Charter Parties

G.R. No. 101503 September 15, 1993

PLANTERS PRODUCTS, INC., petitioner,
vs.
COURT OF APPEALS, SORIAMONT STEAMSHIP AGENCIES AND KYOSEI KISEN KABUSHIKI
KAISHA,respondents.
Gonzales, Sinense, Jimenez & Associates for petitioner.
Siguion Reyna, Montecillo & Ongsiako Law Office for private respondents.

BELLOSILLO, J.:
Does a charter-party 1 between a shipowner and a charterer transform a common carrier into a private one as to negate the
civil law presumption of negligence in case of loss or damage to its cargo?
Planters Products, Inc. (PPI), purchased from Mitsubishi International Corporation (MITSUBISHI) of New York, U.S.A.,
9,329.7069 metric tons (M/T) of Urea 46% fertilizer which the latter shipped in bulk on 16 June 1974 aboard the cargo
vessel M/V "Sun Plum" owned by private respondent Kyosei Kisen Kabushiki Kaisha (KKKK) from Kenai, Alaska,
U.S.A., to Poro Point, San Fernando, La Union, Philippines, as evidenced by Bill of Lading No. KP-1 signed by the
master of the vessel and issued on the date of departure.
On 17 May 1974, or prior to its voyage, a time charter-party on the vessel M/V "Sun Plum" pursuant to the Uniform
General Charter 2 was entered into between Mitsubishi as shipper/charterer and KKKK as shipowner, in Tokyo,
Japan. 3 Riders to the aforesaid charter-party starting from par. 16 to 40 were attached to the pre-printed agreement.
Addenda Nos. 1, 2, 3 and 4 to the charter-party were also subsequently entered into on the 18th, 20th, 21st and 27th of
May 1974, respectively.
Before loading the fertilizer aboard the vessel, four (4) of her holds 4 were all presumably inspected by the charterer's
representative and found fit to take a load of urea in bulk pursuant to par. 16 of the charter-party which reads:
16. . . . At loading port, notice of readiness to be accomplished by certificate from National Cargo Bureau inspector or
substitute appointed by charterers for his account certifying the vessel's readiness to receive cargo spaces. The vessel's
hold to be properly swept, cleaned and dried at the vessel's expense and the vessel to be presented clean for use in bulk to
the satisfaction of the inspector before daytime commences. (emphasis supplied)
After the Urea fertilizer was loaded in bulk by stevedores hired by and under the supervision of the shipper, the steel
hatches were closed with heavy iron lids, covered with three (3) layers of tarpaulin, then tied with steel bonds. The
hatches remained closed and tightly sealed throughout the entire voyage. 5
Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches were opened with the use of the
vessel's boom. Petitioner unloaded the cargo from the holds into its steelbodied dump trucks which were parked alongside
the berth, using metal scoops attached to the ship, pursuant to the terms and conditions of the charter-partly (which
provided for an F.I.O.S. clause). 6 The hatches remained open throughout the duration of the discharge. 7
Each time a dump truck was filled up, its load of Urea was covered with tarpaulin before it was transported to the
consignee's warehouse located some fifty (50) meters from the wharf. Midway to the warehouse, the trucks were made to
pass through a weighing scale where they were individually weighed for the purpose of ascertaining the net weight of the
cargo. The port area was windy, certain portions of the route to the warehouse were sandy and the weather was variable,
raining occasionally while the discharge was in progress. 8 The petitioner's warehouse was made of corrugated galvanized
iron (GI) sheets, with an opening at the front where the dump trucks entered and unloaded the fertilizer on the warehouse
floor. Tarpaulins and GI sheets were placed in-between and alongside the trucks to contain spillages of the ferilizer. 9
It took eleven (11) days for PPI to unload the cargo, from 5 July to 18 July 1974 (except July 12th, 14th and 18th).10 A
private marine and cargo surveyor, Cargo Superintendents Company Inc. (CSCI), was hired by PPI to determine the
"outturn" of the cargo shipped, by taking draft readings of the vessel prior to and after discharge. 11 The survey report
submitted by CSCI to the consignee (PPI) dated 19 July 1974 revealed a shortage in the cargo of 106.726 M/T and that a
portion of the Urea fertilizer approximating 18 M/T was contaminated with dirt. The same results were contained in a
Certificate of Shortage/Damaged Cargo dated 18 July 1974 prepared by PPI which showed that the cargo delivered was
indeed short of 94.839 M/T and about 23 M/T were rendered unfit for commerce, having been polluted with sand, rust

Charter Parties
and
dirt. 12
Consequently, PPI sent a claim letter dated 18 December 1974 to Soriamont Steamship Agencies (SSA), the resident agent
of the carrier, KKKK, for P245,969.31 representing the cost of the alleged shortage in the goods shipped and the
diminution in value of that portion said to have been contaminated with dirt. 13
Respondent SSA explained that they were not able to respond to the consignee's claim for payment because, according to
them, what they received was just a request for shortlanded certificate and not a formal claim, and that this "request" was
denied by them because they "had nothing to do with the discharge of the shipment." 14Hence, on 18 July 1975, PPI filed
an action for damages with the Court of First Instance of Manila. The defendant carrier argued that the strict public policy
governing common carriers does not apply to them because they have become private carriers by reason of the provisions
of the charter-party. The court a quo however sustained the claim of the plaintiff against the defendant carrier for the value
of the goods lost or damaged when it ruled thus: 15
. . . Prescinding from the provision of the law that a common carrier is presumed negligent in case of loss or damage of
the goods it contracts to transport, all that a shipper has to do in a suit to recover for loss or damage is to show receipt by
the carrier of the goods and to delivery by it of less than what it received. After that, the burden of proving that the loss or
damage was due to any of the causes which exempt him from liability is shipted to the carrier, common or private he may
be. Even if the provisions of the charter-party aforequoted are deemed valid, and the defendants considered private
carriers, it was still incumbent upon them to prove that the shortage or contamination sustained by the cargo is attributable
to the fault or negligence on the part of the shipper or consignee in the loading, stowing, trimming and discharge of the
cargo. This they failed to do. By this omission, coupled with their failure to destroy the presumption of negligence against
them, the defendants are liable (emphasis supplied).
On appeal, respondent Court of Appeals reversed the lower court and absolved the carrier from liability for the value of
the cargo that was lost or damaged. 16 Relying on the 1968 case of Home Insurance Co. v. American Steamship Agencies,
Inc., 17 the appellate court ruled that the cargo vessel M/V "Sun Plum" owned by private respondent KKKK was a private
carrier and not a common carrier by reason of the time charterer-party. Accordingly, the Civil Code provisions on common
carriers which set forth a presumption of negligence do not find application in the case at bar. Thus
. . . In the absence of such presumption, it was incumbent upon the plaintiff-appellee to adduce sufficient evidence to
prove the negligence of the defendant carrier as alleged in its complaint. It is an old and well settled rule that if the
plaintiff, upon whom rests the burden of proving his cause of action, fails to show in a satisfactory manner the facts upon
which he bases his claim, the defendant is under no obligation to prove his exception or defense (Moran, Commentaries
on the Rules of Court, Volume 6, p. 2, citing Belen v. Belen, 13 Phil. 202).
But, the record shows that the plaintiff-appellee dismally failed to prove the basis of its cause of action, i.e. the alleged
negligence of defendant carrier. It appears that the plaintiff was under the impression that it did not have to establish
defendant's negligence. Be that as it may, contrary to the trial court's finding, the record of the instant case discloses ample
evidence showing that defendant carrier was not negligent in performing its obligation . . . 18 (emphasis supplied).
Petitioner PPI appeals to us by way of a petition for review assailing the decision of the Court of Appeals. Petitioner
theorizes that the Home Insurance case has no bearing on the present controversy because the issue raised therein is the
validity of a stipulation in the charter-party delimiting the liability of the shipowner for loss or damage to goods cause by
want of due deligence on its part or that of its manager to make the vessel seaworthy in all respects, and not whether the
presumption of negligence provided under the Civil Code applies only to common carriers and not to private
carriers. 19 Petitioner further argues that since the possession and control of the vessel remain with the shipowner, absent
any stipulation to the contrary, such shipowner should made liable for the negligence of the captain and crew. In fine, PPI
faults the appellate court in not applying the presumption of negligence against respondent carrier, and instead shifting
the onus probandi on the shipper to show want of due deligence on the part of the carrier, when he was not even at hand to
witness what transpired during the entire voyage.
As earlier stated, the primordial issue here is whether a common carrier becomes a private carrier by reason of a charterparty; in the negative, whether the shipowner in the instant case was able to prove that he had exercised that degree of
diligence required of him under the law.
It is said that etymology is the basis of reliable judicial decisions in commercial cases. This being so, we find it fitting to
first define important terms which are relevant to our discussion.

Charter Parties
A "charter-party" is defined as a contract by which an entire ship, or some principal part thereof, is let by the owner to
another person for a specified time or use; 20 a contract of affreightment by which the owner of a ship or other vessel lets
the whole or a part of her to a merchant or other person for the conveyance of goods, on a particular voyage, in
consideration of the payment of freight; 21 Charter parties are of two types: (a) contract of affreightment which involves
the use of shipping space on vessels leased by the owner in part or as a whole, to carry goods for others; and, (b) charter
by demise or bareboat charter, by the terms of which the whole vessel is let to the charterer with a transfer to him of its
entire command and possession and consequent control over its navigation, including the master and the crew, who are his
servants. Contract of affreightment may either be time charter, wherein the vessel is leased to the charterer for a fixed
period of time, or voyage charter, wherein the ship is leased for a single voyage. 22 In both cases, the charter-party
provides for the hire of vessel only, either for a determinate period of time or for a single or consecutive voyage, the
shipowner to supply the ship's stores, pay for the wages of the master and the crew, and defray the expenses for the
maintenance of the ship.
Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the Civil Code. 23 The definition
extends to carriers either by land, air or water which hold themselves out as ready to engage in carrying goods or
transporting passengers or both for compensation as a public employment and not as a casual occupation. The distinction
between a "common or public carrier" and a "private or special carrier" lies in the character of the business, such that if
the undertaking is a single transaction, not a part of the general business or occupation, although involving the carriage of
goods for a fee, the person or corporation offering such service is a private carrier. 24
Article 1733 of the New Civil Code mandates that common carriers, by reason of the nature of their business, should
observe extraordinary diligence in the vigilance over the goods they carry. 25 In the case of private carriers, however, the
exercise of ordinary diligence in the carriage of goods will suffice. Moreover, in the case of loss, destruction or
deterioration of the goods, common carriers are presumed to have been at fault or to have acted negligently, and the
burden of proving otherwise rests on them. 26 On the contrary, no such presumption applies to private carriers, for
whosoever alleges damage to or deterioration of the goods carried has the onus of proving that the cause was the
negligence of the carrier.
It is not disputed that respondent carrier, in the ordinary course of business, operates as a common carrier, transporting
goods indiscriminately for all persons. When petitioner chartered the vessel M/V "Sun Plum", the ship captain, its officers
and compliment were under the employ of the shipowner and therefore continued to be under its direct supervision and
control. Hardly then can we charge the charterer, a stranger to the crew and to the ship, with the duty of caring for his
cargo when the charterer did not have any control of the means in doing so. This is evident in the present case considering
that the steering of the ship, the manning of the decks, the determination of the course of the voyage and other technical
incidents of maritime navigation were all consigned to the officers and crew who were screened, chosen and hired by the
shipowner. 27
It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the whole or portion of a
vessel by one or more persons, provided the charter is limited to the ship only, as in the case of a time-charter or voyagecharter. It is only when the charter includes both the vessel and its crew, as in a bareboat or demise that a common carrier
becomes private, at least insofar as the particular voyage covering the charter-party is concerned. Indubitably, a shipowner
in a time or voyage charter retains possession and control of the ship, although her holds may, for the moment, be the
property of the charterer. 28
Respondent carrier's heavy reliance on the case of Home Insurance Co. v. American Steamship Agencies, supra, is
misplaced for the reason that the meat of the controversy therein was the validity of a stipulation in the charter-party
exempting the shipowners from liability for loss due to the negligence of its agent, and not the effects of a special charter
on common carriers. At any rate, the rule in the United States that a ship chartered by a single shipper to carry special
cargo is not a common carrier, 29 does not find application in our jurisdiction, for we have observed that the growing
concern for safety in the transportation of passengers and /or carriage of goods by sea requires a more exacting
interpretation of admiralty laws, more particularly, the rules governing common carriers.
We quote with approval the observations of Raoul Colinvaux, the learned barrister-at-law 30
As a matter of principle, it is difficult to find a valid distinction between cases in which a ship is used to convey the goods
of one and of several persons. Where the ship herself is let to a charterer, so that he takes over the charge and control of
her, the case is different; the shipowner is not then a carrier. But where her services only are let, the same grounds for
imposing a strict responsibility exist, whether he is employed by one or many. The master and the crew are in each case
his servants, the freighter in each case is usually without any representative on board the ship; the same opportunities for
fraud or collusion occur; and the same difficulty in discovering the truth as to what has taken place arises . . .

Charter Parties
In an action for recovery of damages against a common carrier on the goods shipped, the shipper or consignee should first
prove the fact of shipment and its consequent loss or damage while the same was in the possession, actual or constructive,
of the carrier. Thereafter, the burden of proof shifts to respondent to prove that he has exercised extraordinary diligence
required by law or that the loss, damage or deterioration of the cargo was due to fortuitous event, or some other
circumstances inconsistent with its liability. 31
To our mind, respondent carrier has sufficiently overcome, by clear and convincing proof, the prima faciepresumption of
negligence.
The master of the carrying vessel, Captain Lee Tae Bo, in his deposition taken on 19 April 1977 before the Philippine
Consul and Legal Attache in the Philippine Embassy in Tokyo, Japan, testified that before the fertilizer was loaded, the
four (4) hatches of the vessel were cleaned, dried and fumigated. After completing the loading of the cargo in bulk in the
ship's holds, the steel pontoon hatches were closed and sealed with iron lids, then covered with three (3) layers of
serviceable tarpaulins which were tied with steel bonds. The hatches remained close and tightly sealed while the ship was
in transit as the weight of the steel covers made it impossible for a person to open without the use of the ship's boom. 32
It was also shown during the trial that the hull of the vessel was in good condition, foreclosing the possibility of spillage
of the cargo into the sea or seepage of water inside the hull of the vessel. 33 When M/V "Sun Plum" docked at its berthing
place, representatives of the consignee boarded, and in the presence of a representative of the shipowner, the foreman, the
stevedores, and a cargo surveyor representing CSCI, opened the hatches and inspected the condition of the hull of the
vessel. The stevedores unloaded the cargo under the watchful eyes of the shipmates who were overseeing the whole
operation on rotation basis. 34
Verily, the presumption of negligence on the part of the respondent carrier has been efficaciously overcome by the
showing of extraordinary zeal and assiduity exercised by the carrier in the care of the cargo. This was confirmed by
respondent appellate court thus
. . . Be that as it may, contrary to the trial court's finding, the record of the instant case discloses ample evidence showing
that defendant carrier was not negligent in performing its obligations. Particularly, the following testimonies of plaintiffappellee's own witnesses clearly show absence of negligence by the defendant carrier; that the hull of the vessel at the
time of the discharge of the cargo was sealed and nobody could open the same except in the presence of the owner of the
cargo and the representatives of the vessel (TSN, 20 July 1977, p. 14); that the cover of the hatches was made of steel and
it was overlaid with tarpaulins, three layers of tarpaulins and therefore their contents were protected from the weather
(TSN, 5 April 1978, p. 24); and, that to open these hatches, the seals would have to be broken, all the seals were found to
be intact (TSN, 20 July 1977, pp. 15-16) (emphasis supplied).
The period during which private respondent was to observe the degree of diligence required of it as a public carrier began
from the time the cargo was unconditionally placed in its charge after the vessel's holds were duly inspected and passed
scrutiny by the shipper, up to and until the vessel reached its destination and its hull was reexamined by the consignee, but
prior to unloading. This is clear from the limitation clause agreed upon by the parties in the Addendum to the standard
"GENCON" time charter-party which provided for an F.I.O.S., meaning, that the loading, stowing, trimming and
discharge of the cargo was to be done by the charterer, free from all risk and expense to the carrier. 35 Moreover, a
shipowner is liable for damage to the cargo resulting from improper stowage only when the stowing is done by stevedores
employed by him, and therefore under his control and supervision, not when the same is done by the consignee or
stevedores under the employ of the latter. 36
Article 1734 of the New Civil Code provides that common carriers are not responsible for the loss, destruction or
deterioration of the goods if caused by the charterer of the goods or defects in the packaging or in the containers. The
Code of Commerce also provides that all losses and deterioration which the goods may suffer during the transportation by
reason of fortuitous event, force majeure, or the inherent defect of the goods, shall be for the account and risk of the
shipper, and that proof of these accidents is incumbent upon the carrier. 37 The carrier, nonetheless, shall be liable for the
loss and damage resulting from the preceding causes if it is proved, as against him, that they arose through his negligence
or by reason of his having failed to take the precautions which usage has established among careful persons. 38
Respondent carrier presented a witness who testified on the characteristics of the fertilizer shipped and the expected risks
of bulk shipping. Mr. Estanislao Chupungco, a chemical engineer working with Atlas Fertilizer, described Urea as a
chemical compound consisting mostly of ammonia and carbon monoxide compounds which are used as fertilizer. Urea
also contains 46% nitrogen and is highly soluble in water. However, during storage, nitrogen and ammonia do not
normally evaporate even on a long voyage, provided that the temperature inside the hull does not exceed eighty (80)
degrees centigrade. Mr. Chupungco further added that in unloading fertilizer in bulk with the use of a clamped shell,

Charter Parties
losses due to spillage during such operation amounting to one percent (1%) against the bill of lading is deemed "normal"
or "tolerable." The primary cause of these spillages is the clamped shell which does not seal very tightly. Also, the wind
tends to blow away some of the materials during the unloading process.
The dissipation of quantities of fertilizer, or its daterioration in value, is caused either by an extremely high temperature in
its place of storage, or when it comes in contact with water. When Urea is drenched in water, either fresh or saline, some
of its particles dissolve. But the salvaged portion which is in liquid form still remains potent and usable although no
longer saleable in its original market value.
The probability of the cargo being damaged or getting mixed or contaminated with foreign particles was made greater by
the fact that the fertilizer was transported in "bulk," thereby exposing it to the inimical effects of the elements and the
grimy condition of the various pieces of equipment used in transporting and hauling it.
The evidence of respondent carrier also showed that it was highly improbable for sea water to seep into the vessel's holds
during the voyage since the hull of the vessel was in good condition and her hatches were tightly closed and firmly sealed,
making the M/V "Sun Plum" in all respects seaworthy to carry the cargo she was chartered for. If there was loss or
contamination of the cargo, it was more likely to have occurred while the same was being transported from the ship to the
dump trucks and finally to the consignee's warehouse. This may be gleaned from the testimony of the marine and cargo
surveyor of CSCI who supervised the unloading. He explained that the 18 M/T of alleged "bar order cargo" as contained
in their report to PPI was just an approximation or estimate made by them after the fertilizer was discharged from the
vessel and segregated from the rest of the cargo.
The Court notes that it was in the month of July when the vessel arrived port and unloaded her cargo. It rained from time
to time at the harbor area while the cargo was being discharged according to the supply officer of PPI, who also testified
that it was windy at the waterfront and along the shoreline where the dump trucks passed enroute to the consignee's
warehouse.
Indeed, we agree with respondent carrier that bulk shipment of highly soluble goods like fertilizer carries with it the risk
of loss or damage. More so, with a variable weather condition prevalent during its unloading, as was the case at bar. This
is a risk the shipper or the owner of the goods has to face. Clearly, respondent carrier has sufficiently proved the inherent
character of the goods which makes it highly vulnerable to deterioration; as well as the inadequacy of its packaging which
further contributed to the loss. On the other hand, no proof was adduced by the petitioner showing that the carrier was
remise in the exercise of due diligence in order to minimize the loss or damage to the goods it carried.
WHEREFORE, the petition is DISMISSED. The assailed decision of the Court of Appeals, which reversed the trial court,
is AFFIRMED. Consequently, Civil Case No. 98623 of the then Court of the First Instance, now Regional Trial Court, of
Manila should be, as it is hereby DISMISSED.
Costs against petitioner.
SO ORDERED.
Davide, Jr. and Quiason, JJ., concur.
Cruz, J., took no part.
Grio-Aquino, J., is on leave.

G.R. No. 114167 July 12, 1995

Charter Parties
COASTWISE LIGHTERAGE CORPORATION, petitioner,
vs.
COURT OF APPEALS and the PHILIPPINE GENERAL INSURANCE COMPANY, respondents.
RESOLUTION

FRANCISCO, R., J.:

This is a petition for review of a Decision rendered by the Court of Appeals, dated December 17, 1993, affirming Branch
35 of the Regional Trial Court, Manila in holding that herein petitioner is liable to pay herein private respondent the
amount of P700,000.00, plus legal interest thereon, another sum of P100,000.00 as attorney's fees and the cost of the suit.
The factual background of this case is as follows:
Pag-asa Sales, Inc. entered into a contract to transport molasses from the province of Negros to Manila with Coastwise
Lighterage Corporation (Coastwise for brevity), using the latter's dumb barges. The barges were towed in tandem by the
tugboat MT Marica, which is likewise owned by Coastwise.
Upon reaching Manila Bay, while approaching Pier 18, one of the barges, "Coastwise 9", struck an unknown sunken
object. The forward buoyancy compartment was damaged, and water gushed in through a hole "two inches wide and
twenty-two inches long" 1 As a consequence, the molasses at the cargo tanks were contaminated and rendered unfit for
the use it was intended. This prompted the consignee, Pag-asa Sales, Inc. to reject the shipment of molasses as a total loss.
Thereafter, Pag-asa Sales, Inc. filed a formal claim with the insurer of its lost cargo, herein private respondent, Philippine
General Insurance Company (PhilGen, for short) and against the carrier, herein petitioner, Coastwise Lighterage.
Coastwise Lighterage denied the claim and it was PhilGen which paid the consignee, Pag-asa Sales, Inc., the amount of
P700,000.00, representing the value of the damaged cargo of molasses.
In turn, PhilGen then filed an action against Coastwise Lighterage before the Regional Trial Court of Manila, seeking to
recover the amount of P700,000.00 which it paid to Pag-asa Sales, Inc. for the latter's lost cargo. PhilGen now claims to
be subrogated to all the contractual rights and claims which the consignee may have against the carrier, which is presumed
to have violated the contract of carriage.
The RTC awarded the amount prayed for by PhilGen. On Coastwise Lighterage's appeal to the Court of Appeals, the
award was affirmed.
Hence, this petition.
There are two main issues to be resolved herein. First, whether or not petitioner Coastwise Lighterage was transformed
into a private carrier, by virtue of the contract of affreightment which it entered into with the consignee, Pag-asa Sales,
Inc. Corollarily, if it were in fact transformed into a private carrier, did it exercise the ordinary diligence to which a private
carrier is in turn bound? Second, whether or not the insurer was subrogated into the rights of the consignee against the
carrier, upon payment by the insurer of the value of the consignee's goods lost while on board one of the carrier's vessels.
On the first issue, petitioner contends that the RTC and the Court of Appeals erred in finding that it was a common carrier.
It stresses the fact that it contracted with Pag-asa Sales, Inc. to transport the shipment of molasses from Negros Oriental to
Manila and refers to this contract as a "charter agreement". It then proceeds to cite the case of Home Insurance Company
vs. American Steamship Agencies, Inc. 2 wherein this Court held: ". . . a common carrier undertaking to carry a special
cargo or chartered to a special person only becomes a private carrier."
Petitioner's reliance on the aforementioned case is misplaced. In its entirety, the conclusions of the court are as follows:
Accordingly, the charter party contract is one of affreightment over the whole vessel, rather than a demise. As such, the
liability of the shipowner for acts or negligence of its captain and crew, would remain in the absence of stipulation. 3
The distinction between the two kinds of charter parties (i.e. bareboat or demise and contract of affreightment) is more
clearly set out in the case of Puromines, Inc. vs. Court of Appeals, 4 wherein we ruled:
Under the demise or bareboat charter of the vessel, the charterer will generally be regarded as the owner for the voyage or
service stipulated. The charterer mans the vessel with his own people and becomes the owner pro hac vice, subject to
liability to others for damages caused by negligence. To create a demise, the owner of a vessel must completely and

Charter Parties
exclusively relinquish possession, command and navigation thereof to the charterer, anything short of such a complete
transfer is a contract of affreightment (time or voyage charter party) or not a charter party at all.
On the other hand a contract of affreightment is one in which the owner of the vessel leases part or all of its space to haul
goods for others. It is a contract for special service to be rendered by the owner of the vessel and under such contract the
general owner retains the possession, command and navigation of the ship, the charterer or freighter merely having use of
the space in the vessel in return for his payment of the charter hire. . . . .
. . . . An owner who retains possession of the ship though the hold is the property of the charterer, remains liable as carrier
and must answer for any breach of duty as to the care, loading and unloading of the cargo. . . .
Although a charter party may transform a common carrier into a private one, the same however is not true in a contract of
affreightment on account of the aforementioned distinctions between the two.
Petitioner admits that the contract it entered into with the consignee was one of affreightment. 5 We agree. Pag-asa Sales,
Inc. only leased three of petitioner's vessels, in order to carry cargo from one point to another, but the possession,
command and navigation of the vessels remained with petitioner Coastwise Lighterage.
Pursuant therefore to the ruling in the aforecited Puromines case, Coastwise Lighterage, by the contract of affreightment,
was not converted into a private carrier, but remained a common carrier and was still liable as such.
The law and jurisprudence on common carriers both hold that the mere proof of delivery of goods in good order to a
carrier and the subsequent arrival of the same goods at the place of destination in bad order makes for aprima facie case
against the carrier.
It follows then that the presumption of negligence that attaches to common carriers, once the goods it transports are lost,
destroyed or deteriorated, applies to the petitioner. This presumption, which is overcome only by proof of the exercise of
extraordinary diligence, remained unrebutted in this case.
The records show that the damage to the barge which carried the cargo of molasses was caused by its hitting an unknown
sunken object as it was heading for Pier 18. The object turned out to be a submerged derelict vessel. Petitioner contends
that this navigational hazard was the efficient cause of the accident. Further it asserts that the fact that the Philippine
Coastguard "has not exerted any effort to prepare a chart to indicate the location of sunken derelicts within Manila North
Harbor to avoid navigational accidents" 6 effectively contributed to the happening of this mishap. Thus, being unaware of
the hidden danger that lies in its path, it became impossible for the petitioner to avoid the same. Nothing could have
prevented the event, making it beyond the pale of even the exercise of extraordinary diligence.
However, petitioner's assertion is belied by the evidence on record where it appeared that far from having rendered service
with the greatest skill and utmost foresight, and being free from fault, the carrier was culpably remiss in the observance of
its duties.
Jesus R. Constantino, the patron of the vessel "Coastwise 9" admitted that he was not licensed. The Code of Commerce,
which subsidiarily governs common carriers (which are primarily governed by the provisions of the Civil Code) provides:
Art. 609. Captains, masters, or patrons of vessels must be Filipinos, have legal capacity to contract in accordance with
this code, and prove the skill capacity and qualifications necessary to command and direct the vessel, as established by
marine and navigation laws, ordinances or regulations, and must not be disqualified according to the same for the
discharge of the duties of the position. . . .
Clearly, petitioner Coastwise Lighterage's embarking on a voyage with an unlicensed patron violates this rule. It cannot
safely claim to have exercised extraordinary diligence, by placing a person whose navigational skills are questionable, at
the helm of the vessel which eventually met the fateful accident. It may also logically, follow that a person without license
to navigate, lacks not just the skill to do so, but also the utmost familiarity with the usual and safe routes taken by
seasoned and legally authorized ones. Had the patron been licensed, he could be presumed to have both the skill and the
knowledge that would have prevented the vessel's hitting the sunken derelict ship that lay on their way to Pier 18.
As a common carrier, petitioner is liable for breach of the contract of carriage, having failed to overcome the presumption
of negligence with the loss and destruction of goods it transported, by proof of its exercise of extraordinary diligence.
On the issue of subrogation, which petitioner contends as inapplicable in this case, we once more rule against the
petitioner. We have already found petitioner liable for breach of the contract of carriage it entered into with Pag-asa Sales,

Charter Parties
Inc. However, for the damage sustained by the loss of the cargo which petitioner-carrier was transporting, it was not the
carrier which paid the value thereof to Pag-asa Sales, Inc. but the latter's insurer, herein private respondent PhilGen.
Article 2207 of the Civil Code is explicit on this point:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to
the rights of the insured against the wrongdoer or the person who violated the contract. . . .
This legal provision containing the equitable principle of subrogation has been applied in a long line of cases
including Compania Maritima v. Insurance Company of North America; 7 Fireman's Fund Insurance Company v. Jamilla
& Company, Inc., 8 and Pan Malayan Insurance Corporation v. Court of Appeals, 9 wherein this Court explained:
Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured property is destroyed
or damaged through the fault or negligence of a party other than the assured, then the insurer, upon payment to the assured
will be subrogated to the rights of the assured to recover from the wrongdoer to the extent that the insurer has been
obligated to pay. Payment by the insurer to the assured operated as an equitable assignment to the former of all remedies
which the latter may have against the third party whose negligence or wrongful act caused the loss. The right of
subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It
accrues simply upon payment of the insurance claim by the insurer.
Undoubtedly, upon payment by respondent insurer PhilGen of the amount of P700,000.00 to Pag-asa Sales, Inc., the
consignee of the cargo of molasses totally damaged while being transported by petitioner Coastwise Lighterage, the
former was subrogated into all the rights which Pag-asa Sales, Inc. may have had against the carrier, herein petitioner
Coastwise Lighterage.
WHEREFORE, premises considered, this petition is DENIED and the appealed decision affirming the order of Branch 35
of the Regional Trial Court of Manila for petitioner Coastwise Lighterage to pay respondent Philippine General Insurance
Company the "principal amount of P700,000.00 plus interest thereon at the legal rate computed from March 29, 1989, the
date the complaint was filed until fully paid and another sum of P100,000.00 as attorney's fees and costs" 10 is likewise
hereby AFFIRMED
SO ORDERED.
Feliciano, Romero, Melo and Vitug, JJ., concur.

[G.R. No. 102316. June 30, 1997]

Charter Parties
VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY, INC., petitioner, vs. COURT OF APPEALS AND
SEVEN BROTHERS SHIPPING CORPORATION, respondents.
DECISION
PANGANIBAN, J.:
Is a stipulation in a charter party that the (o)wners shall not be responsible for loss, split, short-landing, breakages and any
kind of damages to the cargo[1] valid? This is the main question raised in this petition for review assailing the Decision of
Respondent Court of Appeals[2] in CA-G.R. No. CV-20156 promulgated on October 15, 1991. The Court of Appeals
modified the judgment of the Regional Trial Court of Valenzuela, Metro Manila, Branch 171, the dispositive portion of
which reads:
WHEREFORE, Judgment is hereby rendered ordering South Sea Surety and Insurance Co., Inc. to pay plaintiff the sum
of TWO MILLION PESOS (P2,000,000.00) representing the value of the policy of the lost logs with legal interest thereon
from the date of demand on February 2, 1984 until the amount is fully paid or in the alternative, defendant Seven Brothers
Shipping Corporation to pay plaintiff the amount of TWO MILLION PESOS (P2,000,000.00) representing the value of
lost logs plus legal interest from the date of demand on April 24, 1984 until full payment thereof; the reasonable attorneys
fees in the amount equivalent to five (5) percent of the amount of the claim and the costs of the suit.
Plaintiff is hereby ordered to pay defendant Seven Brothers Shipping Corporation the sum of TWO HUNDRED THIRTY
THOUSAND PESOS (P230,000.00) representing the balance of the stipulated freight charges.
Defendant South Sea Surety and Insurance Companys counterclaim is hereby dismissed.
In its assailed Decision, Respondent Court of Appeals held:
WHEREFORE, the appealed judgment is hereby AFFIRMED except in so far (sic) as the liability of the Seven Brothers
Shipping Corporation to the plaintiff is concerned which is hereby REVERSED and SET ASIDE.[3]
The Facts
The factual antecedents of this case as narrated in the Court of Appeals Decision are as follows:
It appears that on 16 January 1984, plaintiff (Valenzuela Hardwood and Industrial Supply, Inc.) entered into an agreement
with the defendant Seven Brothers (Shipping Corporation) whereby the latter undertook to load on board its vessel M/V
Seven Ambassador the formers lauan round logs numbering 940 at the port of Maconacon, Isabela for shipment to Manila.
On 20 January 1984, plaintiff insured the logs against loss and/or damage with defendant South Sea Surety and Insurance
Co., Inc. for P2,000,000.00 and the latter issued its Marine Cargo Insurance Policy No. 84/24229 for P2,000,000.00 on
said date.
On 24 January 1984, the plaintiff gave the check in payment of the premium on the insurance policy to Mr. Victorio Chua.
In the meantime, the said vessel M/V Seven Ambassador sank on 25 January 1984 resulting in the loss of the plaintiffs
insured logs.
On 30 January 1984, a check for P5,625.00 (Exh. E) to cover payment of the premium and documentary stamps due on
the policy was tendered due to the insurer but was not accepted. Instead, the South Sea Surety and Insurance Co., Inc.
cancelled the insurance policy it issued as of the date of the inception for non-payment of the premium due in accordance
with Section 77 of the Insurance Code.
On 2 February 1984, plaintiff demanded from defendant South Sea Surety and Insurance Co., Inc. the payment of the
proceeds of the policy but the latter denied liability under the policy.Plaintiff likewise filed a formal claim with defendant
Seven Brothers Shipping Corporation for the value of the lost logs but the latter denied the claim.
After due hearing and trial, the court a quo rendered judgment in favor of plaintiff and against defendants. Both
defendants shipping corporation and the surety company appealed.
Defendant-appellant Seven Brothers Shipping Corporation impute (sic) to the court a quo the following assignment of
errors, to wit:

Charter Parties
A. The lower court erred in holding that the proximate cause of the sinking of the vessel Seven Ambassadors, was not due
to fortuitous event but to the negligence of the captain in stowing and securing the logs on board, causing the iron chains
to snap and the logs to roll to the portside.
B. The lower court erred in declaring that the non-liability clause of the Seven Brothers Shipping Corporation from logs
(sic) of the cargo stipulated in the charter party is void for being contrary to public policy invoking article 1745 of the
New Civil Code.
C. The lower court erred in holding defendant-appellant Seven Brothers Shipping Corporation liable in the alternative and
ordering/directing it to pay plaintiff-appellee the amount of two million (P2,000,000.00) pesos representing the value of
the logs plus legal interest from date of demand until fully paid.
D. The lower court erred in ordering defendant-appellant Seven Brothers Shipping Corporation to pay appellee reasonable
attorneys fees in the amount equivalent to 5% of the amount of the claim and the costs of the suit.
E. The lower court erred in not awarding defendant-appellant Seven Brothers Corporation its counter-claim for attorneys
fees.
F. The lower court erred in not dismissing the complaint against Seven Brothers Shipping Corporation.
Defendant-appellant South Sea Surety and Insurance Co., Inc. assigns the following errors:
A. The trial court erred in holding that Victorio Chua was an agent of defendant-appellant South Sea Surety and Insurance
Company, Inc. and likewise erred in not holding that he was the representative of the insurance broker Columbia
Insurance Brokers, Ltd.
B. The trial court erred in holding that Victorio Chua received compensation/commission on the premiums paid on the
policies issued by the defendant-appellant South Sea Surety and Insurance Company, Inc.
C. The trial court erred in not applying Section 77 of the Insurance Code.
D. The trial court erred in disregarding the receipt of payment clause attached to and forming part of the Marine Cargo
Insurance Policy No. 84/24229.
E. The trial court in disregarding the statement of account or bill stating the amount of premium and documentary stamps
to be paid on the policy by the plaintiff-appellee.
F. The trial court erred in disregarding the indorsement of cancellation of the policy due to non-payment of premium and
documentary stamps.
G. The trial court erred in ordering defendant-appellant South Sea Surety and Insurance Company, Inc. to pay plaintiffappellee P2,000,000.00 representing value of the policy with legal interest from 2 February 1984 until the amount is fully
paid,
H. The trial court erred in not awarding to the defendant-appellant the attorneys fees alleged and proven in its
counterclaim.
The primary issue to be resolved before us is whether defendants shipping corporation and the surety company are liable
to the plaintiff for the latters lost logs.[4]
The Court of Appeals affirmed in part the RTC judgment by sustaining the liability of South Sea Surety and Insurance
Company (South Sea), but modified it by holding that Seven Brothers Shipping Corporation (Seven Brothers) was not
liable for the lost cargo.[5] In modifying the RTC judgment, the respondent appellate court ratiocinated thus:
It appears that there is a stipulation in the charter party that the ship owner would be exempted from liability in case of
loss.
The court a quo erred in applying the provisions of the Civil Code on common carriers to establish the liability of the
shipping corporation. The provisions on common carriers should not be applied where the carrier is not acting as such but
as a private carrier.
Under American jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a special person
only, becomes a private carrier.

Charter Parties
As a private carrier, a stipulation exempting the owner from liability even for the negligence of its agent is valid (Home
Insurance Company, Inc. vs. American Steamship Agencies, Inc., 23 SCRA 24).
The shipping corporation should not therefore be held liable for the loss of the logs.[6]
South Sea and herein Petitioner Valenzuela Hardwood and Industrial Supply, Inc. (Valenzuela) filed separate petitions for
review before this Court. In a Resolution dated June 2, 1995, this Court denied the petition of South Sea.[7] There the
Court found no reason to reverse the factual findings of the trial court and the Court of Appeals that Chua was indeed an
authorized agent of South Sea when he received Valenzuelas premium payment for the marine cargo insurance policy
which was thus binding on the insurer.[8]
The Court is now called upon to resolve the petition for review filed by Valenzuela assailing the CA Decision which
exempted Seven Brothers from any liability for the lost cargo.
The Issue
Petitioner Valenzuelas arguments revolve around a single issue: whether or not respondent Court (of Appeals) committed
a reversible error in upholding the validity of the stipulation in the charter party executed between the petitioner and the
private respondent exempting the latter from liability for the loss of petitioners logs arising from the negligence of its
(Seven Brothers) captain.[9]
The Courts Ruling
The petition is not meritorious.
Validity of Stipulation is Lis Mota
The charter party between the petitioner and private respondent stipulated that the (o)wners shall not be responsible for
loss, split, short-landing, breakages and any kind of damages to the cargo.[10] The validity of this stipulation is the lis
mota of this case.
It should be noted at the outset that there is no dispute between the parties that the proximate cause of the sinking of M/V
Seven Ambassadors resulting in the loss of its cargo was the snapping of the iron chains and the subsequent rolling of the
logs to the portside due to the negligence of the captain in stowing and securing the logs on board the vessel and not due
to fortuitous event.[11] Likewise undisputed is the status of Private Respondent Seven Brothers as a private carrier when
it contracted to transport the cargo of Petitioner Valenzuela. Even the latter admits this in its petition.[12]
The trial court deemed the charter party stipulation void for being contrary to public policy,[13] citing Article 1745 of the
Civil Code which provides:
Art. 1745. Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary to public
policy:
(1) That the goods are transported at the risk of the owner or shipper;
(2) That the common carrier will not be liable for any loss, destruction, or deterioration of the goods;
(3) That the common carrier need not observe any diligence in the custody of the goods;
(4) That the common carrier shall exercise a degree of diligence less than that of a good father of a family, or of a man of
ordinary prudence in the vigilance over the movables transported;
(5) That the common carrier shall not be responsible for the acts or omissions of his or its employees;
(6) That the common carriers liability for acts committed by thieves, or of robbers who do not act with grave or irresistible
threat, violence or force, is dispensed with or diminished;
(7) That the common carrier is not responsible for the loss, destruction, or deterioration of goods on account of the
defective condition of the car, vehicle, ship, airplane or other equipment used in the contract of carriage.
Petitioner Valenzuela adds that the stipulation is void for being contrary to Articles 586 and 587 of the Code of
Commerce[14] and Articles 1170 and 1173 of the Civil Code.Citing Article 1306 and paragraph 1, Article 1409 of the
Civil Code,[15] petitioner further contends that said stipulation gives no duty or obligation to the private respondent to
observe the diligence of a good father of a family in the custody and transportation of the cargo."

Charter Parties
The Court is not persuaded. As adverted to earlier, it is undisputed that private respondent had acted as a private carrier in
transporting petitioners lauan logs. Thus, Article 1745 and other Civil Code provisions on common carriers which were
cited by petitioner may not be applied unless expressly stipulated by the parties in their charter party.[16]
In a contract of private carriage, the parties may validly stipulate that responsibility for the cargo rests solely on the
charterer, exempting the shipowner from liability for loss of or damage to the cargo caused even by the negligence of the
ship captain. Pursuant to Article 1306[17] of the Civil Code, such stipulation is valid because it is freely entered into by
the parties and the same is not contrary to law, morals, good customs, public order, or public policy. Indeed, their contract
of private carriage is not even a contract of adhesion. We stress that in a contract of private carriage, the parties may freely
stipulate their duties and obligations which perforce would be binding on them. Unlike in a contract involving a common
carrier, private carriage does not involve the general public. Hence, the stringent provisions of the Civil Code on common
carriers protecting the general public cannot justifiably be applied to a ship transporting commercial goods as a private
carrier. Consequently, the public policy embodied therein is not contravened by stipulations in a charter party that lessen
or remove the protection given by law in contracts involving common carriers.
The issue posed in this case and the arguments raised by petitioner are not novel; they were resolved long ago by this
Court in Home Insurance Co. vs. American Steamship Agencies, Inc.[18] In that case, the trial court similarly nullified a
stipulation identical to that involved in the present case for being contrary to public policy based on Article 1744 of the
Civil Code and Article 587 of the Code of Commerce. Consequently, the trial court held the shipowner liable for damages
resulting from the partial loss of the cargo. This Court reversed the trial court and laid down, through Mr. Justice Jose P.
Bengzon, the following well-settled observation and doctrine:
The provisions of our Civil Code on common carriers were taken from Anglo-American law. Under American
jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a special person only, becomes a
private carrier. As a private carrier, a stipulation exempting the owner from liability for the negligence of its agent is not
against public policy, and is deemed valid.
Such doctrine We find reasonable. The Civil Code provisions on common carriers should not be applied where the carrier
is not acting as such but as a private carrier. The stipulation in the charter party absolving the owner from liability for loss
due to the negligence of its agent would be void only if the strict public policy governing common carriers is
applied. Such policy has no force where the public at large is not involved, as in this case of a ship totally chartered for the
use of a single party.[19] (Underscoring supplied.)
Indeed, where the reason for the rule ceases, the rule itself does not apply. The general public enters into a contract of
transportation with common carriers without a hand or a voice in the preparation thereof. The riding public merely
adheres to the contract; even if the public wants to, it cannot submit its own stipulations for the approval of the common
carrier. Thus, the law on common carriers extends its protective mantle against one-sided stipulations inserted in tickets,
invoices or other documents over which the riding public has no understanding or, worse, no choice. Compared to the
general public, a charterer in a contract of private carriage is not similarly situated. It can -- and in fact it usually does -enter into a free and voluntary agreement. In practice, the parties in a contract of private carriage can stipulate the carriers
obligations and liabilities over the shipment which, in turn, determine the price or consideration of the charter. Thus, a
charterer, in exchange for convenience and economy, may opt to set aside the protection of the law on common
carriers. When the charterer decides to exercise this option, he takes a normal business risk.
Petitioner contends that the rule in Home Insurance is not applicable to the present case because it covers only a
stipulation exempting a private carrier from liability for the negligence of his agent, but it does not apply to a stipulation
exempting a private carrier like private respondent from the negligence of his employee or servant which is the situation
in this case.[20] This contention of petitioner is bereft of merit, for it raises a distinction without any substantive
difference. The case of Home Insurance specifically dealt with the liability of the shipowner for acts or negligence of its
captain and crew[21] and a charter party stipulation which exempts the owner of the vessel from any loss or damage or
delay arising from any other source, even from the neglect or fault of the captain or crew or some other person employed
by the owner on board, for whose acts the owner would ordinarily be liable except for said paragraph.
[22] Undoubtedly, Home Insurance is applicable to the case at bar.
The naked assertion of petitioner that the American rule enunciated in Home Insurance is not the rule in the
Philippines[23] deserves scant consideration. The Court there categorically held that said rule was reasonable and
proceeded to apply it in the resolution of that case. Petitioner miserably failed to show such circumstances or arguments
which would necessitate a departure from a well-settled rule. Consequently, our ruling in said case remains a binding
judicial precedent based on the doctrine of stare decisisand Article 8 of the Civil Code which provides that (j)udicial
decisions applying or interpreting the laws or the Constitution shall form part of the legal system of the Philippines.

Charter Parties
In fine, the respondent appellate court aptly stated that [in the case of] a private carrier, a stipulation exempting the owner
from liability even for the negligence of its agent is valid.[24]
Other Arguments
On the basis of the foregoing alone, the present petition may already be denied; the Court, however, will discuss the other
arguments of petitioner for the benefit and satisfaction of all concerned.
Articles 586 and 587, Code of Commerce
Petitioner Valenzuela insists that the charter party stipulation is contrary to Articles 586 and 587 of the Code of Commerce
which confer on petitioner the right to recover damages from the shipowner and ship agent for the acts or conduct of the
captain.[25] We are not persuaded. Whatever rights petitioner may have under the aforementioned statutory provisions
were waived when it entered into the charter party.
Article 6 of the Civil Code provides that (r)ights may be waived, unless the waiver is contrary to law, public order, public
policy, morals, or good customs, or prejudicial to a person with a right recognized by law. As a general rule patrimonial
rights may be waived as opposed to rights to personality and family rights which may not be made the subject of waiver.
[26] Being patently and undoubtedly patrimonial, petitioners right conferred under said articles may be waived. This, the
petitioner did by acceding to the contractual stipulation that it is solely responsible for any damage to the cargo, thereby
exempting the private carrier from any responsibility for loss or damage thereto.Furthermore, as discussed above, the
contract of private carriage binds petitioner and private respondent alone; it is not imbued with public policy
considerations for the general public or third persons are not affected thereby.
Articles 1170 and 1173, Civil Code
Petitioner likewise argues that the stipulation subject of this controversy is void for being contrary to Articles 1170 and
1173 of the Civil Code[27] which read:
Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in
any manner contravene the tenor thereof, are liable for damages
Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature
of the obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence
shows bad faith, the provisions of articles 1171 and 2201, shall apply.
If the law does not state the diligence which is to be observed in the performance, that which is expected of a good father
of a family shall be required.
The Court notes that the foregoing articles are applicable only to the obligor or the one with an obligation to perform. In
the instant case, Private Respondent Seven Brothers is not an obligor in respect of the cargo, for this obligation to bear the
loss was shifted to petitioner by virtue of the charter party. This shifting of responsibility, as earlier observed, is not
void. The provisions cited by petitioner are, therefore, inapplicable to the present case.
Moreover, the factual milieu of this case does not justify the application of the second paragraph of Article 1173 of the
Civil Code which prescribes the standard of diligence to be observed in the event the law or the contract is silent. In the
instant case, Article 362 of the Code of Commerce[28] provides the standard of ordinary diligence for the carriage of
goods by a carrier. The standard of diligence under this statutory provision may, however, be modified in a contract of
private carriage as the petitioner and private respondent had done in their charter party.
Cases Cited by Petitioner Inapplicable
Petitioner cites Shewaram vs. Philippine Airlines, Inc.[29] which, in turn, quoted Juan Ysmael & Co. vs. Gabino Barreto
& Co.[30] and argues that the public policy considerations stated there vis--vis contractual stipulations limiting the
carriers liability be applied with equal force to this case.[31] It also cites Manila Railroad Co. vs. Compaia
Transatlantica[32] and contends that stipulations exempting a party from liability for damages due to negligence should
not be countenanced and should be strictly construed against the party claiming its benefit.[33] We disagree.
The cases of Shewaram and Ysmael both involve a common carrier; thus, they necessarily justify the application of such
policy considerations and concomitantly stricter rules. As already discussed above, the public policy considerations
behind the rigorous treatment of common carriers are absent in the case of private carriers. Hence, the stringent laws
applicable to common carriers are not applied to private carriers. The case of Manila Railroad is also inapplicable because

Charter Parties
the action for damages there does not involve a contract for transportation. Furthermore, the defendant therein made a
promise to use due care in the lifting operations and, consequently, it was bound by its undertaking; besides, the
exemption was intended to cover accidents due to hidden defects in the apparatus or other unforseeable occurrences not
caused by its personal negligence. This promise was thus construed to make sense together with the stipulation against
liability for damages.[34] In the present case, we stress that the private respondent made no such promise. The agreement
of the parties to exempt the shipowner from responsibility for any damage to the cargo and place responsibility over the
same to petitioner is the lone stipulation considered now by this Court.
Finally, petitioner points to Standard Oil Co. of New York vs. Lopez Costelo,[35] Walter A. Smith & Co. vs. Cadwallader
Gibson Lumber Co.,[36] N. T. Hashim and Co. vs. Rocha and Co.,[37] Ohta Development Co. vs.
SteamshipPompey[38] and Limpangco Sons vs. Yangco Steamship Co.[39] in support of its contention that the shipowner
be held liable for damages.[40] These however are not on all fours with the present case because they do not involve a
similar factual milieu or an identical stipulation in the charter party expressly exempting the shipowner from
responsibility for any damage to the cargo.
Effect of the South Sea Resolution
In its memorandum, Seven Brothers argues that petitioner has no cause of action against it because this Court has earlier
affirmed the liability of South Sea for the loss suffered by petitioner. Private respondent submits that petitioner is not
legally entitled to collect twice for a single loss.[41] In view of the above disquisition upholding the validity of the
questioned charter party stipulation and holding that petitioner may not recover from private respondent, the present issue
is moot and academic. It suffices to state that the Resolution of this Court dated June 2, 1995[42] affirming the liability of
South Sea does not, by itself, necessarily preclude the petitioner from proceeding against private respondent. An
aggrieved party may still recover the deficiency from the person causing the loss in the event the amount paid by the
insurance company does not fully cover the loss. Article 2207 of the Civil Code provides:
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. 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.
WHEREFORE, premises considered, the petition is hereby DENIED for its utter failure to show any reversible error on
the part of Respondent Court. The assailed Decision is AFFIRMED.
SO ORDERED.
Narvasa, C.J., (Chairman), Davide, Jr., Melo, and Francisco, JJ., concur.

[G.R. No. 131166. September 30, 1999]

CALTEX (PHILIPPINES), INC. petitioner, vs. SULPICIO LINES, INC., GO SIOC SO, ENRIQUE S. GO,
EUSEBIO S. GO, CARLOS S. GO, VICTORIANO S. GO, DOMINADOR S. GO, RICARDO S. GO, EDWARD S.
GO, ARTURO S. GO, EDGAR S. GO, EDMUND S. GO, FRANCISCO SORIANO, VECTOR SHIPPING
CORPORATION, TERESITA G. CAEZAL AND SOTERA E. CAEZAL, respondents.
DECISION

Charter Parties
PARDO, J.:
Is the charterer of a sea vessel liable for damages resulting from a collision between the chartered vessel and a passenger
ship?
When MT Vector left the port of Limay, Bataan, on December 19, 1987 carrying petroleum products of Caltex
(Philippines), Inc. (hereinafter Caltex) no one could have guessed that it would collide with MV Doa Paz, killing almost
all the passengers and crew members of both ships, and thus resulting in one of the countrys worst maritime disasters.
The petition before us seeks to reverse the Court of Appeals decision[1]holding petitioner jointly liable with the operator
of MT Vector for damages when the latter collided with Sulpicio Lines, Inc.s passenger ship MV Doa Paz.
The facts are as follows:
On December 19, 1987, motor tanker MT Vector left Limay, Bataan, at about 8:00 p.m., enroute to Masbate, loaded with
8,800 barrels of petroleum products shipped by petitioner Caltex.[2]MT Vector is a tramping motor tanker owned and
operated by Vector Shipping Corporation, engaged in the business of transporting fuel products such as gasoline,
kerosene, diesel and crude oil.During that particular voyage, the MT Vector carried on board gasoline and other oil
products owned by Caltex by virtue of a charter contract between them.[3]
On December 20, 1987, at about 6:30 a.m., the passenger ship MV Doa Paz left the port of Tacloban headed for Manila
with a complement of 59 crew members including the master and his officers, and passengers totaling 1,493 as indicated
in the Coast Guard Clearance.[4] The MV Doa Paz is a passenger and cargo vessel owned and operated by Sulpicio Lines,
Inc. plying the route of Manila/ Tacloban/ Catbalogan/ Manila/ Catbalogan/ Tacloban/ Manila, making trips twice a week.
At about 10:30 p.m. of December 20, 1987, the two vessels collided in the open sea within the vicinity of Dumali Point
between Marinduque and Oriental Mindoro. All the crewmembers of MV Doa Paz died, while the two survivors from MT
Vector claimed that they were sleeping at the time of the incident.
The MV Doa Paz carried an estimated 4,000 passengers; many indeed, were not in the passenger manifest. Only 24
survived the tragedy after having been rescued from the burning waters by vessels that responded to distress calls.
[5] Among those who perished were public school teacher Sebastian Caezal (47 years old) and his daughter Corazon
Caezal (11 years old), both unmanifested passengers but proved to be on board the vessel.
On March 22, 1988, the board of marine inquiry in BMI Case No. 653-87 after investigation found that the MT Vector, its
registered operator Francisco Soriano, and its owner and actual operator Vector Shipping Corporation, were at fault and
responsible for its collision with MV Doa Paz.[6]
On February 13, 1989, Teresita Caezal and Sotera E. Caezal, Sebastian Caezals wife and mother respectively, filed with
the Regional Trial Court, Branch 8, Manila, a complaint for Damages Arising from Breach of Contract of Carriage against
Sulpicio Lines, Inc. (hereafter Sulpicio). Sulpicio, in turn, filed a third party complaint against Francisco Soriano, Vector
Shipping Corporation and Caltex (Philippines), Inc. Sulpicio alleged that Caltex chartered MT Vector with gross and
evident bad faith knowing fully well that MT Vector was improperly manned, ill-equipped, unseaworthy and a hazard to
safe navigation; as a result, it rammed against MV Doa Paz in the open sea setting MT Vectors highly flammable cargo
ablaze.
On September 15, 1992, the trial court rendered decision dismissing the third party complaint against petitioner. The
dispositive portion reads:
WHEREFORE, judgement is hereby rendered in favor of plaintiffs and against defendant-3rd party plaintiff Sulpicio
Lines, Inc., to wit:
1. For the death of Sebastian E. Caezal and his 11-year old daughter Corazon G. Caezal, including loss of future earnings
of said Sebastian, moral and exemplary damages, attorneys fees, in the total amount of P 1,241,287.44 and finally;
2. The statutory costs of the proceedings.
Likewise, the 3rd party complaint is hereby DISMISSED for want of substantiation and with costs against the 3rd party
plaintiff.
IT IS SO ORDERED.
DONE IN MANILA, this 15th day of September 1992.

Charter Parties
ARSENIO M. GONONG
Judge[7]
On appeal to the Court of Appeals interposed by Sulpicio Lines, Inc., on April 15, 1997, the Court of Appeal modified the
trial courts ruling and included petitioner Caltex as one of the those liable for damages. Thus:
WHEREFORE, in view of all the foregoing, the judgment rendered by the Regional Trial Court is hereby MODIFIED as
follows:
WHEREFORE, defendant Sulpicio Lines, Inc., is ordered to pay the heirs of Sebastian E. Caezal and Corazon Caezal:
1. Compensatory damages for the death of Sebastian E.Caezal and Corazon Caezal the total amount of ONE HUNDRED
THOUSAND PESOS (P100,000);
2. Compensatory damages representing the unearned income of Sebastian E. Caezal, in the total amount of THREE
HUNDRED SIX THOUSAND FOUR HUNDRED EIGHTY (P306,480.00) PESOS;
3. Moral damages in the amount of THREE HUNDRED THOUSAND PESOS (P 300,000.00);
4. Attorneys fees in the concept of actual damages in the amount of FIFTY THOUSAND PESOS (P 50,000.00);
5. Costs of the suit.
Third party defendants Vector Shipping Co. and Caltex (Phils.), Inc. are held equally liable under the third party complaint
to reimburse/indemnify defendant Sulpicio Lines, Inc. of the above-mentioned damages, attorneys fees and costs which
the latter is adjudged to pay plaintiffs, the same to be shared half by Vector Shipping Co. (being the vessel at fault for the
collision) and the other half by Caltex (Phils.), Inc. (being the charterer that negligently caused the shipping of
combustible cargo aboard an unseaworthy vessel).
SO ORDERED.
JORGE S. IMPERIAL
Associate Justice
WE CONCUR:
RAMON U. MABUTAS. JR. PORTIA ALIO HERMACHUELOS
Associate Justice Associate Justice[8]
Hence, this petition.
We find the petition meritorious.
First: The charterer has no liability for damages under Philippine Maritime laws.
The respective rights and duties of a shipper and the carrier depends not on whether the carrier is public or private, but on
whether the contract of carriage is a bill of lading or equivalent shipping documents on the one hand, or a charter party or
similar contract on the other.[9]
Petitioner and Vector entered into a contract of affreightment, also known as a voyage charter.[10]
A charter party is a contract by which an entire ship, or some principal part thereof, is let by the owner to another person
for a specified time or use; a contract of affreightment is one by which the owner of a ship or other vessel lets the whole or
part of her to a merchant or other person for the conveyance of goods, on a particular voyage, in consideration of the
payment of freight.[11]
A contract of affreightment may be either time charter, wherein the leased vessel is leased to the charterer for a fixed
period of time, or voyage charter, wherein the ship is leased for a single voyage. In both cases, the charter-party provides
for the hire of the vessel only, either for a determinate period of time or for a single or consecutive voyage, the ship owner
to supply the ships store, pay for the wages of the master of the crew, and defray the expenses for the maintenance of the
ship.[12]

Charter Parties
Under a demise or bareboat charter on the other hand, the charterer mans the vessel with his own people and becomes, in
effect, the owner for the voyage or service stipulated, subject to liability for damages caused by negligence.
If the charter is a contract of affreightment, which leaves the general owner in possession of the ship as owner for the
voyage, the rights and the responsibilities of ownership rest on the owner. The charterer is free from liability to third
persons in respect of the ship.[13]
Second : MT Vector is a common carrier
Charter parties fall into three main categories: (1) Demise or bareboat, (2) time charter, (3) voyage charter. Does a charter
party agreement turn the common carrier into a private one? We need to answer this question in order to shed light on the
responsibilities of the parties.
In this case, the charter party agreement did not convert the common carrier into a private carrier. The parties entered into
a voyage charter, which retains the character of the vessel as a common carrier.
In Planters Products, Inc. vs. Court of Appeals,[14] we said:
It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the whole or portion of a
vessel by one or more persons, provided the charter is limited to the ship only, as in the case of a time-charter or voyage
charter. It is only when the charter includes both the vessel and its crew, as in a bareboat or demise that a common carrier
becomes private, at least insofar as the particular voyage covering the charter-party is concerned. Indubitably, a shipowner in a time or voyage charter retains possession and control of the ship, although her holds may, for the moment, be
the property of the charterer.
Later, we ruled in Coastwise Lighterage Corporation vs. Court of Appeals:[15]
Although a charter party may transform a common carrier into a private one, the same however is not true in a contract of
affreightment xxx
A common carrier is a person or corporation whose regular business is to carry passengers or property for all persons who
may choose to employ and to remunerate him.[16] MT Vector fits the definition of a common carrier under Article 1732
of the Civil Code. In Guzman vs. Court of Appeals,[17] we ruled:
The Civil Code defines common carriers in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or
transporting passengers for passengers or goods or both, by land, water, or air for compensation, offering their services to
the public.
The above article makes no distinction between one whose principal business activity is the carrying of persons or goods
or both, and one who does such carrying only as an ancillary activity (in local idiom, as a sideline). Article 1732 also
carefully avoids making any distinction between a person or enterprise offering transportation service on a regular or
scheduled basis and one offering such services on a an occasional, episodic or unscheduled basis. Neither does Article
1732 distinguish between a carrier offering its services to the general public, i.e., the general community or population,
and one who offers services or solicits business only from a narrow segment of the general population. We think that
Article 1733 deliberately refrained from making such distinctions.
It appears to the Court that private respondent is properly characterized as a common carrier even though he merely backhauled goods for other merchants from Manila to Pangasinan, although such backhauling was done on a periodic,
occasional rather than regular or scheduled manner, and even though respondents principal occupation was not the
carriage of goods for others. There is no dispute that private respondent charged his customers a fee for hauling their
goods; that the fee frequently fell below commercial freight rates is not relevant here.
Under the Carriage of Goods by Sea Act :
Sec. 3. (1) The carrier shall be bound before and at the beginning of the voyage to exercise due diligence to (a) Make the ship seaworthy;
(b) Properly man, equip, and supply the ship;
xxx xxx xxx

Charter Parties
Thus, the carriers are deemed to warrant impliedly the seaworthiness of the ship. For a vessel to be seaworthy, it must be
adequately equipped for the voyage and manned with a sufficient number of competent officers and crew. The failure of a
common carrier to maintain in seaworthy condition the vessel involved in its contract of carriage is a clear breach of its
duty prescribed in Article 1755 of the Civil Code.[18]
The provisions owed their conception to the nature of the business of common carriers. This business is impressed with a
special public duty. The public must of necessity rely on the care and skill of common carriers in the vigilance over the
goods and safety of the passengers, especially because with the modern development of science and invention,
transportation has become more rapid, more complicated and somehow more hazardous.[19] For these reasons, a
passenger or a shipper of goods is under no obligation to conduct an inspection of the ship and its crew, the carrier being
obliged by law to impliedly warrant its seaworthiness.
This aside, we now rule on whether Caltex is liable for damages under the Civil Code.
Third: Is Caltex liable for damages under the Civil Code?
We rule that it is not.
Sulpicio argues that Caltex negligently shipped its highly combustible fuel cargo aboard an unseaworthy vessel such as
the MT Vector when Caltex:
1. Did not take steps to have M/T Vectors certificate of inspection and coastwise license renewed;
2. Proceeded to ship its cargo despite defects found by Mr. Carlos Tan of Bataan Refinery Corporation;
3. Witnessed M/T Vector submitting fake documents and certificates to the Philippine Coast Guard.
Sulpicio further argues that Caltex chose MT Vector to transport its cargo despite these deficiencies:
1. The master of M/T Vector did not posses the required Chief Mate license to command and navigate the vessel;
2. The second mate, Ronaldo Tarife, had the license of a Minor Patron, authorized to navigate only in bays and rivers
when the subject collision occurred in the open sea;
3. The Chief Engineer, Filoteo Aguas, had no license to operate the engine of the vessel;
4. The vessel did not have a Third Mate, a radio operator and a lookout; and
5. The vessel had a defective main engine.[20]
As basis for the liability of Caltex, the Court of Appeals relied on Articles 20 and 2176 of the Civil Code, which provide:
Article 20. - Every person who contrary to law, willfully or negligently causes damage to another, shall indemnify the
latter for the same.
Article 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.
And what is negligence?
The Civil Code provides:
Article 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the
nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. When
negligence shows bad faith, the provisions of Article 1171 and 2201 paragraph 2, shall apply.
If the law does not state the diligence which is to be observed in the performance, that which is expected of a good father
of a family shall be required.
In Southeastern College, Inc. vs. Court of Appeals,[21] we said that negligence, as commonly understood, is conduct
which naturally or reasonably creates undue risk or harm to others. It may be the failure to observe that degree of care,
precaution, and vigilance, which the circumstances justly demand, or the omission to do something which ordinarily
regulate the conduct of human affairs, would do.

Charter Parties
The charterer of a vessel has no obligation before transporting its cargo to ensure that the vessel it chartered complied with
all legal requirements. The duty rests upon the common carrier simply for being engaged in public service.[22] The Civil
Code demands diligence which is required by the nature of the obligation and that which corresponds with the
circumstances of the persons, the time and the place. Hence, considering the nature of the obligation between Caltex and
MT Vector, the liability as found by the Court of Appeals is without basis.
The relationship between the parties in this case is governed by special laws. Because of the implied warranty of
seaworthiness,[23] shippers of goods, when transacting with common carriers, are not expected to inquire into the vessels
seaworthiness, genuineness of its licenses and compliance with all maritime laws. To demand more from shippers and
hold them liable in case of failure exhibits nothing but the futility of our maritime laws insofar as the protection of the
public in general is concerned. By the same token, we cannot expect passengers to inquire every time they board a
common carrier, whether the carrier possesses the necessary papers or that all the carriers employees are qualified. Such a
practice would be an absurdity in a business where time is always of the essence. Considering the nature of transportation
business, passengers and shippers alike customarily presume that common carriers possess all the legal requisites in its
operation.
Thus, the nature of the obligation of Caltex demands ordinary diligence like any other shipper in shipping his cargoes.
A cursory reading of the records convinces us that Caltex had reasons to believe that MT Vector could legally transport
cargo that time of the year.
Atty. Poblador: Mr. Witness, I direct your attention to this portion here containing the entries here under VESSELS
DOCUMENTS
1. Certificate of Inspection No. 1290-85, issued December 21, 1986, and Expires December 7, 1987, Mr. Witness, what
steps did you take regarding the impending expiry of the C.I. or the Certificate of Inspection No. 1290-85 during the
hiring of MT Vector?
Apolinar Ng: At the time when I extended the Contract, I did nothing because the tanker has a valid C.I. which will expire
on December 7, 1987 but on the last week of November, I called the attention of Mr. Abalos to ensure that the C.I. be
renewed and Mr. Abalos, in turn, assured me they will renew the same.
Q: What happened after that?
A: On the first week of December, I again made a follow-up from Mr. Abalos, and said they were going to send me a copy
as soon as possible, sir.[24]
xxx xxx xxx
Q: What did you do with the C.I.?
A: We did not insist on getting a copy of the C.I. from Mr. Abalos on the first place, because of our long business relation,
we trust Mr. Abalos and the fact that the vessel was able to sail indicates that the documents are in order. xxx[25]
On cross examination Atty. Sarenas: This being the case, and this being an admission by you, this Certificate of Inspection has expired on
December 7. Did it occur to you not to let the vessel sail on that day because of the very approaching date of expiration?
Apolinar Ng: No sir, because as I said before, the operation Manager assured us that they were able to secure a renewal of
the Certificate of Inspection and that they will in time submit us a copy.[26]
Finally, on Mr. Ngs redirect examination:
Atty. Poblador: Mr. Witness, were you aware of the pending expiry of the Certificate of Inspection in the coastwise license
on December 7, 1987. What was your assurance for the record that this document was renewed by the MT Vector?
Atty. Sarenas: xxx
Atty. Poblador: The certificate of Inspection?

Charter Parties
A: As I said, firstly, we trusted Mr. Abalos as he is a long time business partner; secondly, those three years, they were
allowed to sail by the Coast Guard. That are some that make me believe that they in fact were able to secure the necessary
renewal.
Q: If the Coast Guard clears a vessel to sail, what would that mean?
Atty. Sarenas: Objection.
Court: He already answered that in the cross examination to the effect that if it was allowed, referring to MV Vector, to
sail, where it is loaded and that it was scheduled for a destination by the Coast Guard, it means that it has Certificate of
Inspection extended as assured to this witness by Restituto Abalos. That in no case MV Vector will be allowed to sail if
the Certificate of Inspection is, indeed, not to be extended. That was his repeated explanation to the crossexamination. So, there is no need to clarify the same in the re-direct examination.[27]
Caltex and Vector Shipping Corporation had been doing business since 1985, or for about two years before the tragic
incident occurred in 1987. Past services rendered showed no reason for Caltex to observe a higher degree of diligence.
Clearly, as a mere voyage charterer, Caltex had the right to presume that the ship was seaworthy as even the Philippine
Coast Guard itself was convinced of its seaworthiness. All things considered, we find no legal basis to hold petitioner
liable for damages.
As Vector Shipping Corporation did not appeal from the Court of Appeals decision, we limit our ruling to the liability of
Caltex alone. However, we maintain the Court of Appeals ruling insofar as Vector is concerned .
WHEREFORE, the Court hereby GRANTS the petition and SETS ASIDE the decision of the Court of Appeals in CA-G.
R. CV No. 39626, promulgated on April 15, 1997, insofar as it held Caltex liable under the third party complaint to
reimburse/indemnify defendant Sulpicio Lines, Inc. the damages the latter is adjudged to pay plaintiffs-appellees. The
Court AFFIRMS the decision of the Court of Appeals insofar as it orders Sulpicio Lines, Inc. to pay the heirs of Sebastian
E. Caezal and Corazon Caezal damages as set forth therein. Third-party defendant-appellee Vector Shipping Corporation
and Francisco Soriano are held liable to reimburse/indemnify defendant Sulpicio Lines, Inc. whatever damages, attorneys
fees and costs the latter is adjudged to pay plaintiffs-appellees in the case.
No costs in this instance.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Kapunan, and Ynares-Santiago, JJ., concur.
Puno, J., took no part due to close relation with a party.