G.R. No.

177116

February 27, 2013

ASIAN TERMINALS, INC., Petitioner, vs. SIMON ENTERPRISES,

INC., Respondent.
DECISION
VILLARAMA, JR., J.:
Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules
of Civil Procedure, as amended, assailing the Decision 1 dated November 27,
2006 and Resolution2 dated March 23, 2007 of the Court of Appeals (CA) in CAG.R. CV No. 71210.
The facts are as follows:
On October 25, 1995, Contiquincybunge Export Company loaded 6,843.700
metric tons of U.S. Soybean Meal in Bulk on board the vessel MN "Sea Dream"
at the Port of Darrow, Louisiana, U.S.A., for delivery to the Port of Manila to
respondent Simon Enterprises, Inc., as consignee. When the vessel arrived at
the South Harbor in Manila, the shipment was discharged to the receiving
barges of petitioner Asian Terminals, Inc. (ATI), the arrastre operator.
Respondent later received the shipment but claimed having received only
6,825.144 metric tons of U.S. Soybean Meal, or short by 18.556 metric tons,
which is estimated to be worth US$7,100.16 or P186,743.20.3
On November 25, 1995, Contiquincybunge Export Company made another
shipment to respondent and allegedly loaded on board the vessel M/V "Tern" at
the Port of Darrow, Louisiana, U.S.A. 3,300.000 metric tons of U.S. Soybean
Meal in Bulk for delivery to respondent at the Port of Manila. The carrier issued
its clean Berth Term Grain Bill of Lading.4
On January 25, 1996, the carrier docked at the inner Anchorage, South Harbor,
Manila. The subject shipment was discharged to the receiving barges of
petitioner ATI and received by respondent which, however, reported receiving
only 3,100.137 metric tons instead of the manifested 3,300.000 metric tons of
shipment. Respondent filed against petitioner ATI and the carrier a claim for the
shortage of 199.863 metric tons, estimated to be worth US$79,848.86
or P2,100,025.00, but its claim was denied.
Thus, on December 3, 1996, respondent filed with the Regional Trial Court (RTC)
of Manila an action for damages5 against the unknown owner of the vessels M/V
"Sea Dream" and M/V "Tern," its local agent Inter-Asia Marine Transport, Inc.,
and petitioner ATI alleging that it suffered the losses through the fault or
negligence of the said defendants. Respondent sought to claim damages plus

attorneys fees and costs of suit. Its claim against the unknown owner of the
vessel M/V "Sea Dream," however, was later settled in a Release and
Quitclaim6 dated June 9, 1998, and only the claims against the unknown owner
of the M/V "Tern," Inter-Asia Marine Transport, Inc., and petitioner ATI remained.
In their Answer,7 the unknown owner of the vessel M/V "Tern" and its local
agent Inter-Asia Marine Transport, Inc., prayed for the dismissal of the
complaint essentially alleging lack of cause of action and prescription. They
alleged as affirmative defenses the following: that the complaint does not state
a cause of action; that plaintiff and/or defendants are not the real parties-ininterest; that the cause of action had already prescribed or laches had set in;
that the claim should have been filed within three days from receipt of the
cargo pursuant to the provisions of the Code of Commerce; that the defendant
could no longer check the veracity of plaintiffs claim considering that the claim
was filed eight months after the cargo was discharged from the vessel; that
plaintiff hired its own barges to receive the cargo and hence, any damages or
losses during the discharging operations were for plaintiffs account and
responsibility; that the statement of facts bears no remarks on any shortlanded cargo; that the draft survey report indicates that the cargo discharged
was more than the figures appearing in the bill of lading; that because the bill
of lading states that the goods are carried on a "shippers weight, quantity and
quality unknown" terms and on "all terms, conditions and exceptions as per
charter party dated October 15, 1995," the vessel had no way of knowing the
actual weight, quantity, and quality of the bulk cargo when loaded at the port
of origin and the vessel had to rely on the shipper for such information; that the
subject shipment was discharged in Manila in the same condition and quantity
as when loaded at the port of loading; that defendants responsibility ceased
upon discharge from the ships tackle; that the damage or loss was due to the
inherent vice or defect of the goods or to the insufficiency of packing thereof or
perils or dangers or accidents of the sea, pre-shipment damage or to improper
handling of the goods by plaintiff or its representatives after discharge from the
vessel, for which defendants cannot be made liable; that damage/loss occurred
while the cargo was in the possession, custody or control of plaintiff or its
representative, or due to plaintiffs own negligence and careless actuations in
the handling of the cargo; that the loss is less than 0.75% of the entire cargo
and assuming arguendo that the shortage exists, the figure is well within the
accepted parameters when loading this type of bulk cargo; that defendants
exercised the required diligence under the law in the performance of their
duties; that the vessel was seaworthy in all respects; that the vessel went
straight from the port of loading to Manila, without passing through any
intermediate ports so there was no chance for any loss of the cargo; the
plaintiffs claim is excessive, grossly overstated, unreasonable and a mere
paper loss and is certainly unsubstantiated and without any basis; the terms
and conditions of the relevant bill of lading and the charter party, as well as the
provisions of the Carriage of Goods by Sea Act and existing laws, absolve the
defendants from any liability; that the subject shipment was received in bulk
and thus defendant carrier has no knowledge of the condition, quality and

quantity of the cargo at the time of loading; that the complaint was not referred
to the arbitrators pursuant to the bill of lading; that liability, if any, should not
exceed the CIF value of the lost cargo, or the limits of liability set forth in the
bill of lading and the charter party. As counterclaim, defendants prayed for the
payment of attorneys fees in the amount of P220,000. By way of cross-claim,
they ask for reimbursement from their co-defendant, petitioner ATI, in the event
that they are held liable to plaintiff.
Petitioner ATI meanwhile alleged in its Answer8 that it exercised the required
diligence in handling the subject shipment. It moved for the dismissal of the
complaint, and alleged by way of special and affirmative defense that plaintiff
has no valid cause of action against petitioner ATI; that the cargo was
completely discharged from the vessel M/V "Tern" to the receiving barges
owned or hired by the plaintiff; and that petitioner ATI exercised the required
diligence in handling the shipment. By way of counterclaim, petitioner ATI
argued that plaintiff should shoulder its expenses for attorneys fees in the
amount of P20,000 as petitioner ATI was constrained to engage the services of
counsel to protect its interest.
On May 10, 2001, the RTC of Manila rendered a Decision9 holding petitioner ATI
and its co-defendants solidarily liable to respondent for damages arising from
the shortage. The RTC held:
WHEREFORE, premises considered, judgment is hereby rendered ordering
defendants M/V "Tern" Inter-Asia Marine Transport, Inc. and Asian Terminal Inc.
jointly and severally liable to pay plaintiff Simon Enterprises the sum
of P2,286,259.20 with legal interest from the date the complaint was filed until
fully satisfied, 10% of the amount due plaintiff as and for attorneys fees plus
the costs of suit.
Defendants counterclaim and cross claim are hereby DISMISSED for lack of
merit.
SO ORDERED.10
The trial court found that respondent has established that the losses/shortages
were incurred prior to its receipt of the goods. As such, the burden shifted to
the carrier to prove that it exercised extraordinary diligence as required by law
to prevent the loss, destruction or deterioration.
However, the trial court held that the defendants failed to prove that they did
so. The trial court gave credence to the testimony of Eduardo Ragudo, a super
cargo of defendant Inter-Asia Marine Transport, Inc., who admitted that there
were spillages or overflow down to the spillage saver. The trial court also noted
that said witness also declared that respondents representative was not

allowed to sign the Masters Certificate. Such declaration, said the trial court,
placed petitioner ATI in a bad light and weakened its stand.
Not satisfied, the unknown owner of the vessel M/V "Tern," Inter-Asia Marine
Transport, Inc. and petitioner ATI respectively filed appeals to the CA. In their
petition, the unknown owner of the vessel M/V "Tern" and Inter-Asia Marine
Transport, Inc. raised the question of whether the trial court erred in finding
that they did not exercise extraordinary diligence in the handling of the goods. 11
On the other hand, petitioner ATI alleged that:
THE COURT-A-QUO COMMITTED SERIOUS AND REVERSIBLE ERROR IN HOLDING
DEFENDANT[-]APPELLANT ATI SOLIDARILY LIABLE WITH CO-DEFENDANT
APPELLANT INTERASIA MARINE TRANSPORT, INC. CONTRARY TO THE EVIDENCE
PRESENTED.12
On November 27, 2006, the CA promulgated the assailed Decision, the decretal
portion of which reads:
WHEREFORE, the appealed Decision dated May 10, 2001 is affirmed, except
the award of attorneys fees which is hereby deleted.
SO ORDERED.13
In affirming the RTC Decision, the CA held that there is no justification to disturb
the factual findings of the trial court which are entitled to respect on appeal as
they were supported by substantial evidence. It agreed with the findings of the
trial court that the unknown owner of the vessel M/V "Tern" and Inter-Asia
Marine Transport, Inc. failed to establish that they exercised extraordinary
diligence in transporting the goods or exercised due diligence to forestall or
lessen the loss as provided in Article 174214 of the Civil Code. The CA also ruled
that petitioner ATI, as the arrastre operator, should be held jointly and severally
liable with the carrier considering that petitioner ATIs stevedores were under
the direct supervision of the unknown owner of M/V "Tern" and that the
spillages occurred when the cargoes were being unloaded by petitioner ATIs
stevedores.
Petitioner ATI filed a motion for reconsideration,15 but the CA denied its motion
in a Resolution16dated March 23, 2007. The unknown owner of the vessel M/V
"Tern" and Inter-Asia Marine Transport, Inc. for their part, appealed to this Court
via a petition for review on certiorari, which was docketed as G.R. No. 177170.
Its appeal, however, was denied by this Court on July 16, 2007 for failure to
sufficiently show any reversible error committed by the CA in the challenged
Decision and Resolution as to warrant the exercise of this Courts discretionary
appellate jurisdiction. The unknown owner of M/V "Tern" and Inter-Asia Marine

Transport, Inc. sought reconsideration of the denial but their motion was denied
by the Court in a Resolution dated October 17, 2007. 17

trier of facts. Section 1 thereof provides that "the petition x x x shall raise only
questions of law, which must be distinctly set forth."

Meanwhile, on April 20, 2007, petitioner ATI filed the present petition raising
the sole issue of whether the appellate court erred in affirming the decision of
the trial court holding petitioner ATI solidarily liable with its codefendants for
the shortage incurred in the shipment of the goods to respondent.

A question of law exists when the doubt or controversy concerns the correct
application of law or jurisprudence to a certain set of facts; or when the issue
does not call for an examination of the probative value of the evidence
presented, the truth or falsehood of facts being admitted. A question of fact
exists when the doubt or difference arises as to the truth or falsehood of facts
or when the query invites calibration of the whole evidence considering mainly
the credibility of the witnesses, the existence and relevancy of specific
surrounding circumstances as well as their relation to each other and to the
whole, and the probability of the situation.19

Petitioner ATI argues that:

1. Respondent failed to prove that the subject shipment suffered actual
loss/shortage as there was no competent evidence to prove that it
actually weighed 3,300 metric tons at the port of origin.
2. Stipulations in the bill of lading that the cargo was carried on a
"shippers weight, quantity and quality unknown" is not contrary to
public policy. Thus, herein petitioner cannot be bound by the quantity
or weight of the cargo stated in the bill of lading.
3. Shortage/loss, if any, may have been due to the inherent nature of
the shipment and its insufficient packing considering that the subject
cargo was shipped in bulk and had a moisture content of 12.5%.
4. Respondent failed to substantiate its claim for damages as no
competent evidence was presented to prove the same.1wphi1
5. Respondent has not presented any scintilla of evidence showing any
fault/negligence on the part of herein petitioner.

The well-entrenched rule in our jurisdiction is that only questions of law may be
entertained by this Court in a petition for review on certiorari. This rule,
however, is not ironclad and admits certain exceptions, such as when (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 fact are conflicting; (6) there is no citation of specific evidence on
which the factual findings are based; (7) the findings of absence of facts are
contradicted by the presence of evidence on record; (8) the findings of the
Court of Appeals are contrary to those of the trial court; (9) the Court of
Appeals manifestly overlooked certain relevant and undisputed facts that, if
properly considered, would justify a different conclusion; (10) the findings of the
Court of Appeals are beyond the issues of the case; and (11) such findings are
contrary to the admissions of both parties.20
After a careful review of the records, we find justification to warrant the
application of the fourth exception. The CA misapprehended the following facts.

6. Petitioner ATI should be entitled to its counterclaim. 18

Respondent, on the other hand, quotes extensively the CA decision and
maintains its correctness.
We grant the petition.
The CA erred in affirming the decision of the trial court holding petitioner ATI
solidarily liable with its co-defendants for the shortage incurred in the shipment
of the goods to respondent.
We note that the matters raised by petitioner ATI involve questions of fact
which are generally not reviewable in a petition for review on certiorari under
Rule 45 of the 1997 Rules of Civil Procedure, as amended, as the Court is not a

First, petitioner ATI is correct in arguing that the respondent failed to prove
that the subject shipment suffered actual shortage, as there was no competent
evidence to prove that it actually weighed 3,300 metric tons at the port of
origin.
Though it is true that common carriers are presumed to have been at fault or to
have acted negligently if the goods transported by them are lost, destroyed, or
deteriorated, and that the common carrier must prove that it exercised
extraordinary diligence in order to overcome the presumption, 21 the plaintiff
must still, before the burden is shifted to the defendant, prove that the subject
shipment suffered actual shortage. This can only be done if the weight of the
shipment at the port of origin and its subsequent weight at the port of arrival
have been proven by a preponderance of evidence, and it can be seen that the
former weight is considerably greater than the latter weight, taking into
consideration the exceptions provided in Article 1734 22 of the Civil Code.

In this case, respondent failed to prove that the subject shipment suffered
shortage, for it was not able to establish that the subject shipment was
weighed at the port of origin at Darrow, Louisiana, U.S.A. and that the actual
weight of the said shipment was 3,300 metric tons.

A shipment under this arrangement is not inspected or inventoried by

the carrier whose duty is only to transport and deliver the containers
in the same condition as when the carrier received and accepted the
containers for transport x x x. (Emphasis supplied)

The Berth Term Grain Bill of Lading23 (Exhibit "A"), the Proforma
Invoice24 (Exhibit "B"), and the Packing List25(Exhibit "C"), being used by
respondent to prove that the subject shipment weighed 3,300 metric tons, do
not, in fact, help its cause. The Berth Term Grain Bill of Lading states that the
subject shipment was carried with the qualification "Shippers weight, quantity
and quality unknown," meaning that it was transported with the carrier having
been oblivious of the weight, quantity, and quality of the cargo. This
interpretation of the quoted qualification is supported by Wallem Philippines
Shipping, Inc. v. Prudential Guarantee & Assurance, Inc.,26 a case involving an
analogous stipulation in a bill of lading, wherein the Supreme Court held that:

Hence, as can be culled from the above-mentioned cases, the weight of the
shipment as indicated in the bill of lading is not conclusive as to the actual
weight of the goods. Consequently, the respondent must still prove the actual
weight of the subject shipment at the time it was loaded at the port of origin so
that a conclusion may be made as to whether there was indeed a shortage for
which petitioner must be liable. This, the respondent failed to do.

Indeed, as the bill of lading indicated that the contract of carriage was under a
"said to weigh" clause, the shipper is solely responsible for the loading
while the carrier is oblivious of the contents of the shipment.(Emphasis
supplied)

Atty. Rebano: You also identified a while ago, Mr. Witness Exhibit B, the
invoice. Why does it state as description of the cargo three thousand
metric tons and not three thousand three hundred?

Similarly, International Container Terminal Services, Inc. v. Prudential

Guarantee & Assurance Co., Inc.,27explains the meaning of clauses analogous
to "Shippers weight, quantity and quality unknown" in this manner:
This means that the shipper was solely responsible for the loading of
the container, while the carrier was oblivious to the contents of the
shipment x x x. The arrastre operator was, like any ordinary depositary, dutybound to take good care of the goods received from the vessel and to turn the
same over to the party entitled to their possession, subject to such
qualifications as may have validly been imposed in the contract
between the parties. The arrastre operator was not required to verify
the contents of the container received and to compare them with
those declared by the shipper because, as earlier stated, the cargo
was at the shippers load and count x x x. (Italics in the original; emphasis
supplied)
Also, Bankers & Manufacturers Assurance Corporation v. Court of
Appeals28 elucidates thus:
The recital of the bill of lading for goods thus transported [i.e., transported
in sealed containers or "containerized"] ordinarily would declare "Said to
Contain", "Shippers Load and Count", "Full Container Load", and the
amount or quantity of goods in the container in a particular package is
only prima facie evidence of the amount or quantity x x x.

The Proforma Invoice militates against respondents claim that the subject
shipment weighed 3,300 metric tons. The pertinent portion of the testimony of
Mr. Jose Sarmiento, respondents Claims Manager, is narrated below:

A: Usually there is a contract between the supplier and our company that
embodied [sic] in the letter credit [sic] that they have the option to ship the
cargo plus or minus ten percent of the quantity.
xxxx
Q: So, it is possible for the shipper to ship less than ten percent in
[sic] the quantity stated in the invoice and it will still be a valid
shipment. Is it [sic] correct?
A: It [sic] is correct but we must be properly advised and the commercial
invoice should indicate how much they sent to us.29 (Emphasis supplied)
The quoted part of Mr. Sarmientos testimony not only shows uncertainty as to
the actual weight of the shipment, it also shows that assuming respondent did
order 3,300 metric tons of U.S. Soybean Meal from Contiquincybunge Export
Company, and also assuming that it only received 3,100.137 metric tons, such
volume would still be a valid shipment because it is well within the 10%
allowable shortage. Note that Mr. Sarmiento himself mentioned that the
supplier has the option to "ship the cargo plus or minus ten percent of the
quantity."30
Notably also, the genuineness and the due execution of the Packing List, the
Berth Term Grain Bill of Lading, and the Proforma Invoice, were not established.

Wallem Philippines Shipping, Inc.,31 is instructive on this matter:

We find that the Court of Appeals erred in finding that a shortage had taken
place. Josephine Suarez, Prudentials claims processor, merely
identified the papers submitted to her in connection with GMCs claim (Bill
of Lading BEDI/1 (Exh. "B"), Commercial Invoice No. 1401 issued by Toepfer
International Asia Pte, Ltd. (Exh. "C"), SGS Certificate of Quality (Exh. "F-1"),
and SGS Certificate of Weight (Exh. "F-3")). Ms. Suarez had no personal
knowledge of the contents of the said documents and could only
surmise as to the actual weight of the cargo loaded on M/V Gao Yang x x
x.
xxxx
Ms. Suarezs testimony regarding the contents of the documents is
thus hearsay, based as it is on the knowledge of another person not
presented on the witness stand.
Nor has the genuineness and due execution of these documents been
established. In the absence of clear, convincing, and competent
evidence to prove that the shipment indeed weighed 4,415.35 metric
tons at the port of origin when it was loaded on the M/V Gao Yang, it
cannot be determined whether there was a shortage of the shipment
upon its arrival in Batangas. (Emphasis supplied)
As in the present case, Mr. Sarmiento merely identified the three abovementioned exhibits, but he had no personal knowledge of the weight of the
subject shipment when it was loaded onto the M/V "Tern" at the port of origin.
His testimony as regards the weight of the subject shipment as described in
Exhibits "A," "B," and "C" must then be considered as hearsay, 32 for it was
based on the knowledge of a person who was not presented during the trial in
the RTC.
The presumption that the Berth Term Grain Bill of Lading serves as prima
facie evidence of the weight of the cargo has been rebutted, there being doubt
as to the weight of the cargo at the time it was loaded at the port of origin.
Further, the fact that the cargo was shipped with the arrangement "Shippers
weight, quantity and quality unknown," indeed means that the weight of the
cargo could not be determined using as basis the figures written on the Berth
Term Grain Bill of Lading. This is in line with Malayan Insurance Co., Inc. v.
Jardine Davies Transport Services, Inc.,33 where we said:
The presumption that the bill of lading, which petitioner relies upon to
support its claim for restitution,constitutes prima facie evidence of the
goods therein described was correctly deemed by the appellate court to have

been rebutted in light of abundant evidence casting doubts on its

veracity.
That MV Hoegh undertook, under the bill of lading, to transport 6,599.23 MT of
yellow crude sulphur on a "said to weigh" basis is not disputed. Under such
clause, the shipper is solely responsible for the loading of the cargo while the
carrier is oblivious of the contents of the shipment. Nobody really knows
the actual weight of the cargo inasmuch as what is written on the bill of lading,
as well as on the manifest, is based solely on the shippers declaration.
The bill of lading carried an added clause the shipments weight,
measure, quantity, quality, condition, contents and value unknown.
Evidently, the weight of the cargo could not be gauged from the bill of
lading. (Italics in the original; emphasis supplied)
The respondent having failed to present evidence to prove the actual weight of
the subject shipment when it was loaded onto the M/V "Tern," its cause of
action must then fail because it cannot prove the shortage that it was alleging.
Indeed, if the claimant cannot definitively establish the weight of the subject
shipment at the point of origin, the fact of shortage or loss cannot be
ascertained. The claimant then has no basis for claiming damages resulting
from an alleged shortage. Again, Malayan Insurance Co., Inc.,34 provides
jurisprudential basis:
In the absence of clear, convincing and competent evidence to prove
that the cargo indeed weighed,albeit the Bill of Lading qualified it by the
phrase "said to weigh," 6,599.23 MT at the port of origin when it was
loaded onto the MV Hoegh, the fact of loss or shortage in the cargo upon its
arrival in Manila cannot be definitively established. The legal basis for
attributing liability to either of the respondents is thus sorely
wanting. (Emphasis supplied)
Second, as correctly asserted by petitioner ATI, the shortage, if any, may have
been due to the inherent nature of the subject shipment or its packaging since
the subject cargo was shipped in bulk and had a moisture content of 12.5%.
It should be noted that the shortage being claimed by the respondent is
minimal, and is an indication that it could be due to consolidation or settlement
of the subject shipment, as accurately observed by the petitioner. A Kansas
State University study on the handling and storage of soybeans and soybean
meal35 is instructive on this matter. Pertinent portions of the study reads:
Soybean meal is difficult to handle because of poor flow ability and bridging
characteristics. Soybean meal tends to settle or consolidate over
time. This phenomenon occurs in most granular materials and becomes more
severe with increased moisture, time and small particle size x x x.

xxxx
Moisture is perhaps the most important single factor affecting storage of
soybeans and soybean meal. Soybeans contain moisture ranging from
12% to 15% (wet basis) at harvest time x x x.
xxxx
Soybeans and soybean meal are hygroscopic materials and will either
lose (desorb) or gain (adsorb) moisture from the surrounding air. The
moisture level reached by a product at a given constant temperature and
equilibrium relative humidity (ERH) is its equilibrium moisture content (EMC) x x
x. (Emphasis supplied)
As indicated in the Proforma Invoice mentioned above, the moisture content of
the subject shipment was 12.5%. Taking into consideration the phenomena of
desorption, the change in temperature surrounding the Soybean Meal from the
time it left wintertime Darrow, Louisiana, U.S.A. and the time it arrived in
Manila, and the fact that the voyage of the subject cargo from the point of
loading to the point of unloading was 36 days, the shipment could have
definitely lost weight, corresponding to the amount of moisture it lost during
transit.
The conclusion that the subject shipment lost weight in transit is bolstered by
the testimony of Mr. Fernando Perez, a Cargo Surveyor of L.J. Del Pan. The
services of Mr. Perez were requested by respondent.36 Mr. Perez testified that it
was possible for the subject shipment to have lost weight during the 36-day
voyage, as it was wintertime when M/V "Tern" left the United States and the
climate was warmer when it reached the Philippines; hence the moisture level
of the Soybean Meal could have changed.37 Moreover, Mr. Perez himself
confirmed, by answering a question propounded by the RTC, that loss of weight
of the subject cargo cannot be avoided because of the shift in temperature
from the colder United States weather to the warmer Philippine climate. 38
More importantly, the 199.863 metric-ton shortage that respondent alleges is a
minimal 6.05% of the weight of the entire Soy Bean Meal shipment. Taking into
consideration the previously mentioned option of the shipper to ship 10% more
or less than the contracted shipment, and the fact that the alleged shortage is
only 6.05% of the total quantity of 3,300 metric tons, the alleged percentage
loss clearly does not exceed the allowable 10% allowance for loss, as correctly
argued by petitioner. The alleged loss, if any, not having exceeded the
allowable percentage of shortage, the respondent then has no cause of action
to claim for shortages.
Third, we agree with the petitioner ATI that respondent has not proven any
negligence on the part of the former.

As petitioner ATI pointed out, a reading of the Survey Report of Del Pan
Surveyors39 (Exhibits "D" to "D-4" of respondent) would not show any untoward
incident or negligence on the part of petitioner ATI during the discharging
operations.
Also, a reading of Exhibits "D", "D-1", and "D-2" would show that the methods
used in determining whether there was a shortage are not accurate.
Respondent relied on the Survey Reports of Del Pan Surveyors to prove that the
subject shipment suffered loss. The conclusion that there was a shortage arose
from an evaluation of the weight of the cargo using the barge displacement
method. This is a type of draught survey, which is a method of cargo weight
determination by ships displacement calculations. 40 The basic principle upon
which the draught survey methodology is based is the Principle of
Archimedes, i.e., a vessel when floating in water, will displace a weight of water
equal to its own weight.41 It then follows that if a weight of cargo is loaded on
(or unloaded from) a vessel freely floating in water, then the vessel will sink (or
float) into the water until the total weight of water displaced is equal to the
original weight of the vessel, plus (or minus) the cargo which has been loaded
(or unloaded) and plus (or minus) density variation of the water between the
starting survey (first measurement) and the finishing survey (second
measurement).42 It can be seen that this method does not entail the weighing
of the cargo itself, but as correctly stated by the petitioner, the weight of the
shipment is being measured by mere estimation of the water displaced by the
barges before and after the cargo is unloaded from the said barges.
In addition, the fact that the measurements were done by Del Pan Surveyors in
prevailing slight to slightly rough sea condition 43 supports the conclusion that
the resulting measurement may not be accurate. A United Nations study on
draught surveys44 in fact states that the accuracy of draught surveys will be
dependent upon several factors, one of which is the weather and seas condition
in the harbor.
Also, it can be seen in respondents own Exhibit "D-1" that the actual weight of
the cargo was established by weighing 20% of the cargo. Though we recognize
the practicality of establishing cargo weight through random sampling, we note
the discrepancy in the weights used in the determination of the alleged
shortage.
Exhibit "D-1" of respondent states that the average weight of each bag is 52
kilos. A total of 63,391 bags45 were discharged from the barges, and the tare
weight46 was established at 0.0950 kilos.47 Therefore, if one were to multiply 52
kilos per bag by 63,391 bags and deduct the tare weight of 0.0950 kilos
multiplied by 63,391 bags, the result would be 3,290,309.65 kilos, or 3,290.310
metric tons. This would mean that the shortage was only 9.69 metric tons, if we

suppose that respondent was able to establish that the shipment actually
weighed 3,300 metric tons at the port of loading.
However, the computation in Exhibit "D-2" would show that Del Pan Surveyors
inexplicably used 49 kilos as the weight per bag, instead of 52 kilos, therefore
resulting in the total net weight of 3,100,137 kilos or 3,100.137 metric tons.
This was the figure used as basis for respondent's conclusion that there is a
shortage of 199.863 metric tons.48
These discrepancies only lend credence to petitioner ATI's assertion that the
weighing methods respondent used as bases are unreliable and should not be
completely relied upon.
Considering that respondent was not able to establish conclusively that the
subject shipment weighed 3,300 metric tons at the port of loading, and that it
cannot therefore be concluded that there was a shortage for which petitioner
should be responsible; bearing in mind that the subject shipment most likely
lost weight in transit due to the inherent nature of Soya Bean Meal; assuming
that the shipment lost weight in transit due to desorption, the shortage of
199.863 metric tons that respondent alleges is a minimal 6.05% of the weight
of the entire shipment, which is within the allowable 10% allowance for loss;
and noting that the respondent was not able to show negligence on the part of
the petitioner and that the weighing methods which respondent relied upon to
establish the shortage it alleges is inaccurate, respondent cannot fairly claim
damages against petitioner for the subject shipment's alleged shortage.

ASIAN TERMINALS, INC., Petitioner,

vs.
PHILAM INSURANCE CO., INC. (now Chartis Philippines Insurance,
Inc.), Respondent.
x-----------------------x
G.R. No. 181262
PHILAM INSURANCE CO., INC. (now Chartis Philippines Insurance,
Inc.), Petitioner,
vs.
WESTWIND SHIPPING CORPORATION and ASIAN TERMINALS,
INC., Respondents.
x-----------------------x
G.R. No. 181319
WESTWIND SHIPPING CORPORATION, Petitioner,
vs.
PHILAM INSURANCE CO., INC. (now Chartis Philippines Insurance, Inc.)
and ASIAN TERMINALS, INC.,Respondents.
DECISION

WHEREFORE, the petition for review on certiorari is GRANTED. The Decision

dated November 27, 2006 and Resolution dated March 23, 2007 of the Court of
Appeals in CA-G.R. CV No. 71210 are REVERSED AND SET ASIDE insofar as
petitioner Asian Terminals, Inc. is concerned. Needless to add, the complaint
against petitioner docketed as RTC Manila Civil Case No. 96-81101 is
ordered DISMISSED.
No pronouncement as to costs.
SO ORDERED.

VILLARAMA, JR., J.:

Before us are three consolidated petitions for review on certiorari assailing the
Decision1 dated October 15, 2007 and the Resolution2 dated January 11, 2008
of the Court of Appeals (CA) which affirmed with modification the Decision 3 of
the Regional Trial Court (RTC) of Makati City, Branch 148, in Civil Case No. 96062. The RTC had ordered Westwind Shipping Corporation (Westwind) and Asian
Terminals, Inc. (ATI) to pay, jointly and severally, Philam Insurance Co., Inc.
(Philam) the sum of P633,957.15, with interest at 12% per annum from the date
of judicial demand and P158,989.28 as attorneys fees.

The facts of the case follow:

G.R. No. 181163

On April 15, 1995, Nichimen Corporation shipped to Universal Motors

Corporation (Universal Motors) 219 packages containing 120 units of brand new
Nissan Pickup Truck Double Cab 4x2 model, without engine, tires and batteries,
on board the vessel S/S "Calayan Iris" from Japan to Manila. The shipment,
which had a declared value of US$81,368 or P29,400,000, was insured with
Philam against all risks under Marine Policy No. 708-8006717-4. 4

July 24, 2013

The carrying vessel arrived at the port of Manila on April 20, 1995, and when
the shipment was unloaded by the staff of ATI, it was found that the package
marked as 03-245-42K/1 was in bad order.5 The Turn Over Survey of Bad Order
Cargoes6 dated April 21, 1995 identified two packages, labeled 03-245-42K/1
and 03/237/7CK/2, as being dented and broken. Thereafter, the cargoes were
stored for temporary safekeeping inside CFS Warehouse in Pier No. 5.
On May 11, 1995, the shipment was withdrawn by R.F. Revilla Customs
Brokerage, Inc., the authorized broker of Universal Motors, and delivered to the
latters warehouse in Mandaluyong City. Upon the request7 of Universal Motors,
a bad order survey was conducted on the cargoes and it was found that one
Frame Axle Sub without LWR was deeply dented on the buffle plate while six
Frame Assembly with Bush were deformed and misaligned. 8Owing to the extent
of the damage to said cargoes, Universal Motors declared them a total loss.
On August 4, 1995, Universal Motors filed a formal claim for damages in the
amount of P643,963.84 against Westwind,9 ATI10 and R.F. Revilla Customs
Brokerage, Inc.11 When Universal Motors demands remained unheeded, it
sought reparation from and was compensated in the sum of P633,957.15 by
Philam. Accordingly, Universal Motors issued a Subrogation Receipt 12 dated
November 15, 1995 in favor of Philam.
On January 18, 1996, Philam, as subrogee of Universal Motors, filed a
Complaint13 for damages against Westwind, ATI and R.F. Revilla Customs
Brokerage, Inc. before the RTC of Makati City, Branch 148.
On September 24, 1999, the RTC rendered judgment in favor of Philam and
ordered Westwind and ATI to pay Philam, jointly and severally, the sum
of P633,957.15 with interest at the rate of 12% per annum, P158,989.28 by
way of attorneys fees and expenses of litigation.
The court a quo ruled that there was sufficient evidence to establish the
respective participation of Westwind and ATI in the discharge of and
consequent damage to the shipment. It found that the subject cargoes were
compressed while being hoisted using a cable that was too short and taut.
The trial court observed that while the staff of ATI undertook the physical
unloading of the cargoes from the carrying vessel, Westwinds duty officer
exercised full supervision and control throughout the process. It held Westwind
vicariously liable for failing to prove that it exercised extraordinary diligence in
the supervision of the ATI stevedores who unloaded the cargoes from the
vessel. However, the court absolved R.F. Revilla Customs Brokerage, Inc. from
liability in light of its finding that the cargoes had been damaged before
delivery to the consignee.

The trial court acknowledged the subrogation between Philam and Universal
Motors on the strength of the Subrogation Receipt dated November 15, 1995. It
likewise upheld Philams claim for the value of the alleged damaged vehicle
parts contained in Case Nos. 03-245-42K/1 and 03-245-51K or specifically for "7
pieces of Frame Axle Sub Without Lower and Frame Assembly with Bush." 14
Westwind filed a Motion for Reconsideration15 which was, however, denied in an
Order16 dated October 26, 2000.
On appeal, the CA affirmed with modification the ruling of the RTC. In a Decision
dated October 15, 2007, the appellate court directed Westwind and ATI to pay
Philam, jointly and severally, the amount of P190,684.48 with interest at the
rate of 12% per annum until fully paid, attorneys fees of P47,671 and litigation
expenses.
The CA stressed that Philam may not modify its allegations by claiming in its
Appellees Brief17 that the six pieces of Frame Assembly with Bush, which were
purportedly damaged, were also inside Case No. 03-245-42K/1. The CA noted
that in its Complaint, Philam alleged that "one (1) pc. FRAME AXLE SUB W/O
LWR from Case No. 03-245-42K/1 was completely deformed and misaligned,
and six (6) other pcs. of FRAME ASSEMBLY WITH BUSH from Case No. 03-24551K were likewise completely deformed and misaligned." 18
The appellate court accordingly affirmed Westwind and ATIs joint and solidary
liability for the damage to only one (1) unit of Frame Axle Sub without Lower
inside Case No. 03-245-42K/1. It also noted that when said cargo sustained
damage, it was not yet in the custody of the consignee or the person who had
the right to receive it. The CA pointed out that Westwinds duty to observe
extraordinary diligence in the care of the cargoes subsisted during unloading
thereof by ATIs personnel since the former exercised full control and
supervision over the discharging operation.
Similarly, the appellate court held ATI liable for the negligence of its employees
who carried out the offloading of cargoes from the ship to the pier. As regards
the extent of ATIs liability, the CA ruled that ATI cannot limit its liability
to P5,000 per damaged package. It explained that Section 7.01 19 of the
Contract for Cargo Handling Services 20 does not apply in this case since ATI was
not yet in custody and control of the cargoes when the Frame Axle Sub without
Lower suffered damage.
Citing Belgian Overseas Chartering and Shipping N.V. v. Philippine First
Insurance Co., Inc.,21 the appellate court also held that Philams action for
damages had not prescribed notwithstanding the absence of a notice of claim.
All the parties moved for reconsideration, but their motions were denied in a
Resolution dated January 11, 2008. Thus, they each filed a petition for review

on certiorari which were consolidated together by this Court considering that all
three petitions assail the same CA decision and resolution and involve the same
parties.
Essentially, the issues posed by petitioner ATI in G.R. No. 181163, petitioner
Philam in G.R. No. 181262 and petitioner Westwind in G.R. No. 181319 can be
summed up into and resolved by addressing three questions: (1) Has Philams
action for damages prescribed? (2) Who between Westwind and ATI should be
held liable for the damaged cargoes? and (3) What is the extent of their
liability?
Petitioners Arguments
G.R. No. 181163
Petitioner ATI disowns liability for the damage to the Frame Axle Sub without
Lower inside Case No. 03-245-42K/1. It shifts the blame to Westwind, whom it
charges with negligence in the supervision of the stevedores who unloaded the
cargoes. ATI admits that the damage could have been averted had Westwind
observed extraordinary diligence in handling the goods. Even so, ATI suspects
that Case No. 03-245-42K/1 is "weak and defective"22 considering that it alone
sustained damage out of the 219 packages.
Notwithstanding, petitioner ATI submits that, at most, it can be held liable to
pay only P5,000 per package pursuant to its Contract for Cargo Handling
Services. ATI maintains that it was not properly notified of the actual value of
the cargoes prior to their discharge from the vessel.
G.R. No. 181262
Petitioner Philam supports the CA in holding both Westwind and ATI liable for
the deformed and misaligned Frame Axle Sub without Lower inside Case No.
03-245-42K/1. It, however, faults the appellate court for disallowing its claim for
the value of six Chassis Frame Assembly which were likewise supposedly inside
Case Nos. 03-245-51K and 03-245-42K/1. As to the latter container, Philam
anchors its claim on the results of the Inspection/Survey Report 23 of Chartered
Adjusters, Inc., which the court received without objection from Westwind and
ATI. Petitioner believes that with the offer and consequent admission of
evidence to the effect that Case No. 03-245-42K/1 contains six pieces of dented
Chassis Frame Assembly, Philams claim thereon should be treated, in all
respects, as if it has been raised in the pleadings. Thus, Philam insists on the
reinstatement of the trial courts award in its favor for the payment
of P633,957.15 plus legal interest, P158,989.28 as attorneys fees and costs.
G.R. No. 181319

Petitioner Westwind denies joint liability with ATI for the value of the deformed
Frame Axle Sub without Lower in Case No. 03-245-42K/1. Westwind argues that
the evidence shows that ATI was already in actual custody of said case when
the Frame Axle Sub without Lower inside it was misaligned from being
compressed by the tight cable used to unload it. Accordingly, Westwind ceased
to have responsibility over the cargoes as provided in paragraph 4 of the Bill of
Lading which provides that the responsibility of the carrier shall cease when the
goods are taken into the custody of the arrastre.
Westwind contends that sole liability for the damage rests on ATI since it was
the latters stevedores who operated the ships gear to unload the cargoes.
Westwind reasons that ATI is an independent company, over whose employees
and operations it does not exercise control. Moreover, it was ATIs employees
who selected and used the wrong cable to lift the box containing the cargo
which was damaged.
Westwind likewise believes that ATI is bound by its acceptance of the goods in
good order despite a finding that Case No. 03-245-42K/1 was partly torn and
crumpled on one side. Westwind also notes that the discovery that a piece of
Frame Axle Sub without Lower was completely deformed and misaligned came
only on May 12, 1995 or 22 days after the cargoes were turned over to ATI and
after the same had been hauled by R.F. Revilla Customs Brokerage, Inc.
Westwind further argues that the CA erred in holding it liable considering that
Philams cause of action has prescribed since the latter filed a formal claim with
it only on August 17, 1995 or four months after the cargoes arrived on April 20,
1995. Westwind stresses that according to the provisions of clause 20,
paragraph 224 of the Bill of Lading as well as Article 36625 of the Code of
Commerce, the consignee had until April 20, 1995 within which to make a claim
considering the readily apparent nature of the damage, or until April 27, 1995
at the latest, if it is assumed that the damage is not readily apparent.
Lastly, petitioner Westwind contests the imposition of 12% interest on the
award of damages to Philam reckoned from the time of extrajudicial demand.
Westwind asserts that, at most, it can only be charged with 6% interest since
the damages claimed by Philam does not constitute a loan or forbearance of
money.
The Courts Ruling
The three consolidated petitions before us call for a determination of who
between ATI and Westwind is liable for the damage suffered by the subject
cargo and to what extent. However, the resolution of the issues raised by the
present petitions is predicated on the appreciation of factual issues which is
beyond the scope of a petition for review on certiorari under Rule 45 of the
1997 Rules of Civil Procedure, as amended. It is settled that in petitions for

review on certiorari, only questions of law may be put in issue. Questions of

fact cannot be entertained.26

company of the insurance claim.30 Petitioner Philams action finds support in

Article 2207 of the Civil Code, which provides as follows:

There is a question of law if the issue raised is capable of being resolved

without need of reviewing the probative value of the evidence. The resolution
of the issue must rest solely on what the law provides on the given set of
circumstances. Once it is clear that the issue invites a review of the evidence
presented, the question posed is one of fact. If the query requires a reevaluation of the credibility of witnesses, or the existence or relevance of
surrounding circumstances and their relation to each other, the issue in that
query is factual.27

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

In the present petitions, the resolution of the question as to who between

Westwind and ATI should be liable for the damages to the cargo and to what
extent would have this Court pass upon the evidence on record. But while it is
not our duty to review, examine and evaluate or weigh all over again the
probative value of the evidence presented,28 the Court may nonetheless resolve
questions of fact when the case falls under any of the following exceptions:
(1) when the findings are grounded entirely on speculation, surmises, or
conjectures; (2) when the inference made is manifestly mistaken, absurd, or
impossible; (3) when there is grave abuse of discretion; (4) when the judgment
is based on a misapprehension of facts; (5) when the findings of fact are
conflicting; (6) when in making its findings the Court of Appeals went beyond
the issues of the case, or its findings are contrary to the admissions of both the
appellant and the appellee; (7) when the findings are contrary to those of the
trial court; (8) when the findings are conclusions without citation of specific
evidence on which they are based; (9) when the facts set forth in the petition
as well as in the petitioners main and reply briefs are not disputed by the
respondent; and (10) when the findings of fact are premised on the supposed
absence of evidence and contradicted by the evidence on record. 29
In the cases at bar, the fifth and seventh exceptions apply. While the CA
affirmed the joint liability of ATI and Westwind, it held them liable only for the
value of one unit of Frame Axle Sub without Lower inside Case No. 03-24542K/1. The appellate court disallowed the award of damages for the six pieces
of Frame Assembly with Bush, which petitioner Philam alleged, for the first time
in its Appellees Brief, to be likewise inside Case No. 03-245-42K/1. Lastly, the
CA reduced the award of attorneys fees to P47,671.
Foremost, the Court holds that petitioner Philam has adequately established
the basis of its claim against petitioners ATI and Westwind. Philam, as insurer,
was subrogated to the rights of the consignee, Universal Motors Corporation,
pursuant to the Subrogation Receipt executed by the latter in favor of the
former. The right of subrogation accrues simply upon payment by the insurance

In their respective comments31 to Philams Formal Offer of

Evidence,32 petitioners ATI and Westwind objected to the admission of Marine
Certificate No. 708-8006717-4 and the Subrogation Receipt as documentary
exhibits "B" and "P," respectively. Petitioner Westwind objects to the admission
of both documents for being hearsay as they were not authenticated by the
persons who executed them. For the same reason, petitioner ATI assails the
admissibility of the Subrogation Receipt. As regards Marine Certificate No. 7088006717-4, ATI makes issue of the fact that the same was issued only on April
27, 1995 or 12 days after the shipment was loaded on and transported via S/S
"Calayan Iris."
The nature of documents as either public or private determines how the
documents may be presented as evidence in court. Public documents, as
enumerated under Section 19,33 Rule 132 of the Rules of Court, are selfauthenticating and require no further authentication in order to be presented as
evidence in court.34
In contrast, a private document is any other writing, deed or instrument
executed by a private person without the intervention of a notary or other
person legally authorized by which some disposition or agreement is proved or
set forth. Lacking the official or sovereign character of a public document, or
the solemnities prescribed by law, a private document requires
authentication35 in the manner prescribed under Section 20, Rule 132 of the
Rules:
SEC. 20. Proof of private document. Before any private document offered as
authentic is received in evidence, its due execution and authenticity must be
proved either:
(a) By anyone who saw the document executed or written; or
(b) By evidence of the genuineness of the signature or handwriting of
the maker.
Any other private document need only be identified as that which it is claimed
to be.

The requirement of authentication of a private document is excused only in four

instances, specifically: (a) when the document is an ancient one within the
context of Section 21,36 Rule 132 of the Rules; (b) when the genuineness and
authenticity of the actionable document have not been specifically denied
under oath by the adverse party; (c) when the genuineness and authenticity of
the document have been admitted; or (d) when the document is not being
offered as genuine.37
Indubitably, Marine Certificate No. 708-8006717-4 and the Subrogation Receipt
are private documents which Philam and the consignee, respectively, issue in
the pursuit of their business. Since none of the exceptions to the requirement of
authentication of a private document obtains in these cases, said documents
may not be admitted in evidence for Philam without being properly
authenticated.
Contrary to the contention of petitioners ATI and Westwind, however, Philam
presented its claims officer, Ricardo Ongchangco, Jr. to testify on the execution
of the Subrogation Receipt, as follows:
ATTY. PALACIOS
Q How were you able to get hold of this subrogation receipt?
A Because I personally delivered the claim check to consignee and have them
receive the said check.
Q I see. Therefore, what you are saying is that you personally delivered the
claim check of Universal Motors Corporation to that company and you have the
subrogation receipt signed by them personally?
A Yes, sir.
Q And it was signed in your presence?
A Yes, sir.38
Indeed, all that the Rules require to establish the authenticity of a document is
the testimony of a person who saw the document executed or written. Thus,
the trial court did not err in admitting the Subrogation Receipt in evidence
despite petitioners ATI and Westwinds objections that it was not authenticated
by the person who signed it.
However, the same cannot be said about Marine Certificate No. 708-8006717-4
which Ongchangcho, Jr. merely identified in court. There is nothing in

Ongchangco, Jr.s testimony which indicates that he saw Philams authorized

representative sign said document, thus:
ATTY. PALACIOS
Q Now, I am presenting to you a copy of this marine certificate 708-8006717-4
issued by Philam Insurance Company, Inc. to Universal Motors Corporation on
April 15, 1995. Will you tell us what relation does it have to that policy risk
claim mentioned in that letter?
A This is a photocopy of the said policy issued by the consignee Universal
Motors Corporation.
ATTY. PALACIOS
I see. May I request, if Your Honor please, that this marine risk policy of the
plaintiff as submitted by claimant Universal Motors Corporation be marked as
Exhibit B.
COURT
Mark it.39
As regards the issuance of Marine Certificate No. 708-8006717-4 after the fact
of loss occurred, suffice it to say that said document simply certifies the
existence of an open insurance policy in favor of the consignee. Hence, the
reference to an "Open Policy Number 9595093" in said certificate. The Court
finds it completely absurd to suppose that any insurance company, of sound
business practice, would assume a loss that has already been realized, when
the profitability of its business rests precisely on the non-happening of the risk
insured against.
Yet, even with the exclusion of Marine Certificate No. 708-8006717-4, the
Subrogation Receipt, on its own, is adequate proof that petitioner Philam paid
the consignees claim on the damaged goods. Petitioners ATI and Westwind
failed to offer any evidence to controvert the same. In Malayan Insurance Co.,
Inc. v. Alberto,40 the Court explained the effect of payment by the insurer of the
insurance claim in this wise:
We have held that payment by the insurer to the insured operates as an
equitable assignment to the insurer of all the remedies that the insured may
have against the third party whose negligence or wrongful act caused the loss.
The right of subrogation is not dependent upon, nor does it grow out of, any
privity of contract. It accrues simply upon payment by the insurance company
of the insurance claim. The doctrine of subrogation has its roots in equity. It is

designed to promote and accomplish justice; and is the mode that equity
adopts to compel the ultimate payment of a debt by one who, in justice, equity,
and good conscience, ought to pay. 41
Neither do we find support in petitioner Westwinds contention that Philams
right of action has prescribed.
The Carriage of Goods by Sea Act (COGSA) or Public Act No. 521 of the 74th US
Congress, was accepted to be made applicable to all contracts for the carriage
of goods by sea to and from Philippine ports in foreign trade by virtue of
Commonwealth Act (C.A.) No. 65.42 Section 1 of C.A. No. 65 states:
Section 1. That the provisions of Public Act Numbered Five hundred and twentyone of the Seventy-fourth Congress of the United States, approved on April
sixteenth, nineteen hundred and thirty-six, be accepted, as it is hereby
accepted to be made applicable to all contracts for the carriage of goods by sea
to and from Philippine ports in foreign trade: Provided, That nothing in the Act
shall be construed as repealing any existing provision of the Code of Commerce
which is now in force, or as limiting its application.
The prescriptive period for filing an action for the loss or damage of the goods
under the COGSA is found in paragraph (6), Section 3, thus:
(6) Unless notice of loss or damage and the general nature of such loss or
damage be given in writing to the carrier or his agent at the port of discharge
before or at the time of the removal of the goods into the custody of the person
entitled to delivery thereof under the contract of carriage, such removal shall
be prima facie evidence of the delivery by the carrier of the goods as described
in the bill of lading. If the loss or damage is not apparent, the notice must be
given within three days of the delivery.
Said notice of loss or damage maybe endorsed upon the receipt for the goods
given by the person taking delivery thereof.
The notice in writing need not be given if the state of the goods has at the time
of their receipt been the subject of joint survey or inspection.
In any event the carrier and the ship shall be discharged from all liability in
respect of loss or damage unless suit is brought within one year after delivery
of the goods or the date when the goods should have been delivered: Provided,
That if a notice of loss or damage, either apparent or concealed, is not given as
provided for in this section, that fact shall not affect or prejudice the right of the
shipper to bring suit within one year after the delivery of the goods or the date
when the goods should have been delivered.

In the Bill of Lading43 dated April 15, 1995, Rizal Commercial Banking
Corporation (RCBC) is indicated as the consignee while Universal Motors is
listed as the notify party. These designations are in line with the subject
shipment being covered by Letter of Credit No. I501054, which RCBC issued
upon the request of Universal Motors.
A letter of credit is a financial device developed by merchants as a convenient
and relatively safe mode of dealing with sales of goods to satisfy the seemingly
irreconcilable interests of a seller, who refuses to part with his goods before he
is paid, and a buyer, who wants to have control of his goods before
paying.44 However, letters of credit are employed by the parties desiring to
enter into commercial transactions, not for the benefit of the issuing bank but
mainly for the benefit of the parties to the original transaction, 45 in these cases,
Nichimen Corporation as the seller and Universal Motors as the buyer. Hence,
the latter, as the buyer of the Nissan CKD parts, should be regarded as the
person entitled to delivery of the goods. Accordingly, for purposes of reckoning
when notice of loss or damage should be given to the carrier or its agent, the
date of delivery to Universal Motors is controlling.
S/S "Calayan Iris" arrived at the port of Manila on April 20, 1995, and the
subject cargoes were discharged to the custody of ATI the next day. The goods
were then withdrawn from the CFS Warehouse on May 11, 1995 and the last of
the packages delivered to Universal Motors on May 17, 1995. Prior to this, the
latter filed a Request for Bad Order Survey46 on May 12,1995 following a joint
inspection where it was discovered that six pieces of Chassis Frame Assembly
from two bundles were deformed and one Front Axle Sub without Lower from a
steel case was dented. Yet, it was not until August 4, 1995 that Universal
Motors filed a formal claim for damages against petitioner Westwind.
Even so, we have held in Insurance Company of North America v. Asian
Terminals, Inc. that a request for, and the result of a bad order examination,
done within the reglementary period for furnishing notice of loss or damage to
the carrier or its agent, serves the purpose of a claim. A claim is required to be
filed within the reglementary period to afford the carrier or depositary
reasonable opportunity and facilities to check the validity of the claims while
facts are still fresh in the minds of the persons who took part in the transaction
and documents are still available.47 Here, Universal Motors filed a request for
bad order survey on May 12, 1995, even before all the packages could be
unloaded to its warehouse.
Moreover, paragraph (6), Section 3 of the COGSA clearly states that failure to
comply with the notice requirement shall not affect or prejudice the right of the
shipper to bring suit within one year after delivery of the goods. Petitioner
Philam, as subrogee of Universal Motors, filed the Complaint for damages on
January 18, 1996, just eight months after all the packages were delivered to its

possession on May 17, 1995. Evidently, petitioner Philams action against

petitioners Westwind and ATI was seasonably filed.

responsibilities are to properly load, handle, stow, carry, keep, care for and
discharge the goods carried.53

This brings us to the question that must be resolved in these consolidated

petitions. Who between Westwind and ATI should be liable for the damage to
the cargo?

At the trial, Westwinds Operation Assistant, Menandro G. Ramirez, testified on

the presence of a ship officer to supervise the unloading of the subject cargoes.
ATTY. LLAMAS

It is undisputed that Steel Case No. 03-245-42K/1 was partly torn and crumpled
on one side while it was being unloaded from the carrying vessel. The damage
to said container was noted in the Bad Order Cargo Receipt48dated April 20,
1995 and Turn Over Survey of Bad Order Cargoes dated April 21, 1995. The
Turn Over Survey of Bad Order Cargoes indicates that said steel case was not
opened at the time of survey and was accepted by the arrastre in good order.
Meanwhile, the Bad Order Cargo Receipt bore a notation "B.O. not yet t/over to
ATI." On the basis of these documents, petitioner ATI claims that the contents
of Steel Case No. 03-245-42K/1 were damaged while in the custody of
petitioner Westwind.

Q Having been present during the entire discharging operation, do you

remember who else were present at that time?
A Our surveyor and our checker the foreman of ATI.
Q Were there officials of the ship present also?
A Yes, sir there was an officer of the vessel on duty at that time. 54

We agree.

xxxx

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. Subject to certain exceptions enumerated under
Article 173449 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. 50

Q Who selected the cable slink to be used?

The court a quo, however, found both petitioners Westwind and ATI, jointly and
severally, liable for the damage to the cargo. It observed that while the staff of
ATI undertook the physical unloading of the cargoes from the carrying vessel,
Westwinds duty officer exercised full supervision and control over the entire
process. The appellate court affirmed the solidary liability of Westwind and ATI,
but only for the damage to one Frame Axle Sub without Lower.
Upon a careful review of the records, the Court finds no reason to deviate from
the finding that petitioners Westwind and ATI are concurrently accountable for
the damage to the content of Steel Case No. 03-245-42K/1.
Section 251 of the COGSA provides that under every contract of carriage of
goods by the 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. Section 3 (2)52thereof then states that among the carriers

A ATI Operation.
Q Are you aware of how they made that selection?
A Before the vessel arrived we issued a manifesto of the storage plan informing
the ATI of what type of cargo and equipment will be utilitized in discharging the
cargo.55
xxxx
Q You testified that it was the ATI foremen who select the cable slink to be used
in discharging, is that correct?
A Yes sir, because they are the one who select the slink and they know the kind
of cargoes because they inspected it before the discharge of said cargo.
Q Are you aware that the ship captain is consulted in the selection of the cable
sling?
A Because the ship captain knows for a fact the equipment being utilized in the
discharge of the cargoes because before the ship leave the port of Japan the

crew already utilized the proper equipment fitted to the cargo. 56(Emphasis
supplied.)

six pieces of Frame Assembly with Bush were also inside the damaged Case No.
03-245-42K/1.

It is settled in maritime law jurisprudence that cargoes while being unloaded

generally remain under the custody of the carrier.57 The Damage Survey
Report58 of the survey conducted by Phil. Navtech Services, Inc. from April 2021, 1995 reveals that Case No. 03-245-42K/1 was damaged by ATI stevedores
due to overtightening of a cable sling hold during discharge from the vessels
hatch to the pier. Since the damage to the cargo was incurred during the
discharge of the shipment and while under the supervision of the carrier, the
latter is liable for the damage caused to the cargo.

However, there is nothing in the records to show conclusively that the six
Frame Assembly with Bush were likewise contained in and damaged inside
Case No. 03-245-42K/1. In the Inspection Survey Report of Chartered Adjusters,
Inc., it mentioned six pieces of chassis frame assembly with deformed body
mounting bracket. However, it merely noted the same as coming from two
bundles with no identifying marks.

This is not to say, however, that petitioner ATI is without liability for the
damaged cargo.
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
ships tackle. Being the custodian of the goods discharged from a vessel, an
arrastre operators duty is to take good care of the goods and to turn them over
to the party entitled to their possession.59
Handling cargo is mainly the arrastre operators 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. 60
While it is true that an arrastre operator and a carrier may not be held solidarily
liable at all times,61 the facts of these cases show that apart from ATIs
stevedores being directly in charge of the physical unloading of the cargo, its
foreman picked the cable sling that was used to hoist the packages for transfer
to the dock. Moreover, the fact that 218 of the 219 packages were unloaded
with the same sling unharmed is telling of the inadequate care with which ATIs
stevedore handled and discharged Case No. 03-245-42K/1.

Lastly, we agree with petitioner Westwind that the CA erred in imposing an

interest rate of 12% on the award of damages. Under Article 2209 of the Civil
Code, when an obligation not constituting a loan or forbearance of money is
breached, an interest on the amount of damages awarded may be imposed at
the discretion of the court at the rate of 6% per annum. 64 In the similar case of
Belgian Overseas Chartering and Shipping NV v. Philippine First Insurance Co.,
lnc.,65 the Court reduced the rate of interest on the damages awarded to the
carrier therein to 6% from the time of the filing of the complaint until the
finality of the decision.
WHEREFORE, the Court AFFIRMS with MODIFICATION the Decision dated
October 15,2007 and the Resolution dated January 11, 2008 of the Court of
Appeals in CA-G.R. CV No. 69284 in that the interest rate on the award
ofP190,684.48 is reduced to 6% per annum from the date of extrajudicial
demand, until fully paid.
With costs against the petitioners in G.R. No. 181163 and G.R. No. 181319,
respectively.
SO ORDERED.

With respect to petitioners ATI and Westwinds liability, we agree with the CA
that the same should be confined to the value of the one piece Frame Axle Sub
without Lower.
G.R. No. 200289
In the Bad Order Inspection Report62 prepared by Universal Motors, the latter
referred to Case No. 03-245-42K/1 as the source of said Frame Axle Sub without
Lower which suffered a deep dent on its buffle plate. Yet, it identified Case No.
03-245-51K as the container which bore the six pieces Frame Assembly with
Bush. Thus, in Philams Complaint, it alleged that "the entire shipment showed
one (1) pc. FRAME AXLE SUB W/O LWR from Case No. 03-245-42K/1 was
completely deformed and misaligned, and six (6) other pcs. of FRAME
ASSEMBLY WITH BUSH from Case No. 03-245-51K were likewise completely
deformed and misaligned."63 Philam later claimed in its Appellees Brief that the

November 25, 2013

WESTWIND SHIPPING CORPORATION, Petitioner,

vs.
UCPB GENERAL INSURANCE CO., INC. and ASIAN TERMINALS
INC., Respondents.
x-----------------------x

G.R. No. 200314

ORIENT FREIGHT INTERNATIONAL INC., Petitioner,
vs.
UCPB GENERAL INSURANCE CO., INC. and ASIAN TERMINALS
INC., Respondents.
DECISION
PERALTA, J.:
These two consolidated cases challenge, by way of petition for certiorari under
Rule 45 of the 1997 Rules of Civil Procedure, September 13, 2011 Decision 1 and
January 19, 2012 Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No.
86752, which reversed and set aside the January 27, 2006 Decision 3 of the
Manila City Regional Trial Court Branch (RTC) 30. The facts, as established by
the records, are as follows:
On August 23, 1993, Kinsho-Mataichi Corporation shipped from the port of
Kobe, Japan, 197 metal containers/skids of tin-free steel for delivery to the
consignee, San Miguel Corporation (SMC). The shipment, covered by Bill of
Lading No. KBMA-1074,4 was loaded and received clean on board M/V Golden
Harvest Voyage No. 66, a vessel owned and operated by Westwind Shipping
Corporation (Westwind).
SMC insured the cargoes against all risks with UCPB General Insurance Co., Inc.
(UCPB) for US Dollars: One Hundred Eighty-Four Thousand Seven Hundred
Ninety-Eight and Ninety-Seven Centavos (US$184,798.97), which, at the time,
was equivalent to Philippine Pesos: Six Million Two Hundred Nine Thousand Two
Hundred Forty-Five and Twenty-Eight Centavos (P6,209,245.28).
The shipment arrived in Manila, Philippines on August 31, 1993 and was
discharged in the custody of the arrastre operator, Asian Terminals, Inc. (ATI),
formerly Marina Port Services, Inc.5 During the unloading operation, however,
six containers/skids worth Philippine Pesos: One Hundred Seventeen Thousand
Ninety-Three and Twelve Centavos (P117,093.12) sustained dents and
punctures from the forklift used by the stevedores of Ocean Terminal Services,
Inc. (OTSI) in centering and shuttling the containers/skids. As a consequence,
the local ship agent of the vessel, Baliwag Shipping Agency, Inc., issued two
Bad Order Cargo Receipt dated September 1, 1993.
On September 7, 1993, Orient Freight International, Inc. (OFII), the customs
broker of SMC, withdrew from ATI the 197 containers/skids, including the six in
damaged condition, and delivered the same at SMCs warehouse in Calamba,
Laguna through J.B. Limcaoco Trucking (JBL). It was discovered upon discharge

that additional nine containers/skids valued at Philippine Pesos: One Hundred

Seventy-Five Thousand Six Hundred Thirty-Nine and Sixty-Eight Centavos
(P175,639.68) were also damaged due to the forklift operations; thus, making
the total number of 15 containers/skids in bad order.
Almost a year after, on August 15, 1994, SMC filed a claim against UCPB,
Westwind, ATI, and OFII to recover the amount corresponding to the damaged
15 containers/skids. When UCPB paid the total sum of Philippine Pesos: Two
Hundred Ninety-Two Thousand Seven Hundred Thirty-Two and Eighty Centavos
(P292,732.80), SMC signed the subrogation receipt. Thereafter, in the exercise
of its right of subrogation, UCPB instituted on August 30, 1994 a complaint for
damages against Westwind, ATI, and OFII.6
After trial, the RTC dismissed UCPBs complaint and the counterclaims of
Westwind, ATI, and OFII. It ruled that the right, if any, against ATI already
prescribed based on the stipulation in the 16 Cargo Gate Passes issued, as well
as the doctrine laid down in International Container Terminal Services, Inc. v.
Prudential Guarantee & Assurance Co. Inc.7 that a claim for reimbursement for
damaged goods must be filed within 15 days from the date of consignees
knowledge. With respect to Westwind, even if the action against it is not yet
barred by prescription, conformably with Section 3 (6) of the Carriage of Goods
by Sea Act (COGSA) and Our rulings in E.E. Elser, Inc., et al. v. Court of Appeals,
et al.8 and Belgian Overseas Chartering and Shipping N.V. v. Phil. First Insurance
Co., Inc.,9 the court a quo still opined that Westwind is not liable, since the
discharging of the cargoes were done by ATI personnel using forklifts and that
there was no allegation that it (Westwind) had a hand in the conduct of the
stevedoring operations. Finally, the trial court likewise absolved OFII from any
liability, reasoning that it never undertook the operation of the forklifts which
caused the dents and punctures, and that it merely facilitated the release and
delivery of the shipment as the customs broker and representative of SMC.
On appeal by UCPB, the CA reversed and set aside the trial court. The fallo of
its September 13, 2011 Decision directed:
WHEREFORE, premises considered, the instant appeal is hereby GRANTED. The
Decision dated January 27, 2006 rendered by the court a quo is REVERSED AND
SET ASIDE. Appellee Westwind Shipping Corporation is hereby ordered to pay to
the appellant UCPB General Insurance Co., Inc., the amount of One Hundred
Seventeen Thousand and Ninety-Three Pesos and Twelve Centavos
(Php117,093.12), while Orient Freight International, Inc. is hereby ordered to
pay to UCPB the sum of One Hundred Seventy-Five Thousand Six Hundred
Thirty-Nine Pesos and Sixty-Eight Centavos (Php175,639.68). Both sums shall
bear interest at the rate of six (6%) percent per annum, from the filing of the
complaint on August 30, 1994 until the judgment becomes final and executory.
Thereafter, an interest rate of twelve (12%) percent per annum shall be

imposed from the time this decision becomes final and executory until full
payment of said amounts.
SO ORDERED.10
While the CA sustained the RTC judgment that the claim against ATI already
prescribed, it rendered a contrary view as regards the liability of Westwind and
OFII. For the appellate court, Westwind, not ATI, is responsible for the six
damaged containers/skids at the time of its unloading. In its rationale, which
substantially followed Philippines First Insurance Co., Inc. v. Wallem Phils.
Shipping, Inc.,11 it concluded that the common carrier, not the arrastre
operator, is responsible during the unloading of the cargoes from the vessel
and that it is not relieved from liability and is still bound to exercise
extraordinary diligence at the time in order to see to it that the cargoes under
its possession remain in good order and condition. The CA also considered that
OFII is liable for the additional nine damaged containers/skids, agreeing with
UCPBs contention that OFII is a common carrier bound to observe
extraordinary diligence and is presumed to be at fault or have acted negligently
for such damage. Noting the testimony of OFIIs own witness that the delivery
of the shipment to the consignee is part of OFIIs job as a cargo forwarder, the
appellate court ruled that Article 1732 of the New Civil Code (NCC) does not
distinguish between one whose principal business activity is the carrying of
persons or goods or both and one who does so as an ancillary activity. The
appellate court further ruled that OFII cannot excuse itself from liability by
insisting that JBL undertook the delivery of the cargoes to SMCs warehouse. It
opined that the delivery receipts signed by the inspector of SMC showed that
the containers/skids were received from OFII, not JBL. At the most, the CA said,
JBL was engaged by OFII to supply the trucks necessary to deliver the
shipment, under its supervision, to SMC.
Only Westwind and OFII filed their respective motions for reconsideration, which
the CA denied; hence, they elevated the case before Us via petitions docketed
as G.R. Nos. 200289 and 200314, respectively.
Westwind argues that it no longer had actual or constructive custody of the
containers/skids at the time they were damaged by ATIs forklift operator
during the unloading operations. In accordance with the stipulation of the bill of
lading, which allegedly conforms to Article 1736 of the NCC, it contends that its
responsibility already ceased from the moment the cargoes were delivered to
ATI, which is reckoned from the moment the goods were taken into the latters
custody. Westwind adds that ATI, which is a completely independent entity that
had the right to receive the goods as exclusive operator of stevedoring and
arrastre functions in South Harbor, Manila, had full control over its employees
and stevedores as well as the manner and procedure of the discharging
operations.

As for OFII, it maintains that it is not a common carrier, but only a customs
broker whose participation is limited to facilitating withdrawal of the shipment
in the custody of ATI by overseeing and documenting the turnover and
counterchecking if the quantity of the shipments were in tally with the shipping
documents at hand, but without participating in the physical withdrawal and
loading of the shipments into the delivery trucks of JBL. Assuming that it is a
common carrier, OFII insists that there is no need to rely on the presumption of
the law that, as a common carrier, it is presumed to have been at fault or
have acted negligently in case of damaged goods considering the undisputed
fact that the damages to the containers/skids were caused by the forklift
blades, and that there is no evidence presented to show that OFII and Westwind
were the owners/operators of the forklifts. It asserts that the loading to the
trucks were made by way of forklifts owned and operated by ATI and the
unloading from the trucks at the SMC warehouse was done by way of forklifts
owned and operated by SMC employees. Lastly, OFII avers that neither the
undertaking to deliver nor the acknowledgment by the consignee of the fact of
delivery makes a person or entity a common carrier, since delivery alone is not
the controlling factor in order to be considered as such.
Both petitions lack merit.
The case of Philippines First Insurance Co., Inc. v. Wallem Phils. Shipping,
Inc.12 applies, as it settled the query on which between a common carrier and
an arrastre operator should be responsible for damage or loss incurred by the
shipment during its unloading. We elucidated at length:
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. Subject to certain exceptions enumerated under
Article 1734 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.
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, the Court
interpreted the ship captains liability as ultimately that of the shipowner by
regarding the captain as the representative of the shipowner.
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. 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.
xxxx
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. 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.
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.
In Firemans Fund Insurance Co. v. Metro Port Service, Inc., the Court explained
the relationship and responsibility of an arrastre operator to a consignee of a
cargo, to quote:
The legal relationship between the consignee and the arrastre operator is akin
to that of a depositor and warehouseman. The relationship between the
consignee and the common carrier is similar to that of the consignee and the
arrastre operator. Since it is the duty of the ARRASTRE to take good care of the
goods that are in its custody and to deliver them in good condition to the
consignee, such responsibility also devolves upon the CARRIER. Both the
ARRASTRE and the CARRIER are therefore charged with and obligated to deliver
the goods in good condition to the consignee. (Emphasis supplied) (Citations
omitted)
The liability of the arrastre operator was reiterated in Eastern Shipping Lines,
Inc. v. Court of Appeals 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 carriers 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, it
was ruled that like the duty of seaworthiness, the duty of care of the cargo is
non-delegable, 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.
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.
xxxx
It is settled in maritime law jurisprudence that cargoes while being unloaded
generally remain under the custody of the carrier x x x. 13
In Regional Container Lines (RCL) of Singapore v. The Netherlands Insurance Co.
(Philippines), Inc.14 and Asian Terminals, Inc. v. Philam Insurance Co., Inc., 15 the
Court echoed the doctrine that cargoes, while being unloaded, generally remain
under the custody of the carrier. We cannot agree with Westwinds disputation
that "the carrier in Wallem clearly exercised supervision during the discharge of
the shipment and that is why it was faulted and held liable for the damage
incurred by the shipment during such time." What Westwind failed to realize is
that the extraordinary responsibility of the common carrier lasts until the time
the goods are actually or constructively delivered by the carrier to the
consignee or to the person who has a right to receive them. 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.16 In this case, since the discharging of
the containers/skids, which were covered by only one bill of lading, had not yet
been completed at the time the damage occurred, there is no reason to imply
that there was already delivery, actual or constructive, of the cargoes to ATI.
Indeed, the earlier case of Delsan Transport Lines, Inc. v. American Home
Assurance Corp.17serves as a useful guide, thus:
Delsans 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. 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. 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. 18
The contention of OFII is likewise untenable. A customs broker has been
regarded as a common carrier because transportation of goods is an integral
part of its business.19 In Schmitz Transport & Brokerage Corporation v. Transport
Venture, Inc.,20 the Court already reiterated: It is settled that under a given set
of facts, a customs broker may be regarded as a common carrier.1wphi1 Thus,
this Court, in A.F. Sanchez Brokerage, Inc. v. The Honorable Court of Appeals
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. x x x x

And in Calvo v. UCPB General Insurance Co. Inc., 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 petitioners business." 21
That OFII is a common carrier is buttressed by the testimony of its own witness,
Mr. Loveric Panganiban Cueto, that part of the services it offers to clients is
cargo forwarding, which includes the delivery of the shipment to the
consignee.22 Thus, for undertaking the transport of cargoes from ATI to SMCs
warehouse in Calamba, Laguna, OFII is considered a common carrier. 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 of
whether it owns the vehicle to be used or has to actually hire one.
As a common carrier, OFII is mandated to observe, under Article 1733 of the
Civil Code,23 extraordinary diligence in the vigilance over the goods 24 it
transports according to the peculiar 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.25 In the case at bar it was established that except for
the six containers/skids already damaged OFII received the cargoes from ATI in
good order and condition; and that upon its delivery to SMC additional nine
containers/skids were found to be in bad order as noted in the Delivery
Receipts issued by OFII and as indicated in the Report of Cares Marine Cargo
Surveyors. Instead of merely excusing itself from liability by putting the blame
to ATI and SMC it is incumbent upon OFII to prove that it actively took care of
the goods by exercising extraordinary diligence in the carriage thereof. It failed
to do so. Hence its presumed negligence under Article 1735 of the Civil Code
remains unrebutted.
WHEREFORE, premises considered the petitions of Westwind and OFII in G.R.
Nos. 200289 and 200314 respectively are DENIED. The September 13 2011
Decision and January 19 2012 Resolution of the Court of Appeals in CA-G.R. CV
No. 86752 which reversed and set aside the January 27 2006 Decision of the
Manila City Regional Trial Court Branch 30 are AFFIRMED.
SO ORDERED.

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.

SPOUSES FERNANDO and LOURDES VILORIA, Petitioners, - versus CONTINENTAL AIRLINES, INC., Respondent.

G.R. No. 188288

January 16, 2012

x------------------------------------------------------------------------------------x

REYES, J.:
This is a petition for review under Rule 45 of the Rules of Court from the January
30, 2009 Decision1 of the Special Thirteenth Division of the Court of Appeals
(CA) in CA-G.R. CV No. 88586 entitled Spouses Fernando and Lourdes Viloria v.
Continental Airlines, Inc., the dispositive portion of which states:
WHEREFORE, the Decision of the Regional Trial Court,
Branch 74, dated 03 April 2006, awarding US$800.00 or its
peso equivalent at the time of payment, plus legal rate of
interest from 21 July 1997 until fully paid, [P]100,000.00 as
moral damages, [P]50,000.00 as exemplary damages,
[P]40,000.00 as attorneys fees and costs of suit to plaintiffsappellees is herebyREVERSED and SET ASIDE.
Defendant-appellants counterclaim is DENIED.
Costs against plaintiffs-appellees.
SO ORDERED.2
On April 3, 2006, the Regional Trial Court of Antipolo City, Branch 74 (RTC)
rendered a Decision, giving due course to the complaint for sum of money and
damages filed by petitioners Fernando Viloria (Fernando) and Lourdes Viloria
(Lourdes), collectively called Spouses Viloria, against respondent Continental
Airlines, Inc. (CAI). As culled from the records, below are the facts giving rise to
such complaint.

On or about July 21, 1997 and while in the United States, Fernando purchased
for himself and his wife, Lourdes, two (2) round trip airline tickets from San
Diego, California to Newark, New Jersey on board Continental Airlines. Fernando
purchased the tickets at US$400.00 each from a travel agency called Holiday
Travel and was attended to by a certain Margaret Mager (Mager). According to
Spouses Viloria, Fernando agreed to buy the said tickets after Mager informed
them that there were no available seats at Amtrak, an intercity passenger train
service provider in the United States. Per the tickets, Spouses Viloria were
scheduled to leave for Newark on August 13, 1997 and return to San Diego on
August 21, 1997.
Subsequently, Fernando requested Mager to reschedule their flight to Newark
to an earlier date or August 6, 1997. Mager informed him that flights to Newark
via Continental Airlines were already fully booked and offered the alternative of

a round trip flight via Frontier Air. Since flying with Frontier Air called for a
higher fare of US$526.00 per passenger and would mean traveling by night,
Fernando opted to request for a refund. Mager, however, denied his request as
the subject tickets are non-refundable and the only option that Continental
Airlines can offer is the re-issuance of new tickets within one (1) year from the
date the subject tickets were issued. Fernando decided to reserve two (2) seats
with Frontier Air.
As he was having second thoughts on traveling via Frontier Air, Fernando went
to the Greyhound Station where he saw an Amtrak station nearby. Fernando
made inquiries and was told that there are seats available and he can travel on
Amtrak anytime and any day he pleased. Fernando then purchased two (2)
tickets for Washington, D.C.
From Amtrak, Fernando went to Holiday Travel and confronted Mager with the
Amtrak tickets, telling her that she had misled them into buying the Continental
Airlines tickets by misrepresenting that Amtrak was already fully booked.
Fernando reiterated his demand for a refund but Mager was firm in her position
that the subject tickets are non-refundable.
Upon returning to the Philippines, Fernando sent a letter to CAI on February 11,
1998, demanding a refund and alleging that Mager had deluded them into
purchasing the subject tickets.3
In a letter dated February 24, 1998, Continental Micronesia informed Fernando
that his complaint had been referred to the Customer Refund Services of
Continental Airlines at Houston, Texas.4
In a letter dated March 24, 1998, Continental Micronesia denied Fernandos
request for a refund and advised him that he may take the subject tickets to
any Continental ticketing location for the re-issuance of new tickets within two
(2) years from the date they were issued. Continental Micronesia informed
Fernando that the subject tickets may be used as a form of payment for the
purchase of another Continental ticket, albeit with a re-issuance fee. 5
On June 17, 1999, Fernando went to Continentals ticketing office at Ayala
Avenue, Makati City to have the subject tickets replaced by a single round trip
ticket to Los Angeles, California under his name. Therein, Fernando was
informed that Lourdes ticket was non-transferable, thus, cannot be used for
the purchase of a ticket in his favor. He was also informed that a round trip
ticket to Los Angeles was US$1,867.40 so he would have to pay what will not
be covered by the value of his San Diego to Newark round trip ticket.

In a letter dated June 21, 1999, Fernando demanded for the refund of the
subject tickets as he no longer wished to have them replaced. In addition to the
dubious circumstances under which the subject tickets were issued, Fernando
claimed that CAIs act of charging him with US$1,867.40 for a round trip ticket
to Los Angeles, which other airlines priced at US$856.00, and refusal to allow
him to use Lourdes ticket, breached its undertaking under its March 24, 1998
letter.6
On September 8, 2000, Spouses Viloria filed a complaint against CAI, praying
that CAI be ordered to refund the money they used in the purchase of the
subject tickets with legal interest from July 21, 1997 and to pay P1,000,000.00
as moral damages, P500,000.00 as exemplary damages and P250,000.00 as
attorneys fees.7
CAI interposed the following defenses: (a) Spouses Viloria have no right to ask
for a refund as the subject tickets are non-refundable; (b) Fernando cannot
insist on using the ticket in Lourdes name for the purchase of a round trip
ticket to Los Angeles since the same is non-transferable; (c) as Mager is not a
CAI employee, CAI is not liable for any of her acts; (d) CAI, its employees and
agents did not act in bad faith as to entitle Spouses Viloria to moral and
exemplary damages and attorneys fees. CAI also invoked the following clause
printed on the subject tickets:
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) carriers 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.8
According to CAI, one of the conditions attached to their contract of carriage is
the non-transferability and non-refundability of the subject tickets.
The RTCs Ruling
Following a full-blown trial, the RTC rendered its April 3, 2006 Decision, holding
that Spouses Viloria are entitled to a refund in view of Magers
misrepresentation in obtaining their consent in the purchase of the subject
tickets.9 The relevant portion of the April 3, 2006 Decision states:
Continental Airlines agent Ms. Mager was in bad faith
when she was less candid and diligent in presenting to
plaintiffs spouses their booking options. Plaintiff Fernando
clearly wanted to travel via AMTRAK, but defendants agent
misled him into purchasing Continental Airlines tickets instead

on the fraudulent misrepresentation that Amtrak was fully

booked. In fact, defendant Airline did not specifically denied
(sic) this allegation.
Plainly, plaintiffs spouses, particularly plaintiff
Fernando, were tricked into buying Continental Airline tickets
on Ms. Magers misleading misrepresentations. Continental
Airlines agent Ms. Mager further relied on and exploited
plaintiff Fernandos need and told him that they must book a
flight immediately or risk not being able to travel at all on the
couples preferred date. Unfortunately, plaintiffs spouses fell
prey to the airlines and its agents unethical tactics for baiting
trusting customers.10
Citing Articles 1868 and 1869 of the Civil Code, the RTC ruled that Mager is
CAIs agent, hence, bound by her bad faith and misrepresentation. As far as the
RTC is concerned, there is no issue as to whether Mager was CAIs agent in view
of CAIs implied recognition of her status as such in its March 24, 1998 letter.
The act of a travel agent or agency being involved
here, the following are the pertinent New Civil Code provisions
on agency:
Art. 1868. By the contract of agency
a person binds himself to render some service
or to do something in representation or on
behalf of another, with the consent or
authority of the latter.
Art. 1869. Agency may be express, or
implied from the acts of the principal, from his
silence or lack of action, or his failure to
repudiate the agency, knowing that another
person is acting on his behalf without
authority.
Agency may be oral, unless the law
requires a specific form.
As its very name implies, a travel agency binds itself
to render some service or to do something in representation or
on behalf of another, with the consent or authority of the
latter. This court takes judicial notice of the common services
rendered by travel agencies that represent themselves as
such, specifically the reservation and booking of local and
foreign tours as well as the issuance of airline tickets for a
commission or fee.
The services rendered by Ms. Mager of Holiday Travel
agency to the plaintiff spouses on July 21, 1997 were no
different from those offered in any other travel agency.
Defendant airline impliedly if not expressly acknowledged its

principal-agent relationship with Ms. Mager by its offer in the

letter dated March 24, 1998 an obvious attempt to assuage
plaintiffs spouses hurt feelings. 11
Furthermore, the RTC ruled that CAI acted in bad faith in reneging on its
undertaking to replace the subject tickets within two (2) years from their date
of issue when it charged Fernando with the amount of US$1,867.40 for a round
trip ticket to Los Angeles and when it refused to allow Fernando to use Lourdes
ticket. Specifically:
Tickets may be reissued for up to two years from the original
date of issue. When defendant airline still charged plaintiffs
spouses US$1,867.40 or more than double the then going rate
of US$856.00 for the unused tickets when the same were
presented within two (2) years from date of issue, defendant
airline exhibited callous treatment of passengers.12

The Appellate Courts Ruling

On appeal, the CA reversed the RTCs April 3, 2006 Decision, holding that CAI
cannot be held liable for Magers act in the absence of any proof that a
principal-agent relationship existed between CAI and Holiday Travel. According
to the CA, Spouses Viloria, who have the burden of proof to establish the fact of
agency, failed to present evidence demonstrating that Holiday Travel is CAIs
agent. Furthermore, contrary to Spouses Vilorias claim, the contractual
relationship between Holiday Travel and CAI is not an agency but that of a sale.
Plaintiffs-appellees assert that Mager was a sub-agent
of Holiday Travel who was in turn a ticketing agent of Holiday
Travel who was in turn a ticketing agent of Continental Airlines.
Proceeding from this premise, they contend that Continental
Airlines should be held liable for the acts of Mager. The trial
court held the same view.
We do not agree. By the contract of agency, a person
binds him/herself to render some service or to do something in
representation or on behalf of another, with the consent or
authority of the latter. The elements of agency are: (1)
consent, express or implied, of the parties to establish the
relationship; (2) the object is the execution of a juridical act in
relation to a third person; (3) the agent acts as a
representative and not for him/herself; and (4) the agent acts
within the scope of his/her authority. As the basis of agency is
representation, there must be, on the part of the principal, an
actual intention to appoint, an intention naturally inferable
from the principals words or actions. In the same manner,
there must be an intention on the part of the agent to accept
the appointment and act upon it. Absent such mutual intent,
there is generally no agency. It is likewise a settled rule that
persons dealing with an assumed agent are bound at their
peril, if they would hold the principal liable, to ascertain not
only the fact of agency but also the nature and extent of

authority, and in case either is controverted, the burden of

proof is upon them to establish it. Agency is never presumed,
neither is it created by the mere use of the word in a trade or
business name. We have perused the evidence and documents
so far presented. We find nothing except bare allegations of
plaintiffs-appellees that Mager/Holiday Travel was acting in
behalf of Continental Airlines. From all sides of legal prism, the
transaction in issue was simply a contract of sale, wherein
Holiday Travel buys airline tickets from Continental Airlines and
then, through its employees, Mager included, sells it at a
premium to clients.13
The CA also ruled that refund is not available to Spouses Viloria as the word
non-refundable was clearly printed on the face of the subject tickets, which
constitute their contract with CAI. Therefore, the grant of their prayer for a
refund would violate the proscription against impairment of contracts.
Finally, the CA held that CAI did not act in bad faith when they charged Spouses
Viloria with the higher amount of US$1,867.40 for a round trip ticket to Los
Angeles. According to the CA, there is no compulsion for CAI to charge the
lower amount of US$856.00, which Spouses Viloria claim to be the fee charged
by other airlines. The matter of fixing the prices for its services is CAIs
prerogative, which Spouses Viloria cannot intervene. In particular:
It is within the respective rights of persons owning and/or
operating business entities to peg the premium of the services
and items which they provide at a price which they deem fit,
no matter how expensive or exhorbitant said price may
seem vis--vis those of the competing companies. The
Spouses Viloria may not intervene with the business judgment
of Continental Airlines.14

The Petitioners Case

In this Petition, this Court is being asked to review the findings and conclusions
of the CA, as the latters reversal of the RTCs April 3, 2006 Decision allegedly
lacks factual and legal bases. Spouses Viloria claim that CAI acted in bad faith
when it required them to pay a higher amount for a round trip ticket to Los
Angeles considering CAIs undertaking to re-issue new tickets to them within
the period stated in their March 24, 1998 letter. CAI likewise acted in bad faith
when it disallowed Fernando to use Lourdes ticket to purchase a round trip to
Los Angeles given that there is nothing in Lourdes ticket indicating that it is
non-transferable. As a common carrier, it is CAIs duty to inform its passengers
of the terms and conditions of their contract and passengers cannot be bound
by such terms and conditions which they are not made aware of. Also, the
subject contract of carriage is a contract of adhesion; therefore, any
ambiguities should be construed against CAI. Notably, the petitioners are no
longer questioning the validity of the subject contracts and limited its claim for
a refund on CAIs alleged breach of its undertaking in its March 24, 1998 letter.

The Respondents Case

In its Comment, CAI claimed that Spouses Vilorias allegation of bad faith is
negated by its willingness to issue new tickets to them and to credit the value
of the subject tickets against the value of the new ticket Fernando requested.
CAI argued that Spouses Vilorias sole basis to claim that the price at which CAI
was willing to issue the new tickets is unconscionable is a piece of hearsay
evidence an advertisement appearing on a newspaper stating that airfares
from Manila to Los Angeles or San Francisco cost US$818.00. 15 Also, the
advertisement pertains to airfares in September 2000 and not to airfares
prevailing in June 1999, the time when Fernando asked CAI to apply the value
of the subject tickets for the purchase of a new one. 16 CAI likewise argued that
it did not undertake to protect Spouses Viloria from any changes or fluctuations
in the prices of airline tickets and its only obligation was to apply the value of
the subject tickets to the purchase of the newly issued tickets.
With respect to Spouses Vilorias claim that they are not aware of CAIs
restrictions on the subject tickets and that the terms and conditions that are
printed on them are ambiguous, CAI denies any ambiguity and alleged that its
representative informed Fernando that the subject tickets are non-transferable
when he applied for the issuance of a new ticket. On the other hand, the word
non-refundable clearly appears on the face of the subject tickets.
CAI also denies that it is bound by the acts of Holiday Travel and Mager and
that no principal-agency relationship exists between them. As an independent
contractor, Holiday Travel was without capacity to bind CAI.
Issues
To determine the propriety of disturbing the CAs January 30, 2009 Decision and
whether Spouses Viloria have the right to the reliefs they prayed for, this Court
deems it necessary to resolve the following issues:
a. Does a principal-agent relationship exist between CAI and Holiday
Travel?
b. Assuming that an agency relationship exists between CAI and
Holiday Travel, is CAI bound by the acts of Holiday Travels agents and
employees such as Mager?
c. Assuming that CAI is bound by the acts of Holiday Travels agents
and employees, can the representation of Mager as to unavailability of
seats at Amtrak be considered fraudulent as to vitiate the consent of
Spouse Viloria in the purchase of the subject tickets?

d. Is CAI justified in insisting that the subject tickets are nontransferable and non-refundable?
e. Is CAI justified in pegging a different price for the round trip ticket to
Los Angeles requested by Fernando?
f. Alternatively, did CAI act in bad faith or renege its obligation to
Spouses Viloria to apply the value of the subject tickets in the purchase
of new ones when it refused to allow Fernando to use Lourdes ticket
and in charging a higher price for a round trip ticket to Los Angeles?

This Courts Ruling

I. A principal-agent relationship exists between CAI and Holiday
Travel.
With respect to the first issue, which is a question of fact that would require this
Court to review and re-examine the evidence presented by the parties below,
this Court takes exception to the general rule that the CAs findings of fact are
conclusive upon Us and our jurisdiction is limited to the review of questions of
law. It is well-settled to the point of being axiomatic that this Court is
authorized to resolve questions of fact if confronted with contrasting factual
findings of the trial court and appellate court and if the findings of the CA are
contradicted by the evidence on record.17
According to the CA, agency is never presumed and that he who alleges that it
exists has the burden of proof. Spouses Viloria, on whose shoulders such
burden rests, presented evidence that fell short of indubitably demonstrating
the existence of such agency.
We disagree. The CA failed to consider undisputed facts, discrediting CAIs
denial that Holiday Travel is one of its agents. Furthermore, in erroneously
characterizing the contractual relationship between CAI and Holiday Travel as a
contract of sale, the CA failed to apply the fundamental civil law principles
governing agency and differentiating it from sale.
In Rallos v. Felix Go Chan & Sons Realty Corporation, 18 this Court explained the
nature of an agency and spelled out the essential elements thereof:
Out of the above given principles, sprung the creation
and acceptance of the relationship of agency whereby one
party, called the principal (mandante), authorizes another,
called the agent (mandatario), to act for and in his behalf in
transactions with third persons. The essential elements of
agency are: (1) there is consent, express or implied of the
parties to establish the relationship; (2) the object is the
execution of a juridical act in relation to a third person; (3) the

agent acts as a representative and not for himself, and (4) the
agent acts within the scope of his authority.
Agency is basically personal, representative,
and derivative in nature. The authority of the agent to act
emanates from the powers granted to him by his principal; his
act is the act of the principal if done within the scope of the
authority. Qui facit per alium facit se. "He who acts through
another acts himself."19
Contrary to the findings of the CA, all the elements of an agency exist in this
case. The first and second elements are present as CAI does not deny that it
concluded an agreement with Holiday Travel, whereby Holiday Travel would
enter into contracts of carriage with third persons on CAIs behalf. The third
element is also present as it is undisputed that Holiday Travel merely acted in a
representative capacity and it is CAI and not Holiday Travel who is bound by the
contracts of carriage entered into by Holiday Travel on its behalf. The fourth
element is also present considering that CAI has not made any allegation that
Holiday Travel exceeded the authority that was granted to it. In fact, CAI
consistently maintains the validity of the contracts of carriage that Holiday
Travel executed with Spouses Viloria and that Mager was not guilty of any
fraudulent misrepresentation. That CAI admits the authority of Holiday Travel to
enter into contracts of carriage on its behalf is easily discernible from its
February 24, 1998 and March 24, 1998 letters, where it impliedly recognized
the validity of the contracts entered into by Holiday Travel with Spouses Viloria.
When Fernando informed CAI that it was Holiday Travel who issued to them the
subject tickets, CAI did not deny that Holiday Travel is its authorized agent.
Prior to Spouses Vilorias filing of a complaint against it, CAI never refuted that
it gave Holiday Travel the power and authority to conclude contracts of carriage
on its behalf. As clearly extant from the records, CAI recognized the validity of
the contracts of carriage that Holiday Travel entered into with Spouses Viloria
and considered itself bound with Spouses Viloria by the terms and conditions
thereof; and this constitutes an unequivocal testament to Holiday Travels
authority to act as its agent. This Court cannot therefore allow CAI to take an
altogether different position and deny that Holiday Travel is its agent without
condoning or giving imprimatur to whatever damage or prejudice that may
result from such denial or retraction to Spouses Viloria, who relied on good faith
on CAIs acts in recognition of Holiday Travels authority. Estoppel is primarily
based on the doctrine of good faith and the avoidance of harm that will befall
an innocent party due to its injurious reliance, the failure to apply it in this case
would result in gross travesty of justice. 20 Estoppel bars CAI from making such
denial.
As categorically provided under Article 1869 of the Civil Code, [a]gency may
be express, or implied from the acts of the principal, from his silence or lack of
action, or his failure to repudiate the agency, knowing that another person is
acting on his behalf without authority.

Considering that the fundamental hallmarks of an agency are present, this

Court finds it rather peculiar that the CA had branded the contractual
relationship between CAI and Holiday Travel as one of sale. The distinctions
between a sale and an agency are not difficult to discern and this Court, as
early as 1970, had already formulated the guidelines that would aid in
differentiating the two (2) contracts. In Commissioner of Internal Revenue v.
Constantino,21 this Court extrapolated that the primordial differentiating
consideration between the two (2) contracts is the transfer of ownership or title
over the property subject of the contract. In an agency, the principal retains
ownership and control over the property and the agent merely acts on the
principals behalf and under his instructions in furtherance of the objectives for
which the agency was established. On the other hand, the contract is clearly a
sale if the parties intended that the delivery of the property will effect a
relinquishment of title, control and ownership in such a way that the recipient
may do with the property as he pleases.
Since the company retained ownership of the goods,
even as it delivered possession unto the dealer for resale to
customers, the price and terms of which were subject to the
company's control, the relationship between the company and
the dealer is one of agency, tested under the following
criterion:
The difficulty in distinguishing between
contracts of sale and the creation of an agency to sell
has led to the establishment of rules by the
application of which this difficulty may be solved. The
decisions say the transfer of title or agreement to
transfer it for a price paid or promised is the essence
of sale. If such transfer puts the transferee in the
attitude or position of an owner and makes him liable
to the transferor as a debtor for the agreed price, and
not merely as an agent who must account for the
proceeds of a resale, the transaction is a sale; while
the essence of an agency to sell is the delivery to an
agent, not as his property, but as the property of the
principal, who remains the owner and has the right to
control sales, fix the price, and terms, demand and
receive the proceeds less the agent's commission
upon sales made. 1 Mechem on Sales, Sec. 43; 1
Mechem on Agency, Sec. 48; Williston on Sales, 1;
Tiedeman on Sales, 1. (Salisbury v. Brooks, 94 SE
117, 118-119)22
As to how the CA have arrived at the conclusion that the contract between CAI
and Holiday Travel is a sale is certainly confounding, considering that CAI is the
one bound by the contracts of carriage embodied by the tickets being sold by
Holiday Travel on its behalf. It is undisputed that CAI and not Holiday Travel who
is the party to the contracts of carriage executed by Holiday Travel with third
persons who desire to travel via Continental Airlines, and this conclusively
indicates the existence of a principal-agent relationship. That the principal is

bound by all the obligations contracted by the agent within the scope of the
authority granted to him is clearly provided under Article 1910 of the Civil Code
and this constitutes the very notion of agency.

Spouses Viloria did not present evidence that CAI was a party or had
contributed to Magers complained act either by instructing or authorizing
Holiday Travel and Mager to issue the said misrepresentation.

II. In actions based on quasi-delict, a principal can only be held liable

for the tort committed by its agents employees if it has been
established by preponderance of evidence that the principal was also
at fault or negligent or that the principal exercise control and
supervision over them.

It may seem unjust at first glance that CAI would consider Spouses
Viloria bound by the terms and conditions of the subject contracts, which Mager
entered into with them on CAIs behalf, in order to deny Spouses Vilorias
request for a refund or Fernandos use of Lourdes ticket for the re-issuance of a
new one, and simultaneously claim that they are not bound by Magers
supposed misrepresentation for purposes of avoiding Spouses Vilorias claim for
damages and maintaining the validity of the subject contracts. It may likewise
be argued that CAI cannot deny liability as it benefited from Magers acts,
which were performed in compliance with Holiday Travels obligations as CAIs
agent.

Considering that Holiday Travel is CAIs agent, does it necessarily

follow that CAI is liable for the fault or negligence of Holiday Travels
employees? Citing China Air Lines, Ltd. v. Court of Appeals, et al.,23 CAI argues
that it cannot be held liable for the actions of the employee of its ticketing
agent in the absence of an employer-employee relationship.
An examination of this Courts pronouncements in China Air Lines will
reveal that an airline company is not completely exonerated from any liability
for the tort committed by its agents employees. A prior determination of the
nature of the passengers cause of action is necessary. If the passengers cause
of action against the airline company is premised onculpa aquiliana or quasidelict for a tort committed by the employee of the airline companys agent,
there must be an independent showing that the airline company was at fault or
negligent or has contributed to the negligence or tortuous conduct committed
by the employee of its agent. The mere fact that the employee of the airline
companys agent has committed a tort is not sufficient to hold the airline
company liable. There is no vinculum juris between the airline company and its
agents employees and the contractual relationship between the airline
company and its agent does not operate to create a juridical tie between the
airline company and its agents employees. Article 2180 of the Civil Code does
not make the principal vicariously liable for the tort committed by its agents
employees and the principal-agency relationship per se does not make the
principal a party to such tort; hence, the need to prove the principals own fault
or negligence.
On the other hand, if the passengers cause of action for damages
against the airline company is based on contractual breach or culpa
contractual, it is not necessary that there be evidence of the airline companys
fault or negligence. As this Court previously stated in China Air Lines and
reiterated in Air France vs. Gillego,24 in an action based on a breach of contract
of carriage, the aggrieved party does not have to prove that the common
carrier was at fault or was negligent. All that he has to prove is the existence of
the contract and the fact of its non-performance by the carrier.
Spouses Vilorias cause of action on the basis of Magers alleged
fraudulent misrepresentation is clearly one of tort or quasi-delict, there being
no pre-existing contractual relationship between them. Therefore, it was
incumbent upon Spouses Viloria to prove that CAI was equally at fault.
However, the records are devoid of any evidence by which CAIs
alleged liability can be substantiated. Apart from their claim that CAI must be
held liable for Magers supposed fraud because Holiday Travel is CAIs agent,

However, a persons vicarious liability is anchored on his possession of

control, whether absolute or limited, on the tortfeasor. Without such control,
there is nothing which could justify extending the liability to a person other
than the one who committed the tort. As this Court explained in Cangco v.
Manila Railroad Co.:25
With respect to extra-contractual obligation arising
from negligence, whether of act or omission, it is
competent for the legislature to elect and our Legislature
has so elected to limit such liability to cases in which the
person upon whom such an obligation is imposed is morally
culpable or, on the contrary, for reasons of public policy, to
extend that liability, without regard to the lack of moral
culpability, so as to include responsibility for the
negligence of those persons whose acts or omissions
are imputable, by a legal fiction, to others who are in a
position to exercise an absolute or limited control over
them. The legislature which adopted our Civil Code has
elected to limit extra-contractual liability with certain welldefined exceptions to cases in which moral culpability can
be directly imputed to the persons to be charged. This moral
responsibility may consist in having failed to exercise due care
in one's own acts, or in having failed to exercise due care in
the selection and control of one's agent or servants, or in the
control of persons who, by reasons of their status, occupy a
position of dependency with respect to the person made liable
for their conduct.26 (emphasis supplied)
It is incumbent upon Spouses Viloria to prove that CAI exercised control
or supervision over Mager by preponderant evidence. The existence of control
or supervision cannot be presumed and CAI is under no obligation to prove its
denial or nugatory assertion. Citing Belen v. Belen,27 this Court ruled in Jayme v.
Apostol,28 that:
In Belen v. Belen, this Court ruled that it was enough for
defendant to deny an alleged employment relationship. The

defendant is under no obligation to prove the negative

averment. This Court said:
It is an old and well-settled rule of
the courts that the burden of proving the
action is upon the plaintiff, and that if he fails
satisfactorily to show the facts upon which he
bases his claim, the defendant is under no
obligation to prove his exceptions. This [rule]
is in harmony with the provisions of Section
297 of the Code of Civil Procedure holding
that each party must prove his own
affirmative allegations, etc.29 (citations
omitted)
Therefore, without a modicum of evidence that CAI exercised control over
Holiday Travels employees or that CAI was equally at fault, no liability can be
imposed on CAI for Magers supposed misrepresentation.
III.

Even on the assumption that CAI may be held liable for the
acts of Mager, still, Spouses Viloria are not entitled to a
refund. Magers statement cannot be considered a causal
fraud that would justify the annulment of the subject contracts
that would oblige CAI to indemnify Spouses Viloria and return
the money they paid for the subject tickets.

Article 1390, in relation to Article 1391 of the Civil Code, provides that
if the consent of the contracting parties was obtained through fraud, the
contract is considered voidable and may be annulled within four (4) years from
the time of the discovery of the fraud. Once a contract is annulled, the parties
are obliged under Article 1398 of the same Code to restore to each other the
things subject matter of the contract, including their fruits and interest.
On the basis of the foregoing and given the allegation of Spouses
Viloria that Fernandos consent to the subject contracts was supposedly
secured by Mager through fraudulent means, it is plainly apparent that their
demand for a refund is tantamount to seeking for an annulment of the subject
contracts on the ground of vitiated consent.
Whether the subject contracts are annullable, this Court is required to
determine whether Magers alleged misrepresentation constitutes causal fraud.
Similar to the dispute on the existence of an agency, whether fraud attended
the execution of a contract is factual in nature and this Court, as discussed
above, may scrutinize the records if the findings of the CA are contrary to those
of the RTC.
Under Article 1338 of the Civil Code, there is fraud when, through
insidious words or machinations of one of the contracting parties, the other is
induced to enter into a contract which, without them, he would not have agreed
to. In order that fraud may vitiate consent, it must be the causal (dolo
causante), not merely the incidental (dolo incidente), inducement to the

making of the contract.30 In Samson v. Court of Appeals,31 causal fraud was

defined as a deception employed by one party prior to or simultaneous to the
contract in order to secure the consent of the other. 32
Also, fraud must be serious and its existence must be established by
clear and convincing evidence. As ruled by this Court in Sierra v. Hon. Court of
Appeals, et al.,33 mere preponderance of evidence is not adequate:
Fraud must also be discounted, for according to the
Civil Code:
Art. 1338. There is fraud when,
through insidious words or machinations of
one of the contracting parties, the other is
induced to enter into a contract which without
them, he would not have agreed to.
Art. 1344. In order that fraud may
make a contract voidable, it should be serious
and should not have been employed by both
contracting parties.
To quote Tolentino again, the misrepresentation
constituting the fraud must be established by full, clear, and
convincing evidence, and not merely by a preponderance
thereof. The deceit must be serious. The fraud is serious when
it is sufficient to impress, or to lead an ordinarily prudent
person into error; that which cannot deceive a prudent person
cannot be a ground for nullity. The circumstances of each case
should be considered, taking into account the personal
conditions of the victim.34
After meticulously poring over the records, this Court finds that the
fraud alleged by Spouses Viloria has not been satisfactorily established as
causal in nature to warrant the annulment of the subject contracts. In fact,
Spouses Viloria failed to prove by clear and convincing evidence that Magers
statement was fraudulent. Specifically, Spouses Viloria failed to prove that (a)
there were indeed available seats at Amtrak for a trip to New Jersey on August
13, 1997 at the time they spoke with Mager on July 21, 1997; (b) Mager knew
about this; and (c) that she purposely informed them otherwise.
This Court finds the only proof of Magers alleged fraud, which is
Fernandos testimony that an Amtrak had assured him of the perennial
availability of seats at Amtrak, to be wanting. As CAI correctly pointed out and
as Fernando admitted, it was possible that during the intervening period of
three (3) weeks from the time Fernando purchased the subject tickets to the
time he talked to said Amtrak employee, other passengers may have cancelled
their bookings and reservations with Amtrak, making it possible for Amtrak to
accommodate them. Indeed, the existence of fraud cannot be proved by mere
speculations and conjectures. Fraud is never lightly inferred; it is good faith that
is. Under the Rules of Court, it is presumed that "a person is innocent of crime

or wrong" and that "private transactions have been fair and regular." 35 Spouses
Viloria failed to overcome this presumption.

same time impugn its existence or validity. Indeed, litigants are enjoined from
taking inconsistent positions.39

IV. Assuming the contrary, Spouses Viloria are nevertheless deemed to

have ratified the subject contracts.

V. Contracts cannot be rescinded for a slight or casual breach.

CAI cannot insist on the non-transferability of the subject tickets.

Even assuming that Magers representation is causal fraud, the subject

contracts have been impliedly ratified when Spouses Viloria decided to exercise
their right to use the subject tickets for the purchase of new ones. Under Article
1392 of the Civil Code, ratification extinguishes the action to annul a voidable
contract.
Ratification of a voidable contract is defined under Article 1393 of the
Civil Code as follows:
Art. 1393. Ratification may be effected expressly or tacitly. It is
understood that there is a tacit ratification if, with knowledge
of the reason which renders the contract voidable and such
reason having ceased, the person who has a right to invoke it
should execute an act which necessarily implies an intention
to waive his right.
Implied ratification may take diverse forms, such as by silence or
acquiescence; by acts showing approval or adoption of the contract; or by
acceptance and retention of benefits flowing therefrom. 36
Simultaneous with their demand for a refund on the ground of
Fernandos vitiated consent, Spouses Viloria likewise asked for a refund based
on CAIs supposed bad faith in reneging on its undertaking to replace the
subject tickets with a round trip ticket from Manila to Los Angeles.
In doing so, Spouses Viloria are actually asking for a rescission of the
subject contracts based on contractual breach. Resolution, the action referred
to in Article 1191, is based on the defendants breach of faith, a violation of the
reciprocity between the parties37 and in Solar Harvest, Inc. v. Davao Corrugated
Carton Corporation,38 this Court ruled that a claim for a reimbursement in view
of the other partys failure to comply with his obligations under the contract is
one for rescission or resolution.
However, annulment under Article 1390 of the Civil Code and
rescission under Article 1191 are two (2) inconsistent remedies. In resolution,
all the elements to make the contract valid are present; in annulment, one of
the essential elements to a formation of a contract, which is consent, is absent.
In resolution, the defect is in the consummation stage of the contract when the
parties are in the process of performing their respective obligations; in
annulment, the defect is already present at the time of the negotiation and
perfection stages of the contract. Accordingly, by pursuing the remedy of
rescission under Article 1191, the Vilorias had impliedly admitted the validity of
the subject contracts, forfeiting their right to demand their annulment. A party
cannot rely on the contract and claim rights or obligations under it and at the

Considering that the subject contracts are not annullable on the ground
of vitiated consent, the next question is: Do Spouses Viloria have the right to
rescind the contract on the ground of CAIs supposed breach of its undertaking
to issue new tickets upon surrender of the subject tickets?
Article 1191, as presently worded, states:
The power to rescind obligations is implied in reciprocal ones,
in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfilment and the
rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be
just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with
articles 1385 and 1388 and the Mortgage Law.
According to Spouses Viloria, CAI acted in bad faith and breached the
subject contracts when it refused to apply the value of Lourdes ticket for
Fernandos purchase of a round trip ticket to Los Angeles and in requiring him
to pay an amount higher than the price fixed by other airline companies.
In its March 24, 1998 letter, CAI stated that non-refundable tickets
may be used as a form of payment toward the purchase of another Continental
ticket for $75.00, per ticket, reissue fee ($50.00, per ticket, for tickets
purchased prior to October 30, 1997).
Clearly, there is nothing in the above-quoted section of CAIs letter
from which the restriction on the non-transferability of the subject tickets can
be inferred. In fact, the words used by CAI in its letter supports the position of
Spouses Viloria, that each of them can use the ticket under their name for the
purchase of new tickets whether for themselves or for some other person.
Moreover, as CAI admitted, it was only when Fernando had expressed
his interest to use the subject tickets for the purchase of a round trip ticket

between Manila and Los Angeles that he was informed that he cannot use the
ticket in Lourdes name as payment.
Contrary to CAIs claim, that the subject tickets are non-transferable
cannot be implied from a plain reading of the provision printed on the subject
tickets stating that [t]o the extent not in conflict with the foregoing carriage
and other services performed by each carrier are subject to: (a) provisions
contained in this ticket, x x x (iii) carriers conditions of carriage and related
regulations which are made part hereof (and are available on application at the
offices of carrier) x x x. As a common carrier whose business is imbued with
public interest, the exercise of extraordinary diligence requires CAI to inform
Spouses Viloria, or all of its passengers for that matter, of all the terms and
conditions governing their contract of carriage. CAI is proscribed from taking
advantage of any ambiguity in the contract of carriage to impute knowledge on
its passengers of and demand compliance with a certain condition or
undertaking that is not clearly stipulated. Since the prohibition on
transferability is not written on the face of the subject tickets and CAI failed to
inform Spouses Viloria thereof, CAI cannot refuse to apply the value of Lourdes
ticket as payment for Fernandos purchase of a new ticket.
CAIs refusal to accept Lourdes ticket for the purchase of a new ticket
for Fernando is only a casual breach.
Nonetheless, the right to rescind a contract for non-performance of its
stipulations is not absolute. The general rule is that rescission of a contract will
not be permitted for a slight or casual breach, but only for such substantial and
fundamental violations as would defeat the very object of the parties in making
the agreement.40 Whether a breach is substantial is largely determined by the
attendant circumstances.41
While CAIs refusal to allow Fernando to use the value of Lourdes ticket
as payment for the purchase of a new ticket is unjustified as the nontransferability of the subject tickets was not clearly stipulated, it cannot,
however be considered substantial. The endorsability of the subject tickets is
not an essential part of the underlying contracts and CAIs failure to comply is
not essential to its fulfillment of its undertaking to issue new tickets upon
Spouses Vilorias surrender of the subject tickets. This Court takes note of CAIs
willingness to perform its principal obligation and this is to apply the price of
the ticket in Fernandos name to the price of the round trip ticket between
Manila and Los Angeles. CAI was likewise willing to accept the ticket in Lourdes
name as full or partial payment as the case may be for the purchase of any
ticket, albeit under her name and for her exclusive use. In other words, CAIs
willingness to comply with its undertaking under its March 24, 1998 cannot be
doubted, albeit tainted with its erroneous insistence that Lourdes ticket is nontransferable.
Moreover, Spouses Vilorias demand for rescission cannot prosper as
CAI cannot be solely faulted for the fact that their agreement failed to
consummate and no new ticket was issued to Fernando. Spouses Viloria have
no right to insist that a single round trip ticket between Manila and Los Angeles
should be priced at around $856.00 and refuse to pay the difference between
the price of the subject tickets and the amount fixed by CAI. The petitioners

failed to allege, much less prove, that CAI had obliged itself to issue to them
tickets for any flight anywhere in the world upon their surrender of the subject
tickets. In its March 24, 1998 letter, it was clearly stated that [n]on-refundable
tickets may be used as a form of payment toward the purchase of another
Continental ticket42 and there is nothing in it suggesting that CAI had obliged
itself to protect Spouses Viloria from any fluctuation in the prices of tickets or
that the surrender of the subject tickets will be considered as full payment for
any ticket that the petitioners intend to buy regardless of actual price and
destination. The CA was correct in holding that it is CAIs right and exclusive
prerogative to fix the prices for its services and it may not be compelled to
observe and maintain the prices of other airline companies. 43
The conflict as to the endorsability of the subject tickets is an
altogether different matter, which does not preclude CAI from fixing the price of
a round trip ticket between Manila and Los Angeles in an amount it deems
proper and which does not provide Spouses Viloria an excuse not to pay such
price, albeit subject to a reduction coming from the value of the subject tickets.
It cannot be denied that Spouses Viloria had the concomitant obligation to pay
whatever is not covered by the value of the subject tickets whether or not the
subject tickets are transferable or not.
There is also no showing that Spouses Viloria were discriminated
against in bad faith by being charged with a higher rate. The only evidence the
petitioners presented to prove that the price of a round trip ticket between
Manila and Los Angeles at that time was only $856.00 is a newspaper
advertisement for another airline company, which is inadmissible for being
hearsay evidence, twice removed. Newspaper clippings are hearsay if they
were offered for the purpose of proving the truth of the matter alleged. As ruled
in Feria v. Court of Appeals,:44
[N]ewspaper articles amount to hearsay evidence, twice
removed and are therefore not only inadmissible but without
any probative value at all whether objected to or not, unless
offered for a purpose other than proving the truth of the
matter asserted. In this case, the news article is admissible
only as evidence that such publication does exist with the
tenor of the news therein stated.45(citations omitted)
The records of this case demonstrate that both parties were equally in
default; hence, none of them can seek judicial redress for the cancellation or
resolution of the subject contracts and they are therefore bound to their
respective obligations thereunder. As the 1st sentence of Article 1192 provides:
Art. 1192. In case both parties have committed a
breach of the obligation, the liability of the first
infractor shall be equitably tempered by the courts. If it
cannot be determined which of the parties first violated the
contract, the same shall be deemed extinguished, and each
shall bear his own damages. (emphasis supplied)
Therefore, CAIs liability for damages for its refusal to accept Lourdes
ticket for the purchase of Fernandos round trip ticket is offset by Spouses

Vilorias liability for their refusal to pay the amount, which is not covered by the
subject tickets. Moreover, the contract between them remains, hence, CAI is
duty bound to issue new tickets for a destination chosen by Spouses Viloria
upon their surrender of the subject tickets and Spouses Viloria are obliged to
pay whatever amount is not covered by the value of the subject tickets.
This Court made a similar ruling in Central Bank of the Philippines v.
Court of Appeals.46 Thus:
Since both parties were in default in the performance
of their respective reciprocal obligations, that is, Island
Savings Bank failed to comply with its obligation to furnish the
entire loan and Sulpicio M. Tolentino failed to comply with his
obligation to pay his P17,000.00 debt within 3 years as
stipulated, they are both liable for damages.
Article 1192 of the Civil Code provides that in case
both parties have committed a breach of their reciprocal
obligations, the liability of the first infractor shall be equitably
tempered by the courts. WE rule that the liability of Island
Savings Bank for damages in not furnishing the entire loan is
offset by the liability of Sulpicio M. Tolentino for damages, in
the form of penalties and surcharges, for not paying his
overdue P17,000.00 debt. x x x.47
Another consideration that militates against the propriety of holding
CAI liable for moral damages is the absence of a showing that the latter acted
fraudulently and in bad faith. Article 2220 of the Civil Code requires evidence of
bad faith and fraud and moral damages are generally not recoverable in culpa
contractual except when bad faith had been proven. 48The award of exemplary
damages is likewise not warranted. Apart from the requirement that the
defendant acted in a wanton, oppressive and malevolent manner, the claimant
must prove his entitlement to moral damages. 49
WHEREFORE, premises considered, the instant Petition is DENIED.

SO ORDERED.

INSURANCE COMPANY OF NORTH AMERICA,

G.R. No. 180784

- versus

February 15, 2012

ASIAN TERMINALS, INC., Respondent.

x-------------------------------------------------x
DECISION

PERALTA, J.:

This is a petition for review on certiorari[1] of the Decision of the

Regional Trial Court (RTC) of Makati City, Branch 138 (trial court) in Civil Case
No. 05-809 and its Order dated December 4, 2007 on the ground that the trial
court committed reversible error of law.

The trial court dismissed petitioners complaint for actual damages on

the ground of prescription under the Carriage of Goods by Sea Act (COGSA).
The facts are as follows:

On November 9, 2002, Macro-Lite Korea Corporation shipped to San

Miguel Corporation, through M/V "DIMI P" vessel, one hundred eighty-five (185)
packages (231,000 sheets) of electrolytic tin free steel, complete and in good
order condition and covered by Bill of Lading No. POBUPOHMAN20638. [2] The
shipment had a declared value of US$169,850.35 [3] and was insured with
petitioner Insurance Company of North America against all risks under Marine
Policy No. MOPA-06310.[4]
The carrying vessel arrived at the port of Manila on November 19,
2002, and when the shipment was discharged therefrom, it was noted that
seven (7) packages thereof were damaged and in bad order. [5] The shipment
was then turned over to the custody of respondent Asian Terminals, Inc. (ATI)
on November 21, 2002 for storage and safekeeping pending its withdrawal by
the consignee's authorized customs broker, R.V. Marzan Brokerage Corp.
(Marzan).

On November 22, 23 and 29, 2002, the subject shipment was

withdrawn by Marzan from the custody of respondent. On November 29, 2002,

prior to the last withdrawal of the shipment, a joint inspection of the said cargo
was conducted per the Request for Bad Order Survey [6] dated November 29,
2002, and the examination report, which was written on the same request,
showed that an additional five (5) packages were found to be damaged and in
bad order.

On January 6, 2003, the consignee, San Miguel Corporation, filed

separate claims[7] against respondent and petitioner for the damage to 11,200
sheets of electrolytic tin free steel.

Petitioner engaged the services of an independent adjuster/surveyor,

BA McLarens Phils., Inc., to conduct an investigation and evaluation on the
claim and to prepare the necessary report. [8] BA McLarens Phils., Inc. submitted
to petitioner an Survey Report[9] dated January 22, 2003 and another
report[10] dated May 5, 2003 regarding the damaged shipment. It noted that out
of the reported twelve (12) damaged skids, nine (9) of them were rejected and
three (3) skids were accepted by the consignees representative as good
order. BA McLarens Phils., Inc. evaluated the total cost of damage to the nine
(9) rejected skids (11,200 sheets of electrolytic tin free steel) to
be P431,592.14.
The petitioner, as insurer of the said cargo, paid the consignee the
amount of P431,592.14 for the damage caused to the shipment, as evidenced
by the Subrogation Receipt dated January 8, 2004. Thereafter, petitioner,
formally demanded reparation against respondent. As respondent failed to
satisfy its demand, petitioner filed an action for damages with the RTC of
Makati City.

The trial court found, thus:

The Court finds that the subject shipment indeed

suffered additional damages. The Request for Bad Order
Survey No. 56422 shows that prior to the turn over of the
shipment from the custody of ATI to the consignee, aside from
the seven (7) packages which were already damaged upon
arrival at the port of Manila, five (5) more packages were
found with "dent, cut and crumple" while in the custody of ATI.

This document was issued by ATI and was jointly executed by

the representatives of ATI, consignee and customs, and the
Shed Supervisor. Thus, ATI is now estopped from claiming that
there was no additional damage suffered by the shipment. It
is, therefore, only logical to conclude that the damage was
caused solely by the negligence of defendant ATI. This
evidence of the plaintiff was refuted by the defendant by
merely alleging that "the damage to the 5 Tin Plates is only in
its external packaging. However, the fact remains that the
consignee has rejected the same as total loss for not being
suitable for their intended purpose. In addition, the
photographs presented by the plaintiff show that the shipment
also suffered severe dents and some packages were even
critically crumpled.[11]

As to the extent of liability, ATI invoked the Contract for Cargo

Handling Services executed between the Philippine Ports Authority and Marina
Ports Services, Inc. (now Asian Terminals, Inc.). Under the said contract, ATI's
liability for damage to cargoes in its custody is limited to P5,000.00 for each
package, unless the value of the cargo shipment is otherwise specified or
manifested or communicated in writing, together with the declared Bill of
Lading value and supported by a certified packing list to the contractor by the
interested party or parties before the discharge or lading unto vessel of the
goods.

The trial court found that there was compliance by the shipper and
consignee with the above requirement. The Bill of Lading, together with the
corresponding invoice and packing list, was shown to ATI prior to the discharge
of the goods from the vessel. Since the shipment was released from the
custody of ATI, the trial court found that the same was declared for tax
purposes as well as for the assessment of arrastre charges and other fees. For
the purpose, the presentation of the invoice, packing list and other shipping
documents to ATI for the proper assessment of the arrastre charges and other
fees satisfied the condition of declaration of the actual invoices of the value of
the goods to overcome the limitation of liability of the arrastre operator. [12]

Further, the trial court found that there was a valid subrogation
between the petitioner and the assured/consignee San Miguel Corporation. The
respondent admitted the existence of Global Marine Policy No. MOPA-06310
with San Miguel Corporation and Marine Risk Note No. 3445, [13] which showed

that the cargo was indeed insured with petitioner. The trial court held that
petitioners claim is compensable because the Subrogation Receipt, 16 which was
admitted as to its existence by respondent, was sufficient to establish not only
the relationship of the insurer and the assured, but also the amount paid to
settle the insurance claim.[14]

However, the trial court dismissed the complaint on the ground that
the petitioners claim was already barred by the statute of limitations. It held
that COGSA, embodied in Commonwealth Act (CA) No. 65, applies to this case,
since the goods were shipped from a foreign port to the Philippines. The trial
court stated that under the said law, particularly paragraph 4, Section 3 (6)
[15]
thereof, the shipper has the right to bring a suit within one year after the
delivery of the goods or the date when the goods should have been delivered,
in respect of loss or damage thereto.
The trial court held:

In the case at bar, the records show that the shipment

was delivered to the consignee on 22, 23 and 29 of November
2002. The plaintiff took almost a year to approve and pay the
claim of its assured, San Miguel, despite the fact that it had
initially received the latter's claim as well as the inspection
report and survey report of McLarens as early as January 2003.
The assured/consignee had only until November of 2003 within
which to file a suit against the defendant. However, the instant
case was filed only on September 7, 2005 or almost three (3)
years from the date the subject shipment was delivered to the
consignee. The plaintiff, as insurer of the shipment which has
paid the claim of the insured, is subrogated to all the rights of
the said insured in relation to the reimbursement of such
claim. As such, the plaintiff cannot acquire better rights than
that of the insured. Thus, the plaintiff has no one but itself to
blame for having acted lackadaisically on San Miguel's claim.

WHEREFORE, the complaint and counterclaim are hereby

DISMISSED.[16]

Petitioners motion for reconsideration was denied by the trial court in

the Order[17] dated December 4, 2007.

Petitioner filed this petition under Rule 45 of the Rules of Court directly
before this Court, alleging that it is raising a pure question of law:

THE TRIAL COURT COMMITTED A PURE AND SERIOUS

ERROR OF LAW IN APPLYING THE ONE-YEAR PRESCRIPTIVE
PERIOD FOR FILING A SUIT UNDER THE CARRIAGE OF GOODS BY
SEA ACT (COGSA) TO AN ARRASTRE OPERATOR. [18]

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

Moreover, petitioner contends that the term carriage of goods in the

COGSA covers the period from the time the goods are loaded to the vessel to
the time they are discharged therefrom. It points out that it sued respondent
only for the additional five (5) packages of the subject shipment that were
found damaged while in respondents custody, long after the shipment was
discharged from the vessel. The said damage was confirmed by the trial court
and proved by the Request for Bad Order Survey No. 56422. [19]

Petitioner prays that the decision of the trial court be reversed and set
aside and a new judgment be promulgated granting its prayer for actual
damages.

The main issues are: (1) whether or not the one-year prescriptive
period for filing a suit under the COGSA applies to this action for damages
against respondent arrastre operator; and (2) whether or not petitioner is
entitled to recover actual damages in the amount of P431,592.14 from
respondent.

To reiterate, petitioner came straight to this Court to appeal from the

decision of the trial court under Rule 45 of the Rules of Court on the ground that
it is raising only a question of law.

Microsoft Corporation v. Maxicorp, Inc. [20] explains the difference

between questions of law and questions of fact, thus:

The distinction between questions of law and questions

of fact is settled. A question of law exists when the doubt or
difference centers on what the law is on a certain state of
facts. A question of fact exists if the doubt centers on the truth
or falsity of the alleged facts. Though this delineation seems
simple, determining the true nature and extent of the
distinction is sometimes problematic. For example, it is
incorrect to presume that all cases where the facts are not in
dispute automatically involve purely questions of law.
There is a question of law if the issue raised is capable of being
resolved without need of reviewing the probative value of the
evidence. The resolution of the issue must rest solely on what
the law provides on the given set of circumstances. Once it is
clear that the issue invites a review of the evidence presented,
the question posed is one of fact. If the query requires a reevaluation of the credibility of witnesses, or the existence or
relevance of surrounding circumstances and their relation to
each other, the issue in that query is factual. x x x[21]

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

question of law, that is, whether or not the prescriptive period under the
COGSA applies to an action for damages against respondent arrastre operator,
yet petitioner prays for the reversal of the decision of the trial court and that it
be granted the relief sought, which is the award of actual damages in the
amount of P431,592.14. For a question to be one of law, it must not involve an
examination of the probative value of the evidence presented by the litigants or
any of them.[22] However, to resolve the issue of whether or not petitioner is
entitled to recover actual damages from respondent requires the Court to
evaluate the evidence on record; hence, petitioner is also raising a question of
fact.
Under Section 1, Rule 45, providing for appeals by certiorari before the
Supreme Court, it is clearly enunciated that only questions of law may be set
forth.[23] The Court may resolve questions of fact only when the case falls under
the following exceptions:
(1) when the findings are grounded entirely on speculation,
surmises, or conjectures; (2) when the inference made is
manifestly mistaken, absurd, or impossible; (3) when there is
grave abuse of discretion; (4) when the judgment is based
on a misapprehension of facts; (5) when the findings of fact
are conflicting; (6) when in making its findings the Court of
Appeals went beyond the issues of the case, or its findings are
contrary to the admissions of both the appellant and the
appellee; (7) when the findings are contrary to those of the trial
court; (8) when the findings are conclusions without citation of
specific evidence on which they are based; (9) when the facts
set forth in the petition as well as in the petitioner's main and
reply briefs are not disputed by the respondent; and (10) when
the findings of fact are premised on the supposed absence of
evidence and contradicted by the evidence on record. [24]
In this case, the fourth exception cited above applies, as the trial court
rendered judgment based on a misapprehension of facts.
We first resolve the issue on whether or not the one-year prescriptive
period for filing a suit under the COGSA applies to respondent arrastre operator.
The Carriage of Goods by Sea Act (COGSA), Public Act No. 521 of the
74th US Congress, was accepted to be made applicable to all contracts for the
carriage of goods by sea to and from Philippine ports in foreign trade by virtue
of CA No. 65.
Section 1 of CA No. 65 states:

Section 1. That the provisions of Public Act

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

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

Goods by Sea, thus:
Section 1. When used in this Act -

(a) The term "carrier" includes the owner or the

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

It is noted that the term carriage of goods covers the period from the
time when the goods are loaded to the time when they are discharged from the
ship; thus, it can be inferred that the period of time when the goods have been
discharged from the ship and given to the custody of the arrastre operator is
not covered by the COGSA.

The prescriptive period for filing an action for the loss or damage of the
goods under the COGSA is found in paragraph (6), Section 3, thus:

6) Unless notice of loss or damage and the general

nature of such loss or damage be given in writing to the carrier
or his agent at the port of discharge before or at the time of
the removal of the goods into the custody of the person
entitled to delivery thereof under the contract of carriage,
such removal shall be prima facie evidence of the delivery by
the carrier of the goods as described in the bill of lading. If the
loss or damage is not apparent, the notice must be given
within three days of the delivery.

Said notice of loss or damage maybe endorsed upon

the receipt for the goods given by the person taking delivery
thereof.

The notice in writing need not be given if the state of

the goods has at the time of their receipt been the subject of
joint survey or inspection.

In any event the carrier and the ship shall be

discharged from all liability in respect of loss or
damage unless suit is brought within one year after
delivery of the goods or the date when the goods
should have been delivered: Provided, That if a notice of
loss or damage, either apparent or concealed, is not given as
provided for in this section, that fact shall not affect or
prejudice the right of the shipper to bring suit within one year

after the delivery of the goods or the date when the goods
should have been delivered.[26]

From the provision above, the carrier and the ship may put up the
defense of prescription if the action for damages is not brought within one year
after the delivery of the goods or the date when the goods should have been
delivered. It has been held that not only the shipper, but also the consignee or
legal holder of the bill may invoke the prescriptive period. [27] However, the
COGSA does not mention that an arrastre operator may invoke the prescriptive
period of one year; hence, it does not cover the arrastre operator.
Respondent arrastre operators responsibility and liability for losses and
damages are set forth in Section 7.01 of the Contract for Cargo Handling
Services executed between the Philippine Ports Authority and Marina Ports
Services, Inc. (now Asian Terminals, Inc.), thus:

Section 7.01 Responsibility and Liability for Losses and

Damages; Exceptions - The CONTRACTOR shall, at its own
expense, handle all merchandise in all work undertaken by it
hereunder, diligently and in a skillful, workman-like and
efficient manner. The CONTRACTOR shall be solely
responsible as an independent contractor, and
hereby agrees to accept liability and to pay to the
shipping company, consignees, consignors or other
interested party or parties for the loss, damage or nondelivery of cargoes in its custody and control to the
extent of the actual invoice value of each package
which in no case shall be more than FIVE THOUSAND
PESOS (P5,000.00) each, unless the value of the cargo
shipment is otherwise specified or manifested or
communicated in writing together with the declared Bill
of Lading value and supported by a certified packing
list to the CONTRACTOR by the interested party or
parties before the discharge or loading unto vessel of
the goods. This amount of Five Thousand Pesos (P5,000.00)
per package may be reviewed and adjusted by the AUTHORITY
from time to time. The CONTRACTOR shall not be responsible
for the condition or the contents of any package received, nor
for the weight nor for any loss, injury or damage to the said
cargo before or while the goods are being received or remains
in the piers, sheds, warehouses or facility, if the loss, injury or
damage is caused by force majeure or other causes beyond

the CONTRACTOR's control or capacity to prevent or

remedy; PROVIDED, that a formal claim together with
the necessary copies of Bill of Lading, Invoice, Certified
Packing List and Computation arrived at covering the
loss, injury or damage or non-delivery of such
goods shall have been filed with the CONTRACTOR
within fifteen (15) days from day of issuance by the
CONTRACTOR
of
a
certificate
of
nondelivery; PROVIDED, however, that if said CONTRACTOR
fails to issue such certification within fifteen (15) days
from
receipt
of
a
written
request
by
the
shipper/consignee or his duly authorized representative
or any interested party, said certification shall be
deemed to have been issued, and thereafter, the fifteen
(15) day period within which to file the claim
commences; PROVIDED, finally, that the request for
certification of loss shall be made within thirty (30)
days from the date of delivery of the package to the
consignee.[28]

Based on the Contract above, the consignee has a period of thirty (30)
days from the date of delivery of the package to the consignee within which to
request a certificate of loss from the arrastre operator. From the date of the
request for a certificate of loss, the arrastre operator has a period of fifteen (15)
days within which to issue a certificate of non-delivery/loss either actually or
constructively. Moreover, from the date of issuance of a certificate of nondelivery/loss, the consignee has fifteen (15) days within which to file a formal
claim covering the loss, injury, damage or non-delivery of such goods with all
accompanying documentation against the arrastre operator.

Petitioner clarified that it sued respondent only for the additional five
(5) packages of the subject shipment that were found damaged while in
respondents custody, which fact of damage was sustained by the trial court
and proved by the Request for Bad Order Survey No. 56422. [29]
Petitioner pointed out the importance of the Request for Bad Order
Survey by citing New Zealand Insurance Company Limited v. Navarro.
[30]
In the said case, the Courtruled that the request for, and the result of, the
bad order examination, which were filed and done within fifteen days from the
haulage of the goods from the vessel, served thepurpose of a claim, which is to

afford the carrier or depositary reasonable opportunity and facilities to check

the validity of the claims while facts are still fresh in the minds of the persons
who took part in the transaction and documents are still available. Hence, even
if the consignee therein filed a formal claim beyond the stipulated period of 15
days, the arrastre operator was not relieved of liability as the purpose of a
formal claim had already been satisfied by the consignees timely request for
the bad order examination of the goods shipped and the result of the said bad
order examination.
To
elaborate, New
Navarro held:

Zealand

Insurance

Company,

We took special note of the above pronouncement six

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

Ltd. v.

opportunity to check the goods

verification of its own liability x x x.

but

is

itself

In other words, what the Court considered as the

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

non-delivery" the periods prescribed under Article VI, Section

1 of the Management Contract here involved, within which a
request for certificate of loss and a formal claim, respectively,
must be filed by the consignee or his agent. Evidently,
therefore, the rule laid down by the Court in Fireman's
Fund finds appropriate application in the case at bar.[31]

In this case, the records show that the goods were deposited with the
arrastre operator on November 21, 2002. The goods were withdrawn from the
arrastre operator on November 22, 23 and 29, 2002. Prior to the withdrawal
on November 29, 2002, the broker of the importer, Marzan, requested for a bad
order survey in the presence of a Customs representative and other parties
concerned. The joint inspection of cargo was conducted and it was found that an
additional five (5) packages were found in bad order as evidenced by the
document entitled Request for Bad Order Survey [32] dated November 29, 2002,
which document also contained the examination report, signed by the Customs
representative, Supervisor/Superintendent, consignees representative, and the
ATI Inspector.
Thus, as early as November 29, 2002, the date of the last withdrawal of
the goods from the arrastre operator, respondent ATI was able to verify that five
(5) packages of the shipment were in bad order while in its custody. The
certificate of non-delivery referred to in the Contract is similar to or identical
with the examination report on the request for bad order survey. [33] Like in the
case of New Zealand Insurance Company Ltd. v. Navarro, the
verification and ascertainment of liability by respondent ATI had been
accomplished within thirty (30) days from the date of delivery of the
package to the consignee and within fifteen (15) days from the date of
issuance by the Contractor (respondent ATI) of the examination report
on the request for bad order survey. Although the formal claim was filed
beyond the 15-day period from the issuance of the examination report on the
request for bad order survey, the purpose of the time limitations for the filing of
claims had already been fully satisfied by the request of the consignees broker
for a bad order survey and by the examination report of the arrastre operator on
the result thereof, as the arrastre operator had become aware of and had
verified the facts giving rise to its liability. [34] Hence, the arrastre operator
suffered no prejudice by the lack of strict compliance with the 15-day limitation
to file the formal complaint.[35]
The next factual issue is whether or not petitioner is entitled to actual
damages in the amount of P431,592.14. The payment of the said amount by
petitioner to the assured/consignee was based on the Evaluation Report [36] of BA
McLarens Phils., Inc., thus:

Finish arrived Manila via Ocean Vessel, M/V DIMI P V-075 on

November 9, 2002 and subsequently docked alongside Pier No.
9, South Harbor, Manila. The cargo of Electrolyic Tin Free
Steel was discharged ex-vessel complete with seven (7)
skids noted in bad order condition by the vessel[s]
representative. These skids were identified as nos.
2HD804211,
2HD804460,
SHD804251,
SHD803784,
2HD803763, 2HD803765 and 2HD803783 and covered with
Bad Order Tally Receipts No. 3709, 3707, 3703 and 3704.
Thereafter, the same were stored inside the warehouse of Pier
No. 9, South Harbor, Manila, pending delivery to the consignees
warehouse.
On November 22, 23 and 29, 2002, the subject cargo was
withdrawn from the Pier by the consignee authorized broker, R.
V. Marzan Brokerage Corp. and the same was delivered to the
consignees final warehouse located at Silangan, Canlubang,
Laguna complete with twelve (12) skids in bad order condition.

VISUAL INSPECTION
We conducted an ocular inspection on the reported damaged
Electrolytic Tin Free Steel, Matte Finish at the consignees
warehouse located at Brgy. Silangan, Canlubang, Laguna and
noted thatout of the reported twelve (12) damaged skids,
nine (9) of them were rejected and three (3) skids were
accepted by the consignees representative as complete
and without exceptions.
xxxx

EVALUATION OF INDEMNITY
We evaluated the loss/damage sustained by the
subject shipments and arrived as follows:
PRODUCT NOS. PRODUCTS NAMED NO. OF SHEETS NET WT.
PER PACKING LIST

2HD803763 Electrolytic Tin Free 1,200 1,908

xxxx
CIRCUMSTANCES OF LOSS
As reported, the shipment consisting of 185 packages (344.982
MT) Electrolytic Tin Free Steel, JISG 3315SPTFS, MRT-4CA, Matte

Steel JISG3315
2HD803783 -do- 1,200 1,908

2HD803784 -do- 1,200 1,908

2HD804460 -do- 1,400 1,698
2HD803765 -do- 1,200 1,908

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

2HD804522 -do- 1,200 1,987

2HD804461 -do- 1,400 1,698
2HD804540 -do- 1,200 1,987
2HD804549 -do- 1,200 1,987
9 SKIDS TOTAL 11,200 16,989 kgs.

P9,878,547.58 P478,959.88
------------------ = 42.7643 x 11,200

To clarify, based on the Evaluation Report, seven (7) skids were

damaged upon arrival of the vessel per the Bad Order Cargo Receipts [38] issued
by the shipping company, and an additional five (5) skids were damaged in
the custody of the arrastre operator per the Bad Order Certificate/Examination
Report[39] issued by the arrastre contractor. The Evaluation Report states that out
of the reported twelve damaged skids, only nine were rejected, and three
were accepted as good order by the consignees representative. Out of the
nine skids that were rejected, five skids were damaged upon arrival of
the vessel as shown by the product numbers in the Evaluation Report, which
product numbers matched those in the Bad Order Cargo Receipts [40] issued by
the shipping company. It can then be safely inferred that the four remaining
rejected skids were damaged in the custody of the arrastre operator, as
the Bad Order Certificate/Examination Report did not indicate the product
numbers thereof.

231,000
Less: Deductible 0.50% based on sum insured 49,392.74
Total P429,567.14
Add: Surveyors Fee 2,025.00
Sub-Total P431,592.14

Note: Above evaluation is Assureds tentative liability as the

salvage proceeds on the damaged stocks has yet to be
determined.

RECOVERY ASPECT

Hence, it should be pointed out that the Evaluation Report shows

that the claim for actual damages in the amount of P431,592.14 covers
five (5)[41] out of the seven (7) skids that were found to be damaged
upon arrival of the vessel and covered by Bad Order Cargo Receipt Nos.
3704, 3706, 3707 and 3709,[42] which claim should have been filed with the
shipping company. Petitioner must have realized that the claim for the said five
(5) skids was already barred under COGSA; hence, petitioner filed the claim for
actual damages only against respondent arrastre operator.
As regards the four (4) skids that were damaged in the custody of the
arrastre operator, petitioner is still entitled to recover from respondent. The
Court has ruled that the Request for Bad Order Survey and the examination
report on the said request satisfied the purpose of a formal claim, as respondent
was made aware of and was able to verify that five (5) skids were damaged or in
bad order while in its custody before the last withdrawal of the shipment on
November 29, 2002. Hence, even if the formal claim was filed beyond the 15day period stipulated in the Contract, respondent was not prejudiced thereby,
since it already knew of the number of skids damaged in its possession per the
examination report on the request for bad order survey.

Remand of the case to the trial court for the determination of the
liability of respondent to petitioner is not necessary as the Court can resolve the
same based on the records before it. [43] The Court notes that petitioner, who filed
this action for damages for the five (5) skids that were damaged while in the
custody of respondent, was not forthright in its claim, as it knew that the
damages it sought in the amount of P431,592.14, which was based on the
Evaluation Report of its adjuster/surveyor, BA McLarens Phils., Inc., covered nine
(9) skids. Based on the same Evaluation Report, only four of the nine skids
were damaged in the custody of respondent. Petitioner should have been
straightforward about its exact claim, which is borne out by the evidence on
record, as petitioner can be granted only the amount of damages that is due to
it.

Based on the Evaluation Report [44] of BA McLarens Phils., Inc., dated May
5, 2003, the four (4) skids damaged while in the custody of the arrastre operator
and the amount of actual damages therefore are as follows:

PRODUCT NOS. PRODUCTS NAMED NO. OF SHEETS NET

WT. PER

------------------ = 42.7643 x 5,000

231,000 (Total number of sheets)
Less: Deductible 0.50% based on sum insured[46] 49,392.74
Total P164,428.76

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

amount of P164,428.76 for the four (4) skids damaged while in the custody of
respondent.

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

Trial Court of Makati City, Branch 138, dated October 17, 2006, in Civil Case No.
05-809, and its Order dated December 4, 2007, are hereby REVERSED and SET
ASIDE. Respondent Asian Terminals, Inc. is ORDERED to pay petitioner
Insurance Company of North America actual damages in the amount of One
Hundred Sixty-Four Thousand Four Hundred Twenty-Eight Pesos and Seventy-Six
Centavos (P164,428.76). Twelve percent (12%) interest per annum shall be
imposed on the amount of actual damages from the date the award becomes
final and executory until its full satisfaction.

PACKING LIST
2HD804522 Electrolytic Tin Free 1,200 1,987

Costs against petitioner.

Steel JISG3315
2HD804461 -do- 1,400 1,698

SO ORDERED.

2HD804540 -do- 1,200 1,987

2HD804549 -do- 1,200 1,987
----------------------------------------------------------------------------------------------------------

G.R. No. 184300

July 11, 2012

4 SKIDS TOTAL 5,000

P9,878,547.58 (Insured value)[45] P213,821.50

MALAYAN INSURANCE CO., INC., Petitioner,

vs.

PHILIPPINES FIRST INSURANCE CO., INC. and REPUTABLE FORWARDER

SERVICES, INC., Respondents.

The contract also required Reputable to secure an insurance policy on Wyeths

goods.7 Thus, on February 11, 1994, Reputable signed a Special Risk Insurance
Policy (SR Policy) with petitioner Malayan for the amount of P1,000,000.00.

DECISION
REYES, J.:
Before the Court is a petitiOn for review on certiorari filed by petitioner Malayan
Insurance Co., lnc. (Malayan) assailing the Decision1 dated February 29, 2008
and Resolution2 dated August 28, 2008 of the Court of Appeals (CA) in CA-G.R.
CV No. 71204 which affirmed with modification the decision of the Regional Trial
Court (RTC), Branch 38 of Manila.
Antecedent Facts
Since 1989, Wyeth Philippines, Inc. (Wyeth) and respondent Reputable
Forwarder Services, Inc. (Reputable) had been annually executing a contract of
carriage, whereby the latter undertook to transport and deliver the formers
products to its customers, dealers or salesmen.3
On November 18, 1993, Wyeth procured Marine Policy No. MAR 13797 (Marine
Policy) from respondent Philippines First Insurance Co., Inc. (Philippines First) to
secure its interest over its own products. Philippines First thereby insured
Wyeths nutritional, pharmaceutical and other products usual or incidental to
the insureds business while the same were being transported or shipped in the
Philippines. The policy covers all risks of direct physical loss or damage from
any external cause, if by land, and provides a limit of P6,000,000.00 per any
one land vehicle.
On December 1, 1993, Wyeth executed its annual contract of carriage with
Reputable. It turned out, however, that the contract was not signed by Wyeths
representative/s.4 Nevertheless, it was admittedly signed by Reputables
representatives, the terms thereof faithfully observed by the parties and, as
previously stated, the same contract of carriage had been annually executed by
the parties every year since 1989.5
Under the contract, Reputable undertook to answer for "all risks with respect to
the goods and shall be liable to the COMPANY (Wyeth), for the loss, destruction,
or damage of the goods/products due to any and all causes whatsoever,
including theft, robbery, flood, storm, earthquakes, lightning, and other force
majeure while the goods/products are in transit and until actual delivery to the
customers, salesmen, and dealers of the COMPANY".6

On October 6, 1994, during the effectivity of the Marine Policy and SR Policy,
Reputable received from Wyeth 1,000 boxes of Promil infant formula worth
P2,357,582.70 to be delivered by Reputable to Mercury Drug Corporation in
Libis, Quezon City. Unfortunately, on the same date, the truck carrying Wyeths
products was hijacked by about 10 armed men. They threatened to kill the
truck driver and two of his helpers should they refuse to turn over the truck and
its contents to the said highway robbers. The hijacked truck was recovered two
weeks later without its cargo.
On March 8, 1995, Philippines First, after due investigation and adjustment, and
pursuant to the Marine Policy, paid Wyeth P2,133,257.00 as indemnity.
Philippines First then demanded reimbursement from Reputable, having been
subrogated to the rights of Wyeth by virtue of the payment. The latter,
however, ignored the demand.
Consequently, Philippines First instituted an action for sum of money against
Reputable on August 12, 1996.8 In its complaint, Philippines First stated that
Reputable is a "private corporation engaged in the business of a common
carrier." In its answer,9 Reputable claimed that it is a private carrier. It also
claimed that it cannot be made liable under the contract of carriage with Wyeth
since the contract was not signed by Wyeths representative and that the cause
of the loss was force majeure, i.e., the hijacking incident.
Subsequently, Reputable impleaded Malayan as third-party defendant in an
effort to collect the amount covered in the SR Policy. According to Reputable, "it
was validly insured with Malayan for P1,000,000.00 with respect to the lost
products under the latters Insurance Policy No. SR-0001-02577 effective
February 1, 1994 to February 1, 1995" and that the SR Policy covered the risk
of robbery or hijacking.10
Disclaiming any liability, Malayan argued, among others, that under Section 5
of the SR Policy, the insurance does not cover any loss or damage to property
which at the time of the happening of such loss or damage is insured by any
marine policy and that the SR Policy expressly excluded third-party liability.
After trial, the RTC rendered its Decision11 finding Reputable liable to Philippines
First for the amount of indemnity it paid to Wyeth, among others. In turn,
Malayan was found by the RTC to be liable to Reputable to the extent of the
policy coverage. The dispositive portion of the RTC decision provides:

WHEREFORE, on the main Complaint, judgment is hereby rendered finding

[Reputable] liable for the loss of the Wyeth products and orders it to pay
Philippines First the following:
1. the amount of P2,133,257.00 representing the amount paid by
Philippines First to Wyeth for the loss of the products in question;
2. the amount of P15,650.00 representing the adjustment fees paid by
Philippines First to hired adjusters/surveyors;
3. the amount of P50,000.00 as attorneys fees; and
4. the costs of suit.
On the third-party Complaint, judgment is hereby rendered finding
Malayan liable to indemnify [Reputable] the following:
1. the amount of P1,000,000.00 representing the proceeds of the
insurance policy;

Malayan argued that inasmuch as there was already a marine policy issued by
Philippines First securing the same subject matter against loss and that since
the monetary coverage/value of the Marine Policy is more than enough to
indemnify the hijacked cargo, Philippines First alone must bear the loss.
Malayan sought the dismissal of the third-party complaint against it. In the
alternative, it prayed that it be held liable for no more than P468,766.70, its
alleged pro-rata share of the loss based on the amount covered by the policy,
subject to the provision of Section 12 of the SR Policy, which states:
12. OTHER INSURANCE CLAUSE. If at the time of any loss or damage happening
to any property hereby insured, there be any other subsisting insurance or
insurances, whether effected by the insured or by any other person or persons,
covering the same property, the company shall not be liable to pay or
contribute more than its ratable proportion of such loss or damage.
On February 29, 2008, the CA rendered the assailed decision sustaining the
ruling of the RTC, the decretal portion of which reads:

2. the amount of P50,000.00 as attorneys fees; and

WHEREFORE, in view of the foregoing, the assailed Decision dated 29

September 2000, as modified in the Order dated 21 July 2001, is AFFIRMED
with MODIFICATION in that the award of attorneys fees in favor of Reputable is
DELETED.

3. the costs of suit.

SO ORDERED.13

SO ORDERED.12
Dissatisfied, both Reputable and Malayan filed their respective appeals from
the RTC decision.
Reputable asserted that the RTC erred in holding that its contract of carriage
with Wyeth was binding despite Wyeths failure to sign the same. Reputable
further contended that the provisions of the contract are unreasonable, unjust,
and contrary to law and public policy.
For its part, Malayan invoked Section 5 of its SR Policy, which provides:
Section 5. INSURANCE WITH OTHER COMPANIES. The insurance does not cover
any loss or damage to property which at the time of the happening of such loss
or damage is insured by or would but for the existence of this policy, be insured
by any Fire or Marine policy or policies except in respect of any excess beyond
the amount which would have been payable under the Fire or Marine policy or
policies had this insurance not been effected.

The CA ruled, among others, that: (1) Reputable is estopped from assailing the
validity of the contract of carriage on the ground of lack of signature of Wyeths
representative/s; (2) Reputable is liable under the contract for the value of the
goods even if the same was lost due to fortuitous event; and (3) Section 12 of
the SR Policy prevails over Section 5, it being the latter provision; however,
since the ratable proportion provision of Section 12 applies only in case of
double insurance, which is not present, then it should not be applied and
Malayan should be held liable for the full amount of the policy coverage, that is,
P1,000,000.00.14
On March 14, 2008, Malayan moved for reconsideration of the assailed decision
but it was denied by the CA in its Resolution dated August 28, 2008. 15
Hence, this petition.
Malayan insists that the CA failed to properly resolve the issue on the "statutory
limitations on the liability of common carriers" and the "difference between an
other insurance clause and an over insurance clause."

Malayan also contends that the CA erred when it held that Reputable is a
private carrier and should be bound by the contractual stipulations in the
contract of carriage. This argument is based on its assertion that Philippines
First judicially admitted in its complaint that Reputable is a common carrier and
as such, Reputable should not be held liable pursuant to Article 1745(6) of the
Civil Code.16 Necessarily, if Reputable is not liable for the loss, then there is no
reason to hold Malayan liable to Reputable.

2) Whether Reputable is strictly bound by the stipulations in its

contract of carriage with Wyeth, such that it should be liable for any
risk of loss or damage, for any cause whatsoever, including that due to
theft or robbery and other force majeure;

Further, Malayan posits that there resulted in an impairment of contract when

the CA failed to apply the express provisions of Section 5 (referred to by
Malayan as over insurance clause) and Section 12 (referred to by Malayan as
other insurance clause) of its SR Policy as these provisions could have been
read together there being no actual conflict between them.

4) Whether Reputable should be held solidarily liable with Malayan for

the amount of P998,000.00 due to Philippines First.

Reputable, meanwhile, contends that it is exempt from liability for acts

committed by thieves/robbers who act with grave or irresistible threat whether
it is a common carrier or a private/special carrier. It, however, maintains the
correctness of the CA ruling that Malayan is liable to Philippines First for the full
amount of its policy coverage and not merely a ratable portion thereof under
Section 12 of the SR Policy.
Finally, Philippines First contends that the factual finding that Reputable is a
private carrier should be accorded the highest degree of respect and must be
considered conclusive between the parties, and that a review of such finding by
the Court is not warranted under the circumstances. As to its alleged judicial
admission that Reputable is a common carrier, Philippines First proffered the
declaration made by Reputable that it is a private carrier. Said declaration was
allegedly reiterated by Reputable in its third party complaint, which in turn was
duly admitted by Malayan in its answer to the said third-party complaint. In
addition, Reputable even presented evidence to prove that it is a private
carrier.
As to the applicability of Sections 5 and 12 in the SR Policy, Philippines First
reiterated the ruling of the CA. Philippines First, however, prayed for a slight
modification of the assailed decision, praying that Reputable and Malayan be
rendered solidarily liable to it in the amount of P998,000.00, which represents
the balance from the P1,000.000.00 coverage of the SR Policy after deducting
P2,000.00 under Section 10 of the said SR Policy.17
Issues
The liability of Malayan under the SR Policy hinges on the following issues for
resolution:
1) Whether Reputable is a private carrier;

3) Whether the RTC and CA erred in rendering "nugatory" Sections 5

and Section 12 of the SR Policy; and

The Courts Ruling

On the first issue Reputable is a private carrier.
The Court agrees with the RTC and CA that Reputable is a private carrier. Wellentrenched in jurisprudence is the rule that factual findings of the trial court,
especially when affirmed by the appellate court, are accorded the highest
degree of respect and considered conclusive between the parties, save for
certain exceptional and meritorious circumstances, none of which are present
in this case.18
Malayan relies on the alleged judicial admission of Philippines First in its
complaint that Reputable is a common carrier. 19 Invoking Section 4, Rule 129 of
the Rules on Evidence that "an admission verbal or written, made by a party in
the course of the proceeding in the same case, does not require proof," it is
Malayans position that the RTC and CA should have ruled that
Reputable is a common carrier. Consequently, pursuant to Article 1745(6) of
the Civil Code, the liability of Reputable for the loss of Wyeths goods should be
dispensed with, or at least diminished.
It is true that judicial admissions, such as matters alleged in the pleadings do
not require proof, and need not be offered to be considered by the court. "The
court, for the proper decision of the case, may and should consider, without the
introduction of evidence, the facts admitted by the parties." 20 The rule on
judicial admission, however, also states that such allegation, statement, or
admission is conclusive as against the pleader, 21 and that the facts alleged in
the complaint are deemed admissions of the plaintiff and binding upon him. 22 In
this case, the pleader or the plaintiff who alleged that Reputable is a common
carrier was Philippines First. It cannot, by any stretch of imagination, be made
conclusive as against Reputable whose nature of business is in question.
It should be stressed that Philippines First is not privy to the SR Policy between
Wyeth and Reputable; rather, it is a mere subrogee to the right of Wyeth to

collect from Reputable under the terms of the contract of carriage. Philippines
First is not in any position to make any admission, much more a definitive
pronouncement, as to the nature of Reputables business and there appears no
other connection between Philippines First and Reputable which suggests
mutual familiarity between them.
Moreover, records show that the alleged judicial admission of Philippines First
was essentially disputed by Reputable when it stated in paragraphs 2, 4, and
11 of its answer that it is actually a private or special carrier. 23In addition,
Reputable stated in paragraph 2 of its third-party complaint that it is "a private
carrier engaged in the carriage of goods." 24 Such allegation was, in turn,
admitted by Malayan in paragraph 2 of its answer to the third-party
complaint.25 There is also nothing in the records which show that Philippines
First persistently maintained its stance that Reputable is a common carrier or
that it even contested or proved otherwise Reputables position that it is a
private or special carrier.
Hence, in the face of Reputables contrary admission as to the nature of its own
business, what was stated by Philippines First in its complaint is reduced to
nothing more than mere allegation, which must be proved for it to be given any
weight or value. The settled rule is that mere allegation is not proof. 26
More importantly, the finding of the RTC and CA that Reputable is a special or
private carrier is warranted by the evidence on record, primarily, the
unrebutted testimony of Reputables Vice President and General Manager, Mr.
William Ang Lian Suan, who expressly stated in open court that Reputable
serves only one customer, Wyeth.27
Under Article 1732 of the Civil Code, common carriers are persons,
corporations, firms, or associations engaged in the business of carrying or
transporting passenger or goods, or both by land, water or air for
compensation, offering their services to the public. On the other hand, a private
carrier is one wherein the carriage is generally undertaken by special
agreement and it does not hold itself out to carry goods for the general
public.28 A common carrier becomes a private carrier when it undertakes to
carry a special cargo or chartered to a special person only. 29 For all intents and
purposes, therefore, Reputable operated as a private/special carrier with regard
to its contract of carriage with Wyeth.
On the second issue Reputable is bound by the terms of the contract of
carriage.
The extent of a private carriers obligation is dictated by the stipulations of a
contract it entered into, provided its stipulations, clauses, terms and conditions
are not contrary to law, morals, good customs, public order, or public policy.
"The Civil Code provisions on common carriers should not be applied where the

carrier is not acting as such but as a private carrier. Public policy governing
common carriers has no force where the public at large is not involved." 30
Thus, being a private carrier, the extent of Reputables liability is fully governed
by the stipulations of the contract of carriage, one of which is that it shall be
liable to Wyeth for the loss of the goods/products due to any and all causes
whatsoever, including theft, robbery and other force majeure while the
goods/products are in transit and until actual delivery to Wyeths customers,
salesmen and dealers.31
On the third issue other insurance vis--vis over insurance.
Malayan refers to Section 5 of its SR Policy as an "over insurance clause" and to
Section 12 as a "modified other insurance clause". 32 In rendering inapplicable
said provisions in the SR Policy, the CA ruled in this wise:
Since Sec. 5 calls for Malayans complete absolution in case the other insurance
would be sufficient to cover the entire amount of the loss, it is in direct conflict
with Sec. 12 which provides only for a pro-rated contribution between the two
insurers. Being the later provision, and pursuant to the rules on interpretation
of contracts, Sec. 12 should therefore prevail.
xxxx
x x x The intention of both Reputable and Malayan should be given effect as
against the wordings of Sec. 12 of their contract, as it was intended by the
parties to operate only in case of double insurance, or where the benefits of the
policies of both plaintiff-appellee and Malayan should pertain to Reputable
alone. But since the court a quo correctly ruled that there is no double
insurance in this case inasmuch as Reputable was not privy thereto, and
therefore did not stand to benefit from the policy issued by plaintiff-appellee in
favor of Wyeth, then Malayans stand should be rejected.
To rule that Sec. 12 operates even in the absence of double insurance would
work injustice to Reputable which, despite paying premiums for a
P1,000,000.00 insurance coverage, would not be entitled to recover said
amount for the simple reason that the same property is covered by another
insurance policy, a policy to which it was not a party to and much less, from
which it did not stand to benefit. Plainly, this unfair situation could not have
been the intention of both Reputable and Malayan in signing the insurance
contract in question.33
In questioning said ruling, Malayan posits that Sections 5 and 12 are separate
provisions applicable under distinct circumstances. Malayan argues that "it will
not be completely absolved under Section 5 of its policy if it were the assured

itself who obtained additional insurance coverage on the same property and
the loss incurred by Wyeths cargo was more than that insured by Philippines
Firsts marine policy. On the other hand, Section 12 will not completely absolve
Malayan if additional insurance coverage on the same cargo were obtained by
someone besides Reputable, in which case Malayans SR policy will contribute
or share ratable proportion of a covered cargo loss."34

By the express provision of Section 93 of the Insurance Code, double insurance

exists where the same person is insured by several insurers separately in
respect to the same subject and interest. The requisites in order for double
insurance to arise are as follows:38
1. The person insured is the same;

Malayans position cannot be countenanced.

2. Two or more insurers insuring separately;

Section 5 is actually the other insurance clause (also called "additional

insurance" and "double insurance"), one akin to Condition No. 3 in issue in
Geagonia v. CA,35 which validity was upheld by the Court as a warranty that no
other insurance exists. The Court ruled that Condition No. 3 36 is a condition
which is not proscribed by law as its incorporation in the policy is allowed by
Section 75 of the Insurance Code. It was also the Courts finding that unlike the
other insurance clauses, Condition No. 3 does not absolutely declare void any
violation thereof but expressly provides that the condition "shall not apply when
the total insurance or insurances in force at the time of the loss or damage is
not more than P200,000.00."

3. There is identity of subject matter;

In this case, similar to Condition No. 3 in Geagonia, Section 5 does not provide
for the nullity of the SR Policy but simply limits the liability of Malayan only up
to the excess of the amount that was not covered by the other insurance policy.
In interpreting the "other insurance clause" in Geagonia, the Court ruled that
the prohibition applies only in case of double insurance. The Court ruled that in
order to constitute a violation of the clause, the other insurance must be upon
same subject matter, the same interest therein, and the same risk. Thus, even
though the multiple insurance policies involved were all issued in the name of
the same assured, over the same subject matter and covering the same risk, it
was ruled that there was no violation of the "other insurance clause" since
there was no double insurance.
Section 12 of the SR Policy, on the other hand, is the over insurance clause.
More particularly, it covers the situation where there is over insurance due to
double insurance. In such case, Section 15 provides that Malayan shall "not be
liable to pay or contribute more than its ratable proportion of such loss or
damage." This is in accord with the principle of contribution provided under
Section 94(e) of the Insurance Code, 37 which states that "where the insured is
over insured by double insurance, each insurer is bound, as between himself
and the other insurers, to contribute ratably to the loss in proportion to the
amount for which he is liable under his contract."
Clearly, both Sections 5 and 12 presuppose the existence of a double
insurance. The pivotal question that now arises is whether there is double
insurance in this case such that either Section 5 or Section 12 of the SR Policy
may be applied.

4. There is identity of interest insured; and

5. There is identity of the risk or peril insured against.
In the present case, while it is true that the Marine Policy and the SR Policy
were both issued over the same subject matter, i.e. goods belonging to Wyeth,
and both covered the same peril insured against, it is, however, beyond cavil
that the said policies were issued to two different persons or entities. It is
undisputed that Wyeth is the recognized insured of Philippines First under its
Marine Policy, while Reputable is the recognized insured of Malayan under the
SR Policy. The fact that Reputable procured Malayans SR Policy over the goods
of Wyeth pursuant merely to the stipulated requirement under its contract of
carriage with the latter does not make Reputable a mere agent of Wyeth in
obtaining the said SR Policy.
The interest of Wyeth over the property subject matter of both insurance
contracts is also different and distinct from that of Reputables. The policy
issued by Philippines First was in consideration of the legal and/or equitable
interest of Wyeth over its own goods. On the other hand, what was issued by
Malayan to Reputable was over the latters insurable interest over the safety of
the goods, which may become the basis of the latters liability in case of loss or
damage to the property and falls within the contemplation of Section 15 of the
Insurance Code.39
Therefore, even though the two concerned insurance policies were issued over
the same goods and cover the same risk, there arises no double insurance
since they were issued to two different persons/entities having distinct
insurable interests. Necessarily, over insurance by double insurance cannot
likewise exist. Hence, as correctly ruled by the RTC and CA, neither Section 5
nor Section 12 of the SR Policy can be applied.
Apart from the foregoing, the Court is also wont to strictly construe the
controversial provisions of the SR Policy against Malayan.1wphi1 This is in
keeping with the rule that:

"Indemnity and liability insurance policies are construed in accordance with the
general rule of resolving any ambiguity therein in favor of the insured, where
the contract or policy is prepared by the insurer. A contract of insurance, being
a contract of adhesion, par excellence, any ambiguity therein should be
resolved against the insurer; in other words, it should be construed liberally in
favor of the insured and strictly against the insurer. Limitations of liability
should be regarded with extreme jealousy and must be construed in such a way
as to preclude the insurer from noncompliance with its obligations." 40

WHEREFORE, premises considered, the petition is DENIED. The Decision dated

February 29, 2008 and Resolution dated August 28, 2008 of the Court of
Appeals in CA-G.R. CV No. 71204 are hereby AFFIRMED.
Cost against petitioner Malayan Insurance Co., Inc.
SO ORDERED.

Moreover, the CA correctly ruled that:

To rule that Sec. 12 operates even in the absence of double insurance would
work injustice to Reputable which, despite paying premiums for a
P1,000,000.00 insurance coverage, would not be entitled to recover said
amount for the simple reason that the same property is covered by another
insurance policy, a policy to which it was not a party to and much less, from
which it did not stand to benefit. x x x41

G.R. No. 157917

On the fourth issue Reputable is not solidarily liable with Malayan.

August 29, 2012

SPOUSES TEODORO1 and NANETTE PERENA, Petitioners,

vs.
SPOUSES TERESITA PHILIPPINE NICOLAS and L. ZARATE, NATIONAL
RAILWAYS, and the COURT OF APPEALS Respondents.

There is solidary liability only when the obligation expressly so states, when the
law so provides or when the nature of the obligation so requires.

DECISION
BERSAMIN, J.:

In Heirs of George Y. Poe v. Malayan lnsurance Company., lnc., 42 the Court ruled
that:
Where the insurance contract provides for indemnity against liability to third
persons, the liability of the insurer is direct and such third persons can directly
sue the insurer. The direct liability of the insurer under indemnity contracts
against third party[- ]liability does not mean, however, that the insurer can be
held solidarily liable with the insured and/or the other parties found at fault,
since they are being held liable under different obligations. The liability of the
insured carrier or vehicle owner is based on tort, in accordance with the
provisions of the Civil Code; while that of the insurer arises from contract,
particularly, the insurance policy: 43 (Citation omitted and emphasis supplied)
Suffice it to say that Malayan's and Reputable's respective liabilities arose from
different obligations- Malayan's is based on the SR Policy while Reputable's is
based on the contract of carriage.
All told, the Court finds no reversible error in the judgment sought to be
reviewed.

The operator of a. school bus service is a common carrier in the eyes of the law.
He is bound to observe extraordinary diligence in the conduct of his business.
He is presumed to be negligent when death occurs to a passenger. His liability
may include indemnity for loss of earning capacity even if the deceased
passenger may only be an unemployed high school student at the time of the
accident.
The Case
By petition for review on certiorari, Spouses Teodoro and Nanette Perefia
(Perefias) appeal the adverse decision promulgated on November 13, 2002, by
which the Court of Appeals (CA) affirmed with modification the decision
rendered on December 3, 1999 by the Regional Trial Court (RTC), Branch 260, in
Paraaque City that had decreed them jointly and severally liable with
Philippine National Railways (PNR), their co-defendant, to Spouses Nicolas and
Teresita Zarate (Zarates) for the death of their 15-year old son, Aaron John L.
Zarate (Aaron), then a high school student of Don Bosco Technical Institute
(Don Bosco).
Antecedents
The Pereas were engaged in the business of transporting students from their
respective residences in Paraaque City to Don Bosco in Pasong Tamo, Makati

City, and back. In their business, the Pereas used a KIA Ceres Van (van) with
Plate No. PYA 896, which had the capacity to transport 14 students at a time,
two of whom would be seated in the front beside the driver, and the others in
the rear, with six students on either side. They employed Clemente Alfaro
(Alfaro) as driver of the van.
In June 1996, the Zarates contracted the Pereas to transport Aaron to and
from Don Bosco. On August 22, 1996, as on previous school days, the van
picked Aaron up around 6:00 a.m. from the Zarates residence. Aaron took his
place on the left side of the van near the rear door. The van, with its airconditioning unit turned on and the stereo playing loudly, ultimately carried all
the 14 student riders on their way to Don Bosco. Considering that the students
were due at Don Bosco by 7:15 a.m., and that they were already running late
because of the heavy vehicular traffic on the South Superhighway, Alfaro took
the van to an alternate route at about 6:45 a.m. by traversing the narrow path
underneath the Magallanes Interchange that was then commonly used by
Makati-bound vehicles as a short cut into Makati. At the time, the narrow path
was marked by piles of construction materials and parked passenger jeepneys,
and the railroad crossing in the narrow path had no railroad warning signs, or
watchmen, or other responsible persons manning the crossing. In fact, the
bamboo barandilla was up, leaving the railroad crossing open to traversing
motorists.
At about the time the van was to traverse the railroad crossing, PNR Commuter
No. 302 (train), operated by Jhonny Alano (Alano), was in the vicinity of the
Magallanes Interchange travelling northbound. As the train neared the railroad
crossing, Alfaro drove the van eastward across the railroad tracks, closely
tailing a large passenger bus. His view of the oncoming train was blocked
because he overtook the passenger bus on its left side. The train blew its horn
to warn motorists of its approach. When the train was about 50 meters away
from the passenger bus and the van, Alano applied the ordinary brakes of the
train. He applied the emergency brakes only when he saw that a collision was
imminent. The passenger bus successfully crossed the railroad tracks, but the
van driven by Alfaro did not. The train hit the rear end of the van, and the
impact threw nine of the 12 students in the rear, including Aaron, out of the
van. Aaron landed in the path of the train, which dragged his body and severed
his head, instantaneously killing him. Alano fled the scene on board the train,
and did not wait for the police investigator to arrive.
Devastated by the early and unexpected death of Aaron, the Zarates
commenced this action for damages against Alfaro, the Pereas, PNR and
Alano. The Pereas and PNR filed their respective answers, with cross-claims
against each other, but Alfaro could not be served with summons.

(2) Spouses Zarate engaged the services of spouses Perea for the adequate
and safe transportation carriage of the former spouses' son from their
residence in Paraaque to his school at the Don Bosco Technical Institute in
Makati City;
(3) During the effectivity of the contract of carriage and in the implementation
thereof, Aaron, the minor son of spouses Zarate died in connection with a
vehicular/train collision which occurred while Aaron was riding the contracted
carrier Kia Ceres van of spouses Perea, then driven and operated by the
latter's employee/authorized driver Clemente Alfaro, which van collided with
the train of PNR, at around 6:45 A.M. of August 22, 1996, within the vicinity of
the Magallanes Interchange in Makati City, Metro Manila, Philippines;
(4) At the time of the vehicular/train collision, the subject site of the
vehicular/train collision was a railroad crossing used by motorists for crossing
the railroad tracks;
(5) During the said time of the vehicular/train collision, there were no
appropriate and safety warning signs and railings at the site commonly used for
railroad crossing;
(6) At the material time, countless number of Makati bound public utility and
private vehicles used on a daily basis the site of the collision as an alternative
route and short-cut to Makati;
(7) The train driver or operator left the scene of the incident on board the
commuter train involved without waiting for the police investigator;
(8) The site commonly used for railroad crossing by motorists was not in fact
intended by the railroad operator for railroad crossing at the time of the
vehicular collision;
(9) PNR received the demand letter of the spouses Zarate;
(10) PNR refused to acknowledge any liability for the vehicular/train collision;
(11) The eventual closure of the railroad crossing alleged by PNR was an
internal arrangement between the former and its project contractor; and

At the pre-trial, the parties stipulated on the facts and issues, viz:

(12) The site of the vehicular/train collision was within the vicinity or less than
100 meters from the Magallanes station of PNR.

A. FACTS:

B. ISSUES

(1) That spouses Zarate were the legitimate parents of Aaron John L. Zarate;

(1) Whether or not defendant-driver of the van is, in the performance of his
functions, liable for negligence constituting the proximate cause of the
vehicular collision, which resulted in the death of plaintiff spouses' son;

(2) Whether or not the defendant spouses Perea being the employer of
defendant Alfaro are liable for any negligence which may be attributed to
defendant Alfaro;
(3) Whether or not defendant Philippine National Railways being the operator of
the railroad system is liable for negligence in failing to provide adequate safety
warning signs and railings in the area commonly used by motorists for railroad
crossings, constituting the proximate cause of the vehicular collision which
resulted in the death of the plaintiff spouses' son;
(4) Whether or not defendant spouses Perea are liable for breach of the
contract of carriage with plaintiff-spouses in failing to provide adequate and
safe transportation for the latter's son;
(5) Whether or not defendants spouses are liable for actual, moral damages,
exemplary damages, and attorney's fees;
(6) Whether or not defendants spouses Teodorico and Nanette Perea observed
the diligence of employers and school bus operators;
(7) Whether or not defendant-spouses are civilly liable for the accidental death
of Aaron John Zarate;
(8) Whether or not defendant PNR was grossly negligent in operating the
commuter train involved in the accident, in allowing or tolerating the motoring
public to cross, and its failure to install safety devices or equipment at the site
of the accident for the protection of the public;
(9) Whether or not defendant PNR should be made to reimburse defendant
spouses for any and whatever amount the latter may be held answerable or
which they may be ordered to pay in favor of plaintiffs by reason of the action;
(10) Whether or not defendant PNR should pay plaintiffs directly and fully on
the amounts claimed by the latter in their Complaint by reason of its gross
negligence;
(11) Whether or not defendant PNR is liable to defendants spouses for actual,
moral and exemplary damages and attorney's fees.2

had sometimes accompanied Alfaro in the vans trips transporting the students
to school.
For its part, PNR tended to show that the proximate cause of the collision had
been the reckless crossing of the van whose driver had not first stopped, looked
and listened; and that the narrow path traversed by the van had not been
intended to be a railroad crossing for motorists.
Ruling of the RTC
On December 3, 1999, the RTC rendered its decision,3 disposing:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiff and against the defendants ordering them to jointly and severally pay
the plaintiffs as follows:
(1) (for) the death of Aaron- Php50,000.00;
(2) Actual damages in the amount of Php100,000.00;
(3) For the loss of earning capacity- Php2,109,071.00;
(4) Moral damages in the amount of Php4,000,000.00;
(5) Exemplary damages in the amount of Php1,000,000.00;
(6) Attorneys fees in the amount of Php200,000.00; and
(7) Cost of suit.
SO ORDERED.
On June 29, 2000, the RTC denied the Pereas motion for
reconsideration,4 reiterating that the cooperative gross negligence of the
Pereas and PNR had caused the collision that led to the death of Aaron; and
that the damages awarded to the Zarates were not excessive, but based on the
established circumstances.

The Zarates claim against the Pereas was upon breach of the contract of
carriage for the safe transport of Aaron; but that against PNR was based on
quasi-delict under Article 2176, Civil Code.

The CAs Ruling

Both the Pereas and PNR appealed (C.A.-G.R. CV No. 68916).

In their defense, the Pereas adduced evidence to show that they had
exercised the diligence of a good father of the family in the selection and
supervision of Alfaro, by making sure that Alfaro had been issued a drivers
license and had not been involved in any vehicular accident prior to the
collision; that their own son had taken the van daily; and that Teodoro Perea

PNR assigned the following errors, to wit:5

The Court a quo erred in:

1. In finding the defendant-appellant Philippine National Railways

jointly and severally liable together with defendant-appellants spouses
Teodorico and Nanette Perea and defendant-appellant Clemente
Alfaro to pay plaintiffs-appellees for the death of Aaron Zarate and
damages.
2. In giving full faith and merit to the oral testimonies of plaintiffsappellees witnesses despite overwhelming documentary evidence on
record, supporting the case of defendants-appellants Philippine
National Railways.
The Pereas ascribed the following errors to the RTC, namely:

graduated from college and started working for his own livelihood) instead of
15 years (his age when he died). Considering that the nature of his work and
his salary at the time of Aarons death were unknown, it used the prevailing
minimum wage of P 280.00/day to compute Aarons gross annual salary to
be P 110,716.65, inclusive of the thirteenth month pay. Multiplying this annual
salary by Aarons life expectancy of 39.3 years, his gross income would
aggregate to P 4,351,164.30, from which his estimated expenses in the sum
of P 2,189,664.30 was deducted to finally arrive at P 2,161,500.00 as net
income. Due to Aarons computed net income turning out to be higher than the
amount claimed by the Zarates, only P 2,109,071.00, the amount expressly
prayed for by them, was granted.
On April 4, 2003, the CA denied the Pereas motion for reconsideration. 8

The trial court erred in finding defendants-appellants jointly and severally liable
for actual, moral and exemplary damages and attorneys fees with the other
defendants.
The trial court erred in dismissing the cross-claim of the appellants Pereas
against the Philippine National Railways and in not holding the latter and its
train driver primarily responsible for the incident.
The trial court erred in awarding excessive damages and attorneys fees.
The trial court erred in awarding damages in the form of deceaseds loss of
earning capacity in the absence of sufficient basis for such an award.
On November 13, 2002, the CA promulgated its decision, affirming the findings
of the RTC, but limited the moral damages to P 2,500,000.00; and deleted the
attorneys fees because the RTC did not state the factual and legal bases, to
wit:6
WHEREFORE, premises considered, the assailed Decision of the Regional Trial
Court, Branch 260 of Paraaque City is AFFIRMED with the modification that the
award of Actual Damages is reduced to P59,502.76; Moral Damages is reduced
to P 2,500,000.00; and the award for Attorneys Fees is Deleted.
SO ORDERED.
The CA upheld the award for the loss of Aarons earning capacity, taking
cognizance of the ruling in Cariaga v. Laguna Tayabas Bus Company and Manila
Railroad Company,7 wherein the Court gave the heirs of Cariaga a sum
representing the loss of the deceaseds earning capacity despite Cariaga being
only a medical student at the time of the fatal incident. Applying the formula
adopted in the American Expectancy Table of Mortality:

Issues
In this appeal, the Pereas list the following as the errors committed by the CA,
to wit:
I. The lower court erred when it upheld the trial courts decision holding the
petitioners jointly and severally liable to pay damages with Philippine National
Railways and dismissing their cross-claim against the latter.
II. The lower court erred in affirming the trial courts decision awarding
damages for loss of earning capacity of a minor who was only a high school
student at the time of his death in the absence of sufficient basis for such an
award.
III. The lower court erred in not reducing further the amount of damages
awarded, assuming petitioners are liable at all.
Ruling
The petition has no merit.
1.
Were the Pereas and PNR jointly
and severally liable for damages?
The Zarates brought this action for recovery of damages against both the
Pereas and the PNR, basing their claim against the Pereas on breach of
contract of carriage and against the PNR on quasi-delict.
The RTC found the Pereas and the PNR negligent. The CA affirmed the
findings.

2/3 x (80 - age at the time of death) = life expectancy

We concur with the CA.
the CA determined the life expectancy of Aaron to be 39.3 years upon
reckoning his life expectancy from age of 21 (the age when he would have

To start with, the Pereas defense was that they exercised the diligence of a
good father of the family in the selection and supervision of Alfaro, the van
driver, by seeing to it that Alfaro had a drivers license and that he had not
been involved in any vehicular accident prior to the fatal collision with the train;
that they even had their own son travel to and from school on a daily basis; and
that Teodoro Perea himself sometimes accompanied Alfaro in transporting the
passengers to and from school. The RTC gave scant consideration to such
defense by regarding such defense as inappropriate in an action for breach of
contract of carriage.
We find no adequate cause to differ from the conclusions of the lower courts
that the Pereas operated as a common carrier; and that their standard of care
was extraordinary diligence, not the ordinary diligence of a good father of a
family.
Although in this jurisdiction the operator of a school bus service has been
usually regarded as a private carrier,9primarily because he only caters to some
specific or privileged individuals, and his operation is neither open to the
indefinite public nor for public use, the exact nature of the operation of a school
bus service has not been finally settled. This is the occasion to lay the matter to
rest.
A carrier is a person or corporation who undertakes to transport or convey
goods or persons from one place to another, gratuitously or for hire. The carrier
is classified either as a private/special carrier or as a common/public carrier. 10 A
private carrier is one who, without making the activity a vocation, or without
holding himself or itself out to the public as ready to act for all who may desire
his or its services, undertakes, by special agreement in a particular instance
only, to transport goods or persons from one place to another either
gratuitously or for hire.11The provisions on ordinary contracts of the Civil Code
govern the contract of private carriage.The diligence required of a private
carrier is only ordinary, that is, the diligence of a good father of the family. In
contrast, a common carrier is a person, corporation, firm or association
engaged in the business of carrying or transporting passengers or goods or
both, by land, water, or air, for compensation, offering such services to the
public.12Contracts of common carriage are governed by the provisions on
common carriers of the Civil Code, the Public Service Act, 13 and other special
laws relating to transportation. A common carrier is required to observe
extraordinary diligence, and is presumed to be at fault or to have acted
negligently in case of the loss of the effects of passengers, or the death or
injuries to passengers.14
In relation to common carriers, the Court defined public use in the following
terms in United States v. Tan Piaco,15viz:
"Public use" is the same as "use by the public". The essential feature of the
public use is not confined to privileged individuals, but is open to the indefinite
public. It is this indefinite or unrestricted quality that gives it its public
character. In determining whether a use is public, we must look not only to the
character of the business to be done, but also to the proposed mode of doing it.
If the use is merely optional with the owners, or the public benefit is merely
incidental, it is not a public use, authorizing the exercise of the jurisdiction of

the public utility commission. There must be, in general, a right which the law
compels the owner to give to the general public. It is not enough that the
general prosperity of the public is promoted. Public use is not synonymous with
public interest. The true criterion by which to judge the character of the use is
whether the public may enjoy it by right or only by permission.
In De Guzman v. Court of Appeals,16 the Court noted that Article 1732 of the
Civil Code avoided any distinction between a person or an enterprise offering
transportation on a regular or an isolated basis; and has not distinguished a
carrier offering his services to the general public, that is, the general
community or population, from one offering his services only to a narrow
segment of the general population.
Nonetheless, the concept of a common carrier embodied in Article 1732 of the
Civil Code coincides neatly with the notion of public service under the Public
Service Act, which supplements the law on common carriers found in the Civil
Code. Public service, according to Section 13, paragraph (b) of the Public
Service Act, 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 clientle,
whether permanent or occasional, and done for the 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, 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.17
Given the breadth of the aforequoted characterization of a common carrier, the
Court has considered as common carriers pipeline operators, 18 custom brokers
and warehousemen,19 and barge operators20 even if they had limited clientle.
As all the foregoing indicate, the true test for a common carrier is not the
quantity or extent of the business actually transacted, or the number and
character of the conveyances used in the activity, but whether the undertaking
is a part of the activity engaged in by the carrier that he has held out to the
general public as his business or occupation. If the undertaking is a single
transaction, not a part of the general business or occupation engaged in, as
advertised and held out to the general public, the individual or the entity
rendering such service is a private, not a common, carrier. The question must
be determined by the character of the business actually carried on by the
carrier, not by any secret intention or mental reservation it may entertain or
assert when charged with the duties and obligations that the law imposes. 21
Applying these considerations to the case before us, there is no question that
the Pereas as the operators of a school bus service were: (a) engaged in
transporting passengers generally as a business, not just as a casual
occupation; (b) undertaking to carry passengers over established roads by the

method by which the business was conducted; and (c) transporting students for
a fee. Despite catering to a limited clientle, the Pereas operated as a
common carrier because they held themselves out as a ready transportation
indiscriminately to the students of a particular school living within or near
where they operated the service and for a fee.
The common carriers standard of care and vigilance as to the safety of the
passengers is defined by law. Given the nature of the business and for reasons
of public policy, the common carrier is 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." 22 Article
1755 of the Civil Code specifies that the common carrier should "carry the
passengers safely as far as human care and foresight can provide, using the
utmost diligence of very cautious persons, with a due regard for all the
circumstances." To successfully fend off liability in an action upon the death or
injury to a passenger, the common carrier must prove his or its observance of
that extraordinary diligence; otherwise, the legal presumption that he or it was
at fault or acted negligently would stand. 23 No device, whether by stipulation,
posting of notices, statements on tickets, or otherwise, may dispense with or
lessen the responsibility of the common carrier as defined under Article 1755 of
the Civil Code. 24
And, secondly, the Pereas have not presented any compelling defense or
reason by which the Court might now reverse the CAs findings on their liability.
On the contrary, an examination of the records shows that the evidence fully
supported the findings of the CA.
As earlier stated, the Pereas, acting as a common carrier, were already
presumed to be negligent at the time of the accident because death had
occurred to their passenger.25 The presumption of negligence, being a
presumption of law, laid the burden of evidence on their shoulders to establish
that they had not been negligent. 26 It was the law no less that required them to
prove their observance of extraordinary diligence in seeing to the safe and
secure carriage of the passengers to their destination. Until they did so in a
credible manner, they stood to be held legally responsible for the death of
Aaron and thus to be held liable for all the natural consequences of such death.
There is no question that the Pereas did not overturn the presumption of their
negligence by credible evidence. Their defense of having observed the
diligence of a good father of a family in the selection and supervision of their
driver was not legally sufficient. According to Article 1759 of the Civil Code,
their liability as a common carrier did not cease upon proof that they exercised
all the diligence of a good father of a family in the selection and supervision of
their employee. This was the reason why the RTC treated this defense of the
Pereas as inappropriate in this action for breach of contract of carriage.
The Pereas were liable for the death of Aaron despite the fact that their driver
might have acted beyond the scope of his authority or even in violation of the
orders of the common carrier.27 In this connection, the records showed their
drivers actual negligence. There was a showing, to begin with, that their driver
traversed the railroad tracks at a point at which the PNR did not permit
motorists going into the Makati area to cross the railroad tracks. Although that

point had been used by motorists as a shortcut into the Makati area, that fact
alone did not excuse their driver into taking that route. On the other hand, with
his familiarity with that shortcut, their driver was fully aware of the risks to his
passengers but he still disregarded the risks. Compounding his lack of care was
that loud music was playing inside the air-conditioned van at the time of the
accident. The loudness most probably reduced his ability to hear the warning
horns of the oncoming train to allow him to correctly appreciate the lurking
dangers on the railroad tracks. Also, he sought to overtake a passenger bus on
the left side as both vehicles traversed the railroad tracks. In so doing, he lost
his view of the train that was then coming from the opposite side of the
passenger bus, leading him to miscalculate his chances of beating the bus in
their race, and of getting clear of the train. As a result, the bus avoided a
collision with the train but the van got slammed at its rear, causing the fatality.
Lastly, he did not slow down or go to a full stop before traversing the railroad
tracks despite knowing that his slackening of speed and going to a full stop
were in observance of the right of way at railroad tracks as defined by the
traffic laws and regulations.28 He thereby violated a specific traffic regulation on
right of way, by virtue of which he was immediately presumed to be
negligent.29
The omissions of care on the part of the van driver constituted
negligence,30 which, according to Layugan v. Intermediate Appellate Court, 31 is
"the omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs, would
do, or the doing of something which a prudent and reasonable man would not
do,32 or as Judge Cooley defines it, (t)he failure to observe for the protection of
the interests of another person, that degree of care, precaution, and vigilance
which the circumstances justly demand, whereby such other person suffers
injury."33
The test by which to determine the existence of negligence in a particular case
has been aptly stated in the leading case of Picart v. Smith, 34 thuswise:
The test by which to determine the existence of negligence in a particular case
may be stated as follows: Did the defendant in doing the alleged negligent act
use that reasonable care and caution which an ordinarily prudent person would
have used in the same situation? If not, then he is guilty of negligence. The law
here in effect adopts the standard supposed to be supplied by the imaginary
conduct of the discreet paterfamilias of the Roman law. The existence of
negligence in a given case is not determined by reference to the personal
judgment of the actor in the situation before him. The law considers what would
be reckless, blameworthy, or negligent in the man of ordinary intelligence and
prudence and determines liability by that.
The question as to what would constitute the conduct of a prudent man in a
given situation must of course be always determined in the light of human
experience and in view of the facts involved in the particular case. Abstract
speculation cannot here be of much value but this much can be profitably said:
Reasonable men govern their conduct by the circumstances which are before
them or known to them. They are not, and are not supposed to be, omniscient
of the future. Hence they can be expected to take care only when there is
something before them to suggest or warn of danger. Could a prudent man, in

the case under consideration, foresee harm as a result of the course actually
pursued? If so, it was the duty of the actor to take precautions to guard against
that harm. Reasonable foresight of harm, followed by the ignoring of the
suggestion born of this prevision, is always necessary before negligence can be
held to exist. Stated in these terms, the proper criterion for determining the
existence of negligence in a given case is this: Conduct is said to be negligent
when a prudent man in the position of the tortfeasor would have foreseen that
an effect harmful to another was sufficiently probable to warrant his foregoing
the conduct or guarding against its consequences. (Emphasis supplied)
Pursuant to the Picart v. Smith test of negligence, the Pereas driver was
entirely negligent when he traversed the railroad tracks at a point not allowed
for a motorists crossing despite being fully aware of the grave harm to be
thereby caused to his passengers; and when he disregarded the foresight of
harm to his passengers by overtaking the bus on the left side as to leave
himself blind to the approach of the oncoming train that he knew was on the
opposite side of the bus.
Unrelenting, the Pereas cite Phil. National Railways v. Intermediate Appellate
Court,35 where the Court held the PNR solely liable for the damages caused to a
passenger bus and its passengers when its train hit the rear end of the bus that
was then traversing the railroad crossing. But the circumstances of that case
and this one share no similarities. In Philippine National Railways v.
Intermediate Appellate Court, no evidence of contributory negligence was
adduced against the owner of the bus. Instead, it was the owner of the bus who
proved the exercise of extraordinary diligence by preponderant evidence. Also,
the records are replete with the showing of negligence on the part of both the
Pereas and the PNR. Another distinction is that the passenger bus in Philippine
National Railways v. Intermediate Appellate Court was traversing the dedicated
railroad crossing when it was hit by the train, but the Pereas school van
traversed the railroad tracks at a point not intended for that purpose.
At any rate, the lower courts correctly held both the Pereas and the PNR
"jointly and severally" liable for damages arising from the death of Aaron. They
had been impleaded in the same complaint as defendants against whom the
Zarates had the right to relief, whether jointly, severally, or in the alternative,
in respect to or arising out of the accident, and questions of fact and of law
were common as to the Zarates.36 Although the basis of the right to relief of the
Zarates (i.e., breach of contract of carriage) against the Pereas was distinct
from the basis of the Zarates right to relief against the PNR (i.e., quasi-delict
under Article 2176, Civil Code), they nonetheless could be held jointly and
severally liable by virtue of their respective negligence combining to cause the
death of Aaron. As to the PNR, the RTC rightly found the PNR also guilty of
negligence despite the school van of the Pereas traversing the railroad tracks
at a point not dedicated by the PNR as a railroad crossing for pedestrians and
motorists, because the PNR did not ensure the safety of others through the
placing of crossbars, signal lights, warning signs, and other permanent safety
barriers to prevent vehicles or pedestrians from crossing there. The RTC
observed that the fact that a crossing guard had been assigned to man that
point from 7 a.m. to 5 p.m. was a good indicium that the PNR was aware of the
risks to others as well as the need to control the vehicular and other traffic
there. Verily, the Pereas and the PNR were joint tortfeasors.

2.
Was the indemnity for loss of
Aarons earning capacity proper?
The RTC awarded indemnity for loss of Aarons earning capacity. Although
agreeing with the RTC on the liability, the CA modified the amount. Both lower
courts took into consideration that Aaron, while only a high school student, had
been enrolled in one of the reputable schools in the Philippines and that he had
been a normal and able-bodied child prior to his death. The basis for the
computation of Aarons earning capacity was not what he would have become
or what he would have wanted to be if not for his untimely death, but the
minimum wage in effect at the time of his death. Moreover, the RTCs
computation of Aarons life expectancy rate was not reckoned from his age of
15 years at the time of his death, but on 21 years, his age when he would have
graduated from college.
We find the considerations taken into account by the lower courts to be
reasonable and fully warranted.
Yet, the Pereas submit that the indemnity for loss of earning capacity was
speculative and unfounded.1wphi1 They cited People v. Teehankee, Jr.,37 where
the Court deleted the indemnity for victim Jussi Leinos loss of earning capacity
as a pilot for being speculative due to his having graduated from high school at
the International School in Manila only two years before the shooting, and was
at the time of the shooting only enrolled in the first semester at the Manila Aero
Club to pursue his ambition to become a professional pilot. That meant,
according to the Court, that he was for all intents and purposes only a high
school graduate.
We reject the Pereas submission.
First of all, a careful perusal of the Teehankee, Jr. case shows that the situation
there of Jussi Leino was not akin to that of Aaron here. The CA and the RTC were
not speculating that Aaron would be some highly-paid professional, like a pilot
(or, for that matter, an engineer, a physician, or a lawyer). Instead, the
computation of Aarons earning capacity was premised on him being a lowly
minimum wage earner despite his being then enrolled at a prestigious high
school like Don Bosco in Makati, a fact that would have likely ensured his
success in his later years in life and at work.
And, secondly, the fact that Aaron was then without a history of earnings
should not be taken against his parents and in favor of the defendants whose
negligence not only cost Aaron his life and his right to work and earn money,
but also deprived his parents of their right to his presence and his services as
well. Our law itself states that the loss of the earning capacity of the deceased
shall be the liability of the guilty party in favor of the heirs of the deceased, and
shall in every case be assessed and awarded by the court "unless the deceased
on account of permanent physical disability not caused by the defendant, had
no earning capacity at the time of his death."38Accordingly, we emphatically
hold in favor of the indemnification for Aarons loss of earning capacity despite
him having been unemployed, because compensation of this nature is awarded

not for loss of time or earnings but for loss of the deceaseds power or ability to
earn money.39
This favorable treatment of the Zarates claim is not unprecedented. In Cariaga
v. Laguna Tayabas Bus Company and Manila Railroad Company, 40 fourth-year
medical student Edgardo Carriagas earning capacity, although he survived the
accident but his injuries rendered him permanently incapacitated, was
computed to be that of the physician that he dreamed to become. The Court
considered his scholastic record sufficient to justify the assumption that he
could have finished the medical course and would have passed the medical
board examinations in due time, and that he could have possibly earned a
modest income as a medical practitioner. Also, in People v. Sanchez, 41 the Court
opined that murder and rape victim Eileen Sarmienta and murder victim Allan
Gomez could have easily landed good-paying jobs had they graduated in due
time, and that their jobs would probably pay them high monthly salaries
from P 10,000.00 to P 15,000.00 upon their graduation. Their earning capacities
were computed at rates higher than the minimum wage at the time of their
deaths due to their being already senior agriculture students of the University
of the Philippines in Los Baos, the countrys leading educational institution in
agriculture.
3.
Were the amounts of damages excessive?
The Pereas plead for the reduction of the moral and exemplary damages
awarded to the Zarates in the respective amounts of P 2,500,000.00
and P 1,000,000.00 on the ground that such amounts were excessive.
The plea is unwarranted.
The moral damages of P 2,500,000.00 were really just and reasonable under
the established circumstances of this case because they were intended by the
law to assuage the Zarates deep mental anguish over their sons unexpected
and violent death, and their moral shock over the senseless accident. That
amount would not be too much, considering that it would help the Zarates
obtain the means, diversions or amusements that would alleviate their
suffering for the loss of their child. At any rate, reducing the amount as
excessive might prove to be an injustice, given the passage of a long time from
when their mental anguish was inflicted on them on August 22, 1996.
Anent the P 1,000,000.00 allowed as exemplary damages, we should not
reduce the amount if only to render effective the desired example for the public
good. As a common carrier, the Pereas needed to be vigorously reminded to
observe their duty to exercise extraordinary diligence to prevent a similarly
senseless accident from happening again. Only by an award of exemplary
damages in that amount would suffice to instill in them and others similarly
situated like them the ever-present need for greater and constant vigilance in
the conduct of a business imbued with public interest.

WHEREFORE, we DENY the petition for review on certiorari; AFFIRM the

decision promulgated on November 13, 2002; and ORDER the petitioners to
pay the costs of suit.
SO ORDERED.

LOADMASTERS CUSTOMS SERVICES, INC., Petitioner,

- versus GLODEL BROKERAGE CORPORATION and R&B INSURANCE
CORPORATION, Respondents.
G.R. No. 179446

January 10, 2011

X -------------------------------------------------------------------------------------- X
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of
Court assailing the August 24, 2007 Decision [1] of the Court of Appeals (CA) in
CA-G.R. CV No. 82822, entitled R&B Insurance Corporation v. Glodel Brokerage
Corporation and Loadmasters Customs Services, Inc., which held petitioner
Loadmasters Customs Services, Inc. (Loadmasters) liable to respondent Glodel
Brokerage Corporation (Glodel) in the amount of P1,896,789.62 representing
the
insurance
indemnity
which
R&B
Insurance
Corporation (R&B
Insurance) paid to the insured-consignee, Columbia Wire and Cable
Corporation (Columbia).
THE FACTS:
On August 28, 2001, R&B Insurance issued Marine Policy No. MN-00105/2001 in
favor of Columbia to insure the shipment of 132 bundles of electric copper
cathodes against All Risks. On August 28, 2001, the cargoes were shipped on
board
the
vessel
Richard
Rey
from
Isabela, Leyte,
to
Pier
10, North Harbor, Manila. They arrived on the same date.
Columbia engaged the services of Glodel for the release and
withdrawal of the cargoes from the pier and the subsequent delivery to its
warehouses/plants. Glodel, in turn, engaged the services of Loadmasters for the
use of its delivery trucks to transport the cargoes to Columbias
warehouses/plants in Bulacan and Valenzuela City.
The goods were loaded on board twelve (12) trucks owned by
Loadmasters, driven by its employed drivers and accompanied by its employed

truck helpers. Six (6) truckloads of copper cathodes were to be delivered to

Balagtas, Bulacan, while the other six (6) truckloads were destined for Lawang
Bato, Valenzuela City. The cargoes in six truckloads for Lawang Bato were duly
delivered in Columbias warehouses there. Of the six (6) trucks en route to
Balagtas, Bulacan, however, only five (5) reached the destination. One (1)
truck, loaded with 11 bundles or 232 pieces of copper cathodes, failed to
deliver its cargo.
Later on, the said truck, an Isuzu with Plate No. NSD-117, was recovered but
without the copper cathodes. Because of this incident, Columbia filed with R&B
Insurance
a
claim
for
insurance
indemnity
in
the
amount
of P1,903,335.39. After the requisite investigation and adjustment, R&B
Insurance paid Columbia the amount of P1,896,789.62 as insurance indemnity.
R&B Insurance, thereafter, filed a complaint for damages against both
Loadmasters and Glodel before the Regional Trial Court, Branch 14, Manila
(RTC), docketed as Civil Case No. 02-103040. It sought reimbursement of the
amount it had paid to Columbia for the loss of the subject cargo. It claimed that
it had been subrogated to the right of the consignee to recover from the
party/parties who may be held legally liable for the loss. [2]

SO ORDERED.[4]
Both R&B Insurance and Glodel appealed the RTC decision to the CA.
On August 24, 2007, the CA rendered the assailed decision which reads
in part:
Considering that appellee is an agent of appellant
Glodel, whatever liability the latter owes to appellant R&B
Insurance Corporation as insurance indemnity must likewise
be the amount it shall be paid by appellee Loadmasters.
WHEREFORE, the foregoing considered, the appeal is
PARTLY GRANTED in that the appellee Loadmasters is likewise
held liable to appellant Glodel in the amount ofP1,896,789.62
representing the insurance indemnity appellant Glodel has
been held liable to appellant R&B Insurance Corporation.
Appellant Glodels appeal to absolve it from any
liability is herein DISMISSED.
SO ORDERED.[5]

On November 19, 2003, the RTC rendered a decision [3] holding Glodel liable for
damages for the loss of the subject cargo and dismissing Loadmasters
counterclaim for damages and attorneys fees against R&B Insurance. The
dispositive portion of the decision reads:
WHEREFORE, all premises considered, the plaintiff
having established by preponderance of evidence its claims
against defendant Glodel Brokerage Corporation, judgment is
hereby rendered ordering the latter:
1.

To
pay
plaintiff
R&B
Insurance
Corporation the sum of P1,896,789.62 as
actual and compensatory damages, with
interest from the date of complaint until
fully paid;

2.

To pay plaintiff R&B Insurance Corporation

the amount equivalent to 10% of the
principal amount recovered as and for
attorneys
fees
plus P1,500.00
per
appearance in Court;

3.

To pay plaintiff R&B Insurance Corporation

the sum of P22,427.18 as litigation
expenses.

WHEREAS, the defendant Loadmasters Customs

Services, Inc.s counterclaim for damages and attorneys fees
against plaintiff are hereby dismissed.
With
Corporation.

costs

against

defendant

Glodel

Brokerage

Hence, Loadmasters filed the present petition for review on certiorari

before this Court presenting the following

ISSUES
1. Can Petitioner Loadmasters be held liable to
Respondent Glodel in spite of the fact that the latter
respondent Glodel did not file a cross-claim against it
(Loadmasters)?
2. Under the set of facts established and undisputed in
the case, can petitioner Loadmasters be legally
considered as an Agent of respondent Glodel?[6]
To totally exculpate itself from responsibility for the lost goods,
Loadmasters argues that it cannot be considered an agent of Glodel because it
never represented the latter in its dealings with the consignee. At any rate, it
further contends that Glodel has no recourse against it for its (Glodels) failure
to file a cross-claim pursuant to Section 2, Rule 9 of the 1997 Rules of Civil
Procedure.
Glodel, in its Comment,[7] counters that Loadmasters is liable to it under its
cross-claim because the latter was grossly negligent in the transportation of the
subject cargo. With respect to Loadmasters claim that it is already estopped
from filing a cross-claim, Glodel insists that it can still do so even for the first
time on appeal because there is no rule that provides otherwise. Finally, Glodel
argues that its relationship with Loadmasters is that of Charter wherein the
transporter (Loadmasters) is only hired for the specific job of delivering the
merchandise. Thus, the diligence required in this case is merely ordinary

diligence or that of a good father of the family, not the extraordinary diligence
required of common carriers.
R&B Insurance, for its part, claims that Glodel is deemed to have interposed a
cross-claim against Loadmasters because it was not prevented from presenting
evidence to prove its position even without amending its Answer. As to the
relationship between Loadmasters and Glodel, it contends that a contract of
agency existed between the two corporations. [8]
Subrogation is the substitution of one person in the place of another
with reference to a lawful claim or right, so that he who is substituted succeeds
to the rights of the other in relation to a debt or claim, including its remedies or
securities.[9] Doubtless, R&B Insurance is subrogated to the rights of the insured
to the extent of the amount it paid the consignee under the marine insurance,
as provided under Article 2207 of the Civil Code, which reads:
ART. 2207. If the plaintiffs property has been insured,
and he has received indemnity from the insurance company
for the injury or loss arising out of the wrong or breach of
contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrong-doer
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.
As subrogee of the rights and interest of the consignee, R&B Insurance
has the right to seek reimbursement from either Loadmasters or Glodel or both
for breach of contract and/or tort.
The issue now is who, between Glodel and Loadmasters, is liable to pay R&B
Insurance for the amount of the indemnity it paid Columbia.
At the outset, it is well to resolve the issue of whether Loadmasters and Glodel
are common carriers to determine their liability for the loss of the subject
cargo. Under Article 1732 of the Civil Code, common carriers are persons,
corporations, firms, or associations engaged in the business of carrying or
transporting passenger or goods, or both by land, water or air for
compensation, offering their services to the public.
Based on the aforecited definition, Loadmasters is a common carrier
because it is engaged in the business of transporting goods by land, through its
trucking service. It is acommon carrier as distinguished from a private
carrier wherein the carriage is generally undertaken by special agreement and
it does not hold itself out to carry goods for the general public. [10] The
distinction is significant in the sense that 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. [11]
In the present case, there is no indication that the undertaking in the
contract between Loadmasters and Glodel was private in character. There is no
showing that Loadmasters solely and exclusively rendered services to Glodel.
In fact, Loadmasters admitted that it is a common carrier.[12]

In the same vein, Glodel is also considered a common carrier within the
context of Article 1732. In its Memorandum,[13] it states that it is a corporation
duly organized and existing under the laws of the Republic of
the Philippines and is engaged in the business of customs brokering. It cannot
be considered otherwise because as held by this Court in Schmitz Transport &
Brokerage Corporation v. Transport Venture, Inc., [14] a customs broker is also
regarded as a common carrier, the transportation of goods being an integral
part of its business.
Loadmasters and Glodel, being both common carriers, are mandated
from the nature of their business and for reasons of public policy, to observe
the extraordinary diligence in the vigilance over the goods transported by them
according to all the circumstances of such case, as required by Article 1733 of
the Civil Code. When the Court speaks of extraordinary diligence, it is that
extreme measure of care and caution which persons of unusual prudence and
circumspection observe for securing and preserving their own property or
rights.[15] This exacting standard imposed on common carriers in a contract of
carriage of goods is intended to tilt the scales in favor of the shipper who is at
the mercy of the common carrier once the goods have been lodged for
shipment.[16] Thus, in case of loss of the goods, the common carrier is presumed
to have been at fault or to have acted negligently. [17] This presumption of fault
or negligence, however, may be rebutted by proof that the common carrier has
observed extraordinary diligence over the goods.
With respect to the time frame of this extraordinary responsibility, the
Civil Code provides that the exercise of extraordinary diligence 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.[18]
Premises considered, the Court is of the view that both Loadmasters
and Glodel are jointly and severally liable to R & B Insurance for the loss of the
subject cargo. Under Article 2194 of the New Civil Code, the responsibility of
two or more persons who are liable for a quasi-delict is solidary.
Loadmasters claim that it was never privy to the contract entered into
by Glodel with the consignee Columbia or R&B Insurance as subrogee, is not a
valid defense. It may not have a direct contractual relation with Columbia, but it
is liable for tort under the provisions of Article 2176 of the Civil Code on quasidelicts which expressly provide:
ART. 2176. Whoever by act or omission causes
damage to another, there being fault or negligence, is obliged
to pay for the damage done. Such fault or negligence, if there
is no pre-existing contractual relation between the parties, is
called a quasi-delict and is governed by the provisions of this
Chapter.
Pertinent is the ruling enunciated in the case of Mindanao Terminal and
Brokerage Service, Inc. v. Phoenix Assurance Company of New York,/McGee &
Co., Inc.[19]where this Court held that a tort may arise despite the absence of a
contractual relationship, to wit:

We agree with the Court of Appeals that the complaint filed

by Phoenix and McGee against Mindanao Terminal, from which
the present case has arisen, states a cause of action. The
present action is based on quasi-delict, arising from the
negligent and careless loading and stowing of the cargoes
belonging to Del Monte Produce. Even assuming that both
Phoenix and McGee have only been subrogated in the rights of
Del Monte Produce, who is not a party to the contract of
service between Mindanao Terminal and Del Monte, still the
insurance carriers may have a cause of action in light of the
Courts consistent ruling that the act that breaks the
contract may be also a tort. In fine, a liability for tort may
arise even under a contract, where tort is that which breaches
the contract. In the present case, Phoenix and McGee are not
suing for damages for injuries arising from the breach
of the contract of service but from the alleged
negligent manner by which Mindanao Terminal handled the
cargoes belonging to Del Monte Produce. Despite the absence
of contractual relationship between Del Monte Produce and
Mindanao Terminal, the allegation of negligence on the part of
the defendant should be sufficient to establish a cause of
action arising from quasi-delict. [Emphases supplied]
In connection therewith, Article 2180 provides:
ART. 2180. The obligation imposed by Article 2176 is
demandable not only for ones own acts or omissions, but also
for those of persons for whom one is responsible.
xxxx
Employers shall be liable for the damages caused by
their employees and household helpers acting within the
scope of their assigned tasks, even though the former are not
engaged in any business or industry.
It is not disputed that the subject cargo was lost while in the custody of
Loadmasters whose employees (truck driver and helper) were instrumental in
the hijacking or robbery of the shipment. As employer, Loadmasters should be
made answerable for the damages caused by its employees who acted within
the scope of their assigned task of delivering the goods safely to the
warehouse.
Whenever an employees negligence causes damage or injury to
another, there instantly arises a presumption juris tantum that the employer
failed to exercise diligentissimi patris families in the selection (culpa in
eligiendo) or supervision (culpa in vigilando) of its employees.[20] To avoid
liability for a quasi-delict committed by its employee, an employer must
overcome the presumption by presenting convincing proof that he exercised
the care and diligence of a good father of a family in the selection and
supervision of his employee.[21] In this regard, Loadmasters failed.

Glodel is also liable because of its failure to exercise extraordinary

diligence. It failed to ensure that Loadmasters would fully comply with the
undertaking to safely transport the subject cargo to the designated
destination. It should have been more prudent in entrusting the goods to
Loadmasters by taking precautionary measures, such as providing escorts to
accompany the trucks in delivering the cargoes. Glodel should, therefore, be
held liable with Loadmasters. Its defense of force majeure is unavailing.
At this juncture, the Court clarifies that there exists no principal-agent
relationship between Glodel and Loadmasters, as erroneously found by the
CA. Article 1868 of the Civil Code provides: By the contract of agency a person
binds himself to render some service or to do something in representation or on
behalf of another, with the consent or authority of the latter. The elements of a
contract of agency are: (1) consent, express or implied, of the parties to
establish the relationship; (2) the object is the execution of a juridical act in
relation to a third person; (3) the agent acts as a representative and not for
himself; (4) the agent acts within the scope of his authority. [22]
Accordingly, there can be no contract of agency between the
parties. Loadmasters never represented Glodel. Neither was it ever authorized
to make such representation. It is a settled rule that the basis for agency is
representation, that is, the agent acts for and on behalf of the principal on
matters within the scope of his authority and said acts have the same legal
effect as if they were personally executed by the principal. On the part of the
principal, there must be an actual intention to appoint or an intention naturally
inferable from his words or actions, while on the part of the agent, there must
be an intention to accept the appointment and act on it. [23] Such mutual intent
is not obtaining in this case.
What then is the extent of the respective liabilities of Loadmasters and
Glodel? Each wrongdoer is liable for the total damage suffered by R&B
Insurance. Where there are several causes for the resulting damages, a party is
not relieved from liability, even partially. It is sufficient that the negligence of a
party is an efficient cause without which the damage would not have
resulted. It is no defense to one of the concurrent tortfeasors that the damage
would not have resulted from his negligence alone, without the negligence or
wrongful acts of the other concurrent tortfeasor. As stated in the case of Far
Eastern Shipping v. Court of Appeals,[24]
X x x. Where several causes producing an injury are
concurrent and each is an efficient cause without which the
injury would not have happened, the injury may be attributed
to all or any of the causes and recovery may be had against
any or all of the responsible persons although under the
circumstances of the case, it may appear that one of them was
more culpable, and that the duty owed by them to the injured
person was not the same. No actor's negligence ceases to be a
proximate cause merely because it does not exceed the
negligence of other actors. Each wrongdoer is responsible for
the entire result and is liable as though his acts were the sole
cause of the injury.
There is no contribution between joint tortfeasors
whose liability is solidary since both of them are liable for the

total damage. Where the concurrent or successive negligent

acts or omissions of two or more persons, although acting
independently, are in combination the direct and proximate
cause of a single injury to a third person, it is impossible to
determine in what proportion each contributed to the injury
and either of them is responsible for the whole
injury. Where their concurring negligence resulted in injury or
damage to a third party, they become joint tortfeasors and are
solidarily liable for the resulting damage under Article 2194 of
the Civil Code. [Emphasis supplied]
The Court now resolves the issue of whether Glodel can collect from
Loadmasters, it having failed to file a cross-claim against the latter.
Undoubtedly, Glodel has a definite cause of action against
Loadmasters for breach of contract of service as the latter is primarily liable for
the loss of the subject cargo. In this case, however, it cannot succeed in
seeking judicial sanction against Loadmasters because the records disclose that
it did not properly interpose a cross-claim against the latter. Glodel did not even
pray that Loadmasters be liable for any and all claims that it may be adjudged
liable in favor of R&B Insurance. Under the Rules, a compulsory
counterclaim, or a cross-claim, not set up shall be barred.[25] Thus, a cross-claim
cannot be set up for the first time on appeal.
For the consequence, Glodel has no one to blame but itself. The Court
cannot come to its aid on equitable grounds. Equity, which has been aptly
described as a justice outside legality, is applied only in the absence of, and
never against, statutory law or judicial rules of procedure. [26] The Court cannot
be a lawyer and take the cudgels for a party who has been at fault or negligent.
WHEREFORE, the petition is PARTIALLY GRANTED. The August 24,
2007 Decision of the Court of Appeals is MODIFIED to read as follows:
WHEREFORE, judgment is rendered declaring
petitioner Loadmasters Customs Services, Inc. and respondent
Glodel Brokerage Corporation jointly and severally liable to
respondent R&B Insurance Corporation for the insurance
indemnity it paid to consignee Columbia Wire & Cable
Corporation and ordering both parties to pay, jointly and
severally, R&B Insurance Corporation a] the amount
of P1,896,789.62 representing the insurance indemnity; b] the
amount equivalent to ten (10%) percent thereof for attorneys
fees; and c] the amount of P22,427.18 for litigation expenses.
The cross-claim belatedly prayed for by respondent
Glodel Brokerage Corporation against petitioner Loadmasters
Customs Services, Inc. is DENIED.
SO ORDERED.

G.R. No. 170071

March 9, 2011

HEIRS OF JOSE MARCIAL K. OCHOA namely: RUBY B. OCHOA, MICAELA

B. OCHOA and JOMAR B. OCHOA, Petitioners,
vs.
G & S TRANSPORT CORPORATION, Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 170125
G & S TRANSPORT CORPORATION, Petitioner,
vs.
HEIRS OF JOSE MARCIAL K. OCHOA namely: RUBY B. OCHOA, MICAELA
B. OCHOA and JOMAR B. OCHOA, Respondents.
DECISION
DEL CASTILLO, J.:
An accident which claimed the life of a passenger is the root of these two
petitions - one brought before us by the common carrier and the other by the
heirs of the deceased.
These consolidated Petitions for Review on Certiorari assail the Court of
Appeals (CA) Decision1 dated June 29, 2005 in CA-G.R. CV No. 75602 which
affirmed with modification the December 21, 2001 Decision and March 5, 2002
Order of the trial court. Likewise assailed is the Resolution 2 dated October 12,
2005 denying the parties respective Motions for Reconsideration thereto.
Factual Antecedents
Jose Marcial K. Ochoa (Jose Marcial) died on the night of March 10, 1995 while
on board an Avis taxicab owned and operated by G & S Transport Corporation
(G & S), a common carrier. As narrated by the trial court, the circumstances
attending Jose Marcials death are as follows:
It appears that sometime in the evening of March 10, 1995, at the Manila
Domestic Airport, the late Jose Marcial K. Ochoa boarded and rode a taxicab
with Plate No. PKR-534, a passenger vehicle for hire owned and operated by
defendant corporation under the business name "Avis Coupon Taxi" (Avis) and
driven by its employee and authorized driver Bibiano Padilla, Jr. on his way
home to Teachers Village, Diliman, Quezon City.

At about 11:00 p.m., the taxicab was cruising along Epifanio delos Santos
Avenue [EDSA], in front of Camp Aguinaldo in Quezon City at high speed. While
going up the Boni Serrano (Santolan) fly-over, it overtook another cab driven by
Pablo Clave and tried to pass another vehicle, a ten-wheeler cargo truck.
Because of the narrow space between the left side railing of the fly-over and
the ten-wheeler truck, the Avis cab was unable to pass and because of its
speed, its driver (Padilla) was unable to control it. To avoid colliding with the
truck, Padilla turned the wheel to the left causing his taxicab to ram the railing
throwing itself off the fly-over and fell on the middle surface of EDSA below. The
forceful drop of the vehicle on the floor of the road broke and split it into two
parts. Both driver Padilla and passenger Jose Marcial K. Ochoa were injured and
rushed to the hospital. At the East Avenue Medical Center, Ochoa was not as
lucky as Padilla who was alive. He was declared dead on arrival from the
accident. The death certificate issued by the Office of the Civil Registrar of
Quezon City cited the cause of his death as vehicular accident. 3
On May 13, 1999, Jose Marcials wife, Ruby Bueno Ochoa, and his two minor
children, Micaela B. Ochoa and Jomar B. Ochoa (the heirs), through counsel,
sent G & S a letter4 demanding that the latter indemnify them for Jose Marcials
death, his loss of earning capacity, and funeral expenses in the total amount
of P15,000,000.00. As G & S failed to heed the same, the heirs filed
a Complaint5 for Damages before the Regional Trial Court (RTC) of Pasig City
which was raffled to Branch 164 of said court.
The heirs alleged that G & S, as a common carrier, is under legal obligation to
observe and exercise extraordinary diligence in transporting its passengers to
their destination safely and securely. However, G & S failed to observe and
exercise this extraordinary diligence because its employee failed to transport
Jose Marcial to his destination safely. They averred that G & S is liable to them
for having breached the contract of common carriage. As an alternative cause
of action, they asserted that G & S is likewise liable for damages based
on quasi-delict pursuant to Article 21806 in relation to Article 21767 of the Civil
Code. The heirs thus prayed for G & S to pay them actual damages, moral
damages, exemplary damages, and attorneys fees and expenses of litigation.
In its Answer With Compulsory Counterclaims,8 G & S claimed that Jose Marcial
boarded an Avis taxicab driven by its employee, Bibiano Padilla (Padilla), at the
Domestic Airport to bring him to Teachers Village in Quezon City. While passing
the Santolan fly-over, however, the Avis taxicab was bumped by an on-rushing
delivery van at the right portion causing the taxicab to veer to the left, ram
through the left side of the railings of the fly-over and fall to the center of the
island below. The taxicab was split into two and Jose Marcial was thrown 10
meters away. G & S posited that the proximate cause of Jose Marcials death is
a
fortuitous event and/or the fault or negligence of the driver of the delivery van
that hit the taxicab. It likewise claimed that it exercised the diligence required
of a good father of a family in the selection and supervision of its employees
including Padilla. By way of compulsory counterclaim, G & S sought to recover
from the heirs the amount of P300,000.00 as attorneys fees and costs of suit.
Ruling of the Regional Trial Court

On December 27, 2001, the trial court rendered a Decision 9 finding the
vehicular mishap not caused by a fortuitous event but by the negligence of
Padilla. It likewise found the evidence adduced by G & S to show that it
exercised the diligence of a good father of a family in the selection and
supervision of its employees as insufficient. Hence, the trial court declared G &
S civilly liable to the heirs. However, for lack of receipts or any proof of funeral
expenses and other actual damages, the trial court denied the heirs claim for
actual damages. It also denied them moral and exemplary damages for lack of
legal basis. The dispositive portion of said Decision reads:
WHEREFORE, defendant is hereby adjudged guilty of breach of contract of
carriage and is ordered to pay plaintiffs the following amounts:
1. P50,000.00 as civil indemnity for the death of deceased Jose Marcial
K. Ochoa;
2. P6,537,244.96 for the loss of earning capacity of the deceased;
3. P100,00.00 for attorneys fees;
4. And the cost of litigation.
SO ORDERED.10
G & S filed a Notice of Appeal11 while the heirs filed a Motion for Partial
Reconsideration.12 The heirs averred that they are entitled to moral damages
pursuant to Article 176413 in relation to Article 2206(3)14 of the Civil Code. They
also cited applicable jurisprudence providing that moral damages are
recoverable in a damage suit predicated upon a breach of contract of carriage
where the mishap results in the death of the passenger. With respect to their
claim for exemplary damages, the heirs relied upon Article 2232 of the Civil
Code which provides that in contracts and quasi-contracts, the court may
award exemplary damages if the defendant acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner. And, since Padilla was declared by
the trial court to have been grossly negligent in driving the taxicab, the heirs
claimed that they are likewise entitled to exemplary damages.
After G & S filed its Opposition (To Plaintiffs Motion for Partial
Reconsideration),15 the trial court issued an Order16 on March 5, 2002. It found
merit in the heirs Motion for Partial Reconsideration and thus declared them
entitled to moral and exemplary damages, viz:
WHEREFORE, the decision dated December 27, 2001 is hereby modified so as
to order defendant Corporation to pay plaintiffs the amount of P300,000.00 as
moral damages and P50,000.00 as exemplary damages. The dispositive portion
of said decision is hereby amended to read as follows:
WHEREFORE, defendant is hereby adjudged guilty of breach of contract of
carriage and is ordered to pay plaintiffs the following amounts:

1. P50,000.00 as civil indemnity for the death of the deceased Jose

Marcial K. Ochoa;
2. P6,537,244.96 for the loss of earning capacity of the deceased.
3. P300,000.00 as moral damages;

On the other hand, the heirs maintained that Padilla was grossly negligent in
driving the Avis taxicab on the night of March 10, 1995. They claimed that
Padilla, while running at a very high speed, acted negligently when he tried to
overtake a ten-wheeler truck at the foot of the fly-over. This forced him to
swerve to the left and as a consequence, the Avis taxicab hit the center of the
railing and was split into two upon hitting the ground. The manner by which
Padilla drove the taxicab clearly showed that he acted without regard to the
safety of his passenger.

4. P50,000.00 as exemplary damages;

5. P100,000.00 for attorneys fees;
6. And the costs of litigation.
SO ORDERED.17
Because of this, G & S filed another Notice of Appeal 18 and same was given due
course by the trial court in an Order19 dated April 23, 2002.
Ruling of the Court of Appeals
Before the CA, G & S continued to insist that it exercised the diligence of a good
father of the family in the selection and supervision of its employees. It averred
that it has been carrying out not only seminars for its drivers even before they
were made to work, but also periodic evaluations for their performance. Aside
from these, it has also been conducting monthly check-up of its automobiles
and has regularly issued rules regarding the conduct of its drivers. G & S
claimed that it was able to establish a good name in the industry and maintain
a clientele.
In an effort to build up Padillas character as an experienced and careful driver,
G & S averred that: (1) before G & S employed Padilla, he was a delivery truck
driver of Inter Island Gas Service for 11 years; (2) Padilla has been an employee
of G & S from 1989 to 1996 and during said period, there was no recorded
incident of his being a negligent driver; (3) despite his qualifications, G & S still
required Padilla to submit an NBI clearance, drivers license and police
clearance; (4) Padillas being a good driver-employee was manifest in his years
of service with G & S, as in fact, he has received congratulatory messages from
the latter as shown by the inter-office memos dated August 23, 1990 and
February 1, 1993; and that (5) Padilla attended a seminar at the Pope Pius
Center sometime in December 1999 as part of the NAIA Taxi Operation
Program.
G & S also argued that the proximate cause of Jose Marcials death is a
fortuitous event and/or the fault or negligence of another and not of its
employee. According to G & S, the collision was totally unforeseen since Padilla
had every right to expect that the delivery van would just overtake him and not
hit the right side of the taxicab. Therefore, what transpired was beyond Padillas
control. There was no negligence on his part but on the part of the driver of the
delivery van. For this reason, G & S opined that it was not liable to the heirs.

The heirs also averred that in order for a fortuitous event to exempt one from
liability, it is necessary that he has committed no negligence or conduct that
may have occasioned the loss. Thus, to be exempt from liability for the death of
Jose Marcial on this ground, G & S must clearly show that the proximate cause
of the casualty was entirely independent of human will and that it was
impossible to avoid. And since in the case at bar it was Padillas inexcusable
poor judgment, utter lack of foresight and extreme negligence which were the
immediate and proximate causes of the accident, same cannot be considered
to be due to a fortuitous event. This is bolstered by the fact that the court
trying the case for criminal negligence arising from the same incident convicted
Padilla for said charge.20
At any rate, the heirs contended that regardless of whether G & S observed due
diligence in the selection of its employees, it should nonetheless be held liable
for the death of Jose Marcial pursuant to Article 1759 of the Civil Code which
provides:
ART. 1759 Common carriers are liable for the death of or injuries to
passengers through the negligence or willful acts of the formers employees,
although such employees may have acted beyond the scope of their authority
or in violation of the orders of the common carriers.
This liability of the common carriers does not cease upon proof that they
exercised all the diligence of a good father of a family in the selection and
supervision of their employees.
In sum, the heirs prayed that the appeal be dismissed for lack of merit and the
assailed Decision and Order of the trial court be affirmed in toto.
In a Decision21 dated June 29, 2005, the CA ruled in favor of the heirs. The
appellate court gave weight to their argument that in order for a fortuitous
event to exempt one from liability, it is necessary that he committed no
negligence or misconduct that may have occasioned the loss. In this case, the
CA noted that Padilla failed to employ reasonable foresight, diligence and care
needed to exempt G & S from liability for Jose Marcials death. Said court also
quoted pertinent portions of the MTC decision convicting Padilla of reckless
imprudence resulting in homicide to negate G & S claim that the proximate
cause of the accident was the fault of the driver of the delivery van who
allegedly hit the right side of the taxicab. And just like the trial court, the CA
found insufficient the evidence adduced by G & S to support its claim that it
exercised due diligence in the selection and supervision of its employees.

With respect to the award of P6,537,244.96 for Jose Marcials loss of earning
capacity, the CA declared the same unwarranted. It found the
Certification22 issued by Jose Marcials employer, the United States Agency for
International Development (USAID) through its Chief of Human Resources
Division Jonas Cruz (Cruz), as self-serving, unreliable, and biased. While said
certification states that Jose Marcial was earning an annual salary
ofP450,844.49 at the time of his untimely demise, the CA noted that same is
unsupported by competent evidence such as income tax returns or receipts.
This is in view of the ruling in People v. Ereo23 where it was held that "there
must be unbiased proof of the deceaseds average income." Anent moral
damages, the CA found the award of P300,000.00 excessive and thus reduced
the same to P200,000.00 as to make it proportionate to the award of exemplary
damages which is P50,000.00. The dispositive portion of said Decision reads:
WHEREFORE, the assailed Decision dated December 27, 2001 and Order dated
March 5, 2002 are AFFIRMED with the following MODIFICATION: appellant is
ordered to pay appellees the sum of P50,000.00 as civil indemnity for the death
of the deceased Jose Marcial K. Ochoa, P200,000.00 as moral
damages, P50,000.00 as exemplary damages, P100,000.00 for attorneys fees
and the costs of litigation. The trial courts award of P6,537,244.96 for the loss
of earning capacity of the deceased is DELETED for lack of basis.
SO ORDERED.
Both parties moved for reconsideration24 but the CA denied their respective
motions for reconsideration in a Resolution25 dated October 12, 2005.
Hence, G & S and the heirs filed their respective Petitions for Review
on Certiorari before this Court. The heirs petition was docketed as G.R. No.
170071 and that of G & S as G.R. No. 170125. These petitions were later
consolidated pursuant to this Courts Resolution of November 21, 2005. 26
G.R. No. 170125
G & S anchors its petition on the following grounds:
I. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT RULING THAT
THE PROXIMATE CAUSE OF DEATH OF MR. JOSE MARCIAL K. OCHOA WAS A
FORTUITOUS EVENT AND/OR WAS DUE TO THE FAULT OR NEGLIGENCE OF
ANOTHER AND SHOULD THUS EXEMPT THE PETITIONER FROM LIABILITY.
II. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT TAKING NOTE
OF THE FACT THAT THE PETITIONERS EMPLOYEE HAD BEEN ACQUITTED OF THE
CRIME OF RECKLESS IMPRUDENCE RESULTING (IN) HOMICIDE.
III. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN UPHOLDING THE
TESTIMONY OF A WITNESS WHO SURFACED MONTHS AFTER THE INCIDENT
WHILE DISREGARDING THAT OF AN EYEWITNESS WHO WAS PRESENT AT THE
TIME AND PLACE OF THE ACCIDENT.

IV. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT RULING THAT
THE PETITIONER EXERCISED THE DILIGENCE OF A GOOD FATHER OF A FAMILY IN
THE SELECTION AND SUPERVISION OF ITS EMPLOYEES PARTICULARLY MR.
BIBIANO PADILLA.27
G & S reiterates its arguments that the proximate cause of the accident is a
fortuitous event and/or the negligence of the driver of the delivery van which
bumped the right portion of its taxicab and, that it exercised the diligence of a
good father of a family in the selection and supervision of its employees. It
faults the CA when it overlooked the fact that the MTC Decision convicting
Padilla of reckless imprudence has already been reversed on appeal by the RTC
with Padilla having been accordingly acquitted of the crime charged. Moreover,
it claims that the appellate court erred in according respect to the testimony of
the lone prosecution witness, Pablo Clave (Clave), when it concluded that
Padilla was driving negligently at the time of the accident. It asserts that Clave
is not a credible witness and so is his testimony. Thus, G & S prays that the
assailed CA Decision and Resolution be reversed and set aside.
On the other hand, the heirs posit that the determination of the issues raised
by G & S necessarily entails a re-examination of the factual findings which this
Court cannot do in this petition for review on certiorari. At any rate, they
maintain that the trial court itself is convinced of Claves credibility. They stress
the settled rule that the evaluation of the credibility of witnesses is a matter
that particularly falls within the authority of the trial court because it had the
opportunity to observe the demeanor of the witnesses on the stand.
The heirs assert that fortuitous event was not the proximate cause of the
mishap. They point out that as correctly found by the trial court, Padilla was
running at an extremely high speed. This was why the impact was so strong
when the taxicab rammed the fly-over railings and was split into two when it hit
the ground. Also, while it is true that the MTC Decision in the criminal case for
reckless imprudence has been reversed by the RTC, this does not excuse G & S
from its liability to the heirs because its liability arises from its breach of
contract of carriage and from its negligence in the selection and supervision of
its employees. Also, since the acquittal of Padilla is based on reasonable doubt,
same does not in any way rule out his negligence as this may merely mean
that the prosecution failed to meet the requisite quantum of evidence to
sustain his conviction. Therefore, G & S cannot bank on said acquittal to
disprove its liability.
G.R. No. 170071
The heirs, on the other hand, advance the following grounds in support of their
petition:
THE COURT OF APPEALS MANIFESTLY AND GRAVELY ERRED IN COMPLETELY
DELETING THE TRIAL COURTS AWARD FOR THE LOSS OF EARNING CAPACITY OF
THE DECEASED.
THE COURT OF APPEALS MANIFESTLY AND GRAVELY ERRED IN REDUCING THE
TRIAL COURTS AWARD FOR MORAL DAMAGES.28

The focal point of the heirs petition is the CAs deletion of the award
of P6,537,244.96 for Jose Marcials loss of earning capacity as well as the
reduction of the award of moral damages from P300,000.00 to P200,000.00.

We shall first tackle the issues raised by G & S in its petition.

The heirs aver that the appellate court gravely erred in relying upon Ereo as
said case is not on all fours with the present case. They contend that in Ereo,
this Court disallowed the award for loss of income because the only proof
presented was a handwritten statement of the victims spouse stating the daily
income of the deceased as a self-employed fish vendor. The heirs argue that
the reason why this Court declared said handwritten statement as self-serving
is because the one who prepared it, the deceaseds wife, was also the one who
would directly and personally benefit from such an award. 29 This cannot be said
in the case at bar since the same bias and personal interest cannot be
attributed to Jose Marcials employer, the USAID. Unlike in Ereo, USAID here
does not stand to be benefited by an award for Jose Marcials loss of earning
capacity. Clearly, the Certification issued by it is far from being self-serving. At
any rate, the heirs contend that Ereo has already been superseded by Pleyto
v. Lomboy30 where this Court held that in awarding damages for loss of earning
capacity, "mere testimonial evidence suffices to establish a basis for which the
court can make a fair and reasonable estimate of the loss of earning capacity".
In addition, the heirs point out that the authenticity and accuracy of said
Certification was neither questioned by G & S nor discredited by any
controverting evidence. In fact, its admission by the trial court was not even
assigned by G & S as an error in their appeal before the CA.

We have reviewed said issues and we find that the determination of the first,
third and fourth issues raised entails re-examination of the evidence presented
because they all involve questions of fact. In Microsoft Corporation v. Maxicorp,
Inc.,32 we held that:

As to the reduction of moral damages, the heirs claim that since the CA agreed
with the factual circumstances of the case as found by the trial court, there is
therefore no reason for it to alter the award of damages arising from such
factual circumstances. They aver that the CA may only modify the damages
awarded by the trial court when it is excessive and scandalous as held
in Meneses v. Court of Appeals.31 Here, they claim that the award of moral
damages in the amount of P300,000.00 cannot be considered as excessive and
unreasonable but only commensurate to the sufferings caused by the incident
to a wife who became a young widow at the age of 33 and to two minor
children who lost a father. Moreover, the heirs aver that the CA should not have
reduced the award of moral damages just to make said amount proportionate
to the exemplary damages awarded. This is because there is no such rule which
dictates that the amount of moral damages should be proportionate to that of
the exemplary damages. The heirs pray that the assailed CA Decision and
Resolution be reversed and set aside insofar as they deleted the award for loss
of earning capacity and reduced the award for moral damages.
For its part, G & S avers that the Certification issued by USAID is self-serving
because the USAID officer who issued it has not been put on the witness stand
to validate the contents thereof. Moreover, said Certification was not supported
by competent evidence such as income tax returns and receipts. G & S likewise
finds the reduction of the award of moral damages appropriate in view of the
settled rule that moral damages are not meant to enrich the complainant at the
expense of the defendant. Hence, it prays that the petition be dismissed for
lack of merit.
Our Ruling

The first, third and fourth issues raised by G & S involve questions of fact

Once it is clear that the issue invites a review of the evidence presented, the
question posed is one of fact. If the query requires a re-evaluation of the
credibility of witnesses, or the existence or relevance of surrounding
circumstances and their relation to each other, the issue in that query is
factual. Our ruling in Paterno v. Paternois illustrative on this point:
Such questions as whether certain items of evidence should be accorded
probative value or weight, or rejected as feeble or spurious, or whether or not
the proof on one side or the other are clear and convincing and adequate to
establish a proposition in issue, are without doubt questions of fact. Whether or
not the body of proofs presented by a party, weighed and analyzed in relation
to contrary evidence submitted by adverse party, may be said to be strong,
clear and convincing; whether or not certain documents presented by one side
should be accorded full faith and credit in the face of protests as to their
spurious character by the other side; whether or not inconsistencies in the body
of proofs of a party are of such a gravity as to justify refusing to give said
proofs weight all these are issues of fact. (Citations omitted)
In this case, the said three issues boil down to the determination of the
following questions: What is the proximate cause of the death of Jose
Marcial? Is the testimony of prosecution witness Clave credible? Did G & S
exercise the diligence of a good father of a family in the selection and
supervision of its employees? Suffice it to say that these are all questions of
fact which require this Court to inquire into the probative value of the evidence
presented before the trial court. As we have consistently held, "[t]his Court is
not a trier of facts. It is not a function of this court to analyze or weigh
evidence. When we give due course to such situations, it is solely by way of
exception. Such exceptions apply only in the presence of extremely meritorious
circumstances."33 Here, we note that although G & S enumerated in its
Consolidated Memorandum34 the exceptions35 to the rule that a petition for
review on certiorari should only raise questions of law, it nevertheless did not
point out under what exception its case falls. And, upon review of the records of
the case, we are convinced that it does not fall under any. Hence, we cannot
proceed to resolve said issues and disturb the findings and conclusions of the
CA with respect thereto. As we declared in Diokno v. Cacdac:36
It is aphoristic that a re-examination of factual findings cannot be done through
a petition for review on certiorariunder Rule 45 of the Rules of Court because as
earlier stated, this Court is not a trier of facts; it reviews only questions of law.
The Supreme Court is not duty-bound to analyze and weigh again the evidence
considered in the proceedings below. This is already outside the province of the
instant Petition for Certiorari. [Citations omitted.]

There is a contract of carriage between G & S and Jose Marcial

What is clear from the records is that there existed a contract of carriage
between G & S, as the owner and operator of the Avis taxicab, and Jose Marcial,
as the passenger of said vehicle. As a common carrier, G & S "is bound to carry
[Jose Marcial] safely as far as human care and foresight can provide, using the
utmost diligence of very cautious persons, with due regard for all the
circumstances."37 However, Jose Marcial was not able to reach his destination
safely as he died during the course of the travel. "In a contract of carriage, it is
presumed that the common carrier is at fault or is negligent when a passenger
dies or is injured. In fact, there is even no need for the court to make an
express finding of fault or negligence on the part of the common carrier. This
statutory presumption may only be overcome by evidence that the carrier
exercised extraordinary diligence."38Unfortunately, G & S miserably failed to
overcome this presumption. Both the trial court and the CA found that the
accident which led to Jose Marcials death was due to the reckless driving and
gross negligence of G & S driver, Padilla, thereby holding G & S liable to the
heirs of Jose Marcial for breach of contract of carriage.
The acquittal of Padilla in the criminal case is immaterial to the instant case for
breach of contract
This thus now leaves us with the remaining issue raised by G & S, that
is, whether the CA gravely erred in not taking note of the fact that Padilla has
already been acquitted of the crime of reckless imprudence resulting in
homicide, a charge which arose from the same incident subject of this case.
Article 31 of the Civil Code provides, viz:
When the civil action is based on an obligation not arising from the act or
omission complained of as a felony, such civil action may proceed
independently of the criminal proceedings and regardless of the result of the
latter.
Thus, in Cancio, Jr. v. Isip,39 we declared:
In the instant case, it must be stressed that the action filed by petitioner is an
independent civil action, which remains separate and distinct from any criminal
prosecution based on the same act. Not being deemed instituted in the criminal
action based on culpa criminal, a ruling on the culpability of the offender
will have no bearing on said independent civil action based on an
entirely different cause of action, i.e., culpa contractual." (Emphasis
supplied; Citations omitted.)
In this case, the action filed by the heirs is primarily for the recovery of
damages arising from breach of contract of carriage allegedly committed by G
& S. Clearly, it is an independent civil action arising from contract which is
separate and distinct from the criminal action for reckless imprudence resulting
in homicide filed by the heirs against Padilla by reason of the same incident.
Hence, regardless of Padillas acquittal or conviction in said criminal case, same
has no bearing in the resolution of the present case. There was therefore no

error on the part of the CA when it resolved this case without regard to the fact
that Padilla has already been acquitted by the RTC in the criminal case.
Moreover, while the CA quoted some portions of the MTC Decision in said
criminal case, we however find that those quoted portions were only meant to
belie G & S claim that the proximate cause of the accident was the negligence
of the driver of the delivery van which allegedly hit the Avis taxicab. Even
without those quoted portions, the appellate courts ultimate finding that it was
Padillas negligence which was the proximate cause of the mishap would still be
the same. This is because the CA has, in fact, already made this declaration in
the earlier part of its assailed Decision. The fact that the MTC Decision from
which the subject quoted portions were lifted has already been reversed by the
RTC is therefore immaterial.
In view of the foregoing, we deny G & S petition for lack of merit.
The denial by the CA of the heirs claim for lost earnings is unwarranted
Going now to the petition filed by the heirs, we note at the outset that the
issues of whether the CA erred in deleting the award for loss of earning
capacity and in reducing the award for moral damages made by the trial court
likewise raise questions of fact as they "involve an examination of the probative
value of the evidence presented by the parties". 40 However, we find that the
heirs case falls under one of the exceptions because the findings of the CA
conflict with the findings of the RTC.41 Since the heirs properly raised the
conflicting findings of the lower courts, it is proper for this Court to resolve such
contradiction.42
In Ereo, we denied the claim for loss of income because the handwritten
estimate of the deceaseds daily income as a self-employed vendor was not
supported by competent evidence like income tax returns or receipts. This was
in view of the rule that compensation for lost income is in the nature of
damages and as such requires due proof of damages suffered. We reiterated
this rule in People v. Yrat43 where we likewise denied the same claim because
the only evidence presented to show that the deceased was
earning P50,000.00 a month was the testimony of the wife. There we stated
that for lost income due to death, there must be unbiased proof of the
deceaseds average income. Self-serving, hence, unreliable statement is not
enough. In People v. Caraig,44 we declared that "documentary evidence should
be presented to substantiate the claim for damages for loss of earning capacity.
By way of exception, damages therefor may be awarded despite the absence of
documentary evidence, provided that there is testimony that the victim was
either (1) self-employed earning less than the minimum wage under current
labor laws, and judicial notice may be taken of the fact that in the victims line
of work no documentary evidence is available; or (2) employed as a daily-wage
worker earning less than the minimum wage under current labor laws".
However, we subsequently ruled in Pleyto v. Lomboy45 that "failure to present
documentary evidence to support a claim for loss of earning capacity of the
deceased need not be fatal to its cause. Testimonial evidence suffices to
establish a basis for which the court can make a fair and reasonable estimate of
the loss of earning capacity". Hence, we held as sufficient to establish a basis
for an estimate of damages for loss of earning capacity the testimony of the
victims widow that her husband was earning a monthly income of P8,000.00.

Later, in Victory Liner, Inc. v. Gammad,46 after finding that the deceaseds
earnings does not fall within the exceptions laid down in Caraig, we deleted the
award for compensatory damages for loss of earning capacity as same was
awarded by the lower courts only on the basis of the husbands testimony that
the deceased was 39 years of age and a Section Chief of the Bureau of Internal
Revenue with a salary of P83,088.00 per annum at the time of her death. This
same rule was also applied in the 2008 case of Licyayo v. People.47

Clearly, the CA erred in deleting the award for lost income on the ground that
the USAID Certification supporting such claim is self-serving and unreliable. On
the contrary, we find said certification sufficient basis for the court to make a
fair and reasonable estimate of Jose Marcials loss of earning capacity just like
in Tamayo v. Seora52where we based the victims gross annual income on his
pay slip from the Philippine National Police. Hence, we uphold the trial courts
award for Jose Marcials loss of earning capacity.

In all of the cases mentioned except for Ereo, the sole basis for the claim for
loss of earning capacity were the testimonies of the claimants. This is not the
case here. Just like in Ereo where the testimony of the mother of the deceased
was accompanied by a handwritten estimate of her daughters alleged income
as a fish vendor, the testimony of Jose Marcials wife that he was earning
around P450,000.00 a year was corroborated by a Certification issued by the
USAID. However in Ereo, we declared as self-serving the handwritten estimate
submitted by the mother hence we denied the claim for such award. Based on
said ruling, the CA in this case deleted the award for lost income after it found
the USAID Certification to be self-serving and unreliable.

While the trial court applied the formula generally used by the courts to
determine net earning capacity which is, to wit:

We disagree. The CA sweepingly concluded that the USAID Certification is selfserving and unreliable without elaborating on how it was able to arrive at such
a conclusion. A research on USAID reveals that it is the "principal [United
States] agency to extend assistance to countries recovering from disaster,
trying to escape poverty, and engaging in democratic reforms." 48 It is an
"independent federal government agency that receives over-all foreign policy
guidance from the Secretary of the State [of the United States]." 49 Given this
background, it is highly improbable that such an agency will issue a
certification containing unreliable information regarding an employees income.
Besides, there exists a presumption that official duty has been regularly
performed.50 Absent any showing to the contrary, it is presumed that Cruz, as
Chief of Human Resources Division of USAID, has regularly performed his duty
relative to the issuance of said certification and therefore, the correctness of its
contents can be relied upon. This presumption remains especially so where the
authenticity, due execution and correctness of said certification have not been
put in issue either before the trial court or the CA. As to its being self-serving,
our discussion on "self-serving evidence" in Heirs of Pedro Clemea y Zurbano
v. Heirs of Irene B. Bien51 is enlightening, viz:
Self-serving evidence, perhaps owing to its descriptive formulation, is a
concept much misunderstood. Not infrequently, the term is employed as a
weapon to devalue and discredit a party's testimony favorable to his cause.
That, it seems, is the sense in which petitioners are using it now. This is a grave
error. "Self-serving evidence" is not to be taken literally to mean any evidence
that serves its proponent's interest. The term, if used with any legal sense,
refers only to acts or declarations made by a party in his own interest
at some place and time out of court x x x. (Citations omitted; emphasis
supplied.)
Verily, the USAID certification cannot be said to be self-serving because it does
not refer to an act or declaration made out of court by the heirs themselves as
parties to this case.1awphi1

Net Earning Capacity = life expectancy* x (gross annual income - reasonable

living expenses),53
*

Life expectancy = 2/3 (80 age of the deceased)

we, however, find incorrect the amount of P6,537, 244.96 arrived at. The award
should be P6,611,634.59 as borne out by the following computation:
2 (80-3654)
Net earning capacity =

x 450,844.4955-50%56
3
88

x 225,422.25
3

= 29.33 x 225,422.25
= P6, 611,634.59
The award of moral damages should be modified
While we deemed it proper to modify the amount of moral damages awarded
by the trial court as discussed below, we nevertheless agree with the heirs that
the CA should not have pegged said award in proportion to the award of
exemplary damages. Moral and exemplary damages are based on different
jural foundations.57 They are different in nature and require separate
determination.58 The amount of one cannot be made to depend on the other.
In Victory Liner Inc. v. Gammad59 we awarded P100,000.00 by way of moral
damages to the husband and three children of the deceased, a 39-year old
Section Chief of the Bureau of Internal Revenue, to compensate said heirs for
the grief caused by her death. This is pursuant to the provisions of Articles
1764 and 2206(3) which provide:
Art. 1764. Damages in cases comprised in this Section shall be awarded in
accordance with Title XVIII of this Book, concerning Damages. Articles 2206
shall also apply to the death of a passenger caused by the breach of contract
by a common carrier.

Art. 2206. x x x
(3) The spouse, legitimate and illegitimate descendants and the ascendants of
the deceased may demand moral damages for mental anguish by reason of the
death of the deceased.
Here, there is no question that the heirs are likewise entitled to moral damages
pursuant to the above provisions, considering the mental anguish suffered by
them by reason of Jose Marcials untimely death, as can be deduced from the
following testimony of his wife Ruby:

graduation ng nursery that time naging very very [quiet] siya, so a lot
of emotional support from my own family was given to her at the time
para makacope-up siya sa loss kasi she is very close to the father.
Q: Financially, how did it affect you?
A: I had to make do of what was left by my husband, I couldnt also
work so much at the time because I was.and hirap eh, I cannot find
enthusiasm in what I do, tapos pregnant pa ako, and hirap talaga.
Q: How else did it affect you?

Atty. Suarez:
Q: How would you describe Jose Marcial Ochoa?
(Ruby) A: My husband was a very loving husband, faithful husband, a
very [good] provider[.] I depended on him so much financially [and]
emotionally[.] He was practically my life then.
Q: How is he as a father?
A: A very good father, he is very committed to Micaela[. H]e has
always time for her[. H]e is a family man, so its really a great [loss] to
me and to Micaela.
Q: What was your reaction upon learning of your husbands death?
A: Immediately after I learned of his death, I tried very hard to keep a
clear mind for my little girl, she was 3 and she could not grasp what
death is, so I found [it] so hard to explain to her [at] that time what
happened [e]specially [because] she just talked to her father from the
airport telling her that he is coming home, tapos hindi na pala.
Q: How did it affect you?
A: It was a painful struggle everyday just to get up and move on when
someone who [you] really really love and [who] is important to you it
is very hard to move on and [it is even] harder to move on [when] I
found out that I was pregnant with my second child, parang tinabunan
ka [ng] lahat eh[. I]ts [too] hard to find happiness, youre pregnant,
when you know wala naman talagang father yung bata later on x x x
xxxx
Q: How did this affect your family?
A: Yung effect kay Micaela, she [used] to be a gregarious child, yung
happy ganyan, but nung wala na yong father niya that time, [during]

A: We had to move houses like we used to live in Quezon City at (the)

time of his death, tapos kinuha kami ni Gorjie my brother-in-law sa
compound nila para hindi [to] support us emotionally (at that time)
kasi nga I was pregnant and then I also decided to move (to make it
easy for me) to adjust yung lifestyle ng mga bata, because I cannot
cope [here] financially on my own[. N]ahihirapan na ako dito because
the living expenses here are quite high compared sa probinsiya so I
decided to move.
Q: If you would assign that pain and suffering that you suffered as a
result of the death of your husband, what will be the monetary
consideration?
A: I struggled with that kasi.I can honestly say no amount of money
can ever repay the [loss] that my children suffered, future nila yan eh,
and my son was not given a chance to get to know his father, so I
cannot imagine kung ano yung sinasabi nyong amount that will
compensate the suffering that I have to go through and my children
will go through, yon and mahirap bayaran. 60
Under this circumstance, we thus find as sufficient and "somehow proportional
to and in approximation of the suffering inflicted" 61 an award of moral damages
in an amount similar to that awarded in Victory which isP100,000.00.
From the above discussion, we, thus, partly grant the heirs petition.
WHEREFORE, the petition for review on certiorari in G.R. No. 170071 is PARTLY
GRANTED while the petition in G.R. No. 170125 is DENIED. The assailed
Decision and Resolution dated June 29, 2005 and October 12, 2005 of the Court
of Appeals in CA-G.R. CV No. 75602 are AFFIRMED with the MODIFICATIONS that
G & S is ordered to pay the heirs of Jose Marcial K. Ochoa the sum
of P6,611,634.59 for loss of earning capacity of the deceased and P100,000.00
as moral damages.
SO ORDERED.

NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC., vs.

NYK-FILJAPAN SHIPPING CORP., LEP PROFIT INTERNATIONAL, INC.
(ORD), LEP INTERNATIONAL PHILIPPINES, INC., DMT CORP., ADVATECH
INDUSTRIES, INC., MARINA PORT SERVICES, INC., SERBROS CARRIER
CORPORATION, and SEABOARD-EASTERN INSURANCE CO., INC.,
G.R. No. 171468
x ------------------------------------------------- x
NEW WORLD INTERNATIONAL DEVELOPMENT
SEABOARD-EASTERN INSURANCE CO., INC.,
G.R. No. 174241

(PHILS.),

INC.,

vs.

August 24, 2011

x --------------------------------------------------------------------------------------- x
DECISION
ABAD, J.:

These consolidated petitions involve a cargo owners right to recover damages

from the loss of insured goods under the Carriage of Goods by Sea Act and the
Insurance Code.
The Facts and the Case
Petitioner New World International Development (Phils.), Inc. (New World)
bought from DMT Corporation (DMT) through its agent, Advatech Industries,
Inc. (Advatech) three emergency generator sets worth US$721,500.00.
DMT shipped the generator sets by truck from Wisconsin, United
States, to LEP Profit International, Inc. (LEP Profit) in Chicago, Illinois. From
there, the shipment went by train to Oakland, California, where it was loaded
on S/S California Luna V59, owned and operated by NYK Fil-Japan Shipping
Corporation (NYK) for delivery to petitioner New World in Manila. NYK issued a
bill of lading, declaring that it received the goods in good condition.

NYK unloaded the shipment in Hong Kong and transshipped it to S/S ACX Ruby
V/72 that it also owned and operated. On its journey to Manila, however, ACX
Ruby encountered typhoon Kadiang whose captain filed a sea protest on arrival
at the Manila South Harbor on October 5, 1993 respecting the loss and damage
that the goods on board his vessel suffered.
Marina Port Services, Inc. (Marina), the Manila South Harbor arrastre or cargohandling operator, received the shipment on October 7, 1993. Upon inspection
of the three container vans separately carrying the generator sets, two vans
bore signs of external damage while the third van appeared unscathed. The
shipment remained at Pier 3s Container Yard under Marinas care pending
clearance from the Bureau of Customs. Eventually, on October 20, 1993
customs authorities allowed petitioners customs broker, Serbros Carrier
Corporation (Serbros), to withdraw the shipment and deliver the same to
petitioner New Worlds job site in Makati City.
An examination of the three generator sets in the presence of petitioner New
Worlds representatives, Federal Builders (the project contractor) and surveyors
of petitioner New Worlds insurer, SeaboardEastern Insurance Company
(Seaboard), revealed that all three sets suffered extensive damage and could
no longer be repaired. For these reasons, New World demanded recompense for
its loss from respondents NYK, DMT, Advatech, LEP Profit, LEP International
Philippines, Inc. (LEP), Marina, and Serbros. While LEP and NYK acknowledged
receipt of the demand, both denied liability for the loss.
Since Seaboard covered the goods with a marine insurance policy,
petitioner New World sent it a formal claim dated November 16, 1993. Replying
on February 14, 1994, Seaboard required petitioner New World to submit to it
an itemized list of the damaged units, parts, and accessories, with
corresponding values, for the processing of the claim.But petitioner New
World did not submit what was required of it, insisting that the insurance policy
did not include the submission of such a list in connection with an insurance
claim. Reacting to this, Seaboard refused to process the claim.
On October 11, 1994 petitioner New World filed an action for specific
performance and damages against all the respondents before the Regional Trial
Court (RTC) ofMakati City, Branch 62, in Civil Case 94-2770.
On August 16, 2001 the RTC rendered a decision absolving the various
respondents from liability with the exception of NYK. The RTC found that the
generator sets were damaged during transit while in the care of NYKs vessel,
ACX Ruby. The latter failed, according to the RTC, to exercise the degree of
diligence required of it in the face of a foretold raging typhoon in its path.
The RTC ruled, however, that petitioner New World filed its claim against the
vessel owner NYK beyond the one year provided under the Carriage of Goods
by Sea Act (COGSA). New World filed its complaint on October 11, 1994 when
the deadline for filing the action (on or before October 7, 1994) had already
lapsed. The RTC held that the one-year period should be counted from the date
the goods were delivered to the arrastre operator and not from the date they
were delivered to petitioners job site. [1]
As regards petitioner New Worlds claim against Seaboard, its insurer, the RTC
held that the latter cannot be faulted for denying the claim against it since New

World refused to submit the itemized list that Seaboard needed for assessing
the damage to the shipment. Likewise, the belated filing of the complaint
prejudiced Seaboards right to pursue a claim against NYK in the event of
subrogation.
On appeal, the Court of Appeals (CA) rendered judgment on January 31, 2006,
[2]
affirming the RTCs rulings except with respect to Seaboards liability. The CA
held that petitioner New World can still recoup its loss from Seaboards marine
insurance policy, considering a) that the submission of the itemized listing is an
unreasonable imposition and b) that the one-year prescriptive period under the
COGSA did not affect New Worlds right under the insurance policy since it was
the Insurance Code that governed the relation between the insurer and the
insured.
Although petitioner New World promptly filed a petition for review of the CA
decision before the Court in G.R. 171468, Seaboard chose to file a motion for
reconsideration of that decision. On August 17, 2006 the CA rendered an
amended decision, reversing itself as regards the claim against Seaboard. The
CA held that the submission of the itemized listing was a reasonable
requirement that Seaboard asked of New World. Further, the CA held that the
one-year prescriptive period for maritime claims applied to Seaboard, as insurer
and subrogee of New Worlds right against the vessel owner. New Worlds failure
to comply promptly with what was required of it prejudiced such right.
Instead of filing a motion for reconsideration, petitioner instituted a second
petition for review before the Court in G.R. 174241, assailing the CAs amended
decision.
The Issues Presented

But the issue regarding which of the parties to a dispute incurred

negligence is factual and is not a proper subject of a petition for review
on certiorari. And petitioner New World has been unable to make out an
exception to this rule.[3] Consequently, the Court will not disturb the finding of
the RTC, affirmed by the CA, that the generator sets were totally damaged
during the typhoon which beset the vessels voyage from Hong Kong to Manila
and that it was her negligence in continuing with that journey despite the
adverse condition which caused petitioner New Worlds loss.
That the loss was occasioned by a typhoon, an exempting cause under
Article 1734 of the Civil Code, does not automatically relieve the common
carrier of liability. The latter had the burden of proving that the typhoon was the
proximate and only cause of loss and that it exercised due diligence to prevent
or minimize such loss before, during, and after the disastrous typhoon. [4] As
found by the RTC and the CA, NYK failed to discharge this burden.
In G.R. 174241 -One. The Court does not regard as substantial the question of
reasonableness of Seaboards additional requirement of an itemized listing of
the damage that the generator sets suffered. The record shows that
petitioner New World complied with the documentary requirements evidencing
damage to its generator sets.
The marine open policy that Seaboard issued to New World was an allrisk policy. Such a policy insured against all causes of conceivable loss or
damage except when otherwise excluded or when the loss or damage was due
to fraud or intentional misconduct committed by the insured. The policy
covered all losses during the voyage whether or not arising from a marine peril.
[5]

The issues presented in this case are as follows:

a) In G.R. 171468, whether or not the CA erred in affirming the RTCs
release from liability of respondents DMT, Advatech, LEP, LEP Profit, Marina,
and Serbros who were at one time or another involved in handling the
shipment; and
b) In G.R. 174241, 1) whether or not the CA erred in ruling that Seaboards
request from petitioner New World for an itemized list is a reasonable
imposition and did not violate the insurance contract between them; and 2)
whether or not the CA erred in failing to rule that the one-year COGSA
prescriptive period for marine claims does not apply to petitioner New Worlds
prosecution of its claim against Seaboard, its insurer.
The Courts Rulings
In G.R. 171468 -Petitioner New World asserts that the roles of respondents DMT,
Advatech, LEP, LEP Profit, Marina and Serbros in handling and transporting its
shipment fromWisconsin to Manila collectively resulted in the damage to the
same, rendering such respondents solidarily liable with NYK, the vessel owner.

Here, the policy enumerated certain exceptions like unsuitable

packaging, inherent vice, delay in voyage, or vessels unseaworthiness, among
others.[6] But Seaboard had been unable to show that petitioner New Worlds
loss or damage fell within some or one of the enumerated exceptions.
What is more, Seaboard had been unable to explain how it could not
verify the damage that New Worlds goods suffered going by the documents
that it already submitted, namely, (1) copy of the Suppliers Invoice KL2504; (2)
copy of the Packing List; (3) copy of the Bill of Lading 01130E93004458; (4) the
Delivery of Waybill Receipts 1135, 1222, and 1224; (5) original copy of Marine
Insurance Policy MA-HO-000266; (6) copies of Damage Report from Supplier
and Insurance Adjusters; (7) Consumption Report from the Customs Examiner;
and (8) Copies of Received Formal Claim from the following: a) LEP International
Philippines, Inc.; b) Marina Port Services, Inc.; and c) Serbros Carrier
Corporation.[7] Notably, Seaboards own marine surveyor attended the
inspection of the generator sets.
Seaboard cannot pretend that the above documents are inadequate
since they were precisely the documents listed in its insurance policy. [8] Being a
contract of adhesion, an insurance policy is construed strongly against the
insurer who prepared it. The Court cannot read a requirement in the policy that
was not there.

Further, it appears from the exchanges of communications between

Seaboard and Advatech that submission of the requested itemized listing was
incumbent on the latter as the seller DMTs local agent. Petitioner New
World should not be made to suffer for Advatechs shortcomings.
Two. Regarding prescription of claims, Section 3(6) of the COGSA
provides that the carrier and the ship shall be discharged from all liability in
case of loss or damage unless the suit is brought within one year after delivery
of the goods or the date when the goods should have been delivered.
But whose fault was it that the suit against NYK, the common carrier,
was not brought to court on time? The last day for filing such a suit fell on
October 7, 1994. The record shows that petitioner New World filed its formal
claim for its loss with Seaboard, its insurer, a remedy it had the right to take, as
early as November 16, 1993 or about 11 months before the suit against NYK
would have fallen due.
In the ordinary course, if Seaboard had processed that claim and paid
the same, Seaboard would have been subrogated to petitioner New Worlds
right to recover from NYK. And it could have then filed the suit as a
subrogee. But, as discussed above, Seaboard made an unreasonable demand
on February 14, 1994 for an itemized list of the damaged units, parts, and
accessories, with corresponding values when it appeared settled that New
Worlds loss was total and when the insurance policy did not require the
production of such a list in the event of a claim.
Besides, when petitioner New World declined to comply with the
demand for the list, Seaboard against whom a formal claim was pending should
not have remained obstinate in refusing to process that claim. It should have
examined the same, found it unsubstantiated by documents if that were the
case, and formally rejected it. That would have at least given petitioner New
World a clear signal that it needed to promptly file its suit directly against NYK
and the others. Ultimately, the fault for the delayed court suit could be brought
to Seaboards doorstep.
Section 241 of the Insurance Code provides that no insurance company
doing business in the Philippines shall refuse without just cause to pay or settle
claims arising under coverages provided by its policies. And, under Section 243,
the insurer has 30 days after proof of loss is received and ascertainment of the
loss or damage within which to pay the claim. If such ascertainment is not had
within 60 days from receipt of evidence of loss, the insurer has 90 days to pay
or settle the claim. And, in case the insurer refuses or fails to pay within the
prescribed time, the insured shall be entitled to interest on the proceeds of the
policy for the duration of delay at the rate of twice the ceiling prescribed by the
Monetary Board.
Notably, Seaboard already incurred delay when it failed to settle
petitioner New Worlds claim as Section 243 required. Under Section 244,
a prima facie evidence of unreasonable delay in payment of the claim is
created by the failure of the insurer to pay the claim within the time fixed in
Section 243.

Consequently, Seaboard should pay interest on the proceeds of the

policy for the duration of the delay until the claim is fully satisfied at the rate of
twice the ceiling prescribed by the Monetary Board. The term ceiling prescribed
by the Monetary Board means the legal rate of interest of 12% per
annum provided in Central Bank Circular 416, pursuant to Presidential Decree
116.[9] Section 244 of the Insurance Code also provides for an award of
attorneys fees and other expenses incurred by the assured due to the
unreasonable withholding of payment of his claim.
In Prudential Guarantee and Assurance, Inc. v. Trans-Asia Shipping
Lines, Inc.,[10] the Court regarded as proper an award of 10% of the insurance
proceeds as attorneys fees. Such amount is fair considering the length of time
that has passed in prosecuting the claim. [11] Pursuant to the Courts ruling
in Eastern Shipping Lines, Inc. v. Court of Appeals,[12] a 12% interest per
annum from the finality of judgment until full satisfaction of the claim should
likewise be imposed, the interim period equivalent to a forbearance of credit.
Petitioner New World is entitled to the value stated in the policy which
is commensurate to the value of the three emergency generator sets or
US$721,500.00 with double interest plus attorneys fees as discussed above.
WHEREFORE, the Court DENIES the petition in G.R. 171468
and AFFIRMS the Court of Appeals decision of January 31, 2006 insofar as
petitioner New World International Development (Phils.), Inc. is not allowed to
recover against respondents DMT Corporation, Advatech Industries, Inc., LEP
International Philippines, Inc., LEP Profit International, Inc., Marina Port Services,
Inc. and Serbros Carrier Corporation.
With respect to G.R. 174241, the Court GRANTS the petition
and REVERSES and SETS ASIDE the Court of Appeals Amended Decision of
August 17, 2006. The Court DIRECTS Seaboard-Eastern Insurance Company,
Inc. to pay petitioner New World International Development (Phils.), Inc.
US$721,500.00 under Policy MA-HO-000266, with 24% interest per annum for
the duration of delay in accordance with Sections 243 and 244 of the Insurance
Code and attorneys fees equivalent to 10% of the insurance
proceeds. Seaboard shall also pay, from finality of judgment, a 12% interest per
annum on the total amount due to petitioner until its full satisfaction.
SO ORDERED.