G.R. No.

148496      March 19, 2002

VIRGINES CALVO doing business under the name and style TRANSORIENT
CONTAINER TERMINAL SERVICES, INC., petitioner, 
vs.
UCPB GENERAL INSURANCE CO., INC. (formerly Allied Guarantee Ins. Co.,
Inc.) respondent.

MENDOZA, J.:

This is a petition for review of the decision,1 dated May 31, 2001, of the Court of
Appeals, affirming the decision2 of the Regional Trial Court, Makati City, Branch 148,
which ordered petitioner to pay respondent, as subrogee, the amount of P93,112.00
with legal interest, representing the value of damaged cargo handled by petitioner, 25%
thereof as attorney's fees, and the cost of the suit.1âwphi1.nêt

The facts are as follows:

Petitioner Virgines Calvo is the owner of Transorient Container Terminal Services, Inc.
(TCTSI), a sole proprietorship customs broker. At the time material to this case,
petitioner entered into a contract with San Miguel Corporation (SMC) for the transfer of
114 reels of semi-chemical fluting paper and 124 reels of kraft liner board from the Port
Area in Manila to SMC's warehouse at the Tabacalera Compound, Romualdez St.,
Ermita, Manila. The cargo was insured by respondent UCPB General Insurance Co.,
Inc.

On July 14, 1990, the shipment in question, contained in 30 metal vans, arrived in
Manila on board "M/V Hayakawa Maru" and, after 24 hours, were unloaded from the
vessel to the custody of the arrastre operator, Manila Port Services, Inc. From July 23 to
July 25, 1990, petitioner, pursuant to her contract with SMC, withdrew the cargo from
the arrastre operator and delivered it to SMC's warehouse in Ermita, Manila. On July 25,
1990, the goods were inspected by Marine Cargo Surveyors, who found that 15 reels of
the semi-chemical fluting paper were "wet/stained/torn" and 3 reels of kraft liner board
were likewise torn. The damage was placed at P93,112.00.

SMC collected payment from respondent UCPB under its insurance contract for the
aforementioned amount. In turn, respondent, as subrogee of SMC, brought suit against
petitioner in the Regional Trial Court, Branch 148, Makati City, which, on December 20,
1995, rendered judgment finding petitioner liable to respondent for the damage to the
shipment.

The trial court held:

It cannot be denied . . . that the subject cargoes sustained damage while in the
custody of defendants. Evidence such as the Warehouse Entry Slip (Exh. "E");
the Damage Report (Exh. "F") with entries appearing therein, classified as "TED"
 and "TSN", which the claims processor, Ms. Agrifina De Luna, claimed to be
tearrage at the end and tearrage at the middle of the subject damaged cargoes
respectively, coupled with the Marine Cargo Survey Report (Exh. "H" - "H-4-A")
confirms the fact of the damaged condition of the subject cargoes. The
surveyor[s'] report (Exh. "H-4-A") in particular, which provides among others that:

" . . . we opine that damages sustained by shipment is attributable to

improper handling in transit presumably whilst in the custody of the
broker . . . ."

is a finding which cannot be traversed and overturned.

The evidence adduced by the defendants is not enough to sustain [her] defense
that [she is] are not liable. Defendant by reason of the nature of [her] business
should have devised ways and means in order to prevent the damage to the
cargoes which it is under obligation to take custody of and to forthwith deliver to
the consignee. Defendant did not present any evidence on what precaution [she]
performed to prevent [the] said incident, hence the presumption is that the
moment the defendant accepts the cargo [she] shall perform such extraordinary
diligence because of the nature of the cargo.

....

Generally speaking under Article 1735 of the Civil Code, if the goods are proved
to have been lost, destroyed or deteriorated, common carriers are presumed to
have been at fault or to have acted negligently, unless they prove that they have
observed the extraordinary diligence required by law. The burden of the plaintiff,
therefore, is to prove merely that the goods he transported have been lost,
destroyed or deteriorated. Thereafter, the burden is shifted to the carrier to prove
that he has exercised the extraordinary diligence required by law. Thus, it has
been held that 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. It is incumbent upon the carrier to
prove that the loss was due to accident or some other circumstances inconsistent
with its liability." (cited in Commercial Laws of the Philippines by Agbayani, p. 31,
Vol. IV, 1989 Ed.)

Defendant, being a customs brother, warehouseman and at the same time a

common carrier is supposed [to] exercise [the] extraordinary diligence required
by law, hence the extraordinary responsibility lasts from the time the goods are
unconditionally placed in the possession of and received by the carrier for
transportation until the same are delivered actually or constructively by the carrier
to the consignee or to the person who has the right to receive the same.3

Accordingly, the trial court ordered petitioner to pay the following amounts --
 1. The sum of P93,112.00 plus interest;

2. 25% thereof as lawyer's fee;

3. Costs of suit.4

The decision was affirmed by the Court of Appeals on appeal. Hence this petition for
review on certiorari.

Petitioner contends that:

I. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE

ERROR [IN] DECIDING THE CASE NOT ON THE EVIDENCE PRESENTED
BUT ON PURE SURMISES, SPECULATIONS AND MANIFESTLY MISTAKEN
INFERENCE.

II. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE

ERROR IN CLASSIFYING THE PETITIONER AS A COMMON CARRIER AND
NOT AS PRIVATE OR SPECIAL CARRIER WHO DID NOT HOLD ITS
SERVICES TO THE PUBLIC.5

It will be convenient to deal with these contentions in the inverse order, for if petitioner is
not a common carrier, although both the trial court and the Court of Appeals held
otherwise, then she is indeed not liable beyond what ordinary diligence in the vigilance
over the goods transported by her, would require.6 Consequently, any damage to the
cargo she agrees to transport cannot be presumed to have been due to her fault or
negligence.

Petitioner contends that contrary to the findings of the trial court and the Court of
Appeals, she is not a common carrier but a private carrier because, as a customs
broker and warehouseman, she does not indiscriminately hold her services out to the
public but only offers the same to select parties with whom she may contract in the
conduct of her business.

The contention has no merit. In De Guzman v. Court of Appeals,7 the Court dismissed a
similar contention and held the party to be a common carrier, thus -

The Civil Code defines "common carriers" in the following terms:

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

engaged in the business of carrying or transporting passengers or goods or both,
by land, water, or air for compensation, offering their services to the public."

The above article makes no distinction between one whose principal business

activity is the carrying of persons or goods or both, and one who does such
carrying only as an ancillary activity . . . Article 1732 also carefully avoids making
 any distinction between a person or enterprise offering transportation service on
a regular or scheduled basis and one offering such service on an occasional,
episodic or unscheduled basis. Neither does Article 1732 distinguish between a
carrier offering its services to the "general public," i.e., the general community or
population, and one who offers services or solicits business only from a
narrow segment of the general population. We think that Article 1732 deliberately
refrained from making such distinctions.

So understood, the concept of "common carrier" under Article 1732 may be seen
to coincide neatly with the notion of "public service," under the Public Service Act
(Commonwealth Act No. 1416, as amended) which at least partially supplements
the law on common carriers set forth in the Civil Code. Under Section 13,
paragraph (b) of the Public Service Act, "public service" includes:

" x x x every person that now or hereafter may own, operate, manage, or
control in the Philippines, for hire or compensation, with general or limited
clientele, whether permanent, occasional or accidental, and done for
general business purposes, any common carrier, railroad, street railway,
traction railway, subway motor vehicle, either for freight or passenger, or
both, with or without fixed route and whatever may be its classification,
freight or carrier service of any class, express service, steamboat, or
steamship line, pontines, ferries and water craft, engaged in the
transportation of passengers or freight or both, shipyard, marine repair
shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation
system, gas, electric light, heat and power, water supply and power
petroleum, sewerage system, wire or wireless communications systems,
wire or wireless broadcasting stations and other similar public services. x x
x" 8

There is greater reason for holding petitioner to be a common carrier because the
transportation of goods is an integral part of her business. To uphold petitioner's
contention would be to deprive those with whom she contracts the protection which the
law affords them notwithstanding the fact that the obligation to carry goods for her
customers, as already noted, is part and parcel of petitioner's business.

Now, as to petitioner's liability, Art. 1733 of the Civil Code provides:

Common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported by them, according to all
the circumstances of each case. . . .

In Compania Maritima v. Court of Appeals, 9 the meaning of "extraordinary diligence in

the vigilance over goods" was explained thus:
 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
characteristic of goods tendered for shipment, and to exercise due care in the
handling and stowage, including such methods as their nature requires."

In the case at bar, petitioner denies liability for the damage to the cargo. She claims that
the "spoilage or wettage" took place while the goods were in the custody of either the
carrying vessel "M/V Hayakawa Maru," which transported the cargo to Manila, or the
arrastre operator, to whom the goods were unloaded and who allegedly kept them in
open air for nine days from July 14 to July 23, 1998 notwithstanding the fact that some
of the containers were deformed, cracked, or otherwise damaged, as noted in the
Marine Survey Report (Exh. H), to wit:

MAXU-2062880      -       rain gutter deformed/cracked

ICSU-363461-3      -       left side rubber gasket on door distorted/partly loose

PERU-204209-4    -       with pinholes on roof panel right portion

TOLU-213674-3     -       wood flooring we[t] and/or with signs of water soaked

MAXU-201406-0     -       with dent/crack on roof panel

ICSU-412105-0      -       rubber gasket on left side/door panel partly detached

loosened.10

In addition, petitioner claims that Marine Cargo Surveyor Ernesto Tolentino testified that
he has no personal knowledge on whether the container vans were first stored in
petitioner's warehouse prior to their delivery to the consignee. She likewise claims that
after withdrawing the container vans from the arrastre operator, her driver, Ricardo
Nazarro, immediately delivered the cargo to SMC's warehouse in Ermita, Manila, which
is a mere thirty-minute drive from the Port Area where the cargo came from. Thus, the
damage to the cargo could not have taken place while these were in her custody.11

Contrary to petitioner's assertion, the Survey Report (Exh. H) of the Marine Cargo
Surveyors indicates that when the shipper transferred the cargo in question to the
arrastre operator, these were covered by clean Equipment Interchange Report (EIR)
and, when petitioner's employees withdrew the cargo from the arrastre operator, they
did so without exception or protest either with regard to the condition of container vans
or their contents. The Survey Report pertinently reads --

Details of Discharge:
 Shipment, provided with our protective supervision was noted discharged ex
vessel to dock of Pier #13 South Harbor, Manila on 14 July 1990, containerized
onto 30' x 20' secure metal vans, covered by clean EIRs. Except for slight dents
and paint scratches on side and roof panels, these containers were deemed to
have [been] received in good condition.

....

Transfer/Delivery:

On July 23, 1990, shipment housed onto 30' x 20' cargo containers was
[withdrawn] by Transorient Container Services, Inc. . . . without exception.

[The cargo] was finally delivered to the consignee's storage warehouse located at
Tabacalera Compound, Romualdez Street, Ermita, Manila from July 23/25,
1990.12

As found by the Court of Appeals:

From the [Survey Report], it [is] clear that the shipment was discharged from the
vessel to the arrastre, Marina Port Services Inc., in good order and condition as
evidenced by clean Equipment Interchange Reports (EIRs). Had there been any
damage to the shipment, there would have been a report to that effect made by
the arrastre operator. The cargoes were withdrawn by the defendant-appellant
from the arrastre still in good order and condition as the same were received by
the former without exception, that is, without any report of damage or loss.
Surely, if the container vans were deformed, cracked, distorted or dented, the
defendant-appellant would report it immediately to the consignee or make an
exception on the delivery receipt or note the same in the Warehouse Entry Slip
(WES). None of these took place. To put it simply, the defendant-appellant
received the shipment in good order and condition and delivered the same to the
consignee damaged. We can only conclude that the damages to the cargo
occurred while it was in the possession of the defendant-appellant. Whenever the
thing is lost (or damaged) in the possession of the debtor (or obligor), it shall be
presumed that the loss (or damage) was due to his fault, unless there is proof to
the contrary. No proof was proffered to rebut this legal presumption and the
presumption of negligence attached to a common carrier in case of loss or
damage to the goods.13

Anent petitioner's insistence that the cargo could not have been damaged while in her
custody as she immediately delivered the containers to SMC's compound, suffice it to
say that 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 goods tendered for [transport] and that [it] exercise[d] due care in the
handling [thereof]." Petitioner failed to do this.
Nor is there basis to exempt petitioner from liability under Art. 1734(4), which provides --

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:

....

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

....

For this provision to apply, the rule is that if the improper packing or, in this case, the
defect/s in the container, is/are known to the carrier or his employees or apparent upon
ordinary observation, but he nevertheless accepts the same without protest or exception
notwithstanding such condition, he is not relieved of liability for damage resulting
therefrom.14 In this case, petitioner accepted the cargo without exception despite the
apparent defects in some of the container vans. Hence, for failure of petitioner to prove
that she exercised extraordinary diligence in the carriage of goods in this case or that
she is exempt from liability, the presumption of negligence as provided under Art.
173515 holds.

WHEREFORE, the decision of the Court of Appeals, dated May 31, 2001, is
AFFIRMED.1âwphi1.nêt

SO ORDERED.

Bellosillo, Quisumbing, Buena, and De Leon, Jr., JJ., concur.

G.R. No. 101503 September 15, 1993

PLANTERS PRODUCTS, INC., petitioner, 

vs.
COURT OF APPEALS, SORIAMONT STEAMSHIP AGENCIES AND KYOSEI KISEN
KABUSHIKI KAISHA, respondents.

Gonzales, Sinense, Jimenez & Associates for petitioner.

Siguion Reyna, Montecillo & Ongsiako Law Office for private respondents.

BELLOSILLO, J.:

Does a charter-party1 between a shipowner and a charterer transform a common carrier

into a private one as to negate the civil law presumption of negligence in case of loss or
damage to its cargo?

Planters Products, Inc. (PPI), purchased from Mitsubishi International Corporation

(MITSUBISHI) of New York, U.S.A., 9,329.7069 metric tons (M/T) of Urea 46% fertilizer
which the latter shipped in bulk on 16 June 1974 aboard the cargo vessel M/V "Sun
Plum" owned by private respondent Kyosei Kisen Kabushiki Kaisha (KKKK) from Kenai,
Alaska, U.S.A., to Poro Point, San Fernando, La Union, Philippines, as evidenced by
Bill of Lading No. KP-1 signed by the master of the vessel and issued on the date of
departure.

On 17 May 1974, or prior to its voyage, a time charter-party on the vessel M/V "Sun
Plum" pursuant to the Uniform General Charter2 was entered into between Mitsubishi as
shipper/charterer and KKKK as shipowner, in Tokyo, Japan.3 Riders to the aforesaid
charter-party starting from par. 16 to 40 were attached to the pre-printed agreement.
Addenda Nos. 1, 2, 3 and 4 to the charter-party were also subsequently entered into on
the 18th, 20th, 21st and 27th of May 1974, respectively.

Before loading the fertilizer aboard the vessel, four (4) of her holds4 were all presumably
inspected by the charterer's representative and found fit to take a load of urea in bulk
pursuant to par. 16 of the charter-party which reads:

16. . . . At loading port, notice of readiness to be accomplished by

certificate from National Cargo Bureau inspector or substitute appointed
by charterers for his account certifying the vessel's readiness to receive
cargo spaces. The vessel's hold to be properly swept, cleaned and dried
at the vessel's expense and the vessel to be presented clean for use in
bulk to the satisfaction of the inspector before daytime commences.
(emphasis supplied)

After the Urea fertilizer was loaded in bulk by stevedores hired by and under the
supervision of the shipper, the steel hatches were closed with heavy iron lids, covered
with three (3) layers of tarpaulin, then tied with steel bonds. The hatches remained
closed and tightly sealed throughout the entire voyage.5

Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches
were opened with the use of the vessel's boom. Petitioner unloaded the cargo from the
holds into its steelbodied dump trucks which were parked alongside the berth, using
metal scoops attached to the ship, pursuant to the terms and conditions of the charter-
partly (which provided for an F.I.O.S. clause).6 The hatches remained open throughout
the duration of the discharge.7

Each time a dump truck was filled up, its load of Urea was covered with tarpaulin before
it was transported to the consignee's warehouse located some fifty (50) meters from the
wharf. Midway to the warehouse, the trucks were made to pass through a weighing
scale where they were individually weighed for the purpose of ascertaining the net
weight of the cargo. The port area was windy, certain portions of the route to the
warehouse were sandy and the weather was variable, raining occasionally while the
discharge was in progress.8 The petitioner's warehouse was made of corrugated
galvanized iron (GI) sheets, with an opening at the front where the dump trucks entered
and unloaded the fertilizer on the warehouse floor. Tarpaulins and GI sheets were
placed in-between and alongside the trucks to contain spillages of the ferilizer.9

It took eleven (11) days for PPI to unload the cargo, from 5 July to 18 July 1974 (except
July 12th, 14th and 18th).10A private marine and cargo surveyor, Cargo Superintendents
Company Inc. (CSCI), was hired by PPI to determine the "outturn" of the cargo shipped,
by taking draft readings of the vessel prior to and after discharge. 11 The survey report
submitted by CSCI to the consignee (PPI) dated 19 July 1974 revealed a shortage in
the cargo of 106.726 M/T and that a portion of the Urea fertilizer approximating 18 M/T
was contaminated with dirt. The same results were contained in a Certificate of
Shortage/Damaged Cargo dated 18 July 1974 prepared by PPI which showed that the
cargo delivered was indeed short of 94.839 M/T and about 23 M/T were rendered unfit
for commerce, having been polluted with sand, rust and 
dirt. 12

Consequently, PPI sent a claim letter dated 18 December 1974 to Soriamont Steamship
Agencies (SSA), the resident agent of the carrier, KKKK, for P245,969.31 representing
the cost of the alleged shortage in the goods shipped and the diminution in value of that
portion said to have been contaminated with dirt. 13

Respondent SSA explained that they were not able to respond to the consignee's claim
for payment because, according to them, what they received was just a request for
shortlanded certificate and not a formal claim, and that this "request" was denied by
them because they "had nothing to do with the discharge of the shipment." 14 Hence, on
18 July 1975, PPI filed an action for damages with the Court of First Instance of Manila.
The defendant carrier argued that the strict public policy governing common carriers
does not apply to them because they have become private carriers by reason of the
provisions of the charter-party. The court a quo however sustained the claim of the
plaintiff against the defendant carrier for the value of the goods lost or damaged when it
ruled thus: 15

. . . Prescinding from the provision of the law that a common carrier is

presumed negligent in case of loss or damage of the goods it contracts to
transport, all that a shipper has to do in a suit to recover for loss or
damage is to show receipt by the carrier of the goods and to delivery by it
 of less than what it received. After that, the burden of proving that the loss
or damage was due to any of the causes which exempt him from liability is
shipted to the carrier, common or private he may be. Even if the provisions
of the charter-party aforequoted are deemed valid, and the defendants
considered private carriers, it was still incumbent upon them to prove that
the shortage or contamination sustained by the cargo is attributable to the
fault or negligence on the part of the shipper or consignee in the loading,
stowing, trimming and discharge of the cargo. This they failed to do. By
this omission, coupled with their failure to destroy the presumption of
negligence against them, the defendants are liable (emphasis supplied).

On appeal, respondent Court of Appeals reversed the lower court and absolved the
carrier from liability for the value of the cargo that was lost or damaged. 16 Relying on
the 1968 case of Home Insurance Co. v. American Steamship Agencies, Inc.,17 the
appellate court ruled that the cargo vessel M/V "Sun Plum" owned by private
respondent KKKK was a private carrier and not a common carrier by reason of the time
charterer-party. Accordingly, the Civil Code provisions on common carriers which set
forth a presumption of negligence do not find application in the case at bar. Thus —

. . . In the absence of such presumption, it was incumbent upon the

plaintiff-appellee to adduce sufficient evidence to prove the negligence of
the defendant carrier as alleged in its complaint. It is an old and well
settled rule that if the plaintiff, upon whom rests the burden of proving his
cause of action, fails to show in a satisfactory manner the facts upon
which he bases his claim, the defendant is under no obligation to prove his
exception or defense (Moran, Commentaries on the Rules of Court,
Volume 6, p. 2, citing Belen v. Belen, 13 Phil. 202).

But, the record shows that the plaintiff-appellee dismally failed to prove

the basis of its cause of action, i.e. the alleged negligence of defendant
carrier. It appears that the plaintiff was under the impression that it did not
have to establish defendant's negligence. Be that as it may, contrary to the
trial court's finding, the record of the instant case discloses ample
evidence showing that defendant carrier was not negligent in performing
its obligation . . . 18 (emphasis supplied).

Petitioner PPI appeals to us by way of a petition for review assailing the decision of the
Court of Appeals. Petitioner theorizes that the Home Insurance case has no bearing on
the present controversy because the issue raised therein is the validity of a stipulation in
the charter-party delimiting the liability of the shipowner for loss or damage to goods
cause by want of due deligence on its part or that of its manager to make the vessel
seaworthy in all respects, and not whether the presumption of negligence provided
under the Civil Code applies only to common carriers and not to private
carriers. 19 Petitioner further argues that since the possession and control of the vessel
remain with the shipowner, absent any stipulation to the contrary, such shipowner
should made liable for the negligence of the captain and crew. In fine, PPI faults the
appellate court in not applying the presumption of negligence against respondent
carrier, and instead shifting the onus probandi on the shipper to show want of due
deligence on the part of the carrier, when he was not even at hand to witness what
transpired during the entire voyage.

As earlier stated, the primordial issue here is whether a common carrier becomes a
private carrier by reason of a charter-party; in the negative, whether the shipowner in
the instant case was able to prove that he had exercised that degree of diligence
required of him under the law.

It is said that etymology is the basis of reliable judicial decisions in commercial cases.
This being so, we find it fitting to first define important terms which are relevant to our
discussion.

A "charter-party" is defined as a contract by which an entire ship, or some principal part

thereof, is let by the owner to another person for a specified time or use; 20 a contract of
affreightment by which the owner of a ship or other vessel lets the whole or a part of her
to a merchant or other person for the conveyance of goods, on a particular voyage, in
consideration of the payment of freight; 21 Charter parties are of two types: (a) contract
of affreightment which involves the use of shipping space on vessels leased by the
owner in part or as a whole, to carry goods for others; and, (b) charter by demise or
bareboat charter, by the terms of which the whole vessel is let to the charterer with a
transfer to him of its entire command and possession and consequent control over its
navigation, including the master and the crew, who are his servants. Contract of
affreightment may either be time charter, wherein the vessel is leased to the charterer
for a fixed period of time, or voyage charter, wherein the ship is leased for a single
voyage. 22 In both cases, the charter-party provides for the hire of vessel only, either for
a determinate period of time or for a single or consecutive voyage, the shipowner to
supply the ship's stores, pay for the wages of the master and the crew, and defray the
expenses for the maintenance of the ship.

Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the
Civil Code. 23 The definition extends to carriers either by land, air or water which hold
themselves out as ready to engage in carrying goods or transporting passengers or
both for compensation as a public employment and not as a casual occupation. The
distinction between a "common or public carrier" and a "private or special carrier" lies in
the character of the business, such that if the undertaking is a single transaction, not a
part of the general business or occupation, although involving the carriage of goods for
a fee, the person or corporation offering such service is a private carrier. 24

Article 1733 of the New Civil Code mandates that common carriers, by reason of the
nature of their business, should observe extraordinary diligence in the vigilance over the
goods they carry.25 In the case of private carriers, however, the exercise of ordinary
diligence in the carriage of goods will suffice. Moreover, in the case of loss, destruction
or deterioration of the goods, common carriers are presumed to have been at fault or to
have acted negligently, and the burden of proving otherwise rests on them.26 On the
contrary, no such presumption applies to private carriers, for whosoever alleges
damage to or deterioration of the goods carried has the onus of proving that the cause
was the negligence of the carrier.

It is not disputed that respondent carrier, in the ordinary course of business, operates as
a common carrier, transporting goods indiscriminately for all persons. When petitioner
chartered the vessel M/V "Sun Plum", the ship captain, its officers and compliment were
under the employ of the shipowner and therefore continued to be under its direct
supervision and control. Hardly then can we charge the charterer, a stranger to the crew
and to the ship, with the duty of caring for his cargo when the charterer did not have any
control of the means in doing so. This is evident in the present case considering that the
steering of the ship, the manning of the decks, the determination of the course of the
voyage and other technical incidents of maritime navigation were all consigned to the
officers and crew who were screened, chosen and hired by the shipowner. 27

It is therefore imperative that a public carrier shall remain as such, notwithstanding the
charter of the whole or portion of a vessel by one or more persons, provided the charter
is limited to the ship only, as in the case of a time-charter or voyage-charter. It is only
when the charter includes both the vessel and its crew, as in a bareboat or demise that
a common carrier becomes private, at least insofar as the particular voyage covering
the charter-party is concerned. Indubitably, a shipowner in a time or voyage charter
retains possession and control of the ship, although her holds may, for the moment, be
the property of the charterer. 28

Respondent carrier's heavy reliance on the case of Home Insurance Co. v. American

Steamship Agencies, supra, is misplaced for the reason that the meat of the
controversy therein was the validity of a stipulation in the charter-party exempting the
shipowners from liability for loss due to the negligence of its agent, and not the effects
of a special charter on common carriers. At any rate, the rule in the United States that a
ship chartered by a single shipper to carry special cargo is not a common
carrier, 29 does not find application in our jurisdiction, for we have observed that the
growing concern for safety in the transportation of passengers and /or carriage of goods
by sea requires a more exacting interpretation of admiralty laws, more particularly, the
rules governing common carriers.

We quote with approval the observations of Raoul Colinvaux, the learned barrister-at-
law 30 —

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

cases in which a ship is used to convey the goods of one and of several
persons. Where the ship herself is let to a charterer, so that he takes over
the charge and control of her, the case is different; the shipowner is not
then a carrier. But where her services only are let, the same grounds for
imposing a strict responsibility exist, whether he is employed by one or
many. The master and the crew are in each case his servants, the
freighter in each case is usually without any representative on board the
 ship; the same opportunities for fraud or collusion occur; and the same
difficulty in discovering the truth as to what has taken place arises . . .

In an action for recovery of damages against a common carrier on the goods shipped,
the shipper or consignee should first prove the fact of shipment and its consequent loss
or damage while the same was in the possession, actual or constructive, of the carrier.
Thereafter, the burden of proof shifts to respondent to prove that he has exercised
extraordinary diligence required by law or that the loss, damage or deterioration of the
cargo was due to fortuitous event, or some other circumstances inconsistent with its
liability. 31

To our mind, respondent carrier has sufficiently overcome, by clear and convincing
proof, the prima faciepresumption of negligence.

The master of the carrying vessel, Captain Lee Tae Bo, in his deposition taken on 19
April 1977 before the Philippine Consul and Legal Attache in the Philippine Embassy in
Tokyo, Japan, testified that before the fertilizer was loaded, the four (4) hatches of the
vessel were cleaned, dried and fumigated. After completing the loading of the cargo in
bulk in the ship's holds, the steel pontoon hatches were closed and sealed with iron lids,
then covered with three (3) layers of serviceable tarpaulins which were tied with steel
bonds. The hatches remained close and tightly sealed while the ship was in transit as
the weight of the steel covers made it impossible for a person to open without the use of
the ship's boom. 32

It was also shown during the trial that the hull of the vessel was in good condition,
foreclosing the possibility of spillage of the cargo into the sea or seepage of water inside
the hull of the vessel. 33 When M/V "Sun Plum" docked at its berthing place,
representatives of the consignee boarded, and in the presence of a representative of
the shipowner, the foreman, the stevedores, and a cargo surveyor representing CSCI,
opened the hatches and inspected the condition of the hull of the vessel. The
stevedores unloaded the cargo under the watchful eyes of the shipmates who were
overseeing the whole operation on rotation basis. 34

Verily, the presumption of negligence on the part of the respondent carrier has been
efficaciously overcome by the showing of extraordinary zeal and assiduity exercised by
the carrier in the care of the cargo. This was confirmed by respondent appellate court
thus —

. . . Be that as it may, contrary to the trial court's finding, the record of the

instant case discloses ample evidence showing that defendant carrier was
not negligent in performing its obligations. Particularly, the following
testimonies of plaintiff-appellee's own witnesses clearly show absence of
negligence by the defendant carrier; that the hull of the vessel at the time
of the discharge of the cargo was sealed and nobody could open the
same except in the presence of the owner of the cargo and the
representatives of the vessel (TSN, 20 July 1977, p. 14); that the cover of
 the hatches was made of steel and it was overlaid with tarpaulins, three
layers of tarpaulins and therefore their contents were protected from the
weather (TSN, 5 April 1978, p. 24); and, that to open these hatches, the
seals would have to be broken, all the seals were found to be intact (TSN,
20 July 1977, pp. 15-16) (emphasis supplied).

The period during which private respondent was to observe the degree of diligence
required of it as a public carrier began from the time the cargo was unconditionally
placed in its charge after the vessel's holds were duly inspected and passed scrutiny by
the shipper, up to and until the vessel reached its destination and its hull was
reexamined by the consignee, but prior to unloading. This is clear from the limitation
clause agreed upon by the parties in the Addendum to the standard "GENCON" time
charter-party which provided for an F.I.O.S., meaning, that the loading, stowing,
trimming and discharge of the cargo was to be done by the charterer, free from all risk
and expense to the carrier. 35 Moreover, a shipowner is liable for damage to the cargo
resulting from improper stowage only when the stowing is done by stevedores
employed by him, and therefore under his control and supervision, not when the same
is done by the consignee or stevedores under the employ of the latter. 36

Article 1734 of the New Civil Code provides that common carriers are not responsible
for the loss, destruction or deterioration of the goods if caused by the charterer of the
goods or defects in the packaging or in the containers. The Code of Commerce also
provides that all losses and deterioration which the goods may suffer during the
transportation by reason of fortuitous event, force majeure, or the inherent defect of the
goods, shall be for the account and risk of the shipper, and that proof of these accidents
is incumbent upon the carrier. 37 The carrier, nonetheless, shall be liable for the loss and
damage resulting from the preceding causes if it is proved, as against him, that they
arose through his negligence or by reason of his having failed to take the precautions
which usage has established among careful persons. 38

Respondent carrier presented a witness who testified on the characteristics of the

fertilizer shipped and the expected risks of bulk shipping. Mr. Estanislao Chupungco, a
chemical engineer working with Atlas Fertilizer, described Urea as a chemical
compound consisting mostly of ammonia and carbon monoxide compounds which are
used as fertilizer. Urea also contains 46% nitrogen and is highly soluble in water.
However, during storage, nitrogen and ammonia do not normally evaporate even on a
long voyage, provided that the temperature inside the hull does not exceed eighty (80)
degrees centigrade. Mr. Chupungco further added that in unloading fertilizer in bulk with
the use of a clamped shell, losses due to spillage during such operation amounting to
one percent (1%) against the bill of lading is deemed "normal" or "tolerable." The
primary cause of these spillages is the clamped shell which does not seal very tightly.
Also, the wind tends to blow away some of the materials during the unloading process.

The dissipation of quantities of fertilizer, or its daterioration in value, is caused either by

an extremely high temperature in its place of storage, or when it comes in contact with
water. When Urea is drenched in water, either fresh or saline, some of its particles
dissolve. But the salvaged portion which is in liquid form still remains potent and usable
although no longer saleable in its original market value.

The probability of the cargo being damaged or getting mixed or contaminated with
foreign particles was made greater by the fact that the fertilizer was transported in
"bulk," thereby exposing it to the inimical effects of the elements and the grimy condition
of the various pieces of equipment used in transporting and hauling it.

The evidence of respondent carrier also showed that it was highly improbable for sea
water to seep into the vessel's holds during the voyage since the hull of the vessel was
in good condition and her hatches were tightly closed and firmly sealed, making the M/V
"Sun Plum" in all respects seaworthy to carry the cargo she was chartered for. If there
was loss or contamination of the cargo, it was more likely to have occurred while the
same was being transported from the ship to the dump trucks and finally to the
consignee's warehouse. This may be gleaned from the testimony of the marine and
cargo surveyor of CSCI who supervised the unloading. He explained that the 18 M/T of
alleged "bar order cargo" as contained in their report to PPI was just an approximation
or estimate made by them after the fertilizer was discharged from the vessel and
segregated from the rest of the cargo.

The Court notes that it was in the month of July when the vessel arrived port and
unloaded her cargo. It rained from time to time at the harbor area while the cargo was
being discharged according to the supply officer of PPI, who also testified that it was
windy at the waterfront and along the shoreline where the dump trucks passed enroute
to the consignee's warehouse.

Indeed, we agree with respondent carrier that bulk shipment of highly soluble goods like
fertilizer carries with it the risk of loss or damage. More so, with a variable weather
condition prevalent during its unloading, as was the case at bar. This is a risk the
shipper or the owner of the goods has to face. Clearly, respondent carrier has
sufficiently proved the inherent character of the goods which makes it highly vulnerable
to deterioration; as well as the inadequacy of its packaging which further contributed to
the loss. On the other hand, no proof was adduced by the petitioner showing that the
carrier was remise in the exercise of due diligence in order to minimize the loss or
damage to the goods it carried.

WHEREFORE, the petition is DISMISSED. The assailed decision of the Court of

Appeals, which reversed the trial court, is AFFIRMED. Consequently, Civil Case No.
98623 of the then Court of the First Instance, now Regional Trial Court, of Manila should
be, as it is hereby DISMISSED.

Costs against petitioner.

SO ORDERED.
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.

DECISION

CARPIO-MORALES, J.:

On petition for review is the June 27, 2001 Decision1 of the Court of Appeals, as well as
its Resolution2 dated September 28, 2001 denying the motion for reconsideration, which
affirmed that of Branch 21 of the Regional Trial Court (RTC) of Manila in Civil Case No.
92-631323 holding petitioner Schmitz Transport Brokerage Corporation (Schmitz
Transport), together with Black Sea Shipping Corporation (Black Sea), represented by
its ship agent Inchcape Shipping Inc. (Inchcape), and Transport Venture (TVI), solidarily
liable for the loss of 37 hot rolled steel sheets in coil that were washed overboard a
barge.

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

The cargoes, which were to be discharged at the port of Manila in favor of the
consignee, Little Giant Steel Pipe Corporation (Little Giant),4 were insured against all
risks with Industrial Insurance Company Ltd. (Industrial Insurance) under Marine Policy
No. M-91-3747-TIS.5

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

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

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

By 7:00 p.m. also of October 26, 1991, the tugboat, after positioning the barge
alongside the vessel, left and returned to the port terminal.9 At 9:00 p.m., arrastre
operator Ocean Terminal Services Inc. commenced to unload 37 of the 545 coils from
the vessel unto the barge.
By 12:30 a.m. of October 27, 1991 during which the weather condition had become
inclement due to an approaching storm, the unloading unto the barge of the 37 coils
was accomplished.10 No tugboat pulled the barge back to the pier, however.

At around 5:30 a.m. of October 27, 1991, due to strong waves,11 the crew of the barge
abandoned it and transferred to the vessel. The barge pitched and rolled with the waves
and eventually capsized, washing the 37 coils into the sea.12 At 7:00 a.m., a tugboat
finally arrived to pull the already empty and damaged barge back to the pier.13

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

Little Giant thus filed a formal claim against Industrial Insurance which paid it the
amount of ₱5,246,113.11. Little Giant thereupon executed a subrogation receipt15 in
favor of Industrial Insurance.

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

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

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

WHEREFORE, premises considered, the Court renders judgment in favor of the

plaintiff, ordering the defendants to pay plaintiff jointly and severally the sum of
₱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, 22 it finding that all the defendants
were common carriers — Black Sea and TVI for engaging in the transport of goods and
cargoes over the seas as a regular business and not as an isolated transaction,23 and
Schmitz Transport for entering into a contract with Little Giant to transport the cargoes
from ship to port for a fee.24

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

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

The defendants’ respective motions for reconsideration having been denied by

Resolution27 of September 28, 2001, Schmitz Transport (hereinafter referred to as
petitioner) filed the present petition against TVI, Industrial Insurance and Black Sea.

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

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

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

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

In issue then are:

(1) 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,34 held that unloading outside the breakwater, instead of inside the breakwater,
while a storm signal was up constitutes negligence.35 It thus concluded that the
proximate cause of the loss was Black Sea’s negligence in deciding to unload the
cargoes at an unsafe place and while a typhoon was approaching.36

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

The weather data report,38 furnished and verified by the Chief of the Climate Data
Section of PAG-ASA and marked as a common exhibit of the parties, states that while
typhoon signal No. 1 was hoisted over Metro Manila on October 23-31, 1991, the sea
condition at the port of Manila at 5:00 p.m. - 11:00 p.m. of October 26, 1991 was
moderate. It cannot, therefore, be said that the defendants were negligent in not
unloading the cargoes upon the barge on October 26, 1991 inside the breakwater.

That no tugboat towed back the barge to the pier after the cargoes were completely
loaded by 12:30 in the morning39 is, however, a material fact which the appellate court
failed to properly consider and appreciate40 — the proximate cause of the loss of the
cargoes. Had the barge been towed back promptly to the pier, the deteriorating sea
conditions notwithstanding, the loss could have been avoided. But the barge was left
floating in open sea until big waves set in at 5:30 a.m., causing it to sink along with the
cargoes.41 The loss thus falls outside the "act of God doctrine."
The proximate cause of the loss having been determined, who among the parties is/are
responsible therefor?

Contrary to petitioner’s insistence, this Court, as did the appellate court, finds that
petitioner is a common carrier. For it undertook to transport the cargoes from the
shipside of "M/V Alexander Saveliev" to the consignee’s warehouse at Cainta, Rizal. As
the appellate court put it, "as long as a person or corporation holds [itself] to the public
for the purpose of transporting goods as [a] business, [it] is already considered a
common carrier regardless if [it] owns the vehicle to be used or has to hire one."42 That
petitioner is a common carrier, the testimony of its own Vice-President and General
Manager Noel Aro that part of the services it offers to its clients as a brokerage firm
includes the transportation of cargoes reflects so.

Atty. 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 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,44 held:

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

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

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

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

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

Petitioner, which did not have any barge or tugboat, engaged the services of TVI as
handler48 to provide the barge and the tugboat. In their Service Contract,49 while Little
Giant was named as the consignee, petitioner did not disclose that it was acting on
commission and was chartering the vessel for Little Giant.50 Little Giant did not thus
automatically become a party to the Service Contract and was not, therefore, bound by
the terms and conditions therein.

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

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

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

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

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

If the law or contract does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be required.
Was the reasonable care and caution which an ordinarily prudent person would have
used in the same situation exercised by TVI?52

This Court holds not.

TVI’s failure to promptly provide a tugboat did not only increase the risk that might have
been reasonably anticipated during the shipside operation, but was the proximate
cause of the loss. A man of ordinary prudence would not leave a heavily loaded barge
floating for a considerable number of hours, at such a precarious time, and in the open
sea, knowing that the barge does not have any power of its own and is totally
defenseless from the ravages of the sea. That it was nighttime and, therefore, the
members of the crew of a 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 173953 of the
Civil Code, prove that it exercised due diligence to prevent or minimize the loss, before,
during and after the occurrence of the storm in order that it may be exempted from
liability for the loss of the goods.

While petitioner sent checkers54 and a supervisor55 on board the vessel to counter-check

the operations of TVI, it failed to take all available and reasonable precautions to avoid
the loss. After noting that TVI failed to arrange for the 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 liable56 for the loss of the
cargoes. The following pronouncement of the Supreme Court is instructive:

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

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

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

Parties to a contract of carriage may, however, agree upon a definition of delivery that
extends the services rendered by the carrier. In the case at bar, Bill of Lading No. 2
covering the shipment provides that delivery be made "to the port of discharge or so
near thereto as she may safely get, always afloat."59 The delivery of the goods to the
consignee was not from "pier to pier" but from the shipside of "M/V Alexander Saveliev"
and into barges, for which reason the consignee contracted the services of petitioner.
Since Black Sea had constructively delivered the cargoes to Little Giant, through
petitioner, it had discharged its duty.60

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

Respecting the award of attorney’s fees in an amount over ₱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.61 To award attorney’s fees to a
party just because the judgment is rendered in its favor would be tantamount to
imposing a premium on one’s right to litigate or seek judicial redress of legitimate
grievances.62

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

As for the court a quo’s award of interest on the amount claimed, the same calls for
modification following the ruling in Eastern Shipping Lines, Inc. v. Court of Appeals 64 that
when the demand cannot be reasonably established at the time the demand is made,
the interest shall begin to run not from the time the claim is made judicially or
extrajudicially but from the date the judgment of the court is made (at which the time the
quantification of damages may be deemed to have been reasonably ascertained).65

WHEREFORE, judgment is hereby rendered ordering petitioner Schmitz Transport &

Brokerage Corporation, and Transport Venture Incorporation jointly and severally liable
for the amount of ₱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.

Panganiban, (Chairman), Sandoval-Gutierrez, Corona, and Garcia, JJ., concur.

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.

NARVASA, J.:

The main issue here is whether or not the consignee of seaborne freight is bound by
stipulations in the covering bill of lading limiting to a fixed amount the liability of the
carrier for loss or damage to the cargo where its value is not declared in the bill.

The factual antecedents, for the most part, are not in dispute.

On or about January 8, 1981, Sea-Land Service, Inc. (Sea-Land for brevity), a foreign
shipping and forwarding company licensed to do business in the Philippines, received
from Seaborne Trading Company in Oakland, California a shipment consigned to Sen
Hiap Hing the business name used by Paulino Cue in the wholesale and retail trade
which he operated out of an establishment located on Borromeo and Plaridel Streets,
Cebu City.

The shipper not having declared the value of the shipment, no value was indicated in
the bill of lading. The bill described the shipment only as "8 CTNS on 2 SKIDS-
FILES. 1 Based on volume measurements 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. 3 Sometime between 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. 5 Sea-Land offered
to settle for US$4,000.00, or its 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.6 Cue rejected the offer
and thereafter brought suit for damages against Sea-Land in the then Court of First
Instance of Cebu, Branch X.7 Said Court, after trial, rendered judgment in favor of Cue,
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.9 That Court however affirmed

the decision of 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).
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.

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 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 16where 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

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, 20 from 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 23 that as early as on

April 22, 1981, 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.24 All 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.

Teehankee, C.J., Cruz, Paras and Gancayco, JJ., concur