G.R. No.

161745 September 30, 2005

LEA MER INDUSTRIES, INC., Petitioners, vs. MALAYAN INSURANCE CO., INC.,* Respondent.

Common carriers are bound to observe extraordinary diligence in their vigilance over the goods
entrusted to them, as required by the nature of their business and for reasons of public policy.
Consequently, the law presumes that common carriers are at fault or negligent for any loss or damage
to the goods that they transport. In the present case, the evidence submitted by petitioner to overcome
this presumption was sorely insufficient.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the October 9, 2002
Decision2 and the December 29, 2003 Resolution3 of the Court of Appeals (CA) in CA-GR CV No.
66028. The challenged Decision disposed as follows:

"WHEREFORE, the appeal is GRANTED. The December 7, 1999 decision of the Regional Trial Court of
Manila, Branch 42 in Civil Case No. 92-63159 is hereby REVERSED and SET ASIDE. [Petitioner] is
ordered to pay the [herein respondent] the value of the lost cargo in the amount of ₱565,000.00. Costs
against the [herein petitioner]."4

The assailed Resolution denied reconsideration.

The Facts

Ilian Silica Mining entered into a contract of carriage with Lea Mer Industries, Inc., for the shipment of
900 metric tons of silica sand valued at ₱565,000.5 Consigned to Vulcan Industrial and Mining
Corporation, the cargo was to be transported from Palawan to Manila. On October 25, 1991, the silica
sand was placed on board Judy VII, a barge leased by Lea Mer.6 During the voyage, the vessel sank,
resulting in the loss of the cargo.7

Malayan Insurance Co., Inc., as insurer, paid Vulcan the value of the lost cargo.8 To recover the amount
paid and in the exercise of its right of subrogation, Malayan demanded reimbursement from Lea Mer,
which refused to comply. Consequently, Malayan instituted a Complaint with the Regional Trial Court
(RTC) of Manila on September 4, 1992, for the collection of ₱565,000 representing the amount that
respondent had paid Vulcan.9

On October 7, 1999, the trial court dismissed the Complaint, upon finding that the cause of the loss was
a fortuitous event.10 The RTC noted that the vessel had sunk because of the bad weather condition
brought about by Typhoon Trining. The court ruled that petitioner had no advance knowledge of the
incoming typhoon, and that the vessel had been cleared by the Philippine Coast Guard to travel from
Palawan to Manila.11

Ruling of the Court of Appeals

Reversing the trial court, the CA held that the vessel was not seaworthy when it sailed for Manila. Thus,
the loss of the cargo was occasioned by petitioner’s fault, not by a fortuitous event.12

Hence, this recourse.13

The Issues

Petitioner states the issues in this wise:

1
"A. Whether or not the survey report of the cargo surveyor, Jesus Cortez, who had not been presented
as a witness of the said report during the trial of this case before the lower court can be admitted in
evidence to prove the alleged facts cited in the said report.

"B. Whether or not the respondent, Court of Appeals, had validly or legally reversed the finding of fact of
the Regional Trial Court which clearly and unequivocally held that the loss of the cargo subject of this
case was caused by fortuitous event for which herein petitioner could not be held liable.

"C. Whether or not the respondent, Court of Appeals, had committed serious error and grave abuse of
discretion in disregarding the testimony of the witness from the MARINA, Engr. Jacinto Lazo y Villegal,
to the effect that the vessel ‘Judy VII’ was seaworthy at the time of incident and further in disregarding
the testimony of the PAG-ASA weather specialist, Ms. Rosa Barba y Saliente, to the effect that typhoon
‘Trining’ did not hit Metro Manila or Palawan."14

In the main, the issues are as follows: (1) whether petitioner is liable for the loss of the cargo, and (2)
whether the survey report of Jesus Cortez is admissible in evidence.

The Court’s Ruling

The Petition has no merit.

First Issue:

Liability for Loss of Cargo

Question of Fact

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

Rule on Common Carriers

Common carriers are persons, corporations, firms or associations engaged in the business of carrying
or transporting passengers or goods, or both -- by land, water, or air -- when this service is offered to the
public for compensation.17 Petitioner is clearly a common carrier, because it offers to the public its
business of transporting goods through its vessels.18

Thus, the Court corrects the trial court’s finding that petitioner became a private carrier when Vulcan
chartered it.19 Charter parties are classified as contracts of demise (or bareboat) and affreightment,
which are distinguished as follows:

"Under the demise or bareboat charter of the vessel, the charterer will generally be considered as owner
for the voyage or service stipulated. The charterer mans the vessel with his own people and becomes,
in effect, the owner pro hac vice, subject to liability to others for damages caused by negligence. To
create a demise, the owner of a vessel must completely and exclusively relinquish possession,
command and navigation thereof to the charterer; anything short of such a complete transfer is a
contract of affreightment (time or voyage charter party) or not a charter party at all."20

2
The distinction is significant, because a demise or bareboat charter indicates a business undertaking
that is private in character. 21 Consequently, the rights and obligations of the parties to a contract of
private carriage are governed principally by their stipulations, not by the law on common carriers.22

The Contract in the present case was one of affreightment, as shown by the fact that it was petitioner’s
crew that manned the tugboat M/V Ayalit and controlled the barge Judy VII.23 Necessarily, petitioner was
a common carrier, and the pertinent law governs the present factual circumstances.

Extraordinary Diligence Required

Common carriers are bound to observe extraordinary diligence in their vigilance over the goods and the
safety of the passengers they transport, as required by the nature of their business and for reasons of
public policy.24 Extraordinary diligence requires rendering service with the greatest skill and foresight to
avoid damage and destruction to the goods entrusted for carriage and delivery.25

Common carriers are presumed to have been at fault or to have acted negligently for loss or damage to
the goods that they have transported.26 This presumption can be rebutted only by proof that they
observed extraordinary diligence, or that the loss or damage was occasioned by any of the following
causes:27

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

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

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

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

"(5) Order or act of competent public authority."28

Rule on Fortuitous Events

Article 1174 of the Civil Code provides that "no person shall be responsible for a fortuitous event which
could not be foreseen, or which, though foreseen, was inevitable." Thus, if the loss or damage was due
to such an event, a common carrier is exempted from liability.

Jurisprudence defines the elements of a "fortuitous event" as follows: (a) the cause of the unforeseen
and unexpected occurrence, or the failure of the debtors to comply with their obligations, must have
been independent of human will; (b) the event that constituted the caso fortuito must have been
impossible to foresee or, if foreseeable, impossible to avoid; (c) the occurrence must have been such as
to render it impossible for the debtors to fulfill their obligation in a normal manner; and (d) the obligor
must have been free from any participation in the aggravation of the resulting injury to the creditor.29

To excuse the common carrier fully of any liability, the fortuitous event must have been the proximate
and only cause of the loss.30 Moreover, it should have exercised due diligence to prevent or minimize
the loss before, during and after the occurrence of the fortuitous event.31

Loss in the Instant Case

There is no controversy regarding the loss of the cargo in the present case. As the common carrier,
petitioner bore the burden of proving that it had exercised extraordinary diligence to avoid the loss, or
that the loss had been occasioned by a fortuitous event -- an exempting circumstance.

3
It was precisely this circumstance that petitioner cited to escape liability. Lea Mer claimed that the loss
of the cargo was due to the bad weather condition brought about by Typhoon Trining.32 Evidence was
presented to show that petitioner had not been informed of the incoming typhoon, and that the
Philippine Coast Guard had given it clearance to begin the voyage.33 On October 25, 1991, the date on
which the voyage commenced and the barge sank, Typhoon Trining was allegedly far from Palawan,
where the storm warning was only "Signal No. 1."34

The evidence presented by petitioner in support of its defense of fortuitous event was sorely insufficient.
As required by the pertinent law, it was not enough for the common carrier to show that there was an
unforeseen or unexpected occurrence. It had to show that it was free from any fault -- a fact it miserably
failed to prove.

First, petitioner presented no evidence that it had attempted to minimize or prevent the loss before,
during or after the alleged fortuitous event.35 Its witness, Joey A. Draper, testified that he could no longer
remember whether anything had been done to minimize loss when water started entering the
barge.36 This fact was confirmed during his cross-examination, as shown by the following brief
exchange:

"Atty. Baldovino, Jr.:

Other than be[a]ching the barge Judy VII, were there other precautionary measure[s] exercised by you
and the crew of Judy VII so as to prevent the los[s] or sinking of barge Judy VII?

xxxxxxxxx

Atty. Baldovino, Jr.:

Your Honor, what I am asking [relates to the] action taken by the officers and crew of tugboat Ayalit and
barge Judy VII x x x to prevent the sinking of barge Judy VII?

xxxxxxxxx

Court:

Mr. witness, did the captain of that tugboat give any instruction on how to save the barge Judy VII?

Joey Draper:

I can no longer remember sir, because that happened [a] long time ago."37

Second, the alleged fortuitous event was not the sole and proximate cause of the loss. There is a
preponderance of evidence that the barge was not seaworthy when it sailed for Manila.38 Respondent
was able to prove that, in the hull of the barge, there were holes that might have caused or aggravated
the sinking.39 Because the presumption of negligence or fault applied to petitioner, it was incumbent
upon it to show that there were no holes; or, if there were, that they did not aggravate the sinking.

Petitioner offered no evidence to rebut the existence of the holes. Its witness, Domingo A. Luna, testified
that the barge was in "tip-top" or excellent condition,40 but that he had not personally inspected it when it
left Palawan.41

The submission of the Philippine Coast Guard’s Certificate of Inspection of Judy VII, dated July 31,
1991, did not conclusively prove that the barge was seaworthy.42 The regularity of the issuance of the
Certificate is disputably presumed.43 It could be contradicted by competent evidence, which respondent
4
offered. Moreover, this evidence did not necessarily take into account the actual condition of
the vessel at the time of the commencement of the voyage.44

Second Issue:

Admissibility of the Survey Report

Petitioner claims that the Survey Report45 prepared by Jesus Cortez, the cargo surveyor, should not
have been admitted in evidence. The Court partly agrees. Because he did not testify during the
trial,46 then the Report that he had prepared was hearsay and therefore inadmissible for the purpose of
proving the truth of its contents.

The Survey Report Not the Sole Evidence

The facts reveal that Cortez’s Survey Report was used in the testimonies of respondent’s witnesses --
Charlie M. Soriano; and Federico S. Manlapig, a cargo marine surveyor and the vice-president of Toplis
and Harding Company.47 Soriano testified that the Survey Report had been used in preparing the final
Adjustment Report conducted by their company.48 The final Report showed that the barge was not
seaworthy because of the existence of the holes. Manlapig testified that he had prepared that Report
after taking into account the findings of the surveyor, as well as the pictures and the sketches of the
place where the sinking occurred.49 Evidently, the existence of the holes was proved by the testimonies
of the witnesses, not merely by Cortez’ Survey Report.

Rule on Independently

Relevant Statement

That witnesses must be examined and presented during the trial,50 and that their testimonies must be
confined to personal knowledge is required by the rules on evidence, from which we quote:

"Section 36. Testimony generally confined to personal knowledge; hearsay excluded. –A witness can
testify only to those facts which he knows of his personal knowledge; that is, which are derived from his
own perception, except as otherwise provided in these rules."51

On this basis, the trial court correctly refused to admit Jesus Cortez’s Affidavit, which respondent had
offered as evidence.52 Well-settled is the rule that, unless the affiant is presented as a witness, an
affidavit is considered hearsay.53

An exception to the foregoing rule is that on "independently relevant statements." A report made by a
person is admissible if it is intended to prove the tenor, not the truth, of the statements.54 Independent of
the truth or the falsity of the statement given in the report, the fact that it has been made is relevant.
Here, the hearsay rule does not apply.55

In the instant case, the challenged Survey Report prepared by Cortez was admitted only as part of the
testimonies of respondent’s witnesses. The referral to Cortez’s Report was in relation to Manlapig’s final
Adjustment Report. Evidently, it was the existence of the Survey Report that was testified to. The
admissibility of that Report as part of the testimonies of the witnesses was correctly ruled upon by the
trial court.

At any rate, even without the Survey Report, petitioner has already failed to overcome the presumption
of fault that applies to common carriers.

5
WHEREFORE, the Petition is DENIED and the assailed Decision and Resolution are AFFIRMED. Costs
against petitioner.

SO ORDERED.

G.R. No. 168402             August 6, 2008

ABOITIZ SHIPPING CORPORATION, petitioner, vs.
INSURANCE COMPANY OF NORTH AMERICA, respondent.

THE RIGHT of subrogation attaches upon payment by the insurer of the insurance claims by the assured. As
subrogee, the insurer steps into the shoes of the assured and may exercise only those rights that the assured
may have against the wrongdoer who caused the damage.

Before Us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) which reversed
the Decision2 of the Regional Trial Court (RTC). The CA ordered petitioner Aboitiz Shipping Corporation to
pay the sum of P280,176.92 plus interest and attorney's fees in favor of respondent Insurance Company of
North America (ICNA).

The Facts

Culled from the records, the facts are as follows:

On June 20, 1993, MSAS Cargo International Limited and/or Associated and/or Subsidiary Companies
(MSAS) procured a marine insurance policy from respondent ICNA UK Limited of London. The insurance was
for a transshipment of certain wooden work tools and workbenches purchased for the consignee Science
Teaching Improvement Project (STIP), Ecotech Center, Sudlon Lahug, Cebu City, Philippines.3 ICNA issued
an "all-risk" open marine policy,4 stating:

This Company, in consideration of a premium as agreed and subject to the terms and conditions
printed hereon, does insure for MSAS Cargo International Limited &/or Associated &/or Subsidiary
Companies on behalf of the title holder: - Loss, if any, payable to the Assured or order.5

The cargo, packed inside one container van, was shipped "freight prepaid" from Hamburg, Germany on
board M/S Katsuragi. A clean bill of lading6 was issued by Hapag-Lloyd which stated the consignee to be
STIP, Ecotech Center, Sudlon Lahug, Cebu City.

The container van was then off-loaded at Singapore and transshipped on board M/S Vigour Singapore. On
July 18, 1993, the ship arrived and docked at the Manila International Container Port where the container van
was again off-loaded. On July 26, 1993, the cargo was received by petitioner Aboitiz Shipping Corporation
(Aboitiz) through its duly authorized booking representative, Aboitiz Transport System. The bill of
lading7 issued by Aboitiz contained the notation "grounded outside warehouse."

The container van was stripped and transferred to another crate/container van without any notation on the
condition of the cargo on the Stuffing/Stripping Report.8 On August 1, 1993, the container van was loaded on
board petitioner's vessel, MV Super Concarrier I. The vessel left Manila en route to Cebu City on August 2,
1993.

On August 3, 1993, the shipment arrived in Cebu City and discharged onto a receiving apron of the Cebu
International Port. It was then brought to the Cebu Bonded Warehousing Corporation pending clearance from
the Customs authorities. In the Stripping Report9 dated August 5, 1993, petitioner's checker noted that the
crates were slightly broken or cracked at the bottom.

On August 11, 1993, the cargo was withdrawn by the representative of the consignee, Science Teaching
Improvement Project (STIP) and delivered to Don Bosco Technical High School, Punta Princesa, Cebu City.
It was received by Mr. Bernhard Willig. On August 13, 1993, Mayo B. Perez, then Claims Head of petitioner,
6
received a telephone call from Willig informing him that the cargo sustained water damage. Perez, upon
receiving the call, immediately went to the bonded warehouse and checked the condition of the container and
other cargoes stuffed in the same container. He found that the container van and other cargoes stuffed there
were completely dry and showed no sign of wetness.10

Perez found that except for the bottom of the crate which was slightly broken, the crate itself appeared to be
completely dry and had no water marks. But he confirmed that the tools which were stored inside the crate
were already corroded. He further explained that the "grounded outside warehouse" notation in the bill of
lading referred only to the container van bearing the cargo.11

In a letter dated August 15, 1993, Willig informed Aboitiz of the damage noticed upon opening of the
cargo.12 The letter stated that the crate was broken at its bottom part such that the contents were exposed.
The work tools and workbenches were found to have been completely soaked in water with most of the
packing cartons already disintegrating. The crate was properly sealed off from the inside with tarpaper
sheets. On the outside, galvanized metal bands were nailed onto all the edges. The letter concluded that
apparently, the damage was caused by water entering through the broken parts of the crate.

The consignee contacted the Philippine office of ICNA for insurance claims. On August 21, 1993, the
Claimsmen Adjustment Corporation (CAC) conducted an ocular inspection and survey of the damage. CAC
reported to ICNA that the goods sustained water damage, molds, and corrosion which were discovered upon
delivery to consignee.13

On September 21, 1993, the consignee filed a formal claim14 with Aboitiz in the amount of P276,540.00 for
the damaged condition of the following goods:

ten (10) wooden workbenches

three (3) carbide-tipped saw blades

one (1) set of ball-bearing guides

one (1) set of overarm router bits

twenty (20) rolls of sandpaper for stroke sander

In a Supplemental Report dated October 20, 1993,15 CAC reported to ICNA that based on official weather
report from the Philippine Atmospheric, Geophysical and Astronomical Services Administration, it would
appear that heavy rains on July 28 and 29, 1993 caused water damage to the shipment. CAC noted that the
shipment was placed outside the warehouse of Pier No. 4, North Harbor, Manila when it was delivered on
July 26, 1993. The shipment was placed outside the warehouse as can be gleaned from the bill of lading
issued by Aboitiz which contained the notation "grounded outside warehouse." It was only on July 31, 1993
when the shipment was stuffed inside another container van for shipment to Cebu.

Aboitiz refused to settle the claim. On October 4, 1993, ICNA paid the amount of P280,176.92 to consignee.
A subrogation receipt was duly signed by Willig. ICNA formally advised Aboitiz of the claim and subrogation
receipt executed in its favor. Despite follow-ups, however, no reply was received from Aboitiz.

RTC Disposition

ICNA filed a civil complaint against Aboitiz for collection of actual damages in the sum of P280,176.92, plus
interest and attorney's fees.16 ICNA alleged that the damage sustained by the shipment was exclusively and
solely brought about by the fault and negligence of Aboitiz when the shipment was left grounded outside its
warehouse prior to delivery.

7
Aboitiz disavowed any liability and asserted that the claim had no factual and legal bases. It countered that
the complaint stated no cause of action, plaintiff ICNA had no personality to institute the suit, the cause of
action was barred, and the suit was premature there being no claim made upon Aboitiz.

On November 14, 2003, the RTC rendered judgment against ICNA. The dispositive portion of the
decision17 states:

WHEREFORE, premises considered, the court holds that plaintiff is not entitled to the relief claimed
in the complaint for being baseless and without merit. The complaint is hereby DISMISSED. The
defendant's counterclaims are, likewise, DISMISSED for lack of basis.18

The RTC ruled that ICNA failed to prove that it is the real party-in-interest to pursue the claim against Aboitiz.
The trial court noted that Marine Policy No. 87GB 4475 was issued by ICNA UK Limited with address at
Cigna House, 8 Lime Street, London EC3M 7NA. However, complainant ICNA Phils. did not present any
evidence to show that ICNA UK is its predecessor-in-interest, or that ICNA UK assigned the insurance policy
to ICNA Phils. Moreover, ICNA Phils.' claim that it had been subrogated to the rights of the consignee must
fail because the subrogation receipt had no probative value for being hearsay evidence. The RTC reasoned:

While it is clear that Marine Policy No. 87GB 4475 was issued by Insurance Company of North
America (U.K.) Limited (ICNA UK) with address at Cigna House, 8 Lime Street, London EC3M
7NA, no evidence has been adduced which would show that ICNA UK is the same as or the
predecessor-in-interest of plaintiff Insurance Company of North America ICNA with office address at
Cigna-Monarch Bldg., dela Rosa cor. Herrera Sts., Legaspi Village, Makati, Metro Manila or that
ICNA UK assigned the Marine Policy to ICNA. Second, the assured in the Marine Policy appears to
be MSAS Cargo International Limited &/or Associated &/or Subsidiary Companies. Plaintiff's witness,
Francisco B. Francisco, claims that the signature below the name MSAS Cargo International is an
endorsement of the marine policy in favor of Science Teaching Improvement Project. Plaintiff's
witness, however, failed to identify whose signature it was and plaintiff did not present on the witness
stand or took (sic) the deposition of the person who made that signature. Hence, the claim that there
was an endorsement of the marine policy has no probative value as it is hearsay.

Plaintiff, further, claims that it has been subrogated to the rights and interest of Science Teaching
Improvement Project as shown by the Subrogation Form (Exhibit "K") allegedly signed by a
representative of Science Teaching Improvement Project. Such representative, however, was not
presented on the witness stand. Hence, the Subrogation Form is self-serving and has no probative
value.19 (Emphasis supplied)

The trial court also found that ICNA failed to produce evidence that it was a foreign corporation duly licensed
to do business in the Philippines. Thus, it lacked the capacity to sue before Philippine Courts, to wit:

Prescinding from the foregoing, plaintiff alleged in its complaint that it is a foreign insurance
company duly authorized to do business in the Philippines. This allegation was, however,
denied by the defendant. In fact, in the Pre-Trial Order of 12 March 1996, one of the issues defined
by the court is whether or not the plaintiff has legal capacity to sue and be sued. Under Philippine
law, the condition is that a foreign insurance company must obtain licenses/authority to do business
in the Philippines. These licenses/authority are obtained from the Securities and Exchange
Commission, the Board of Investments and the Insurance Commission. If it fails to obtain these
licenses/authority, such foreign corporation doing business in the Philippines cannot sue before
Philippine courts. Mentholatum Co., Inc. v. Mangaliman, 72 Phil. 524. (Emphasis supplied)

CA Disposition

ICNA appealed to the CA. It contended that the trial court failed to consider that its cause of action is
anchored on the right of subrogation under Article 2207 of the Civil Code. ICNA said it is one and the same
as the ICNA UK Limited as made known in the dorsal portion of the Open Policy.20

8
On the other hand, Aboitiz reiterated that ICNA lacked a cause of action. It argued that the formal claim was
not filed within the period required under Article 366 of the Code of Commerce; that ICNA had no right of
subrogation because the subrogation receipt should have been signed by MSAS, the assured in the open
policy, and not Willig, who is merely the representative of the consignee.

On March 29, 2005, the CA reversed and set aside the RTC ruling, disposing as follows:

WHEREFORE, premises considered, the present appeal is hereby GRANTED. The appealed
decision of the Regional Trial Court of Makati City in Civil Case No. 94-1590 is hereby REVERSED
and SET ASIDE. A new judgment is hereby rendered ordering defendant-appellee Aboitiz Shipping
Corporation to pay the plaintiff-appellant Insurance Company of North America the sum
of P280,176.92 with interest thereon at the legal rate from the date of the institution of this case until
fully paid, and attorney's fees in the sum of P50,000, plus the costs of suit.21

The CA opined that the right of subrogation accrues simply upon payment by the insurance company of the
insurance claim. As subrogee, ICNA is entitled to reimbursement from Aboitiz, even assuming that it is an
unlicensed foreign corporation. The CA ruled:

At any rate, We find the ground invoked for the dismissal of the complaint as legally untenable. Even
assuming arguendo that the plaintiff-insurer in this case is an unlicensed foreign corporation, such
circumstance will not bar it from claiming reimbursement from the defendant carrier by virtue of
subrogation under the contract of insurance and as recognized by Philippine courts. x x x

xxxx

Plaintiff insurer, whether the foreign company or its duly authorized Agent/Representative in the
country, as subrogee of the claim of the insured under the subject marine policy, is therefore the real
party in interest to bring this suit and recover the full amount of loss of the subject cargo shipped by it
from Manila to the consignee in Cebu City. x x x22

The CA ruled that the presumption that the carrier was at fault or that it acted negligently was not overcome
by any countervailing evidence. Hence, the trial court erred in dismissing the complaint and in not finding that
based on the evidence on record and relevant provisions of law, Aboitiz is liable for the loss or damage
sustained by the subject cargo.

Issues

The following issues are up for Our consideration:

(1) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING

THAT ICNA HAS A CAUSE OF ACTION AGAINST ABOITIZ BY VIRTUE OF THE RIGHT OF
SUBROGATION BUT WITHOUT CONSIDERING THE ISSUE CONSISTENTLY RAISED BY
ABOITIZ THAT THE FORMAL CLAIM OF STIP WAS NOT MADE WITHIN THE PERIOD
PRESCRIBED BY ARTICLE 366 OF THE CODE OF COMMERCE; AND, MORE SO, THAT THE
CLAIM WAS MADE BY A WRONG CLAIMANT.

(2) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING

THAT THE SUIT FOR REIMBURSEMENT AGAINST ABOITIZ WAS PROPERLY FILED BY ICNA
AS THE LATTER WAS AN AUTHORIZED AGENT OF THE INSURANCE COMPANY OF NORTH
AMERICA (U.K.) ("ICNA UK").

(3) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING

THAT THERE WAS PROPER INDORSEMENT OF THE INSURANCE POLICY FROM THE
ORIGINAL ASSURED MSAS CARGO INTERNATIONAL LIMITED ("MSAS") IN FAVOR OF THE
CONSIGNEE STIP, AND THAT THE SUBROGATION RECEIPT ISSUED BY STIP IN FAVOR OF

9
 ICNA IS VALID NOTWITHSTANDING THE FACT THAT IT HAS NO PROBATIVE VALUE AND IS
MERELY HEARSAY AND A SELF-SERVING DOCUMENT FOR FAILURE OF ICNA TO PRESENT
A REPRESENTATIVE OF STIP TO IDENTIFY AND AUTHENTICATE THE SAME.

(4) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING

THAT THE EXTENT AND KIND OF DAMAGE SUSTAINED BY THE SUBJECT CARGO WAS
CAUSED BY THE FAULT OR NEGLIGENCE OF ABOITIZ.23 (Underscoring supplied)

Elsewise stated, the controversy rotates on three (3) central questions: (a) Is respondent ICNA the real party-
in-interest that possesses the right of subrogation to claim reimbursement from petitioner Aboitiz? (b) Was
there a timely filing of the notice of claim as required under Article 366 of the Code of Commerce? (c) If so,
can petitioner be held liable on the claim for damages?

Our Ruling

We answer the triple questions in the affirmative.

A foreign corporation not licensed to do business in the Philippines is not absolutely incapacitated
from filing a suit in local courts. Only when that foreign corporation is "transacting" or "doing business" in
the country will a license be necessary before it can institute suits.24 It may, however, bring suits on isolated
business transactions, which is not prohibited under Philippine law.25 Thus, this Court has held that a foreign
insurance company may sue in Philippine courts upon the marine insurance policies issued by it abroad to
cover international-bound cargoes shipped by a Philippine carrier, even if it has no license to do business in
this country. It is the act of engaging in business without the prescribed license, and not the lack of license
per se, which bars a foreign corporation from access to our courts.26

In any case, We uphold the CA observation that while it was the ICNA UK Limited which issued the subject
marine policy, the present suit was filed by the said company's authorized agent in Manila. It was the
domestic corporation that brought the suit and not the foreign company. Its authority is expressly provided for
in the open policy which includes the ICNA office in the Philippines as one of the foreign company's agents.

As found by the CA, the RTC erred when it ruled that there was no proper indorsement of the insurance
policy by MSAS, the shipper, in favor of STIP of Don Bosco Technical High School, the consignee.

The terms of the Open Policy authorize the filing of any claim on the insured goods, to be brought against
ICNA UK, the company who issued the insurance, or against any of its listed agents worldwide.27 MSAS
accepted said provision when it signed and accepted the policy. The acceptance operated as an acceptance
of the authority of the agents. Hence, a formal indorsement of the policy to the agent in the Philippines was
unnecessary for the latter to exercise the rights of the insurer.

Likewise, the Open Policy expressly provides that:

The Company, in consideration of a premium as agreed and subject to the terms and conditions
printed hereon, does insure MSAS Cargo International Limited &/or Associates &/or Subsidiary
Companies in behalf of the title holder: - Loss, if any, payable to the Assured or Order.

The policy benefits any subsequent assignee, or holder, including the consignee, who may file claims on
behalf of the assured. This is in keeping with Section 57 of the Insurance Code which states:

A policy may be so framed that it will inure to the benefit of whosoever, during the continuance of the
risk, may become the owner of the interest insured. (Emphasis added)

Respondent's cause of action is founded on it being subrogated to the rights of the consignee of the
damaged shipment. The right of subrogation springs from Article 2207 of the Civil Code, which states:

10
 Article 2207. If the plaintiff's property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract complained
of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or
the person who has violated the contract. If the amount paid by the insurance company does not fully
cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person
causing the loss or injury. (Emphasis added)

As this Court held in the case of Pan Malayan Insurance Corporation v. Court of Appeals,28 payment by the
insurer to the assured operates as an equitable assignment of all remedies the assured may have against the
third party who caused the damage. Subrogation is not dependent upon, nor does it grow out of, any privity of
contract or upon written assignment of claim. It accrues simply upon payment of the insurance claim by the
insurer.29

Upon payment to the consignee of indemnity for damage to the insured goods, ICNA's entitlement to
subrogation equipped it with a cause of action against petitioner in case of a contractual breach or
negligence.30 This right of subrogation, however, has its limitations. First, both the insurer and the consignee
are bound by the contractual stipulations under the bill of lading.31 Second, the insurer can be subrogated
only to the rights as the insured may have against the wrongdoer. If by its own acts after receiving payment
from the insurer, the insured releases the wrongdoer who caused the loss from liability, the insurer loses its
claim against the latter.32

The giving of notice of loss or injury is a condition precedent to the action for loss or injury or the
right to enforce the carrier's liability. Circumstances peculiar to this case lead Us to conclude that the
notice requirement was complied with. As held in the case of Philippine American General Insurance Co.,
Inc. v. Sweet Lines, Inc.,33 this notice requirement protects the carrier by affording it an opportunity to make
an investigation of the claim while the matter is still fresh and easily investigated. It is meant to safeguard the
carrier from false and fraudulent claims.

Under the Code of Commerce, the notice of claim must be made within twenty four (24) hours from receipt of
the cargo if the damage is not apparent from the outside of the package. For damages that are visible from
the outside of the package, the claim must be made immediately. The law provides:

Article 366. Within twenty four hours following the receipt of the merchandise, the claim against the
carrier for damages or average which may be found therein upon opening the packages, may be
made, provided that the indications of the damage or average which give rise to the claim cannot be
ascertained from the outside part of such packages, in which case the claim shall be admitted only at
the time of receipt.

After the periods mentioned have elapsed, or the transportation charges have been paid, no claim
shall be admitted against the carrier with regard to the condition in which the goods transported were
delivered. (Emphasis supplied)

The periods above, as well as the manner of giving notice may be modified in the terms of the bill of lading,
which is the contract between the parties. Notably, neither of the parties in this case presented the terms for
giving notices of claim under the bill of lading issued by petitioner for the goods.

The shipment was delivered on August 11, 1993. Although the letter informing the carrier of the damage was
dated August 15, 1993, that letter, together with the notice of claim, was received by petitioner only on
September 21, 1993. But petitioner admits that even before it received the written notice of claim, Mr. Mayo
B. Perez, Claims Head of the company, was informed by telephone sometime in August 13, 1993. Mr. Perez
then immediately went to the warehouse and to the delivery site to inspect the goods in behalf of petitioner.34

In the case of Philippine Charter Insurance Corporation (PCIC) v. Chemoil Lighterage Corporation,35 the
notice was allegedly made by the consignee through telephone. The claim for damages was denied. This
Court ruled that such a notice did not comply with the notice requirement under the law. There was no

11
evidence presented that the notice was timely given. Neither was there evidence presented that the notice
was relayed to the responsible authority of the carrier.

As adverted to earlier, there are peculiar circumstances in the instant case that constrain Us to rule differently
from the PCIC case, albeit this ruling is being made pro hac vice, not to be made a precedent for other cases.

Stipulations requiring notice of loss or claim for damage as a condition precedent to the right of recovery from
a carrier must be given a reasonable and practical construction, adapted to the circumstances of the case
under adjudication, and their application is limited to cases falling fairly within their object and purpose.36

Bernhard Willig, the representative of consignee who received the shipment, relayed the information that the
delivered goods were discovered to have sustained water damage to no less than the Claims Head of
petitioner, Mayo B. Perez. Immediately, Perez was able to investigate the claims himself and he confirmed
that the goods were, indeed, already corroded.

Provisions specifying a time to give notice of damage to common carriers are ordinarily to be given a
reasonable and practical, rather than a strict construction.37 We give due consideration to the fact that the
final destination of the damaged cargo was a school institution where authorities are bound by rules and
regulations governing their actions. Understandably, when the goods were delivered, the necessary
clearance had to be made before the package was opened. Upon opening and discovery of the damaged
condition of the goods, a report to this effect had to pass through the proper channels before it could be
finalized and endorsed by the institution to the claims department of the shipping company.

The call to petitioner was made two days from delivery, a reasonable period considering that the goods could
not have corroded instantly overnight such that it could only have sustained the damage during transit.
Moreover, petitioner was able to immediately inspect the damage while the matter was still fresh. In so doing,
the main objective of the prescribed time period was fulfilled. Thus, there was substantial compliance with the
notice requirement in this case.

To recapitulate, We have found that respondent, as subrogee of the consignee, is the real party in interest to
institute the claim for damages against petitioner; and pro hac vice, that a valid notice of claim was made by
respondent.

We now discuss petitioner's liability for the damages sustained by the shipment. The rule as stated in
Article 1735 of the Civil Code is that in cases where the goods are lost, destroyed or deteriorated,
common carriers are presumed to have been at fault or to have acted negligently, unless they prove
that they observed extraordinary diligence required by law. 38 Extraordinary diligence is that extreme
measure of care and caution which persons of unusual prudence and circumspection use for securing and
preserving their own property rights.39 This standard is intended to grant favor to the shipper who is at the
mercy of the common carrier once the goods have been entrusted to the latter for shipment.40

Here, the shipment delivered to the consignee sustained water damage. We agree with the findings of the CA
that petitioner failed to overturn this presumption:

x x x upon delivery of the cargo to the consignee Don Bosco Technical High School by a
representative from Trabajo Arrastre, and the crates opened, it was discovered that the workbenches
and work tools suffered damage due to "wettage" although by then they were already physically
dry. Appellee carrier having failed to discharge the burden of proving that it exercised extraordinary
diligence in the vigilance over such goods it contracted for carriage, the presumption of fault or
negligence on its part from the time the goods were unconditionally placed in its possession (July 26,
1993) up to the time the same were delivered to the consignee (August 11, 1993), therefore stands.
The presumption that the carrier was at fault or that it acted negligently was not overcome by any
countervailing evidence. x x x41 (Emphasis added)

The shipment arrived in the port of Manila and was received by petitioner for carriage on July 26, 1993. On
the same day, it was stripped from the container van. Five days later, on July 31, 1993, it was re-stuffed
12
inside another container van. On August 1, 1993, it was loaded onto another vessel bound for Cebu. During
the period between July 26 to 31, 1993, the shipment was outside a container van and kept in storage by
petitioner.

The bill of lading issued by petitioner on July 31, 1993 contains the notation "grounded outside warehouse,"
suggesting that from July 26 to 31, the goods were kept outside the warehouse. And since evidence showed
that rain fell over Manila during the same period, We can conclude that this was when the shipment sustained
water damage.

To prove the exercise of extraordinary diligence, petitioner must do more than merely show the possibility
that some other party could be responsible for the damage. It must prove that it used "all reasonable means
to ascertain the nature and characteristic of the goods tendered for transport and that it exercised due care in
handling them.42 Extraordinary diligence must include safeguarding the shipment from damage coming from
natural elements such as rainfall.

Aside from denying that the "grounded outside warehouse" notation referred not to the crate for shipment but
only to the carrier van, petitioner failed to mention where exactly the goods were stored during the period in
question. It failed to show that the crate was properly stored indoors during the time when it exercised
custody before shipment to Cebu. As amply explained by the CA:

On the other hand, the supplemental report submitted by the surveyor has confirmed that it was
rainwater that seeped into the cargo based on official data from the PAGASA that there was, indeed,
rainfall in the Port Area of Manila from July 26 to 31, 1993. The Surveyor specifically noted that the
subject cargo was under the custody of appellee carrier from the time it was delivered by the shipper
on July 26, 1993 until it was stuffed inside Container No. ACCU-213798-4 on July 31, 1993. No other
inevitable conclusion can be deduced from the foregoing established facts that damage from
"wettage" suffered by the subject cargo was caused by the negligence of appellee carrier in
grounding the shipment outside causing rainwater to seep into the cargoes.

Appellee's witness, Mr. Mayo tried to disavow any responsibility for causing "wettage" to the subject
goods by claiming that the notation "GROUNDED OUTSIDE WHSE." actually refers to the container
and not the contents thereof or the cargoes. And yet it presented no evidence to explain where did
they place or store the subject goods from the time it accepted the same for shipment on July 26,
1993 up to the time the goods were stripped or transferred from the container van to another
container and loaded into the vessel M/V Supercon Carrier I on August 1, 1993 and left Manila for
Cebu City on August 2, 1993. x x x If the subject cargo was not grounded outside prior to shipment to
Cebu City, appellee provided no explanation as to where said cargo was stored from July 26, 1993 to
July 31, 1993. What the records showed is that the subject cargo was stripped from the container van
of the shipper and transferred to the container on August 1, 1993 and finally loaded into the
appellee's vessel bound for Cebu City on August 2, 1993. The Stuffing/Stripping Report (Exhibit "D")
at the Manila port did not indicate any such defect or damage, but when the container was stripped
upon arrival in Cebu City port after being discharged from appellee's vessel, it was noted that only
one (1) slab was slightly broken at the bottom allegedly hit by a forklift blade (Exhibit
"F").43 (Emphasis added)

Petitioner is thus liable for the water damage sustained by the goods due to its failure to satisfactorily prove
that it exercised the extraordinary diligence required of common carriers.

WHEREFORE, the petition is DENIED and the appealed Decision AFFIRMED.

SO ORDERED.

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

13
VESSEL M/S "OFFSHORE MASTER" AND "SHANGHAI FAREAST SHIP BUSINESS
COMPANY," Respondents.

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
14
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.

15
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)

16
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.

17
 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.

18
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.

G.R. No. 97412 July 12, 1994

EASTERN SHIPPING LINES, INC., petitioner, vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents.

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

19
 to all the rights of action of said consignee against defendants (per "Form of
Subrogation", "Release" and Philbanking check, Exhs. M, N, and O). (pp. 85-86, Rollo.)

There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said:

Defendants filed their respective answers, traversing the material allegations of the
complaint contending that: As for defendant Eastern Shipping it alleged that the
shipment was discharged in good order from the vessel unto the custody of Metro Port
Service so that any damage/losses incurred after the shipment was incurred after the
shipment was turned over to the latter, is no longer its liability (p. 17, Record); Metroport
averred that although subject shipment was discharged unto its custody, portion of the
same was already in bad order (p. 11, Record); Allied Brokerage alleged that plaintiff
has no cause of action against it, not having negligent or at fault for the shipment was
already in damage and bad order condition when received by it, but nonetheless, it still
exercised extra ordinary care and diligence in the handling/delivery of the cargo to
consignee in the same condition shipment was received by it.

From the evidence the court found the following:

The issues are:

1. Whether or not the shipment sustained losses/damages;

2. Whether or not these losses/damages were sustained while in the

custody of defendants (in whose respective custody, if determinable);

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
20
 shipment reached the consignee while under the successive custodies of
defendants. Under Art. 1737 of the New Civil Code, the common carrier's
duty to observe extraordinary diligence in the vigilance of goods remains
in full force and effect even if the goods are temporarily unloaded and
stored in transit in the warehouse of the carrier at the place of
destination, until the consignee has been advised and has had
reasonable opportunity to remove or dispose of the goods (Art. 1738,
NCC). Defendant Eastern Shipping's own exhibit, the "Turn-Over Survey
of Bad Order Cargoes" (Exhs. 3-Eastern) states that on December 12,
1981 one drum was found "open".

and thus held:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby

rendered:

A. Ordering defendants to pay plaintiff, jointly and severally:

1. The amount of P19,032.95, with the present legal interest of 12% per

annum from October 1, 1982, the date of filing of this complaints, until
fully paid (the liability of defendant Eastern Shipping, Inc. shall not
exceed US$500 per case or the CIF value of the loss, whichever is
lesser, while the liability of defendant Metro Port Service, Inc. shall be to
the extent of the actual invoice value of each package, crate box or
container in no case to exceed P5,000.00 each, pursuant to Section 6.01
of the Management Contract);

2. P3,000.00 as attorney's fees, and

3. Costs.

B. Dismissing the counterclaims and crossclaim of

defendant/cross-claimant Allied Brokerage Corporation.

SO ORDERED. (p. 207, Record).

Dissatisfied, defendant's recourse to US.

The appeal is devoid of merit.

After a careful scrutiny of the evidence on record. We find that the conclusion drawn
therefrom is correct. As there is sufficient evidence that the shipment sustained damage
while in the successive possession of appellants, and therefore they are liable to the
appellee, as subrogee for the amount it paid to the consignee. (pp. 87-89, Rollo.)

The Court of Appeals thus affirmed in toto the judgment of the court

a quo.

In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of
discretion on the part of the appellate court when —

21
 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  of the Civil Code, are exclusive, not one of which
1

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.

22
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,  decided  on 15 May 1969, involved a suit for recovery of money arising out of short deliveries
2 3

and pilferage of goods. In this case, appellee Malayan Insurance (the plaintiff in the lower court) averred
in its complaint that the total amount of its claim for the value of the undelivered goods amounted to
P3,947.20. This demand, however, was neither established in its totality nor definitely ascertained. In
the stipulation of facts later entered into by the parties, in lieu of proof, the amount of P1,447.51 was
agreed upon. The trial court rendered judgment ordering the appellants (defendants) Manila Port
Service and Manila Railroad Company to pay appellee Malayan Insurance the sum of P1,447.51
with legal interest thereon from the date the complaint was filed on 28 December 1962 until full payment
thereof. The appellants then assailed, inter alia, the award of legal interest. In sustaining the appellants,
this Court ruled:

Interest upon an obligation which calls for the payment of money, absent a stipulation, is
the legal rate. Such interest normally is allowable from the date of demand, judicial or
extrajudicial. The trial court opted for judicial demand as the starting point.

But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be
recovered upon unliquidated claims or damages, except when the demand can be
established with reasonable certainty." And as was held by this Court in Rivera
vs. Perez,  L-6998, February 29, 1956, if the suit were for damages, "unliquidated and
4

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,  rendered on 11 October 1985, was for "Recovery of Damages for
5

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

23
 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 Court  ruled:

6

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,  promulgated on 28 July
7

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 Court  modified the interest award from 12% to 6% interest per
8

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,  the trial court, in an action for the recovery of damages arising
9

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.
24
 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 Court  ruled out the applicability of the Reformina and Philippine
10

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 [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 Court  was a
11

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  thus set aside the decision of the appellate court and
12

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. Ruiz  which arose from a
13

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
25
 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,  decided on 08 May 1992, involved the expropriation of certain parcels of land. After
14

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 Court  declared:
15

. . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or

credits but expropriation of certain parcels of land for a public purpose, the payment of
which is without stipulation regarding interest, and the interest adjudged by the trial court
is in the nature of indemnity for damages. The legal interest required to be paid on the
amount of just compensation for the properties expropriated is manifestly in the form of
indemnity for damages for the delay in the payment thereof. Therefore, since the kind of
interest involved in the joint judgment of the lower court sought to be enforced in this
case is interest by way of damages, and not by way of earnings from loans, etc. Art.
2209 of the Civil Code shall apply.

Concededly, there have been seeming variances in the above holdings. The cases can perhaps be
classified into two groups according to the similarity of the issues involved and the corresponding rulings
rendered by the court. The "first group" would consist of the cases of Reformina v. Tomol (1985),
Philippine Rabbit Bus Lines v. Cruz (1986), Florendo v. Ruiz (1989)
and National Power Corporation v. Angas (1992). In the "second group" would be Malayan Insurance
Company v. Manila Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and American
Express International v. Intermediate Appellate Court (1988).

In the "first group", the basic issue focuses on the application of either the 6% (under the Civil Code) or
12% (under the Central Bank Circular) interest per annum. It is easily discernible in these cases that
there has been a consistent holding that the Central Bank Circular imposing the 12% interest per
annum applies only to loans or forbearance  of money, goods or credits, as well as to judgments
16

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,  depending on whether or not the amount involved is a loan or forbearance, on the one hand, or
17

26
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-
delicts  is breached, the contravenor can be held liable for damages.  The provisions under Title XVIII
18 19

on "Damages" of the Civil Code govern in determining the measure of recoverable damages. 20

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

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in
writing.  Furthermore, the interest due shall itself earn legal interest from the time it is judicially
21

demanded.  In the absence of stipulation, the rate of interest shall be 12% per annum to be computed
22

from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article
1169  of the Civil Code.
23

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
24

annum.  No interest, however, shall be adjudged on unliquidated claims or damages except when or
25

until the demand can be established with reasonable certainty.  Accordingly, where the demand is
26

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.

27
SO ORDERED.

G.R. No. L-15652 December 14, 1920

THE YNCHAUSTI STEAMSHIP COMPANY, petitioner, vs.
I. B. DEXTER, as Auditor of the Philippine Islands, and C. E. UNSON, as Acting Purchasing Agent
of the Philippine Islands, respondents.

This a petition for a writ of mandamus filed in this court of the Ynchausti Steamship Company to compel
the Purchasing Agent of the Philippine Islands and the Insular Auditor to sign, countersign, and deliver
to the petitioner a warrant upon the Treasurer of the Philippine Islands for the sum of P82.79 in
satisfaction of a claim for that amount, which is alleged to be due the petitioner as a common carrier for
freight earned in transporting for the Government two distinct consignments of mineral oil from Manila to
two other ports in the Philippine Islands. After the defendants had duly answered, denying all the
allegations of the petition except such as relate to the character and places of residence of the parties to
the petition (which are admitted) the controversy was submitted for determination by this court upon an
agreed statement of facts as follows:

On July 23, 1918, the Government of the Philippine Islands, acting by and through the
respondent Insular Purchasing Agent, employed the services of the petitioner, Ynchausti
Steamship Co., a common carrier, for the transportation, on board the steamship Venus, from
the port of Manila to the port of Aparri, Cagayan, of a consignment of merchandise, consisting of
thirty (30) cases of "White Rose" mineral oil of two five-gallon cans to the case; and on
September 18, 1918, the said Government likewise employed the services of petitioner for the
transportation on board the steamship Venus, from Manila to Aparri, Cagayan, of ninety-six
cases of "Cock" Brand mineral oil, ten gallons to the case. The goods were delivered by the
shipper to the carrier, which accordingly received them, and to evidence the contract of
transportation, the parties duly executed and delivered what is popularly called the Government
bill of lading (General Form 9-A), hereto attached, marked Exhibit A and made a part hereof,
wherein and whereby it was stipulated that the carrier, the petitioner Ynchausti & Co., received
the above-mentioned supplies in apparent good condition, obligating itself to carry said supplies
to the place agreed upon, in accordance with the authorized and prescribed rates and
classifications, and subject to the law of common carriers in force on the date of the shipment,
and to the conditions prescribed by the Insular Collector of Customs in Philippine Marine
Regulations at page 16 under the heading of "Bill of Lading Conditions," hereto attached,
marked Exhibit B and made a part hereof.

Upon the delivery of the said shipment of "Cock" brand oil and consignee claimed that one case
was delivered empty, and noted such claim upon the bill of lading; and upon the delivery of the
said shipment of "White Rose," brand oil the consignee claimed that one case was delivered
empty, and noted said claim upon the bill of lading.

Thereafter, notwithstanding the protestations of the petitioner, Ynchausti Steamship Co., that
said shortages were due to causes entirely unknown to it, and were not due to any fault or
negligence on its part, or on the part of its agents or servants, the Acting Insular Purchasing
Agent of the Philippine Islands notified the petitioners herein that after due investigation the
Insular Auditor found and decided that the leakages of the two whole cases were due to its
negligence and that the deduction of the sum of P22.53, the invoice value of the goods lost, and
held by the Auditor to be the true value thereof had been authorized by the said Insular Auditor.

Petitioner thereupon protested against the threatened deduction, and demanded that it be paid
the full amount due for the transportation of the two said shipments of merchandise, to wit, the
sum of P82.79, as shown by its transportation voucher presented in this cause, hereto attached.
marked Exhibit C and made a part hereof.
28
 Thereafter, notwithstanding the protest and demand of the petitioner as aforesaid, the Insular
Auditor, in conformity with his ruling, declined and still declines to issue to the petitioner a
warrant for the full sum of P82.79, and has tendered to it a warrant for the sum of P60.26, which
the petitioner has refused to accept. lawphi1.net

The sum of P22.53 authorized to be deducted by the Insular Auditor, as appears herein, has not
at any time been liquidated by consent, agreement, or by the judgment of any court of
competent jurisdiction.

Upon a perusal of the foregoing agreed statement it will be seen that the present litigation had its origin
in a situation practically identical with that considered by this court in Compañia General de
Tabacos vs. French and Unson (39 Phil., 34). It will be noted, however, that the case mentioned was
decided upon demurrer, while the one now before us is to be heard and determined upon the petition,
answer, and the admitted facts.

We note that in this case, as in the case of Compañia General de Tabacos vs. French and Unson
(supra), the petition alleges that the leakage of the lost gasoline was due to causes unknown to the
petitioner and was not due to any fault or negligence of petitioner, its agents, or servants. The
respondents, by demurring to the petition in the earlier case, admitted that allegation. In the case now
before us that allegation is put in issue, and we find nothing in the admitted statement of facts to support
it. It results that if that allegation is material to the relief here sought, the petition must fail.

We are of the opinion that the allegation in question is material and that the belief sought in this case
cannot be granted.

In section 646 of the Administrative Code it is provided that when Government property is transmitted
from one place to another by carrier, it shall be upon proper bill of lading, or receipt, from such carrier,
and it shall be the duty of the consignee, or his representative, to make full notation of any evidence of
loss, shortage, or damage, upon the bill of lading, or receipt, before accomplishing it. It is admitted by
the petitioner in the agreed statement of facts that the consignee, at the time the oil was delivered,
noted the loss in the present case upon the two respective bills of lading. The notation of these losses
by the consignee, in obedience to the precept of section 646 of the Administrative Code, is competent
evidence to show that the shortage in fact existed. As the petitioner admits that the oil was received by it
for carriage and inasmuch as the fact of loss is proved in the manner just stated, it results that there is a
presumption that the petitioner was to blame for the loss; and it was incumbent upon the petitioner in
order to entitle it to relief in the case to rebut that presumption by proving, as is alleged in the petition,
that the loss was not due to any fault or negligence of the petitioner.

The mere proof of delivery of goods in good order to a carrier, and of their arrival at the place of
destination in bad order, makes out a prima facie case against the carrier, so that if no explanation is
given as to how the injury occurred, the carrier must be held responsible. (4 R. C. L., p. 917.) It is
incumbent upon the carrier to prove that the loss was due to accident or some other circumstance
inconsistent with its liability. (Articles
361-363, Code of Commerce.) Indeed, if the Government of the Philippine Islands had instituted an
action in a court of law against the petitioner to recover the value of the oil lost while these
consignments were in the court of transportation, it would, upon the facts appearing before us, have
been entitled to judgment.

From this it is apparent that the mandamus prayed for cannot be granted. It is a rule of universal
application that a petition for extraordinary relief of the character here sought must show merit. That is,
the petitioner's right to relief must be clear. Such cannot be said to be the case where, as here, a
presumption of responsibility on the part of the petitioner stands unrefuted upon the record.

29
We are of the opinion that, in the absence of proof showing that the carrier was not at fault in respect to
the matter under discussion, the Insular Auditor was entitled to withhold, from the amount admittedly
due to the petitioner for the freight charges, a sum sufficient to cover the value of the oil lost in transit.

The petition will be dismissed, with costs against the petitioner. So ordered.

G.R. No. 149019 August 15, 2006

DELSAN TRANSPORT LINES, INC., Petitioner, vs.
AMERICAN HOME ASSURANCE CORPORATION, Respondent.

By this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Delsan Transport
Lines, Inc. (Delsan hereafter) assails and seeks to set aside the Decision, 1 dated July 16, 2001, of the
Court of Appeals (CA) in CA-G.R. CV No. 40951 affirming an earlier decision of the Regional Trial Court
(RTC) of Manila, Branch IX, in two separate complaints for damages docketed as Civil Case No. 85-
29357 and Civil Case No. 85-30559.

The facts:

Delsan is a domestic corporation which owns and operates the vessel MT Larusan. On the other hand,
respondent American Home Assurance Corporation (AHAC for brevity) is a foreign insurance company
duly licensed to do business in the Philippines through its agent, the American-International
Underwriters, Inc. (Phils.). It is engaged, among others, in insuring cargoes for transportation within the
Philippines.

On August 5, 1984, Delsan received on board MT Larusan a shipment consisting of 1,986.627 k/l
Automotive Diesel Oil (diesel oil) at the Bataan Refinery Corporation for transportation and delivery to
the bulk depot in Bacolod City of Caltex Phils., Inc. (Caltex), pursuant to a Contract of Afreightment. The
shipment was insured by respondent AHAC against all risks under Inland Floater Policy No. AH-IF64-
1011549P and Marine Risk Note No. 34-5093-6.

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

As a result of spillage and backflow of diesel oil, Caltex sought recovery of the loss from Delsan, but the
latter refused to pay. As insurer, AHAC paid Caltex the sum of P479,262.57 for spillage, pursuant to
Marine Risk Note No. 34-5093-6, and P1,939,575.37 for backflow of the diesel oil pursuant to Inland
Floater Policy No. AH-1F64-1011549P.
30
On February 19, 1985, AHAC, as Caltex’s subrogee, instituted Civil Case No. 85-29357 against Delsan
before the Manila RTC, Branch 9, for loss caused by the spillage. It likewise prayed that it be
indemnified for damages suffered in the amount of P652,432.57 plus legal interest thereon.

Also, on May 5, 1985, in the Manila RTC, Branch 31, AHAC instituted Civil Case No. 85-30559 against
Delsan for the loss caused by the backflow. It likewise prayed that it be awarded the amount
of P1,939,575.37 for damages and reasonable attorney’s fees. As counterclaim in both cases, AHAC
prayed for attorney’s fees in the amount of P200,000.00 and P500.00 for every court appearance.

Since the cause of action in both cases arose out of the same incident and involved the same issues,
the two were consolidated and assigned to Branch 9 of the court.

On August 31, 1989, the trial court rendered its decision 2 in favor of AHAC holding Delsan liable for the
loss of the cargo for its negligence in its duty as a common carrier. Dispositively, the decision reads:

WHEREFORE, judgment is hereby rendered:

A). In Civil Case No. 85-30559:

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

(2) Ordering defendant to pay plaintiff the sum of P10,000.00 as and for attorney’s fees.

For lack of merit, the counterclaim is hereby dismissed.

B). In Civil Case No. 85-29357:

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

(2) Ordering defendant to pay plaintiff the sum of P5,000.00 as and for attorney’s fees.

For lack of merit, the counterclaim is hereby dismissed.

Costs against the defendant.

SO ORDERED.

In time, Delsan appealed to the CA whereat its recourse was docketed as CA-G.R. CV No. 40951.

In the herein challenged decision, 3 the CA affirmed the findings of the trial court. In so ruling, the CA
declared that Delsan failed to exercise the extraordinary diligence of a good father of a family in the
handling of its cargo. Applying Article 1736 4 of the Civil Code, the CA ruled that since the discharging of
the diesel oil into Caltex bulk depot had not been completed at the time the losses occurred, there was
no reason to imply that there was actual delivery of the cargo to Caltex, the consignee. We quote the
fallo of the CA decision:

WHEREFORE, premises considered, the appealed Decision of the Regional Trial Court of Manila,
Branch 09 in Civil Case Nos. 85-29357 and 85-30559 is hereby AFFIRMED with a modification that
attorney’s fees awarded in Civil Case Nos. 85-29357 and 85-30559 are hereby DELETED.

31
SO ORDERED.

Delsan is now before the Court raising substantially the same issues proffered before the CA.

Principally, Delsan insists that the CA committed reversible error in ruling that Article 1734 of the Civil
Code cannot exculpate it from liability for the loss of the subject cargo and in not applying the rule on
contributory negligence against Caltex, the shipper-owner of the cargo, and in not taking into
consideration the fact that the loss due to backflow occurred when the diesel oil was already completely
delivered to Caltex.

We are not persuaded.

In resolving this appeal, the Court reiterates the oft-stated doctrine that factual findings of the CA,
affirmatory of those of the trial court, are binding on the Court unless there is a clear showing that such
findings are tainted with arbitrariness, capriciousness or palpable error. 5

Delsan would have the Court absolve it from liability for the loss of its cargo on two grounds. First, the
loss through spillage was partly due to the contributory negligence of Caltex; and Second, the loss
through backflow should not be borne by Delsan because it was already delivered to Caltex’s shore
tank.

Common carriers are bound to observe extraordinary diligence in the vigilance over the goods
transported by them. They are presumed to have been at fault or to have acted negligently if the goods
are lost, destroyed or deteriorated. 6 To overcome the presumption of negligence in case of loss,
destruction or deterioration of the goods, the common carrier must prove that it exercised extraordinary
diligence. There are, however, exceptions to this rule. Article 1734 of the Civil Code enumerates the
instances when the presumption of negligence does not attach:

Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods,
unless the same is due to any of the following causes only:

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

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

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

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

5) Order or act of competent public authority.

Both the trial court and the CA uniformly ruled that Delsan failed to prove its claim that there was a
contributory negligence on the part of the owner of the goods – Caltex. We see no reason to depart
therefrom. As aptly pointed out by the CA, it had been established that the proximate cause of the
spillage and backflow of the diesel oil was due to the severance of the port bow mooring line of the
vessel and the failure of the shore tender to close the storage tank gate valve even as a check on the
drain cock showed that there was still a product on the pipeline. To the two courts below, the actuation
of the gauger and the escort surveyor, both personnel from the Caltex Bulk Depot, negates the
allegation that Caltex was remiss in its duties. As we see it, the crew of the vessel should have promptly
informed the shore tender that the port mooring line was cut off. However, Delsan did not do so on the
lame excuse that there was no available banca. As it is, Delsan’s personnel signaled a "red light" which
was not a sufficient warning because such signal only meant that the pumping of diesel oil had been
finished. Neither did the blowing of whistle suffice considering the distance of more than 2 kilometers
32
between the vessel and the Caltex Bulk Depot, aside from the fact that it was not the agreed signal. Had
the gauger and the escort surveyor from Caltex Bulk Depot not gone aboard the vessel to make
inquiries, the shore tender would have not known what really happened. The crew of the vessel should
have exerted utmost effort to immediately inform the shore tender that the port bow mooring line was
severed.

To be sure, Delsan, as the owner of the vessel, was obliged to prove that the loss was caused by one of
the excepted causes if it were to seek exemption from responsibility. 7 Unfortunately, it miserably failed
to discharge this burden by the required quantum of proof.

Delsan’s argument that it should not be held liable for the loss of diesel oil due to backflow because the
same had already been actually and legally delivered to Caltex at the time it entered the shore tank
holds no water. It had been settled that the subject cargo was still in the custody of Delsan because the
discharging thereof has not yet been finished when the backflow occurred. Since the discharging of the
cargo into the depot has not yet been completed at the time of the spillage when the backflow occurred,
there is no reason to imply that there was actual delivery of the cargo to the consignee. Delsan is
straining the issue by insisting that when the diesel oil entered into the tank of Caltex on shore, there
was legally, at that moment, a complete delivery thereof to Caltex. To be sure, the extraordinary
responsibility of common carrier lasts from the time the goods are unconditionally placed in the
possession of, and received by, the carrier for transportation until the same are delivered, actually or
constructively, by the carrier to the consignee, or to a person who has the right to receive them. 8 The
discharging of oil products to Caltex Bulk Depot has not yet been finished, Delsan still has the duty to
guard and to preserve the cargo. The carrier still has in it the responsibility to guard and preserve the
goods, a duty incident to its having the goods transported.

To recapitulate, common carriers, from the nature of their business and for reasons of public policy, are
bound to observe extraordinary diligence in vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances of each case. 9 The mere proof of
delivery of goods in good order to the carrier, and their arrival in the place of destination in bad order,
make out a prima facie case against the carrier, so that if no explanation is given as to how the injury
occurred, the carrier must be held responsible. It is incumbent upon the carrier to prove that the loss
was due to accident or some other circumstances inconsistent with its liability. 10

All told, Delsan, being a common carrier, should have exercised extraordinary diligence in the
performance of its duties. Consequently, it is obliged to prove that the damage to its cargo was caused
by one of the excepted causes if it were to seek exemption from responsibility. 11 Having failed to do so,
Delsan must bear the consequences.

WHEREFORE, petition is DENIED and the assailed decision of the CA is AFFIRMED in toto.

Cost against petitioner.

SO ORDERED.

G.R. No. 146018               June 25, 2003

EDGAR COKALIONG SHIPPING LINES, INC., Petitioner, vs.
UCPB GENERAL INSURANCE COMPANY, INC., Respondent.

The liability of a common carrier for the loss of goods may, by stipulation in the bill of lading, be limited
to the value declared by the shipper. On the other hand, the liability of the insurer is determined by the
actual value covered by the insurance policy and the insurance premiums paid therefor, and not
necessarily by the value declared in the bill of lading.

33
 The Case

Before the Court is a Petition for Review under Rule 45 of the Rules of Court, seeking to set aside the
1 

August 31, 2000 Decision and the November 17, 2000 Resolution of the Court of Appeals (CA) in CA-
2  3  4 

GR SP No. 62751. The dispositive part of the Decision reads:

"IN THE LIGHT OF THE FOREGOING, the appeal is GRANTED. The Decision appealed from
is REVERSED. [Petitioner] is hereby condemned to pay to [respondent] the total amount of
₱148,500.00, with interest thereon, at the rate of 6% per annum, from date of this Decision of the Court.
[Respondent’s] claim for attorney’s fees [is] DISMISSED. [Petitioner’s] counterclaims are DISMISSED." 5

The assailed Resolution denied petitioner’s Motion for Reconsideration.

On the other hand, the disposition of the Regional Trial Court’s Decision, which was later reversed by
6  7 

the CA, states:

"WHEREFORE, premises considered, the case is hereby DISMISSED for lack of merit.

"No cost." 8

The Facts

The facts of the case are summarized by the appellate court in this wise:

"Sometime on December 11, 1991, Nestor Angelia delivered to the Edgar Cokaliong Shipping Lines,
Inc. (now Cokaliong Shipping Lines), [petitioner] for brevity, cargo consisting of one (1) carton of
Christmas décor and two (2) sacks of plastic toys, to be transported on board the M/V Tandag on
its Voyage No. T-189 scheduled to depart from Cebu City, on December 12, 1991, for Tandag, Surigao
del Sur. [Petitioner] issued Bill of Lading No. 58, freight prepaid, covering the cargo. Nestor Angelia
was both the shipper and consignee of the cargo valued, on the face thereof, in the amount of
₱6,500.00. Zosimo Mercado likewise delivered cargo to [petitioner], consisting of two (2) cartons of
plastic toys and Christmas decor, one (1) roll of floor mat and one (1) bundle of various or assorted
goods for transportation thereof from Cebu City to Tandag, Surigao del Sur, on board the said vessel,
and said voyage. [Petitioner] issued Bill of Lading No. 59 covering the cargo which, on the face
thereof, was valued in the amount of ₱14,000.00. Under the Bill of Lading, Zosimo Mercado was both
the shipper and consignee of the cargo.

"On December 12, 1991, Feliciana Legaspi insured the cargo, covered by Bill of Lading No. 59, with
the UCPB General Insurance Co., Inc., [respondent] for brevity, for the amount of ₱100,000.00
‘against all risks’ under Open Policy No. 002/9 1/254 for which she was issued, by
[respondent], Marine Risk Note No. 18409 on said date. She also insured the cargo covered by Bill of
Lading No. 58, with [respondent], for the amount of ₱50,000.00, under Open Policy No. 002/9
1/254 on the basis of which [respondent] issued Marine Risk Note No. 18410 on said date.

"When the vessel left port, it had thirty-four (34) passengers and assorted cargo on board, including the
goods of Legaspi. After the vessel had passed by the Mandaue-Mactan Bridge, fire ensued in the
engine room, and, despite earnest efforts of the officers and crew of the vessel, the fire engulfed and
destroyed the entire vessel resulting in the loss of the vessel and the cargoes therein. The Captain filed
the required Marine Protest.

"Shortly thereafter, Feliciana Legaspi filed a claim, with [respondent], for the value of the cargo insured
under Marine Risk Note No. 18409 and covered by Bill of Lading No. 59. She submitted, in support of
her claim, a Receipt, dated December 11, 1991, purportedly signed by Zosimo Mercado, and Order
34
Slips purportedly signed by him for the goods he received from Feliciana Legaspi valued in the amount
of ₱110,056.00. [Respondent] approved the claim of Feliciana Legaspi and drew and issued UCPB
Check No. 612939, dated March 9, 1992, in the net amount of ₱99,000.00, in settlement of her claim
after which she executed a Subrogation Receipt/Deed, for said amount, in favor of [respondent]. She
also filed a claim for the value of the cargo covered by Bill of Lading No. 58. She submitted to
[respondent] a Receipt, dated December 11, 1991 and Order Slips, purportedly signed by Nestor
Angelia for the goods he received from Feliciana Legaspi valued at ₱60,338.00. [Respondent] approved
her claim and remitted to Feliciana Legaspi the net amount of ₱49,500.00, after which she signed
a Subrogation Receipt/Deed, dated March 9, 1992, in favor of [respondent].

"On July 14, 1992, [respondent], as subrogee of Feliciana Legaspi, filed a complaint anchored on torts
against [petitioner], with the Regional Trial Court of Makati City, for the collection of the total principal
amount of ₱148,500.00, which it paid to Feliciana Legaspi for the loss of the cargo, praying that
judgment be rendered in its favor and against the [petitioner] as follows:

‘WHEREFORE, it is respectfully prayed of this Honorable Court that after due hearing, judgment be
rendered ordering [petitioner] to pay [respondent] the following.

1. Actual damages in the amount of ₱148,500.00 plus interest thereon at the legal rate from the
time of filing of this complaint until fully paid;

2. Attorney’s fees in the amount of ₱10,000.00; and

3. Cost of suit.

‘[Respondent] further prays for such other reliefs and remedies as this Honorable Court may deem just
and equitable under the premises.’

"[Respondent] alleged, inter alia, in its complaint, that the cargo subject of its complaint was delivered
to, and received by, [petitioner] for transportation to Tandag, Surigao del Sur under ‘Bill of Ladings,’
Annexes ‘A’ and ‘B’ of the complaint; that the loss of the cargo was due to the negligence of the
[petitioner]; and that Feliciana Legaspi had executed Subrogation Receipts/Deeds in favor of
[respondent] after paying to her the value of the cargo on account of the Marine Risk Notes it issued in
her favor covering the cargo.

"In its Answer to the complaint, [petitioner] alleged that: (a) [petitioner] was cleared by the Board of
Marine Inquiry of any negligence in the burning of the vessel; (b) the complaint stated no cause of action
against [petitioner]; and (c) the shippers/consignee had already been paid the value of the goods as
stated in the Bill of Lading and, hence, [petitioner] cannot be held liable for the loss of the cargo
beyond the value thereof declared in the Bill of Lading.

"After [respondent] rested its case, [petitioner] prayed for and was allowed, by the Court a quo, to take
the depositions of Chester Cokaliong, the Vice-President and Chief Operating Officer of [petitioner], and
a resident of Cebu City, and of Noel Tanyu, an officer of the Equitable Banking Corporation, in Cebu
City, and a resident of Cebu City, to be given before the Presiding Judge of Branch 106 of the Regional
Trial Court of Cebu City. Chester Cokaliong and Noel Tanyu did testify, by way of deposition, before the
Court and declared inter alia, that: [petitioner] is a family corporation like the Chester Marketing, Inc.;
Nestor Angelia had been doing business with [petitioner] and Chester Marketing, Inc., for years, and
incurred an account with Chester Marketing, Inc. for his purchases from said corporation; [petitioner] did
issue Bills of Lading Nos. 58 and 59 for the cargo described therein with Zosimo Mercado and Nestor
Angelia as shippers/consignees, respectively; the engine room of the M/V Tandag caught fire after it
passed the Mandaue/Mactan Bridge resulting in the total loss of the vessel and its cargo; an
investigation was conducted by the Board of Marine Inquiry of the Philippine Coast Guard which
rendered a Report, dated February 13, 1992 absolving [petitioner] of any responsibility on account of the
35
fire, which Report of the Board was approved by the District Commander of the Philippine Coast Guard;
a few days after the sinking of the vessel, a representative of the Legaspi Marketing filed claims for the
values of the goods under Bills of Lading Nos. 58 and 59 in behalf of the shippers/consignees, Nestor
Angelia and Zosimo Mercado; [petitioner] was able to ascertain, from the shippers/consignees and the
representative of the Legaspi Marketing that the cargo covered by Bill of Lading No. 59 was owned by
Legaspi Marketing and consigned to Zosimo Mercado while that covered by Bill of Lading No. 58 was
purchased by Nestor Angelia from the Legaspi Marketing; that [petitioner] approved the claim of Legaspi
Marketing for the value of the cargo under Bill of Lading No. 59 and remitted to Legaspi Marketing the
said amount under Equitable Banking Corporation Check No. 20230486 dated August 12, 1992, in the
amount of ₱14,000.00 for which the representative of the Legaspi Marketing signed Voucher No. 4379,
dated August 12, 1992, for the said amount of ₱14,000.00 in full payment of claims under Bill of Lading
No. 59; that [petitioner] approved the claim of Nestor Angelia in the amount of ₱6,500.00 but that since
the latter owed Chester Marketing, Inc., for some purchases, [petitioner] merely set off the amount due
to Nestor Angelia under Bill of Lading No. 58 against his account with Chester Marketing, Inc.;
[petitioner] lost/[misplaced] the original of the check after it was received by Legaspi Marketing, hence,
the production of the microfilm copy by Noel Tanyu of the Equitable Banking Corporation; [petitioner]
never knew, before settling with Legaspi Marketing and Nestor Angelia that the cargo under both Bills
of Lading were insured with [respondent], or that Feliciana Legaspi filed claims for the value of the
cargo with [respondent] and that the latter approved the claims of Feliciana Legaspi and paid the total
amount of ₱148,500.00 to her; [petitioner] came to know, for the first time, of the payments by
[respondent] of the claims of Feliciana Legaspi when it was served with the summons and complaint, on
October 8, 1992; after settling his claim, Nestor Angelia x x x executed the Release and Quitclaim,
dated July 2, 1993, and Affidavit, dated July 2, 1993 in favor of [respondent]; hence, [petitioner] was
absolved of any liability for the loss of the cargo covered by Bills of Lading Nos. 58 and 59; and even if
it was, its liability should not exceed the value of the cargo as stated in the Bills of Lading.

"[Petitioner] did not anymore present any other witnesses on its evidence-in-chief. x x x" (Citations
9 

omitted)

Ruling of the Court of Appeals

The CA held that petitioner had failed "to prove that the fire which consumed the vessel and its cargo
was caused by something other than its negligence in the upkeep, maintenance and operation of the
vessel."10

Petitioner had paid ₱14,000 to Legaspi Marketing for the cargo covered by Bill of Lading No. 59. The
CA, however, held that the payment did not extinguish petitioner’s obligation to respondent, because
there was no evidence that Feliciana Legaspi (the insured) was the owner/proprietor of Legaspi
Marketing. The CA also pointed out the impropriety of treating the claim under Bill of Lading No. 58 --
covering cargo valued therein at ₱6,500 -- as a setoff against Nestor Angelia’s account with Chester
Enterprises, Inc.

Finally, it ruled that respondent "is not bound by the valuation of the cargo under the Bills of Lading, x x
x nor is the value of the cargo under said Bills of Lading conclusive on the [respondent]. This is so
because, in the first place, the goods were insured with the [respondent] for the total amount of
₱150,000.00, which amount may be considered as the face value of the goods." 11

Hence this Petition. 12

Issues

Petitioner raises for our consideration the following alleged errors of the CA:

"I
36
"The Honorable Court of Appeals erred, granting arguendo that petitioner is liable, in holding that
petitioner’s liability should be based on the ‘actual insured value’ of the goods and not from actual
valuation declared by the shipper/consignee in the bill of lading.

"II

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

"III

"The Court of Appeals erred in not holding that respondent UCPB General Insurance has no cause of
action against the petitioner." 13

In sum, the issues are: (1) Is petitioner liable for the loss of the goods? (2) If it is liable, what is the
extent of its liability?

This Court’s Ruling

The Petition is partly meritorious.

First Issue:

Liability for Loss

Petitioner argues that the cause of the loss of the goods, subject of this case, was force majeure. It adds
that its exercise of due diligence was adequately proven by the findings of the Philippine Coast Guard.

We are not convinced. The uncontroverted findings of the Philippine Coast Guard show that the M/V
Tandag sank due to a fire, which resulted from a crack in the auxiliary engine fuel oil service tank. Fuel
spurted out of the crack and dripped to the heating exhaust manifold, causing the ship to burst into
flames. The crack was located on the side of the fuel oil tank, which had a mere two-inch gap from the
engine room walling, thus precluding constant inspection and care by the crew.

Having originated from an unchecked crack in the fuel oil service tank, the fire could not have been
caused by force majeure. Broadly speaking, force majeure generally applies to a natural accident, such
as that caused by a lightning, an earthquake, a tempest or a public enemy. Hence, fire is not
14 

considered a natural disaster or calamity. In Eastern Shipping Lines, Inc. v. Intermediate Appellate
Court, we explained:
15 

"x x x. This must be so as it arises almost invariably from some act of man or by human means. It does
not fall within the category of an act of God unless caused by lighting or by other natural disaster or
calamity. It may even be caused by the actual fault or privity of the carrier.

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

"As the peril of fire is not comprehended within the exceptions in Article 1734, supra, Article 1735 of the
Civil Code provides that in all cases other than those mentioned in Article 1734, the common carrier

37
shall be presumed to have been at fault or to have acted negligently, unless it proves that it has
observed the extraordinary diligence required by law."

Where loss of cargo results from the failure of the officers of a vessel to inspect their ship frequently so
as to discover the existence of cracked parts, that loss cannot be attributed to force majeure, but to the
negligence of those officials. 16

The law provides that a common carrier is presumed to have been negligent if it fails to prove that it
exercised extraordinary vigilance over the goods it transported. Ensuring the seaworthiness of the
vessel is the first step in exercising the required vigilance. Petitioner did not present sufficient evidence
showing what measures or acts it had undertaken to ensure the seaworthiness of the vessel. It failed to
show when the last inspection and care of the auxiliary engine fuel oil service tank was made, what the
normal practice was for its maintenance, or some other evidence to establish that it had exercised
extraordinary diligence. It merely stated that constant inspection and care were not possible, and that
the last time the vessel was dry-docked was in November 1990. Necessarily, in accordance with Article
1735 of the Civil Code, we hold petitioner responsible for the loss of the goods covered by Bills of
17 

Lading Nos. 58 and 59.

Second Issue:

Extent of Liability

Respondent contends that petitioner’s liability should be based on the actual insured value of the goods,
subject of this case. On the other hand, petitioner claims that its liability should be limited to the value
declared by the shipper/consignee in the Bill of Lading.

The records show that the Bills of Lading covering the lost goods contain the stipulation that in case of
18 

claim for loss or for damage to the shipped merchandise or property, "[t]he liability of the common
carrier x x x shall not exceed the value of the goods as appearing in the bill of lading." The attempt by
19 

respondent to make light of this stipulation is unconvincing. As it had the consignees’ copies of the Bills
of Lading, it could have easily produced those copies, instead of relying on mere allegations and
20 

suppositions. However, it presented mere photocopies thereof to disprove petitioner’s evidence showing
the existence of the above stipulation.

A stipulation that limits liability is valid as long as it is not against public policy. In Everett Steamship
21 

Corporation v. Court of Appeals, the Court stated:

22 

"A stipulation in the bill of lading limiting the common carrier’s liability for loss or destruction of a cargo to
a certain sum, unless the shipper or owner declares a greater value, is sanctioned by law, particularly
Articles 1749 and 1750 of the Civil Code which provides:

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

‘Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the loss,
destruction, or deterioration of the goods is valid, if it is reasonable and just under the circumstances,
and has been freely and fairly agreed upon.’

"Such limited-liability clause has also been consistently upheld by this Court in a number of cases. Thus,
in Sea-Land Service, Inc. vs. Intermediate Appellate Court, we ruled:

‘It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea Act did not exist, the
validity and binding effect of the liability limitation clause in the bill of lading here are nevertheless fully
38
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 (¥100,000.00) or its equivalent in
any other currency per package or customary freight unit (whichever is least) unless the value of the
goods higher than this amount is declared in writing by the shipper before receipt of the goods by the
carrier and inserted in the Bill of Lading and extra freight is paid as required.’

"The above stipulations are, to our mind, reasonable and just.  In the bill of lading, the carrier made it
1avvphi1

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." (Italics supplied)

In the present case, the stipulation limiting petitioner’s liability is not contrary to public policy. In fact, its
just and reasonable character is evident. The shippers/consignees may recover the full value of the
goods by the simple expedient of declaring the true value of the shipment in the Bill of Lading. Other
than the payment of a higher freight, there was nothing to stop them from placing the actual value of the
goods therein. In fact, they committed fraud against the common carrier by deliberately undervaluing the
goods in their Bill of Lading, thus depriving the carrier of its proper and just transport fare.

Concededly, the purpose of the limiting stipulation in the Bill of Lading is to protect the common carrier.
Such stipulation obliges the shipper/consignee to notify the common carrier of the amount that the latter
may be liable for in case of loss of the goods. The common carrier can then take appropriate measures
-- getting insurance, if needed, to cover or protect itself. This precaution on the part of the carrier is
reasonable and prudent. Hence, a shipper/consignee that undervalues the real worth of the goods it
seeks to transport does not only violate a valid contractual stipulation, but commits a fraudulent act
when it seeks to make the common carrier liable for more than the amount it declared in the bill of
lading.

Indeed, Zosimo Mercado and Nestor Angelia misled petitioner by undervaluing the goods in their
respective Bills of Lading. Hence, petitioner was exposed to a risk that was deliberately hidden from it,
and from which it could not protect itself.

It is well to point out that, for assuming a higher risk (the alleged actual value of the goods) the
insurance company was paid the correct higher premium by Feliciana Legaspi; while petitioner was paid
a fee lower than what it was entitled to for transporting the goods that had been deliberately
39
undervalued by the shippers in the Bill of Lading. Between the two of them, the insurer should bear the
loss in excess of the value declared in the Bills of Lading. This is the just and equitable solution.

In Aboitiz Shipping Corporation v. Court of Appeals, the description of the nature and the value of the
23 

goods shipped were declared and reflected in the bill of lading, like in the present case. The Court
therein considered this declaration as the basis of the carrier’s liability and ordered payment based on
such amount. Following this ruling, petitioner should not be held liable for more than what was declared
by the shippers/consignees as the value of the goods in the bills of lading.

We find no cogent reason to disturb the CA’s finding that Feliciana Legaspi was the owner of the goods
covered by Bills of Lading Nos. 58 and 59. Undoubtedly, the goods were merely consigned to Nestor
Angelia and Zosimo Mercado, respectively; thus, Feliciana Legaspi or her subrogee (respondent) was
entitled to the goods or, in case of loss, to compensation therefor. There is no evidence showing that
petitioner paid her for the loss of those goods. It does not even claim to have paid her.

On the other hand, Legaspi Marketing filed with petitioner a claim for the lost goods under Bill of Lading
No. 59, for which the latter subsequently paid ₱14,000. But nothing in the records convincingly shows
that the former was the owner of the goods. Respondent was, however, able to prove that it was
Feliciana Legaspi who owned those goods, and who was thus entitled to payment for their loss. Hence,
the claim for the goods under Bill of Lading No. 59 cannot be deemed to have been extinguished,
because payment was made to a person who was not entitled thereto.

With regard to the claim for the goods that were covered by Bill of Lading No. 58 and valued at ₱6,500,
the parties have not convinced us to disturb the findings of the CA that compensation could not validly
take place. Thus, we uphold the appellate court’s ruling on this point.

WHEREFORE, the Petition is hereby PARTIALLY GRANTED. The assailed Decision is MODIFIED in

the sense that petitioner is ORDERED to pay respondent the sums of ₱14,000 and ₱6,500, which
represent the value of the goods stated in Bills of Lading Nos. 59 and 58, respectively. No costs.

SO ORDERED.

G.R. No. 147246            August 19, 2003

ASIA LIGHTERAGE AND SHIPPING, INC., petitioner, vs.
COURT OF APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE, INC., respondents.

On appeal is the Court of Appeals' May 11, 2000 Decision1 in CA-G.R. CV No. 49195 and February 21,
2001 Resolution2 affirming with modification the April 6, 1994 Decision3 of the Regional Trial Court of
Manila which found petitioner liable to pay private respondent the amount of indemnity and attorney's
fees.

First, the facts.

On June 13, 1990, 3,150 metric tons of Better Western White Wheat in bulk, valued at
US$423,192.354 was shipped by Marubeni American Corporation of Portland, Oregon on board the
vessel M/V NEO CYMBIDIUM V-26 for delivery to the consignee, General Milling Corporation in Manila,
evidenced by Bill of Lading No. PTD/Man-4.5 The shipment was insured by the private respondent
Prudential Guarantee and Assurance, Inc. against loss or damage for P14,621,771.75 under Marine
Cargo Risk Note RN 11859/90.6

40
On July 25, 1990, the carrying vessel arrived in Manila and the cargo was transferred to the custody of
the petitioner Asia Lighterage and Shipping, Inc. The petitioner was contracted by the consignee as
carrier to deliver the cargo to consignee's warehouse at Bo. Ugong, Pasig City.

On August 15, 1990, 900 metric tons of the shipment was loaded on barge PSTSI III, evidenced by
Lighterage Receipt No. 03647 for delivery to consignee. The cargo did not reach its destination.

It appears that on August 17, 1990, the transport of said cargo was suspended due to a warning of an
incoming typhoon. On August 22, 1990, the petitioner proceeded to pull the barge to Engineering Island
off Baseco to seek shelter from the approaching typhoon. PSTSI III was tied down to other barges which
arrived ahead of it while weathering out the storm that night. A few days after, the barge developed a list
because of a hole it sustained after hitting an unseen protuberance underneath the water. The petitioner
filed a Marine Protest on August 28, 1990.8 It likewise secured the services of Gaspar Salvaging
Corporation which refloated the barge.9 The hole was then patched with clay and cement.

The barge was then towed to ISLOFF terminal before it finally headed towards the consignee's wharf on
September 5, 1990. Upon reaching the Sta. Mesa spillways, the barge again ran aground due to strong
current. To avoid the complete sinking of the barge, a portion of the goods was transferred to three
other barges.10

The next day, September 6, 1990, the towing bits of the barge broke. It sank completely, resulting in the
total loss of the remaining cargo.11 A second Marine Protest was filed on September 7, 1990.12

On September 14, 1990, a bidding was conducted to dispose of the damaged wheat retrieved and
loaded on the three other barges.13 The total proceeds from the sale of the salvaged cargo
was P201,379.75.14

On the same date, September 14, 1990, consignee sent a claim letter to the petitioner, and another
letter dated September 18, 1990 to the private respondent for the value of the lost cargo.

On January 30, 1991, the private respondent indemnified the consignee in the amount
of P4,104,654.22.15 Thereafter, as subrogee, it sought recovery of said amount from the petitioner, but to
no avail.

On July 3, 1991, the private respondent filed a complaint against the petitioner for recovery of the
amount of indemnity, attorney's fees and cost of suit.16 Petitioner filed its answer with counterclaim.17

The Regional Trial Court ruled in favor of the private respondent. The dispositive portion of its Decision
states:

WHEREFORE, premises considered, judgment is hereby rendered ordering defendant Asia

Lighterage & Shipping, Inc. liable to pay plaintiff Prudential Guarantee & Assurance Co., Inc. the
sum of P4,104,654.22 with interest from the date complaint was filed on July 3, 1991 until fully
satisfied plus 10% of the amount awarded as and for attorney's fees. Defendant's counterclaim
is hereby DISMISSED. With costs against defendant.18

Petitioner appealed to the Court of Appeals insisting that it is not a common carrier. The appellate court
affirmed the decision of the trial court with modification. The dispositive portion of its decision reads:

WHEREFORE, the decision appealed from is hereby AFFIRMED with modification in the sense
that the salvage value of P201,379.75 shall be deducted from the amount of P4,104,654.22.
Costs against appellant.

41
 SO ORDERED.

Petitioner's Motion for Reconsideration dated June 3, 2000 was likewise denied by the appellate court in
a Resolution promulgated on February 21, 2001.

Hence, this petition. Petitioner submits the following errors allegedly committed by the appellate
court, viz:19

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

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

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

The issues to be resolved are:

(1) Whether the petitioner is a common carrier; and,

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

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

Article 1732 of the Civil Code defines common carriers as persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air,
for compensation, offering their services to the public.

Petitioner contends that it is not a common carrier but a private carrier. Allegedly, it has no fixed and
publicly known route, maintains no terminals, and issues no tickets. It points out that it is not obliged to
carry indiscriminately for any person. It is not bound to carry goods unless it consents. In short, it does
not hold out its services to the general public.20

We disagree.

In De Guzman vs. Court of Appeals,21 we held that the definition of common carriers in Article 1732 of
the Civil Code makes no distinction between one whose principal business activity is the carrying of
persons or goods or both, and one who does such carrying only as an ancillary activity. We also did not
distinguish between a person or enterprise offering transportation service on a regular or scheduled
basis and one offering such service on an occasional, episodic or unscheduled basis. Further, we ruled
that Article 1732 does not distinguish between a carrier offering its services to the general public, and
one who offers services or solicits business only from a narrow segment of the general population.

42
In the case at bar, the principal business of the petitioner is that of lighterage and drayage22 and it offers
its barges to the public for carrying or transporting goods by water for compensation. Petitioner is clearly
a common carrier. In De Guzman, supra,23 we considered private respondent Ernesto Cendaña to be a
common carrier even if his principal occupation was not the carriage of goods for others, but that of
buying used bottles and scrap metal in Pangasinan and selling these items in Manila.

We therefore hold that petitioner is a common carrier whether its carrying of goods is done on an
irregular rather than scheduled manner, and with an only limited clientele. A common carrier need not
have fixed and publicly known routes. Neither does it have to maintain terminals or issue tickets.

To be sure, petitioner fits the test of a common carrier as laid down in Bascos vs. Court of
Appeals.24 The test to determine a common carrier is "whether the given undertaking is a part of the
business engaged in by the carrier which he has held out to the general public as his occupation rather
than the quantity or extent of the business transacted."25 In the case at bar, the petitioner admitted that it
is engaged in the business of shipping and lighterage,26 offering its barges to the public, despite its
limited clientele for carrying or transporting goods by water for compensation.27

On the second issue, we uphold the findings of the lower courts that petitioner failed to exercise
extraordinary diligence in its care and custody of the consignee's goods.

Common carriers are bound to observe extraordinary diligence in the vigilance over the goods
transported by them.28 They are presumed to have been at fault or to have acted negligently if the goods
are lost, destroyed or deteriorated.29 To overcome the presumption of negligence in the case of loss,
destruction or deterioration of the goods, the common carrier must prove that it exercised extraordinary
diligence. There are, however, exceptions to this rule. Article 1734 of the Civil Code enumerates the
instances when the presumption of negligence does not attach:

Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the
goods, unless the same is due to any of the following causes only:

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

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

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

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

(5) Order or act of competent public authority.

In the case at bar, the barge completely sank after its towing bits broke, resulting in the total loss of its
cargo. Petitioner claims that this was caused by a typhoon, hence, it should not be held liable for the
loss of the cargo. However, petitioner failed to prove that the typhoon is the proximate and only cause of
the loss of the goods, and that it has exercised due diligence before, during and after the occurrence of
the typhoon to prevent or minimize the loss.30 The evidence show that, even before the towing bits of the
barge broke, it had already previously sustained damage when it hit a sunken object while docked at the
Engineering Island. It even suffered a hole. Clearly, this could not be solely attributed to the typhoon.
The partly-submerged vessel was refloated but its hole was patched with only clay and cement. The
patch work was merely a provisional remedy, not enough for the barge to sail safely. Thus, when
petitioner persisted to proceed with the voyage, it recklessly exposed the cargo to further damage. A
portion of the cross-examination of Alfredo Cunanan, cargo-surveyor of Tan-Gatue Adjustment Co., Inc.,
states:

43
 CROSS-EXAMINATION BY ATTY. DONN LEE:31

x x x           x x x           x x x

q     -     Can you tell us what else transpired after that incident?

a     -     After the first accident, through the initiative of the barge owners, they tried to pull out
the barge from the place of the accident, and bring it to the anchor terminal for safety, then after
deciding if the vessel is stabilized, they tried to pull it to the consignee's warehouse, now while
on route another accident occurred, now this time the barge totally hitting something in the
course.

q     -     You said there was another accident, can you tell the court the nature of the second
accident?

a     -     The sinking, sir.

q     -     Can you tell the nature . . . can you tell the court, if you know what caused the sinking?

a     -     Mostly it was related to the first accident because there was already a whole (sic) on the
bottom part of the barge.

x x x           x x x           x x x

This is not all. Petitioner still headed to the consignee's wharf despite knowledge of an incoming
typhoon. During the time that the barge was heading towards the consignee's wharf on September 5,
1990, typhoon "Loleng" has already entered the Philippine area of responsibility.32 A part of the
testimony of Robert Boyd, Cargo Operations Supervisor of the petitioner, reveals:

DIRECT-EXAMINATION BY ATTY. LEE:33

x x x           x x x           x x x

q     -     Now, Mr. Witness, did it not occur to you it might be safer to just allow the Barge to lie
where she was instead of towing it?

a     -     Since that time that the Barge was refloated, GMC (General Milling Corporation, the
consignee) as I have said was in a hurry for their goods to be delivered at their Wharf since they
needed badly the wheat that was loaded in PSTSI-3. It was needed badly by the consignee.

q     -     And this is the reason why you towed the Barge as you did?

a     -     Yes, sir.

x x x           x x x           x x x

CROSS-EXAMINATION BY ATTY. IGNACIO:34

x x x           x x x           x x x

q     -     And then from ISLOFF Terminal you proceeded to the premises of the GMC? Am I
correct?
44
 a     -     The next day, in the morning, we hired for additional two (2) tugboats as I have stated.

q     -     Despite of the threats of an incoming typhoon as you testified a while ago?

a     -     It is already in an inner portion of Pasig River. The typhoon would be coming and it
would be dangerous if we are in the vicinity of Manila Bay.

q     -     But the fact is, the typhoon was incoming? Yes or no?

a     -     Yes.

q     -     And yet as a standard operating procedure of your Company, you have to secure a sort
of Certification to determine the weather condition, am I correct?

a     -     Yes, sir.

q     -     So, more or less, you had the knowledge of the incoming typhoon, right?

a     -     Yes, sir.

q     -     And yet you proceeded to the premises of the GMC?

a     -     ISLOFF Terminal is far from Manila Bay and anytime even with the typhoon if you are
already inside the vicinity or inside Pasig entrance, it is a safe place to tow upstream.

Accordingly, the petitioner cannot invoke the occurrence of the typhoon as force majeure to escape
liability for the loss sustained by the private respondent. Surely, meeting a typhoon head-on falls short of
due diligence required from a common carrier. More importantly, the officers/employees themselves of
petitioner admitted that when the towing bits of the vessel broke that caused its sinking and the total
loss of the cargo upon reaching the Pasig River, it was no longer affected by the typhoon. The typhoon
then is not the proximate cause of the loss of the cargo; a human factor, i.e., negligence had intervened.

IN VIEW THEREOF, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No.
49195 dated May 11, 2000 and its Resolution dated February 21, 2001 are hereby AFFIRMED. Costs
against petitioner.

SO ORDERED.

G.R. No. 135377             October 7, 2003

DSR-SENATOR LINES AND C.F. SHARP AND COMPANY, INC., petitioners, vs.
FEDERAL PHOENIX ASSURANCE CO., INC., respondent.

Before us is a petition for review on certiorari assailing the Decision dated June 5, 1998 of the Court of
1  2 

Appeals in CA-G.R. CV No. 50833 which affirmed the Decision of the Regional Trial Court (RTC),
Manila City, Branch 16, in Civil Case No. 94-69699, "Federal Phoenix Assurance Company, Inc. vs.
DSR-Senator Lines and C.F. Sharp & Co., Inc.," for damages arising from the loss of cargo while in
transit.

Berde Plants, Inc. (Berde Plants) delivered 632 units of artificial trees to C.F. Sharp and Company, Inc.
(C.F. Sharp), the General Ship Agent of DSR-Senator Lines, a foreign shipping corporation, for
transportation and delivery to the consignee, Al-Mohr International Group, in Riyadh, Saudi Arabia. C.F.
Sharp issued International Bill of Lading No. SENU MNL-26548 for the cargo with an invoice value of
3 

45
$34,579.60. Under the Bill of Lading, the port of discharge for the cargo was at the Khor Fakkan port
and the port of delivery was Riyadh, Saudi Arabia, via Port Dammam. The cargo was loaded in M/S
"Arabian Senator."

Federal Phoenix Assurance Company, Inc. (Federal Phoenix Assurance) insured the cargo against all
risks in the amount of ₱941,429.61. 4

On June 7, 1993, M/S "Arabian Senator" left the Manila South Harbor for Saudi Arabia with the cargo on
board. When the vessel arrived in Khor Fakkan Port, the cargo was reloaded on board DSR-Senator
Lines’ feeder vessel, M/V "Kapitan Sakharov," bound for Port Dammam, Saudi Arabia. However, while
in transit, the vessel and all its cargo caught fire.

On July 5, 1993, DSR-Senator Lines informed Berde Plants that M/V "Kapitan Sakharov" with its cargo
was gutted by fire and sank on or about July 4, 1993. On December 16, 1993, C.F. Sharp issued a
certification to that effect.

Consequently, Federal Phoenix Assurance paid Berde Plants ₱941,429.61 corresponding to the amount
of insurance for the cargo. In turn Berde Plants executed in its favor a "Subrogation Receipt" dated
5 

January 17, 1994.

On February 8, 1994, Federal Phoenix Assurance sent a letter to C.F. Sharp demanding payment of
₱941,429.61 on the basis of the Subrogation Receipt. C.F. Sharp denied any liability on the ground that
such liability was extinguished when the vessel carrying the cargo was gutted by fire.

Thus, on March 11, 1994, Federal Phoenix Assurance filed with the RTC, Branch 16, Manila a
complaint for damages against DSR-Senator Lines and C.F. Sharp, praying that the latter be ordered to
pay actual damages of ₱941,429.61, compensatory damages of ₱100,000.00 and costs.

On August 22, 1995, the RTC rendered a Decision in favor of Federal Phoenix Assurance, the
dispositive portion of which reads:

"WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff and against the
defendants who are hereby ordered jointly and severally to pay plaintiff:

I. The amount of ₱941,439.61 (should be ₱941,429.61 ) with legal interest of 6% per annum
6 

from the date of the letter of demand of February 8, 1993 (EXH. L) and 12% per annum from the
date the judgment becomes final and executory until its satisfaction (Eastern Shipping Lines vs.
Court of Appeals, G.R. No. 97412, July 12, 1994);

II. The amount of ₱15,000.00 by way of reasonable attorney’s fees; and

III. To pay costs.

"The counterclaim of defendants is DISMISSED.

"SO ORDERED." 7

On appeal, the Court of Appeals rendered a Decision dated June 5, 1998, affirming the RTC Decision,
thus:

"In the present recourse, the appellant carrier was presumed to have acted negligently for the fire that
gutted the feeder vessel and the consequent loss or destruction of the cargo. Hence, the appellant
carrier is liable for appellee’s claim under the New Civil Code of the Philippines.
46
"Contrary to C.F. Sharp and Co., Inc.’s pose, its liability as ship agent continued and remained until the
cargo was delivered to the consignee. The status of the appellant as ship agent subsisted and its liability
as a ship agent was co-terminous with and subsisted as long as the cargo was not delivered to the
consignee under the terms of the Bill of Lading.

"IN LIGHT OF ALL THE FOREGOING, the appeal of the appellants is DISMISSED. The Decision
appealed from is affirmed. With costs against the appellants.

"SO ORDERED." 8

On September 7, 1998, the Court of Appeals denied the motion for reconsideration of DSR-Senator
Lines and C.F. Sharp, prompting them to file with this Court the instant petition.

We find the petition bereft of merit.

Article 1734 of the Civil Code provides:

"Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods,
unless the same is due to any of the following causes only:

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

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

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

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

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

Fire is not one of those enumerated under the above provision which exempts a carrier from liability for
loss or destruction of the cargo.

In Eastern Shipping Lines, Inc. vs. Intermediate Appellate Court, we ruled that since the peril of fire is
9 

not comprehended within the exceptions in Article 1734, then the common carrier shall be presumed to
have been at fault or to have acted negligently, unless it proves that it has observed the extraordinary
diligence required by law.

Even if fire were to be considered a natural disaster within the purview of Article 1734, it is required
under Article 1739 of the same Code that the natural disaster must have been the proximate and only
10 

cause of the loss, and that the carrier has exercised due diligence to prevent or minimize the loss
before, during or after the occurrence of the disaster.

We have held that a common carrier’s duty to observe the requisite diligence in the shipment of goods
lasts from the time the articles are surrendered to or unconditionally placed in the possession of, and
received by, the carrier for transportation until delivered to or until the lapse of a reasonable time for
their acceptance by the person entitled to receive them. When the goods shipped either are lost or
arrive in damaged condition, a presumption arises against the carrier of its failure to observe that
diligence, and there need not be an express finding of negligence to hold it liable. s
11 
1awphi1.nét

Common carriers are obliged to observe extraordinary diligence in the vigilance over the goods
transported by them. Accordingly, they are presumed to have been at fault or to have acted negligently

47
if the goods are lost, destroyed or deteriorated. There are very few instances when the presumption of
negligence does not attach and these instances are enumerated in Article 1734. In those cases where
the presumption is applied, the common carrier must prove that it exercised extraordinary diligence in
order to overcome the presumption. 12

Respondent Federal Phoenix Assurance raised the presumption of negligence against petitioners.
However, they failed to overcome it by sufficient proof of extraordinary diligence.

WHEREFORE, the instant petition is DENIED. The assailed Decision of the Court of Appeals dated
June 5, 1998, in CA-G.R. CV No. 50833 is hereby AFFIRMED.

SO ORDERED.

G.R. No. 150751             September 20, 2004

CENTRAL SHIPPING COMPANY, INC., petitioner, vs.
INSURANCE COMPANY OF NORTH AMERICA, respondent.

A common carrier is presumed to be at fault or negligent. It shall be liable for the loss, destruction or
deterioration of its cargo, unless it can prove that the sole and proximate cause of such event is one of
the causes enumerated in Article 1734 of the Civil Code, or that it exercised extraordinary diligence to
prevent or minimize the loss. In the present case, the weather condition encountered by petitioner’s
vessel was not a "storm" or a natural disaster comprehended in the law. Given the known weather
condition prevailing during the voyage, the manner of stowage employed by the carrier was insufficient
to secure the cargo from the rolling action of the sea. The carrier took a calculated risk in improperly
securing the cargo. Having lost that risk, it cannot now disclaim any liability for the loss.

The Case

Before the Court is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to reverse and
set aside the March 23, 2001 Decision2 of the Court of Appeals (CA) in CA-GR CV No. 48915. The
assailed Decision disposed as follows:

"WHEREFORE, the decision of the Regional Trial Court of Makati City, Branch 148 dated
August 4, 1994 is hereby MODIFIED in so far as the award of attorney’s fees is DELETED. The
decision is AFFIRMED in all other respects."3

The CA denied petitioner’s Motion for Reconsideration in its November 7, 2001 Resolution.4

The Facts

The factual antecedents, summarized by the trial court and adopted by the appellate court, are as
follows:

"On July 25, 1990 at Puerto Princesa, Palawan, the [petitioner] received on board its vessel, the
M/V ‘Central Bohol’, 376 pieces [of] Philippine Apitong Round Logs and undertook to transport
said shipment to Manila for delivery to Alaska Lumber Co., Inc.

"The cargo was insured for ₱3,000,000.00 against total loss under [respondent’s] Marine Cargo
Policy No. MCPB-00170.

"On July 25, 1990, upon completion of loading of the cargo, the vessel left Palawan and
commenced the voyage to Manila.
48
 "At about 0125 hours on July 26, 1990, while enroute to Manila, the vessel listed about 10
degrees starboardside, due to the shifting of logs in the hold.

"At about 0128 hours, after the listing of the vessel had increased to 15 degrees, the ship
captain ordered his men to abandon ship and at about 0130 hours of the same day the vessel
completely sank. Due to the sinking of the vessel, the cargo was totally lost.

"[Respondent] alleged that the total loss of the shipment was caused by the fault and negligence
of the [petitioner] and its captain and as direct consequence thereof the consignee suffered
damage in the sum of ₱3,000,000.00.

"The consignee, Alaska Lumber Co. Inc., presented a claim for the value of the shipment to the
[petitioner] but the latter failed and refused to settle the claim, hence [respondent], being the
insurer, paid said claim and now seeks to be subrogated to all the rights and actions of the
consignee as against the [petitioner].

"[Petitioner], while admitting the sinking of the vessel, interposed the defense that the vessel
was fully manned, fully equipped and in all respects seaworthy; that all the logs were properly
loaded and secured; that the vessel’s master exercised due diligence to prevent or minimize the
loss before, during and after the occurrence of the storm.

"It raised as its main defense that the proximate and only cause of the sinking of its vessel and
the loss of its cargo was a natural disaster, a tropical storm which neither [petitioner] nor the
captain of its vessel could have foreseen."5

The RTC was unconvinced that the sinking of M/V Central Bohol had been caused by the weather or
any other caso fortuito. It noted that monsoons, which were common occurrences during the months of
July to December, could have been foreseen and provided for by an ocean-going vessel. Applying the
rule of presumptive fault or negligence against the carrier, the trial court held petitioner liable for the loss
of the cargo. Thus, the RTC deducted the salvage value of the logs in the amount of ₱200,000 from the
principal claim of respondent and found that the latter was entitled to be subrogated to the rights of the
insured. The court a quo disposed as follows:

"WHEREFORE, premises considered, judgment is hereby rendered in favor of the [respondent]

and against the [petitioner] ordering the latter to pay the following:

1) the amount of ₱2,800,000.00 with legal interest thereof from the filing of this complaint
up to and until the same is fully paid;

2) ₱80,000.00 as and for attorney’s fees;

3) Plus costs of suit."6

Ruling of the Court of Appeals

The CA affirmed the trial court’s finding that the southwestern monsoon encountered by the vessel was
not unforeseeable. Given the season of rains and monsoons, the ship captain and his crew should have
anticipated the perils of the sea. The appellate court further held that the weather disturbance was not
the sole and proximate cause of the sinking of the vessel, which was also due to the concurrent shifting
of the logs in the hold that could have resulted only from improper stowage. Thus, the carrier was held
responsible for the consequent loss of or damage to the cargo, because its own negligence had
contributed thereto.

49
The CA found no merit in petitioner’s assertion of the vessel’s seaworthiness. It held that the Certificates
of Inspection and Drydocking were not conclusive proofs thereof. In order to consider a vessel to be
seaworthy, it must be fit to meet the perils of the sea.

Found untenable was petitioner’s insistence that the trial court should have given greater weight to the
factual findings of the Board of Marine Inquiry (BMI) in the investigation of the Marine Protest filed by the
ship captain, Enriquito Cahatol. The CA further observed that what petitioner had presented to the court
a quo were mere excerpts of the testimony of Captain Cahatol given during the course of the
proceedings before the BMI, not the actual findings and conclusions of the agency. Citing Arada v.
CA,7 it said that findings of the BMI were limited to the administrative liability of the owner/operator,
officers and crew of the vessel. However, the determination of whether the carrier observed
extraordinary diligence in protecting the cargo it was transporting was a function of the courts, not of the
BMI.

The CA concluded that the doctrine of limited liability was not applicable, in view of petitioner’s
negligence -- particularly its improper stowage of the logs.

Hence, this Petition.8

Issues

In its Memorandum, petitioner submits the following issues for our consideration:

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

"(ii) Whether or not the investigation report prepared by Claimsmen Adjustment Corporation is
hearsay evidence under Section 36, Rule 130 of the Rules of Court.

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

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

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

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

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

The Court’s Ruling

The Petition is devoid of merit.

First Issue:

50
 Liability for Lost Cargo

From the nature of their business and for reasons of public policy, common carriers are bound to
observe extraordinary diligence over the goods they transport, according to all the circumstances of
each case.10 In the event of loss, destruction or deterioration of the insured goods, common carriers are
responsible; that is, unless they can prove that such loss, destruction or deterioration was brought about
-- among others -- by "flood, storm, earthquake, lightning or other natural disaster or calamity."11 In all
other cases not specified under Article 1734 of the Civil Code, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence.12

In the present case, petitioner disclaims responsibility for the loss of the cargo by claiming the
occurrence of a "storm" under Article 1734(1). It attributes the sinking of its vessel solely to the weather
condition between 10:00 p.m. on July 25, 1990 and 1:25 a.m. on July 26, 1990.

At the outset, it must be stressed that only questions of law13 may be raised in a petition for review on
certiorari under Rule 45 of the Rules of Court. Questions of fact are not proper subjects in this mode of
appeal,14 for "[t]he Supreme Court is not a trier of facts."15 Factual findings of the CA may be reviewed on
appeal16 only under exceptional circumstances such as, among others, when the inference is manifestly
mistaken,17 the judgment is based on a misapprehension of facts,18 or the CA manifestly overlooked
certain relevant and undisputed facts that, if properly considered, would justify a different conclusion.19

In the present case, petitioner has not given the Court sufficient cogent reasons to disturb the
conclusion of the CA that the weather encountered by the vessel was not a "storm" as contemplated by
Article 1734(1). Established is the fact that between 10:00 p.m. on July 25, 1990 and 1:25 a.m. on July
26, 1990, M/V Central Bohol encountered a southwestern monsoon in the course of its voyage.

The Note of Marine Protest,20 which the captain of the vessel issued under oath, stated that he and his
crew encountered a southwestern monsoon about 2200 hours on July 25, 1990, and another monsoon
about 2400 hours on July 26, 1990. Even petitioner admitted in its Answer that the sinking of M/V
Central Bohol had been caused by the strong southwest monsoon.21 Having made such factual
representation, it cannot now be allowed to retreat and claim that the southwestern monsoon was a
"storm."

The pieces of evidence with respect to the weather conditions encountered by the vessel showed that
there was a southwestern monsoon at the time. Normally expected on sea voyages, however, were
such monsoons, during which strong winds were not unusual. Rosa S. Barba, weather specialist of the
Philippine Atmospheric Geophysical and Astronomical Services Administration (PAGASA), testified that
a thunderstorm might occur in the midst of a southwest monsoon. According to her, one did occur
between 8:00 p.m. on July 25, 1990, and 2 a.m. on July 26, 1990, as recorded by the PAGASA Weather
Bureau.22

Nonetheless, to our mind it would not be sufficient to categorize the weather condition at the time as a
"storm" within the absolutory causes enumerated in the law. Significantly, no typhoon was observed
within the Philippine area of responsibility during that period.23

According to PAGASA, a storm has a wind force of 48 to 55 knots,24 equivalent to 55 to 63 miles per

hour or 10 to 11 in the Beaufort Scale. The second mate of the vessel stated that the wind was blowing
around force 7 to 8 on the Beaufort Scale.25 Consequently, the strong winds accompanying the
southwestern monsoon could not be classified as a "storm." Such winds are the ordinary vicissitudes of
a sea voyage.26

Even if the weather encountered by the ship is to be deemed a natural disaster under Article 1739 of the
Civil Code, petitioner failed to show that such natural disaster or calamity was the proximate and only
cause of the loss. Human agency must be entirely excluded from the cause of injury or loss. In other
51
words, the damaging effects blamed on the event or phenomenon must not have been caused,
contributed to, or worsened by the presence of human participation.27 The defense of fortuitous event or
natural disaster cannot be successfully made when the injury could have been avoided by human
precaution.28

Hence, if a common carrier fails to exercise due diligence -- or that ordinary care that the circumstances
of the particular case demand -- to prevent or minimize the loss before, during and after the occurrence
of the natural disaster, the carrier shall be deemed to have been negligent. The loss or injury is not, in a
legal sense, due to a natural disaster under Article 1734(1).29

We also find no reason to disturb the CA’s finding that the loss of the vessel was caused not only by the
southwestern monsoon, but also by the shifting of the logs in the hold. Such shifting could been due
only to improper stowage. The assailed Decision stated:

"Notably, in Master Cahatol’s account, the vessel encountered the first southwestern monsoon
at about 1[0]:00 in the evening. The monsoon was coupled with heavy rains and rough seas yet
the vessel withstood the onslaught. The second monsoon attack occurred at about 12:00
midnight. During this occasion, the master ‘felt’ that the logs in the hold shifted, prompting him to
order second mate Percival Dayanan to look at the bodega. Complying with the captain’s order,
2nd mate Percival Dayanan found that there was seawater in the bodega. 2nd mate Dayanan’s
account was:

‘14.T – Kung inyo pong natatandaan ang mga pangyayari, maari mo bang isalaysay ang
naganap na paglubog sa barkong M/V Central Bohol?

‘S – Opo, noong ika-26 ng Julio 1990 humigit kumulang alas 1:20 ng umaga (dst)
habang kami ay nagnanabegar patungong Maynila sa tapat ng Cadlao Island at
Cauayan Island sakop ng El Nido, Palawan, inutusan ako ni Captain Enriquito Cahatol
na tingnan ko ang bodega; nang ako ay nasa bodega, nakita ko ang loob nang bodega
na maraming tubig at naririnig ko ang malakas na agos ng tubig-dagat na pumapasok sa
loob ng bodega ng barko; agad bumalik ako kay Captain Enriquito Cahatol at sinabi ko
ang malakas na pagpasok ng tubig-dagat sa loob nang bodega ng barko na ito ay naka-
tagilid humigit kumulang sa 020 degrees, nag-order si Captain Cahatol na standby
engine at tinawag ang lahat ng mga officials at mga crew nang maipon kaming lahat ang
barko ay naka-tagilid at ito ay tuloy-tuloy ang pagtatagilid na ang ilan sa mga officials ay
naka-hawak na sa barandilla ng barko at di-nagtagal sumigaw nang ABANDO[N] SHIP
si Captain Cahatol at kami ay nagkanya-kanya nang talunan at languyan sa dagat na
malakas ang alon at nang ako ay lumingon sa barko ito ay di ko na nakita.’

"Additionally, [petitioner’s] own witnesses, boatswain Eduardo Viñas Castro and oiler Frederick
Perena, are one in saying that the vessel encountered two weather disturbances, one at around
10 o’clock to 11 o’clock in the evening and the other at around 12 o’clock midnight. Both
disturbances were coupled with waves and heavy rains, yet, the vessel endured the first and not
the second. Why? The reason is plain. The vessel felt the strain during the second onslaught
because the logs in the bodega shifted and there were already seawater that seeped inside."30

The above conclusion is supported by the fact that the vessel proceeded through the first southwestern
monsoon without any mishap, and that it began to list only during the second monsoon immediately
after the logs had shifted and seawater had entered the hold. In the hold, the sloshing of tons of water
back and forth had created pressures that eventually caused the ship to sink. Had the logs not shifted,
the ship could have survived and reached at least the port of El Nido. In fact, there was another motor
launch that had been buffeted by the same weather condition within the same area, yet it was able to
arrive safely at El Nido.31

52
In its Answer, petitioner categorically admitted the allegation of respondent in paragraph 5 of the latter’s
Complaint "[t]hat at about 0125 hours on 26 July 1990, while enroute to Manila, the M/V ‘Central Bohol’
listed about 10 degrees starboardside, due to the shifting of logs in the hold." Further, petitioner averred
that "[t]he vessel, while navigating through this second southwestern monsoon, was under extreme
stress. At about 0125 hours, 26 July 1990, a thud was heard in the cargo hold and the logs therein were
felt to have shifted. The vessel thereafter immediately listed by ten (10) degrees starboardside."32

Yet, petitioner now claims that the CA’s conclusion was grounded on mere speculations and
conjectures. It alleges that it was impossible for the logs to have shifted, because they had fitted exactly
in the hold from the port to the starboard side.

After carefully studying the records, we are inclined to believe that the logs did indeed shift, and that
they had been improperly loaded.

According to the boatswain’s testimony, the logs were piled properly, and the entire shipment was
lashed to the vessel by cable wire.33 The ship captain testified that out of the 376 pieces of round logs,
around 360 had been loaded in the lower hold of the vessel and 16 on deck. The logs stored in the
lower hold were not secured by cable wire, because they fitted exactly from floor to ceiling. However,
while they were placed side by side, there were unavoidable clearances between them owing to their
round shape. Those loaded on deck were lashed together several times across by cable wire, which
had a diameter of 60 millimeters, and were secured from starboard to port.34

It is obvious, as a matter of common sense, that the manner of stowage in the lower hold was not
sufficient to secure the logs in the event the ship should roll in heavy weather. Notably, they were of
different lengths ranging from 3.7 to 12.7 meters.35 Being clearly prone to shifting, the round logs should
not have been stowed with nothing to hold them securely in place. Each pile of logs should have been
lashed together by cable wire, and the wire fastened to the side of the hold. Considering the strong force
of the wind and the roll of the waves, the loose arrangement of the logs did not rule out the possibility of
their shifting. By force of gravity, those on top of the pile would naturally roll towards the bottom of the
ship.

The adjuster’s Report, which was heavily relied upon by petitioner to strengthen its claim that the logs
had not shifted, stated that "the logs were still properly lashed by steel chains on deck." Parenthetically,
this statement referred only to those loaded on deck and did not mention anything about the condition of
those placed in the lower hold. Thus, the finding of the surveyor that the logs were still intact clearly
pertained only to those lashed on deck.

The evidence indicated that strong southwest monsoons were common occurrences during the month
of July. Thus, the officers and crew of M/V Central Bohol should have reasonably anticipated heavy
rains, strong winds and rough seas. They should then have taken extra precaution in stowing the logs in
the hold, in consonance with their duty of observing extraordinary diligence in safeguarding the goods.
But the carrier took a calculated risk in improperly securing the cargo. Having lost that risk, it cannot
now escape responsibility for the loss.

Second Issue:

Doctrine of Limited Liability

The doctrine of limited liability under Article 587 of the Code of Commerce36 is not applicable to the
present case. This rule does not apply to situations in which the loss or the injury is due to the
concurrent negligence of the shipowner and the captain.37 It has already been established that the
sinking of M/V Central Bohol had been caused by the fault or negligence of the ship captain and the
crew, as shown by the improper stowage of the cargo of logs. "Closer supervision on the part of the

53
shipowner could have prevented this fatal miscalculation."38 As such, the shipowner was equally
negligent. It cannot escape liability by virtue of the limited liability rule.

WHEREFORE, the Petition is DENIED, and the assailed Decision and Resolution AFFIRMED. Costs
against petitioner.

SO ORDERED.

G.R. No. 150255. April 22, 2005

SCHMITZ TRANSPORT & BROKERAGE CORPORATION, Petitioners, vs.
TRANSPORT VENTURE, INC., INDUSTRIAL INSURANCE COMPANY, LTD., and BLACK SEA
SHIPPING AND DODWELL now INCHCAPE SHIPPING SERVICES, Respondents.

On petition for review is the June 27, 2001 Decision of the Court of Appeals, as well as its
1 

Resolution dated September 28, 2001 denying the motion for reconsideration, which affirmed that of
2 

Branch 21 of the Regional Trial Court (RTC) of Manila in Civil Case No. 92-63132 holding petitioner
3 

Schmitz Transport Brokerage Corporation (Schmitz Transport), together with Black Sea Shipping
Corporation (Black Sea), represented by its ship agent Inchcape Shipping Inc. (Inchcape), and
Transport Venture (TVI), solidarily liable for the loss of 37 hot rolled steel sheets in coil that were
washed overboard a barge.

On September 25, 1991, SYTCO Pte Ltd. Singapore shipped from the port of Ilyichevsk, Russia on
board M/V "Alexander Saveliev" (a vessel of Russian registry and owned by Black Sea) 545 hot rolled
steel sheets in coil weighing 6,992,450 metric tons.

The cargoes, which were to be discharged at the port of Manila in favor of the consignee, Little Giant
Steel Pipe Corporation (Little Giant), were insured against all risks with Industrial Insurance Company
4 

Ltd. (Industrial Insurance) under Marine Policy No. M-91-3747-TIS. 5

The vessel arrived at the port of Manila on October 24, 1991 and the Philippine Ports Authority (PPA)
assigned it a place of berth at the outside breakwater at the Manila South Harbor. 6

Schmitz Transport, whose services the consignee engaged to secure the requisite clearances, to
receive the cargoes from the shipside, and to deliver them to its (the consignee’s) warehouse at Cainta,
Rizal, in turn engaged the services of TVI to send a barge and tugboat at shipside.
7 

On October 26, 1991, around 4:30 p.m., TVI’s tugboat "Lailani" towed the barge "Erika V" to shipside. 8

By 7:00 p.m. also of October 26, 1991, the tugboat, after positioning the barge alongside the vessel, left
and returned to the port terminal. At 9:00 p.m., arrastre operator Ocean Terminal Services Inc.
9 

commenced to unload 37 of the 545 coils from the vessel unto the barge.

By 12:30 a.m. of October 27, 1991 during which the weather condition had become inclement due to an
approaching storm, the unloading unto the barge of the 37 coils was accomplished. No tugboat pulled
10 

the barge back to the pier, however.

At around 5:30 a.m. of October 27, 1991, due to strong waves, the crew of the barge abandoned it and
11 

transferred to the vessel. The barge pitched and rolled with the waves and eventually capsized, washing
the 37 coils into the sea. At 7:00 a.m., a tugboat finally arrived to pull the already empty and damaged
12 

barge back to the pier.13

54
Earnest efforts on the part of both the consignee Little Giant and Industrial Insurance to recover the lost
cargoes proved futile.14

Little Giant thus filed a formal claim against Industrial Insurance which paid it the amount of
₱5,246,113.11. Little Giant thereupon executed a subrogation receipt in favor of Industrial Insurance.
15 

Industrial Insurance later filed a complaint against Schmitz Transport, TVI, and Black Sea through its
representative Inchcape (the defendants) before the RTC of Manila, for the recovery of the amount it
paid to Little Giant plus adjustment fees, attorney’s fees, and litigation expenses.
16

Industrial Insurance faulted the defendants for undertaking the unloading of the cargoes while typhoon
signal No. 1 was raised in Metro Manila. 17

By Decision of November 24, 1997, Branch 21 of the RTC held all the defendants negligent for
unloading the cargoes outside of the breakwater notwithstanding the storm signal. The dispositive
18 

portion of the decision reads:

WHEREFORE, premises considered, the Court renders judgment in favor of the plaintiff, ordering the
defendants to pay plaintiff jointly and severally the sum of ₱5,246,113.11 with interest from the date the
complaint was filed until fully satisfied, as well as the sum of ₱5,000.00 representing the adjustment fee
plus the sum of 20% of the amount recoverable from the defendants as attorney’s fees plus the costs of
suit. The counterclaims and cross claims of defendants are hereby DISMISSED for lack of [m]erit. 19

To the trial court’s decision, the defendants Schmitz Transport and TVI filed a joint motion for
reconsideration assailing the finding that they are common carriers and the award of excessive
attorney’s fees of more than ₱1,000,000. And they argued that they were not motivated by gross or
evident bad faith and that the incident was caused by a fortuitous event.  20

By resolution of February 4, 1998, the trial court denied the motion for reconsideration.  21

All the defendants appealed to the Court of Appeals which, by decision of June 27, 2001, affirmed in
toto the decision of the trial court,  it finding that all the defendants were common carriers — Black Sea
22 

and TVI for engaging in the transport of goods and cargoes over the seas as a regular business and not
as an isolated transaction, and Schmitz Transport for entering into a contract with Little Giant to
23 

transport the cargoes from ship to port for a fee. 24

In holding all the defendants solidarily liable, the appellate court ruled that "each one was essential such
that without each other’s contributory negligence the incident would not have happened and so much so
that the person principally liable cannot be distinguished with sufficient accuracy."
25

In discrediting the defense of fortuitous event, the appellate court held that "although defendants
obviously had nothing to do with the force of nature, they however had control of where to anchor the
vessel, where discharge will take place and even when the discharging will commence." 26

The defendants’ respective motions for reconsideration having been denied by Resolution of 27 

September 28, 2001, Schmitz Transport (hereinafter referred to as petitioner) filed the present petition
against TVI, Industrial Insurance and Black Sea.

Petitioner asserts that in chartering the barge and tugboat of TVI, it was acting for its principal,
consignee Little Giant, hence, the transportation contract was by and between Little Giant and TVI. 28

By Resolution of January 23, 2002, herein respondents Industrial Insurance, Black Sea, and TVI were
required to file their respective Comments. 29

55
By its Comment, Black Sea argued that the cargoes were received by the consignee through petitioner
in good order, hence, it cannot be faulted, it having had no control and supervision thereover. 30

For its part, TVI maintained that it acted as a passive party as it merely received the cargoes and
transferred them unto the barge upon the instruction of petitioner. 31

In issue then are:

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

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

When a fortuitous event occurs, Article 1174 of the Civil Code absolves any party from any and all
liability arising therefrom:

ART. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which though foreseen, were inevitable.

In order, to be considered a fortuitous event, however, (1) the cause of the unforeseen and unexpected
occurrence, or the failure of the debtor to comply with his obligation, must be independent of human will;
(2) it must be impossible to foresee the event which constitute the caso fortuito, or if it can be foreseen it
must be impossible to avoid; (3) the occurrence must be such as to render it impossible for the debtor to
fulfill his obligation in any manner; and (4) the obligor must be free from any participation in the
aggravation of the injury resulting to the creditor.
32

[T]he principle embodied in the act of God doctrine strictly requires that the act must be occasioned
solely by the violence of nature. Human intervention is to be excluded from creating or entering into the
cause of the mischief. When the effect is found to be in part the result of the participation of man,
whether due to his active intervention or neglect or failure to act, the whole occurrence is then
humanized and removed from the rules applicable to the acts of God. 33

The appellate court, in affirming the finding of the trial court that human intervention in the form of
contributory negligence by all the defendants resulted to the loss of the cargoes, held that unloading
34 

outside the breakwater, instead of inside the breakwater, while a storm signal was up constitutes
negligence. It thus concluded that the proximate cause of the loss was Black Sea’s negligence in
35 

deciding to unload the cargoes at an unsafe place and while a typhoon was approaching. 36

From a review of the records of the case, there is no indication that there was greater risk in loading the
cargoes outside the breakwater. As the defendants proffered, the weather on October 26, 1991
remained normal with moderate sea condition such that port operations continued and proceeded
normally.37

The weather data report, furnished and verified by the Chief of the Climate Data Section of PAG-ASA
38 

and marked as a common exhibit of the parties, states that while typhoon signal No. 1 was hoisted over
Metro Manila on October 23-31, 1991, the sea condition at the port of Manila at 5:00 p.m. - 11:00 p.m.
of October 26, 1991 was moderate. It cannot, therefore, be said that the defendants were negligent in
not unloading the cargoes upon the barge on October 26, 1991 inside the breakwater.

That no tugboat towed back the barge to the pier after the cargoes were completely loaded by 12:30 in
the morning is, however, a material fact which the appellate court failed to properly consider and
39 

appreciate — the proximate cause of the loss of the cargoes. Had the barge been towed back promptly
40 

56
to the pier, the deteriorating sea conditions notwithstanding, the loss could have been avoided. But the
barge was left floating in open sea until big waves set in at 5:30 a.m., causing it to sink along with the
cargoes. The loss thus falls outside the "act of God doctrine."
41 

The proximate cause of the loss having been determined, who among the parties is/are responsible
therefor?

Contrary to petitioner’s insistence, this Court, as did the appellate court, finds that petitioner is a
common carrier. For it undertook to transport the cargoes from the shipside of "M/V Alexander Saveliev"
to the consignee’s warehouse at Cainta, Rizal. As the appellate court put it, "as long as a person or
corporation holds [itself] to the public for the purpose of transporting goods as [a] business, [it] is already
considered a common carrier regardless if [it] owns the vehicle to be used or has to hire one." That
42 

petitioner is a common carrier, the testimony of its own Vice-President and General Manager Noel Aro
that part of the services it offers to its clients as a brokerage firm includes the transportation of cargoes
reflects so.

Atty. Jubay: Will you please tell us what [are you] functions x x x as Executive Vice-President and
General Manager of said Company?

Mr. Aro: Well, I oversee the entire operation of the brokerage and transport business of the company. I
also handle the various division heads of the company for operation matters, and all other related
functions that the President may assign to me from time to time, Sir.

Q: Now, in connection [with] your duties and functions as you mentioned, will you please tell the
Honorable Court if you came to know the company by the name Little Giant Steel Pipe Corporation?

A: Yes, Sir. Actually, we are the brokerage firm of that Company.

Q: And since when have you been the brokerage firm of that company, if you can recall?

A: Since 1990, Sir.

Q: Now, you said that you are the brokerage firm of this Company. What work or duty did you perform in
behalf of this company?

A: We handled the releases (sic) of their cargo[es] from the Bureau of Customs. We [are] also in-
charged of the delivery of the goods to their warehouses. We also handled the clearances of their
shipment at the Bureau of Customs, Sir.

xxx

Q: Now, what precisely [was] your agreement with this Little Giant Steel Pipe Corporation with regards
to this shipment? What work did you do with this shipment?

A: We handled the unloading of the cargo[es] from vessel to lighter and then the delivery of [the]
cargo[es] from lighter to BASECO then to the truck and to the warehouse, Sir.

Q: Now, in connection with this work which you are doing, Mr. Witness, you are supposed to perform,
what equipment do (sic) you require or did you use in order to effect this unloading, transfer and delivery
to the warehouse?

A: Actually, we used the barges for the ship side operations, this unloading [from] vessel to lighter, and
on this we hired or we sub-contracted with [T]ransport Ventures, Inc. which [was] in-charged (sic) of the
57
barges. Also, in BASECO compound we are leasing cranes to have the cargo unloaded from the barge
to trucks, [and] then we used trucks to deliver [the cargoes] to the consignee’s warehouse, Sir.

Q: And whose trucks do you use from BASECO compound to the consignee’s warehouse?

A: We utilized of (sic) our own trucks and we have some other contracted trucks, Sir.

xxx

ATTY. JUBAY: Will you please explain to us, to the Honorable Court why is it you have to contract for
the barges of Transport Ventures Incorporated in this particular operation?

A: Firstly, we don’t own any barges. That is why we hired the services of another firm whom we know
[al]ready for quite sometime, which is Transport Ventures, Inc. (Emphasis supplied) 43

It is settled that under a given set of facts, a customs broker may be regarded as a common carrier.
Thus, this Court, in A.F. Sanchez Brokerage, Inc. v. The Honorable Court of Appeals, held:44 

The appellate court did not err in finding petitioner, a customs broker, to be also a common carrier, as
defined under Article 1732 of the Civil Code, to wit,

Art. 1732. Common carriers are persons, corporations, firms or associations engaged in the business of
carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering
their services to the public.

xxx

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

And in Calvo v. UCPB General Insurance Co. Inc., this Court held that as the transportation of goods is
46 

an integral part of a customs broker, the customs broker is also a common carrier. For to declare
otherwise "would be to deprive those with whom [it] contracts the protection which the law affords them
notwithstanding the fact that the obligation to carry goods for [its] customers, is part and parcel of
petitioner’s business."
47

As for petitioner’s argument that being the agent of Little Giant, any negligence it committed was
deemed the negligence of its principal, it does not persuade.

True, petitioner was the broker-agent of Little Giant in securing the release of the cargoes. In effecting
the transportation of the cargoes from the shipside and into Little Giant’s warehouse, however, petitioner
was discharging its own personal obligation under a contact of carriage.

Petitioner, which did not have any barge or tugboat, engaged the services of TVI as handler to provide
48 

the barge and the tugboat. In their Service Contract, while Little Giant was named as the consignee,
49 

petitioner did not disclose that it was acting on commission and was chartering the vessel for Little
Giant. Little Giant did not thus automatically become a party to the Service Contract and was not,
50 

therefore, bound by the terms and conditions therein.

58
Not being a party to the service contract, Little Giant cannot directly sue TVI based thereon but it can
maintain a cause of action for negligence. 51

In the case of TVI, while it acted as a private carrier for which it was under no duty to observe
extraordinary diligence, it was still required to observe ordinary diligence to ensure the proper and
careful handling, care and discharge of the carried goods.

Thus, Articles 1170 and 1173 of the Civil Code provide:

ART. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay,
and those who in any manner contravene the tenor thereof, are liable for damages.

ART. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is
required by the nature of the obligation and corresponds with the circumstances of the persons, of the
time and of the place. When negligence shows bad faith, the provisions of articles 1171 and 2202,
paragraph 2, shall apply.

If the law or contract does not state the diligence which is to be observed in the performance, that which
is expected of a good father of a family shall be required.

Was the reasonable care and caution which an ordinarily prudent person would have used in the same
situation exercised by TVI? 52

This Court holds not.

TVI’s failure to promptly provide a tugboat did not only increase the risk that might have been
reasonably anticipated during the shipside operation, but was the proximate cause of the loss. A man
of ordinary prudence would not leave a heavily loaded barge floating for a considerable number of
hours, at such a precarious time, and in the open sea, knowing that the barge does not have any power
of its own and is totally defenseless from the ravages of the sea. That it was nighttime and, therefore,
the members of the crew of a tugboat would be charging overtime pay did not excuse TVI from calling
for one such tugboat.

As for petitioner, for it to be relieved of liability, it should, following Article 1739 of the Civil Code, prove
53 

that it exercised due diligence to prevent or minimize the loss, before, during and after the occurrence of
the storm in order that it may be exempted from liability for the loss of the goods.

While petitioner sent checkers and a supervisor on board the vessel to counter-check the operations of
54  55 

TVI, it failed to take all available and reasonable precautions to avoid the loss. After noting that TVI
failed to arrange for the prompt towage of the barge despite the deteriorating sea conditions, it should
have summoned the same or another tugboat to extend help, but it did not.

This Court holds then that petitioner and TVI are solidarily liable for the loss of the cargoes. The
56 

following pronouncement of the Supreme Court is instructive:

The foundation of LRTA’s liability is the contract of carriage and its obligation to indemnify the victim
arises from the breach of that contract by reason of its failure to exercise the high diligence required of
the common carrier. In the discharge of its commitment to ensure the safety of passengers, a carrier
may choose to hire its own employees or avail itself of the services of an outsider or an independent
firm to undertake the task. In either case, the common carrier is not relieved of its responsibilities under
the contract of carriage.

59
Should Prudent be made likewise liable? If at all, that liability could only be for tort under the provisions
of Article 2176 and related provisions, in conjunction with Article 2180 of the Civil Code. x x x [O]ne
might ask further, how then must the liability of the common carrier, on one hand, and an independent
contractor, on the other hand, be described? It would be solidary. A contractual obligation can be
breached by tort and when the same act or omission causes the injury, one resulting in culpa
contractual and the other in culpa aquiliana, Article 2194 of the Civil Code can well apply. In fine, a
liability for tort may arise even under a contract, where tort is that which breaches the contract. Stated
differently, when an act which constitutes a breach of contract would have itself constituted the source
of a quasi-delictual liability had no contract existed between the parties, the contract can be said to have
been breached by tort, thereby allowing the rules on tort to apply. 57

As for Black Sea, its duty as a common carrier extended only from the time the goods were surrendered
or unconditionally placed in its possession and received for transportation until they were delivered
actually or constructively to consignee Little Giant. 58

Parties to a contract of carriage may, however, agree upon a definition of delivery that extends the
services rendered by the carrier. In the case at bar, Bill of Lading No. 2 covering the shipment provides
that delivery be made "to the port of discharge or so near thereto as she may safely get, always
afloat." The delivery of the goods to the consignee was not from "pier to pier" but from the shipside of
59 

"M/V Alexander Saveliev" and into barges, for which reason the consignee contracted the services of
petitioner. Since Black Sea had constructively delivered the cargoes to Little Giant, through petitioner, it
had discharged its duty. 60

In fine, no liability may thus attach to Black Sea.

Respecting the award of attorney’s fees in an amount over ₱1,000,000.00 to Industrial Insurance, for
lack of factual and legal basis, this Court sets it aside. While Industrial Insurance was compelled to
litigate its rights, such fact by itself does not justify the award of attorney’s fees under Article 2208 of the
Civil Code. For no sufficient showing of bad faith would be reflected in a party’s persistence in a case
other than an erroneous conviction of the righteousness of his cause. To award attorney’s fees to a
61 

party just because the judgment is rendered in its favor would be tantamount to imposing a premium on
one’s right to litigate or seek judicial redress of legitimate grievances. 62

On the award of adjustment fees: The adjustment fees and expense of divers were incurred by
Industrial Insurance in its voluntary but unsuccessful efforts to locate and retrieve the lost cargo. They
do not constitute actual damages. 63

As for the court a quo’s award of interest on the amount claimed, the same calls for modification
following the ruling in Eastern Shipping Lines, Inc. v. Court of Appeals that when the demand cannot be
64 

reasonably established at the time the demand is made, the interest shall begin to run not from the time
the claim is made judicially or extrajudicially but from the date the judgment of the court is made (at
which the time the quantification of damages may be deemed to have been reasonably ascertained). 65

WHEREFORE, judgment is hereby rendered ordering petitioner Schmitz Transport & Brokerage
Corporation, and Transport Venture Incorporation jointly and severally liable for the amount of
₱5,246,113.11 with the MODIFICATION that interest at SIX PERCENT per annum of the amount due
should be computed from the promulgation on November 24, 1997 of the decision of the trial court.

Costs against petitioner.

SO ORDERED.

60
G.R. No. 136960               December 8, 2003
IRON BULK SHIPPING PHILIPPINES, CO., LTD., petitioner, vs.
REMINGTON INDUSTRIAL SALES CORPORATION, respondent.

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the August
28, 1998 Decision and the December 24, 1998 Resolution of the Court of Appeals in CA-G.R. CV No.
1 

49725, affirming in toto the decision of the Regional Trial Court of Manila (Branch 9).
2 

The factual background of the case is summarized by the appellate court, thus:

Sometime in the latter part of 1991, plaintiff Remington Industrial Sales Corporation (hereafter
Remington for short) ordered from defendant Wangs Company, Inc. (hereafter Wangs for short) 194
packages of hot rolled steel sheets, weighing 686.565 metric tons, with a total value of $219,380.00,
then equivalent to ₱6,469,759.17. Wangs forwarded the order to its supplier, Burwill (Agencies) Ltd., in
Hongkong. On or about November 26, 1991, the 194 packages were loaded on board the vessel MV
‘Indian Reliance’ at the Port of Gdynia, Poland, for transportation to the Philippines, under Bill of Lading
No. 27 (Exh. ‘C’). The vessel’s owner/charterer is represented in the Philippines by defendant Iron Bulk
Shipping Phils., Inc. (hereafter Iron Bulk for short).

Remington had the cargo insured for ₱6,469,759.17 during the voyage by Marine Insurance Policy No.
7741 issued by defendant Pioneer Asia Insurance Corporation (hereafter Pioneer for short).

On or about January 3, 1992, the MV ‘Indian Reliance’ arrived in the Port of Manila, and the 194
packages of hot rolled steel sheets were discharged from the vessel. The cargo was inspected twice by
SGS Far East Ltd. and found to be wet (with slight trace of salt) and rusty, extending from 50% to 80%
of each plate. Plaintiff filed formal claims for loss amounting to ₱544,875.17 with Pioneer, Iron Bulk,
Manila Port Services, Inc. (MPS) and ESE Brokerage Corporation (ESE). No one honored such claims.

Thus, plaintiff filed an action for collection, plus attorney’s fees, against Wangs, Pioneer and Iron
Bulk. . . ."3

and affirmed in toto the following findings of the trial court, on February 1, 1995, to wit:

The evidence on record shows that the direct and immediate cause of the rusting of the goods imported
by the plaintiff was the water found inside the cargo hold of M/V ‘Indian Reliance’ wherein those goods
were stored during the voyage, particularly the water found on the surface of the merchandise and on
the floor of the vessel hatch. And even at the time the cargoes were being unloaded by crane at the Pier
of Manila, Iron Bulk’s witnesses noticed that water was dripping from the cargoes. (TSN dated July 20,
1993, pp. 13-14; TSN dated May 30, 1994, pp. 8-9, 14, 24-25; TSN dated June 3, 1994, pp. 31-32; TSN
dated July 14, 1994, pp. 10-11).

SGS Far East Limited, an inspection agency hired by defendant Wangs, issued Certificate of Inspection
and Analysis No 6401/35071 stating the following findings:

Results of tests indicated that a very slight trace of salt was present in the sample as confirmed by the
test of Sodium. The results however does not necessarily indicate that the rusty condition of the material
was caused by seawater.

Tan-Gatue Adjustment Co., Inc., a claims adjustment firm hired by defendant Pioneer, submitted a
Report (Exh. 10-Pioneer) dated February 20, 1992 to Pioneer which pertinently reads as follows:

61
All the above 3,971 sheets were heavily rusty at sides/ends/edges/surfaces. Pieces of cotton were
rubbed by us on different rusty steel sheets and submitted to Precision Analytical Services, Inc. to
determine the cause of wetting. Result thereof as per Laboratory Report No. 077-92 of this firm showed
that: ‘The sample was wetted/contaminated by fresh water.

After considering the foregoing test results and the other evidence on record, the Court found no clear
and sufficient proof showing that the water which stayed in the cargo hold of the vessel and which
contaminated the merchandise was seawater. The Court, however, is convinced that the subject goods
were exposed to salt conditions as evidenced by the presence of about 17% Sodium on the rust sample
tested by SGS.

As to the source of the water found in the cargo hold, there is also no concrete and competent evidence
on record establishing that such water leaked from the pipe installed in Hatch No. 1 of M/V ‘Indian
Reliance’, as claimed by plaintiff. Indeed, the plaintiff based such claim only from information it allegedly
received from its supplier, as stated in its letter to defendant Iron Bulk dated March 28, 1992 (Exh. K-3).
And no one took the witness stand to confirm or establish the alleged leakage.

Nevertheless, since Iron Bulk’s own evidence shows that there was water inside the cargo hold of the
vessel and that the goods stored therein were wet and full of rust, without sufficient explanation on its
part as to when and how water found its way into the vessel holds, the Court finds and so holds that Iron
Bulk failed to exercise the extraordinary diligence required by law in the handling and transporting of the
goods.

.....

Iron Bulk did not even exercise due diligence because admittedly, water was dripping from the cargoes
at the time they were being discharged from the vessel. Had Iron Bulk done so, it could have discovered
by ordinary inspection that the cargo holds and the cargoes themselves were affected by water and it
could have provided some remedial measures to prevent or minimize the damage to the cargoes. But it
did not, showing its lack of care and diligence over the goods.

Besides, since the goods were undoubtedly damaged, and as Iron Bulk failed to establish by any clear
and convincing evidence any of the exempting causes provided for in Article 1734 of the Civil Code, it is
presumed to have been at fault or to have acted negligently.

.....

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

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

a) ₱544,875.17 representing the loss allowance for the goods insured, plus interest at
the legal rate (6% p.a.) reckoned from the time of filing of this case until full payment is
made;

b) ₱50,000.00 for and as attorney’s fees; and

c) the cost of suit.

2. Ordering defendant Iron Bulk Shipping Co. Inc. immediately upon payment by defendant Pioneer of
the foregoing award to the plaintiff, to reimburse defendant Pioneer the total amount it paid to the
plaintiff, in respect to its right of subrogation.
62
3. Denying the counterclaims of all the defendants and the cross-claim of defendant Wangs Company,
Incorporated and Iron Bulk Shipping Co., Inc. for lack of merit.

4. Granting the cross-claim of defendant Pioneer Asia Insurance Corporation against defendant Iron
Bulk by virtue of its right of subrogation.

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

SO ORDERED. 4

Only Iron Bulk filed the present petition raising the following Assignment of Errors:

FIRSTLY, the Court of Appeals erred in its insistent reliance on the pro forma Bills of Lading to
establish the condition of the cargo upon loading;

SECONDLY, the Court of Appeals erred in not exculpating petitioner since the cargo was not
contaminated during the time the same was in possession of the vessel, as evidenced by the
express finding of the lower court that the contamination and rusting was chemically established
to have been caused by fresh water;

THRIDLY, the Court of Appeals erred in making a sweeping finding that the petitioner as carrier
failed to exercise the requisite diligence under the law, which is contrary to what is demonstrated
by the evidence adduced; and

FINALLY, the Court of Appeals erred in affirming the amount of damages adjudicated by the
Court below, which is at best speculative and not supported by damages. 5

The general rule is that only questions of law are entertained in petitions for review by certiorari under
Rule 45 of the Rules of Court. The trial court’s findings of fact, which the Court of Appeals affirmed, are
generally binding and conclusive upon this court. There are recognized exceptions to this rule, among
6 

which are: (1) the conclusion is grounded on speculations, surmises or conjectures; (2) the inference is
manifestly mistaken, absurd or impossible; (3) there is grave abuse of discretion; (4) the judgment is
based on a misapprehension of facts; (5) the findings of facts are conflicting; (6) there is no citation of
specific evidence on which the factual findings are based; (7) the finding of absence of facts is
contradicted by the presence of evidence on record; (8) the findings of the CA are contrary to the
findings of the trial court; (9) the CA manifestly overlooked certain relevant and undisputed facts that, if
properly considered, would justify a different conclusion; (10) the findings of the CA are beyond the
issues of the case; and (11) such findings are contrary to the admissions of both parties. Petitioner
7 

failed to demonstrate that its petition falls under any one of the above exceptions, except as to damages
which will be discussed forthwith.

Anent the first assigned error: That the Court of Appeals erred in relying on the pro forma Bills of Lading
to establish the condition of the cargo upon landing.

There is no merit to petitioner’s contention that the Bill of Lading covering the subject cargo cannot be
relied upon to indicate the condition of the cargo upon loading. It is settled that a bill of lading has a two-
fold character. In Phoenix Assurance Co., Ltd. vs. United States Lines, we held that:

[A] bill of lading operates both as a receipt and as a contract. It is a receipt for the goods shipped and a
contract to transport and deliver the same as therein stipulated. As a receipt, it recites the date and
place of shipment, describes the goods as to quantity, weight, dimensions, identification marks and
condition, quality and value. As a contract, it names the contracting parties, which include the

63
consignee, fixes the route, destination, and freight rate or charges, and stipulates the rights and
obligations assumed by the parties. 8

We find no error in the findings of the appellate court that the questioned bill of lading is a clean bill of
lading, i.e., it does not indicate any defect in the goods covered by it, as shown by the notation, "CLEAN
ON BOARD" and "Shipped at the Port of Loading in apparent good condition on board the vessel for
9 

carriage to Port of Discharge". 10

Petitioner presented evidence to prove that, contrary to the recitals contained in the subject bill of lading,
the cargo therein described as clean on board is actually wet and covered with rust. Indeed, having the
nature of a receipt, or an acknowledgement of the quantity and condition of the goods delivered, the bill
of lading, like any other receipts, may be explained, varied or even contradicted. However, we agree
11 

with the Court of Appeals that far from contradicting the recitals contained in the said bill, petitioner’s
own evidence shows that the cargo covered by the subject bill of lading, although it was partially wet
and covered with rust was, nevertheless, found to be in a "fair, usually accepted condition" when it was
accepted for shipment. 12

The fact that the issued bill of lading is pro forma is of no moment. If the bill of lading is not truly
reflective of the true condition of the cargo at the time of loading to the effect that the said cargo was
indeed in a damaged state, the carrier could have refused to accept it, or at the least, made a marginal
note in the bill of lading indicating the true condition of the merchandise. But it did not. On the contrary, it
accepted the subject cargo and even agreed to the issuance of a clean bill of lading without taking any
exceptions with respect to the recitals contained therein. Since the carrier failed to annotate in the bill of
lading the alleged damaged condition of the cargo when it was loaded, said carrier and the petitioner, as
its representative, are bound by the description appearing therein and they are now estopped from
denying the contents of the said bill.

Petitioner presented in evidence the Mate’s Receipts and a Survey Report to prove the damaged
13  14 

condition of the cargo. However, contrary to the asseveration of petitioner, the Mate’s Receipts and the
Survey Report which were both dated November 6, 1991, are unreliable evidence of the true condition
of the shipment at the time of loading since said receipts and report were issued twenty days prior to
loading and before the issuance of the clean bill of lading covering the subject cargo on November 26,
1991. Moreover, while the surveyor, commissioned by the carrier to inspect the subject cargo, found the
inspected steel goods to be contaminated with rust he, nonetheless, estimated the merchandise to be in
a fair and usually accepted condition.

Anent the second and third assigned errors: That the Court of Appeals erred in not finding that the
contamination and rusting was chemically to have been caused by fresh water; and that the appellate
court erred in finding that petitioner failed to exercise the requisite diligence under the law.

Petitioner’s arguments in support of the assigned errors are not plausible. Even granting, for the sake of
argument, that the subject cargo was already in a damaged condition at the time it was accepted for
transportation, the carrier is not relieved from its responsibility to exercise due care in handling the
merchandise and in employing the necessary precautions to prevent the cargo from further
deteriorating. It is settled that the extraordinary diligence in the vigilance over the goods tendered for
shipment requires the common carrier to know and to follow the required precaution for avoiding
damage to, or destruction of the goods entrusted to it for safe carriage and delivery. It requires common
15 

carriers to render service with the greatest skill and foresight and to use all reasonable means to
ascertain the nature and characteristic of goods tendered for shipment, and to exercise due care in the
handling and stowage, including such methods as their nature requires. Under Article 1742 of the Civil
16 

Code, even if the loss, destruction, or deterioration of the goods should be caused, among others, by
the character of the goods, the common carrier must exercise due diligence to forestall or lessen the
loss. This extraordinary responsibility lasts from the time the goods are unconditionally placed in the
possession of, and received by the carrier for transportation until the same are delivered, actually or
64
constructively, by the carrier to the consignee, or to the person who has a right to receive them. In the
17 

instant case, if the carrier indeed found the steel sheets to have been covered by rust at the time that it
accepted the same for transportation, such finding should have prompted it to apply additional safety
measures to make sure that the cargo is protected from corrosion. This, the carrier failed to do.

Article 1734 of the Civil Code states that:

Common carriers are responsible for the loss, destruction or deterioration of the goods, unless the same
is due to any of the following causes only:

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

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

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

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

(5) Order or act of competent public authority.

Except in the cases mentioned under Article 1734, if the goods are lost, destroyed or deteriorated,
common carriers are presumed to have been at fault or to have acted negligently, unless they prove that
they observed extraordinary diligence as required under the law. The Court of Appeals did not err in
18 

finding that no competent evidence was presented to prove that the deterioration of the subject cargo
was brought about by any of the causes enumerated under the aforequoted Article 1734 of the said
Code. We likewise agree with appellate court’s finding that the carrier failed to present proof that it
exercised extraordinary diligence in its vigilance over the goods. The presumption that the carrier was at
fault or that it acted negligently was not overcome by any countervailing evidence.

Anent the last assigned error: That the Court of Appeals erred in affirming the amount of damages
awarded by the trial court.

We agree with the contention of the petitioner in its last assigned error that the amount of damages
adjudicated by the trial court and affirmed by the appellate court is not in consonance with the evidence
presented by the parties. The judgments of both lower courts are based on misapprehension of facts as
we find no competent evidence to prove the actual damages sustained by respondent.

Based on the Packing List issued by Burwill (Agencies) Limited, the supplier of the steel sheets, the
cargo consigned to Remington consisted of hot rolled steel sheets with lengths of eight feet and twenty
feet. The eight-foot length steel sheets contained in 142 packages had a weight of 491.54 metric tons
while the twenty-foot steel sheets which were contained in 52 packages weighed 194.25 metric
tons. The goods were valued at $320.00 per metric ton.
19  20

It is not disputed that at the time of inspection of the subject merchandise conducted by SGS Far East
Limited on January 21-24, 1992 and January 27-28, 1992, only 30% of said goods originally consigned
to Remington was available for examination at Remington’s warehouse in Manila and that Remington
had already disposed of the remaining 70%. In the Certificate of Inspection issued by SGS, dated
February 18, 1992, it was reported that the surface of the steel sheets with length of twenty feet were
found to be rusty "extending from 60% to 80% per plate". However, there was no proof to show how
21 

many metric tons of twenty-foot and eight-foot length steel sheets, respectively, comprise the remaining
30% of the cargo. No competent evidence was presented to prove the weight of the remaining twenty-
foot length steel sheets, on the basis of which the amount of actual damages could have been
ascertained.
65
Remington claims that 70% of the twenty-foot length steel sheets were damaged. Remington’s general
manager, Rowina Tan Saban, testified that the "70%" figure was based on the reports submitted by
SGS and Tan-Gatue and Remington’s independent survey to confirm these reports. Saban further
22 

testified that on the basis of these reports, Remington came up with a summary of the amount of
damages sustained by the subject cargo, to wit:

Plates 8 ft lengths 491.540 MT - US$157,292.80

Quantity Damaged 25%

Loss Allowance 13%

Total Plates 8 ft lengths US$ 15,211.56

Plates 20 ft lengths 194.025 MT - US$ 62,088.00

Quantity Damaged 70%

Loss Allowance 35%

Total Plates 20 ft lengths ₱544,875.71

with the following detailed computation:

Plates under 8 ft lengths 491.540 MT @ $320./MT

US $157,292.80

Multiply by 25% Qty. damaged $ 39,323.20

13% Loss allowance $ 5,112.02

Plates under 20 ft. lengths 194.025 MT @ $320./MT

US $ 62,088.00

Multiple 70% Qty. damaged US $ 43,461.60

35% Loss allowance $ 15,211.56

Total claim US $ 5,112.02

$15,211.56

US $20,323.58 @ $26.81 = ₱544,875.17

and which the trial court based the actual damages awarded in favor of Remington.

However, after a careful examination of the reports submitted by SGS and Tan-Gatue, we find nothing
in the said reports and computation to justify the claim of Remington that 70% of the twenty-foot length
steel sheets were damaged. Neither does the alleged survey conducted by Remington consisting only
of photographs, prove the quantity of the damaged cargo.
23 

As to the eight-foot length steel sheets, SGS reported that they were found oiled all over which makes it
hard to determine the rust condition on its surface. On the other hand, the report issued by Tan-Gatue
24 

66
did not specify the extent of damage done to the said merchandise. There is also no proof of the weight
25 

of the remaining eight-foot length steel sheets. From the foregoing, it is evident that the extent of actual
damage to the subject cargo is likewise not satisfactorily proven.

It is settled that actual or compensatory damages are not presumed and should be proven before they
are awarded. In Spouses Quisumbing vs. Meralco , we held that
26 

Actual damages are compensation for an injury that will put the injured party in the position where it was
before it was injured. They pertain to such injuries or losses that are actually sustained and susceptible
of measurement. Except as provided by law or stipulation, a party is entitled to an adequate
compensation only for such pecuniary loss as it has duly proven.

Hence, for failure of Remington to present sufficient evidence which is susceptible of measurement, it is
not entitled to actual damages.

Nonetheless, since it was established that the subject steel sheets sustained damage by reason of the
negligence of the carrier, albeit no competent proof was presented to justify the award of actual
damages, we find that Remington is entitled to temperate damages in accordance with Articles 2216,
2224 and 2225 of the Civil Code, to wit:

Art. 2216. No proof of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or
exemplary damages may be adjudicated. The assessment of such damages, except liquidated ones, is
left to the discretion of the court, according to the circumstances of each case.

Art. 2224. Temperate or moderate damages, which are more than nominal but less than compensatory
damages, may be recovered when the court finds that some pecuniary loss has been suffered but its
amount cannot, from the nature of the case, be proved with certainty.

Art. 2225. Temperate damages must be reasonable under the circumstances. 1âwphi1

Thirty percent of the alleged cost of damages, i.e., ₱544, 875.17 or ₱165,000.00 is reasonable enough
for temperate damages.

We likewise agree with petitioner’s claim that it should not be held liable for the payment of attorney’s
fees because it was always willing to settle its liability by offering to pay 30% of Remington’s claim and
that it is only Remington’s unwarranted refusal to accept such offer that led to the filing of the instant
case. As found earlier, there is no evidence that the 70% of the 20-foot length steel sheets which had
been disposed of had been damaged. Neither is there competent evidence proving the actual extent of
damage sustained by the eight-foot length steel sheets. Petitioner was therefore justified in refusing to
satisfy the full amount of Remington’s claims.

WHEREFORE, the assailed Decision of the Court of Appeals dated August 28, 1998 and the Resolution
dated December 24, 1998, in CA-G.R. CV No. 49725 are MODIFIED as follows: The award of actual
damages and attorney’s fees are deleted. Respondent is awarded temperate damages in the amount of
₱165,000.00. In all other respects, the appealed decision and resolution are affirmed.

No pronouncement as to costs.

SO ORDERED.

G.R. No. 147079             December 21, 2004

67
A.F. SANCHEZ BROKERAGE INC., petitioners, vs.
THE HON. COURT OF APPEALS and FGU INSURANCE CORPORATION, respondents.

Before this Court on a petition for Certiorari is the appellate court’s Decision of August 10, 2000
1 

reversing and setting aside the judgment of Branch 133, Regional Trial Court of Makati City, in Civil
Case No. 93-76B which dismissed the complaint of respondent FGU Insurance Corporation (FGU
Insurance) against petitioner A.F. Sanchez Brokerage, Inc. (Sanchez Brokerage).

On July 8, 1992, Wyeth-Pharma GMBH shipped on board an aircraft of KLM Royal Dutch Airlines at
Dusseldorf, Germany oral contraceptives consisting of 86,800 Blisters Femenal tablets, 14,000 Blisters
Nordiol tablets and 42,000 Blisters Trinordiol tablets for delivery to Manila in favor of the consignee,
Wyeth-Suaco Laboratories, Inc. The Femenal tablets were placed in 124 cartons and the Nordiol tablets
2 

were placed in 20 cartons which were packed together in one (1) LD3 aluminum container, while the
Trinordial tablets were packed in two pallets, each of which contained 30 cartons. 3

Wyeth-Suaco insured the shipment against all risks with FGU Insurance which issued Marine Risk Note
No. 4995 pursuant to Marine Open Policy No. 138. 4

Upon arrival of the shipment on July 11, 1992 at the Ninoy Aquino International Airport (NAIA), it was 5 

discharged "without exception" and delivered to the warehouse of the Philippine Skylanders, Inc. (PSI)
6 

located also at the NAIA for safekeeping. 7

In order to secure the release of the cargoes from the PSI and the Bureau of Customs, Wyeth-Suaco
engaged the services of Sanchez Brokerage which had been its licensed broker since 1984. As its 8 

customs broker, Sanchez Brokerage calculates and pays the customs duties, taxes and storage fees for
the cargo and thereafter delivers it to Wyeth-Suaco. 9

On July 29, 1992, Mitzi Morales and Ernesto Mendoza, representatives of Sanchez Brokerage, paid PSI
storage fee amounting to P8,572.35 a receipt for which, Official Receipt No. 016992, was issued. On
10 

the receipt, another representative of Sanchez Brokerage, M. Sison, acknowledged that he received the
11 

cargoes consisting of three pieces in good condition. 12

Wyeth-Suaco being a regular importer, the customs examiner did not inspect the cargoes which were 13 

thereupon stripped from the aluminum containers and loaded inside two transport vehicles hired by
14 

Sanchez Brokerage. 15

Among those who witnessed the release of the cargoes from the PSI warehouse were Ruben Alonso
and Tony Akas, employees of Elite Adjusters and Surveyors Inc. (Elite Surveyors), a marine and cargo
16 

surveyor and insurance claim adjusters firm engaged by Wyeth-Suaco on behalf of FGU Insurance.

Upon instructions of Wyeth-Suaco, the cargoes were delivered to Hizon Laboratories Inc. in Antipolo
City for quality control check. The delivery receipt, bearing No. 07037 dated July 29, 1992, indicated
17 

that the delivery consisted of one container with 144 cartons of Femenal and Nordiol and 1 pallet
containing Trinordiol. 18

On July 31, 1992, Ronnie Likas, a representative of Wyeth-Suaco, acknowledged the delivery of the
cargoes by affixing his signature on the delivery receipt. Upon inspection, however, he, together with
19 

Ruben Alonzo of Elite Surveyors, discovered that 44 cartons containing Femenal and Nordiol tablets
were in bad order. He thus placed a note above his signature on the delivery receipt stating that 44
20 

cartons of oral contraceptives were in bad order. The remaining 160 cartons of oral contraceptives were
accepted as complete and in good order.

68
Ruben Alonzo thus prepared and signed, along with Ronnie Likas, a survey report dated July 31, 1992
21 

stating that 41 cartons of Femenal tablets and 3 cartons of Nordiol tablets were "wetted" (sic). 22

The Elite Surveyors later issued Certificate No. CS-0731-1538/92 attached to which was an "Annexed
23 

Schedule" whereon it was indicated that prior to the loading of the cargoes to the broker’s trucks at the
NAIA, they were inspected and found to be in "apparent good condition." Also noted was that at the
24 

time of delivery to the warehouse of Hizon Laboratories Inc., slight to heavy rains fell, which could
account for the wetting of the 44 cartons of Femenal and Nordiol tablets. 25

On August 4, 1992, the Hizon Laboratories Inc. issued a Destruction Report confirming that 38 x 700
26 

blister packs of Femenal tablets, 3 x 700 blister packs of Femenal tablets and 3 x 700 blister packs of
Nordiol tablets were heavily damaged with water and emitted foul smell.

On August 5, 1992, Wyeth-Suaco issued a Notice of Materials Rejection of 38 cartons of Femenal and
27 

3 cartons of Nordiol on the ground that they were "delivered to Hizon Laboratories with heavy water
damaged (sic) causing the cartons to sagged (sic) emitting a foul order and easily attracted flies." 28

Wyeth-Suaco later demanded, by letter of August 25, 1992, from Sanchez Brokerage the payment
29 

of P191,384.25 representing the value of its loss arising from the damaged tablets.

As the Sanchez Brokerage refused to heed the demand, Wyeth-Suaco filed an insurance claim against
FGU Insurance which paid Wyeth-Suaco the amount of P181,431.49 in settlement of its claim under
Marine Risk Note Number 4995.

Wyeth-Suaco thus issued Subrogation Receipt in favor of FGU Insurance.

30 

On demand by FGU Insurance for payment of the amount of P181,431.49 it paid Wyeth-Suaco,
Sanchez Brokerage, by letter of January 7, 1993, disclaimed liability for the damaged goods, positing
31 

that the damage was due to improper and insufficient export packaging; that when the sealed containers
were opened outside the PSI warehouse, it was discovered that some of the loose cartons were
wet, prompting its (Sanchez Brokerage’s) representative Morales to inform the Import-Export Assistant
32 

of Wyeth-Suaco, Ramir Calicdan, about the condition of the cargoes but that the latter advised to still
deliver them to Hizon Laboratories where an adjuster would assess the damage. 33

Hence, the filing by FGU Insurance of a complaint for damages before the Regional Trial Court of
Makati City against the Sanchez Brokerage.

The trial court, by Decision of July 29, 1996, dismissed the complaint, holding that the Survey Report
34 

prepared by the Elite Surveyors is bereft of any evidentiary support and a mere product of pure
guesswork. 35

On appeal, the appellate court reversed the decision of the trial court, it holding that the Sanchez
Brokerage engaged not only in the business of customs brokerage but also in the transportation and
delivery of the cargo of its clients, hence, a common carrier within the context of Article 1732 of the New
Civil Code.36

Noting that Wyeth-Suaco adduced evidence that the cargoes were delivered to petitioner in good order
and condition but were in a damaged state when delivered to Wyeth-Suaco, the appellate court held
that Sanchez Brokerage is presumed negligent and upon it rested the burden of proving that it exercised
extraordinary negligence not only in instances when negligence is directly proven but also in those
cases when the cause of the damage is not known or unknown. 37

The appellate court thus disposed:

69
 IN THE LIGHT OF ALL THE FOREGOING, the appeal of the Appellant is GRANTED. The
Decision of the Court a quo is REVERSED. Another Decision is hereby rendered in favor of the
Appellant and against the Appellee as follows:

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

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

3. The counterclaims of the Appellee are DISMISSED. 38

Sanchez Brokerage’s Motion for Reconsideration having been denied by the appellate court’s
Resolution of December 8, 2000 which was received by petitioner on January 5, 2001, it comes to this
Court on petition for certiorari filed on March 6, 2001.

In the main, petitioner asserts that the appellate court committed grave and reversible error tantamount
to abuse of discretion when it found petitioner a "common carrier" within the context of Article 1732 of
the New Civil Code.

Respondent FGU Insurance avers in its Comment that the proper course of action which petitioner
should have taken was to file a petition for review on certiorari since the sole office of a writ of certiorari
is the correction of errors of jurisdiction including the commission of grave abuse of discretion
amounting to lack or excess of jurisdiction and does not include correction of the appellate court’s
evaluation of the evidence and factual findings thereon.

On the merits, respondent FGU Insurance contends that petitioner, as a common carrier, failed to
overcome the presumption of negligence, it being documented that petitioner withdrew from the
warehouse of PSI the subject shipment entirely in good order and condition. 39

The petition fails.

Rule 45 is clear that decisions, final orders or resolutions of the Court of Appeals in any
case, i.e., regardless of the nature of the action or proceedings involved, may be appealed to this Court
by filing a petition for review, which would be but a continuation of the appellate process over the
original case.40

The Resolution of the Court of Appeals dated December 8, 2000 denying the motion for reconsideration
of its Decision of August 10, 2000 was received by petitioner on January 5, 2001. Since petitioner failed
to appeal within 15 days or on or before January 20, 2001, the appellate court’s decision had become
final and executory. The filing by petitioner of a petition for certiorari on March 6, 2001 cannot serve as a
substitute for the lost remedy of appeal.

In another vein, the rule is well settled that in a petition for certiorari, the petitioner must prove not
merely reversible error but also grave abuse of discretion amounting to lack or excess of jurisdiction.

Petitioner alleges that the appellate court erred in reversing and setting aside the decision of the trial
court based on its finding that petitioner is liable for the damage to the cargo as a common carrier. What
petitioner is ascribing is an error of judgment, not of jurisdiction, which is properly the subject of an
ordinary appeal.

70
Where the issue or question involves or affects the wisdom or legal soundness of the decision – not the
jurisdiction of the court to render said decision – the same is beyond the province of a petition
for certiorari. The supervisory jurisdiction of this Court to issue a cert writ cannot be exercised in order
41 

to review the judgment of lower courts as to its intrinsic correctness, either upon the law or the facts of
the case. 42

Procedural technicalities aside, the petition still fails.

The appellate court did not err in finding petitioner, a customs broker, to be also a common carrier, as
defined under Article 1732 of the Civil Code, to wit:

Art. 1732. Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public.

Anacleto F. Sanchez, Jr., the Manager and Principal Broker of Sanchez Brokerage, himself testified that
the services the firm offers include the delivery of goods to the warehouse of the consignee or importer.

ATTY. FLORES:

Q: What are the functions of these license brokers, license customs broker?

WITNESS:

As customs broker, we calculate the taxes that has to be paid in cargos, and those upon
approval of the importer, we prepare the entry together for processing and claims from customs
and finally deliver the goods to the warehouse of the importer. 43

Article 1732 does not distinguish between one whose principal business activity is the carrying of goods
and one who does such carrying only as an ancillary activity. The contention, therefore, of petitioner
44 

that it is not a common carrier but a customs broker whose principal function is to prepare the correct
customs declaration and proper shipping documents as required by law is bereft of merit. It suffices that
petitioner undertakes to deliver the goods for pecuniary consideration.

In this light, petitioner as a common carrier is mandated to observe, under Article 1733 of the Civil
45 

Code, extraordinary diligence in the vigilance over the goods it transports according to all the
circumstances of each case. In the event that the goods are lost, destroyed or deteriorated, it is
presumed to have been at fault or to have acted negligently, unless it proves that it observed
extraordinary diligence. 46

The concept of "extra-ordinary diligence" was explained in Compania Maritima v. Court of Appeals: 47

The extraordinary diligence in the vigilance over the goods tendered for shipment requires the
common carrier to know and to follow the required precaution for avoiding damage to, or
destruction of the goods entrusted to it for sale, carriage and delivery. It requires common
carriers to render service with the greatest skill and foresight and "to use all reasonable means
to ascertain the nature and characteristics of goods tendered for shipment, and to exercise due
care in the handling and stowage, including such methods as their nature requires." 48

In the case at bar, it was established that petitioner received the cargoes from the PSI warehouse in
NAIA in good order and condition; and that upon delivery by petitioner to Hizon Laboratories Inc., some
49 

of the cargoes were found to be in bad order, as noted in the Delivery Receipt issued by petitioner, and
50 

71
as indicated in the Survey Report of Elite Surveyors and the Destruction Report of Hizon Laboratories,
51 

Inc. 52

In an attempt to free itself from responsibility for the damage to the goods, petitioner posits that they
were damaged due to the fault or negligence of the shipper for failing to properly pack them and to the
inherent characteristics of the goods ; and that it should not be faulted for following the instructions of
53 

Calicdan of Wyeth-Suaco to proceed with the delivery despite information conveyed to the latter that
some of the cartons, on examination outside the PSI warehouse, were found to be wet. 54

While paragraph No. 4 of Article 1734 of the Civil Code exempts a common carrier from liability if the
55 

loss or damage is due to the character of the goods or defects in the packing or in the containers, the
rule is that if the improper packing is known to the carrier or his employees or is apparent upon ordinary
observation, but he nevertheless accepts the same without protest or exception notwithstanding such
condition, he is not relieved of liability for the resulting damage.
56

If the claim of petitioner that some of the cartons were already damaged upon delivery to it were true,
then it should naturally have received the cargo under protest or with reservations duly noted on the
receipt issued by PSI. But it made no such protest or reservation. 57

Moreover, as observed by the appellate court, if indeed petitioner’s employees only examined the
cargoes outside the PSI warehouse and found some to be wet, they would certainly have gone back to
PSI, showed to the warehouseman the damage, and demanded then and there for Bad Order
documents or a certification confirming the damage. Or, petitioner would have presented, as witness,
58 

the employees of the PSI from whom Morales and Domingo took delivery of the cargo to prove that,
indeed, part of the cargoes was already damaged when the container was allegedly opened outside the
warehouse. 59

Petitioner goes on to posit that contrary to the report of Elite Surveyors, no rain fell that day. Instead, it
asserts that some of the cargoes were already wet on delivery by PSI outside the PSI warehouse but
such notwithstanding Calicdan directed Morales to proceed with the delivery to Hizon Laboratories, Inc.

While Calicdan testified that he received the purported telephone call of Morales on July 29, 1992, he
failed to specifically declare what time he received the call. As to whether the call was made at the PSI
warehouse when the shipment was stripped from the airport containers, or when the cargoes were
already in transit to Antipolo, it is not determinable. Aside from that phone call, petitioner admitted that it
had no documentary evidence to prove that at the time it received the cargoes, a part of it was wet,
damaged or in bad condition. 60

The 4-page weather data furnished by PAGASA on request of Sanchez Brokerage hardly impresses,
61 

no witness having identified it and interpreted the technical terms thereof.

The possibility on the other hand that, as found by Hizon Laboratories, Inc., the oral contraceptives were
damaged by rainwater while in transit to Antipolo City is more likely then. Sanchez himself testified that
in the past, there was a similar instance when the shipment of Wyeth-Suaco was also found to be wet
by rain.

ATTY. FLORES:

Q: Was there any instance that a shipment of this nature, oral contraceptives, that arrived at the
NAIA were damaged and claimed by the Wyeth-Suaco without any question?

WITNESS:

72
 A: Yes sir, there was an instance that one cartoon (sic) were wetted (sic) but Wyeth-Suaco did
not claim anything against us.

ATTY. FLORES:

Q: HOW IS IT?

WITNESS:

A: We experienced, there was a time that we experienced that there was a cartoon (sic)  wetted
(sic) up to the bottom are wet specially during rainy season. 62

Since petitioner received all the cargoes in good order and condition at the time they were turned over
by the PSI warehouseman, and upon their delivery to Hizon Laboratories, Inc. a portion thereof was
found to be in bad order, it was incumbent on petitioner to prove that it exercised extraordinary diligence
in the carriage of the goods. It did not, however. Hence, its presumed negligence under Article 1735 of
the Civil Code remains unrebutted.

WHEREFORE, the August 10, 2000 Decision of the Court of Appeals is hereby AFFIRMED.

Costs against petitioner.

SO ORDERED.

G.R. No. L-48757 May 30, 1988

MAURO GANZON, petitioner, vs.
COURT OF APPEALS and GELACIO E. TUMAMBING, respondents.

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

On November 28, 1956, Gelacio Tumambing contracted the services of Mauro B. Ganzon to haul 305
tons of scrap iron from Mariveles, Bataan, to the port of Manila on board the lighter LCT "Batman"
(Exhibit 1, Stipulation of Facts, Amended Record on Appeal, p. 38). Pursuant to that agreement, Mauro
B. Ganzon sent his lighter "Batman" to Mariveles where it docked in three feet of water (t.s.n.,
September 28, 1972, p. 31). On December 1, 1956, Gelacio Tumambing delivered the scrap iron to
defendant Filomeno Niza, captain of the lighter, for loading which was actually begun on the same date
by the crew of the lighter under the captain's supervision. When about half of the scrap iron was already
loaded (t.s.n., December 14, 1972, p. 20), Mayor Jose Advincula of Mariveles, Bataan, arrived and
demanded P5,000.00 from Gelacio Tumambing. The latter resisted the shakedown and after a heated
argument between them, Mayor Jose Advincula drew his gun and fired at Gelacio Tumambing (t.s.n.,
March 19, 1971, p. 9; September 28, 1972, pp. 6-7). The gunshot was not fatal but Tumambing had to
<äre||anº•1àw> 

be taken to a hospital in Balanga, Bataan, for treatment (t.s.n., March 19, 1971, p. 13; September 28,
1972, p. 15).

After sometime, the loading of the scrap iron was resumed. But on December 4, 1956, Acting Mayor
Basilio Rub, accompanied by three policemen, ordered captain Filomeno Niza and his crew to dump the
scrap iron (t.s.n., June 16, 1972, pp. 8-9) where the lighter was docked (t.s.n., September 28, 1972, p.
31). The rest was brought to the compound of NASSCO (Record on Appeal, pp. 20-22). Later on Acting
Mayor Rub issued a receipt stating that the Municipality of Mariveles had taken custody of the scrap iron
(Stipulation of Facts, Record on Appeal, p. 40; t.s.n., September 28, 1972, p. 10.)

73
On the basis of the above findings, the respondent Court rendered a decision, the dispositive portion of
which states:

WHEREFORE, the decision appealed from is hereby reversed and set aside and a new
one entered ordering defendant-appellee Mauro Ganzon to pay plaintiff-appellant
Gelacio E. Tumambimg the sum of P5,895.00 as actual damages, the sum of P5,000.00
as exemplary damages, and the amount of P2,000.00 as attorney's fees. Costs against
defendant-appellee Ganzon.  3

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

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

II

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

III

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

The petitioner, in his first assignment of error, insists that the scrap iron had not been unconditionally
placed under his custody and control to make him liable. However, he completely agrees with the
respondent Court's finding that on December 1, 1956, the private respondent delivered the scraps to
Captain Filomeno Niza for loading in the lighter "Batman," That the petitioner, thru his employees,
actually received the scraps is freely admitted. Significantly, there is not the slightest allegation or
showing of any condition, qualification, or restriction accompanying the delivery by the private
respondent-shipper of the scraps, or the receipt of the same by the petitioner. On the contrary, soon
after the scraps were delivered to, and received by the petitioner-common carrier, loading was
commenced.

By the said act of delivery, the scraps were unconditionally placed in the possession and control of the
common carrier, and upon their receipt by the carrier for transportation, the contract of carriage was
deemed perfected. Consequently, the petitioner-carrier's extraordinary responsibility for the loss,
destruction or deterioration of the goods commenced. Pursuant to Art. 1736, such extraordinary
responsibility would cease only upon the delivery, actual or constructive, by the carrier to the consignee,
or to the person who has a right to receive them.   The fact that part of the shipment had not been
5

loaded on board the lighter did not impair the said contract of transportation as the goods remained in
the custody and control of the carrier, albeit still unloaded.

The petitioner has failed to show that the loss of the scraps was due to any of the following causes
enumerated in Article 1734 of the Civil Code, namely:

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

74
(2) Act of the public enemy in war, whether international or civil;

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

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

(5) Order or act of competent public authority.

Hence, the petitioner is presumed to have been at fault or to have acted negligently.   By reason of this
6

presumption, the court is not even required to make an express finding of fault or negligence before it
could hold the petitioner answerable for the breach of the contract of carriage. Still, the petitioner could
have been exempted from any liability had he been able to prove that he observed extraordinary
diligence in the vigilance over the goods in his custody, according to all the circumstances of the case,
or that the loss was due to an unforeseen event or to force majeure. As it was, there was hardly any
attempt on the part of the petitioner to prove that he exercised such extraordinary diligence.

It is in the second and third assignments of error where the petitioner maintains that he is exempt from
any liability because the loss of the scraps was due mainly to the intervention of the municipal officials of
Mariveles which constitutes a caso fortuito as defined in Article 1174 of the Civil Code.  7

We cannot sustain the theory of caso fortuito. In the courts below, the petitioner's defense was that the
loss of the scraps was due to an "order or act of competent public authority," and this contention was
correctly passed upon by the Court of Appeals which ruled that:

... In the second place, before the appellee Ganzon could be absolved from
responsibility on the ground that he was ordered by competent public authority to unload
the scrap iron, it must be shown that Acting Mayor Basilio Rub had the power to issue
the disputed order, or that it was lawful, or that it was issued under legal process of
authority. The appellee failed to establish this. Indeed, no authority or power of the
acting mayor to issue such an order was given in evidence. Neither has it been shown
that the cargo of scrap iron belonged to the Municipality of Mariveles. What we have in
the record is the stipulation of the parties that the cargo of scrap iron was accilmillated
by the appellant through separate purchases here and there from private individuals
(Record on Appeal, pp. 38-39). The fact remains that the order given by the acting
mayor to dump the scrap iron into the sea was part of the pressure applied by Mayor
Jose Advincula to shakedown the appellant for P5,000.00. The order of the acting mayor
did not constitute valid authority for appellee Mauro Ganzon and his representatives to
carry out.

Now the petitioner is changing his theory to caso fortuito. Such a change of theory on appeal we cannot,
however, allow. In any case, the intervention of the municipal officials was not In any case, of a
character that would render impossible the fulfillment by the carrier of its obligation. The petitioner was
not duty bound to obey the illegal order to dump into the sea the scrap iron. Moreover, there is absence
of sufficient proof that the issuance of the same order was attended with such force or intimidation as to
completely overpower the will of the petitioner's employees. The mere difficulty in the fullfilment of the
obligation is not considered force majeure. We agree with the private respondent that the scraps could
have been properly unloaded at the shore or at the NASSCO compound, so that after the dispute with
the local officials concerned was settled, the scraps could then be delivered in accordance with the
contract of carriage.

There is no incompatibility between the Civil Code provisions on common carriers and Articles 361   and 8

362   of the Code of Commerce which were the basis for this Court's ruling in Government of the
9

Philippine Islands vs. Ynchausti & Co.10 and which the petitioner invokes in tills petition. For Art. 1735
of the Civil Code, conversely stated, means that the shipper will suffer the losses and deterioration
75
arising from the causes enumerated in Art. 1734; and in these instances, the burden of proving that
damages were caused by the fault or negligence of the carrier rests upon him. However, the carrier
must first establish that the loss or deterioration was occasioned by one of the excepted causes or was
due to an unforeseen event or to force majeure. Be that as it may, insofar as Art. 362 appears to require
of the carrier only ordinary diligence, the same is .deemed to have been modified by Art. 1733 of the
Civil Code.

Finding the award of actual and exemplary damages to be proper, the same will not be disturbed by us.
Besides, these were not sufficiently controverted by the petitioner.

WHEREFORE, the petition is DENIED; the assailed decision of the Court of Appeals is hereby
AFFIRMED. Costs against the petitioner.

This decision is IMMEDIATELY EXECUTORY.

G.R. No. L-18965            October 30, 1964

COMPAÑIA MARITIMA, petitioner, vs.
INSURANCE COMPANY OF NORTH AMERICA, respondent.

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
76
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
77
 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).

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:

78
 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

79
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.

G.R. No. L-9840             April 22, 1957

LU DO & LU YM CORPORATION, petitioner-defendant, vs.
I. V. BINAMIRA, respondent-plaintiff.

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
80
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.

81
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.)

(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-36481-2 October 23, 1982

AMPARO C. SERVANDO, CLARA UY BICO, plaintiffs-appellees, vs.
PHILIPPINE STEAM NAVIGATION CO., defendant-appellant.

This appeal, originally brought to the Court of Appeals, seeks to set aside the decision of the Court of
First Instance of Negros Occidental in Civil Cases Nos. 7354 and 7428, declaring appellant Philippine
Steam Navigation liable for damages for the loss of the appellees' cargoes as a result of a fire which
gutted the Bureau of Customs' warehouse in Pulupandan, Negros Occidental.

The Court of Appeals certified the case to Us because only pure questions of law are raised therein.

82
The facts culled from the pleadings and the stipulations submitted by the parties are as follows:

On November 6, 1963, appellees Clara Uy Bico and Amparo Servando loaded on board the appellant's
vessel, FS-176, for carriage from Manila to Pulupandan, Negros Occidental, the following cargoes, to
wit:

Clara Uy Bico —

1,528 cavans of rice valued

at P40,907.50;

Amparo Servando —

44 cartons of colored paper,

toys and general merchandise valued at P1,070.50;

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

Upon arrival of the vessel at Pulupandan, in the morning of November 18, 1963, the cargoes were
discharged, complete and in good order, unto the warehouse of the Bureau of Customs. At about 2:00 in the
afternoon of the same day, said warehouse was razed by a fire of unknown origin, destroying appellees'
cargoes. Before the fire, however, appellee Uy Bico was able to take delivery of 907 cavans of
rice 2 Appellees' claims for the value of said goods were rejected by the appellant.

On the bases of the foregoing facts, the lower court rendered a decision, the decretal portion of which
reads as follows:

WHEREFORE, judgment is rendered as follows:

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

2. In case No. 7428, the defendant is hereby ordered to pay to plaintiff Clara Uy Bico the
aggregate sum of P16,625.00 with legal interest thereon from the date of the filing of the
complaint until fully paid, and to pay the costs.

Article 1736 of the Civil Code imposes upon common carriers the duty to observe extraordinary
diligence from the moment the goods are unconditionally placed in their possession "until the same are
delivered, actually or constructively, by the carrier to the consignee or to the person who has a right to
receive them, without prejudice to the provisions of Article 1738. "

The court a quo held that the delivery of the shipment in question to the warehouse of the Bureau of
Customs is not the delivery contemplated by Article 1736; and since the burning of the warehouse
occurred before actual or constructive delivery of the goods to the appellees, the loss is chargeable
against the appellant.

It should be pointed out, however, that in the bills of lading issued for the cargoes in question, the
parties agreed to limit the responsibility of the carrier for the loss or damage that may be caused to the
shipment by inserting therein the following stipulation:

83
 Clause 14. Carrier shall not be responsible for loss or damage to shipments billed
'owner's risk' unless such loss or damage is due to negligence of carrier. Nor shall
carrier be responsible for loss or damage caused by force majeure, dangers or accidents
of the sea or other waters; war; public enemies; . . . fire . ...

We sustain the validity of the above stipulation; there is nothing therein that is contrary to law, morals or
public policy.

Appellees would contend that the above stipulation does not bind them because it was printed in fine
letters on the back-of the bills of lading; and that they did not sign the same. This argument overlooks
the pronouncement of this Court in Ong Yiu vs. Court of Appeals, promulgated June 29, 1979, 3 where
the same issue was resolved in this wise:

While it may be true that petitioner had not signed the plane ticket (Exh. '12'), he is
nevertheless bound by the provisions thereof. 'Such provisions have been held to be a
part of the contract of carriage, and valid and binding upon the passenger regardless of
the latter's lack of knowledge or assent to the regulation'. It is what is known as a
contract of 'adhesion', in regards which it has been said that contracts of adhesion
wherein one party imposes a ready made form of contract on the other, as the plane
ticket in the case at bar, are contracts not entirely prohibited. The one who adheres to
the contract is in reality free to reject it entirely; if he adheres, he gives his consent."
(Tolentino, Civil Code, Vol. IV, 1962 Ed., p. 462, citing Mr. Justice J.B.L. Reyes,
Lawyer's Journal, Jan. 31, 1951, p. 49).

Besides, the agreement contained in the above quoted Clause 14 is a mere iteration of the basic
principle of law written in Article 1 1 7 4 of the Civil Code:

Article 1174. Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the assumption of
risk, no person shall be responsible for those events which could not be foreseen, or
which, though foreseen, were inevitable.

Thus, where fortuitous event or force majeure is the immediate and proximate cause of the loss, the
obligor is exempt from liability for non-performance. The Partidas, 4 the antecedent of Article 1174 of the
Civil Code, defines 'caso fortuito' as 'an event that takes place by accident and could not have been foreseen.
Examples of this are destruction of houses, unexpected fire, shipwreck, violence of robbers.'

In its dissertation of the phrase 'caso fortuito' the Enciclopedia Juridicada Espanola 5 says: "In a legal
sense and, consequently, also in relation to contracts, a 'caso fortuito' presents the following essential
characteristics: (1) the cause of the unforeseen and unexpected occurrence, or of the failure of the debtor to
comply with his obligation, must be independent of the human will; (2) it must be impossible to foresee the
event which constitutes the 'caso fortuito', or if it can be foreseen, it must be impossible to avoid; (3) the
occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner;
and (4) the obligor must be free from any participation in the aggravation of the injury resulting to the
creditor." In the case at bar, the burning of the customs warehouse was an extraordinary event which
happened independently of the will of the appellant. The latter could not have foreseen the event.

There is nothing in the record to show that appellant carrier ,incurred in delay in the performance of its
obligation. It appears that appellant had not only notified appellees of the arrival of their shipment, but
had demanded that the same be withdrawn. In fact, pursuant to such demand, appellee Uy Bico had
taken delivery of 907 cavans of rice before the burning of the warehouse.

Nor can the appellant or its employees be charged with negligence. The storage of the goods in the
Customs warehouse pending withdrawal thereof by the appellees was undoubtedly made with their
84
knowledge and consent. Since the warehouse belonged to and was maintained by the government, it
would be unfair to impute negligence to the appellant, the latter having no control whatsoever over the
same.

The lower court in its decision relied on the ruling laid down in Yu Biao Sontua vs. Ossorio 6, where this
Court held the defendant liable for damages arising from a fire caused by the negligence of the defendant's
employees while loading cases of gasoline and petroleon products. But unlike in the said case, there is not a
shred of proof in the present case that the cause of the fire that broke out in the Custom's warehouse was in
any way attributable to the negligence of the appellant or its employees. Under the circumstances, the
appellant is plainly not responsible.

WHEREFORE, the judgment appealed from is hereby set aside. No costs.

SO ORDERED.

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.

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. 1 The goods were however never delivered to, nor received by, the consignee at the port of destination —
Davao.

When the letters of complaint sent to defendants failed to elicit the desired response, consignee herein
appellee, filed a formal claim for P1,691.93, the equivalent of $424.00 at the prevailing rate of exchange
at that time, against the former, but neither paid. Hence, the filing of the instant suit to enforce payment.
Defendants-appellants brought in AMCYL as third party defendant.

The trial court rendered judgment in favor of plaintiff, ordering defendants to pay the amount of
P1,691.93 plus attorney's fees and costs. However, the Court stated that defendants may recoup
whatever they may pay plaintiff by enforcing the judgment against third party defendant AMCYL which
had earlier been declared in default. Only the defendants appealed from said decision.

The issue at hand demands a close scrutiny of Bill of Lading No. 18 and its various clauses and
stipulations which should be examined in the light of pertinent legal provisions and settled jurisprudence.
This undertaking is not only proper but necessary as well because of the nature of the bill of lading
which operates both as a receipt for the goods; and more importantly, as a contract to transport and
deliver the same as stipulated therein.   Being a contract, it is the law between the parties thereto   who
2 3

are bound by its terms and conditions   provided that these are not contrary to law, morals, good
4

customs, public order and public policy.  5

85
Bill of Lading No. 18 sets forth in page 2 thereof   that one (1) crate of Optima welded wedge wire sieves
6

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:  têñ.£îhqwâ£

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": têñ.£îhqwâ£

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:  têñ.£îhqwâ£

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.£îhqwâ£

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:  têñ.£îhqwâ£

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) 10

Defendants-appellants now shirk liability for the loss of the subject goods by claiming that they have
discharged the same in full and good condition unto the custody of AMCYL at the port of discharge from
ship — Manila, and therefore, pursuant to the aforequoted stipulation (Sec. 11) in the bill of lading, their
responsibility for the cargo had ceased. 11

86
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: têñ.£îhqwâ£

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

The carrier or master, in making arrangements with any person for or in connection with
all transshipping or forwarding of the goods or the use of any means of transportation or
forwarding of goods not used or operated by the carrier, shall be considered solely the
agent of the shipper and consignee and without any other responsibility whatsoever or
for the cost thereof ... (Par. 16). 12

Finding the above stipulations not contrary to law, morals, good customs, public order or public policy,
We sustained their validity 13 Applying said stipulations as the law between the parties in the aforecited
case, the Court concluded that: têñ.£îhqwâ£

... The short form Bill of Lading ( ) states in no uncertain terms that the port of discharge
of the cargo is Manila, but that the same was to be transshipped beyond the port of
discharge to Davao City. Pursuant to the terms of the long form Bill of Lading
( ), appellee's responsibility as a common carrier ceased the moment the goods were
unloaded in Manila and in the matter of transshipment, appellee acted merely as an
agent of the shipper and consignee. ... (Emphasis supplied) 14

Coming now to the case before Us, We hold, that by the authority of the above pronouncements, and in
conformity with the pertinent provisions of the New Civil Code, Section 11 of Bill of Lading No. 18 and
the third paragraph of Section 1 thereof are valid stipulations between the parties insofar as they exempt
the carrier from liability for loss or damage to the goods while the same are not in the latter's actual
custody.

The liability of the common carrier for the loss, destruction or deterioration of goods transported from a
foreign country to the Philippines is governed primarily by the New Civil Code. 15 In all matters not
regulated by said Code, the rights and obligations of common carriers shall be governed by the Code of
Commerce and by special laws. 16 A careful perusal of the provisions of the New Civil Code on
common carriers (Section 4, Title VIII, Book IV) directs our attention to Article 1736 thereof, which
reads:

Article 1736. The extraordinary responsibility of the common carrier lasts from the time
the goods are unconditionally placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or constructively, by the carrier to
the consignee, or to the person who has a right to receive them, without prejudice to the
provisions of article 1738.

Article 1738 referred to in the foregoing provision runs thus: têñ.£îhqwâ£

87
 Article 1738. The extraordinary liability of the common carrier continues to be operative
even during the time the goods are stored in a warehouse of the carrier at the place of
destination, until the consignee has been advised of the arrival of the goods and has had
reasonable opportunity thereafter to remove them or otherwise dispose of them.

There is no doubt that Art. 1738 finds no applicability to the instant case. The said article contemplates a
situation where the goods had already reached their place of destination and are stored in the
warehouse of the carrier. The subject goods were still awaiting transshipment to their port of destination,
and were stored in the warehouse of a third party when last seen and/or heard of. However, Article 1736
is applicable to the instant suit. Under said article, the carrier may be relieved of the responsibility for
loss or damage to the goods upon actual or constructive delivery of the same by the carrier to the
consignee, or to the person who has a right to receive them. In sales, actual delivery has been defined
as the ceding of corporeal possession by the seller, and the actual apprehension of corporeal
possession by the buyer or by some person authorized by him to receive the goods as his
representative for the purpose of custody or disposal. 17 By the same token, there is actual delivery in contracts for the
transport of goods when possession has been turned over to the consignee or to his duly authorized agent and a reasonable time is given him to
remove the goods. 18 The court a quo found that there was actual delivery to the consignee through its duly authorized agent, the carrier.

It becomes necessary at this point to dissect the complex relationship that had developed between
appellant and appellee in the course of the transactions that gave birth to the present suit. Two
undertakings appeared embodied and/or provided for in the Bill of Lading 19 in question. The first is
FOR THE TRANSPORT OF GOODS from Bremen, Germany to Manila. The second, THE
TRANSSHIPMENT OF THE SAME GOODS from Manila to Davao, with appellant acting as agent of the
consignee. 20 At the hiatus between these two undertakings of appellant which is the moment when the
subject goods are discharged in Manila, its personality changes from that of carrier to that of agent of
the consignee. Thus, the character of appellant's possession also changes, from possession in its own
name as carrier, into possession in the name of consignee as the latter's agent. Such being the case,
there was, in effect, actual delivery of the goods from appellant as carrier to the same appellant as
agent of the consignee. Upon such delivery, the appellant, as erstwhile carrier, ceases to be responsible
for any loss or damage that may befall the goods from that point onwards. This is the full import of
Article 1736, as applied to the case before Us.

But even as agent of the consignee, the appellant cannot be made answerable for the value of the
missing goods, It is true that the transshipment of the goods, which was the object of the agency, was
not fully performed. However, appellant had commenced said performance, the completion of which
was aborted by circumstances beyond its control. An agent who carries out the orders and instructions
of the principal without being guilty of negligence, deceit or fraud, cannot be held responsible for the
failure of the principal to accomplish the object of the agency,   This can be gleaned from the following
21

provisions of the New Civil Code on the obligations of the agent:

Article 1884. The agent is bound by his acceptance to carry out the agency, and is liable
for the damages which, through his non-performance, the principal may suffer.

xxx xxx xxx

Article 1889. The agent shall be liable for damages if, there being a conflict between his
interests and those of the principal, he should prefer his own.

Article 1892. The agent may appoint a substitute if the principal has not prohibited him
from doing so; but he shall be responsible for the acts of the substitute:

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

88
 (2) When he was given such power but without designating the person and the person
appointed was notoriously incompetent or insolvent.

xxx xxx xxx

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. 1äwphï1.ñët

G.R. No. 125524           August 25, 1999

BENITO MACAM doing bus. under the name and style BEN-MAC ENTERPRISES, petitioner, vs.
CA, CHINA OCEAN SHIPPING CO., and/or WALLEM PHILIPPINES SHIPPING, INC., respondents.

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.

89
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.

90
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

At any rate, we shall dwell on petitioner's submission only as a prelude to our discussion on the imputed
liability of respondents concerning the shipped goods. Article 1736 of the Civil Code provides —

Art. 1736. The extraordinary responsibility of the common carriers lasts from the time the goods
are unconditionally placed in the possession of, and received by the carrier for transportation
until the same are delivered, actually or constructively, by the carrier to the consignee, or to the
person who has a right to receive them, without prejudice to the provisions of article 1738.12

We emphasize that the extraordinary responsibility of the common carriers lasts until actual or
constructive delivery of the cargoes to the consignee or to the person who has a right to receive them.
PAKISTAN BANK was indicated in the bills of lading as consignee whereas GPC was the notify party.
However, in the export invoices GPC was clearly named as buyer/importer. Petitioner also referred to
GPC as such in his demand letter to respondent WALLEM and in his complaint before the trial court.
This premise draws us to conclude that the delivery of the cargoes to GPC as buyer/importer which,
conformably with Art. 1736 had, other than the consignee, the right to receive them14 was proper.

The real issue is whether respondents are liable to petitioner for releasing the goods to GPC without the
bills of lading or bank guarantee.

Respondents submitted in evidence a telex dated 5 April 1989 as basis for delivering the cargoes to
GPC without the bills of lading and bank guarantee. The telex instructed delivery of various shipments to
the respective consignees without need of presenting the bill of lading and bank guarantee per the
respective shipper's request since "for prepaid shipt ofrt charges already fully paid." Petitioner was
named therein as shipper and GPC as consignee with respect to Bill of Lading Nos. HKG 99012 and
HKG 99013. Petitioner disputes the existence of such instruction and claims that this evidence is self-
serving.

From the testimony of petitioner, we gather that he has been transacting with GPC as buyer/importer for
around two (2) or three (3) years already. When mangoes and watermelons are in season, his shipment
to GPC using the facilities of respondents is twice or thrice a week. The goods are released to GPC. It
has been the practice of petitioner to request the shipping lines to immediately release perishable
91
cargoes such as watermelons and fresh mangoes through telephone calls by himself or his "people." In
transactions covered by a letter of credit, bank guarantee is normally required by the shipping lines prior
to releasing the goods. But for buyers using telegraphic transfers, petitioner dispenses with the bank
guarantee because the goods are already fully paid. In his several years of business relationship with
GPC and respondents, there was not a single instance when the bill of lading was first presented before
the release of the cargoes. He admitted the existence of the telex of 3 July 1989 containing his request
to deliver the shipment to the consignee without presentation of the bill of lading15 but not the telex of 5
April 1989 because he could not remember having made such request.

Consider pertinent portions of petitioner's testimony —

Q: Are you aware of any document which would indicate or show that your request to the
defendant Wallem for the immediate release of your fresh fruits, perishable goods, to Great
Prospect without the presentation of the original Bill of Lading?

A: Yes, by telegraphic transfer, which means that it is fully paid. And I requested immediate
release of the cargo because there was immediate payment.

Q: And you are referring, therefore, to this copy Telex release that you mentioned where your
Company's name appears Ben-Mac?

Atty. Hernandez: Just for the record, Your Honor, the witness is showing a Bill of Lading
referring to SKG (sic) 93023 and 93026 with Great Prospect Company.

Atty. Ventura:

Q: Is that the telegraphic transfer?

A: Yes, actually, all the shippers partially request for the immediate release of the goods when
they are perishable. I thought Wallem Shipping Lines is not neophyte in the business. As far as
LC is concerned, Bank guarantee is needed for the immediate release of the goods . . . .15

Q: Mr. Witness, you testified that if is the practice of the shipper of the perishable goods to ask
the shipping lines to release immediately the shipment. Is that correct?

A: Yes, sir.

Q: Now, it is also the practice of the shipper to allow the shipping lines to release the perishable
goods to the importer of goods without a Bill of Lading or Bank guarantee?

A: No, it cannot be without the Bank Guarantee.

Atty. Hernandez:

Q: Can you tell us an instance when you will allow the release of the perishable goods by the
shipping lines to the importer without the Bank guarantee and without the Bill of Lading?

A: As far as telegraphic transfer is concerned.

Q: Can you explain (to) this Honorable Court what telegraphic transfer is?

A: Telegraphic transfer, it means advance payment that I am already fully paid . . . .

92
 Q: Mr. Macam, with regard to Wallem and to Great Prospect, would you know and can you recall
that any of your shipment was released to Great Prospect by Wallem through telegraphic
transfer?

A: I could not recall but there were so many instances sir.

Q: Mr. Witness, do you confirm before this Court that in previous shipments of your goods
through Wallem, you requested Wallem to release immediately your perishable goods to the
buyer?

A: Yes, that is the request of the shippers of the perishable goods . . . .16

Q: Now, Mr. Macam, if you request the Shipping Lines for the release of your goods immediately
even without the presentation of OBL, how do you course it?

A: Usually, I call up the Shipping Lines, sir . . . .17

Q: You also testified you made this request through phone calls. Who of you talked whenever
you made such phone call?

A: Mostly I let my people to call, sir. (sic)

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

A: Not everytime, sir.

Q: You did not make this request in writing?

A: No, sir. I think I have no written request with Wallem . . . .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
93
 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.

WHEREFORE, the petition is DENIED. The decision of respondent Court of Appeals of 13 March 1996
dismissing the complaint of petitioner Benito Macam and the counterclaims of respondents China
Ocean Shipping Co. and/or Wallem Philippines Shipping, Inc., as well as its resolution of 5 July 1996
denying reconsideration, is AFFIRMED. 1âwphi1.nêt

SO ORDERED.

G.R. No. L-16598             October 3, 1921

H. E. HEACOCK COMPANY, plaintiff-appellant, vs.
MACONDRAY & COMPANY, INC., defendant-appellant.

This action was commenced in the Court of First Instance of the City of Manila to recover the sum of
P240 together with interest thereon. The facts are stipulated by the parties, and are, briefly, as follows:

(1) On or about the 5th day of June, 1919, the plaintiff caused to be delivered on board of
steamship Bolton Castle, then in the harbor of New York, four cases of merchandise one of
which contained twelve (12) 8-day Edmond clocks properly boxed and marked for transportation
to Manila, and paid freight on said clocks from New York to Manila in advance. The said
steampship arrived in the port of Manila on or about the 10th day of September, 1919,
consigned to the defendant herein as agent and representative of said vessel in said port.
Neither the master of said vessel nor the defendant herein, as its agent, delivered to the plaintiff
the aforesaid twelve 8-day Edmond clocks, although demand was made upon them for their
delivery.

(2) The invoice value of the said twelve 8-day Edmond clocks in the city of New York was P22
and the market value of the same in the City of Manila at the time when they should have been
delivered to the plaintiff was P420.

(3) The bill of lading issued and delivered to the plaintiff by the master of the said
steamship Bolton Castle contained, among others, the following clauses:

1. It is mutually agreed that the value of the goods receipted for above does not exceed
$500 per freight ton, or, in proportion for any part of a ton, unless the value be expressly
stated herein and ad valorem freight paid thereon.

94
 9. Also, that in the event of claims for short delivery of, or damage to, cargo being made,
the carrier shall not be liable for more than the net invoice price plus freight and
insurance less all charges saved, and any loss or damage for which the carrier may be
liable shall be adjusted pro rata on the said basis.

(4) The case containing the aforesaid twelve 8-day Edmond clocks measured 3 cubic feet, and
the freight ton value thereof was $1,480, U. S. currency.

(5) No greater value than $500, U. S. currency, per freight ton was declared by the plaintiff on
the aforesaid clocks, and no ad valorem freight was paid thereon.

(6) On or about October 9, 1919, the defendant tendered to the plaintiff P76.36, the
proportionate freight ton value of the aforesaid twelve 8-day Edmond clocks, in payment of
plaintiff's claim, which tender plaintiff rejected.

The lower court, in accordance with clause 9 of the bill of lading above quoted, rendered judgment in
favor of the plaintiff against the defendant for the sum of P226.02, this being the invoice value of the
clocks in question plus the freight and insurance thereon, with legal interest thereon from November 20,
1919, the date of the complaint, together with costs. From that judgment both parties appealed to this
court.

The plaintiff-appellant insists that it is entitled to recover from the defendant the market value of the
clocks in question, to wit: the sum of P420. The defendant-appellant, on the other hand, contends that,
in accordance with clause 1 of the bill of lading, the plaintiff is entitled to recover only the sum of P76.36,
the proportionate freight ton value of the said clocks. The claim of the plaintiff is based upon the
argument that the two clause in the bill of lading above quoted, limiting the liability of the carrier, are
contrary to public order and, therefore, null and void. The defendant, on the other hand, contends that
both of said clauses are valid, and the clause 1 should have been applied by the lower court instead of
clause 9.

I. The appeal of the plaintiff presents this question; May a common carrier, by stipulations inserted in the
bill of lading, limit its liability for the loss of or damage to the cargo to an agreed valuation of the latter?  1awph!l.net

Three kinds of stipulations have often been made in a bill of lading. The first is one exempting the
carrier from any and all liability for loss or damage occasioned by its own negligence. The second is one
providing for an unqualified limitation of such liability to an agreed valuation. And the third is one limiting
the liability of the carrier to an agreed valuation unless the shipper declares a higher value and pays a
higher rate of freight. According to an almost uniform weight of authority, the first and second kinds of
stipulations are invalid as being contrary to public policy, but the third is valid and enforceable.

The authorities relied upon by the plaintiff-appellant (the Harter Act [Act of Congress of February 13,
1893]: Louisville Ry. Co. vs. Wynn, 88 Tenn., 320; and Galt vs. Adams Express Co., 4 McAr., 124; 48
Am. Rep., 742) support the proposition that the first and second stipulations in a bill of lading are invalid
which either exempt the carrier from liability for loss or damage occasioned by its negligence, or provide
for an unqualified limitation of such liability to an agreed valuation.

A reading of clauses 1 and 9 of the bill of lading here in question, however, clearly shows that the
present case falls within the third stipulation, to wit: That a clause in a bill of lading limiting the liability of
the carrier to a certain amount unless the shipper declares a higher value and pays a higher rate of
freight, is valid and enforceable. This proposition is supported by a uniform lien of decisions of the
Supreme Court of the United States rendered both prior and subsequent to the passage of the Harter
Act, from the case of Hart vs. Pennsylvania R. R. Co. (decided Nov. 24, 1884; 112 U. S., 331), to the
case of the Union Pacific Ry. Co. vs. Burke (decided Feb. 28, 1921, Advance Opinions, 1920-1921, p.
318).
95
In the case of Hart vs. Pennsylvania R. R. Co., supra, it was held that "where a contract of carriage,
signed by the shipper, is fairly made with a railroad company, agreeing on a valuation of the property
carried, with the rate of freight based on the condition that the carrier assumes liability only to the extent
of the agreed valuation, even in case of loss or damage by the negligence of the carrier, the contract will
be upheld as proper and lawful mode of securing a due proportion between the amount for which the
carrier may be responsible and the freight he receives, and protecting himself against extravagant and
fanciful valuations."

In the case of Union Pacific Railway Co. vs. Burke, supra, the court said: "In many cases, from the
decision in Hart vs. Pennsylvania R. R. Co. (112 U. S. 331; 28 L. ed., 717; 5 Sup. Ct. Rep., 151,
decided in 1884), to Boston and M. R. Co. vs. Piper (246 U. S., 439; 62 L. ed., 820; 38 Sup. Ct. Rep.,
354; Ann. Cas. 1918 E, 469, decided in 1918), it has been declared to be the settled Federal law that if
a common carrier gives to a shipper the choice of two rates, the lower of the conditioned upon his
agreeing to a stipulated valuation of his property in case of loss, even by the carrier's negligence, if the
shipper makes such a choice, understandingly and freely, and names his valuation, he cannot thereafter
recover more than the value which he thus places upon his property. As a matter of legal distinction,
estoppel is made the basis of this ruling, — that, having accepted the benefit of the lower rate, in
common honesty the shipper may not repudiate the conditions on which it was obtained, — but the rule
and the effect of it are clearly established."

The syllabus of the same case reads as follows: "A carrier may not, by a valuation agreement with a
shipper, limit its liability in case of the loss by negligence of an interstate shipment to less than the real
value thereof, unless the shipper is given a choice of rates, based on valuation."

A limitation of liability based upon an agreed value to obtain a lower rate does not conflict with
any sound principle of public policy; and it is not conformable to plain principles of justice that a
shipper may understate value in order to reduce the rate and then recover a larger value in case
of loss. (Adams Express Co. vs. Croninger 226 U. S. 491, 492.) See also Reid vs. Farbo (130 C.
C. A., 285); Jennings vs. Smith (45 C. C. A., 249); George N. Pierce Co. vs. Wells, Fargo and
Co. (227 U. S., 278); Wells, Fargo & Co. vs. Neiman-Marcus Co. (227 U. S., 469).

It seems clear from the foregoing authorities that the clauses (1 and 9) of the bill of lading here in
question are not contrary to public order. Article 1255 of the Civil Code provides that "the contracting
parties may establish any agreements, terms and conditions they may deem advisable, provided they
are not contrary to law, morals or public order." Said clauses of the bill of lading are, therefore, valid and
binding upon the parties thereto.

II. The question presented by the appeal of the defendant is whether clause 1 or clause 9 of the bill of
lading here in question is to be adopted as the measure of defendant's liability. Clause 1 provides as
follows:

1. It is mutually agreed that the value of the goods receipted for above does not exceed $500
per freight ton, or, in proportion for any part of a ton, unless the value be expressly stated herein
and ad valorem freight paid thereon. Clause 9 provides:

9. Also, that in the even of claims for short delivery of, or damage to, cargo being made, the
carrier shall not be liable for more than the net invoice price plus freight and insurance less all
charges saved, and any loss or damage for which the carrier may be liable shall be adjusted pro
rata on the said basis.

The defendant-appellant contends that these two clauses, if construed together, mean that the shipper
and the carrier stipulate and agree that the value of the goods receipted for does not exceed $500 per
freight ton, but should the invoice value of the goods be less than $500 per freight ton, then the invoice
value governs; that since in this case the invoice value is more than $500 per freight ton, the latter
96
valuation should be adopted and that according to that valuation, the proportionate value of the clocks in
question is only P76.36 which the defendant is ready and willing to pay to the plaintiff.

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

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

G.R. No. L-20099             July 7, 1966

PARMANAND SHEWARAM, plaintiff and appellee, vs.
PHILIPPINE AIR LINES, INC., defendant and appellant.

Before the municipal court of Zamboanga City, plaintiff-appellee Parmanand Shewaram instituted an
action to recover damages suffered by him due to the alleged failure of defendant-appellant Philippines
Air Lines, Inc. to observe extraordinary diligence in the vigilance and carriage of his luggage. After trial
the municipal court of Zamboanga City rendered judgment ordering the appellant to pay appellee
P373.00 as actual damages, P100.00 as exemplary damages, P150.00 as attorney's fees, and the
costs of the action.

Appellant Philippine Air Lines appealed to the Court of First Instance of Zamboanga City. After hearing
the Court of First Instance of Zamboanga City modified the judgment of the inferior court by ordering the
appellant to pay the appellee only the sum of P373.00 as actual damages, with legal interest from May
6, 1960 and the sum of P150.00 as attorney's fees, eliminating the award of exemplary damages.

From the decision of the Court of First Instance of Zamboanga City, appellant appeals to this Court on a
question of law, assigning two errors allegedly committed by the lower court a quo, to wit:

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

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

The facts of this case, as found by the trial court, quoted from the decision appealed from, are as
follows:

97
 That Parmanand Shewaram, the plaintiff herein, was on November 23, 1959, a paying
passenger with ticket No. 4-30976, on defendant's aircraft flight No. 976/910 from Zamboanga
City bound for Manila; that defendant is a common carrier engaged in air line transportation in
the Philippines, offering its services to the public to carry and transport passengers and cargoes
from and to different points in the Philippines; that on the above-mentioned date of November
23, 1959, he checked in three (3) pieces of baggages — a suitcase and two (2) other pieces;
that the suitcase was mistagged by defendant's personnel in Zamboanga City, as I.G.N. (for
Iligan) with claim check No. B-3883, instead of MNL (for Manila). When plaintiff Parmanand
Shewaram arrived in Manila on the date of November 23, 1959, his suitcase did not arrive with
his flight because it was sent to Iligan. So, he made a claim with defendant's personnel in Manila
airport and another suitcase similar to his own which was the only baggage left for that flight, the
rest having been claimed and released to the other passengers of said flight, was given to the
plaintiff for him to take delivery but he did not and refused to take delivery of the same on the
ground that it was not his, alleging that all his clothes were white and the National transistor 7
and a Rollflex camera were not found inside the suitcase, and moreover, it contained a pistol
which he did not have nor placed inside his suitcase; that after inquiries made by defendant's
personnel in Manila from different airports where the suitcase in question must have been sent,
it was found to have reached Iligan and the station agent of the PAL in Iligan caused the same
to be sent to Manila for delivery to Mr. Shewaram and which suitcase belonging to the plaintiff
herein arrived in Manila airport on November 24, 1959; that it was also found out that the
suitcase shown to and given to the plaintiff for delivery which he refused to take delivery
belonged to a certain Del Rosario who was bound for Iligan in the same flight with Mr.
Shewaram; that when the plaintiff's suitcase arrived in Manila as stated above on November 24,
1959, he was informed by Mr. Tomas Blanco, Jr., the acting station agent of the Manila airport of
the arrival of his suitcase but of course minus his Transistor Radio 7 and the Rollflex Camera;
that Shewaram made demand for these two (2) items or for the value thereof but the same was
not complied with by defendant.

xxx     xxx     xxx

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

It is clear from the above-quoted portions of the decision of the trial court that said court had found that
the suitcase of the appellee was tampered, and the transistor radio and the camera contained therein
were lost, and that the loss of those articles was due to the negligence of the employees of the

98
appellant. The evidence shows that the transistor radio cost P197.00 and the camera cost P176.00, so
the total value of the two articles was P373.00.

There is no question that the appellant is a common carrier.1 As such common carrier the appellant,
from the nature of its business and for reasons of public policy, is bound to observe extraordinary
diligence in the vigilance over the goods and for the safety of the passengers transported by it according
to the circumstances of each case. 2 It having been shown that the loss of the transistor radio and the
camera of the appellee, costing P373.00, was due to the negligence of the employees of the appellant,
it is clear that the appellant should be held liable for the payment of said loss.3

It is, however, contended by the appellant that its liability should be limited to the amount stated in the
conditions of carriage printed at the back of the plane ticket stub which was issued to the appellee,
which conditions are embodied in Domestic Tariff Regulations No. 2 which was filed with the Civil
Aeronautics Board. One of those conditions, which is pertinent to the issue raised by the appellant in
this case provides as follows:

The liability, if any, for loss or damage to checked baggage or for delay in the delivery thereof is
limited to its value and, unless the passenger declares in advance a higher valuation and pay an
additional charge therefor, the value shall be conclusively deemed not to exceed P100.00 for
each ticket.

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

The law that may be invoked, in this connection is Article 1750 of the New Civil Code which provides as
follows:

A contract fixing the sum that may be recovered by the owner or shipper for the loss,
destruction, or deterioration of the goods is valid, if it is reasonable and just under the
circumstances, and has been fairly and freely agreed upon.

In accordance with the above-quoted provision of Article 1750 of the New Civil Code, the pecuniary
liability of a common carrier may, by contract, be limited to a fixed amount. It is required, however, that
the contract must be "reasonable and just under the circumstances and has been fairly and freely
agreed upon."

The requirements provided in Article 1750 of the New Civil Code must be complied with before a
common carrier can claim a limitation of its pecuniary liability in case of loss, destruction or deterioration
of the goods it has undertaken to transport. In the case before us We believe that the requirements of
said article have not been met. It can not be said that the appellee had actually entered into a contract
with the appellant, embodying the conditions as printed at the back of the ticket stub that was issued by
the appellant to the appellee. The fact that those conditions are printed at the back of the ticket stub in
letters so small that they are hard to read would not warrant the presumption that the appellee was
aware of those conditions such that he had "fairly and freely agreed" to those conditions. The trial court
has categorically stated in its decision that the "Defendant admits that passengers do not sign the ticket,
much less did plaintiff herein sign his ticket when he made the flight on November 23, 1959." We hold,
therefore, that the appellee is not, and can not be, bound by the conditions of carriage found at the back
of the ticket stub issued to him when he made the flight on appellant's plane on November 23, 1959.

The liability of the appellant in the present case should be governed by the provisions of Articles 1734
and 1735 of the New Civil Code, which We quote as follows:

99
 ART. 1734. Common carries are responsible for the loss, destruction, or deterioration of the
goods, unless the same is due to any of the following causes only:

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

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

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

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

(5) Order or act of competent public authority. 1äwphï1.ñët

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

It having been clearly found by the trial court that the transistor radio and the camera of the appellee
were lost as a result of the negligence of the appellant as a common carrier, the liability of the appellant
is clear — it must pay the appellee the value of those two articles.

In the case of Ysmael and Co. vs. Barreto, 51 Phil. 90, cited by the trial court in support of its decision,
this Court had laid down the rule that the carrier can not limit its liability for injury to or loss of goods
shipped where such injury or loss was caused by its own negligence.

Corpus Juris, volume 10, p. 154, says:

"Par. 194, 6. Reasonableness of Limitations. — The validity of stipulations limiting the carrier's
liability is to be determined by their reasonableness and their conformity to the sound public
policy, in accordance with which the obligations of the carrier to the public are settled. It cannot
lawfully stipulate for exemption from liability, unless such exemption is just and reasonable, and
unless the contract is freely and fairly made. No contractual limitation is reasonable which is
subversive of public policy.

"Par. 195. 7. What Limitations of Liability Permissible. — a. Negligence — (1) Rule in America
— (a) In Absence of Organic or Statutory Provisions Regulating Subject — aa. Majority Rule. —
In the absence of statute, it is settled by the weight of authority in the United States, that
whatever limitations against its common-law liability are permissible to a carrier, it cannot limit its
liability for injury to or loss of goods shipped, where such injury or loss is caused by its own
negligence. This is the common law doctrine and it makes no difference that there is no statutory
prohibition against contracts of this character.

"Par. 196. bb. Considerations on which Rule Based. — The rule, it is said, rests on
considerations of public policy. The undertaking is to carry the goods, and to relieve the shipper
from all liability for loss or damage arising from negligence in performing its contract is to ignore
the contract itself. The natural effect of a limitation of liability against negligence is to induce
want of care on the part of the carrier in the performance of its duty. The shipper and the
common carrier are not on equal terms; the shipper must send his freight by the common
carrier, or not at all; he is therefore entirely at the mercy of the carrier unless protected by the
higher power of the law against being forced into contracts limiting the carrier's liability. Such
contracts are wanting in the element of voluntary assent.

100
 "Par. 197. cc. Application and Extent of Rule — (aa) Negligence of Servants. — The rule
prohibiting limitation of liability for negligence is often stated as a prohibition of any contract
relieving the carrier from loss or damage caused by its own negligence or misfeasance, or that
of its servants; and it has been specifically decided in many cases that no contract limitation will
relieve the carrier from responsibility for the negligence, unskillfulness, or carelessness of its
employer." (Cited in Ysmael and Co. vs. Barreto, 51 Phil. 90, 98, 99).

In view of the foregoing, the decision appealed from is affirmed, with costs against the appellant.

G.R. No. L-40597 June 29, 1979

AGUSTINO B. ONG YIU, petitioner,

vs.
HONORABLE COURT OF APPEALS and PHILIPPINE AIR LINES, INC., respondents.

MELENCIO-HERRERA, J.:

In this Petition for Review by Certiorari, petitioner, a practicing lawyer and businessman, seeks a
reversal of the Decision of the Court of Appeals in CA-G.R. No. 45005-R, which reduced his claim for
damages for breach of contract of transportation.

The facts are as follows:

On August 26, 1967, petitioner was a fare paying passenger of respondent Philippine Air Lines, Inc.
(PAL), on board Flight No. 463-R, from Mactan Cebu, bound for Butuan City. He was scheduled to
attend the trial of Civil Case No. 1005 and Spec. Procs. No. 1125 in the Court of First Instance, Branch
II, thereat, set for hearing on August 28-31, 1967. As a passenger, he checked in one piece of luggage,
a blue "maleta" for which he was issued Claim Check No. 2106-R (Exh. "A"). The plane left Mactan
Airport, Cebu, at about 1:00 o'clock P.M., and arrived at Bancasi airport, Butuan City, at past 2:00
o'clock P.M., of the same day. Upon arrival, petitioner claimed his luggage but it could not be found.
According to petitioner, it was only after reacting indignantly to the loss that the matter was attended to
by the porter clerk, Maximo Gomez, which, however, the latter denies, At about 3:00 o'clock P.M., PAL
Butuan, sent a message to PAL, Cebu, inquiring about the missing luggage, which message was, in
turn relayed in full to the Mactan Airport teletype operator at 3:45 P.M. (Exh. "2") that same afternoon. It
must have been transmitted to Manila immediately, for at 3:59 that same afternoon, PAL Manila wired
PAL Cebu advising that the luggage had been over carried to Manila aboard Flight No. 156 and that it
would be forwarded to Cebu on Flight No. 345 of the same day. Instructions were also given that the
luggage be immediately forwarded to Butuan City on the first available flight (Exh. "3"). At 5:00 P.M. of
the same afternoon, PAL Cebu sent a message to PAL Butuan that the luggage would be forwarded on
Fright No. 963 the following day, August 27, 196'(. However, this message was not received by PAL
Butuan as all the personnel had already left since there were no more incoming flights that afternoon.

In the meantime, petitioner was worried about the missing luggage because it contained vital documents
needed for trial the next day. At 10:00 o'clock that evening, petitioner wired PAL Cebu demanding the
delivery of his baggage before noon the next day, otherwise, he would hold PAL liable for damages, and
stating that PAL's gross negligence had caused him undue inconvenience, worry, anxiety and extreme
embarrassment (Exh. "B"). This telegram was received by the Cebu PAL supervisor but the latter felt no

101
need to wire petitioner that his luggage had already been forwarded on the assumption that by the time
the message reached Butuan City, the luggage would have arrived.

Early in the morning of the next day, August 27, 1967, petitioner went to the Bancasi Airport to inquire
about his luggage. He did not wait, however, for the morning flight which arrived at 10:00 o'clock that
morning. This flight carried the missing luggage. The porter clerk, Maximo Gomez, paged petitioner, but
the latter had already left. A certain Emilio Dagorro a driver of a "colorum" car, who also used to drive for
petitioner, volunteered to take the luggage to petitioner. As Maximo Gomez knew Dagorro to be the
same driver used by petitioner whenever the latter was in Butuan City, Gomez took the luggage and
placed it on the counter. Dagorro examined the lock, pressed it, and it opened. After calling the attention
of Maximo Gomez, the "maleta" was opened, Gomez took a look at its contents, but did not touch them.
Dagorro then delivered the "maleta" to petitioner, with the information that the lock was open. Upon
inspection, petitioner found that a folder containing certain exhibits, transcripts and private documents in
Civil Case No. 1005 and Sp. Procs. No. 1126 were missing, aside from two gift items for his parents-in-
law. Petitioner refused to accept the luggage. Dagorro returned it to the porter clerk, Maximo Gomez,
who sealed it and forwarded the same to PAL Cebu.

Meanwhile, petitioner asked for postponement of the hearing of Civil Case No. 1005 due to loss of his
documents, which was granted by the Court (Exhs. "C" and "C-1"). Petitioner returned to Cebu City on
August 28, 1967. In a letter dated August 29, 1967 addressed to PAL, Cebu, petitioner called attention
to his telegram (Exh. "D"), demanded that his luggage be produced intact, and that he be compensated
in the sum of P250,000,00 for actual and moral damages within five days from receipt of the letter,
otherwise, he would be left with no alternative but to file suit (Exh. "D").

On August 31, 1967, Messrs. de Leon, Navarsi, and Agustin, all of PAL Cebu, went to petitioner's office
to deliver the "maleta". In the presence of Mr. Jose Yap and Atty. Manuel Maranga the contents were
listed and receipted for by petitioner (Exh. "E").

On September 5, 1967, petitioner sent a tracer letter to PAL Cebu inquiring about the results of the
investigation which Messrs. de Leon, Navarsi, and Agustin had promised to conduct to pinpoint
responsibility for the unauthorized opening of the "maleta" (Exh. "F").

The following day, September 6, 1967, PAL sent its reply hereinunder quoted verbatim:

Dear Atty. Ong Yiu:

This is with reference to your September 5, 1967, letter to Mr. Ricardo G. Paloma, Acting
Manager, Southern Philippines.

First of all, may we apologize for the delay in informing you of the result of our
investigation since we visited you in your office last August 31, 1967. Since there are
stations other than Cebu which are involved in your case, we have to communicate and
await replies from them. We regret to inform you that to date we have not found the
supposedly lost folder of papers nor have we been able to pinpoint the personnel who
allegedly pilferred your baggage.

You must realize that no inventory was taken of the cargo upon loading them on any
plane. Consequently, we have no way of knowing the real contents of your baggage
when same was loaded.

We realized the inconvenience you encountered of this incident but we trust that you will
give us another opportunity to be of better service to you.

102
 Very truly yours,

PHILIPPINE AIR LINES, INC.

(Sgd) JEREMIAS S. AGUSTIN
Branch Supervisor - Cebu
(Exhibit G, Folder of Exhibits) 
1

On September 13, 1967, petitioner filed a Complaint against PAL for damages for breach of contract of
transportation with the Court of First Instance of Cebu, Branch V, docketed as Civil Case No. R-10188,
which PAL traversed. After due trial, the lower Court found PAL to have acted in bad faith and with
malice and declared petitioner entitled to moral damages in the sum of P80,000.00, exemplary damages
of P30,000.00, attorney's fees of P5,000.00, and costs.

Both parties appealed to the Court of Appeals — petitioner in so far as he was awarded only the sum of
P80,000.00 as moral damages; and defendant because of the unfavorable judgment rendered against
it.

On August 22, 1974, the Court of Appeals,* finding that PAL was guilty only of simple negligence,
reversed the judgment of the trial Court granting petitioner moral and exemplary damages, but ordered
PAL to pay plaintiff the sum of P100.00, the baggage liability assumed by it under the condition of
carriage printed at the back of the ticket.

Hence, this Petition for Review by Certiorari, filed on May 2, 1975, with petitioner making the following
Assignments of Error:

I. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING RESPONDENT PAL

GUILTY ONLY OF SIMPLE NEGLIGENCE AND NOT BAD FAITH IN THE BREACH OF
ITS CONTRACT OF TRANSPORTATION WITH PETITIONER.

II. THE HONORABLE COURT OF APPEALS MISCONSTRUED THE EVIDENCE AND

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

On July 16, 1975, this Court gave due course to the Petition.

There is no dispute that PAL incurred in delay in the delivery of petitioner's luggage. The question is the
correctness of respondent Court's conclusion that there was no gross negligence on the part of PAL and
that it had not acted fraudulently or in bad faith as to entitle petitioner to an award of moral and
exemplary damages.

From the facts of the case, we agree with respondent Court that PAL had not acted in bad faith. Bad
faith means a breach of a known duty through some motive of interest or ill will.   It was the duty of PAL
2

to look for petitioner's luggage which had been miscarried. PAL exerted due diligence in complying with
such duty.

As aptly stated by the appellate Court:

103
 We do not find any evidence of bad faith in this. On the contrary, We find that the
defendant had exerted diligent effort to locate plaintiff's baggage. The trial court saw
evidence of bad faith because PAL sent the telegraphic message to Mactan only at 3:00
o'clock that same afternoon, despite plaintiff's indignation for the non-arrival of his
baggage. The message was sent within less than one hour after plaintiff's luggage could
not be located. Efforts had to be exerted to locate plaintiff's maleta. Then the Bancasi
airport had to attend to other incoming passengers and to the outgoing passengers.
Certainly, no evidence of bad faith can be inferred from these facts. Cebu office
immediately wired Manila inquiring about the missing baggage of the plaintiff. At 3:59
P.M., Manila station agent at the domestic airport wired Cebu that the baggage was over
carried to Manila. And this message was received in Cebu one minute thereafter, or at
4:00 P.M. The baggage was in fact sent back to Cebu City that same afternoon. His
Honor stated that the fact that the message was sent at 3:59 P.M. from Manila and
completely relayed to Mactan at 4:00 P.M., or within one minute, made the message
appear spurious. This is a forced reasoning. A radio message of about 50 words can be
completely transmitted in even less than one minute depending upon atmospheric
conditions. Even if the message was sent from Manila or other distant places, the
message can be received within a minute. that is a scientific fact which cannot be
questioned.  3

Neither was the failure of PAL Cebu to reply to petitioner's rush telegram indicative of bad faith, The
telegram (Exh. B) was dispatched by petitioner at around 10:00 P.M. of August 26, 1967. The PAL
supervisor at Mactan Airport was notified of it only in the morning of the following day. At that time the
luggage was already to be forwarded to Butuan City. There was no bad faith, therefore, in the
assumption made by said supervisor that the plane carrying the bag would arrive at Butuan earlier than
a reply telegram. Had petitioner waited or caused someone to wait at the Bancasi airport for the arrival
of the morning flight, he would have been able to retrieve his luggage sooner.

In the absence of a wrongful act or omission or of fraud or bad faith, petitioner is not entitled to moral
damages.

Art. 2217. Moral damages include physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and
similar injury. Though incapable of pecuniary computation, moral damages may be
recovered if they are the proximate result of the defendant's wrongful act of omission.

Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if
the court should find that, under the circumstances, such damages are justly due. The
same rule applies to breaches of contract where the defendant acted fraudulently or in
bad faith.

Petitioner is neither entitled to exemplary damages. In contracts, as provided for in Article 2232 of the
Civil Code, exemplary damages can be granted if the defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner, which has not been proven in this case.

Petitioner further contends that respondent Court committed grave error when it limited PAL's carriage
liability to the amount of P100.00 as stipulated at the back of the ticket. In this connection, respondent
Court opined:

As a general proposition, the plaintiff's maleta having been pilfered while in the custody
of the defendant, it is presumed that the defendant had been negligent. The liability,
however, of PAL for the loss, in accordance with the stipulation written on the back of the
ticket, Exhibit 12, is limited to P100.00 per baggage, plaintiff not having declared a
greater value, and not having called the attention of the defendant on its true value and
104
 paid the tariff therefor. The validity of this stipulation is not questioned by the plaintiff.
They are printed in reasonably and fairly big letters, and are easily readable. Moreover,
plaintiff had been a frequent passenger of PAL from Cebu to Butuan City and back, and
he, being a lawyer and businessman, must be fully aware of these conditions.  4

We agree with the foregoing finding. The pertinent Condition of Carriage printed at the back of the plane
ticket reads:

8. BAGGAGE LIABILITY ... The total liability of the Carrier for lost or damaged baggage
of the passenger is LIMITED TO P100.00 for each ticket unless a passenger declares a
higher valuation in excess of P100.00, but not in excess, however, of a total valuation of
P1,000.00 and additional charges are paid pursuant to Carrier's tariffs.

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

But petitioner argues that there is nothing in the evidence to show that he had actually entered into a
contract with PAL limiting the latter's liability for loss or delay of the baggage of its passengers, and that
Article 1750* of the Civil Code has not been complied with.

While it may be true that petitioner had not signed the plane ticket (Exh. "12"), he is nevertheless bound
by the provisions thereof. "Such provisions have been held to be a part of the contract of carriage, and
valid and binding upon the passenger regardless of the latter's lack of knowledge or assent to the
regulation".   It is what is known as a contract of "adhesion", in regards which it has been said that
5

contracts of adhesion wherein one party imposes a ready made form of contract on the other, as the
plane ticket in the case at bar, are contracts not entirely prohibited. The one who adheres to the contract
is in reality free to reject it entirely; if he adheres, he gives his consent.   And as held in Randolph v.
6

American Airlines, 103 Ohio App. 172, 144 N.E. 2d 878; Rosenchein vs. Trans World Airlines, Inc., 349
S.W. 2d 483, "a contract limiting liability upon an agreed valuation does not offend against the policy of
the law forbidding one from contracting against his own negligence.

Considering, therefore, that petitioner had failed to declare a higher value for his baggage, he cannot be
permitted a recovery in excess of P100.00.Besides, passengers are advised not to place valuable items
inside their baggage but "to avail of our V-cargo service " (Exh. "1"). I t is likewise to be noted that there
is nothing in the evidence to show the actual value of the goods allegedly lost by petitioner.

There is another matter involved, raised as an error by PAL — the fact that on October 24, 1974 or two
months after the promulgation of the Decision of the appellate Court, petitioner's widow filed a Motion for
Substitution claiming that petitioner died on January 6, 1974 and that she only came to know of the
adverse Decision on October 23, 1974 when petitioner's law partner informed her that he received copy
of the Decision on August 28, 1974. Attached to her Motion was an Affidavit of petitioner's law partner
reciting facts constitutive of excusable negligence. The appellate Court noting that all pleadings had
been signed by petitioner himself allowed the widow "to take such steps as she or counsel may deem
necessary." She then filed a Motion for Reconsideration over the opposition of PAL which alleged that
the Court of Appeals Decision, promulgated on August 22, 1974, had already become final and
executory since no appeal had been interposed therefrom within the reglementary period.

Under the circumstances, considering the demise of petitioner himself, who acted as his own counsel, it
is best that technicality yields to the interests of substantial justice. Besides, in the 'last analysis, no
serious prejudice has been caused respondent PAL.

In fine, we hold that the conclusions drawn by respondent Court from the evidence on record are not
erroneous.

105
WHEREFORE, for lack of merit, the instant Petition is hereby denied, and the judgment sought to be
reviewed hereby affirmed in toto.

No costs.

SO ORDERED.

G.R. No. 70462 August 11, 1988

PAN AMERICAN WORLD AIRWAYS, INC., petitioner, vs.
INTERMEDIATE APPELLATE COURT, RENE V. PANGAN, SOTANG BASTOS PRODUCTIONS and
ARCHER PRODUCTIONS, respondents.

Before the Court is a petition filed by an international air carrier seeking to limit its liability for lost
baggage, containing promotional and advertising materials for films to be exhibited in Guam and the
U.S.A., clutch bags, barong tagalogs and personal belongings, to the amount specified in the airline
ticket absent a declaration of a higher valuation and the payment of additional charges.

The undisputed facts of the case, as found by the trial court and adopted by the appellate court, are as
follows:

On April 25, 1978, plaintiff Rene V. Pangan, president and general manager of the
plaintiffs Sotang Bastos and Archer Production while in San Francisco, Califonia and
Primo Quesada of Prime Films, San Francisco, California, entered into an agreement
(Exh. A) whereby the former, for and in consideration of the amount of US $2,500.00 per
picture, bound himself to supply the latter with three films. 'Ang Mabait, Masungit at ang
Pangit,' 'Big Happening with Chikiting and Iking,' and 'Kambal Dragon' for exhibition in
the United States. It was also their agreement that plaintiffs would provide the necessary
promotional and advertising materials for said films on or before May 30, 1978.

On his way home to the Philippines, plaintiff Pangan visited Guam where he contacted
Leo Slutchnick of the Hafa Adai Organization. Plaintiff Pangan likewise entered into a
verbal agreement with Slutchnick for the exhibition of two of the films above-mentioned
at the Hafa Adai Theater in Guam on May 30, 1978 for the consideration of P7,000.00
per picture (p. 11, tsn, June 20, 1979). Plaintiff Pangan undertook to provide the
necessary promotional and advertising materials for said films on or before the exhibition
date on May 30,1978.

By virtue of the above agreements, plaintiff Pangan caused the preparation of the
requisite promotional handbills and still pictures for which he paid the total sum of
P12,900.00 (Exhs. B, B-1, C and C1). Likewise in preparation for his trip abroad to
comply with his contracts, plaintiff Pangan purchased fourteen clutch bags, four capiz
lamps and four barong tagalog, with a total value of P4,400.00 (Exhs. D, D-1, E, and F).

On May 18, 1978, plaintiff Pangan obtained from defendant Pan Am's Manila Office,
through the Your Travel Guide, an economy class airplane ticket with No.
0269207406324 (Exh. G) for passage from Manila to Guam on defendant's Flight No.
842 of May 27,1978, upon payment by said plaintiff of the regular fare. The Your Travel
Guide is a tour and travel office owned and managed by plaintiffs witness Mila de la
Rama.

On May 27, 1978, two hours before departure time plaintiff Pangan was at the
defendant's ticket counter at the Manila International Airport and presented his ticket and
checked in his two luggages, for which he was given baggage claim tickets Nos. 963633
106
 and 963649 (Exhs. H and H-1). The two luggages contained the promotional and
advertising materials, the clutch bags, barong tagalog and his personal belongings.
Subsequently, Pangan was informed that his name was not in the manifest and so he
could not take Flight No. 842 in the economy class. Since there was no space in the
economy class, plaintiff Pangan took the first class because he wanted to be on time in
Guam to comply with his commitment, paying an additional sum of $112.00.

When plaintiff Pangan arrived in Guam on the date of May 27, 1978, his two luggages
did not arrive with his flight, as a consequence of which his agreements with Slutchnick
and Quesada for the exhibition of the films in Guam and in the United States were
cancelled (Exh. L). Thereafter, he filed a written claim (Exh. J) for his missing luggages.

Upon arrival in the Philippines, Pangan contacted his lawyer, who made the necessary
representations to protest as to the treatment which he received from the employees of
the defendant and the loss of his two luggages (Exh. M, O, Q, S, and T). Defendant Pan
Am assured plaintiff Pangan that his grievances would be investigated and given its
immediate consideration (Exhs. N, P and R). Due to the defendant's failure to
communicate with Pangan about the action taken on his protests, the present complaint
was filed by the plaintiff. (Pages 4-7, Record On Appeal). [Rollo, pp. 27-29.]

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

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

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

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

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

On appeal, the then Intermediate Appellate Court affirmed the trial court decision.

Hence, the instant recourse to this Court by petitioner.

The petition was given due course and the parties, as required, submitted their respective memoranda.
In due time the case was submitted for decision.

In assailing the decision of the Intermediate Appellate Court petitioner assigned the following errors:

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

2. The respondent court erred as a matter of law in affirming the trial court's award of actual damages
consisting of alleged lost profits in the face of this Court's ruling concerning special or consequential
damages as set forth in Mendoza v. Philippine Airlines [90 Phil. 836 (1952).]
107
The assigned errors shall be discussed seriatim

1. The airline ticket (Exh. "G') contains the following conditions:

NOTICE

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

CONDITIONS OF CONTRACT

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

2. Carriage hereunder is subject to the rules and limitations relating to liability

established by the Warsaw Convention unless such carriage is not "international
carriage" as defined by that Convention.

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

xxx xxx xxx

NOTICE OF BAGGAGE LIABILITY LIMITATIONS

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

On the basis of the foregoing stipulations printed at the back of the ticket, petitioner contends that its
liability for the lost baggage of private respondent Pangan is limited to $600.00 ($20.00 x 30 kilos) as
the latter did not declare a higher value for his baggage and pay the corresponding additional charges.

To support this contention, petitioner cites the case of Ong Yiu v. Court of Appeals [G.R. No. L-40597,
June 29, 1979, 91 SCRA 223], where the Court sustained the validity of a printed stipulation at the back
108
of an airline ticket limiting the liability of the carrier for lost baggage to a specified amount and ruled that
the carrier's liability was limited to said amount since the passenger did not declare a higher value,
much less pay additional charges.

We find the ruling in Ong Yiu squarely applicable to the instant case. In said case, the Court, through
Justice Melencio Herrera, stated:

Petitioner further contends that respondent Court committed grave error when it limited
PAL's carriage liability to the amount of P100.00 as stipulated at the back of the ticket....

We agree with the foregoing finding. The pertinent Condition of Carriage printed at the
back of the plane ticket reads:

8. BAGGAGE LIABILITY ... The total liability of the Carrier for lost or
damage baggage of the passenger is LIMITED TO P100.00 for each
ticket unless a passenger declares a higher valuation in excess of
P100.00, but not in excess, however, of a total valuation of Pl,000.00 and
additional charges are paid pursuant to Carrier's tariffs.

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

But petitioner argues that there is nothing in the evidence to show that he had actually
entered into a contract with PAL limiting the latter's liability for loss or delay of the
baggage of its passengers, and that Article 1750 * of the Civil Code has not been complied with.

While it may be true that petitioner had not signed the plane ticket (Exh. "12"), he is
nevertheless bound by the provisions thereof. "Such provisions have been held to be a
part of the contract of carriage, and valid and binding upon the passenger regardless of
the latter's lack of knowledge or assent to the regulation." [Tannebaum v. National
Airline, Inc., 13 Misc. 2d 450,176 N.Y.S. 2d 400; Lichten v. Eastern Airlines, 87 Fed.
Supp. 691; Migoski v. Eastern Air Lines, Inc., Fla., 63 So. 2d 634.] It is what is known as
a contract of "adhesion," in regards which it has been said that contracts of adhesion
wherein one party imposes a ready made form of contract on the other, as the plane
ticket in the case at bar, are contracts not entirely prohibited. The one who adheres to
the contract is in reality free to reject it entirely; if he adheres, he gives his consent,
[Tolentino, Civil Code, Vol. IV, 1962 ed., p. 462, citing Mr. Justice J.B.L. Reyes, Lawyer's
Journal, Jan. 31, 1951, p. 49]. And as held in Randolph v. American Airlines, 103 Ohio
App. 172,144 N.E. 2d 878; Rosenchein v. Trans World Airlines, Inc., 349 S.W. 2d 483.]
"a contract limiting liability upon an agreed valuation does not offend against the policy
of the law forbidding one from contracting against his own negligence."

Considering, therefore, that petitioner had failed to declare a higher value for his
baggage, he cannot be permitted a recovery in excess of P100.00....

On the other hand, the ruling in Shewaram v. Philippine Air Lines, Inc. [G.R. No. L-20099, July 2, 1966,
17 SCRA 606], where the Court held that the stipulation limiting the carrier's liability to a specified
amount was invalid, finds no application in the instant case, as the ruling in said case was premised on
the finding that the conditions printed at the back of the ticket were so small and hard to read that they
would not warrant the presumption that the passenger was aware of the conditions and that he had
freely and fairly agreed thereto. In the instant case, similar facts that would make the case fall under the
exception have not been alleged, much less shown to exist.

109
In view thereof petitioner's liability for the lost baggage is limited to $20.00 per kilo or $600.00, as
stipulated at the back of the ticket.

At this juncture, in order to rectify certain misconceptions the Court finds it necessary to state that the
Court of Appeal's reliance on a quotation from Northwest Airlines, Inc. v. Cuenca [G.R. No. L-22425,
August 31, 1965, 14 SCRA 1063] to sustain the view that "to apply the Warsaw Convention which limits
a carrier's liability to US$9.07 per pound or US$20.00 per kilo in cases of contractual breach of
carriage ** is against public policy" is utterly misplaced, to say the least. In said case, while the Court, as quoted in the Intermediate Appellate
Court's decision, said:

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

it prefaced this statement by explaining that:

...The case is now before us on petition for review by certiorari, upon the ground that the
lower court has erred: (1) in holding that the Warsaw Convention of October 12, 1929,
relative to transportation by air is not in force in the Philippines: (2) in not holding that
respondent has no cause of action; and (3) in awarding P20,000 as nominal damages.

We deem it unnecessary to pass upon the First assignment of error because the same
is the basis of the second assignment of error, and the latter is devoid of merit, even if
we assumed the former to be well taken. (Emphasis supplied.)

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

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

The rule laid down in Mendoza v. Philippine Air Lines, Inc. [90 Phil. 836 (1952)] cannot be any clearer:

...Under Art.1107 of the Civil Code, a debtor in good faith like the defendant herein, may
be held liable only for damages that were foreseen or might have been foreseen at the
time the contract of transportation was entered into. The trial court correctly found that
the defendant company could not have foreseen the damages that would be suffered by
Mendoza upon failure to deliver the can of film on the 17th of September, 1948 for the
reason that the plans of Mendoza to exhibit that film during the town fiesta and his
preparations, specially the announcement of said exhibition by posters and
advertisement in the newspaper, were not called to the defendant's attention.

In our research for authorities we have found a case very similar to the one under consideration. In the
case of Chapman vs. Fargo, L.R.A. (1918 F) p. 1049, the plaintiff in Troy, New York, delivered motion
110
picture films to the defendant Fargo, an express company, consigned and to be delivered to him in
Utica. At the time of shipment the attention of the express company was called to the fact that the
shipment involved motion picture films to be exhibited in Utica, and that they should be sent to their
destination, rush. There was delay in their delivery and it was found that the plaintiff because of his
failure to exhibit the film in Utica due to the delay suffered damages or loss of profits. But the highest
court in the State of New York refused to award him special damages. Said appellate court observed:

But before defendant could be held to special damages, such as the present alleged
loss of profits on account of delay or failure of delivery, it must have appeared that he
had notice at the time of delivery to him of the particular circumstances attending the
shipment, and which probably would lead to such special loss if he defaulted. Or, as the
rule has been stated in another form, in order to purpose on the defaulting party further
liability than for damages naturally and directly, i.e., in the ordinary course of things,
arising from a breach of contract, such unusual or extraordinary damages must have
been brought within the contemplation of the parties as the probable result of breach at
the time of or prior to contracting. Generally, notice then of any special circumstances
which will show that the damages to be anticipated from a breach would be enhanced
has been held sufficient for this effect.

As may be seen, that New York case is a stronger one than the present case for the reason that the
attention of the common carrier in said case was called to the nature of the articles shipped, the purpose
of shipment, and the desire to rush the shipment, circumstances and facts absent in the present case.
[Emphasis supplied.]

Thus, applying the foregoing ruling to the facts of the instant case, in the absence of a showing that
petitioner's attention was called to the special circumstances requiring prompt delivery of private
respondent Pangan's luggages, petitioner cannot be held liable for the cancellation of private
respondents' contracts as it could not have foreseen such an eventuality when it accepted the luggages
for transit.

The Court is unable to uphold the Intermediate Appellate Court's disregard of the rule laid down
in Mendoza and affirmance of the trial court's conclusion that petitioner is liable for damages based on
the finding that "[tlhe undisputed fact is that the contracts of the plaintiffs for the exhibition of the films in
Guam and California were cancelled because of the loss of the two luggages in question." [Rollo, p. 36]
The evidence reveals that the proximate cause of the cancellation of the contracts was private
respondent Pangan's failure to deliver the promotional and advertising materials on the dates agreed
upon. For this petitioner cannot be held liable. Private respondent Pangan had not declared the value of
the two luggages he had checked in and paid additional charges. Neither was petitioner privy to
respondents' contracts nor was its attention called to the condition therein requiring delivery of the
promotional and advertising materials on or before a certain date.

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

WHEREFORE, the Petition is hereby GRANTED and the Decision of the Intermediate Appellate Court is
SET ASIDE and a new judgment is rendered ordering petitioner to pay private respondents damages in
the amount of US $600.00 or its equivalent in Philippine currency at the time of actual payment.

SO ORDERED.

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

111
EASTERN SHIPPING LINES, INC., petitioner, vs.
INTERMEDIATE APPELLATE COURT and DEVELOPMENT INSURANCE & SURETY
CORPORATION, respondents.
G.R. No. 71478 May 29, 1987
EASTERN SHIPPING LINES, INC., petitioner,vs.
THE NISSHIN FIRE AND MARINE INSURANCE CO., and DOWA FIRE & MARINE INSURANCE CO.,
LTD., respondents.

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

The basic facts are not in controversy:

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

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

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

G.R. NO. 69044

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

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

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

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

G.R. NO. 71478

On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN for short), and Dowa Fire
& Marine Insurance Co., Ltd. (DOWA, for brevity), as subrogees of the insured, filed suit against
Petitioner Carrier for the recovery of the insured value of the cargo lost with the then Court of First

112
Instance of Manila, Branch 11 (Civil Case No. 116151), imputing unseaworthiness of the ship and non-
observance of extraordinary diligence by petitioner Carrier.

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

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

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

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

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

At the outset, we reject Petitioner Carrier's claim that it is not the operator of the M/S Asiatica but merely
a charterer thereof. We note that in G.R. No. 69044, Petitioner Carrier stated in its Petition:

There are about 22 cases of the "ASIATICA" pending in various courts where various
plaintiffs are represented by various counsel representing various consignees or
insurance companies. The common defendant in these cases is petitioner herein, being
the operator of said vessel. ... 1

Petitioner Carrier should be held bound to said admission. As a general rule, the facts alleged in a
party's pleading are deemed admissions of that party and binding upon it.   And an admission in one
2

pleading in one action may be received in evidence against the pleader or his successor-in-interest on
the trial of another action to which he is a party, in favor of a party to the latter action. 
3

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

On the Law Applicable

The law of the country to which the goods are to be transported governs the liability of the common
carrier in case of their loss, destruction or deterioration.   As the cargoes in question were transported
4

from Japan to the Philippines, the liability of Petitioner Carrier is governed primarily by the Civil
Code.   However, in all matters not regulated by said Code, the rights and obligations of common carrier
5

shall be governed by the Code of Commerce and by special laws.   Thus, the Carriage of Goods by Sea
6

Act, a special law, is suppletory to the provisions of the Civil Code.  7

113
On the Burden of Proof

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

of the goods unless the same is due to any of the following causes only:

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

xxx xxx xxx  9

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

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

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

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

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

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

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

114
And even if fire were to be considered a "natural disaster" within the meaning of Article 1734 of the Civil
Code, it is required under Article 1739 of the same Code that the "natural disaster" must have been the
"proximate and only cause of the loss," and that the carrier has "exercised due diligence to prevent or
minimize the loss before, during or after the occurrence of the disaster. " This Petitioner Carrier has also
failed to establish satisfactorily.

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

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

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

xxx xxx xxx

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

On the US $500 Per Package Limitation:

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

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

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

xxx xxx xxx

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

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

It is to be noted that the Civil Code does not of itself limit the liability of the common carrier to a fixed
amount per package although the Code expressly permits a stipulation limiting such liability. Thus, the
115
COGSA which is suppletory to the provisions of the Civil Code, steps in and supplements the Code by
establishing a statutory provision limiting the carrier's liability in the absence of a declaration of a higher
value of the goods by the shipper in the bill of lading. The provisions of the Carriage of Goods by.Sea
Act on limited liability are as much a part of a bill of lading as though physically in it and as much a part
thereof as though placed therein by agreement of the parties. 16

In G.R. No. 69044, there is no stipulation in the respective Bills of Lading (Exhibits "C-2" and "I-3") 1 7
limiting the carrier's liability for the loss or destruction of the goods. Nor is there a declaration of a higher
value of the goods. Hence, Petitioner Carrier's liability should not exceed US $500 per package, or its
peso equivalent, at the time of payment of the value of the goods lost, but in no case "more than the
amount of damage actually sustained."

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

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

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

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

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

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

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

Even if language and purposes of Carriage of Goods by Sea Act left doubt as to whether
carrier-furnished containers whose contents are disclosed should be treated as
116
 packages, the interest in securing international uniformity would suggest that they should
not be so treated. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A. 1304(5).

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

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

Certainly, if the individual crates or cartons prepared by the shipper and

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

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

xxx xxx xxx

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

Eurygenes concerned a shipment of stereo equipment packaged by the shipper into

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

(Admiralty Litigation in Perpetuum: The Continuing Saga of Package

Limitations and Third World Delivery Problems by Chester D. Hooper &
117
 Keith L. Flicker, published in Fordham International Law Journal, Vol. 6,
1982-83, Number 1) (Emphasis supplied)

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

2 Containers

(128) Cartons)

Men's Garments Fabrics and Accessories Freight Prepaid

Say: Two (2) Containers Only.

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

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

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

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

prepared and the other party merely adheres to it, like the Bill of Lading in this case, which is draw. up
by the carrier.  21

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

Petitioner Carrier claims that the Trial Court did not give it sufficient time to take the depositions of its
witnesses in Japan by written interrogatories.

We do not agree. petitioner Carrier was given- full opportunity to present its evidence but it failed to do
so. On this point, the Trial Court found:

xxx xxx xxx

Indeed, since after November 6, 1978, to August 27, 1979, not to mention the time from
June 27, 1978, when its answer was prepared and filed in Court, until September 26,
1978, when the pre-trial conference was conducted for the last time, the defendant had
more than nine months to prepare its evidence. Its belated notice to take deposition on
written interrogatories of its witnesses in Japan, served upon the plaintiff on August 25th,
just two days before the hearing set for August 27th, knowing fully well that it was its
undertaking on July 11 the that the deposition of the witnesses would be dispensed with

118
 if by next time it had not yet been obtained, only proves the lack of merit of the
defendant's motion for postponement, for which reason it deserves no sympathy from
the Court in that regard. The defendant has told the Court since February 16, 1979, that
it was going to take the deposition of its witnesses in Japan. Why did it take until August
25, 1979, or more than six months, to prepare its written interrogatories. Only the
defendant itself is to blame for its failure to adduce evidence in support of its defenses.

xxx xxx xxx  22

Petitioner Carrier was afforded ample time to present its side of the case.   It cannot complain now that
23

it was denied due process when the Trial Court rendered its Decision on the basis of the evidence
adduced. What due process abhors is absolute lack of opportunity to be heard.  24

On the Award of Attorney's Fees:

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

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

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

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

SO ORDERED.

G.R. No. 75118 August 31, 1987

SEA-LAND SERVICE, INC., petitioner, vs.
INTERMEDIATE APPELLATE COURT and PAULINO CUE, doing business under the name and
style of "SEN HIAP HING," respondents.

The main issue here is whether or not the consignee of seaborne freight is bound by stipulations in the
covering bill of lading limiting to a fixed amount the liability of the carrier for loss or damage to the cargo
where its value is not declared in the bill.

The factual antecedents, for the most part, are not in dispute.

On or about January 8, 1981, Sea-Land Service, Inc. (Sea-Land for brevity), a foreign shipping and
forwarding company licensed to do business in the Philippines, received from Seaborne Trading
Company in Oakland, California a shipment consigned to Sen Hiap Hing the business name used by
Paulino Cue in the wholesale and retail trade which he operated out of an establishment located on
Borromeo and Plaridel Streets, Cebu City.

The shipper not having declared the value of the shipment, no value was indicated in the bill of lading.
The bill described the shipment only as "8 CTNS on 2 SKIDS-FILES. 1 Based on volume measurements
119
Sea-land charged the shipper the total amount of US$209.28 2 for freight age and other charges. The
shipment was loaded on board the MS Patriot, a vessel owned and operated by Sea-Land, for
discharge at the Port Of Cebu.

The shipment arrived in Manila on February 12, 1981, and there discharged in Container No. 310996
into the custody of the arrastre contractor and the customs and port authorities.   Sometime between
3

February 13 and 16, 1981, after the shipment had been transferred, along with other cargoes to
Container No. 40158 near Warehouse 3 at Pier 3 in South Harbor, Manila, awaiting trans-shipment to
Cebu, it was stolen by pilferers and has never been recovered.  4

On March 10, 1981, Paulino Cue, the consignee, made formal claim upon Sea-Land for the value of the
lost shipment allegedly amounting to P179,643.48.   Sea-Land offered to settle for US$4,000.00, or its
5

then Philippine peso equivalent of P30,600.00. asserting that said amount represented its maximum
liability for the loss of the shipment under the package limitation clause in the covering bill of
lading.  Cue rejected the offer and thereafter brought suit for damages against Sea-Land in the then
6

Court of First Instance of Cebu, Branch X.  Said Court, after trial, rendered judgment in favor of Cue,
7

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

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

the Trial Court xxx in all its parts ... . 10 Sea-Land thereupon filed the present petition for review which,
as already stated, poses the question of whether, upon the facts above set forth, it can be held liable for
the loss of the shipment in any amount beyond the limit of US$600.00 per package stipulated in the bill
of lading.

To begin with, there is no question of the right, in principle, of a consignee in a bill of lading to recover
from the carrier or shipper for loss of, or damage to, goods being transported under said bill ,although
that document may have been — as in practice it oftentimes is — drawn up only by the consignor and
the carrier without the intervention of the consignee. In Mendoza vs. Philippine Air Lines, Inc. 11 the
Court delved at some length into the reasons behind this when, upon a claim made by the consignee of
a motion picture film shipped by air that he was never a party to the contract of transportation and was a
complete stranger thereto, it said:

But appellant now contends that he is not suing on a breach of contract but on a tort as
provided for in Art. 1902 of the Civil Code. We are a little perplexed as to this new theory
of the appellant. First, he insists that the articles of the Code of Commerce should be
applied: that he invokes the provisions of aid Code governing the obligations of a
common carrier to make prompt delivery of goods given to it under a contract of
transportation. Later, as already said, he says that he was never a party to the contract
of transportation and was a complete stranger to it, and that he is now suing on a tort or
a violation of his rights as a stranger (culpa aquiliana) If he does not invoke the contract
of carriage entered into with the defendant company, then he would hardly have any leg
to stand on. His right to prompt delivery of the can of film at the Phil. Air Port stems and
is derived from the contract of carriage under which contract, the PAL undertook to carry
the can of film safely and to deliver it to him promptly. Take away or ignore that contract
and the obligation to carry and to deliver and right to prompt delivery disappear.
Common carriers are not obligated by law to carry and to deliver merchandise, and
persons are not vested with the right to prompt delivery, unless such common carriers
previously assume the obligation. Said rights and obligations are created by a specific
contract entered into by the parties. In the present case, the findings of the trial court
which as already stated, are accepted by the parties and which we must accept are to
the effect that the LVN Pictures Inc. and Jose Mendoza on one side, and the defendant
company on the other, entered into a contract of transportation (p. 29, Rec. on Appeal).

120
 One interpretation of said finding is that the LVN Pictures Inc. through previous
agreement with Mendoza acted as the latter's agent. When he negotiated with the LVN
Pictures Inc. to rent the film "Himala ng Birhen" and show it during the Naga town fiesta,
he most probably authorized and enjoined the Picture Company to ship the film for him
on the PAL on September 17th. Another interpretation is that even if the LVN Pictures
Inc. as consignor of its own initiative, and acting independently of Mendoza for the time
being, made Mendoza as consignee, a stranger to the contract if that is possible,
nevertheless when he, Mendoza appeared at the Phil Air Port armed with the copy of the
Air Way Bill (Exh. 1) demanding the delivery of the shipment to him, he thereby made
himself a party to the contract of transportation. The very citation made by appellant in
his memorandum supports this view. Speaking of the possibility of a conflict between the
order of the shipper on the one hand and the order of the consignee on the other, as
when the shipper orders the shipping company to return or retain the goods shipped
while the consignee demands their delivery, Malagarriga in his book Codigo de
Comercio Comentado, Vol. 1, p. 400, citing a decision of the Argentina Court of Appeals
on commercial matters, cited by Tolentino in Vol. II of his book entitled "Commentaries
and Jurisprudence on the Commercial Laws of the Philippines" p. 209, says that the right
of the shipper to countermand the shipment terminates when the consignee or legitimate
holder of the bill of lading appears with such big of lading before the carrier and makes
himself a party to the contract. Prior to that time he is a stranger to the contract.

Still another view of this phase of the case is that contemplated in Art. 1257, paragraph
2, of the old Civil Code (now Art, 1311, second paragraph) which reads thus:

Should the contract contain any stipulation in favor of a third person, he

may demand its fulfillment provided he has given notice of his
acceptance to the person bound before the stipulation has been revoked.

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

Since the liability of a common carrier for loss of or damage to goods transported by it under a contract
of carriage is governed by the laws of the country of destination 12 and the goods in question were
shipped from the United States to the Philippines, the liability of petitioner Sea-Land to the respondent
consignee is governed primarily by the Civil Code, and as ordained by the said Code, suppletorily, in all
matters not determined thereby, by the Code of Commerce and special laws. 13 One of these
suppletory special laws is the Carriage of Goods by Sea Act, U.S. Public Act No. 521 which was made
applicable to all contracts for the carriage of goods by sea to and from Philippine ports in foreign trade
by Commonwealth Act No. 65, approved on October 22, 1936. Sec. 4(5) of said Act in part reads:

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

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

xxx xxx xxx

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

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

And in its second paragraph, the bill states:

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

Since, as already pointed out, Article 1766 of the Civil Code expressly subjects the rights and
obligations of common carriers to the provisions of the Code of Commerce and of special laws in
matters not regulated by said (Civil) Code, the Court fails to fathom the reason or justification for the
Appellate Court's pronouncement in its appealed Decision that the Carriage of Goods by Sea Act " ...
has no application whatsoever in this case. 15 Not only is there nothing in the Civil Code which
absolutely prohibits agreements between shipper and carrier limiting the latter's liability for loss of or
damage to cargo shipped under contracts of carriage; it is also quite clear that said Code in fact has
agreements of such character in contemplation in providing, in its Articles 1749 and 1750, that:

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

ART. 1750. A contract fixing the sum that may be recovered by the owner or shipper for
the loss, destruction, or deterioration of the goods is valid, if it is reasonable and just
under the circumstances, and has been fairly and freely agreed upon.

Nothing contained in section 4(5) of the Carriage of Goods by Sea Act already quoted is repugnant to or
inconsistent with any of the just-cited provisions of the Civil Code. Said section merely gives more flesh
and greater specificity to the rather general terms of Article 1749 (without doing any violence to the plain
intent thereof) and of Article 1750, to give effect to just agreements limiting carriers' liability for loss or
damage which are freely and fairly entered into.

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

122
sustainable on the basis alone of the cited Civil Code provisions. That said stipulation is just and
reasonable is arguable from the fact that it echoes Art. 1750 itself in providing a limit to liability only if a
greater value is not declared for the shipment in the bill of lading. To hold otherwise would amount to
questioning the justice and fairness of that law itself, and this the private respondent does not pretend to
do. But over and above that consideration, the lust and reasonable character of such stipulation is
implicit in it giving the shipper or owner the option of avoiding acrrual of liability limitation by the simple
and surely far from onerous expedient of declaring the nature and value of the shipment in the bill of
lading. And since the shipper here has not been heard to complaint of having been "rushed," imposed
upon or deceived in any significant way into agreeing to ship the cargo under a bill of lading carrying
such a stipulation — in fact, it does not appear that said party has been heard from at all insofar as this
dispute is concerned — there is simply no ground for assuming that its agreement thereto was not as
the law would require, freely and fairly sought and given.

The private respondent had no direct part or intervention in the execution of the contract of carriage
between the shipper and the carrier as set forth in the bill of lading in question. As pointed out
in Mendoza vs. PAL, supra, the right of a party in the same situation as respondent here, to recover for
loss of a shipment consigned to him under a bill of lading drawn up only by and between the shipper
and the carrier, springs from either a relation of agency that may exist between him and the shipper or
consignor, or his status as a stranger in whose favor some stipulation is made in said contract, and who
becomes a party thereto when he demands fulfillment of that stipulation, in this case the delivery of the
goods or cargo shipped. In neither capacity can he assert personally, in bar to any provision of the bill of
lading, the alleged circumstance that fair and free agreement to such provision was vitiated by its being
in such fine print as to be hardly readable. Parenthetically, it may be observed that in one comparatively
recent case 16 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 though physically in it and as though placed therein by agreement of the parties.

There can, therefore, be no doubt or equivocation about the validity and enforceability of freely-agreed-
upon stipulations in a contract of carriage or bill of lading limiting the liability of the carrier to an agreed
valuation unless the shipper declares a higher value and inserts it into said contract or bill. This pro
position, moreover, rests upon an almost uniform weight of authority. 17

The issue of alleged deviation is also settled by Clause 13 of the bill of lading which expressly
authorizes trans-shipment of the goods at any point in the voyage in these terms:

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

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

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Furthermore, this Court has also ruled 19 that the Carriage of Goods by Sea Act is applicable up to the
final port of destination and that the fact that transshipment was made on an interisland vessel did not
remove the contract of carriage of goods from the operation of said Act.

Private respondent also contends that the aforecited Clauses 22 and 13 of the bill of lading relied upon
by petitioner Sea Land form no part of the short-form bill of lading attached to his complaint before the
Trial Court and appear only in the long form of that document which, he claims. SeaLand offered (as its
Exhibit 2) as an unused blank form with no entries or signatures therein. He, however, admitted in the
Trial Court that several times in the past shipments had been delivered to him through Sea-Land,   from 20

which the assumption may fairly follow that by the time of the consignment now in question, he was
already reasonably apprised of the usual terms covering contracts of carriage with said petitioner.

At any rate, as observed earlier, it has already been held that the provisions of the Carriage of Goods by
Sea Act on package limitation [sec 4(5) of the Act hereinabove referred to] are as much a part of a bill of
lading as though actually placed therein by agreement of the parties.  21

Private respondent, by making claim for loss on the basis of the bill of lading, to all intents and purposes
accepted said bill. Having done so, he —

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

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

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

circumstances considered, it is just and fair that Sea-Land's dollar obligation be convertible at the same
rate.

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

SO ORDERED.

G.R. No. 108897 October 2, 1997

124
SARKIES TOURS PHILIPPINES, INC., petitioner, vs.
HONORABLE COURT OF APPEALS (TENTH DIVISION), DR. ELINO G. FORTADES, MARISOL A.
FORTADES and FATIMA MINERVA A. FORTADES, respondents.

This petition for review is seeking the reversal of the decision of the Court of Appeals in CA-G.R. CV No.
18979 promulgated on January 13, 1993, as well as its resolution of February 19, 1993, denying
petitioner's motion for reconsideration for being a mere rehash of the arguments raised in the appellant's
brief.

The case arose from a damage suit filed by private respondents Elino, Marisol, and Fatima Minerva, all
surnamed Fortades, against petitioner for breach of contract of carriage allegedly attended by bad faith.

On August 31, 1984, Fatima boarded petitioner's De Luxe Bus No. 5 in Manila on her way to Legazpi
City. Her brother Raul helped her load three pieces of luggage containing all of her optometry review
books, materials and equipment, trial lenses, trial contact lenses, passport and visa, as well as her
mother Marisol's U.S. immigration (green) card, among other important documents and personal
belongings. Her belongings were kept in the baggage compartment of the bus, but during a stopover at
Daet, it was discovered that only one bag remained in the open compartment. The others, including
Fatima's things, were missing and might have dropped along the way. Some of the passengers
suggested retracing the route of the bus to try to recover the lost items, but the driver ignored them and
proceeded to Legazpi City.

Fatima immediately reported the loss to her mother who, in turn, went to petitioner's office in Legazpi
City and later at its head office in Manila. Petitioner, however, merely offered her P1,000.00 for each
piece of luggage lost, which she turned down. After returning to Bicol, disappointed but not defeated,
mother and daughter asked assistance from the radio stations and even from Philtranco bus drivers who
plied the same route on August 31st. The effort paid off when one of Fatima's bags was recovered.
Marisol further reported the incident to the National Bureau of Investigation's field office in Legazpi City
and to the local police.

On September 20, 1984, respondents, through counsel, formally demanded satisfaction of their
complaint from petitioner. In a letter dated October 1, 1984, the latter apologized for the delay and said
that "(a) team has been sent out to Bicol for the purpose of recovering or at least getting the full
detail"  of the incident.
1

After more than nine months of fruitless waiting, respondents decided to file the case below to recover
the value of the remaining lost items, as well as moral and exemplary damages, attorney's fees and
expenses of litigation. They claimed that the loss was due to petitioner's failure to observe extraordinary
diligence in the care of Fatima's luggage and that petitioner dealt with them in bad faith from the start.
Petitioner, on the other hand, disowned any liability for the loss on the ground that Fatima allegedly did
not declare any excess baggage upon boarding its bus.

On June 15, 1988, after trial on the merits, the court a quo adjudged the case in favor of
respondents, viz.:

PREMISES CONSIDERED, judgment is hereby rendered in favor of the plaintiffs (herein

respondents) and against the herein defendant Sarkies Tours Philippines, Inc., ordering the
latter to pay to the former the following sums of money, to wit:

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

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

125
 3. The sum of P10,000.00 by way of exemplary damages;

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

5. The sum of P5,000.00 as litigation expenses or a total of One Hundred Forty Thousand
(P140,000.00) Pesos.

to be paid by herein defendant Sarkies Tours Philippines, Inc. to the herein plaintiffs within 30
days from receipt of this Decision.

SO ORDERED.

On appeal, the appellate court affirmed the trial court's judgment, but deleted the award of moral and
exemplary damages. Thus,

WHEREFORE, premises considered, except as above modified, fixing the award for
transportation expenses at P30,000.00 and the deletion of the award for moral and exemplary
damages, the decision appealed from is AFFIRMED, with costs against defendant-appellant.

SO ORDERED.

Its motion for reconsideration was likewise rejected by the Court of Appeals, so petitioner elevated its
case to this Court for a review.

After a careful scrutiny of the records of this case, we are convinced that the trial and appellate courts
resolved the issues judiciously based on the evidence at hand.

Petitioner claims that Fatima did not bring any piece of luggage with her, and even if she did, none was
declared at the start of the trip. The documentary and testimonial evidence presented at the trial,
however, established that Fatima indeed boarded petitioner's De Luxe Bus No. 5 in the evening of
August 31, 1984, and she brought three pieces of luggage with her, as testified by her brother
Raul,  who helped her pack her things and load them on said bus. One of the bags was even recovered
2

by a Philtranco bus driver. In its letter dated October 1, 1984, petitioner tacitly admitted its liability by
apologizing to respondents and assuring them that efforts were being made to recover the lost items.

The records also reveal that respondents went to great lengths just to salvage their loss. The incident
was reported to the police, the NBI, and the regional and head offices of petitioner. Marisol even sought
the assistance of Philtranco bus drivers and the radio stations. To expedite the replacement of her
mother's lost U.S. immigration documents, Fatima also had to execute an affidavit of loss.  Clearly, they
3

would not have gone through all that trouble in pursuit of a fancied loss.

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

lost abaca products he was transporting to Bicol. 5

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

from the time the goods are unconditionally placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or constructively, by the carrier to . . . the person

126
who has a right to receive them,"  unless the loss is due to any of the excepted causes under Article
7

1734 thereof.8

The cause of the loss in the case at bar was petitioner's negligence in not ensuring that the doors of the
baggage compartment of its bus were securely fastened. As a result of this lack of care, almost all of the
luggage was lost, to the prejudice of the paying passengers. As the Court of Appeals correctly
observed:

. . . . Where the common carrier accepted its passenger's baggage for transportation and even
had it placed in the vehicle by its own employee, its failure to collect the freight charge is the
common carrier's own lookout. It is responsible for the consequent loss of the baggage. In the
instant case, defendant appellant's employee even helped Fatima Minerva Fortades and her
brother load the luggages/baggages in the bus' baggage compartment, without asking that they
be weighed, declared, receipted or paid for (TSN, August 4, 1986, pp. 29, 34, 54, 57, 70;
December 23, 1987, p. 35). Neither was this required of the other passengers (TSN, August 4,
1986, p. 104; February 5, 1988; p. 13).

Finally, petitioner questions the award of actual damages to respondents. On this point, we likewise
agree with the trial and appellate courts' conclusions. There is no dispute that of the three pieces of
luggage of Fatima, only one was recovered. The other two contained optometry books, materials,
equipment, as well as vital documents and personal belongings. Respondents had to shuttle between
Bicol and Manila in their efforts to be compensated for the loss. During the trial, Fatima and Marisol had
to travel from the United States just to be able to testify. Expenses were also incurred in reconstituting
their lost documents. Under these circumstances, the Court agrees with the Court of Appeals in
awarding P30,000.00 for the lost items and P30,000.00 for the transportation expenses, but disagrees
with the deletion of the award of moral and exemplary damages which, in view of the foregoing proven
facts, with negligence and bad faith on the fault of petitioner having been duly established, should be
granted to respondents in the amount of P20,000.00 and P5,000.00, respectively.

WHEREFORE, the assailed decision of the Court of Appeals dated January 13, 1993, and its resolution
dated February 19, 1993, are hereby AFFIRMED with the MODIFICATION that petitioner is ordered to
pay respondents an additional P20,000.00 as moral damages and P5,000.00 as exemplary damages.
Costs against petitioner.

SO ORDERED.

127