion drawn by the trial
court as a result of assigning values to narrations at the witness stand command great respect (2

74
G.R. No. 60673 May 19, 1992
PAN AMERICAN WORLD AIRWAYS, INC., petitioner,
vs.
JOSE K. RAPADAS and THE COURT OF APPEALS, respondents.
GUTIERREZ, JR., J.:
This is a petition for review assailing the decision of the respondent Court of Appeals which
affirmed in toto the trial court decision on the liability of petitioner Pan American World Airways for
damages due to private respondent. The trial court ruled that the petitioner can not avail of a
limitation of liabilities for lost baggages of a passenger. The dispositive portion of the trial court
decision reads:
WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered
ordering defendant to pay plaintiff by way of actual damages the equivalent peso value of
the amount of $5,228.90 and 100 paengs, nominal damages in the amount of P20,000.00
and attorney's fees of P5,000.00, and the costs of the suit. Defendant's counterclaim is
dismissed. (Rollo, p. 13)
On January 16, 1975, private respondent Jose K. Rapadas held Passenger Ticket and Baggage
Claim Check No. 026-394830084-5 for petitioner's Flight No. 841 with the route from Guam to
Manila. While standing in line to board the flight at the Guam airport, Rapadas was ordered by
petitioner's handcarry control agent to check-in his Samsonite attache case. Rapadas protested
pointing to the fact that other co-passengers were permitted to handcarry bulkier baggages. He
stepped out of the line only to go back again at the end of it to try if he can get through without
having to register his attache case. However, the same man in charge of handcarry control did not
fail to notice him and ordered him again to register his baggage. For fear that he would miss the
plane if he insisted and argued on personally taking the valise with him, he acceded to checking it in.
He then gave his attache case to his brother who happened to be around and who checked it in for
him, but without declaring its contents or the value of its contents. He was given a Baggage Claim
Tag No. P-749-713. (Exhibit "B" for the plaintiff-respondent)
Upon arriving in Manila on the same date, January 16, 1975, Rapadas claimed and was given all his
checked-in baggages except the attache case. Since Rapadas felt ill on his arrival, he sent his son,
Jorge Rapadas to request for the search of the missing luggage. The petitioner exerted efforts to
locate the luggage through the Pan American World Airways-Manila International Airport (PAN AM-
MIA) Baggage Service.
On January 30, 1975, the petitioner required the private respondent to put the request in writing. The
respondent filled in a Baggage Claim Blank Form. Thereafter, Rapadas personally followed up his
claim. For several times, he called up Mr. Panuelos, the head of the Baggage Section of PAN AM.
He also sent letters demanding and reminding the petitioner of his claim.
Rapadas received a letter from the petitioner's counsel dated August 2, 1975 offering to settle the
claim for the sum of one hundred sixty dollars ($160.00) representing the petitioner's alleged limit of
liability for loss or damage to a passenger's personal property under the contract of carriage
between Rapadas and PAN AM. Refusing to accept this kind of settlement, Rapadas filed the
instant action for damages on October 1, 1975. Rapadas alleged that PAN AM discriminated or
singled him out in ordering that his luggage be checked in. He also alleged that PAN AM neglected
its duty in the handling and safekeeping of his attache case from the point of embarkation in Guam
to his destination in Manila. He placed the value of the lost attache case and its contents at
US$42,403.90. According to him, the loss resulted in his failure to pay certain monetary obligations,
failure to remit money sent through him to relatives, inability to enjoy the fruits of his retirement and
vacation pay earned from working in Tonga Construction Company (he retired in August 1974) and
inability to return to Tonga to comply with then existing contracts.
In its answer, petitioner-defendant PAN AM acknowledged responsibility for the loss of the attache
case but asserted that the claim was subject to the "Notice of Baggage Liability Limitations"
allegedly attached to and forming part of the passenger ticket. The petitioner argued that the same
notice was also conspicuously posted in its offices for the guidance of the passengers.
At the trial, private respondent showed proof of his retirement award and vacation pay amounting to
$4,750.00. He claimed that the attache case also contained other money consisting of $1,400
allegedly given to him by his son, Jaime, as a round trip fare of his (plaintiff-respondent) wife, but
which amount was later found to be actually intended by Jaime as payment for arrears of a lot
purchased from Tropical Homes, Inc.; $3,000 allegedly given by his brothers for payment of taxes
and for constructing improvements on the Rapadas estates; and $300.00 birthday present of the
spouses Mr. and Mrs. Ruben Canonizado to plaintiff-respondent's wife. He also claimed having kept
several items in the attache case, namely –– (1) contracts and records of employment, letters of
commendation, testimonials and newspaper clippings on his achievement for 13 years in Tonga,
New Zealand and Australia, drafts of manuscripts, photographs and drivers license alleged to be
worth $20,000.00; a Polaroid camera, films, calculator, and other personal items worth $403.90;
memorabilia, autographs personally acquired from Charles Lindberg, Lawrence Rockefeller and
Ryoichi Sasakawa, a commemorative palladium coin worth Tongan 100 paengs and unused Tongan
stamps, all totalling $7,500.00; and a plan worth $5,000.00 drawn by his son Jaime, who is an
architect, for the construction of a residential house and a 6-story commercial building. Rapadas
claimed the amount of the attache case itself to be $25.50. (See Decision in Civil Case No. 99564 in
Amended Record on Appeal, pp. 61-85)
The lower court ruled in favor of complainant Rapadas after finding no stipulation giving notice to the
baggage liability limitation. The court rejected the claim of defendant PANAM that its liability under
the terms of the passenger ticket is only up to $160.00. However, it scrutinized all the claims of the
plaintiff. It discredited insufficient evidence to show discriminatory acts or bad faith on the part of
petitioner PANAM.
On appeal, the Court of Appeals affirmed the trial court decision. Hence, this petition.
The main issue raised in the case at bar is whether or not a passenger is bound by the terms of a
passenger ticket declaring that the limitations of liability set forth in the Warsaw Convention (October
12, 1929; 137 League of Nations Treaty Series II; See Proclamation No. 201 [1955], 51 O.G. 4933
[October, 1955]) as amended by the Hague Protocol (September 28, 1955; 478 UNTS 373; III PTS
515), shall apply in case of loss, damage or destruction to a registered luggage of a passenger.
The petitioner maintains that its liability for the lost baggage of respondent Rapadas was limited to
$160.00 since the latter did not declare a higher value for his baggage and did not pay the
corresponding additional charges.
The private respondent, on the other hand, insists that he is entitled to as much damages as those
awarded by the court and affirmed by the respondent appellate court.
After a review of the various arguments of the opposing parties as well as the records of the case,
the Court finds sufficient basis under the particular facts of this case for the availment of the liability
limitations under the Warsaw Convention.
There is no dispute, and the courts below admit, that there was such a Notice appearing on page
two (2) of the airline ticket stating that the Warsaw Convention governs in case of death or injury to a
passenger or of loss, damage or destruction to a passenger's luggage.
The Notice states:
75
 If the passenger's journey involves an ultimate destination or stop in a country other than the
country of departure the Warsaw Convention may be applicable and the Convention
governs and in most cases limits the liability of carriers for death or personal injury and in
respect of loss of or damage to baggage. See also notice headed "Advice to International
Passengers on Limitation of Liability." (The latter notice refers to limited liability for death or
personal injury to passengers with proven damages not exceeding US $75,000 per
passenger; Exhibit "K" for plaintiff respondent, Table of Exhibits, p. 19)
Furthermore, paragraph 2 of the "Conditions of Contract" also appearing on page 2 of the ticket
states:
2. Carriage hereunder is subject to the rules and limitations relating to liability established by
the Warsaw Convention unless such carriage is not "international carriage" as defined by
that Convention. (Exhibit "K", supra)
We note that plaintiff-respondent Rapadas presented as proof of the Passenger Ticket and Baggage
Check No. 026-394830084-5 a xerox copy of its page 2 which contains the Notice and Conditions of
Contract, and also page 3 which recites the Advice to International Passengers on Limitation of
Liability. He also presented two xerox copies of Flight Coupon No. 3 of the same passenger ticket
showing the fares paid for the trips Honolulu to Guam, Guam to Manila, and Manila to Honolulu to
prove his obligations which remained unpaid because of the unexpected loss of money allegedly
placed inside the missing attache case. Rapadas explained during the trial that the same passenger
ticket was returned by him to one Mr. S.L. Faupula of the Union Steam Ship Company of New
Zealand, Ltd., Tonga who demanded the payment of the fares or otherwise, the return of the unused
plane tickets (including the subject Passenger Ticket & Baggage Check No. 026-394830084-5). The
issuance of these tickets was facilitated by Mr. Faupula on credit.
Meanwhile, the petitioner offered as evidence Exhibit "1" also showing page 2 of the passenger
ticket to prove the notice and the conditions of the contract of carriage. It likewise offered Exhibit "1-
A", a xerox copy of a "Notice of Baggage Liability Limitations" which the trial court disregarded and
held to be non-existent. The same Exhibit "1-A" contained the following stipulations:
NOTICE OF BAGGAGE LIABILITY LIMITATIONS –– Liability for loss, delay, or damage to
baggage is limited as follows unless a higher value is declared in advance and additional
charges are paid: (1) for most international travel (including domestic portions of
international journeys) to approximately $8.16 per pound ($18.00 per kilo; now $20.00 per
Exhibit "13") for checked baggage and $360 (now $400 per Exhibit "13") per passenger for
unchecked baggage; (2) for travel wholly between U.S. points, to $500 per passenger on
most carriers (a few have lower limits). Excess valuation may not be declared on certain
types of valuable articles. Carriers assume no liability for fragile or perishable articles.
Further information may be obtained from the carrier. (Table of Exhibits, p. 45)
The original of the Passenger Ticket and Baggage Check No. 026-394830084-5 itself was not
presented as evidence as it was among those returned to Mr. Faupula. Thus, apart from the
evidence offered by the defendant airline, the lower court had no other basis for determining
whether or not there was actually a stipulation on the specific amounts the petitioner had expressed
itself to be liable for loss of baggage.
Although the trial court rejected the evidence of the defendant-petitioner of a stipulation particularly
specifying what amounts it had bound itself to pay for loss of luggage, the Notice and paragraph 2 of
the "Conditions of Contract" should be sufficient notice showing the applicability of the Warsaw
limitations.
The Warsaw Convention, as amended, specifically provides that it is applicable to international
carriage which it defines in Article 1, par. 2 as follows:
(2) For the purposes of this Convention, the expression "international carriage" means any
carriage in which, according to the agreement between the parties, the place of departure
and the place of destination, whether or not there be a breach in the carriage or a
transhipment, are situated either within the territories of two High Contracting Parties or
within the territory of a single High Contracting Party if there is an agreed stopping place
within the territory of another State, even if that State is not a High Contracting Party.
Carriage between two points within the territory of a single High Contracting Party without an
agreed stopping place within the territory of another State is not international carriage for the
purposes of this Convention. ("High Contracting Party" refers to a state which has ratified or
adhered to the Convention, or which has not effectively denounced the Convention [Article
40A(l)]).
Nowhere in the Warsaw Convention, as amended, is such a detailed notice of baggage liability
limitations required. Nevertheless, it should become a common, safe and practical custom among
air carriers to indicate beforehand the precise sums equivalent to those fixed by Article 22 (2) of the
Convention.
The Convention governs the availment of the liability limitations where the baggage check is
combined with or incorporated in the passenger ticket which complies with the provisions of Article
3, par. l (c). (Article 4, par. 2) In the case at bar, the baggage check is combined with the passenger
ticket in one document of carriage. The passenger ticket complies with Article 3, par. l (c) which
provides:
(l) In respect of the carriage of passengers a ticket shall be delivered containing:
(a) . . .
(b) . . .
(c) a notice to the effect that, if the passenger's journey involves an ultimate
destination or stop in a country other than the country of departure, the Warsaw
Convention may be applicable and that the Convention governs and in most cases
limits the liability of carriers for death or personal injury and in respect of loss of or
damage to baggage.
We have held in the case of Ong Yiu v. Court of Appeals, supra, and reiterated in a similar case
where herein petitioner was also sued for damages, Pan American World Airways v. Intermediate
Appellate Court (164 SCRA 268 [1988]) that:
It (plane ticket) is what is known as a contract of "adhesion", in regards which it has been
said that contracts of adhesion wherein one party imposes a ready made form of contract on
the other, as the plane ticket in the case at bar, are contracts not entirely prohibited. The
one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives
his consent. (Tolentino, Civil Code, Vol. IV, 1962 ed., p. 462, citing Mr. Justice J.B.L. Reyes,
Lawyer's Journal, January 31, 1951, p. 49) And as held in Randolph v. American Airlines,
103 Ohio App. 172, 144 N.E. 2d 878; Rosenchein v. Trans World Airlines, Inc., 349 S.W. 2d
483, "a contract limiting liability upon an agreed valuation does not offend against the policy
of the law forbidding one from contracting against his own negligence.
Considering, therefore, that petitioner had failed to declare a higher value for his baggage,
he cannot be permitted a recovery in excess of P100.00 . . . (91 SCRA 223 at page 231)
We hasten to add that while contracts of adhesion are not entirely prohibited, neither is a blind
reliance on them encouraged. In the face of facts and circumstances showing they should be
76
ignored because of their basically one sided nature, the Court does not hesitate to rule out blind
adherence to their terms. (See Sweet Lines, Inc. v. Teves, 83 SCRA 361, 368-369[1978])
The arguments of the petitioner do not belie the fact that it was indeed accountable for the loss of
the attache case. What the petitioner is concerned about is whether or not the notice, which it did
not fail to state in the plane ticket and which it deemed to have been read and accepted by the
private respondent will be considered by this Court as adequate under the circumstances of this
case. As earlier stated, the Court finds the provisions in the plane ticket sufficient to govern the
limitations of liabilities of the airline for loss of luggage. The passenger, upon contracting with the
airline and receiving the plane ticket, was expected to be vigilant insofar as his luggage is
concerned. If the passenger fails to adduce evidence to overcome the stipulations, he cannot avoid
the application of the liability limitations.
The facts show that the private respondent actually refused to register the attache case and chose
to take it with him despite having been ordered by the PANAM agent to check it in. In attempting to
avoid registering the luggage by going back to the line, private respondent manifested a disregard of
airline rules on allowable handcarried baggages. Prudence of a reasonably careful person also
dictates that cash and jewelry should be removed from checked-in-luggage and placed in one's
pockets or in a handcarried Manila-paper or plastic envelope.
The alleged lack of enough time for him to make a declaration of a higher value and to pay the
corresponding supplementary charges cannot justify his failure to comply with the requirement that
will exclude the application of limited liability. Had he not wavered in his decision to register his
luggage, he could have had enough time to disclose the true worth of the articles in it and to pay the
extra charges or remove them from the checked-in-luggage. Moreover, an airplane will not depart
meantime that its own employee is asking a passenger to comply with a safety regulation.
Passengers are also allowed one handcarried bag each provided it conforms to certain prescribed
dimensions. If Mr. Rapadas was not allowed to handcarry the lost attache case, it can only mean
that he was carrying more than the allowable weight for all his luggages or more than the allowable
number of handcarried items or more than the prescribed dimensions for the bag or valise. The
evidence on any arbitrary behavior of a Pan Am employee or inexcusable negligence on the part of
the carrier is not clear from the petition. Absent such proof, we cannot hold the carrier liable because
of arbitrariness, discrimination, or mistreatment.
We are not by any means suggesting that passengers are always bound to the stipulated amounts
printed on a ticket, found in a contract of adhesion, or printed elsewhere but referred to in handouts
or forms. We simply recognize that the reasons behind stipulations on liability limitations arise from
the difficulty, if not impossibility, of establishing with a clear preponderance of evidence the contents
of a lost valise or suitcase. Unless the contents are declared, it will always be the word of a
passenger against that of the airline. If the loss of life or property is caused by the gross negligence
or arbitrary acts of the airline or the contents of the lost luggage are proved by satisfactory evidence
other than the self-serving declarations of one party, the Court will not hesitate to disregard the fine
print in a contract of adhesion. (See Sweet Lines Inc. v. Teves, supra) Otherwise, we are
constrained to rule that we have to enforce the contract as it is the only reasonable basis to arrive at
a just award.
carrying. Plaintiff presented the memorandum award, Exhibit T-1 and the vouchers of
payment, Exhibits T-2 and T-3. Under the circumstances, recited by the plaintiff in which the
loss occurred, the Court believes that plaintiff could really have placed this amount in the
attache case considering that he was originally handcarrying said attache case and the
same was looked, and he did not expect that he would be required to check it in. . . .
(Amended Record on Appeal, p. 75; Emphasis ours)
The above conclusion of the trial court does not arise from the facts. That the attache case was
originally handcarried does not beg the conclusion that the amount of $4,750.00 in cash could have
been placed inside. It may be noted that out of a claim for US$42,403.90 as the amount lost, the trial
court found for only US$5,228.90 and 100 paengs. The court had doubts as to the total claim.
The lost luggage was declared as weighing around 18 pounds or approximately 8 kilograms. At
$20.00 per kilogram, the petitioner offered to pay $160.00 as a higher value was not declared in
advance and additional charges were not paid. We note, however, that an amount of $400.00 per
passenger is allowed for unchecked luggage. Since the checking-in was against the will of the
respondent, we treat the lost bag as partaking of involuntarily and hurriedly checked-in luggage and
continuing its earlier status as unchecked luggage. The fair liability under the petitioner's own printed
terms is $400.00. Since the trial court ruled out discriminatory acts or bad faith on the part of Pan
Am or other reasons warranting damages, there is no factual basis for the grant of P20,000.00
damages.
As to the question of whether or not private respondent should be paid attorney's fees, the Court
sustains the finding of the trial court and the respondent appellate court that it is just and equitable
for the private respondent to recover expenses for litigation in the amount of P5,000.00. Article 22(4)
of the Warsaw Convention, as amended does not preclude an award of attorney's fees. That
provision states that the limits of liability prescribed in the instrument "shall not prevent the court
from awarding, in accordance with its own law, in addition, the whole or part of the court costs and
other expenses of litigation incurred by the plaintiff." We, however, raise the award to P10,000.00
considering the resort to the Court of Appeals and this Court.
WHEREFORE, the petition is hereby GRANTED and the decision of the respondent Court of
Appeals is REVERSED and SET ASIDE. The petitioner is ordered to pay the private respondent
damages in the amount of US$400.00 or its equivalent in Philippine Currency at the time of actual
payment, P10,000.00 in attorney's fees, and costs of the suit.
SO ORDERED.

We note that the finding on the amount lost is more of a probability than a proved conclusion.

The trial court stated:

xxx xxx xxx

We come now to the actual loss of $4,750.00 which the plaintiff claims was the amount of
his retirement award and vacation pay. According to the plaintiff, this was in cash of $100
denominations and was placed in an envelope separate from the other money he was

77