Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
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.]
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 Agency. The decision of the Court of Appeals dated May 26, 2004 in
while the cargo was being unloaded from the ship. It is settled in CA-G.R. CV No. 76690 is AFFIRMED IN TOTO. Costs against the
maritime law jurisprudence that cargoes while being unloaded petitioners.
generally remain under the custody of the carrier;11 RCL and EDSA
SO ORDERED.
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.

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
FIRST DIVISION
G.R. No. 101503 September 15, 1993
PLANTERS PRODUCTS, INC., petitioner,
vs.
COURT OF APPEALS, SORIAMONT STEAMSHIP AGENCIES AND
KYOSEI KISEN KABUSHIKI KAISHA, respondents.
Gonzales, Sinense, Jimenez & Associates for petitioner.
Siguion Reyna, Montecillo & Ongsiako Law Office for private
respondents.
BELLOSILLO, J.:
Does a charter-party1 between a shipowner and a charterer
transform a common carrier into a private one as to negate the civil
law presumption of negligence in case of loss or damage to its
cargo?
Planters Products, Inc. (PPI), purchased from Mitsubishi
International Corporation (MITSUBISHI) of New York, U.S.A.,
9,329.7069 metric tons (M/T) of Urea 46% fertilizer which the latter
shipped in bulk on 16 June 1974 aboard the cargo vessel M/V "Sun
Plum" owned by private respondent Kyosei Kisen Kabushiki Kaisha
(KKKK) from Kenai, Alaska, U.S.A., to Poro Point, San Fernando, La
Union, Philippines, as evidenced by Bill of Lading No. KP-1 signed by
the master of the vessel and issued on the date of departure.
On 17 May 1974, or prior to its voyage, a time charter-party on the
vessel M/V "Sun Plum" pursuant to the Uniform General
Charter2 was entered into between Mitsubishi as shipper/charterer
and KKKK as shipowner, in Tokyo, Japan.3 Riders to the aforesaid
charter-party starting from par. 16 to 40 were attached to the pre-
printed agreement. Addenda Nos. 1, 2, 3 and 4 to the charter-party
were also subsequently entered into on the 18th, 20th, 21st and
27th of May 1974, respectively.
Before loading the fertilizer aboard the vessel, four (4) of her
holds4 were all presumably inspected by the charterer's
representative and found fit to take a load of urea in bulk pursuant
to par. 16 of the charter-party which reads:
16. . . . At loading port, notice of readiness to be accomplished by
certificate from National Cargo Bureau inspector or substitute
appointed by charterers for his account certifying the vessel's
readiness to receive cargo spaces. The vessel's hold to be properly
swept, cleaned and dried at the vessel's expense and the vessel to be
presented clean for use in bulk to the satisfaction of the inspector
before daytime commences. (emphasis supplied)
After the Urea fertilizer was loaded in bulk by stevedores hired by
and under the supervision of the shipper, the steel hatches were
closed with heavy iron lids, covered with three (3) layers of
tarpaulin, then tied with steel bonds. The hatches remained closed
and tightly sealed throughout the entire voyage.5
Upon arrival of the vessel at her port of call on 3 July 1974, the steel
pontoon hatches were opened with the use of the vessel's boom.
Petitioner unloaded the cargo from the holds into its steelbodied
dump trucks which were parked alongside the berth, using metal
scoops attached to the ship, pursuant to the terms and conditions
of the charter-partly (which provided for an F.I.O.S. clause).6 The
hatches remained open throughout the duration of the discharge.7
Each time a dump truck was filled up, its load of Urea was covered shortage in the goods shipped and the diminution in value of that
with tarpaulin before it was transported to the consignee's portion said to have been contaminated with dirt. 13
warehouse located some fifty (50) meters from the wharf. Midway
Respondent SSA explained that they were not able to respond to
to the warehouse, the trucks were made to pass through a weighing
the consignee's claim for payment because, according to them,
scale where they were individually weighed for the purpose of
what they received was just a request for shortlanded certificate
ascertaining the net weight of the cargo. The port area was windy,
and not a formal claim, and that this "request" was denied by them
certain portions of the route to the warehouse were sandy and the
because they "had nothing to do with the discharge of the
weather was variable, raining occasionally while the discharge was
shipment." 14 Hence, on 18 July 1975, PPI filed an action for
in progress.8 The petitioner's warehouse was made of corrugated
damages with the Court of First Instance of Manila. The defendant
galvanized iron (GI) sheets, with an opening at the front where the
carrier argued that the strict public policy governing common
dump trucks entered and unloaded the fertilizer on the warehouse
carriers does not apply to them because they have become private
floor. Tarpaulins and GI sheets were placed in-between and
carriers by reason of the provisions of the charter-party. The court a
alongside the trucks to contain spillages of the ferilizer.9
quo however sustained the claim of the plaintiff against the
It took eleven (11) days for PPI to unload the cargo, from 5 July to defendant carrier for the value of the goods lost or damaged when
18 July 1974 (except July 12th, 14th and 18th).10 A private marine it ruled thus: 15
and cargo surveyor, Cargo Superintendents Company Inc. (CSCI),
. . . Prescinding from the provision of the law that a common carrier
was hired by PPI to determine the "outturn" of the cargo shipped,
is presumed negligent in case of loss or damage of the goods it
by taking draft readings of the vessel prior to and after
contracts to transport, all that a shipper has to do in a suit to
discharge. 11 The survey report submitted by CSCI to the consignee
recover for loss or damage is to show receipt by the carrier of the
(PPI) dated 19 July 1974 revealed a shortage in the cargo of 106.726
goods and to delivery by it of less than what it received. After that,
M/T and that a portion of the Urea fertilizer approximating 18 M/T
the burden of proving that the loss or damage was due to any of the
was contaminated with dirt. The same results were contained in a
causes which exempt him from liability is shipted to the carrier,
Certificate of Shortage/Damaged Cargo dated 18 July 1974 prepared
common or private he may be. Even if the provisions of the charter-
by PPI which showed that the cargo delivered was indeed short of
party aforequoted are deemed valid, and the defendants
94.839 M/T and about 23 M/T were rendered unfit for commerce,
considered private carriers, it was still incumbent upon them to
having been polluted with sand, rust and
prove that the shortage or contamination sustained by the cargo is
dirt. 12
attributable to the fault or negligence on the part of the shipper or
Consequently, PPI sent a claim letter dated 18 December 1974 to consignee in the loading, stowing, trimming and discharge of the
Soriamont Steamship Agencies (SSA), the resident agent of the cargo. This they failed to do. By this omission, coupled with their
carrier, KKKK, for P245,969.31 representing the cost of the alleged failure to destroy the presumption of negligence against them, the
defendants are liable (emphasis supplied).
On appeal, respondent Court of Appeals reversed the lower court
and absolved the carrier from liability for the value of the cargo that
was lost or damaged. 16 Relying on the 1968 case of Home Insurance
Co. v. American Steamship Agencies, Inc.,17 the appellate court ruled
that the cargo vessel M/V "Sun Plum" owned by private respondent
KKKK was a private carrier and not a common carrier by reason of
the time charterer-party. Accordingly, the Civil Code provisions on
common carriers which set forth a presumption of negligence do
not find application in the case at bar. Thus —
. . . In the absence of such presumption, it was incumbent upon the
plaintiff-appellee to adduce sufficient evidence to prove the
negligence of the defendant carrier as alleged in its complaint. It is
an old and well settled rule that if the plaintiff, upon whom rests the
burden of proving his cause of action, fails to show in a satisfactory
manner the facts upon which he bases his claim, the defendant is
under no obligation to prove his exception or defense
(Moran, Commentaries on the Rules of Court, Volume 6, p. 2, citing
Belen v. Belen, 13 Phil. 202).
But, the record shows that the plaintiff-appellee dismally failed to
prove the basis of its cause of action, i.e. the alleged negligence of
defendant carrier. It appears that the plaintiff was under the
impression that it did not have to establish defendant's negligence.
Be that as it may, contrary to the trial court's finding, the record of
the instant case discloses ample evidence showing that defendant
carrier was not negligent in performing its obligation . .
. 18 (emphasis supplied).
Petitioner PPI appeals to us by way of a petition for review assailing
the decision of the Court of Appeals. Petitioner theorizes that
the Home Insurance case has no bearing on the present controversy
because the issue raised therein is the validity of a stipulation in the
charter-party delimiting the liability of the shipowner for loss or
damage to goods cause by want of due deligence on its part or that
of its manager to make the vessel seaworthy in all respects, and not
whether the presumption of negligence provided under the Civil
Code applies only to common carriers and not to private
carriers. 19 Petitioner further argues that since the possession and
control of the vessel remain with the shipowner, absent any
stipulation to the contrary, such shipowner should made liable for
the negligence of the captain and crew. In fine, PPI faults the
appellate court in not applying the presumption of negligence
against respondent carrier, and instead shifting the onus
probandi on the shipper to show want of due deligence on the part
of the carrier, when he was not even at hand to witness what
transpired during the entire voyage.
As earlier stated, the primordial issue here is whether a common
carrier becomes a private carrier by reason of a charter-party; in the
negative, whether the shipowner in the instant case was able to
prove that he had exercised that degree of diligence required of him
under the law.
It is said that etymology is the basis of reliable judicial decisions in
commercial cases. This being so, we find it fitting to first define
important terms which are relevant to our discussion.
A "charter-party" is defined as a contract by which an entire ship, or
some principal part thereof, is let by the owner to another person
for a specified time or use; 20 a contract of affreightment by which
the owner of a ship or other vessel lets the whole or a part of her to
a merchant or other person for the conveyance of goods, on a
particular voyage, in consideration of the payment of
freight; 21 Charter parties are of two types: (a) contract of
affreightment which involves the use of shipping space on vessels
leased by the owner in part or as a whole, to carry goods for others;
and, (b) charter by demise or bareboat charter, by the terms of
which the whole vessel is let to the charterer with a transfer to him
of its entire command and possession and consequent control over
its navigation, including the master and the crew, who are his
servants. Contract of affreightment may either be time charter,
wherein the vessel is leased to the charterer for a fixed period of
time, or voyage charter, wherein the ship is leased for a single
voyage. 22 In both cases, the charter-party provides for the hire of
vessel only, either for a determinate period of time or for a single or
consecutive voyage, the shipowner to supply the ship's stores, pay
for the wages of the master and the crew, and defray the expenses
for the maintenance of the ship.
Upon the other hand, the term "common or public carrier" is
defined in Art. 1732 of the Civil Code. 23 The definition extends to
carriers either by land, air or water which hold themselves out as
ready to engage in carrying goods or transporting passengers or
both for compensation as a public employment and not as a casual
occupation. The distinction between a "common or public carrier"
and a "private or special carrier" lies in the character of the
business, such that if the undertaking is a single transaction, not a
part of the general business or occupation, although involving the
carriage of goods for a fee, the person or corporation offering such
service is a private carrier. 24
Article 1733 of the New Civil Code mandates that common carriers,
by reason of the nature of their business, should observe
extraordinary diligence in the vigilance over the goods they
carry.25 In the case of private carriers, however, the exercise of
ordinary diligence in the carriage of goods will suffice. Moreover, in
the case of loss, destruction or deterioration of the goods, common
carriers are presumed to have been at fault or to have acted
negligently, and the burden of proving otherwise rests on
them.26 On the contrary, no such presumption applies to private
carriers, for whosoever alleges damage to or deterioration of the
goods carried has the onus of proving that the cause was the
negligence of the carrier.
It is not disputed that respondent carrier, in the ordinary course of
business, operates as a common carrier, transporting goods
indiscriminately for all persons. When petitioner chartered the
vessel M/V "Sun Plum", the ship captain, its officers and compliment
were under the employ of the shipowner and therefore continued
to be under its direct supervision and control. Hardly then can we
charge the charterer, a stranger to the crew and to the ship, with
the duty of caring for his cargo when the charterer did not have any
control of the means in doing so. This is evident in the present case
considering that the steering of the ship, the manning of the decks,
the determination of the course of the voyage and other technical
incidents of maritime navigation were all consigned to the officers
and crew who were screened, chosen and hired by the
shipowner. 27
It is therefore imperative that a public carrier shall remain as such,
notwithstanding the charter of the whole or portion of a vessel by
one or more persons, provided the charter is limited to the ship
only, as in the case of a time-charter or voyage-charter. It is only
when the charter includes both the vessel and its crew, as in a
bareboat or demise that a common carrier becomes private, at least
insofar as the particular voyage covering the charter-party is
concerned. Indubitably, a shipowner in a time or voyage charter
retains possession and control of the ship, although her holds may,
for the moment, be the property of the charterer. 28
Respondent carrier's heavy reliance on the case of Home Insurance
Co. v. American Steamship Agencies, supra, is misplaced for the
reason that the meat of the controversy therein was the validity of a
stipulation in the charter-party exempting the shipowners from
liability for loss due to the negligence of its agent, and not the
effects of a special charter on common carriers. At any rate, the rule
in the United States that a ship chartered by a single shipper to
carry special cargo is not a common carrier, 29 does not find
application in our jurisdiction, for we have observed that the
growing concern for safety in the transportation of passengers and
/or carriage of goods by sea requires a more exacting interpretation
of admiralty laws, more particularly, the rules governing common
carriers.
We quote with approval the observations of Raoul Colinvaux, the
learned barrister-at-law 30 —
As a matter of principle, it is difficult to find a valid distinction
between cases in which a ship is used to convey the goods of one
and of several persons. Where the ship herself is let to a charterer,
so that he takes over the charge and control of her, the case is
different; the shipowner is not then a carrier. But where her
services only are let, the same grounds for imposing a strict
responsibility exist, whether he is employed by one or many. The
master and the crew are in each case his servants, the freighter in
each case is usually without any representative on board the ship;
the same opportunities for fraud or collusion occur; and the same
difficulty in discovering the truth as to what has taken place arises . .
.
In an action for recovery of damages against a common carrier on
the goods shipped, the shipper or consignee should first prove the
fact of shipment and its consequent loss or damage while the same
was in the possession, actual or constructive, of the carrier.
Thereafter, the burden of proof shifts to respondent to prove that
he has exercised extraordinary diligence required by law or that the
loss, damage or deterioration of the cargo was due to fortuitous
event, or some other circumstances inconsistent with its liability. 31
To our mind, respondent carrier has sufficiently overcome, by clear
and convincing proof, the prima facie presumption of negligence.
The master of the carrying vessel, Captain Lee Tae Bo, in his
deposition taken on 19 April 1977 before the Philippine Consul and
Legal Attache in the Philippine Embassy in Tokyo, Japan, testified
that before the fertilizer was loaded, the four (4) hatches of the
vessel were cleaned, dried and fumigated. After completing the
loading of the cargo in bulk in the ship's holds, the steel pontoon
hatches were closed and sealed with iron lids, then covered with
three (3) layers of serviceable tarpaulins which were tied with steel
bonds. The hatches remained close and tightly sealed while the ship
was in transit as the weight of the steel covers made it impossible
for a person to open without the use of the ship's boom. 32
It was also shown during the trial that the hull of the vessel was in
good condition, foreclosing the possibility of spillage of the cargo
into the sea or seepage of water inside the hull of the
vessel. 33 When M/V "Sun Plum" docked at its berthing place,
representatives of the consignee boarded, and in the presence of a
representative of the shipowner, the foreman, the stevedores, and
a cargo surveyor representing CSCI, opened the hatches and
inspected the condition of the hull of the vessel. The stevedores
unloaded the cargo under the watchful eyes of the shipmates who
were overseeing the whole operation on rotation basis. 34
Verily, the presumption of negligence on the part of the respondent
carrier has been efficaciously overcome by the showing of
extraordinary zeal and assiduity exercised by the carrier in the care
of the cargo. This was confirmed by respondent appellate court thus
—
. . . Be that as it may, contrary to the trial court's finding, the record
of the instant case discloses ample evidence showing that defendant
carrier was not negligent in performing its obligations. Particularly,
the following testimonies of plaintiff-appellee's own witnesses
clearly show absence of negligence by the defendant carrier; that
the hull of the vessel at the time of the discharge of the cargo was
sealed and nobody could open the same except in the presence of
the owner of the cargo and the representatives of the vessel (TSN,
20 July 1977, p. 14); that the cover of the hatches was made of steel
and it was overlaid with tarpaulins, three layers of tarpaulins and
therefore their contents were protected from the weather (TSN, 5
April 1978, p. 24); and, that to open these hatches, the seals would
have to be broken, all the seals were found to be intact (TSN, 20 July
1977, pp. 15-16) (emphasis supplied).
The period during which private respondent was to observe the
degree of diligence required of it as a public carrier began from the
time the cargo was unconditionally placed in its charge after the
vessel's holds were duly inspected and passed scrutiny by the
shipper, up to and until the vessel reached its destination and its
hull was reexamined by the consignee, but prior to unloading. This
is clear from the limitation clause agreed upon by the parties in the
Addendum to the standard "GENCON" time charter-party which
provided for an F.I.O.S., meaning, that the loading, stowing,
trimming and discharge of the cargo was to be done by the
charterer, free from all risk and expense to the carrier. 35 Moreover,
a shipowner is liable for damage to the cargo resulting from
improper stowage only when the stowing is done by stevedores
employed by him, and therefore under his control and supervision,
not when the same is done by the consignee or stevedores under
the employ of the latter. 36
Article 1734 of the New Civil Code provides that common carriers
are not responsible for the loss, destruction or deterioration of the
goods if caused by the charterer of the goods or defects in the
packaging or in the containers. The Code of Commerce also provides
that all losses and deterioration which the goods may suffer during
the transportation by reason of fortuitous event, force majeure, or
the inherent defect of the goods, shall be for the account and risk of
the shipper, and that proof of these accidents is incumbent upon
the carrier. 37 The carrier, nonetheless, shall be liable for the loss
and damage resulting from the preceding causes if it is proved, as
against him, that they arose through his negligence or by reason of
his having failed to take the precautions which usage has
established among careful persons. 38
Respondent carrier presented a witness who testified on the
characteristics of the fertilizer shipped and the expected risks of
bulk shipping. Mr. Estanislao Chupungco, a chemical engineer
working with Atlas Fertilizer, described Urea as a chemical
compound consisting mostly of ammonia and carbon monoxide
compounds which are used as fertilizer. Urea also contains 46%
nitrogen and is highly soluble in water. However, during storage,
nitrogen and ammonia do not normally evaporate even on a long
voyage, provided that the temperature inside the hull does not
exceed eighty (80) degrees centigrade. Mr. Chupungco further
added that in unloading fertilizer in bulk with the use of a clamped
shell, losses due to spillage during such operation amounting to one
percent (1%) against the bill of lading is deemed "normal" or
"tolerable." The primary cause of these spillages is the clamped
shell which does not seal very tightly. Also, the wind tends to blow
away some of the materials during the unloading process.
The dissipation of quantities of fertilizer, or its daterioration in
value, is caused either by an extremely high temperature in its place
of storage, or when it comes in contact with water. When Urea is
drenched in water, either fresh or saline, some of its particles
dissolve. But the salvaged portion which is in liquid form still
remains potent and usable although no longer saleable in its original
market value.
The probability of the cargo being damaged or getting mixed or
contaminated with foreign particles was made greater by the fact
that the fertilizer was transported in "bulk," thereby exposing it to
the inimical effects of the elements and the grimy condition of the
various pieces of equipment used in transporting and hauling it.
The evidence of respondent carrier also showed that it was highly
improbable for sea water to seep into the vessel's holds during the
voyage since the hull of the vessel was in good condition and her
hatches were tightly closed and firmly sealed, making the M/V "Sun
Plum" in all respects seaworthy to carry the cargo she was chartered
for. If there was loss or contamination of the cargo, it was more
likely to have occurred while the same was being transported from
the ship to the dump trucks and finally to the consignee's
warehouse. This may be gleaned from the testimony of the marine
and cargo surveyor of CSCI who supervised the unloading. He
explained that the 18 M/T of alleged "bar order cargo" as contained
in their report to PPI was just an approximation or estimate made
by them after the fertilizer was discharged from the vessel and
segregated from the rest of the cargo.
waterfront and along the shoreline where the dump trucks passed
enroute to the consignee's warehouse.
Indeed, we agree with respondent carrier that bulk shipment of
highly soluble goods like fertilizer carries with it the risk of loss or
damage. More so, with a variable weather condition prevalent
during its unloading, as was the case at bar. This is a risk the shipper
or the owner of the goods has to face. Clearly, respondent carrier
has sufficiently proved the inherent character of the goods which
makes it highly vulnerable to deterioration; as well as the
inadequacy of its packaging which further contributed to the loss.
On the other hand, no proof was adduced by the petitioner showing
that the carrier was remise in the exercise of due diligence in order
to minimize the loss or damage to the goods it carried.
WHEREFORE, the petition is DISMISSED. The assailed decision of the
Court of Appeals, which reversed the trial court, is AFFIRMED.
Consequently, Civil Case No. 98623 of the then Court of the First
Instance, now Regional Trial Court, of Manila should be, as it is
hereby DISMISSED.
Costs against petitioner.
SO ORDERED.

The Court notes that it was in the month of July when the vessel
arrived port and unloaded her cargo. It rained from time to time at
the harbor area while the cargo was being discharged according to
the supply officer of PPI, who also testified that it was windy at the
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 165647 March 26, 2009
PHILIPPINES FIRST INSURANCE CO., INC., Petitioner,
vs.
WALLEM PHILS. SHIPPING, INC., UNKNOWN OWNER AND/OR
UNKNOWN CHARTERER OF THE VESSEL M/S "OFFSHORE MASTER"
AND "SHANGHAI FAREAST SHIP BUSINESS
COMPANY," Respondents.
DECISION
TINGA, J.:
Before us is a Rule 45 petition1 which seeks the reversal of the
Decision2 and Resolution3 of the Court of Appeals in CA-G.R. No.
61885. The Court of Appeals reversed the Decision4 of the Regional
Trial Court (RTC) of Manila, Branch 55 in Civil Case No. 96-80298,
dismissing the complaint for sum of money.
The facts of the case follow.5
On or about 2 October 1995, Anhui Chemicals Import & Export
Corporation loaded on board M/S Offshore Master a shipment
consisting of 10,000 bags of sodium sulphate anhydrous 99 PCT Min.
(shipment), complete and in good order for transportation to and
delivery at the port of Manila for consignee, L.G. Atkimson Import-
Export, Inc. (consignee), covered by a Clean Bill of Lading. The Bill of
Lading reflects the gross weight of the total cargo at 500,200
kilograms.6 The Owner and/or Charterer of M/V Offshore Master is
unknown while the shipper of the shipment is Shanghai Fareast Ship
Business Company. Both are foreign firms doing business in the
Philippines, thru its local ship agent, respondent Wallem Philippines
Shipping, Inc. (Wallem).7
On or about 16 October 1995, the shipment arrived at the port of
Manila on board the vessel M/S Offshore Master from which it was
subsequently discharged. It was disclosed during the discharge of
the shipment from the carrier that 2,426 poly bags (bags) were in
bad order and condition, having sustained various degrees of
spillages and losses. This is evidenced by the Turn Over Survey of
Bad Order Cargoes (turn-over survey) of the arrastre operator, Asian
Terminals, Inc. (arrastre operator).8 The bad state of the bags is also
evinced by the arrastre operator’s Request for Bad Order Survey.9
Asia Star Freight Services, Inc. undertook the delivery of the subject
shipment from the pier to the consignee’s warehouse in Quezon
City,10 while the final inspection was conducted jointly by the
consignee’s representative and the cargo surveyor. During the
unloading, it was found and noted that the bags had been
discharged in damaged and bad order condition. Upon inspection, it
was discovered that 63,065.00 kilograms of the shipment had
sustained unrecovered spillages, while 58,235.00 kilograms had
been exposed and contaminated, resulting in losses due to
depreciation and downgrading.11
On 29 April 1996, the consignee filed a formal claim with Wallem for
the value of the damaged shipment, to no avail. Since the shipment
was insured with petitioner Philippines First Insurance Co., Inc.
against all risks in the amount of ₱2,470,213.50,12 the consignee
filed a formal claim13 with petitioner for the damage and losses
sustained by the shipment. After evaluating the invoices, the turn-
over survey, the bad order certificate and other
documents,14 petitioner found the claim to be in order and
compensable under the marine insurance policy. Consequently,
petitioner paid the consignee the sum of ₱397,879.69 and the latter
signed a subrogation receipt.
Petitioner, in the exercise of its right of subrogation, sent a demand
letter to Wallem for the recovery of the amount paid by petitioner
to the consignee. However, despite receipt of the letter, Wallem did
not settle nor even send a response to petitioner’s claim.15
Consequently, petitioner instituted an action before the RTC for
damages against respondents for the recovery of ₱397,879.69
representing the actual damages suffered by petitioner plus legal
interest thereon computed from the time of the filing of the
complaint until fully paid and attorney’s fees equivalent to 25% of
the principal claim plus costs of suit.
In a decision16 dated 3 November 1998, the RTC ordered
respondents to pay petitioner ₱397,879.69 with 6% interest plus
attorney’s fees and costs of the suit. It attributed the damage and
losses sustained by the shipment to the arrastre operator’s
mishandling in the discharge of the shipment. Citing Eastern
Shipping Lines, Inc. v. Court of Appeals,17 the RTC held the shipping
company and the arrastre operator solidarily liable since both the
arrastre operator and the carrier are charged with and obligated to
deliver the goods in good order condition to the consignee. It also
ruled that the ship functioned as a common carrier and was obliged
to observe the degree of care required of a common carrier in
handling cargoes. Further, it held that a notice of loss or damage in
writing is not required in this case because said goods already
underwent a joint inspection or survey at the time of receipt thereof
by the consignee, which dispensed with the notice requirement.
The Court of Appeals reversed and set aside the RTC’s
decision.18 According to the appellate court, there is no solidary
liability between the carrier and the arrastre operator because it
was clearly established by the court a quo that the damage and
losses of the shipment were attributed to the mishandling by the
arrastre operator in the discharge of the shipment. The appellate
court ruled that the instant case falls under an exception recognized
in Eastern
Shipping Lines.19 Hence, the arrastre operator was held solely liable
to the consignee.
Petitioner raises the following issues:
1. Whether or not the Court of Appeals erred in not holding that as
a common carrier, the carrier’s duties extend to the obligation to
safely discharge the cargo from the vessel;
2. Whether or not the carrier should be held liable for the cost of
the damaged shipment;
3. Whether or not Wallem’s failure to answer the extra judicial
demand by petitioner for the cost of the lost/damaged shipment is
an implied admission of the former’s liability for said goods;
4. Whether or not the courts below erred in giving credence to the
testimony of Mr. Talens.
It is beyond question that respondent’s vessel is a common
carrier.20 Thus, the standards for determining the existence or
absence of the respondent’s liability will be gauged on the degree of
diligence required of a common carrier. Moreover, as the shipment
was an exercise of international trade, the provisions of the Carriage
of Goods
by Sea Act21 (COGSA), together with the Civil Code and the Code of
Commerce, shall apply.22
The first and second issues raised in the petition will be resolved
concurrently since they are interrelated.
It is undisputed that the shipment was damaged prior to its receipt
by the insured consignee. The damage to the shipment was
documented by the turn-over survey23 and Request for Bad Order
Survey.24 The turn-over survey, in particular, expressly stipulates
that 2,426 bags of the shipment were received by the arrastre
operator in damaged condition. With these documents, petitioner
insists that the shipment incurred damage or losses while still in the
care and responsibility of Wallem and before it was turned over and
delivered to the arrastre operator.
The trial court, however, found through the testimony of Mr.
Maximino Velasquez Talens, a cargo surveyor of Oceanica Cargo
Marine Surveyors Corporation, that the losses and damage to the
cargo were caused by the mishandling of the arrastre operator.
Specifically, that the torn cargo bags resulted from the use of steel
hooks/spikes in piling the cargo bags to the pallet board and in
pushing the bags by the stevedores of the arrastre operator to the
tug boats then to the ports.25 The appellate court affirmed the
finding of mishandling in the discharge of cargo and it served as its
basis for exculpating respondents from liability, rationalizing that
with the fault of the arrastre operator in the unloading of the cargo
established it should bear sole liability for the cost of the
damaged/lost cargo.
While it is established that damage or losses were incurred by the
shipment during the unloading, it is disputed who should be liable
for the damage incurred at that point of transport. To address this
issue, the pertinent laws and jurisprudence are examined.
Common carriers, from the nature of their business and for reasons
of public policy, are bound to observe extraordinary diligence in the
vigilance over the goods transported by them.26 Subject to certain
exceptions enumerated under Article 173427 of the Civil Code,
common carriers are responsible for the loss, destruction, or
deterioration of the goods. The extraordinary responsibility of the
common carrier lasts from the time the goods are unconditionally
placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or
constructively, by the carrier to the consignee, or to the person who
has a right to receive them.28
For marine vessels, Article 619 of the Code of Commerce provides
that the ship captain is liable for the cargo from the time it is turned
over to him at the dock or afloat alongside the vessel at the port of
loading, until he delivers it on the shore or on the discharging wharf
at the port of unloading, unless agreed otherwise. In Standard Oil
Co. of New York v. Lopez Castelo,29 the Court interpreted the ship
captain’s liability as ultimately that of the shipowner by regarding
the captain as the representative of the ship owner.
Lastly, Section 2 of the COGSA provides that under every contract of
carriage of goods by sea, the carrier in relation to the loading,
handling, stowage, carriage, custody, care, and discharge of such
goods, shall be subject to the responsibilities and liabilities and
entitled to the rights and immunities set forth in the Act.30 Section 3
(2) thereof then states that among the carriers’ responsibilities are
to properly and carefully load, handle, stow, carry, keep, care for,
and discharge the goods carried.
The above doctrines are in fact expressly incorporated in the bill of
lading between the shipper Shanghai Fareast Business Co., and the
consignee, to wit:
4. PERIOD OF RESPONSIBILITY. The responsibility of the carrier shall
commence from the time when the goods are loaded on board the
vessel and shall cease when they are discharged from the vessel.
The Carrier shall not be liable of loss of or damage to the goods
before loading and after discharging from the vessel, howsoever
such loss or damage arises.31
On the other hand, the functions of an arrastre operator involve the
handling of cargo deposited on the wharf or between the
establishment of the consignee or shipper and the ship's
tackle.32 Being the custodian of the goods discharged from a vessel,
an arrastre operator's duty is to take good care of the goods and to
turn them over to the party entitled to their possession.33
Handling cargo is mainly the arrastre operator's principal work so its
drivers/operators or employees should observe the standards and
measures necessary to prevent losses and damage to shipments
under its custody.34
In Fireman’s Fund Insurance Co. v. Metro Port Service, Inc.35 the
Court explained the relationship and responsibility of an arrastre
operator to a consignee of a cargo, to quote:
The legal relationship between the consignee and the arrastre
operator is akin to that of a depositor and warehouseman. The
relationship between the consignee and the common carrier is
similar to that of the consignee and the arrastre operator. Since it is
the duty of the ARRASTRE to take good care of the goods that are in
its custody and to deliver them in good condition to the consignee,
such responsibility also devolves upon the CARRIER. Both the
ARRASTRE and the CARRIER are therefore charged with and
obligated to deliver the goods in good condition to the
consignee.(Emphasis supplied) (Citations omitted)
The liability of the arrastre operator was reiterated in Eastern
Shipping Lines, Inc. v. Court of Appeals36 with the clarification that
the arrastre operator and the carrier are not always and necessarily
solidarily liable as the facts of a case may vary the rule.
Thus, in this case the appellate court is correct insofar as it ruled
that an arrastre operator and a carrier may not be held solidarily
liable at all times. But the precise question is which entity had
custody of the shipment during its unloading from the vessel?
The aforementioned Section 3(2) of the COGSA states that among
the carriers’ responsibilities are to properly and carefully load, care
for and discharge the goods carried. The bill of lading covering the
subject shipment likewise stipulates that the carrier’s liability for
loss or damage to the goods ceases after its discharge from the
vessel. Article 619 of the Code of Commerce holds a ship captain
liable for the cargo from the time it is turned over to him until its
delivery at the port of unloading.
In a case decided by a U.S. Circuit Court, Nichimen Company v. M./V.
Farland,37 it was ruled that like the duty of seaworthiness, the duty
of care of the cargo is non-delegable,38 and the carrier is accordingly
responsible for the acts of the master, the crew, the stevedore, and
his other agents. It has also been held that it is ordinarily the duty of
the master of a vessel to unload the cargo and place it in readiness
for delivery to the consignee, and there is an implied obligation that
this shall be accomplished with sound machinery, competent hands,
and in such manner that no unnecessary injury shall be done
thereto.39 And the fact that a consignee is required to furnish
persons to assist in unloading a shipment may not relieve the carrier
of its duty as to such unloading.40
The exercise of the carrier’s custody and responsibility over the
subject shipment during the unloading actually transpired in the
instant case during the unloading of the shipment as testified by Mr.
Talens, the cargo surveyor, to quote:
Atty. Repol:
- Do you agree with me that Wallem Philippines is a shipping
[company]?
A Yes, sir.
Q And, who hired the services of the stevedores?
A The checker of the vessel of Wallem, sir.41
xxx
Q Mr. Witness, during the discharging operation of this cargo,
where was the master of the vessel?
A On board the vessel, supervising, sir.
Q And, observed the discharging operation?
A Yes, sir.
Q And, what did the master of the vessel do when the cargo was
being unloaded from the vessel?
A He would report to the head checker, sir.
Q He did not send the stevedores to what manner in the discharging
of the cargo from the vessel?
A And head checker po and siyang nagpapatakbo ng trabaho sa loob
ng barko, sir.42
xxx
Q Is he [the head checker] an employee of the company?
A He is a contractor/checker of Wallem Philippines, sir.43
Moreover, the liability of Wallem is highlighted by Mr. Talen’s notes
in the Bad Order Inspection, to wit:
"The bad order torn bags, was due to stevedores[‘] utilizing steel
hooks/spikes in piling the cargo to [the] pallet board at the vessel’s
cargo holds and at the pier designated area before and after
discharged that cause the bags to torn [sic]."44 (Emphasis supplied)
The records are replete with evidence which show that the damage
to the bags happened before and after their discharge45 and it was
caused by the stevedores of the arrastre operator who were then
under the supervision of Wallem.1awphi1.net
It is settled in maritime law jurisprudence that cargoes while being
unloaded generally remain under the custody of the carrier. In the
instant case, the damage or losses were incurred during the
discharge of the shipment while under the supervision of the
carrier. Consequently, the carrier is liable for the damage or losses
caused to the shipment. As the cost of the actual damage to the
subject shipment has long been settled, the trial court’s finding of
actual damages in the amount of ₱397,879.69 has to be sustained.
On the credibility of Mr. Talens which is the fourth issue, the general
rule in assessing credibility of witnesses is well-settled:
x x x the trial court's evaluation as to the credibility of witnesses is
viewed as correct and entitled to the highest respect because it is
more competent to so conclude, having had the opportunity to
observe the witnesses' demeanor and deportment on the stand,
and the manner in which they gave their testimonies. The trial judge
therefore can better determine if such witnesses were telling the
truth, being in the ideal position to weigh conflicting testimonies.
Therefore, unless the trial judge plainly overlooked certain facts of
substance and value which, if considered, might affect the result of
the case, his assessment on credibility must be respected.46

Contrary to petitioner’s stance on the third issue, Wallem’s failure

to respond to its demand letter does not constitute an implied
admission of liability. To borrow the words of Mr. Justice Oliver
Wendell Holmes, thus:

A man cannot make evidence for himself by writing a letter

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

With respect to the attorney’s fees, it is evident that petitioner was

compelled to litigate this matter to protect its interest. The RTC’s
award of ₱20,000.00 as attorney’s fees is reasonable.

WHEREFORE, the petition is GRANTED. The Decision of the Court of

Appeals dated 22 June 2004 and its Resolution dated 11 October
2004 are REVERSED and SET ASIDE. Wallem is ordered to pay
petitioner the sum of ₱397,879.69, with interest thereon at 6% per
annum from the filing of the complaint on 7 October 1996 until the
judgment becomes final and executory. Thereafter, an interest rate
of 12% per annum shall be imposed.48 Respondents are also ordered
to pay petitioner the amount of ₱20,000.00 for and as attorney’s
fees, together with the costs of the suit.

SO ORDERED.