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G.R. No.

74811 September 30, 1988

CHUA YEK HONG, petitioner,


vs.
INTERMEDIATE APPELLATE COURT, MARIANO GUNO, and DOMINADOR
OLIT, respondents.

Francisco D. Estrada for petitioner.

Purita Hontanosas-Cortes for private respondents.

MELENCIO-HERRERA, J.:

In this Petition for Review on certiorari petitioner seeks to set aside the Decision of
respondent Appellate Court in AC G.R. No. 01375 entitled "Chua Yek Hong vs. Mariano
Guno, et al.," promulgated on 3 April 1986, reversing the Trial Court and relieving private
respondents (defendants below) of any liability for damages for loss of cargo.

The basic facts are not disputed:

Petitioner is a duly licensed copra dealer based at Puerta Galera, Oriental Mindoro, while
private respondents are the owners of the vessel, "M/V Luzviminda I," a common carrier
engaged in coastwise trade from the different ports of Oriental Mindoro to the Port of
Manila.

In October 1977, petitioner loaded 1,000 sacks of copra, valued at P101,227.40, on board
the vessel "M/V Luzviminda I" for shipment from Puerta Galera, Oriental Mindoro, to Manila.
Said cargo, however, did not reach Manila because somewhere between Cape Santiago
and Calatagan, Batangas, the vessel capsized and sank with all its cargo.

On 30 March 1979, petitioner instituted before the then Court of First Instance of Oriental
Mindoro, a Complaint for damages based on breach of contract of carriage against private
respondents (Civil Case No. R-3205).

In their Answer, private respondents averred that even assuming that the alleged cargo was
truly loaded aboard their vessel, their liability had been extinguished by reason of the total
loss of said vessel.

On 17 May 1983, the Trial Court rendered its Decision, the dispositive portion of which
follows:

WHEREFORE, in view of the foregoing considerations, the court believes and


so holds that the preponderance of evidence militates in favor of the plaintiff
and against the defendants by ordering the latter, jointly and severally, to pay
the plaintiff the sum of P101,227.40 representing the value of the cargo
belonging to the plaintiff which was lost while in the custody of the
defendants; P65,550.00 representing miscellaneous expenses of plaintiff on
said lost cargo; attorney's fees in the amount of P5,000.00, and to pay the
costs of suit. (p. 30, Rollo).

On appeal, respondent Appellate Court ruled to the contrary when it applied Article 587 of
the Code of Commerce and the doctrine in Yangco vs. Lasema (73 Phil. 330 [1941]) and
held that private respondents' liability, as ship owners, for the loss of the cargo is merely co-
extensive with their interest in the vessel such that a total loss thereof results in its
extinction. The decretal portion of that Decision 1 reads:

IN VIEW OF THE FOREGOING CONSIDERATIONS, the decision appealed


from is hereby REVERSED, and another one entered dismissing the
complaint against defendants-appellants and absolving them from any and all
liabilities arising from the loss of 1,000 sacks of copra belonging to plaintiff-
appellee. Costs against appellee.
(p. 19, Rollo).

Unsuccessful in his Motion for Reconsideration of the aforesaid Decision, petitioner has
availed of the present recourse.

The basic issue for resolution is whether or not respondent Appellate Court erred in
applying the doctrine of limited liability under Article 587 of the Code of Commerce as
expounded in Yangco vs. Laserna, supra.

Article 587 of the Code of Commerce provides:

Art. 587. The ship agent shall also be civilly liable for the indemnities in favor
of third persons which may arise from the conduct of the captain in the care of
the goods which he loaded on the vessel; but he may exempt himself
therefrom by abandoning the vessel with all the equipments and the freight it
may have earned during the voyage.

The term "ship agent" as used in the foregoing provision is broad enough to include the ship
owner (Standard Oil Co. vs. Lopez Castelo, 42 Phil. 256 [1921]). Pursuant to said provision,
therefore, both the ship owner and ship agent are civilly and directly liable for the
indemnities in favor of third persons, which may arise from the conduct of the captain in the
care of goods transported, as well as for the safety of passengers transported Yangco vs.
Laserna, supra; Manila Steamship Co., Inc. vs. Abdulhaman et al., 100 Phil. 32 [1956]).

However, under the same Article, this direct liability is moderated and limited by the ship
agent's or ship owner's right of abandonment of the vessel and earned freight. This
expresses the universal principle of limited liability under maritime law. The most
fundamental effect of abandonment is the cessation of the responsibility of the ship
agent/owner (Switzerland General Insurance Co., Ltd. vs. Ramirez, L-48264, February 21,
1980, 96 SCRA 297). It has thus been held that by necessary implication, the ship agent's
or ship owner's liability is confined to that which he is entitled as of right to abandon the
vessel with all her equipment and the freight it may have earned during the voyage," and "to
the insurance thereof if any" (Yangco vs. Lasema, supra). In other words, the ship owner's
or agent's liability is merely co-extensive with his interest in the vessel such that a total loss
thereof results in its extinction. "No vessel, no liability" expresses in a nutshell the limited
liability rule. The total destruction of the vessel extinguishes maritime liens as there is no
longer any res to which it can attach (Govt. Insular Maritime Co. vs. The Insular Maritime,
45 Phil. 805, 807 [1924]).

As this Court held:

If the ship owner or agent may in any way be held civilly liable at all for injury
to or death of passengers arising from the negligence of the captain in cases
of collisions or shipwrecks, his liability is merely co-extensive with his interest
in the vessel such that a total loss thereof results in its extinction. (Yangco vs.
Laserna, et al., supra).

The rationale therefor has been explained as follows:

The real and hypothecary nature of the liability of the ship owner or agent
embodied in the provisions of the Maritime Law, Book III, Code of Commerce,
had its origin in the prevailing conditions of the maritime trade and sea
voyages during the medieval ages, attended by innumerable hazards and
perils. To offset against these adverse conditions and to encourage ship
building and maritime commerce, it was deemed necessary to confine the
liability of the owner or agent arising from the operation of a ship to the
vessel, equipment, and freight, or insurance, if any, so that if the ship owner
or agent abandoned the ship, equipment, and freight, his liability was
extinguished. (Abueg vs. San Diego, 77 Phil. 730 [1946])

Without the principle of limited liability, a ship owner and investor in maritime
commerce would run the risk of being ruined by the bad faith or negligence of
his captain, and the apprehension of this would be fatal to the interest of
navigation." Yangco vs. Lasema, supra).

As evidence of this real nature of the maritime law we have (1) the limitation
of the liability of the agents to the actual value of the vessel and the freight
money, and (2) the right to retain the cargo and the embargo and detention of
the vessel even in cases where the ordinary civil law would not allow more
than a personal action against the debtor or person liable. It will be observed
that these rights are correlative, and naturally so, because if the agent can
exempt himself from liability by abandoning the vessel and freight money,
thus avoiding the possibility of risking his whole fortune in the business, it is
also just that his maritime creditor may for any reason attach the vessel itself
to secure his claim without waiting for a settlement of his rights by a final
judgment, even to the prejudice of a third person. (Phil. Shipping Co. vs.
Vergara, 6 Phil. 284 [1906]).
The limited liability rule, however, is not without exceptions, namely: (1) where the injury or
death to a passenger is due either to the fault of the ship owner, or to the concurring
negligence of the ship owner and the captain (Manila Steamship Co., Inc. vs.
Abdulhaman supra); (2) where the vessel is insured; and (3) in workmen's compensation
claims Abueg vs. San Diego, supra). In this case, there is nothing in the records to show
that the loss of the cargo was due to the fault of the private respondent as shipowners, or to
their concurrent negligence with the captain of the vessel.

What about the provisions of the Civil Code on common carriers? Considering the "real and
hypothecary nature" of liability under maritime law, these provisions would not have any
effect on the principle of limited liability for ship owners or ship agents. As was expounded
by this Court:

In arriving at this conclusion, the fact is not ignored that the illfated, S.S.
Negros, as a vessel engaged in interisland trade, is a common carrier, and
that the relationship between the petitioner and the passengers who died in
the mishap rests on a contract of carriage. But assuming that petitioner is
liable for a breach of contract of carriage, the exclusively 'real and
hypothecary nature of maritime law operates to limit such liability to the value
of the vessel, or to the insurance thereon, if any. In the instant case it does
not appear that the vessel was insured. (Yangco vs. Laserila, et al., supra).

Moreover, Article 1766 of the Civil Code provides:

Art. 1766. In all matters not regulated by this Code, the rights and obligations
of common carriers shall be governed by the Code of Commerce and by
special laws.

In other words, the primary law is the Civil Code (Arts. 17321766) and in default thereof, the
Code of Commerce and other special laws are applied. Since the Civil Code contains no
provisions regulating liability of ship owners or agents in the event of total loss or
destruction of the vessel, it is the provisions of the Code of Commerce, more particularly
Article 587, that govern in this case.

In sum, it will have to be held that since the ship agent's or ship owner's liability is merely
co-extensive with his interest in the vessel such that a total loss thereof results in its
extinction (Yangco vs. Laserna, supra), and none of the exceptions to the rule on limited
liability being present, the liability of private respondents for the loss of the cargo of copra
must be deemed to have been extinguished. There is no showing that the vessel was
insured in this case.

WHEREFORE, the judgment sought to be reviewed is hereby AFFIRMED. No costs.

G.R. No. 180784 February 15, 2012

INSURANCE COMPANY OF NORTH AMERICA, Petitioner,


vs.
ASIAN TERMINALs, INC., Respondent.
DECISION

PERALTA, J.:

This is a petition for review on certiorari1 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$169,850.353 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
Survey6 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 report10 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 Order17 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 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.
x x x21

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 non-delivery 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 non-delivery; 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 non-delivery/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 Court ruled 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 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. 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 Zealand Insurance Company, Ltd. v. Navarro held:

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 opportunity to check the goods but is itself a verification of its own liability x x
x.

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 Survey32 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 Report36 of BA McLarens Phils., Inc., thus:

xxxx

CIRCUMSTANCES OF LOSS

As reported, the shipment consisting of 185 packages (344.982 MT) Electrolytic Tin Free
Steel, JISG 3315SPTFS, MRT-4CA, Matte 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 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 complete
and without exceptions.

xxxx

EVALUATION OF INDEMNITY

We evaluated the loss/damage sustained by the subject shipments and arrived as follows:

NET WT. PER


PRODUCT NOS. PRODUCTS NAMED NO. OF SHEETS
PACKING LIST
Electrolytic Tin Free
2HD803763 1,200 1,908
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
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
------------------- = 42.7643 x 11,200 P478,959.88
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

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

To clarify, based on the Evaluation Report, seven (7) skids were damaged upon arrival of
the vessel per the Bad Order Cargo Receipts38 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 Report39 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 Receipts40 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.

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
1aw p++i1

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 15-
day 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 Report44 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:

NET WT. PER


PRODUCT NOS. PRODUCTS NAMED NO. OF SHEETS
PACKING LIST
Electrolytic Tin Free
2HD804522 1,200 1,987
Steel JISG3315
2HD804461 -do- 1,400 1,698
2HD804540 -do- 1,200 1,987
2HD804549 -do- 1,200 1,987
4 SKIDS TOTAL 5,000

P9,878,547.58 (Insured value)45


---------------------------------------------- = 42.7643 x 5,000 P213,821.50
231,000 (Total number of sheets)

Less: Deductible 0.50% based on sum insured46 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. 1w phi 1

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.

Costs against petitioner.

G.R. No. L-69044 May 29, 1987

EASTERN SHIPPING LINES, INC., petitioner,


vs.
INTERMEDIATE APPELLATE COURT and DEVELOPMENT INSURANCE & SURETY
CORPORATION, respondents.

No. 71478 May 29, 1987

EASTERN SHIPPING LINES, INC., petitioner,


vs.
THE NISSHIN FIRE AND MARINE INSURANCE CO., and DOWA FIRE & MARINE
INSURANCE CO., LTD., respondents.

MELENCIO-HERRERA, J.:

These two cases, both for the recovery of the value of cargo insurance, arose from the
same incident, the sinking of the M/S ASIATICA when it caught fire, resulting in the total
loss of ship and cargo.

The basic facts are not in controversy:


In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel
operated by petitioner Eastern Shipping Lines, Inc., (referred to hereinafter as Petitioner
Carrier) loaded at Kobe, Japan for transportation to Manila, 5,000 pieces of calorized lance
pipes in 28 packages valued at P256,039.00 consigned to Philippine Blooming Mills Co.,
Inc., and 7 cases of spare parts valued at P92,361.75, consigned to Central Textile Mills,
Inc. Both sets of goods were insured against marine risk for their stated value with
respondent Development Insurance and Surety Corporation.

In G.R. No. 71478, during the same period, the same vessel took on board 128 cartons of
garment fabrics and accessories, in two (2) containers, consigned to Mariveles Apparel
Corporation, and two cases of surveying instruments consigned to Aman Enterprises and
General Merchandise. The 128 cartons were insured for their stated value by respondent
Nisshin Fire & Marine Insurance Co., for US $46,583.00, and the 2 cases by respondent
Dowa Fire & Marine Insurance Co., Ltd., for US $11,385.00.

Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total
loss of ship and cargo. The respective respondent Insurers paid the corresponding marine
insurance values to the consignees concerned and were thus subrogated unto the rights of
the latter as the insured.

G.R. NO. 69044

On May 11, 1978, respondent Development Insurance & Surety Corporation (Development
Insurance, for short), having been subrogated unto the rights of the two insured companies,
filed suit against petitioner Carrier for the recovery of the amounts it had paid to the insured
before the then Court of First instance of Manila, Branch XXX (Civil Case No. 6087).

Petitioner-Carrier denied liability mainly on the ground that the loss was due to an
extraordinary fortuitous event, hence, it is not liable under the law.

On August 31, 1979, the Trial Court rendered judgment in favor of Development Insurance
in the amounts of P256,039.00 and P92,361.75, respectively, with legal interest, plus
P35,000.00 as attorney's fees and costs. Petitioner Carrier took an appeal to the then Court
of Appeals which, on August 14, 1984, affirmed.

Petitioner Carrier is now before us on a Petition for Review on Certiorari.

G.R. NO. 71478

On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN for short),
and Dowa Fire & Marine Insurance Co., Ltd. (DOWA, for brevity), as subrogees of the
insured, filed suit against Petitioner Carrier for the recovery of the insured value of the cargo
lost with the then Court of First Instance of Manila, Branch 11 (Civil Case No. 116151),
imputing unseaworthiness of the ship and non-observance of extraordinary diligence by
petitioner Carrier.

Petitioner Carrier denied liability on the principal grounds that the fire which caused the
sinking of the ship is an exempting circumstance under Section 4(2) (b) of the Carriage of
Goods by Sea Act (COGSA); and that when the loss of fire is established, the burden of
proving negligence of the vessel is shifted to the cargo shipper.

On September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN and DOWA
in the amounts of US $46,583.00 and US $11,385.00, respectively, with legal interest, plus
attorney's fees of P5,000.00 and costs. On appeal by petitioner, the then Court of Appeals
on September 10, 1984, affirmed with modification the Trial Court's judgment by decreasing
the amount recoverable by DOWA to US $1,000.00 because of $500 per package limitation
of liability under the COGSA.

Hence, this Petition for Review on certiorari by Petitioner Carrier.

Both Petitions were initially denied for lack of merit. G.R. No. 69044 on January 16, 1985 by
the First Division, and G. R. No. 71478 on September 25, 1985 by the Second Division.
Upon Petitioner Carrier's Motion for Reconsideration, however, G.R. No. 69044 was given
due course on March 25, 1985, and the parties were required to submit their respective
Memoranda, which they have done.

On the other hand, in G.R. No. 71478, Petitioner Carrier sought reconsideration of the
Resolution denying the Petition for Review and moved for its consolidation with G.R. No.
69044, the lower-numbered case, which was then pending resolution with the First Division.
The same was granted; the Resolution of the Second Division of September 25, 1985 was
set aside and the Petition was given due course.

At the outset, we reject Petitioner Carrier's claim that it is not the operator of the M/S
Asiatica but merely a charterer thereof. We note that in G.R. No. 69044, Petitioner Carrier
stated in its Petition:

There are about 22 cases of the "ASIATICA" pending in various courts where
various plaintiffs are represented by various counsel representing various
consignees or insurance companies. The common defendant in these cases
is petitioner herein, being the operator of said vessel. ... 1

Petitioner Carrier should be held bound to said admission. As a general rule, the facts
alleged in a party's pleading are deemed admissions of that party and binding upon it. 2 And
an admission in one pleading in one action may be received in evidence against the pleader or his
successor-in-interest on the trial of another action to which he is a party, in favor of a party to the latter
action. 3

The threshold issues in both cases are: (1) which law should govern the Civil Code
provisions on Common carriers or the Carriage of Goods by Sea Act? and (2) who has the
burden of proof to show negligence of the carrier?

On the Law Applicable

The law of the country to which the goods are to be transported governs the liability of the
common carrier in case of their loss, destruction or deterioration. 4 As the cargoes in question
were transported from Japan to the Philippines, the liability of Petitioner Carrier is governed primarily by
the Civil Code. 5 However, in all matters not regulated by said Code, the rights and obligations of common
carrier shall be governed by the Code of Commerce and by special laws. 6 Thus, the Carriage of Goods
by Sea Act, a special law, is suppletory to the provisions of the Civil Code. 7

On the Burden of Proof

Under the Civil Code, common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance over goods,
according to all the circumstances of each case. 8 Common carriers are responsible for the loss,
destruction, or deterioration of the goods unless the same is due to any of the following causes only:

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

xxx xxx xxx 9

Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability under the
phrase "natural disaster or calamity. " However, we are of the opinion that fire may not be
considered a natural disaster or calamity. This must be so as it arises almost invariably from
some act of man or by human means. 10 It does not fall within the category of an act of God unless caused by
lightning 11 or by other natural disaster or calamity. 12 It may even be caused by the actual fault or privity of the carrier. 13

Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event
refers to leases of rural lands where a reduction of the rent is allowed when more than one-
half of the fruits have been lost due to such event, considering that the law adopts a
protection policy towards agriculture. 14

As the peril of the fire is not comprehended within the exception in Article
1734, supra, Article 1735 of the Civil Code provides that all cases than those mention in
Article 1734, the common carrier shall be presumed to have been at fault or to have acted
negligently, unless it proves that it has observed the extraordinary deligence required by
law.

In this case, the respective Insurers. as subrogees of the cargo shippers, have proven that
the transported goods have been lost. Petitioner Carrier has also proved that the loss was
caused by fire. The burden then is upon Petitioner Carrier to proved that it has exercised
the extraordinary diligence required by law. In this regard, the Trial Court, concurred in by
the Appellate Court, made the following Finding of fact:

The cargoes in question were, according to the witnesses defendant placed


in hatches No, 2 and 3 cf the vessel, Boatswain Ernesto Pastrana noticed
that smoke was coming out from hatch No. 2 and hatch No. 3; that where the
smoke was noticed, the fire was already big; that the fire must have started
twenty-four 24) our the same was noticed; that carbon dioxide was ordered
released and the crew was ordered to open the hatch covers of No, 2 tor
commencement of fire fighting by sea water: that all of these effort were not
enough to control the fire.

Pursuant to Article 1733, common carriers are bound to extraordinary


diligence in the vigilance over the goods. The evidence of the defendant did
not show that extraordinary vigilance was observed by the vessel to prevent
the occurrence of fire at hatches numbers 2 and 3. Defendant's evidence did
not likewise show he amount of diligence made by the crew, on orders, in the
care of the cargoes. What appears is that after the cargoes were stored in the
hatches, no regular inspection was made as to their condition during the
voyage. Consequently, the crew could not have even explain what could have
caused the fire. The defendant, in the Court's mind, failed to satisfactorily
show that extraordinary vigilance and care had been made by the crew to
prevent the occurrence of the fire. The defendant, as a common carrier, is
liable to the consignees for said lack of deligence required of it under Article
1733 of the Civil Code. 15

Having failed to discharge the burden of proving that it had exercised the extraordinary
diligence required by law, Petitioner Carrier cannot escape liability for the loss of the cargo.

And even if fire were to be considered a "natural disaster" within the meaning of Article
1734 of the Civil Code, it is required under Article 1739 of the same Code that the "natural
disaster" must have been the "proximate and only cause of the loss," and that the carrier
has "exercised due diligence to prevent or minimize the loss before, during or after the
occurrence of the disaster. " This Petitioner Carrier has also failed to establish satisfactorily.

Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods by Sea
Act, It is provided therein that:

Sec. 4(2). Neither the carrier nor the ship shall be responsible for loss or
damage arising or resulting from

(b) Fire, unless caused by the actual fault or privity of the carrier.

xxx xxx xxx

In this case, both the Trial Court and the Appellate Court, in effect, found, as a fact, that
there was "actual fault" of the carrier shown by "lack of diligence" in that "when the smoke
was noticed, the fire was already big; that the fire must have started twenty-four (24) hours
before the same was noticed; " and that "after the cargoes were stored in the hatches, no
regular inspection was made as to their condition during the voyage." The foregoing suffices
to show that the circumstances under which the fire originated and spread are such as to
show that Petitioner Carrier or its servants were negligent in connection therewith.
Consequently, the complete defense afforded by the COGSA when loss results from fire is
unavailing to Petitioner Carrier.

On the US $500 Per Package Limitation:

Petitioner Carrier avers that its liability if any, should not exceed US $500 per package as
provided in section 4(5) of the COGSA, which reads:

(5) Neither the carrier nor the ship shall in any event be or become liable for
any loss or damage to or in connection with the transportation of goods in an
amount exceeding $500 per package lawful money of the United States, or in
case of goods not shipped in packages, per customary freight unit, or the
equivalent of that sum in other currency, unless the nature and value of such
goods have been declared by the shipper before shipment and inserted in bill
of lading. This declaration if embodied in the bill of lading shall be prima facie
evidence, but all be conclusive on the carrier.

By agreement between the carrier, master or agent of the carrier, and the
shipper another maximum amount than that mentioned in this paragraph may
be fixed: Provided, That such maximum shall not be less than the figure
above named. In no event shall the carrier be Liable for more than the
amount of damage actually sustained.

xxx xxx xxx

Article 1749 of the New Civil Code also allows the limitations of liability in this wise:

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

It is to be noted that the Civil Code does not of itself limit the liability of the common carrier
to a fixed amount per package although the Code expressly permits a stipulation limiting
such liability. Thus, the COGSA which is suppletory to the provisions of the Civil Code,
steps in and supplements the Code by establishing a statutory provision limiting the carrier's
liability in the absence of a declaration of a higher value of the goods by the shipper in the
bill of lading. The provisions of the Carriage of Goods by.Sea Act on limited liability are as
much a part of a bill of lading as though physically in it and as much a part thereof as
though placed therein by agreement of the parties. 16

In G.R. No. 69044, there is no stipulation in the respective Bills of Lading (Exhibits "C-2"
and "I-3") 1 7 limiting the carrier's liability for the loss or destruction of the goods. Nor is
there a declaration of a higher value of the goods. Hence, Petitioner Carrier's liability should
not exceed US $500 per package, or its peso equivalent, at the time of payment of the
value of the goods lost, but in no case "more than the amount of damage actually
sustained."

The actual total loss for the 5,000 pieces of calorized lance pipes was P256,039 (Exhibit
"C"), which was exactly the amount of the insurance coverage by Development Insurance
(Exhibit "A"), and the amount affirmed to be paid by respondent Court. The goods were
shipped in 28 packages (Exhibit "C-2") Multiplying 28 packages by $500 would result in a
product of $14,000 which, at the current exchange rate of P20.44 to US $1, would be
P286,160, or "more than the amount of damage actually sustained." Consequently, the
aforestated amount of P256,039 should be upheld.

With respect to the seven (7) cases of spare parts (Exhibit "I-3"), their actual value was
P92,361.75 (Exhibit "I"), which is likewise the insured value of the cargo (Exhibit "H") and
amount was affirmed to be paid by respondent Court. however, multiplying seven (7) cases
by $500 per package at the present prevailing rate of P20.44 to US $1 (US $3,500 x
P20.44) would yield P71,540 only, which is the amount that should be paid by Petitioner
Carrier for those spare parts, and not P92,361.75.

In G.R. No. 71478, in so far as the two (2) cases of surveying instruments are concerned,
the amount awarded to DOWA which was already reduced to $1,000 by the Appellate Court
following the statutory $500 liability per package, is in order.

In respect of the shipment of 128 cartons of garment fabrics in two (2) containers and
insured with NISSHIN, the Appellate Court also limited Petitioner Carrier's liability to $500
per package and affirmed the award of $46,583 to NISSHIN. it multiplied 128 cartons
(considered as COGSA packages) by $500 to arrive at the figure of $64,000, and explained
that "since this amount is more than the insured value of the goods, that is $46,583, the
Trial Court was correct in awarding said amount only for the 128 cartons, which amount is
less than the maximum limitation of the carrier's liability."

We find no reversible error. The 128 cartons and not the two (2) containers should be
considered as the shipping unit.

In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the consignees of
tin ingots and the shipper of floor covering brought action against the vessel owner and
operator to recover for loss of ingots and floor covering, which had been shipped in vessel
supplied containers. The U.S. District Court for the Southern District of New York
rendered judgment for the plaintiffs, and the defendant appealed. The United States Court
of Appeals, Second Division, modified and affirmed holding that:

When what would ordinarily be considered packages are shipped in a


container supplied by the carrier and the number of such units is disclosed in
the shipping documents, each of those units and not the container constitutes
the "package" referred to in liability limitation provision of Carriage of Goods
by Sea Act. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A.& 1304(5).

Even if language and purposes of Carriage of Goods by Sea Act left doubt as
to whether carrier-furnished containers whose contents are disclosed should
be treated as packages, the interest in securing international uniformity would
suggest that they should not be so treated. Carriage of Goods by Sea Act,
4(5), 46 U.S.C.A. 1304(5).

... After quoting the statement in Leather's Best, supra, 451 F 2d at 815, that
treating a container as a package is inconsistent with the congressional
purpose of establishing a reasonable minimum level of liability, Judge Beeks
wrote, 414 F. Supp. at 907 (footnotes omitted):

Although this approach has not completely escaped criticism,


there is, nonetheless, much to commend it. It gives needed
recognition to the responsibility of the courts to construe and
apply the statute as enacted, however great might be the
temptation to "modernize" or reconstitute it by artful judicial
gloss. If COGSA's package limitation scheme suffers from
internal illness, Congress alone must undertake the surgery.
There is, in this regard, obvious wisdom in the Ninth Circuit's
conclusion in Hartford that technological advancements,
whether or not forseeable by the COGSA promulgators, do not
warrant a distortion or artificial construction of the statutory
term "package." A ruling that these large reusable metal pieces
of transport equipment qualify as COGSA packages at least
where, as here, they were carrier owned and supplied would
amount to just such a distortion.

Certainly, if the individual crates or cartons prepared by the


shipper and containing his goods can rightly be considered
"packages" standing by themselves, they do not suddenly lose
that character upon being stowed in a carrier's container. I
would liken these containers to detachable stowage
compartments of the ship. They simply serve to divide the
ship's overall cargo stowage space into smaller, more
serviceable loci. Shippers' packages are quite literally "stowed"
in the containers utilizing stevedoring practices and materials
analogous to those employed in traditional on board stowage.

In Yeramex International v. S.S. Tando,, 1977 A.M.C. 1807 (E.D. Va.) rev'd
on other grounds, 595 F 2nd 943 (4 Cir. 1979), another district with many
maritime cases followed Judge Beeks' reasoning in Matsushita and similarly
rejected the functional economics test. Judge Kellam held that when rolls of
polyester goods are packed into cardboard cartons which are then placed in
containers, the cartons and not the containers are the packages.

xxx xxx xxx

The case of Smithgreyhound v. M/V Eurygenes, 18 followed the Mitsui test:

Eurygenes concerned a shipment of stereo equipment packaged by the


shipper into cartons which were then placed by the shipper into a carrier-
furnished container. The number of cartons was disclosed to the carrier in the
bill of lading. Eurygenes followed the Mitsui test and treated the cartons, not
the container, as the COGSA packages. However, Eurygenes indicated that a
carrier could limit its liability to $500 per container if the bill of lading failed to
disclose the number of cartons or units within the container, or if the parties
indicated, in clear and unambiguous language, an agreement to treat the
container as the package.

(Admiralty Litigation in Perpetuum: The Continuing Saga of


Package Limitations and Third World Delivery Problems by
Chester D. Hooper & Keith L. Flicker, published in Fordham
International Law Journal, Vol. 6, 1982-83, Number 1)
(Emphasis supplied)
In this case, the Bill of Lading (Exhibit "A") disclosed the following data:

2 Containers

(128) Cartons)

Men's Garments Fabrics and Accessories Freight Prepaid

Say: Two (2) Containers Only.

Considering, therefore, that the Bill of Lading clearly disclosed the contents of the
containers, the number of cartons or units, as well as the nature of the goods, and applying
the ruling in the Mitsui and Eurygenes cases it is clear that the 128 cartons, not the two (2)
containers should be considered as the shipping unit subject to the $500 limitation of
liability.

True, the evidence does not disclose whether the containers involved herein were carrier-
furnished or not. Usually, however, containers are provided by the carrier. 19 In this case, the
probability is that they were so furnished for Petitioner Carrier was at liberty to pack and carry the goods in containers if they were not so
packed. Thus, at the dorsal side of the Bill of Lading (Exhibit "A") appears the following stipulation in fine print:

11. (Use of Container) Where the goods receipt of which is acknowledged on


the face of this Bill of Lading are not already packed into container(s) at the
time of receipt, the Carrier shall be at liberty to pack and carry them in any
type of container(s).

The foregoing would explain the use of the estimate "Say: Two (2) Containers Only" in the
Bill of Lading, meaning that the goods could probably fit in two (2) containers only. It cannot
mean that the shipper had furnished the containers for if so, "Two (2) Containers" appearing
as the first entry would have sufficed. and if there is any ambiguity in the Bill of Lading, it is
a cardinal principle in the construction of contracts that the interpretation of obscure words
or stipulations in a contract shall not favor the party who caused the obscurity. 20 This applies
with even greater force in a contract of adhesion where a contract is already prepared and the other party
merely adheres to it, like the Bill of Lading in this case, which is draw. up by the carrier. 21

On Alleged Denial of Opportunity to Present Deposition of Its Witnesses: (in G.R. No. 69044
only)

Petitioner Carrier claims that the Trial Court did not give it sufficient time to take the
depositions of its witnesses in Japan by written interrogatories.

We do not agree. petitioner Carrier was given- full opportunity to present its evidence but it
failed to do so. On this point, the Trial Court found:

xxx xxx xxx

Indeed, since after November 6, 1978, to August 27, 1979, not to mention the
time from June 27, 1978, when its answer was prepared and filed in Court,
until September 26, 1978, when the pre-trial conference was conducted for
the last time, the defendant had more than nine months to prepare its
evidence. Its belated notice to take deposition on written interrogatories of its
witnesses in Japan, served upon the plaintiff on August 25th, just two days
before the hearing set for August 27th, knowing fully well that it was its
undertaking on July 11 the that the deposition of the witnesses would be
dispensed with if by next time it had not yet been obtained, only proves the
lack of merit of the defendant's motion for postponement, for which reason it
deserves no sympathy from the Court in that regard. The defendant has told
the Court since February 16, 1979, that it was going to take the deposition of
its witnesses in Japan. Why did it take until August 25, 1979, or more than six
months, to prepare its written interrogatories. Only the defendant itself is to
blame for its failure to adduce evidence in support of its defenses.

xxx xxx xxx 22

Petitioner Carrier was afforded ample time to present its side of the case. 23
It cannot complain
now that it was denied due process when the Trial Court rendered its Decision on the basis of the
evidence adduced. What due process abhors is absolute lack of opportunity to be heard. 24

On the Award of Attorney's Fees:

Petitioner Carrier questions the award of attorney's fees. In both cases, respondent Court
affirmed the award by the Trial Court of attorney's fees of P35,000.00 in favor of
Development Insurance in G.R. No. 69044, and P5,000.00 in favor of NISSHIN and DOWA
in G.R. No. 71478.

Courts being vested with discretion in fixing the amount of attorney's fees, it is believed that
the amount of P5,000.00 would be more reasonable in G.R. No. 69044. The award of
P5,000.00 in G.R. No. 71478 is affirmed.

WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in that petitioner Eastern
Shipping Lines shall pay the Development Insurance and Surety Corporation the amount of
P256,039 for the twenty-eight (28) packages of calorized lance pipes, and P71,540 for the
seven (7) cases of spare parts, with interest at the legal rate from the date of the filing of the
complaint on June 13, 1978, plus P5,000 as attorney's fees, and the costs.

2) In G.R.No.71478,the judgment is hereby affirmed.

SO ORDERED.

G.R. No. 71238 March 19, 1992

LUFTHANSA GERMAN AIRLINES, petitioner,


vs.
INTERMEDIATE APPELLATE COURT and SPOUSES HENRY H. ALCANTARA and
TERESITA ALCANTARA, respondents.
BIDIN, J.:

This is a petition for review on certiorari decision of the then Intermediate Appellate
Court * dated May 31, 1984, affirming with modification the decision of the then Court of
First Instance of Manila, Sixth Judicial District, Branch XXIV, and the resolution dated June
18, 1985 denying the motion for reconsideration of the said decision.

The antecedent facts of this case are as follows:

On January 21, 1979, respondent Henry H. Alcantara shipped thirteen (13) pieces of
luggage through petitioner Lufthansa from Teheran to Manila as evidenced by Lufthansa Air
Waybill No. 220-9776-2733 (Exhibit "A", also Exhibit "1"). The Air Waybill discloses that the
actual gross weight of the thirteen (13) pieces of luggage is 180 kilograms. Respondent
Henry H. Alcantara did not declare an inventory of the contents or the value of the luggages
when he delivered them to Lufthansa.

On March 3, 1979, the thirteen (13) pieces of luggage were boarded in one of Lufthansa's
flights which arrived in Manila on the same date. After the luggages arrived in Manila, the
consignee, respondent Teresita Alcantara, was able to claim from the cargo broker
Philippine Skylanders, Inc. on March 6, 1979 only twelve (12) out of the thirteen (13) pieces
of luggage with a total weight of 174 kilograms (Exhibits "20" and "20-A").

The private respondents advised Lufthansa of the loss of one of the luggages and of the
contents thereof (Exhibits "B", "C" and "D"). Petitioner Lufthansa sent telex tracing
messages to different stations and to the Philippine Airlines which actually carried the cargo
(Exhibits "3", "5", "7", "9", "11", "12", "13" and "14"). But all efforts in tracing the missing
luggage were fruitless (Exhibits "4", "6", "8", "10", "12" and "17").

Since efforts to trace the missing luggage yielded negative results, Lufthansa informed
Henry Alcantara accordingly and advised him to file a claim invoice (Exhibits "18" and "19").

On September 24, 1979, the private respondents wrote the petitioner demanding the
production of the missing luggage within then (10) days from receipt (Exhibit "E"). Since the
petitioner did not comply with said demand, the private respondents filed a complaint dated
May 7, 1980, for breach of contract with damages against the petitioner before the Court of
First Instance of Manila, Sixth Judicial District, Branch XXIV.

The petitioner filed its answer to the complaint alleging that the Warsaw Convention limits
the liability of the carrier, if any, with respect to cargo to a sum of 250 francs per kilo ($20.00
per kilo or $9.07 per pound), unless a higher value is declared in advance and additional
charges are paid by the passenger and the conditions of the contract as set forth in the air
waybill expressly subject the contract of carriage of cargo to the Warsaw Convention. The
petitioner also alleged that it never acted fraudulently or in bad faith so as to entitle
respondent spouses to moral damages and attorney's fees, nor did it act in a wanton,
fraudulent, reckless, oppressive or malevolent manner as to entitle spouses to exemplary
damages.
After trial, on November 18, 1981, the trial court ** rendered its decision, the dispositive
portion of which reads as follows:

WHEREFORE, judgment is hereby rendered in favor of plaintiffs, spouses


Henry H. Alcantara and Teresita Alcantara, and against Lufthansa German
Airlines.

(1) Ordering defendant to pay plaintiffs the sum of P200,000.00 for actual
damages, with interest thereon at the legal rate from the date of the filing of
the complaint until the principal sum is fully paid;

(2) Ordering defendant to pay plaintiffs the sum of P20,000.00 as attorney's


fees; and

(3) Ordering defendant to pay the costs of suit.

SO ORDERED. (Rollo, pp. 62-63)

The petitioner appealed to the then Intermediate Appellate Court. On May 31, 1984, the
appellate promulgated its decision, the dispositive portion of which reads:

WHEREFORE, PREMISES CONSIDERED, the decision appealed from is


hereby AFFIRMED with the modification that the amount of P20,000.00
awarded as attorney's fees shall be deleted, the costs to be borne by the
respective parties.

SO ORDERED. (Rollo, p. 39).

Its motion for reconsideration having been denied, the petition filed the instant petition.

The main issue in this case is whether or not the private respondents are entitled to an
award of damages beyond the liability set forth in the Warsaw Convention and in the
Airwaybill of Lading.

The petitioner contends that the Republic of the Philippines is a party to the "Convention for
the Unification of Certain Rules Relating to International Transportation by Air," otherwise
known as the Warsaw Convention. After the Senate of the Republic of the Philippines, by its
Resolution No. 19 of May 16, 1950, concurred in the adherence by the government of the
Philippines to the said Convention, and after the government of the Republic of the
Philippines formally notified the government of the Republic of Poland of such adherence on
November 9, 1950, Presidential Proclamation No. 201 signed by the late President Ramon
Magsaysay on September 23, 1965 made public the adherence of the Republic of the
Philippines to the said Warsaw Convention which applies to all international transportation
of persons, baggage or goods performed by aircraft for hire. Since the contract between the
petitioner and respondent Henry H. Alcantara embodied in Airwaybill No. 220-9776-2733 is
one of international carriage by air, it is subject to the Warsaw Convention, which in Article
22 limits the liability of the carrier with respect to checked baggage to a sum of 250 French
francs per kilo (equivalent to US $20.00/kilo) unless a higher value has been declared in
advance and additional charges are paid by the passenger. Respondent Henry H. Alcantara
having admitted that he did not declare the value or contents of the missing luggage, the
liability of the petitioner is therefore limited by the Warsaw Convention and the Airwaybill to
US$20.00 per kilo.

The petitioner further argues that the award of P200,000.00 as actual damages is not borne
by evidence. It insists that the testimonial and documentary evidence of respondent
spouses failed to indicate the actual value of the alleged contents of the missing luggage
and have not presented actual proof as to the contents, total weight and value of the
missing luggage as well as the actual damage they suffered (Rollo, pp. 88-89, 95).

On the other hand, the private respondents maintain that the petitioner, as found by the trial
and appellate courts, waived the benefits of the Warsaw Convention when it offered a
settlement in the amount of $200.00 which is much higher than what the Convention
prescribes and never raised timely objections during the trial to the introduction of evidence
regarding the actual claims and damages sustained by respondent Alcantara.

The private respondents also claim that in the trial of the case, they proved a loss of
P200,000.00 and an expense of $15,000.00 in vainly trying to locate the missing luggage all
over Europe and the trial court awarded less than what was proven (Rollo, p. 118).

The petition is without merit.

The loss of one luggage belonging to the private respondents while the same was in the
custody of the petitioner is not disputed. The contract of air carriage generates a relation
attended with a public duty. Neglect or malfeasance of the carrier's employees could given
ground for an action for damages (Zulueta v. Pan American World Airways, Inc., 43 SCRA
37 [1972]). Common carriers are liable for the missing goods for failure to comply with its
duty (American Insurance Co., Inc. v. Macondray & Co., Inc., 39 SCRA 494 [171]).

In Alitalia vs. Intermediate Appellate Court (192 SCRA 9 [1990]) where petitioner Alitalia as
carrier failed to deliver a passenger's (Dr. Felipa Pablo's) baggage containing the papers
she was scheduled to read and the materials which would have enabled her to make
scientific presentation (consisting of slides, autoradiograms or films, tables and tabulations )
in a prestigious international conference in Rome where she was invited to participate in the
conference, extended by the Joint FAO/IAEA Division of Atomic Energy in Food and
Agriculture of the Untied Nations, as a consequence of which she failed to participate in the
conference, this Court held that the Warsaw Convention does not exclude liability for other
breaches of contract by the carrier. Thus:

The Convention does not thus operate as an exclusive enumeration of the


instances of an airline's liability, or as an absolute limit of the extent of that
liability. Such a proposition is not borne out by the language of the
Convention, as this Court has now, and at an earlier time, pointed out.
Moreover, slight reflection readily leads to the conclusion that it should be
deemed a limit of liability only in those cases where the cause of the death or
injury to person, or destruction, loss or damage to property or delay in its
transport is not attributable to or attended by any wilfull misconduct, bad faith,
recklessness, or otherwise improper conduct on the part of any official or
employee for which the carrier is responsible, and there is otherwise no
special or extraordinary form of resulting injury. The Convention's provisions,
in short, do not "regulate or exclude liability for other breaches of contract by
the carrier" or misconduct of its officers and employees, or for some particular
or exceptional type of damage. Otherwise, "an air carrier would be exempt
from any liability for damages in the event of its absolute refusal, in bad faith,
to comply with a contract of carriage, which is absurd." Nor may it for a
moment be supposed that if a member of the aircraft complement should
inflict some physical injury on a passenger, or maliciously destroy or damage
the latter's property, the Convention might successfully be pleaded as the
sole gauge to determine the carrier's liability to the passenger. Neither may
the Convention invoked to justify the disregard of some extraordinary sort of
damage resulting to a passenger and preclude recovery therefor beyond the
limits set by said Convention. It is in this sense that the Convention has been
applied, or ignored, depending on the peculiar facts presented by each case.

xxx xxx xxx

In the case at bar, no bad faith or otherwise improper conduct may be


ascribed to the employees of petitioner airline; and Dr. Pablo's luggage was
eventually returned to her, belatedly, it is true, but without appreciable
damage. The fact is, nevertheless, that some species of injury was caused to
Dr. Pablo because petitioner ALITALIA misplaced her baggage and failed to
deliver it to her at the time appointed a breach of its contract of carriage, to
be sure with the result that she was unable to read the paper and make
the scientific presentation (consisting of slides, autoradiograms or films,
tables and tabulations) that she had painstakingly labored over, at the
prestigious international conference, to attend which she had traveled
hundreds of miles, to her chagrin and embarrassment and the disappointment
and annoyance of the organizers. She felt, no unreasonably, that the
invitation for her to participate at the conference, extended by the Joint
FAO/IAEA Division of Atomic Energy in Food and Agriculture of the United
Nations, was a singular honor not only to herself, but to the University of the
Philippines and the country as well, an opportunity to make some sort of
impression among her colleagues in that field of scientific activity. The
opportunity to claim this honor or distinction was irretrievably lost to her
because of Alitalia's breach of its contract.

Apart from this, there can be no doubt that Dr. Pablo underwent profound
distress and anxiety, which gradually turned to panic and finally despair, from
the time she learned that her suitcases were missing up to the time when,
having gone to Rome, she finally realized that she would no longer be able to
take part in the conference. As she herself put it, she "was really shocked and
distraught and confused."
Certainly, the compensation for the injury suffered by Dr. Pablo cannot under
the circumstances be restricted to that prescribed by the Warsaw Convention
for delay in the transport of baggage.

She is not, of course, entitled to be compensated for loss or damage to her


luggage. As already mentioned, her baggage was ultimately delivered to her
in Manila, tardily, but safely. She is however entitled to nominal damages
which, as the law says, is adjudicated in order that a right of the plaintiff,
which has been violated or invaded by the defendant, may be vindicated and
recognized, and not for the purpose of indemnifying the plaintiff that for any
loss suffered and this Court agrees that the respondent Court of Appeals
correctly set the amount thereof at P40,000.00.

In the case at bar, the trial court found that: (a) petitioners airline has not successfully
refuted the presumption established by Article 1735 of the Civil Code that the loss of the
luggage in question was due to the negligence or fault of its employees; (b) the contents of
the missing luggage of private respondents could not be replaced and were assessed at
P200,000.00 by the latter;
(c) respondent Henry Alcantara spent about $15,000.00 in trying to locate said luggage in
Frankfurt, Germany, London, United Kingdom and Hongkong;
(d) there being no evidence to the contrary, the foregoing assessments made by private
respondents were fair and reasonable; and (e) private respondents were unable to present
ample evidence to prove fraud and bad faith and are therefore not entitled to moral
damages under Article 2220 of the Civil Code (Rollo, p. 61).

On the other hand, the Court of Appeals found that the lower court's award of P200,000.00
as actual compensatory damages is well based factually and legally (Rollo, p. 37) except as
to the deletion of attorney's fees due to the absence of findings of gross and evident bad
faith (Rollo, p. 39).

Under the circumstances, there appears to be no cogent reason to disturb the factual
findings of both the trial court and the Court of Appeals.

Furthermore, the respondent court found that petitioner waived the applicability of the
Warsaw Convention to the case at bar when it offered private respondent a higher amount
than that which is provided in the said law and failed to raise timely objections during the
trial when questions and answers were brought out regarding the actual claims and
damages sustained by Alcantara which were even subjected to lengthy cross examination
by Lufthansa's counsel. In Abrenica v. Gonda (34 Phil. 739), this Court held:

. . . (I)t has been repeatedly laid down as a rule of evidence that a protest or
objection against the admission of any evidence must be made at the proper
time, and that if not so made it will be understood to have been waived. The
proper time to make a protest or objection is when, from the question
addressed to the witness, or from the answer thereto, or from the
presentation of proof, the inadmissibility of evidence is, or may be inferred.
It is also settled that the court cannot disregard evidence which would ordinarily be
incompetent under the rules but has been rendered admissible by the failure of a party to
object thereto. Thus:

. . . The acceptance of an incompetent witness to testify in a civil suit, as well


as the allowance of improper questions that may be put to him while on the
stand is a matter resting in the discretion of the litigant. He may asset his right
by timely objection or he may waive it, expressly or by silence. In any case,
the option rests with him. Once admitted, the testimony is in the case for what
it is worth and the judge has no power to disregard it for the sole reason that
it could have been excluded, if it had been objected to, nor to strike it out on
its own motion. (Cruz v. CA, et al., 192 SCRA 209 [1990] citing Marella vs.
Reyes, 12 Phil. 1). (Emphasis supplied).

WHEREFORE, the petition is Dismissed and the questioned decision and resolution of the
appellate court are Affirmed. No costs.

G.R. No. 186312 June 29, 2010

SPOUSES DANTE CRUZ and LEONORA CRUZ, Petitioners,


vs.
SUN HOLIDAYS, INC., Respondent.

DECISION

CARPIO MORALES, J.:

Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on January 25,
20011 against Sun Holidays, Inc. (respondent) with the Regional Trial Court (RTC) of Pasig
City for damages arising from the death of their son Ruelito C. Cruz (Ruelito) who perished
with his wife on September 11, 2000 on board the boat M/B Coco Beach III that capsized en
route to Batangas from Puerto Galera, Oriental Mindoro where the couple had stayed at
Coco Beach Island Resort (Resort) owned and operated by respondent.

The stay of the newly wed Ruelito and his wife at the Resort from September 9 to 11, 2000
was by virtue of a tour package-contract with respondent that included transportation to and
from the Resort and the point of departure in Batangas.

Miguel C. Matute (Matute),2 a scuba diving instructor and one of the survivors, gave his
account of the incident that led to the filing of the complaint as follows:

Matute stayed at the Resort from September 8 to 11, 2000. He was originally scheduled to
leave the Resort in the afternoon of September 10, 2000, but was advised to stay for
another night because of strong winds and heavy rains.

On September 11, 2000, as it was still windy, Matute and 25 other Resort guests including
petitioners son and his wife trekked to the other side of the Coco Beach mountain that was
sheltered from the wind where they boarded M/B Coco Beach III, which was to ferry them to
Batangas.

Shortly after the boat sailed, it started to rain. As it moved farther away from Puerto Galera
and into the open seas, the rain and wind got stronger, causing the boat to tilt from side to
side and the captain to step forward to the front, leaving the wheel to one of the crew
members.

The waves got more unwieldy. After getting hit by two big waves which came one after the
other, M/B Coco Beach III capsized putting all passengers underwater.

The passengers, who had put on their life jackets, struggled to get out of the boat. Upon
seeing the captain, Matute and the other passengers who reached the surface asked him
what they could do to save the people who were still trapped under the boat. The captain
replied "Iligtas niyo na lang ang sarili niyo" (Just save yourselves).

Help came after about 45 minutes when two boats owned by Asia Divers in Sabang, Puerto
Galera passed by the capsized M/B Coco Beach III. Boarded on those two boats were 22
persons, consisting of 18 passengers and four crew members, who were brought to Pisa
Island. Eight passengers, including petitioners son and his wife, died during the incident.

At the time of Ruelitos death, he was 28 years old and employed as a contractual worker
for Mitsui Engineering & Shipbuilding Arabia, Ltd. in Saudi Arabia, with a basic monthly
salary of $900.3

Petitioners, by letter of October 26, 2000,4 demanded indemnification from respondent for
the death of their son in the amount of at least P4,000,000.

Replying, respondent, by letter dated November 7, 2000,5 denied any responsibility for the
incident which it considered to be a fortuitous event. It nevertheless offered, as an act of
commiseration, the amount of P10,000 to petitioners upon their signing of a waiver.

As petitioners declined respondents offer, they filed the Complaint, as earlier reflected,
alleging that respondent, as a common carrier, was guilty of negligence in allowing M/B
Coco Beach III to sail notwithstanding storm warning bulletins issued by the Philippine
Atmospheric, Geophysical and Astronomical Services Administration (PAGASA) as early as
5:00 a.m. of September 11, 2000.6

In its Answer,7 respondent denied being a common carrier, alleging that its boats are not
available to the general public as they only ferry Resort guests and crew members.
Nonetheless, it claimed that it exercised the utmost diligence in ensuring the safety of its
passengers; contrary to petitioners allegation, there was no storm on September 11, 2000
as the Coast Guard in fact cleared the voyage; and M/B Coco Beach III was not filled to
capacity and had sufficient life jackets for its passengers. By way of Counterclaim,
respondent alleged that it is entitled to an award for attorneys fees and litigation expenses
amounting to not less than P300,000.
Carlos Bonquin, captain of M/B Coco Beach III, averred that the Resort customarily requires
four conditions to be met before a boat is allowed to sail, to wit: (1) the sea is calm, (2) there
is clearance from the Coast Guard, (3) there is clearance from the captain and (4) there is
clearance from the Resorts assistant manager.8 He added that M/B Coco Beach III met all
four conditions on September 11, 2000,9 but a subasco or squall, characterized by strong
winds and big waves, suddenly occurred, causing the boat to capsize. 10

By Decision of February 16, 2005,11 Branch 267 of the Pasig RTC dismissed petitioners
Complaint and respondents Counterclaim.

Petitioners Motion for Reconsideration having been denied by Order dated September 2,
2005,12 they appealed to the Court of Appeals.

By Decision of August 19, 2008,13 the appellate court denied petitioners appeal, holding,
among other things, that the trial court correctly ruled that respondent is a private carrier
which is only required to observe ordinary diligence; that respondent in fact observed
extraordinary diligence in transporting its guests on board M/B Coco Beach III; and that the
proximate cause of the incident was a squall, a fortuitous event.

Petitioners Motion for Reconsideration having been denied by Resolution dated January
16, 2009,14 they filed the present Petition for Review.15

Petitioners maintain the position they took before the trial court, adding that respondent is a
common carrier since by its tour package, the transporting of its guests is an integral part of
its resort business. They inform that another division of the appellate court in fact held
respondent liable for damages to the other survivors of the incident.

Upon the other hand, respondent contends that petitioners failed to present evidence to
prove that it is a common carrier; that the Resorts ferry services for guests cannot be
considered as ancillary to its business as no income is derived therefrom; that it exercised
extraordinary diligence as shown by the conditions it had imposed before allowing M/B
Coco Beach III to sail; that the incident was caused by a fortuitous event without any
contributory negligence on its part; and that the other case wherein the appellate court held
it liable for damages involved different plaintiffs, issues and evidence.16

The petition is impressed with merit.

Petitioners correctly rely on De Guzman v. Court of Appeals17 in characterizing respondent


as a common carrier.

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

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

The above article makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as an ancillary
activity (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 service on an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a carrier offering its services to
the "general public," i.e., the general community or population, and one who offers services
or solicits business only from a narrow segment of the general population. We think that
Article 1733 deliberately refrained from making such distinctions.

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

. . . every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether permanent,
occasional or accidental, and done for general business purposes, any common carrier,
railroad, street railway, traction railway, subway motor vehicle, either for freight or
passenger, or both, with or without fixed route and whatever may be its classification, freight
or carrier service of any class, express service, steamboat, or steamship line, pontines,
ferries and water craft, engaged in the transportation of passengers or freight or both,
shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal,
irrigation system, gas, electric light, heat and power, water supply and power petroleum,
sewerage system, wire or wireless communications systems, wire or wireless broadcasting
stations and other similar public services . . .18 (emphasis and underscoring supplied.)

Indeed, respondent is a common carrier. Its ferry services are so intertwined with its main
business as to be properly considered ancillary thereto. The constancy of respondents ferry
services in its resort operations is underscored by its having its own Coco Beach boats. And
the tour packages it offers, which include the ferry services, may be availed of by anyone
who can afford to pay the same. These services are thus available to the public.

That respondent does not charge a separate fee or fare for its ferry services is of no
moment. It would be imprudent to suppose that it provides said services at a loss. The
Court is aware of the practice of beach resort operators offering tour packages to factor the
transportation fee in arriving at the tour package price. That guests who opt not to avail of
respondents ferry services pay the same amount is likewise inconsequential. These guests
may only be deemed to have overpaid.

As De Guzman instructs, Article 1732 of the Civil Code defining "common carriers" has
deliberately refrained from making distinctions on whether the carrying of persons or goods
is the carriers principal business, whether it is offered on a regular basis, or whether it is
offered to the general public. The intent of the law is thus to not consider such distinctions.
Otherwise, there is no telling how many other distinctions may be concocted by
unscrupulous businessmen engaged in the carrying of persons or goods in order to avoid
the legal obligations and liabilities of common carriers.
Under the Civil Code, common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence for the safety of the passengers
transported by them, according to all the circumstances of each case. 19 They are bound to
carry the passengers 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. 20

When a passenger dies or is injured in the discharge of a contract of carriage, it is


presumed that the common carrier is at fault or negligent. 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.21

Respondent nevertheless harps on its strict compliance with the earlier mentioned
conditions of voyage before it allowed M/B Coco Beach III to sail on September 11, 2000.
Respondents position does not impress.

The evidence shows that PAGASA issued 24-hour public weather forecasts and tropical
cyclone warnings for shipping on September 10 and 11, 2000 advising of tropical
depressions in Northern Luzon which would also affect the province of Mindoro. 22 By the
testimony of Dr. Frisco Nilo, supervising weather specialist of PAGASA, squalls are to be
expected under such weather condition.23

A very cautious person exercising the utmost diligence would thus not brave such stormy
weather and put other peoples lives at risk. The extraordinary diligence required of
common carriers demands that they take care of the goods or lives entrusted to their hands
as if they were their own. This respondent failed to do.

Respondents insistence that the incident was caused by a fortuitous event does not
impress either.

The elements of a "fortuitous event" are: (a) the cause of the unforeseen and unexpected
occurrence, or the failure of the debtors to comply with their obligations, must have been
independent of human will; (b) the event that constituted the caso fortuito must have been
impossible to foresee or, if foreseeable, impossible to avoid; (c) the occurrence must have
been such as to render it impossible for the debtors to fulfill their obligation in a normal
manner; and (d) the obligor must have been free from any participation in the aggravation of
the resulting injury to the creditor.24

To fully free a common carrier from any liability, the fortuitous event must have been
the proximate and only cause of the loss. And it should have exercised due diligence to
prevent or minimize the loss before, during and after the occurrence of the fortuitous
event.25

Respondent cites the squall that occurred during the voyage as the fortuitous event that
overturned M/B Coco Beach III. As reflected above, however, the occurrence of squalls was
expected under the weather condition of September 11, 2000. Moreover, evidence shows
that M/B Coco Beach III suffered engine trouble before it capsized and sank. 26 The incident
was, therefore, not completely free from human intervention.
The Court need not belabor how respondents evidence likewise fails to demonstrate that it
exercised due diligence to prevent or minimize the loss before, during and after the
occurrence of the squall.

Article 176427 vis--vis Article 220628 of the Civil Code holds the common carrier in breach
of its contract of carriage that results in the death of a passenger liable to pay the following:
(1) indemnity for death, (2) indemnity for loss of earning capacity and (3) moral damages.

Petitioners are entitled to indemnity for the death of Ruelito which is fixed at P50,000.29

As for damages representing unearned income, the formula for its computation is:

Net Earning Capacity = life expectancy x (gross annual income - reasonable and necessary
living expenses).

Life expectancy is determined in accordance with the formula:

2 / 3 x [80 age of deceased at the time of death]30

The first factor, i.e., life expectancy, is computed by applying the formula (2/3 x [80 age
at death]) adopted in the American Expectancy Table of Mortality or the Actuarial of
Combined Experience Table of Mortality.31

The second factor is computed by multiplying the life expectancy by the net earnings of the
deceased, i.e., the total earnings less expenses necessary in the creation of such earnings
or income and less living and other incidental expenses.32 The loss is not equivalent to the
entire earnings of the deceased, but only such portion as he would have used to support his
dependents or heirs. Hence, to be deducted from his gross earnings are the necessary
expenses supposed to be used by the deceased for his own needs.33

In computing the third factor necessary living expense, Smith Bell Dodwell Shipping
Agency Corp. v. Borja34teaches that when, as in this case, there is no showing that the
living expenses constituted the smaller percentage of the gross income, the living expenses
are fixed at half of the gross income.

Applying the above guidelines, the Court determines Ruelito's life expectancy as follows:

Life expectancy = 2/3 x [80 - age of deceased at the time of death]


2/3 x [80 - 28]
2/3 x [52]
Life expectancy = 35

Documentary evidence shows that Ruelito was earning a basic monthly salary of
$90035 which, when converted to Philippine peso applying the annual average exchange
rate of $1 = P44 in 2000,36 amounts to P39,600. Ruelitos net earning capacity is thus
computed as follows:
Net Earning = life expectancy x (gross annual income - reasonable and
Capacity necessary living expenses).
= 35 x (P475,200 - P237,600)
= 35 x (P237,600)
Net Earning
= P8,316,000
Capacity

Respecting the award of moral damages, since respondent common carriers breach of
contract of carriage resulted in the death of petitioners son, following Article 1764 vis--vis
Article 2206 of the Civil Code, petitioners are entitled to moral damages.

Since respondent failed to prove that it exercised the extraordinary diligence required of
common carriers, it is presumed to have acted recklessly, thus warranting the award too of
exemplary damages, which are granted in contractual obligations if the defendant acted in a
wanton, fraudulent, reckless, oppressive or malevolent manner.37

Under the circumstances, it is reasonable to award petitioners the amount of P100,000 as


moral damages and P100,000 as exemplary damages.38 1avv phi 1

Pursuant to Article 220839 of the Civil Code, attorney's fees may also be awarded where
exemplary damages are awarded. The Court finds that 10% of the total amount adjudged
against respondent is reasonable for the purpose.

Finally, Eastern Shipping Lines, Inc. v. Court of Appeals40 teaches that when an obligation,
regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for payment of interest in the concept of actual
and compensatory damages, subject to the following rules, to wit

1. When the obligation is breached, and it consists in the payment of a sum of


money, i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 of
the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached,


an interest on the amount of damages awarded may be imposed at the discretion of
the court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be
so reasonably established at the time the demand is made, the interest shall begin to
run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any case, be on the
amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit. (emphasis supplied).

Since the amounts payable by respondent have been determined with certainty only in the
present petition, the interest due shall be computed upon the finality of this decision at the
rate of 12% per annum until satisfaction, in accordance with paragraph number 3 of the
immediately cited guideline in Easter Shipping Lines, Inc.

WHEREFORE, the Court of Appeals Decision of August 19, 2008 is REVERSED and SET
ASIDE. Judgment is rendered in favor of petitioners ordering respondent to pay petitioners
the following: (1) P50,000 as indemnity for the death of Ruelito Cruz; (2) P8,316,000 as
indemnity for Ruelitos loss of earning capacity; (3) P100,000 as moral damages;
(4) P100,000 as exemplary damages; (5) 10% of the total amount adjudged against
respondent as attorneys fees; and (6) the costs of suit.

The total amount adjudged against respondent shall earn interest at the rate of 12% per
annum computed from the finality of this decision until full payment.

SO ORDERED.

G.R. No. 179446 January 10, 2011

LOADMASTERS CUSTOMS SERVICES, INC., Petitioner,


vs.
GLODEL BROKERAGE CORPORATION and R&B INSURANCE
CORPORATION, Respondents.

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 Decision1 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

On November 19, 2003, the RTC rendered a decision3 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 costs against defendant Glodel Brokerage Corporation.

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
of P1,896,789.62 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

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 a common
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.17This
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 quasi-delicts 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.
1avvphi1

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. 148496 March 19, 2002

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

MENDOZA, J.:

This is a petition for review of the decision,1 dated May 31, 2001, of the Court of Appeals,
affirming the decision2of the Regional Trial Court, Makati City, Branch 148, which ordered
petitioner to pay respondent, as subrogee, the amount of P93,112.00 with legal interest,
representing the value of damaged cargo handled by petitioner, 25% thereof as attorney's
fees, and the cost of the suit.
1wphi1.nt

The facts are as follows:


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

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

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

The trial court held:

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

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


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

is a finding which cannot be traversed and overturned.

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

....
Generally speaking under Article 1735 of the Civil Code, if the goods are proved to
have been lost, destroyed or deteriorated, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they have observed
the extraordinary diligence required by law. The burden of the plaintiff, therefore, is
to prove merely that the goods he transported have been lost, destroyed or
deteriorated. Thereafter, the burden is shifted to the carrier to prove that he has
exercised the extraordinary diligence required by law. Thus, it has been held that the
mere proof of delivery of goods in good order to a carrier, and of their arrival at the
place of destination in bad order, makes out a prima facie case against the carrier,
so that if no explanation is given as to how the injury occurred, the carrier must be
held responsible. It is incumbent upon the carrier to prove that the loss was due to
accident or some other circumstances inconsistent with its liability." (cited in
Commercial Laws of the Philippines by Agbayani, p. 31, Vol. IV, 1989 Ed.)

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


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

Accordingly, the trial court ordered petitioner to pay the following amounts --

1. The sum of P93,112.00 plus interest;

2. 25% thereof as lawyer's fee;

3. Costs of suit.4

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

Petitioner contends that:

I. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR


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

II. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR


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

It will be convenient to deal with these contentions in the inverse order, for if petitioner is not
a common carrier, although both the trial court and the Court of Appeals held otherwise,
then she is indeed not liable beyond what ordinary diligence in the vigilance over the goods
transported by her, would require.6 Consequently, any damage to the cargo she agrees to
transport cannot be presumed to have been due to her fault or negligence.
Petitioner contends that contrary to the findings of the trial court and the Court of Appeals,
she is not a common carrier but a private carrier because, as a customs broker and
warehouseman, she does not indiscriminately hold her services out to the public but only
offers the same to select parties with whom she may contract in the conduct of her
business.

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

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

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


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

The above article makes no distinction between one whose principal business
activity is the carrying of persons or goods or both, and one who does such carrying
only as an ancillary activity . . . Article 1732 also carefully avoids making any
distinction between a person or enterprise offering transportation service on
a regular or scheduled basis and one offering such service on an occasional,
episodic or unscheduled basis. Neither does Article 1732 distinguish between a
carrier offering its services to the "general public," i.e., the general community or
population, and one who offers services or solicits business only from a
narrow segment of the general population. We think that Article 1732 deliberately
refrained from making such distinctions.

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

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

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

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

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

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


vigilance over goods" was explained thus:

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

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

MAXU-2062880 - rain gutter deformed/cracked

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

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

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

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

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


loosened.10

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

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

Details of Discharge:

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

....

Transfer/Delivery:

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

[The cargo] was finally delivered to the consignee's storage warehouse located at
Tabacalera Compound, Romualdez Street, Ermita, Manila from July 23/25, 1990. 12

As found by the Court of Appeals:

From the [Survey Report], it [is] clear that the shipment was discharged from the
vessel to the arrastre, Marina Port Services Inc., in good order and condition as
evidenced by clean Equipment Interchange Reports (EIRs). Had there been any
damage to the shipment, there would have been a report to that effect made by the
arrastre operator. The cargoes were withdrawn by the defendant-appellant from the
arrastre still in good order and condition as the same were received by the
former without exception, that is, without any report of damage or loss. Surely, if the
container vans were deformed, cracked, distorted or dented, the defendant-appellant
would report it immediately to the consignee or make an exception on the delivery
receipt or note the same in the Warehouse Entry Slip (WES). None of these took
place. To put it simply, the defendant-appellant received the shipment in good order
and condition and delivered the same to the consignee damaged. We can only
conclude that the damages to the cargo occurred while it was in the possession of
the defendant-appellant. Whenever the thing is lost (or damaged) in the possession
of the debtor (or obligor), it shall be presumed that the loss (or damage) was due to
his fault, unless there is proof to the contrary. No proof was proffered to rebut this
legal presumption and the presumption of negligence attached to a common carrier
in case of loss or damage to the goods.13
Anent petitioner's insistence that the cargo could not have been damaged while in her
custody as she immediately delivered the containers to SMC's compound, suffice it to say
that to prove the exercise of extraordinary diligence, petitioner must do more than merely
show the possibility that some other party could be responsible for the damage. It must
prove that it used "all reasonable means to ascertain the nature and characteristic of goods
tendered for [transport] and that [it] exercise[d] due care in the handling [thereof]." Petitioner
failed to do this.

Nor is there basis to exempt petitioner from liability under Art. 1734(4), which provides --

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

....

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

....

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

WHEREFORE, the decision of the Court of Appeals, dated May 31, 2001, is AFFIRMED. 1w phi 1.nt

SO ORDERED.

G.R. No. 125948 December 29, 1998

FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner,


vs.
COURT OF APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS CITY and
ADORACION C. ARELLANO, in her official capacity as City Treasurer of Batangas,
respondents.

MARTINEZ, J.:

This petition for review on certiorari assails the Decision of the Court of Appeals
dated November 29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the
Regional Trial Court of Batangas City, Branch 84, in Civil Case No. 4293, which
dismissed petitioners' complaint for a business tax refund imposed by the City of
Batangas.

Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as


amended, to contract, install and operate oil pipelines. The original pipeline
concession was granted in 1967 1 and renewed by the Energy Regulatory Board in 1992. 2

Sometime in January 1995, petitioner applied for a mayor's permit with the Office of
the Mayor of Batangas City. However, before the mayor's permit could be issued, the
respondent City Treasurer required petitioner to pay a local tax based on its gross
receipts for the fiscal year 1993 pursuant to the Local Government Code 3. The
respondent City Treasurer assessed a business tax on the petitioner amounting to P956,076.04
payable in four installments based on the gross receipts for products pumped at GPS-1 for the
fiscal year 1993 which amounted to P181,681,151.00. In order not to hamper its operations,
petitioner paid the tax under protest in the amount of P239,019.01 for the first quarter of 1993.

On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City
Treasurer, the pertinent portion of which reads:

Please note that our Company (FPIC) is a pipeline operator with a


government concession granted under the Petroleum Act. It is engaged
in the business of transporting petroleum products from the Batangas
refineries, via pipeline, to Sucat and JTF Pandacan Terminals. As such,
our Company is exempt from paying tax on gross receipts under
Section 133 of the Local Government Code of 1991 . . . .

Moreover, Transportation contractors are not included in the


enumeration of contractors under Section 131, Paragraph (h) of the
Local Government Code. Therefore, the authority to impose tax "on
contractors and other independent contractors" under Section 143,
Paragraph (e) of the Local Government Code does not include the
power to levy on transportation contractors.

The imposition and assessment cannot be categorized as a mere fee


authorized under Section 147 of the Local Government Code. The said
section limits the imposition of fees and charges on business to such
amounts as may be commensurate to the cost of regulation, inspection,
and licensing. Hence, assuming arguendo that FPIC is liable for the
license fee, the imposition thereof based on gross receipts is violative
of the aforecited provision. The amount of P956,076.04 (P239,019.01 per
quarter) is not commensurate to the cost of regulation, inspection and
licensing. The fee is already a revenue raising measure, and not a mere
regulatory imposition. 4

On March 8, 1994, the respondent City Treasurer denied the protest contending that
petitioner cannot be considered engaged in transportation business, thus it cannot
claim exemption under Section 133 (j) of the Local Government Code. 5
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a
complaint 6 for tax refund with prayer for writ of preliminary injunction against respondents City
of Batangas and Adoracion Arellano in her capacity as City Treasurer. In its complaint, petitioner
alleged, inter alia, that: (1) the imposition and collection of the business tax on its gross receipts
violates Section 133 of the Local Government Code; (2) the authority of cities to impose and
collect a tax on the gross receipts of "contractors and independent contractors" under Sec. 141
(e) and 151 does not include the authority to collect such taxes on transportation contractors for,
as defined under Sec. 131 (h), the term "contractors" excludes transportation contractors; and, (3)
the City Treasurer illegally and erroneously imposed and collected the said tax, thus meriting the
immediate refund of the tax paid. 7

Traversing the complaint, the respondents argued that petitioner cannot be exempt
from taxes under Section 133 (j) of the Local Government Code as said exemption
applies only to "transportation contractors and persons engaged in the
transportation by hire and common carriers by air, land and water." Respondents
assert that pipelines are not included in the term "common carrier" which refers
solely to ordinary carriers such as trucks, trains, ships and the like. Respondents
further posit that the term "common carrier" under the said code pertains to the
mode or manner by which a product is delivered to its destination. 8

On October 3, 1994, the trial court rendered a decision dismissing the complaint,
ruling in this wise:

. . . Plaintiff is either a contractor or other independent contractor.

. . . the exemption to tax claimed by the plaintiff has become unclear. It


is a rule that tax exemptions are to be strictly construed against the
taxpayer, taxes being the lifeblood of the government. Exemption may
therefore be granted only by clear and unequivocal provisions of law.

Plaintiff claims that it is a grantee of a pipeline concession under


Republic Act 387. (Exhibit A) whose concession was lately renewed by
the Energy Regulatory Board (Exhibit B). Yet neither said law nor the
deed of concession grant any tax exemption upon the plaintiff.

Even the Local Government Code imposes a tax on franchise holders


under Sec. 137 of the Local Tax Code. Such being the situation obtained
in this case (exemption being unclear and equivocal) resort to
distinctions or other considerations may be of help:

1. That the exemption granted under Sec. 133


(j) encompasses only common carriers so as
not to overburden the riding public or
commuters with taxes. Plaintiff is not a
common carrier, but a special carrier
extending its services and facilities to a
single specific or "special customer" under a
"special contract."
2. The Local Tax Code of 1992 was basically
enacted to give more and effective local
autonomy to local governments than the
previous enactments, to make them
economically and financially viable to serve
the people and discharge their functions with
a concomitant obligation to accept certain
devolution of powers, . . . So, consistent with
this policy even franchise grantees are taxed
(Sec. 137) and contractors are also taxed
under Sec. 143 (e) and 151 of the Code. 9

Petitioner assailed the aforesaid decision before this Court via a petition for review.
On February 27, 1995, we referred the case to the respondent Court of Appeals for
consideration and adjudication. 10 On November 29, 1995, the respondent court rendered a
decision 11 affirming the trial court's dismissal of petitioner's complaint. Petitioner's motion for
reconsideration was denied on July 18, 1996. 12

Hence, this petition. At first, the petition was denied due course in a Resolution dated
November 11, 1996. 13 Petitioner moved for a reconsideration which was granted by this Court
in a Resolution 14 of January 22, 1997. Thus, the petition was reinstated.

Petitioner claims that the respondent Court of Appeals erred in holding that (1) the
petitioner is not a common carrier or a transportation contractor, and (2) the
exemption sought for by petitioner is not clear under the law.

There is merit in the petition.

A "common carrier" may be defined, broadly, as one who holds himself out to the
public as engaged in the business of transporting persons or property from place to
place, for compensation, offering his services to the public generally.

Art. 1732 of the Civil Code defines a "common carrier" as "any 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 their services to
the public."

The test for determining whether a party is a common carrier of goods is:

1. He must be engaged in the business of


carrying goods for others as a public
employment, and must hold himself out as
ready to engage in the transportation of
goods for person generally as a business and
not as a casual occupation;

2. He must undertake to carry goods of the


kind to which his business is confined;
3. He must undertake to carry by the method
by which his business is conducted and over
his established roads; and

4. The transportation must be for hire. 15

Based on the above definitions and requirements, there is no doubt that petitioner is
a common carrier. It is engaged in the business of transporting or carrying
goods, i.e. petroleum products, for hire as a public employment. It undertakes to
carry for all persons indifferently, that is, to all persons who choose to employ its
services, and transports the goods by land and for compensation. The fact that
petitioner has a limited clientele does not exclude it from the definition of a common
carrier. In De Guzman vs. Court of Appeals 16 we ruled that:

The above article (Art. 1732, Civil Code) makes no


distinction between one whose principal business activity
is the carrying of persons or goods or both, and one who
does such carrying only as an ancillary activity (in local
idiom, as a "sideline"). Article 1732 . . . avoids making any
distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and
one offering such service on an occasional, episodic or
unscheduled basis. Neither does Article 1732 distinguish
between a carrier offering its services to the "general
public," i.e., the general community or population, and one
who offers services or solicits business only from a
narrow segment of the general population. We think that
Article 1877 deliberately refrained from making such
distinctions.

So understood, the concept of "common carrier" under


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

every person that now or hereafter may own,


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

Also, respondent's argument that the term "common carrier" as used in Section 133
(j) of the Local Government Code refers only to common carriers transporting goods
and passengers through moving vehicles or vessels either by land, sea or water, is
erroneous.

As correctly pointed out by petitioner, the definition of "common carriers" in the Civil
Code makes no distinction as to the means of transporting, as long as it is by land,
water or air. It does not provide that the transportation of the passengers or goods
should be by motor vehicle. In fact, in the United States, oil pipe line operators are
considered common carriers. 17

Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is
considered a "common carrier." Thus, Article 86 thereof provides that:

Art. 86. Pipe line concessionaire as common carrier. A


pipe line shall have the preferential right to utilize
installations for the transportation of petroleum owned by
him, but is obligated to utilize the remaining transportation
capacity pro rata for the transportation of such other
petroleum as may be offered by others for transport, and
to charge without discrimination such rates as may have
been approved by the Secretary of Agriculture and Natural
Resources.

Republic Act 387 also regards petroleum operation as a public utility. Pertinent
portion of Article 7 thereof provides:

that everything relating to the exploration for and


exploitation of petroleum . . . and everything relating to the
manufacture, refining, storage, or transportation by special
methods of petroleum, is hereby declared to be a public
utility. (Emphasis Supplied)
The Bureau of Internal Revenue likewise considers the petitioner a "common carrier."
In BIR Ruling No. 069-83, it declared:

. . . since [petitioner] is a pipeline concessionaire that is


engaged only in transporting petroleum products, it is
considered a common carrier under Republic Act No. 387 .
. . . Such being the case, it is not subject to withholding tax
prescribed by Revenue Regulations No. 13-78, as
amended.

From the foregoing disquisition, there is no doubt that petitioner is a "common


carrier" and, therefore, exempt from the business tax as provided for in Section 133
(j), of the Local Government Code, to wit:

Sec. 133. Common Limitations on the Taxing Powers of


Local Government Units. Unless otherwise provided
herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to
the levy of the following:

xxx xxx xxx

(j) Taxes on the gross receipts


of transportation contractors
and persons engaged in the
transportation of passengers or
freight by hire and common
carriers by air, land or water,
except as provided in this Code.

The deliberations conducted in the House of Representatives on the Local


Government Code of 1991 are illuminating:

MR. AQUINO (A). Thank you, Mr. Speaker.

Mr. Speaker, we would like to proceed to page 95, line

1. It states: "SEC. 121 [now Sec. 131]. Common Limitations


on the Taxing Powers of Local Government Units." . . .

MR. AQUINO (A.). Thank you Mr. Speaker.

Still on page 95, subparagraph 5, on taxes on the business


of transportation. This appears to be one of those being
deemed to be exempted from the taxing powers of the
local government units. May we know the reason why the
transportation business is being excluded from the taxing
powers of the local government units?
MR. JAVIER (E.). Mr. Speaker, there is an exception
contained in Section 121 (now Sec. 131), line 16, paragraph
5. It states that local government units may not impose
taxes on the business of transportation, except as
otherwise provided in this code.

Now, Mr. Speaker, if the Gentleman would care to go to


page 98 of Book II, one can see there that provinces have
the power to impose a tax on business enjoying a
franchise at the rate of not more than one-half of 1 percent
of the gross annual receipts. So, transportation
contractors who are enjoying a franchise would be subject
to tax by the province. That is the exception, Mr. Speaker.

What we want to guard against here, Mr. Speaker, is the


imposition of taxes by local government units on the
carrier business. Local government units may impose
taxes on top of what is already being imposed by the
National Internal Revenue Code which is the so-called
"common carriers tax." We do not want a duplication of
this tax, so we just provided for an exception under
Section 125 [now Sec. 137] that a province may impose
this tax at a specific rate.

MR. AQUINO (A.). Thank you for that clarification, Mr.


Speaker. . . . 18

It is clear that the legislative intent in excluding from the taxing power of the local
government unit the imposition of business tax against common carriers is to
prevent a duplication of the so-called "common carrier's tax."

Petitioner is already paying three (3%) percent common carrier's tax on its gross
sales/earnings under the National Internal Revenue Code. 19 To tax petitioner again on its
gross receipts in its transportation of petroleum business would defeat the purpose of the Local
Government Code.

WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court
of Appeals dated November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET
ASIDE.

SO ORDERED.

G.R. No. L-47822 December 22, 1988

PEDRO DE GUZMAN, petitioner,


vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.
Vicente D. Millora for petitioner.

Jacinto Callanta for private respondent.

FELICIANO, J.:

Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and
scrap metal in Pangasinan. Upon gathering sufficient quantities of such scrap material,
respondent would bring such material to Manila for resale. He utilized two (2) six-wheeler
trucks which he owned for hauling the material to Manila. On the return trip to Pangasinan,
respondent would load his vehicles with cargo which various merchants wanted delivered to
differing establishments in Pangasinan. For that service, respondent charged freight rates
which were commonly lower than regular commercial rates.

Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized


dealer of General Milk Company (Philippines), Inc. in Urdaneta, Pangasinan, contracted
with respondent for the hauling of 750 cartons of Liberty filled milk from a warehouse of
General Milk in Makati, Rizal, to petitioner's establishment in Urdaneta on or before 4
December 1970. Accordingly, on 1 December 1970, respondent loaded in Makati the
merchandise on to his trucks: 150 cartons were loaded on a truck driven by respondent
himself, while 600 cartons were placed on board the other truck which was driven by
Manuel Estrada, respondent's driver and employee.

Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes never
reached petitioner, since the truck which carried these boxes was hijacked somewhere
along the MacArthur Highway in Paniqui, Tarlac, by armed men who took with them the
truck, its driver, his helper and the cargo.

On 6 January 1971, petitioner commenced action against private respondent in the Court of
First Instance of Pangasinan, demanding payment of P 22,150.00, the claimed value of the
lost merchandise, plus damages and attorney's fees. Petitioner argued that private
respondent, being a common carrier, and having failed to exercise the extraordinary
diligence required of him by the law, should be held liable for the value of the undelivered
goods.

In his Answer, private respondent denied that he was a common carrier and argued that he
could not be held responsible for the value of the lost goods, such loss having been due
to force majeure.

On 10 December 1975, the trial court rendered a Decision 1 finding private respondent to be a
common carrier and holding him liable for the value of the undelivered goods (P 22,150.00) as well as for
P 4,000.00 as damages and P 2,000.00 as attorney's fees.

On appeal before the Court of Appeals, respondent urged that the trial court had erred in
considering him a common carrier; in finding that he had habitually offered trucking services
to the public; in not exempting him from liability on the ground of force majeure; and in
ordering him to pay damages and attorney's fees.

The Court of Appeals reversed the judgment of the trial court and held that respondent had
been engaged in transporting return loads of freight "as a casual
occupation a sideline to his scrap iron business" and not as a common carrier. Petitioner
came to this Court by way of a Petition for Review assigning as errors the following
conclusions of the Court of Appeals:

1. that private respondent was not a common carrier;

2. that the hijacking of respondent's truck was force majeure; and

3. that respondent was not liable for the value of the undelivered cargo.
(Rollo, p. 111)

We consider first the issue of whether or not private respondent Ernesto Cendana may,
under the facts earlier set forth, be properly characterized as a common carrier.

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

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


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

The above article makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as
an ancillary activity (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 service on an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a carrier offering its services to the
"general public," i.e., the general community or population, and one who offers services or
solicits business only from a narrow segment of the general population. We think that Article
1733 deliberaom making such distinctions.

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

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

It appears to the Court that private respondent is properly characterized as a common


carrier even though he merely "back-hauled" goods for other merchants from Manila to
Pangasinan, although such back-hauling was done on a periodic or occasional rather than
regular or scheduled manner, and even though private respondent's 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 fee frequently fell below
commercial freight rates is not relevant here.

The Court of Appeals referred to the fact that private respondent held no certificate of public
convenience, and concluded he was not a common carrier. This is palpable error. A
certificate of public convenience is not a requisite for the incurring of liability under the Civil
Code provisions governing common carriers. That liability arises the moment a person or
firm acts as a common carrier, without regard to whether or not such carrier has also
complied with the requirements of the applicable regulatory statute and implementing
regulations and has been granted a certificate of public convenience or other franchise. To
exempt private respondent from the liabilities of a common carrier because he has not
secured the necessary certificate of public convenience, would be offensive to sound public
policy; that would be to reward private respondent precisely for failing to comply with
applicable statutory requirements. The business of a common carrier impinges directly and
intimately upon the safety and well being and property of those members of the general
community who happen to deal with such carrier. The law imposes duties and liabilities
upon common carriers for the safety and protection of those who utilize their services and
the law cannot allow a common carrier to render such duties and liabilities merely
facultative by simply failing to obtain the necessary permits and authorizations.

We turn then to the liability of private respondent as a common carrier.

Common carriers, "by the nature of their business and for reasons of public policy" 2 are held
to a very high degree of care and diligence ("extraordinary diligence") in the carriage of goods as well as
of passengers. The specific import of extraordinary diligence in the care of goods transported by a
common carrier is, according to Article 1733, "further expressed in Articles 1734,1735 and 1745, numbers
5, 6 and 7" of the Civil Code.

Article 1734 establishes the general rule that common carriers are responsible for the loss,
destruction or deterioration of the goods which they carry, "unless the same is due to any of
the following causes only:

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


or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character-of the goods or defects in the packing or-in
the containers; and
(5) Order or act of competent public authority.

It is important to point out that the above list of causes of loss, destruction or deterioration
which exempt the common carrier for responsibility therefor, is a closed list. Causes falling
outside the foregoing list, even if they appear to constitute a species of force majeure fall
within the scope of Article 1735, which provides as follows:

In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the


preceding article, if the goods are lost, destroyed or deteriorated, common
carriers are presumed to have been at fault or to have acted negligently,
unless they prove that they observed extraordinary diligence as required in
Article 1733. (Emphasis supplied)

Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific cause
alleged in the instant case the hijacking of the carrier's truck does not fall within any of
the five (5) categories of exempting causes listed in Article 1734. It would follow, therefore,
that the hijacking of the carrier's vehicle must be dealt with under the provisions of Article
1735, in other words, that the private respondent as common carrier is presumed to have
been at fault or to have acted negligently. This presumption, however, may be overthrown
by proof of extraordinary diligence on the part of private respondent.

Petitioner insists that private respondent had not observed extraordinary diligence in the
care of petitioner's goods. Petitioner argues that in the circumstances of this case, private
respondent should have hired a security guard presumably to ride with the truck carrying
the 600 cartons of Liberty filled milk. We do not believe, however, that in the instant case,
the standard of extraordinary diligence required private respondent to retain a security
guard to ride with the truck and to engage brigands in a firelight at the risk of his own life
and the lives of the driver and his helper.

The precise issue that we address here relates to the specific requirements of the duty of
extraordinary diligence in the vigilance over the goods carried in the specific context of
hijacking or armed robbery.

As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under
Article 1733, given additional specification not only by Articles 1734 and 1735 but also by
Article 1745, numbers 4, 5 and 6, Article 1745 provides in relevant part:

Any of the following or similar stipulations shall be considered unreasonable,


unjust and contrary to public policy:

xxx xxx xxx

(5) that the common carrier shall not be responsible for the acts
or omissions of his or its employees;
(6) that the common carrier's 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; and

(7) that the common carrier shall 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. (Emphasis
supplied)

Under Article 1745 (6) above, a common carrier is held responsible and will not be
allowed to divest or to diminish such responsibility even for acts of strangers like thieves
or robbers, except where such thieves or robbers in fact acted "with grave or irresistible
threat, violence or force." We believe and so hold that the limits of the duty of extraordinary
diligence in the vigilance over the goods carried are reached where the goods are lost as a
result of a robbery which is attended by "grave or irresistible threat, violence or force."

In the instant case, armed men held up the second truck owned by private respondent
which carried petitioner's cargo. The record shows that an information for robbery in band
was filed in the Court of First Instance of Tarlac, Branch 2, in Criminal Case No. 198 entitled
"People of the Philippines v. Felipe Boncorno, Napoleon Presno, Armando Mesina, Oscar
Oria and one John Doe." There, the accused were charged with willfully and unlawfully
taking and carrying away with them the second truck, driven by Manuel Estrada and loaded
with the 600 cartons of Liberty filled milk destined for delivery at petitioner's store in
Urdaneta, Pangasinan. The decision of the trial court shows that the accused acted with
grave, if not irresistible, threat, violence or force. 3 Three (3) of the five (5) hold-uppers were armed
with firearms. The robbers not only took away the truck and its cargo but also kidnapped the driver and
his helper, detaining them for several days and later releasing them in another province (in Zambales).
The hijacked truck was subsequently found by the police in Quezon City. The Court of First Instance
convicted all the accused of robbery, though not of robbery in band. 4

In these circumstances, we hold that the occurrence of the loss must reasonably be
regarded as quite beyond the control of the common carrier and properly regarded as a
fortuitous event. It is necessary to recall that even common carriers are not made absolute
insurers against all risks of travel and of transport of goods, and are not held liable for acts
or events which cannot be foreseen or are inevitable, provided that they shall have
complied with the rigorous standard of extraordinary diligence.

We, therefore, agree with the result reached by the Court of Appeals that private
respondent Cendana is not liable for the value of the undelivered merchandise which was
lost because of an event entirely beyond private respondent's control.

ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and the Decision of
the Court of Appeals dated 3 August 1977 is AFFIRMED. No pronouncement as to costs.

SO ORDERED

.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 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 charter-party; in the negative, whether the shipowner in the instant
case was able to prove that he had exercised that degree of diligence required of him under
the law.

It is said that etymology is the basis of reliable judicial decisions in commercial cases. This
being so, we find it fitting to first define important terms which are relevant to our discussion.
A "charter-party" is defined as a contract by which an entire ship, or some principal part
thereof, is let by the owner to another person for a specified time or use; 20 a contract of
affreightment by which the owner of a ship or other vessel lets the whole or a part of her to a merchant or
other person for the conveyance of goods, on a particular voyage, in consideration of the payment of
freight; 21 Charter parties are of two types: (a) contract of affreightment which involves the use of shipping
space on vessels leased by the owner in part or as a whole, to carry goods for others; and, (b) charter by
demise or bareboat charter, by the terms of which the whole vessel is let to the charterer with a transfer to
him of its entire command and possession and consequent control over its navigation, including the
master and the crew, who are his servants. Contract of affreightment may either be time charter, wherein
the vessel is leased to the charterer for a fixed period of time, or voyage charter, wherein the ship is
leased for a single voyage. 22 In both cases, the charter-party provides for the hire of vessel only, either
for a determinate period of time or for a single or consecutive voyage, the shipowner to supply the ship's
stores, pay for the wages of the master and the crew, and defray the expenses for the maintenance of the
ship.

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

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

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

It is therefore imperative that a public carrier shall remain as such, notwithstanding the
charter of the whole or portion of a vessel by one or more persons, provided the charter is
limited to the ship only, as in the case of a time-charter or voyage-charter. It is only when
the charter includes both the vessel and its crew, as in a bareboat or demise that a common
carrier becomes private, at least insofar as the particular voyage covering the charter-party
is concerned. Indubitably, a shipowner in a time or voyage charter retains possession and
control of the ship, although her holds may, for the moment, be the property of the
charterer. 28
Respondent carrier's heavy reliance on the case of Home Insurance Co. v. American
Steamship Agencies, supra, is misplaced for the reason that the meat of the controversy
therein was the validity of a stipulation in the charter-party exempting the shipowners from
liability for loss due to the negligence of its agent, and not the effects of a special charter on
common carriers. At any rate, the rule in the United States that a ship chartered by a single
shipper to carry special cargo is not a common carrier, 29 does not find application in our
jurisdiction, for we have observed that the growing concern for safety in the transportation of passengers
and /or carriage of goods by sea requires a more exacting interpretation of admiralty laws, more
particularly, the rules governing common carriers.

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

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


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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

Costs against petitioner.

SO ORDERED.

G.R. No. 114167 July 12, 1995

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 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 a prima 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, 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.

G.R. No. 149038 April 9, 2003

PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, petitioner,


vs.
PKS SHIPPING COMPANY, respondent.

VITUG, J.:

The petition before the Court seeks a review of the decision of the Court of Appeals in C.A.
G.R. CV No. 56470, promulgated on 25 June 2001, which has affirmed in toto the judgment
of the Regional Trial Court (RTC), Branch 65, of Makati, dismissing the complaint for
damages filed by petitioner insurance corporation against respondent shipping company.

Davao Union Marketing Corporation (DUMC) contracted the services of respondent PKS
Shipping Company (PKS Shipping) for the shipment to Tacloban City of seventy-five
thousand (75,000) bags of cement worth Three Million Three Hundred Seventy-Five
Thousand Pesos (P3,375,000.00). DUMC insured the goods for its full value with petitioner
Philippine American General Insurance Company (Philamgen). The goods were loaded
aboard the dumb barge Limar I belonging to PKS Shipping. On the evening of 22 December
1988, about nine oclock, while Limar I was being towed by respondents tugboat, MT Iron
Eagle, the barge sank a couple of miles off the coast of Dumagasa Point, in Zamboanga del
Sur, bringing down with it the entire cargo of 75,000 bags of cement.

DUMC filed a formal claim with Philamgen for the full amount of the insurance. Philamgen
promptly made payment; it then sought reimbursement from PKS Shipping of the sum paid
to DUMC but the shipping company refused to pay, prompting Philamgen to file suit against
PKS Shipping with the Makati RTC.

The RTC dismissed the complaint after finding that the total loss of the cargo could have
been caused either by a fortuitous event, in which case the ship owner was not liable, or
through the negligence of the captain and crew of the vessel and that, under Article 587 of
the Code of Commerce adopting the "Limited Liability Rule," the ship owner could free itself
of liability by abandoning, as it apparently so did, the vessel with all her equipment and
earned freightage.

Philamgen interposed an appeal to the Court of Appeals which affirmed in toto the decision
of the trial court. The appellate court ruled that evidence to establish that PKS Shipping was
a common carrier at the time it undertook to transport the bags of cement was wanting
because the peculiar method of the shipping companys carrying goods for others was not
generally held out as a business but as a casual occupation. It then concluded that PKS
Shipping, not being a common carrier, was not expected to observe the stringent
extraordinary diligence required of common carriers in the care of goods. The appellate
court, moreover, found that the loss of the goods was sufficiently established as having
been due to fortuitous event, negating any liability on the part of PKS Shipping to the
shipper.

In the instant appeal, Philamgen contends that the appellate court has committed a patent
error in ruling that PKS Shipping is not a common carrier and that it is not liable for the loss
of the subject cargo. The fact that respondent has a limited clientele, petitioner argues, does
not militate against respondents being a common carrier and that the only way by which
such carrier can be held exempt for the loss of the cargo would be if the loss were caused
by natural disaster or calamity. Petitioner avers that typhoon "APIANG" has not entered the
Philippine area of responsibility and that, even if it did, respondent would not be exempt
from liability because its employees, particularly the tugmaster, have failed to exercise due
diligence to prevent or minimize the loss.

PKS Shipping, in its comment, urges that the petition should be denied because what
Philamgen seeks is not a review on points or errors of law but a review of the undisputed
factual findings of the RTC and the appellate court. In any event, PKS Shipping points out,
the findings and conclusions of both courts find support from the evidence and applicable
jurisprudence.

The determination of possible liability on the part of PKS Shipping boils down to the
question of whether it is a private carrier or a common carrier and, in either case, to the
other question of whether or not it has observed the proper diligence (ordinary, if a private
carrier, or extraordinary, if a common carrier) required of it given the circumstances.

The findings of fact made by the Court of Appeals, particularly when such findings are
consistent with those of the trial court, may not at liberty be reviewed by this Court in a
petition for review under Rule 45 of the Rules of Court.1 The conclusions derived from those
factual findings, however, are not necessarily just matters of fact as when they are so linked
to, or inextricably intertwined with, a requisite appreciation of the applicable law. In such
instances, the conclusions made could well be raised as being appropriate issues in a
petition for review before this Court. Thus, an issue whether a carrier is private or common
on the basis of the facts found by a trial court or the appellate court can be a valid and
reviewable question of law.

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


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

Complementary to the codal definition is Section 13, paragraph (b), of the Public Service
Act; it defines "public service" to be

"x x x every person that now or hereafter may own, operate, manage, or control in
the Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, 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, or steamship line, pontines, ferries and water craft, engaged in the
transportation of passengers or freight or both, shipyard, marine repair shop, wharf
or dock, ice plant, ice refrigeration plant, canal, irrigation system, gas, electric light,
heat and power, water supply and power petroleum, sewerage system, wire or
wireless communication systems, wire or wireless broadcasting stations and other
similar public services. x x x. (Underscoring supplied)."

The prevailing doctrine on the question is that enunciated in the leading case of De Guzman
vs. Court of Appeals.2 Applying Article 1732 of the Code, in conjunction with Section 13(b)
of the Public Service Act, this Court has held:

"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 service on
an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish
between a carrier offering its services to the `general public, i.e., the general
community or population, and one who offers services or solicits business only from
a narrow segment of the general population. We think that Article 1732 deliberately
refrained from making such distinctions.

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

Much of 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 an isolated
transaction, not a part of the business or occupation, and the carrier does not hold itself out
to carry the goods for the general public or to a limited clientele, although involving the
carriage of goods for a fee,3 the person or corporation providing such service could very
well be just a private carrier. A typical case is that of a charter party which includes both the
vessel and its crew, such as in a bareboat or demise, where the charterer obtains the use
and service of all or some part of a ship for a period of time or a voyage or voyages 4 and
gets the control of the vessel and its crew.5 Contrary to the conclusion made by the
appellate court, its factual findings indicate that PKS Shipping has engaged itself in the
business of carrying goods for others, although for a limited clientele, undertaking to carry
such goods for a fee. The regularity of its activities in this area indicates more than just a
casual activity on its part.6 Neither can the concept of a common carrier change merely
because individual contracts are executed or entered into with patrons of the carrier. Such
restrictive interpretation would make it easy for a common carrier to escape liability by the
simple expedient of entering into those distinct agreements with clients.

Addressing now the issue of whether or not PKS Shipping has exercised the proper
diligence demanded of common carriers, Article 1733 of the Civil Code requires common
carriers to observe extraordinary diligence in the vigilance over the goods they carry. In
case of loss, destruction or deterioration of goods, common carriers are presumed to have
been at fault or to have acted negligently, and the burden of proving otherwise rests on
them.7 The provisions of Article 1733, notwithstanding, common carriers are exempt from
liability for loss, destruction, or deterioration of the goods due to any of the following causes:

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

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

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

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

(5) Order or act of competent public authority.8

The appellate court ruled, gathered from the testimonies and sworn marine protests of the
respective vessel masters of Limar I and MT Iron Eagle, that there was no way by which the
barges or the tugboats crew could have prevented the sinking of Limar I. The vessel was
suddenly tossed by waves of extraordinary height of six (6) to eight (8) feet and buffeted by
strong winds of 1.5 knots resulting in the entry of water into the barges hatches. The official
Certificate of Inspection of the barge issued by the Philippine Coastguard and the
Coastwise Load Line Certificate would attest to the seaworthiness of Limar I and should
strengthen the factual findings of the appellate court.

Findings of fact of the Court of Appeals generally conclude this Court; none of the
recognized exceptions from the rule - (1) when the factual findings of the Court of Appeals
and the trial court are contradictory; (2) when the conclusion is a finding grounded entirely
on speculation, surmises, or conjectures; (3) when the inference made by the Court of
Appeals from its findings of fact is manifestly mistaken, absurd, or impossible; (4) when
there is a grave abuse of discretion in the appreciation of facts; (5) when the appellate
court, in making its findings, went beyond the issues of the case and such findings are
contrary to the admissions of both appellant and appellee; (6) when the judgment of the
Court of Appeals is premised on a misapprehension of facts; (7) when the Court of Appeals
failed to notice certain relevant facts which, if properly considered, would justify a different
conclusion; (8) when the findings of fact are themselves conflicting; (9) when the findings of
fact are conclusions without citation of the specific evidence on which they are based; and
(10) when the findings of fact of the Court of Appeals are premised on the absence of
evidence but such findings are contradicted by the evidence on record would appear to be
clearly extant in this instance.

All given then, the appellate court did not err in its judgment absolving PKS Shipping from
liability for the loss of the DUMC cargo.

WHEREFORE, the petition is DENIED. No costs.

SO ORDERED

G.R. No. 141910 August 6, 2002

FGU INSURANCE CORPORATION, petitioner,


vs.
G.P. SARMIENTO TRUCKING CORPORATION and LAMBERT M.
EROLES, respondents.

VITUG, J.:

G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver on 18 June 1994 thirty
(30) units of Condura S.D. white refrigerators aboard one of its Isuzu truck, driven by
Lambert Eroles, from the plant site of Concepcion Industries, Inc., along South
Superhighway in Alabang, Metro Manila, to the Central Luzon Appliances in Dagupan City.
While the truck was traversing the north diversion road along McArthur highway in
Barangay Anupol, Bamban, Tarlac, it collided with an unidentified truck, causing it to fall into
a deep canal, resulting in damage to the cargoes.

FGU Insurance Corporation (FGU), an insurer of the shipment, paid to Concepcion


Industries, Inc., the value of the covered cargoes in the sum of P204,450.00. FGU, in turn,
being the subrogee of the rights and interests of Concepcion Industries, Inc., sought
reimbursement of the amount it had paid to the latter from GPS. Since the trucking
company failed to heed the claim, FGU filed a complaint for damages and breach of
contract of carriage against GPS and its driver Lambert Eroles with the Regional Trial Court,
Branch 66, of Makati City. In its answer, respondents asserted that GPS was the exclusive
hauler only of Concepcion Industries, Inc., since 1988, and it was not so engaged in
business as a common carrier. Respondents further claimed that the cause of damage was
purely accidental.1w phi 1.nt

The issues having thus been joined, FGU presented its evidence, establishing the extent of
damage to the cargoes and the amount it had paid to the assured. GPS, instead of
submitting its evidence, filed with leave of court a motion to dismiss the complaint by way of
demurrer to evidence on the ground that petitioner had failed to prove that it was a common
carrier.

The trial court, in its order of 30 April 1996,1 granted the motion to dismiss, explaining
thusly:
"Under Section 1 of Rule 131 of the Rules of Court, it is provided that Each party
must prove his own affirmative allegation, xxx.

"In the instant case, plaintiff did not present any single evidence that would prove
that defendant is a common carrier.

"x x x xxx xxx

"Accordingly, the application of the law on common carriers is not warranted and the
presumption of fault or negligence on the part of a common carrier in case of loss,
damage or deterioration of goods during transport under 1735 of the Civil Code is
not availing.

"Thus, the laws governing the contract between the owner of the cargo to whom the
plaintiff was subrogated and the owner of the vehicle which transports the cargo are
the laws on obligation and contract of the Civil Code as well as the law on quasi
delicts.

"Under the law on obligation and contract, negligence or fault is not presumed. The
law on quasi delict provides for some presumption of negligence but only upon the
attendance of some circumstances. Thus, Article 2185 provides:

Art. 2185. Unless there is proof to the contrary, it is presumed that a person
driving a motor vehicle has been negligent if at the time of the mishap, he
was violating any traffic regulation.

"Evidence for the plaintiff shows no proof that defendant was violating any traffic
regulation. Hence, the presumption of negligence is not obtaining.

"Considering that plaintiff failed to adduce evidence that defendant is a common


carrier and defendants driver was the one negligent, defendant cannot be made
liable for the damages of the subject cargoes."2

The subsequent motion for reconsideration having been denied,3 plaintiff interposed an
appeal to the Court of Appeals, contending that the trial court had erred (a) in holding that
the appellee corporation was not a common carrier defined under the law and existing
jurisprudence; and (b) in dismissing the complaint on a demurrer to evidence.

The Court of Appeals rejected the appeal of petitioner and ruled in favor of GPS. The
appellate court, in its decision of 10 June 1999,4 discoursed, among other things, that -

"x x x in order for the presumption of negligence provided for under the law
governing common carrier (Article 1735, Civil Code) to arise, the appellant must first
prove that the appellee is a common carrier. Should the appellant fail to prove that
the appellee is a common carrier, the presumption would not arise; consequently,
the appellant would have to prove that the carrier was negligent.

"x x x xxx xxx


"Because it is the appellant who insists that the appellees can still be considered as
a common carrier, despite its `limited clientele, (assuming it was really a common
carrier), it follows that it (appellant) has the burden of proving the same. It (plaintiff-
appellant) `must establish his case by a preponderance of evidence, which means
that the evidence as a whole adduced by one side is superior to that of the other.
(Summa Insurance Corporation vs. Court of Appeals, 243 SCRA 175). This,
unfortunately, the appellant failed to do -- hence, the dismissal of the plaintiffs
complaint by the trial court is justified.

"x x x xxx xxx

"Based on the foregoing disquisitions and considering the circumstances that the
appellee trucking corporation has been `its exclusive contractor, hauler since 1970,
defendant has no choice but to comply with the directive of its principal, the
inevitable conclusion is that the appellee is a private carrier.

"x x x xxx xxx

"x x x the lower court correctly ruled that 'the application of the law on common
carriers is not warranted and the presumption of fault or negligence on the part of a
common carrier in case of loss, damage or deterioration of good[s] during transport
under [article] 1735 of the Civil Code is not availing.' x x x.

"Finally, We advert to the long established rule that conclusions and findings of fact
of a trial court are entitled to great weight on appeal and should not be disturbed
unless for strong and valid reasons."5

Petitioner's motion for reconsideration was likewise denied;6 hence, the instant
petition,7 raising the following issues:

WHETHER RESPONDENT GPS MAY BE CONSIDERED AS A COMMON


CARRIER AS DEFINED UNDER THE LAW AND EXISTING JURISPRUDENCE.

II

WHETHER RESPONDENT GPS, EITHER AS A COMMON CARRIER OR A


PRIVATE CARRIER, MAY BE PRESUMED TO HAVE BEEN NEGLIGENT WHEN
THE GOODS IT UNDERTOOK TO TRANSPORT SAFELY WERE
SUBSEQUENTLY DAMAGED WHILE IN ITS PROTECTIVE CUSTODY AND
POSSESSION.

III

WHETHER THE DOCTRINE OF RES IPSA LOQUITUR IS APPLICABLE IN THE


INSTANT CASE.
On the first issue, the Court finds the conclusion of the trial court and the Court of Appeals
to be amply justified. GPS, being an exclusive contractor and hauler of Concepcion
Industries, Inc., rendering or offering its services to no other individual or entity, cannot be
considered a common carrier. 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 hire or compensation, offering their services to
the public,8 whether to the public in general or to a limited clientele in particular, but never
on an exclusive basis.9 The true test of a common carrier is the carriage of passengers or
goods, providing space for those who opt to avail themselves of its transportation service for
a fee.10 Given accepted standards, GPS scarcely falls within the term "common carrier."

The above conclusion nothwithstanding, GPS cannot escape from liability.

In culpa contractual, upon which the action of petitioner rests as being the subrogee of
Concepcion Industries, Inc., the mere proof of the existence of the contract and the failure
of its compliance justify, prima facie, a corresponding right of relief.11 The law, recognizing
the obligatory force of contracts,12 will not permit a party to be set free from liability for any
kind of misperformance of the contractual undertaking or a contravention of the tenor
thereof.13 A breach upon the contract confers upon the injured party a valid cause for
recovering that which may have been lost or suffered. The remedy serves to preserve the
interests of the promisee that may include his "expectation interest," which is his interest in
having the benefit of his bargain by being put in as good a position as he would have been
in had the contract been performed, or his "reliance interest," which is his interest in being
reimbursed for loss caused by reliance on the contract by being put in as good a position as
he would have been in had the contract not been made; or his "restitution interest," which is
his interest in having restored to him any benefit that he has conferred on the other
party.14 Indeed, agreements can accomplish little, either for their makers or for society,
unless they are made the basis for action.15 The effect of every infraction is to create a new
duty, that is, to make recompense to the one who has been injured by the failure of another
to observe his contractual obligation16 unless he can show extenuating circumstances, like
proof of his exercise of due diligence (normally that of the diligence of a good father of a
family or, exceptionally by stipulation or by law such as in the case of common carriers, that
of extraordinary diligence) or of the attendance of fortuitous event, to excuse him from his
ensuing liability.

Respondent trucking corporation recognizes the existence of a contract of carriage between


it and petitioners assured, and admits that the cargoes it has assumed to deliver have been
lost or damaged while in its custody. In such a situation, a default on, or failure of
compliance with, the obligation in this case, the delivery of the goods in its custody to the
place of destination - gives rise to a presumption of lack of care and corresponding liability
on the part of the contractual obligor the burden being on him to establish otherwise. GPS
has failed to do so.

Respondent driver, on the other hand, without concrete proof of his negligence or fault, may
not himself be ordered to pay petitioner. The driver, not being a party to the contract of
carriage between petitioners principal and defendant, may not be held liable under the
agreement. A contract can only bind the parties who have entered into it or their successors
who have assumed their personality or their juridical position.17 Consonantly with the
axiom res inter alios acta aliis neque nocet prodest, such contract can neither favor nor
prejudice a third person. Petitioners civil action against the driver can only be based
on culpa aquiliana, which, unlike culpa contractual, would require the claimant for damages
to prove negligence or fault on the part of the defendant. 18

A word in passing. Res ipsa loquitur, a doctrine being invoked by petitioner, holds a
defendant liable where the thing which caused the injury complained of is shown to be
under the latters management and the accident is such that, in the ordinary course of
things, cannot be expected to happen if those who have its management or control use
proper care. It affords reasonable evidence, in the absence of explanation by the defendant,
that the accident arose from want of care.19 It is not a rule of substantive law and, as such, it
does not create an independent ground of liability. Instead, it is regarded as a mode of
proof, or a mere procedural convenience since it furnishes a substitute for, and relieves the
plaintiff of, the burden of producing specific proof of negligence. The maxim simply places
on the defendant the burden of going forward with the proof. 20 Resort to the doctrine,
however, may be allowed only when (a) the event is of a kind which does not ordinarily
occur in the absence of negligence; (b) other responsible causes, including the conduct of
the plaintiff and third persons, are sufficiently eliminated by the evidence; and (c) the
indicated negligence is within the scope of the defendant's duty to the plaintiff. 21 Thus, it is
not applicable when an unexplained accident may be attributable to one of several causes,
for some of which the defendant could not be responsible.22

Res ipsa loquitur generally finds relevance whether or not a contractual relationship exists
between the plaintiff and the defendant, for the inference of negligence arises from the
circumstances and nature of the occurrence and not from the nature of the relation of the
parties.23 Nevertheless, the requirement that responsible causes other than those due to
defendants conduct must first be eliminated, for the doctrine to apply, should be understood
as being confined only to cases of pure (non-contractual) tort since obviously the
presumption of negligence in culpa contractual, as previously so pointed out, immediately
attaches by a failure of the covenant or its tenor. In the case of the truck driver, whose
liability in a civil action is predicated on culpa acquiliana, while he admittedly can be said to
have been in control and management of the vehicle which figured in the accident, it is not
equally shown, however, that the accident could have been exclusively due to his
negligence, a matter that can allow, forthwith, res ipsa loquitur to work against him.

If a demurrer to evidence is granted but on appeal the order of dismissal is reversed, the
movant shall be deemed to have waived the right to present evidence. 24 Thus, respondent
corporation may no longer offer proof to establish that it has exercised due care in
transporting the cargoes of the assured so as to still warrant a remand of the case to the
trial court.
1w phi 1.nt

WHEREFORE, the order, dated 30 April 1996, of the Regional Trial Court, Branch 66, of
Makati City, and the decision, dated 10 June 1999, of the Court of Appeals,
are AFFIRMED only insofar as respondent Lambert M. Eroles is concerned, but said
assailed order of the trial court and decision of the appellate court are REVERSED as
regards G.P. Sarmiento Trucking Corporation which, instead, is hereby ordered to pay FGU
Insurance Corporation the value of the damaged and lost cargoes in the amount of
P204,450.00. No costs.
SO ORDERED.

[G.R. No. 111127. July 26, 1996]

MR. & MRS. ENGRACIO FABRE, JR.* and PORFIRIO


CABIL, petitioners, vs. COURT OF APPEALS, THE WORD FOR
THE WORLD CHRISTIAN FELLOWSHIP, INC., AMYLINE
ANTONIO, JOHN RICHARDS, GONZALO GONZALES, VICENTE
V. QUE, JR., ICLI CORDOVA, ARLENE GOJOCCO, ALBERTO
ROXAS CORDERO, RICHARD BAUTISTA, JOCELYN GARCIA,
YOLANDA CORDOVA, NOEL ROQUE, EDWARD TAN, ERNESTO
NARCISO, ENRIQUETA LOCSIN, FRANCIS NORMAN O. LOPEZ,
JULIUS CAESAR GARCIA, ROSARIO MA. V. ORTIZ, MARIETTA
C. CLAVO, ELVIE SENIEL, ROSARIO MARA-MARA, TERESITA
REGALA, MELINDA TORRES, MARELLA MIJARES, JOSEFA
CABATINGAN, MARA NADOC, DIANE MAYO, TESS PLATA,
MAYETTE JOCSON, ARLENE Y. MORTIZ, LIZA MAYO, CARLOS
RANARIO, ROSAMARIA T. RADOC and BERNADETTE
FERRER, respondents.

DECISION
MENDOZA, J.:

This is a petition for review on certiorari of the decision of the Court of


Appeals[1] in CA-GR No. 28245, dated September 30, 1992, which affirmed
with modification the decision of the Regional Trial Court of Makati, Branch
58, ordering petitioners jointly and severally to pay damages to private
respondent Amyline Antonio, and its resolution which denied petitioners
motion for reconsideration for lack of merit.
Petitioners Engracio Fabre, Jr. and his wife were owners of a 1982 model
Mazda minibus. They used the bus principally in connection with a bus service
for school children which they operated in Manila. The couple had a driver,
Porfirio J. Cabil, whom they hired in 1981, after trying him out for two
weeks. His job was to take school children to and from the St. Scholasticas
College in Malate, Manila.
On November 2, 1984 private respondent Word for the World Christian
Fellowship Inc. (WWCF) arranged with petitioners for the transportation of 33
members of its Young Adults Ministry from Manila to La Union and back in
consideration of which private respondent paid petitioners the amount of
P3,000.00.
The group was scheduled to leave on November 2, 1984, at 5:00 oclock in
the afternoon. However, as several members of the party were late, the bus
did not leave the Tropical Hut at the corner of Ortigas Avenue and EDSA until
8:00 oclock in the evening.Petitioner Porfirio Cabil drove the minibus.
The usual route to Caba, La Union was through Carmen,
Pangasinan. However, the bridge at Carmen was under repair, so that
petitioner Cabil, who was unfamiliar with the area (it being his first trip to La
Union), was forced to take a detour through the town of Ba-ay in Lingayen,
Pangasinan. At 11:30 that night, petitioner Cabil came upon a sharp curve on
the highway, running on a south to east direction, which he described as siete.
The road was slippery because it was raining, causing the bus, which was
running at the speed of 50 kilometers per hour, to skid to the left road
shoulder. The bus hit the left traffic steel brace and sign along the road and
rammed the fence of one Jesus Escano, then turned over and landed on its
left side, coming to a full stop only after a series of impacts. The bus came to
rest off the road. A coconut tree which it had hit fell on it and smashed its front
portion.
Several passengers were injured. Private respondent Amyline Antonio
was thrown on the floor of the bus and pinned down by a wooden seat which
came off after being unscrewed. It took three persons to safely remove her
from this position. She was in great pain and could not move.
The driver, petitioner Cabil, claimed he did not see the curve until it was
too late. He said he was not familiar with the area and he could not have seen
the curve despite the care he took in driving the bus, because it was dark and
there was no sign on the road. He said that he saw the curve when he was
already within 15 to 30 meters of it. He allegedly slowed down to 30
kilometers per hour, but it was too late.
The Lingayen police investigated the incident the next day, November 3,
1984. On the basis of their finding they filed a criminal complaint against the
driver, Porfirio Cabil. The case was later filed with the Lingayen Regional Trial
Court. Petitioners Fabre paid Jesus Escano P1,500.00 for the damage to the
latters fence. On the basis of Escanos affidavit of desistance the case against
petitioners Fabre was dismissed.
Amyline Antonio, who was seriously injured, brought this case in the RTC
of Makati, Metro Manila. As a result of the accident, she is now suffering from
paraplegia and is permanently paralyzed from the waist down. During the trial
she described the operations she underwent and adduced evidence regarding
the cost of her treatment and therapy. Immediately after the accident, she was
taken to the Nazareth Hospital in Ba-ay, Lingayen. As this hospital was not
adequately equipped, she was transferred to the Sto. Nio Hospital, also in the
town of Ba-ay, where she was given sedatives. An x-ray was taken and the
damage to her spine was determined to be too severe to be treated
there. She was therefore brought to Manila, first to the Philippine General
Hospital and later to the Makati Medical Center where she underwent an
operation to correct the dislocation of her spine.
In its decision dated April 17, 1989, the trial court found that:

No convincing evidence was shown that the minibus was properly checked for travel
to a long distance trip and that the driver was properly screened and tested before
being admitted for employment. Indeed, all the evidence presented have shown the
negligent act of the defendants which ultimately resulted to the accident subject of this
case.

Accordingly, it gave judgment for private respondents holding:

Considering that plaintiffs Word for the World Christian Fellowship, Inc. and Ms.
Amyline Antonio were the only ones who adduced evidence in support of their claim
for damages, the Court is therefore not in a position to award damages to the other
plaintiffs.

WHEREFORE, premises considered, the Court hereby renders judgment against


defendants Mr. & Mrs. Engracio Fabre, Jr. and Porfirio Cabil y Jamil pursuant to
articles 2176 and 2180 of the Civil Code of the Philippines and said defendants are
ordered to pay jointly and severally to the plaintiffs the following amount:

1) P93,657.11 as compensatory and actual damages;


2) P500,000.00 as the reasonable amount of loss of earning capacity of plaintiff
Amyline Antonio;
3) P20,000.00 as moral damages;
4) P20,000.00 as exemplary damages; and
5) 25% of the recoverable amount as attorneys fees;
6) Costs of suit.

SO ORDERED.
The Court of Appeals affirmed the decision of the trial court with respect to
Amyline Antonio but dismissed it with respect to the other plaintiffs on the
ground that they failed to prove their respective claims. The Court of Appeals
modified the award of damages as follows:
1) P93,657.11 as actual damages;
2) P600,000.00 as compensatory damages;
3) P50,000.00 as moral damages;
4) P20,000.00 as exemplary damages;
5) P10,000.00 as attorneys fees; and
6) Costs of suit.

The Court of Appeals sustained the trial courts finding that petitioner Cabil
failed to exercise due care and precaution in the operation of his vehicle
considering the time and the place of the accident. The Court of Appeals held
that the Fabres were themselves presumptively negligent. Hence, this
petition. Petitioners raise the following issues:
I. WHETHER OR NOT PETITIONERS WERE NEGLIGENT.
II. WHETHER OR NOT PETITIONERS WERE LIABLE FOR THE INJURIES
SUFFERED BY PRIVATE RESPONDENTS.
III. WHETHER OR NOT DAMAGES CAN BE AWARDED AND IN THE POSITIVE, UP
TO WHAT EXTENT.

Petitioners challenge the propriety of the award of compensatory damages


in the amount of P600,000.00. It is insisted that, on the assumption that
petitioners are liable, an award of P600,000.00 is unconscionable and highly
speculative. Amyline Antonio testified that she was a casual employee of a
company called Suaco, earning P1,650.00 a month, and a dealer of Avon
products, earning an average of P1,000.00 monthly. Petitioners contend that
as casual employees do not have security of tenure, the award of
P600,000.00, considering Amyline Antonios earnings, is without factual basis
as there is no assurance that she would be regularly earning these amounts.
With the exception of the award of damages, the petition is devoid of
merit.
First, it is unnecessary for our purpose to determine whether to decide this
case on the theory that petitioners are liable for breach of contract of carriage
or culpa contractual or on the theory of quasi delict or culpa aquiliana as both
the Regional Trial Court and the Court of Appeals held, for although the
relation of passenger and carrier is contractual both in origin and nature,
nevertheless the act that breaks the contract may be also a tort.[2] In either
case, the question is whether the bus driver, petitioner Porfirio Cabil, was
negligent.
The finding that Cabil drove his bus negligently, while his employer, the
Fabres, who owned the bus, failed to exercise the diligence of a good father of
the family in the selection and supervision of their employee is fully supported
by the evidence on record. These factual findings of the two courts we regard
as final and conclusive, supported as they are by the evidence. Indeed, it was
admitted by Cabil that on the night in question, it was raining, and, as a
consequence, the road was slippery, and it was dark.He averred these facts
to justify his failure to see that there lay a sharp curve ahead. However, it is
undisputed that Cabil drove his bus at the speed of 50 kilometers per hour
and only slowed down when he noticed the curve some 15 to 30 meters
ahead.[3] By then it was too late for him to avoid falling off the road. Given the
conditions of the road and considering that the trip was Cabils first one outside
of Manila, Cabil should have driven his vehicle at a moderate speed. There is
testimony[4] that the vehicles passing on that portion of the road should only
be running 20 kilometers per hour, so that at 50 kilometers per hour, Cabil
was running at a very high speed.
Considering the foregoing the fact that it was raining and the road was
slippery, that it was dark, that he drove his bus at 50 kilometers an hour when
even on a good day the normal speed was only 20 kilometers an hour, and
that he was unfamiliar with the terrain, Cabil was grossly negligent and should
be held liable for the injuries suffered by private respondent Amyline Antonio.
Pursuant to Arts. 2176 and 2180 of the Civil Code his negligence gave rise
to the presumption that his employers, the Fabres, were themselves negligent
in the selection and supervision of their employee.
Due diligence in selection of employees is not satisfied by finding that the
applicant possessed a professional drivers license.The employer should also
examine the applicant for his qualifications, experience and record of
service.[5] Due diligence in supervision, on the other hand, requires the
formulation of rules and regulations for the guidance of employees and the
issuance of proper instructions as well as actual implementation and
monitoring of consistent compliance with the rules.[6]
In the case at bar, the Fabres, in allowing Cabil to drive the bus to La
Union, apparently did not consider the fact that Cabil had been driving for
school children only, from their homes to the St. Scholasticas College in Metro
Manila.[7] They had hired him only after a two-week apprenticeship. They had
tested him for certain matters, such as whether he could remember the names
of the children he would be taking to school, which were irrelevant to his
qualification to drive on a long distance travel, especially considering that the
trip to La Union was his first. The existence of hiring procedures and
supervisory policies cannot be casually invoked to overturn the presumption of
negligence on the part of an employer.[8]
Petitioners argue that they are not liable because (1) an earlier departure
(made impossible by the congregations delayed meeting) could have averted
the mishap and (2) under the contract, the WWCF was directly responsible for
the conduct of the trip.Neither of these contentions hold water. The hour of
departure had not been fixed. Even if it had been, the delay did not bear
directly on the cause of the accident. With respect to the second contention, it
was held in an early case that:

[A] person who hires a public automobile and gives the driver directions as to the
place to which he wishes to be conveyed, but exercises no other control over the
conduct of the driver, is not responsible for acts of negligence of the latter or
prevented from recovering for injuries suffered from a collision between the
automobile and a train, caused by the negligence either of the locomotive engineer or
the automobile driver.[9]

As already stated, this case actually involves a contract of


carriage. Petitioners, the Fabres, did not have to be engaged in the business
of public transportation for the provisions of the Civil Code on common
carriers to apply to them. As this Court has held:[10]

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.

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 service on an occasional, episodic or
unscheduled basis. Neither does Article 1732 distinguish between a carrier
offering its services to the general public, i.e., the general community or
population, and one who offers services or solicits business only from a
narrow segment of the general population. We think that Article 1732
deliberately refrained from making such distinctions.
As common carriers, the Fabres were bound to exercise extraordinary
diligence for the safe transportation of the passengers to their
destination. This duty of care is not excused by proof that they exercised the
diligence of a good father of the family in the selection and supervision of their
employee. As Art. 1759 of the Code provides:
Common carriers are liable for the death of or injuries to passengers
through the negligence or wilful 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.
The same circumstances detailed above, supporting the finding of the trial
court and of the appellate court that petitioners are liable under Arts. 2176 and
2180 for quasi delict, fully justify finding them guilty of breach of contract of
carriage under Arts. 1733, 1755 and 1759 of the Civil Code.
Secondly, we sustain the award of damages in favor of Amyline
Antonio. However, we think the Court of Appeals erred in increasing the
amount of compensatory damages because private respondents did not
question this award as inadequate.[11] To the contrary, the award of
P500,000.00 for compensatory damages which the Regional Trial Court made
is reasonable considering the contingent nature of her income as a casual
employee of a company and as distributor of beauty products and the fact that
the possibility that she might be able to work again has not been
foreclosed. In fact she testified that one of her previous employers had
expressed willingness to employ her again.
With respect to the other awards, while the decisions of the trial court and
the Court of Appeals do not sufficiently indicate the factual and legal basis for
them, we find that they are nevertheless supported by evidence in the records
of this case. Viewed as an action for quasi delict, this case falls squarely
within the purview of Art. 2219(2) providing for the payment of moral damages
in cases of quasi delict. On the theory that petitioners are liable for breach of
contract of carriage, the award of moral damages is authorized by Art. 1764,
in relation to Art. 2220, since Cabils gross negligence amounted to bad
faith.[12] Amyline Antonios testimony, as well as the testimonies of her father
and co-passengers, fully establish the physical suffering and mental anguish
she endured as a result of the injuries caused by petitioners negligence.
The award of exemplary damages and attorneys fees was also properly
made. However, for the same reason that it was error for the appellate court
to increase the award of compensatory damages, we hold that it was also
error for it to increase the award of moral damages and reduce the award of
attorneys fees, inasmuch as private respondents, in whose favor the awards
were made, have not appealed.[13]
As above stated, the decision of the Court of Appeals can be sustained
either on the theory of quasi delict or on that of breach of contract. The
question is whether, as the two courts below held, petitioners, who are the
owners and driver of the bus, may be made to respond jointly and severally to
private respondent. We hold that they may be. In Dangwa Trans. Co. Inc. v.
Court of Appeals,[14] on facts similar to those in this case, this Court held the
bus company and the driver jointly and severally liable for damages for
injuries suffered by a passenger. Again, in Bachelor Express, Inc. v. Court of
Appeals[15] a driver found negligent in failing to stop the bus in order to let off
passengers when a fellow passenger ran amuck, as a result of which the
passengers jumped out of the speeding bus and suffered injuries, was held
also jointly and severally liable with the bus company to the injured
passengers.
The same rule of liability was applied in situations where the negligence of
the driver of the bus on which plaintiff was riding concurred with the
negligence of a third party who was the driver of another vehicle, thus causing
an accident. In Anuran v. Buo,[16] Batangas Laguna Tayabas Bus Co. v.
Intermediate Appellate Court,[17] and Metro Manila Transit Corporation v.
Court of Appeals,[18] the bus company, its driver, the operator of the other
vehicle and the driver of the vehicle were jointly and severally held liable to
the injured passenger or the latters heirs. The basis of this allocation of liability
was explained in Viluan v. Court of Appeals,[19] thus:

Nor should it make any difference that the liability of petitioner [bus owner] springs
from contract while that of respondents [owner and driver of other vehicle] arises
from quasi-delict. As early as 1913, we already ruled in Gutierrez vs. Gutierrez, 56
Phil. 177, that in case of injury to a passenger due to the negligence of the driver of
the bus on which he was riding and of the driver of another vehicle, the drivers as well
as the owners of the two vehicles are jointly and severally liable for damages. Some
members of the Court, though, are of the view that under the circumstances they are
liable on quasi-delict.[20]

It is true that in Philippine Rabbit Bus Lines, Inc. v. Court of Appeals[21] this
Court exonerated the jeepney driver from liability to the injured passengers
and their families while holding the owners of the jeepney jointly and severally
liable, but that is because that case was expressly tried and decided
exclusively on the theory of culpa contractual. As this Court there explained:
The trial court was therefore right in finding that Manalo [the driver] and spouses
Mangune and Carreon [the jeepney owners] were negligent.However, its ruling that
spouses Mangune and Carreon are jointly and severally liable with Manalo is
erroneous. The driver cannot be held jointly and severally liable with the carrier in
case of breach of the contract of carriage. The rationale behind this is readily
discernible. Firstly, the contract of carriage is between the carrier and the passenger,
and in the event of contractual liability, the carrier is exclusively responsible therefore
to the passenger, even if such breach be due to the negligence of his driver (see
Viluan v. The Court of Appeals, et al., G.R. Nos. L-21477-81, April 29, 1966, 16
SCRA 742) . . .[22]

As in the case of BLTB, private respondents in this case and her co-
plaintiffs did not stake out their claim against the carrier and the driver
exclusively on one theory, much less on that of breach of contract alone. After
all, it was permitted for them to allege alternative causes of action and join as
many parties as may be liable on such causes of action[23] so long as private
respondent and her co-plaintiffs do not recover twice for the same injury. What
is clear from the cases is the intent of the plaintiff there to recover from both
the carrier and the driver, thus justifying the holding that the carrier and the
driver were jointly and severally liable because their separate and distinct acts
concurred to produce the same injury.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with
MODIFICATION as to the award of damages.Petitioners are ORDERED to
PAY jointly and severally the private respondent Amyline Antonio the following
amounts:
1) P93,657.11 as actual damages;
2) P500,000.00 as the reasonable amount of loss of earning capacity of plaintiff
Amyline Antonio;
3) P20,000.00 as moral damages;
4) P20,000.00 as exemplary damages;
5) 25% of the recoverable amount as attorneys fees; and
6) costs of suit.

SO ORDERED.

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 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 charter-party; in the negative, whether the shipowner in the instant
case was able to prove that he had exercised that degree of diligence required of him under
the law.

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

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


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

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

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

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

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

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

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

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


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

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

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

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

It was also shown during the trial that the hull of the vessel was in good condition,
foreclosing the possibility of spillage of the cargo into the sea or seepage of water inside the
hull of the vessel. 33 When M/V "Sun Plum" docked at its berthing place, representatives of the
consignee boarded, and in the presence of a representative of the shipowner, the foreman, the
stevedores, and a cargo surveyor representing CSCI, opened the hatches and inspected the condition of
the hull of the vessel. The stevedores unloaded the cargo under the watchful eyes of the shipmates who
were overseeing the whole operation on rotation basis. 34
Verily, the presumption of negligence on the part of the respondent carrier has been
efficaciously overcome by the showing of extraordinary zeal and assiduity exercised by the
carrier in the care of the cargo. This was confirmed by respondent appellate court thus

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

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

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

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

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


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

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

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

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.


G.R. No. 138334 August 25, 2003

ESTELA L. CRISOSTOMO, Petitioner,


vs.
The Court of Appeals and CARAVAN TRAVEL & TOURS INTERNATIONAL,
INC., Respondents.

DECISION

YNARES-SANTIAGO, J.:

In May 1991, petitioner Estela L. Crisostomo contracted the services of respondent Caravan
Travel and Tours International, Inc. to arrange and facilitate her booking, ticketing and
accommodation in a tour dubbed "Jewels of Europe". The package tour included the
countries of England, Holland, Germany, Austria, Liechstenstein, Switzerland and France at
a total cost of P74,322.70. Petitioner was given a 5% discount on the amount, which
included airfare, and the booking fee was also waived because petitioners niece, Meriam
Menor, was respondent companys ticketing manager.

Pursuant to said contract, Menor went to her aunts residence on June 12, 1991 a
Wednesday to deliver petitioners travel documents and plane tickets. Petitioner, in turn,
gave Menor the full payment for the package tour. Menor then told her to be at the Ninoy
Aquino International Airport (NAIA) on Saturday, two hours before her flight on board British
Airways.

Without checking her travel documents, petitioner went to NAIA on Saturday, June 15,
1991, to take the flight for the first leg of her journey from Manila to Hongkong. To
petitioners dismay, she discovered that the flight she was supposed to take had already
departed the previous day. She learned that her plane ticket was for the flight scheduled on
June 14, 1991. She thus called up Menor to complain.

Subsequently, Menor prevailed upon petitioner to take another tour the "British Pageant"
which included England, Scotland and Wales in its itinerary. For this tour package,
petitioner was asked anew to pay US$785.00 or P20,881.00 (at the then prevailing
exchange rate of P26.60). She gave respondent US$300 or P7,980.00 as partial payment
and commenced the trip in July 1991.

Upon petitioners return from Europe, she demanded from respondent the reimbursement of
P61,421.70, representing the difference between the sum she paid for "Jewels of Europe"
and the amount she owed respondent for the "British Pageant" tour. Despite several
demands, respondent company refused to reimburse the amount, contending that the same
was non-refundable.1 Petitioner was thus constrained to file a complaint against respondent
for breach of contract of carriage and damages, which was docketed as Civil Case No. 92-
133 and raffled to Branch 59 of the Regional Trial Court of Makati City.

In her complaint,2 petitioner alleged that her failure to join "Jewels of Europe" was due to
respondents fault since it did not clearly indicate the departure date on the plane ticket.
Respondent was also negligent in informing her of the wrong flight schedule through its
employee Menor. She insisted that the "British Pageant" was merely a substitute for the
"Jewels of Europe" tour, such that the cost of the former should be properly set-off against
the sum paid for the latter.

For its part, respondent company, through its Operations Manager, Concepcion Chipeco,
denied responsibility for petitioners failure to join the first tour. Chipeco insisted that
petitioner was informed of the correct departure date, which was clearly and legibly printed
on the plane ticket. The travel documents were given to petitioner two days ahead of the
scheduled trip. Petitioner had only herself to blame for missing the flight, as she did not
bother to read or confirm her flight schedule as printed on the ticket.

Respondent explained that it can no longer reimburse the amount paid for "Jewels of
Europe", considering that the same had already been remitted to its principal in Singapore,
Lotus Travel Ltd., which had already billed the same even if petitioner did not join the tour.
Lotus European tour organizer, Insight International Tours Ltd., determines the cost of a
package tour based on a minimum number of projected participants. For this reason, it is
accepted industry practice to disallow refund for individuals who failed to take a booked
tour.3

Lastly, respondent maintained that the "British Pageant" was not a substitute for the
package tour that petitioner missed. This tour was independently procured by petitioner
after realizing that she made a mistake in missing her flight for "Jewels of Europe".
Petitioner was allowed to make a partial payment of only US$300.00 for the second tour
because her niece was then an employee of the travel agency. Consequently, respondent
prayed that petitioner be ordered to pay the balance of P12,901.00 for the "British Pageant"
package tour.

After due proceedings, the trial court rendered a decision,4 the dispositive part of which
reads:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Ordering the defendant to return and/or refund to the plaintiff the amount of Fifty
Three Thousand Nine Hundred Eighty Nine Pesos and Forty Three Centavos
(P53,989.43) with legal interest thereon at the rate of twelve percent (12%) per
annum starting January 16, 1992, the date when the complaint was filed;

2. Ordering the defendant to pay the plaintiff the amount of Five Thousand
(P5,000.00) Pesos as and for reasonable attorneys fees;

3. Dismissing the defendants counterclaim, for lack of merit; and

4. With costs against the defendant.

SO ORDERED.5

The trial court held that respondent was negligent in erroneously advising petitioner of her
departure date through its employee, Menor, who was not presented as witness to rebut
petitioners testimony. However, petitioner should have verified the exact date and time of
departure by looking at her ticket and should have simply not relied on Menors verbal
representation. The trial court thus declared that petitioner was guilty of contributory
negligence and accordingly, deducted 10% from the amount being claimed as refund.

Respondent appealed to the Court of Appeals, which likewise found both parties to be at
fault. However, the appellate court held that petitioner is more negligent than respondent
because as a lawyer and well-traveled person, she should have known better than to simply
rely on what was told to her. This being so, she is not entitled to any form of damages.
Petitioner also forfeited her right to the "Jewels of Europe" tour and must therefore pay
respondent the balance of the price for the "British Pageant" tour. The dispositive portion of
the judgment appealed from reads as follows:

WHEREFORE, premises considered, the decision of the Regional Trial Court dated
October 26, 1995 is hereby REVERSED and SET ASIDE. A new judgment is hereby
ENTERED requiring the plaintiff-appellee to pay to the defendant-appellant the amount of
P12,901.00, representing the balance of the price of the British Pageant Package Tour, the
same to earn legal interest at the rate of SIX PERCENT (6%) per annum, to be computed
from the time the counterclaim was filed until the finality of this decision. After this decision
becomes final and executory, the rate of TWELVE PERCENT (12%) interest per annum
shall be additionally imposed on the total obligation until payment thereof is satisfied. The
award of attorneys fees is DELETED. Costs against the plaintiff-appellee.

SO ORDERED.6

Upon denial of her motion for reconsideration,7 petitioner filed the instant petition under Rule
45 on the following grounds:

It is respectfully submitted that the Honorable Court of Appeals committed a


reversible error in reversing and setting aside the decision of the trial court by ruling
that the petitioner is not entitled to a refund of the cost of unavailed "Jewels of
Europe" tour she being equally, if not more, negligent than the private respondent,
for in the contract of carriage the common carrier is obliged to observe utmost care
and extra-ordinary diligence which is higher in degree than the ordinary diligence
required of the passenger. Thus, even if the petitioner and private respondent were
both negligent, the petitioner cannot be considered to be equally, or worse, more
guilty than the private respondent. At best, petitioners negligence is only
contributory while the private respondent [is guilty] of gross negligence making the
principle of pari delicto inapplicable in the case;

II

The Honorable Court of Appeals also erred in not ruling that the "Jewels of Europe"
tour was not indivisible and the amount paid therefor refundable;

III
The Honorable Court erred in not granting to the petitioner the consequential
damages due her as a result of breach of contract of carriage.8

Petitioner contends that respondent did not observe the standard of care required of a
common carrier when it informed her wrongly of the flight schedule. She could not be
deemed more negligent than respondent since the latter is required by law to exercise
extraordinary diligence in the fulfillment of its obligation. If she were negligent at all, the
same is merely contributory and not the proximate cause of the damage she suffered. Her
loss could only be attributed to respondent as it was the direct consequence of its
employees gross negligence.

Petitioners contention has no merit.

By definition, a contract of carriage or transportation is one whereby a certain person or


association of persons obligate themselves to transport persons, things, or news from one
place to another for a fixed price.9 Such person or association of persons are regarded as
carriers and are classified as private or special carriers and common or public carriers. 10 A
common carrier is defined under Article 1732 of the Civil Code as persons, corporations,
firms or associations engaged in the business of carrying or transporting passengers or
goods or both, by land, water or air, for compensation, offering their services to the public.

It is obvious from the above definition that respondent is not an entity engaged in the
business of transporting either passengers or goods and is therefore, neither a private nor a
common carrier. Respondent did not undertake to transport petitioner from one place to
another since its covenant with its customers is simply to make travel arrangements in their
behalf. Respondents services as a travel agency include procuring tickets and facilitating
travel permits or visas as well as booking customers for tours.

While petitioner concededly bought her plane ticket through the efforts of respondent
company, this does not mean that the latter ipso facto is a common carrier. At most,
respondent acted merely as an agent of the airline, with whom petitioner ultimately
contracted for her carriage to Europe. Respondents obligation to petitioner in this regard
was simply to see to it that petitioner was properly booked with the airline for the appointed
date and time. Her transport to the place of destination, meanwhile, pertained directly to the
airline.

The object of petitioners contractual relation with respondent is the latters service of
arranging and facilitating petitioners booking, ticketing and accommodation in the package
tour. In contrast, the object of a contract of carriage is the transportation of passengers or
goods. It is in this sense that the contract between the parties in this case was an ordinary
one for services and not one of carriage. Petitioners submission is premised on a wrong
assumption.

The nature of the contractual relation between petitioner and respondent is determinative of
the degree of care required in the performance of the latters obligation under the contract.
For reasons of public policy, a common carrier in a contract of carriage is bound by law to
carry passengers as far as human care and foresight can provide using the utmost diligence
of very cautious persons and with due regard for all the circumstances. 11 As earlier stated,
however, respondent is not a common carrier but a travel agency. It is thus not bound under
the law to observe extraordinary diligence in the performance of its obligation, as petitioner
claims.

Since the contract between the parties is an ordinary one for services, the standard of care
required of respondent is that of a good father of a family under Article 1173 of the Civil
Code.12 This connotes reasonable care consistent with that which an ordinarily prudent
person would have observed when confronted with a similar situation. The test to determine
whether negligence attended the performance of an obligation is: 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. 13

In the case at bar, the lower court found Menor negligent when she allegedly informed
petitioner of the wrong day of departure. Petitioners testimony was accepted as indubitable
evidence of Menors alleged negligent act since respondent did not call Menor to the
witness stand to refute the allegation. The lower court applied the presumption under Rule
131, Section 3 (e)14 of the Rules of Court that evidence willfully suppressed would be
adverse if produced and thus considered petitioners uncontradicted testimony to be
sufficient proof of her claim.

On the other hand, respondent has consistently denied that Menor was negligent and
maintains that petitioners assertion is belied by the evidence on record. The date and time
of departure was legibly written on the plane ticket and the travel papers were delivered two
days in advance precisely so that petitioner could prepare for the trip. It performed all its
obligations to enable petitioner to join the tour and exercised due diligence in its dealings
with the latter.

We agree with respondent.

Respondents failure to present Menor as witness to rebut petitioners testimony could not
give rise to an inference unfavorable to the former. Menor was already working in France at
the time of the filing of the complaint,15 thereby making it physically impossible for
respondent to present her as a witness. Then too, even if it were possible for respondent to
secure Menors testimony, the presumption under Rule 131, Section 3(e) would still not
apply. The opportunity and possibility for obtaining Menors testimony belonged to both
parties, considering that Menor was not just respondents employee, but also petitioners
niece. It was thus error for the lower court to invoke the presumption that respondent
willfully suppressed evidence under Rule 131, Section 3(e). Said presumption would
logically be inoperative if the evidence is not intentionally omitted but is simply unavailable,
or when the same could have been obtained by both parties.16

In sum, we do not agree with the finding of the lower court that Menors negligence
concurred with the negligence of petitioner and resultantly caused damage to the latter.
Menors negligence was not sufficiently proved, considering that the only evidence
presented on this score was petitioners uncorroborated narration of the events. It is well-
settled that the party alleging a fact has the burden of proving it and a mere allegation
cannot take the place of evidence.17 If the plaintiff, upon whom rests the burden of proving
his cause of action, fails to show in a satisfactory manner facts upon which he bases his
claim, the defendant is under no obligation to prove his exception or defense.18

Contrary to petitioners claim, the evidence on record shows that respondent exercised due
diligence in performing its obligations under the contract and followed standard procedure in
rendering its services to petitioner. As correctly observed by the lower court, the plane
ticket19 issued to petitioner clearly reflected the departure date and time, contrary to
petitioners contention. The travel documents, consisting of the tour itinerary, vouchers and
instructions, were likewise delivered to petitioner two days prior to the trip. Respondent also
properly booked petitioner for the tour, prepared the necessary documents and procured
the plane tickets. It arranged petitioners hotel accommodation as well as food, land
transfers and sightseeing excursions, in accordance with its avowed undertaking.

Therefore, it is clear that respondent performed its prestation under the contract as well as
everything else that was essential to book petitioner for the tour. Had petitioner exercised
due diligence in the conduct of her affairs, there would have been no reason for her to miss
the flight. Needless to say, after the travel papers were delivered to petitioner, it became
incumbent upon her to take ordinary care of her concerns. This undoubtedly would require
that she at least read the documents in order to assure herself of the important details
regarding the trip.

The negligence of the obligor in the performance of the obligation renders him liable for
damages for the resulting loss suffered by the obligee. Fault or negligence of the obligor
consists in his failure to exercise due care and prudence in the performance of the
obligation as the nature of the obligation so demands.20 There is no fixed standard of
diligence applicable to each and every contractual obligation and each case must be
determined upon its particular facts. The degree of diligence required depends on the
circumstances of the specific obligation and whether one has been negligent is a question
of fact that is to be determined after taking into account the particulars of each case. 21
1wphi1

The lower court declared that respondents employee was negligent. This factual finding,
however, is not supported by the evidence on record. While factual findings below are
generally conclusive upon this court, the rule is subject to certain exceptions, as when the
trial court overlooked, misunderstood, or misapplied some facts or circumstances of weight
and substance which will affect the result of the case.22

In the case at bar, the evidence on record shows that respondent company performed its
duty diligently and did not commit any contractual breach. Hence, petitioner cannot recover
and must bear her own damage.

WHEREFORE, the instant petition is DENIED for lack of merit. The decision of the Court of
Appeals in CA-G.R. CV No. 51932 is AFFIRMED. Accordingly, petitioner is ordered to pay
respondent the amount of P12,901.00 representing the balance of the price of the British
Pageant Package Tour, with legal interest thereon at the rate of 6% per annum, to be
computed from the time the counterclaim was filed until the finality of this Decision. After
this Decision becomes final and executory, the rate of 12% per annum shall be imposed
until the obligation is fully settled, this interim period being deemed to be by then an
equivalent to a forbearance of credit.23
SO ORDERED.

G.R. No. 162467 May 8, 2009

MINDANAO TERMINAL AND BROKERAGE SERVICE, INC. Petitioner,


vs.
PHOENIX ASSURANCE COMPANY OF NEW YORK/MCGEE & CO., INC., Respondent.

DECISION

TINGA, J.:

Before us is a petition for review on certiorari1 under Rule 45 of the 1997 Rules of Civil
Procedure of the 29 October 20032 Decision of the Court of Appeals and the 26 February
2004 Resolution3 of the same court denying petitioners motion for reconsideration.

The facts of the case are not disputed.

Del Monte Philippines, Inc. (Del Monte) contracted petitioner Mindanao Terminal and
Brokerage Service, Inc. (Mindanao Terminal), a stevedoring company, to load and stow a
shipment of 146,288 cartons of fresh green Philippine bananas and 15,202 cartons of fresh
pineapples belonging to Del Monte Fresh Produce International, Inc. (Del Monte Produce)
into the cargo hold of the vessel M/V Mistrau. The vessel was docked at the port of Davao
City and the goods were to be transported by it to the port of Inchon, Korea in favor of
consignee Taegu Industries, Inc. Del Monte Produce insured the shipment under an "open
cargo policy" with private respondent Phoenix Assurance Company of New York (Phoenix),
a non-life insurance company, and private respondent McGee & Co. Inc. (McGee), the
underwriting manager/agent of Phoenix.4

Mindanao Terminal loaded and stowed the cargoes aboard the M/V Mistrau. The vessel set
sail from the port of Davao City and arrived at the port of Inchon, Korea. It was then
discovered upon discharge that some of the cargo was in bad condition. The Marine Cargo
Damage Surveyor of Incok Loss and Average Adjuster of Korea, through its representative
Byeong Yong Ahn (Byeong), surveyed the extent of the damage of the shipment. In a
survey report, it was stated that 16,069 cartons of the banana shipment and 2,185 cartons
of the pineapple shipment were so damaged that they no longer had commercial value.5

Del Monte Produce filed a claim under the open cargo policy for the damages to its
shipment. McGees Marine Claims Insurance Adjuster evaluated the claim and
recommended that payment in the amount of $210,266.43 be made. A check for the
recommended amount was sent to Del Monte Produce; the latter then issued a subrogation
receipt6 to Phoenix and McGee.

Phoenix and McGee instituted an action for damages7 against Mindanao Terminal in the
Regional Trial Court (RTC) of Davao City, Branch 12. After trial, the RTC,8 in a decision
dated 20 October 1999, held that the only participation of Mindanao Terminal was to load
the cargoes on board the M/V Mistrau under the direction and supervision of the ships
officers, who would not have accepted the cargoes on board the vessel and signed the
foremans report unless they were properly arranged and tightly secured to withstand
voyage across the open seas. Accordingly, Mindanao Terminal cannot be held liable for
whatever happened to the cargoes after it had loaded and stowed them. Moreover, citing
the survey report, it was found by the RTC that the cargoes were damaged on account of a
typhoon which M/V Mistrau had encountered during the voyage. It was further held that
Phoenix and McGee had no cause of action against Mindanao Terminal because the latter,
whose services were contracted by Del Monte, a distinct corporation from Del Monte
Produce, had no contract with the assured Del Monte Produce. The RTC dismissed the
complaint and awarded the counterclaim of Mindanao Terminal in the amount
of P83,945.80 as actual damages and P100,000.00 as attorneys fees.9 The actual
damages were awarded as reimbursement for the expenses incurred by Mindanao
Terminals lawyer in attending the hearings in the case wherein he had to travel all the way
from Metro Manila to Davao City.

Phoenix and McGee appealed to the Court of Appeals. The appellate court reversed and
set aside10 the decision of the RTC in its 29 October 2003 decision. The same court ordered
Mindanao Terminal to pay Phoenix and McGee "the total amount of $210,265.45 plus legal
interest from the filing of the complaint until fully paid and attorneys fees of 20% of the
claim."11 It sustained Phoenixs and McGees argument that the damage in the cargoes was
the result of improper stowage by Mindanao Terminal. It imposed on Mindanao Terminal, as
the stevedore of the cargo, the duty to exercise extraordinary diligence in loading and
stowing the cargoes. It further held that even with the absence of a contractual relationship
between Mindanao Terminal and Del Monte Produce, the cause of action of Phoenix and
McGee could be based on quasi-delict under Article 2176 of the Civil Code.12

Mindanao Terminal filed a motion for reconsideration,13 which the Court of Appeals denied
in its 26 February 200414 resolution. Hence, the present petition for review.

Mindanao Terminal raises two issues in the case at bar, namely: whether it was careless
and negligent in the loading and stowage of the cargoes onboard M/V Mistrau making it
liable for damages; and, whether Phoenix and McGee has a cause of action against
Mindanao Terminal under Article 2176 of the Civil Code on quasi-delict. To resolve the
petition, three questions have to be answered: first, whether Phoenix and McGee have a
cause of action against Mindanao Terminal; second, whether Mindanao Terminal, as a
stevedoring company, is under obligation to observe the same extraordinary degree of
diligence in the conduct of its business as required by law for common carriers 15 and
warehousemen;16 and third, whether Mindanao Terminal observed the degree of diligence
required by law of a stevedoring company.

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. 17 In fine, a liability for tort may arise even
under a contract, where tort is that which breaches the contract 18 . 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.19

The resolution of the two remaining issues is determinative of the ultimate result of this
case.

Article 1173 of the Civil Code is very clear that if the law or contract does not state the
degree of diligence which is to be observed in the performance of an obligation then that
which is expected of a good father of a family or ordinary diligence shall be required.
Mindanao Terminal, a stevedoring company which was charged with the loading and
stowing the cargoes of Del Monte Produce aboard M/V Mistrau, had acted merely as a
labor provider in the case at bar. There is no specific provision of law that imposes a higher
degree of diligence than ordinary diligence for a stevedoring company or one who is
charged only with the loading and stowing of cargoes. It was neither alleged nor proven by
Phoenix and McGee that Mindanao Terminal was bound by contractual stipulation to
observe a higher degree of diligence than that required of a good father of a family. We
therefore conclude that following Article 1173, Mindanao Terminal was required to observe
ordinary diligence only in loading and stowing the cargoes of Del Monte Produce
aboard M/V Mistrau.

imposing a higher degree of diligence,21 on Mindanao Terminal in loading and stowing the
cargoes. The case of Summa Insurance Corporation v. CA, which involved the issue of
whether an arrastre operator is legally liable for the loss of a shipment in its custody and the
extent of its liability, is inapplicable to the factual circumstances of the case at bar. Therein,
a vessel owned by the National Galleon Shipping Corporation (NGSC) arrived at Pier 3,
South Harbor, Manila, carrying a shipment consigned to the order of Caterpillar Far East
Ltd. with Semirara Coal Corporation (Semirara) as "notify party." The shipment, including a
bundle of PC 8 U blades, was discharged from the vessel to the custody of the private
respondent, the exclusive arrastre operator at the South Harbor. Accordingly, three good-
order cargo receipts were issued by NGSC, duly signed by the ship's checker and a
representative of private respondent. When Semirara inspected the shipment at house, it
discovered that the bundle of PC8U blades was missing. From those facts, the Court
observed:

x x x The relationship therefore between the consignee and the arrastre operator must be
examined. This relationship is much akin to that existing between the consignee or owner of
shipped goods and the common carrier, or that between a depositor and a
warehouseman[22 ]. In the performance of its obligations, an arrastre operator should
observe the same degree of diligence as that required of a common carrier and a
warehouseman as enunciated under Article 1733 of the Civil Code and Section 3(b) of the
Warehouse Receipts Law, respectively. 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. (Emphasis supplied)23
There is a distinction between an arrastre and a stevedore.24 Arrastre, a Spanish word
which refers to hauling of cargo, comprehends the handling of cargo on the wharf or
between the establishment of the consignee or shipper and the ship's tackle. The
responsibility of the arrastre operator lasts until the delivery of the cargo to the consignee.
The service is usually performed by longshoremen. On the other hand, stevedoring refers to
the handling of the cargo in the holds of the vessel or between the ship's tackle and the
holds of the vessel. The responsibility of the stevedore ends upon the loading and stowing
of the cargo in the vessel. 1avvphi 1

It is not disputed that Mindanao Terminal was performing purely stevedoring function while
the private respondent in the Summa case was performing arrastre function. In the present
case, Mindanao Terminal, as a stevedore, was only charged with the loading and stowing of
the cargoes from the pier to the ships cargo hold; it was never the custodian of the
shipment of Del Monte Produce. A stevedore is not a common carrier for it does not
transport goods or passengers; it is not akin to a warehouseman for it does not store goods
for profit. The loading and stowing of cargoes would not have a far reaching public
ramification as that of a common carrier and a warehouseman; the public is adequately
protected by our laws on contract and on quasi-delict. The public policy considerations in
legally imposing upon a common carrier or a warehouseman a higher degree of diligence is
not present in a stevedoring outfit which mainly provides labor in loading and stowing of
cargoes for its clients.

In the third issue, Phoenix and McGee failed to prove by preponderance of evidence25 that
Mindanao Terminal had acted negligently. Where the evidence on an issue of fact is in
equipoise or there is any doubt on which side the evidence preponderates the party having
the burden of proof fails upon that issue. That is to say, if the evidence touching a disputed
fact is equally balanced, or if it does not produce a just, rational belief of its existence, or if it
leaves the mind in a state of perplexity, the party holding the affirmative as to such fact must
fail.26
1avv phi 1

We adopt the findings27 of the RTC,28 which are not disputed by Phoenix and McGee. The
Court of Appeals did not make any new findings of fact when it reversed the decision of the
trial court. The only participation of Mindanao Terminal was to load the cargoes on
board M/V Mistrau.29 It was not disputed by Phoenix and McGee that the materials, such as
ropes, pallets, and cardboards, used in lashing and rigging the cargoes were all provided
by M/V Mistrau and these materials meets industry standard.30

It was further established that Mindanao Terminal loaded and stowed the cargoes of Del
Monte Produce aboard the M/V Mistrau in accordance with the stowage plan, a guide for
the area assignments of the goods in the vessels hold, prepared by Del Monte Produce
and the officers of M/V Mistrau.31 The loading and stowing was done under the direction and
supervision of the ship officers. The vessels officer would order the closing of the hatches
only if the loading was done correctly after a final inspection.32 The said ship officers would
not have accepted the cargoes on board the vessel if they were not properly arranged and
tightly secured to withstand the voyage in open seas. They would order the stevedore to
rectify any error in its loading and stowing. A foremans report, as proof of work done on
board the vessel, was prepared by the checkers of Mindanao Terminal and concurred in by
the Chief Officer of M/V Mistrau after they were satisfied that the cargoes were properly
loaded.33

Phoenix and McGee relied heavily on the deposition of Byeong Yong Ahn34 and on the
survey report35 of the damage to the cargoes. Byeong, whose testimony was refreshed by
the survey report,36 found that the cause of the damage was improper stowage37 due to the
manner the cargoes were arranged such that there were no spaces between cartons, the
use of cardboards as support system, and the use of small rope to tie the cartons together
but not by the negligent conduct of Mindanao Terminal in loading and stowing the cargoes.
As admitted by Phoenix and McGee in their Comment38 before us, the latter is merely a
stevedoring company which was tasked by Del Monte to load and stow the shipments of
fresh banana and pineapple of Del Monte Produce aboard the M/V Mistrau. How and where
it should load and stow a shipment in a vessel is wholly dependent on the shipper and the
officers of the vessel. In other words, the work of the stevedore was under the supervision
of the shipper and officers of the vessel. Even the materials used for stowage, such as
ropes, pallets, and cardboards, are provided for by the vessel. Even the survey report found
that it was because of the boisterous stormy weather due to the typhoon Seth, as
encountered by M/V Mistrau during its voyage, which caused the shipments in the cargo
hold to collapse, shift and bruise in extensive extent.39 Even the deposition of Byeong was
not supported by the conclusion in the survey report that:

CAUSE OF DAMAGE

xxx

From the above facts and our survey results, we are of the opinion that damage occurred
aboard the carrying vessel during sea transit, being caused by ships heavy rolling and
pitching under boisterous weather while proceeding from 1600 hrs on 7th October to 0700
hrs on 12th October, 1994 as described in the sea protest.40

As it is clear that Mindanao Terminal had duly exercised the required degree of diligence in
loading and stowing the cargoes, which is the ordinary diligence of a good father of a family,
the grant of the petition is in order.

However, the Court finds no basis for the award of attorneys fees in favor of
petitioner. None of the circumstances enumerated in Article 2208 of the Civil Code exists.
law phil.net

The present case is clearly not an unfounded civil action against the plaintiff as there is no
showing that it was instituted for the mere purpose of vexation or injury. It is not sound
public policy to set a premium to the right to litigate where such right is exercised in good
faith, even if erroneously.41 Likewise, the RTC erred in awarding P83,945.80 actual
damages to Mindanao Terminal. Although actual expenses were incurred by Mindanao
Terminal in relation to the trial of this case in Davao City, the lawyer of Mindanao Terminal
incurred expenses for plane fare, hotel accommodations and food, as well as other
miscellaneous expenses, as he attended the trials coming all the way from Manila. But
there is no showing that Phoenix and McGee made a false claim against Mindanao
Terminal resulting in the protracted trial of the case necessitating the incurrence of
expenditures.42
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G.R.
CV No. 66121 is SET ASIDE and the decision of the Regional Trial Court of Davao City,
Branch 12 in Civil Case No. 25,311.97 is hereby REINSTATED MINUS the awards
of P100,000.00 as attorneys fees and P83,945.80 as actual damages.

SO ORDERED.

G.R. No. 153563 February 07, 2005

NATIONAL TRUCKING AND FORWARDING CORPORATION, petitioner,


vs.
LORENZO SHIPPING CORPORATION, Respondent.

DECISION

QUISUMBING, J.:

For review on certiorari are the Decision1 dated January 16, 2002, of the Court of Appeals,
in CA-G.R. CV No. 48349, and its Resolution,2 of May 13, 2002, denying the motion for
reconsideration of herein petitioner National Trucking and Forwarding Corporation (NTFC).
The impugned decision affirmed in toto the judgment3 dated November 14, 1994 of the
Regional Trial Court (RTC) of Manila, Branch 53, in Civil Case No. 90-52102.

The undisputed facts, as summarized by the appellate court, are as follows:

On June 5, 1987, the Republic of the Philippines, through the Department of Health (DOH),
and the Cooperative for American Relief Everywhere, Inc. (CARE) signed an agreement
wherein CARE would acquire from the United States government donations of non-fat dried
milk and other food products from January 1, 1987 to December 31, 1989. In turn, the
Philippines would transport and distribute the donated commodities to the intended
beneficiaries in the country.

The government entered into a contract of carriage of goods with herein petitioner National
Trucking and Forwarding Corporation (NTFC). Thus, the latter shipped 4,868 bags of non-
fat dried milk through herein respondent Lorenzo Shipping Corporation (LSC) from
September to December 1988. The consignee named in the bills of lading issued by the
respondent was Abdurahman Jama, petitioners branch supervisor in Zamboanga City.

On reaching the port of Zamboanga City, respondents agent, Efren Ruste4 Shipping
Agency, unloaded the 4,868 bags of non-fat dried milk and delivered the goods to
petitioners warehouse. Before each delivery, Rogelio Rizada and Ismael Zamora, both
delivery checkers of Efren Ruste Shipping Agency, requested Abdurahman to surrender the
original bills of lading, but the latter merely presented certified true copies thereof. Upon
completion of each delivery, Rogelio and Ismael asked Abdurahman to sign the delivery
receipts. However, at times when Abdurahman had to attend to other business before a
delivery was completed, he instructed his subordinates to sign the delivery receipts for him.
Notwithstanding the precautions taken, the petitioner allegedly did not receive the subject
goods. Thus, in a letter dated March 11, 1989, petitioner NTFC filed a formal claim for non-
delivery of the goods shipped through respondent.

In its letter of April 26, 1989, the respondent explained that the cargo had already been
delivered to Abdurahman Jama. The petitioner then decided to investigate the loss of the
goods. But before the investigation was over, Abdurahman Jama resigned as branch
supervisor of petitioner.

Noting but disbelieving respondents insistence that the goods were delivered, the
government through the DOH, CARE, and NTFC as plaintiffs filed an action for breach of
contract of carriage, against respondent as defendant, with the RTC of Manila.

After trial, the RTC resolved the case as follows:

WHEREFORE, judgment is hereby rendered in favor of the defendant and against the
plaintiffs, dismissing the latters complaint, and ordering the plaintiffs, pursuant to the
defendants counterclaim, to pay, jointly and solidarily, to the defendant, actual damages in
the amount of P50,000.00, and attorneys fees in the amount of P70,000.00, plus the costs
of suit.

SO ORDERED.5

Dissatisfied with the foregoing ruling, herein petitioner appealed to the Court of Appeals. It
faulted the lower court for not holding that respondent failed to deliver the cargo, and that
respondent failed to exercise the extraordinary diligence required of common carriers.
Petitioner also assailed the lower court for denying its claims for actual, moral, and
exemplary damages, and for awarding actual damages and attorneys fees to the
respondent.6

The Court of Appeals found that the trial court did not commit any reversible error. It
dismissed the appeal, and affirmed the assailed decision in toto.

Undaunted, petitioner now comes to us, assigning the following errors:

THE COURT OF APPEALS GRAVELY ERRED WHEN IT FAILED TO APPRECIATE AND


APPLY THE LEGAL STANDARD OF EXTRAORDINARY DILIGENCE IN THE SHIPMENT
AND DELIVERY OF GOODS TO THE RESPONDENT AS A COMMON CARRIER, AS
WELL AS THE ACCOMPANYING LEGAL PRESUMPTION OF FAULT OR NEGLIGENCE
ON THE PART OF THE COMMON CARRIER, IF THE GOODS ARE LOST, DESTROYED
OR DETERIORATED, AS REQUIRED UNDER THE CIVIL CODE.

II

THE COURT OF APPEALS GRAVELY ERRED WHEN IT SUSTAINED THE BASELESS


AND ARBITRARY AWARD OF ACTUAL DAMAGES AND ATTORNEYS FEES
INASMUCH AS THE ORIGINAL COMPLAINT WAS FILED IN GOOD FAITH, WITHOUT
MALICE AND WITH THE BEST INTENTION OF PROTECTING THE INTEREST AND
INTEGRITY OF THE GOVERNMENT AND ITS CREDIBILITY AND RELATIONSHIP WITH
INTERNATIONAL RELIEF AGENCIES AND DONOR STATES AND ORGANIZATION. 7

The issues for our resolution are: (1) Is respondent presumed at fault or negligent as
common carrier for the loss or deterioration of the goods? and (2) Are damages and
attorneys fees due respondent?

Anent the first issue, petitioner contends that the respondent is presumed negligent and
liable for failure to abide by the terms and conditions of the bills of lading; that Abdurahman
Jamas failure to testify should not be held against petitioner; and that the testimonies of
Rogelio Rizada and Ismael Zamora, as employees of respondents agent, Efren Ruste
Shipping Agency, were biased and could not overturn the legal presumption of respondents
fault or negligence.

For its part, the respondent avers that it observed extraordinary diligence in the delivery of
the goods. Prior to releasing the goods to Abdurahman, Rogelio and Ismael required the
surrender of the original bills of lading, and in their absence, the certified true copies
showing that Abdurahman was indeed the consignee of the goods. In addition, they
required Abdurahman or his designated subordinates to sign the delivery receipts upon
completion of each delivery.

We rule for respondent.

Article 17338 of the Civil Code demands that a common carrier observe extraordinary
diligence over the goods transported by it. Extraordinary diligence is that extreme measure
of care and caution which persons of unusual prudence and circumspection use for
securing and preserving their own property or rights.9 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. Hence, in case of loss of goods in transit, the common carrier is presumed under
the law to have been at fault or negligent.10 However, the presumption of fault or
negligence, may be overturned by competent evidence showing that the common carrier
has observed extraordinary diligence over the goods.

In the instant case, we agree with the court a quo that the respondent adequately proved
that it exercised extraordinary diligence. Although the original bills of lading remained with
petitioner, respondents agents demanded from Abdurahman the certified true copies of the
bills of lading. They also asked the latter and in his absence, his designated subordinates,
to sign the cargo delivery receipts.

This practice, which respondents agents testified to be their standard operating procedure,
finds support in Article 353 of the Code of Commerce:

ART. 353. . . .
After the contract has been complied with, the bill of lading which the carrier has issued
shall be returned to him, and by virtue of the exchange of this title with the thing transported,
the respective obligations and actions shall be considered cancelled, .

In case the consignee, upon receiving the goods, cannot return the bill of lading
subscribed by the carrier, because of its loss or of any other cause, he must give the
latter a receipt for the goods delivered, this receipt producing the same effects as the
return of the bill of lading. (Emphasis supplied)

Conformably with the aforecited provision, the surrender of the original bill of lading is not a
condition precedent for a common carrier to be discharged of its contractual obligation. If
surrender of the original bill of lading is not possible, acknowledgment of the delivery by
signing the delivery receipt suffices. This is what respondent did.

We also note that some delivery receipts were signed by Abdurahmans subordinates and
not by Abdurahman himself as consignee. Further, delivery checkers Rogelio and Ismael
testified that Abdurahman was always present at the initial phase of each delivery, although
on the few occasions when Abdurahman could not stay to witness the complete delivery of
the shipment, he authorized his subordinates to sign the delivery receipts for him. This, to
our mind, is sufficient and substantial compliance with the requirements.

We further note that, strangely, petitioner made no effort to disapprove Abdurahmans


resignation until after the investigation and after he was cleared of any responsibility for the
loss of the goods. With Abdurahman outside of its reach, petitioner cannot now pass to
respondent what could be Abdurahmans negligence, if indeed he were responsible.

On the second issue, petitioner submits there is no basis for the award of actual damages
and attorneys fees. It maintains that its original complaint for sum of money with damages
for breach of contract of carriage was not fraudulent, in bad faith, nor malicious. Neither was
the institution of the action rash nor precipitate. Petitioner avers the filing of the action was
intended to protect the integrity and interest of the government and its relationship and
credibility with international relief agencies and donor states.

On the other hand, respondent maintains that petitioners suit was baseless and malicious
because instead of going after its absconding employee, petitioner wanted to recoup its
losses from respondent. The trial court and the Court of Appeals were justified in granting
actual damages and reasonable attorneys fees to respondent.

On this point, we agree with petitioner.

The right to litigate should bear no premium. An adverse decision does not ipso facto justify
an award of attorneys fees to the winning party.11 When, as in the instant case, petitioner
was compelled to sue to protect the credibility of the government with international
organizations, we are not inclined to grant attorneys fees. We find no ill motive on
petitioners part, only an erroneous belief in the righteousness of its claim.

Moreover, an award of attorneys fees, in the concept of damages under Article 2208 of the
Civil Code,12 requires factual and legal justifications. While the law allows some degree of
discretion on the part of the courts in awarding attorneys fees and expenses of litigation,
the discretion must be exercised with great care approximating as closely as possible, the
instances exemplified by the law.13 We have searched but found nothing in petitioners suit
that justifies the award of attorneys fees.

Respondent failed to show proof of actual pecuniary loss, hence, no actual damages are
due in favor of respondent.14

WHEREFORE, the petition is PARTIALLY GRANTED. The assailed decision and resolution
of the Court of Appeals in CA-G.R. CV No. 48349 dated January 16, 2002 and May 13,
2002 respectively, denying petitioners claim for actual, moral and exemplary damages are
AFFIRMED. The award of actual damages and attorneys fees to respondent pursuant to
the latters counterclaim in the trial court is DELETED.

SO ORDERED.

G.R. No. 168151 September 4, 2009

REGIONAL CONTAINER LINES (RCL) OF SINGAPORE and EDSA SHIPPING


AGENCY, Petitioners,
vs.
THE NETHERLANDS INSURANCE CO. (PHILIPPINES), INC., Respondent.

DECISION

BRION, J.:

For our resolution is the petition for review on certiorari filed by petitioners Regional
Container Lines of Singapore (RCL) and EDSA Shipping Agency (EDSA Shipping) to annul
and set aside the decision1 and resolution2 of the Court of Appeals (CA) dated May 26,
2004 and May 10, 2005, respectively, in CA-G.R. CV No. 76690.

RCL is a foreign corporation based in Singapore. It does business in the Philippines through
its agent, EDSA Shipping, a domestic corporation organized and existing under Philippine
laws. Respondent Netherlands Insurance Company (Philippines), Inc. (Netherlands
Insurance) is likewise a domestic corporation engaged in the marine underwriting business.

FACTUAL ANTECEDENTS

The pertinent facts, based on the records are summarized below.

On October 20, 1995, 405 cartons of Epoxy Molding Compound were consigned to be
shipped from Singapore to Manila for Temic Telefunken Microelectronics Philippines
(Temic). U-Freight Singapore PTE Ltd.3 (U-Freight Singapore), a forwarding agent based in
Singapore, contracted the services of Pacific Eagle Lines PTE. Ltd. (Pacific Eagle) to
transport the subject cargo. The cargo was packed, stored, and sealed by Pacific Eagle in
its Refrigerated Container No. 6105660 with Seal No. 13223. As the cargo was highly
perishable, the inside of the container had to be kept at a temperature of 0 Celsius. Pacific
Eagle then loaded the refrigerated container on board the M/V Piya Bhum, a vessel owned
by RCL, with which Pacific Eagle had a slot charter agreement. RCL duly issued its own Bill
of Lading in favor of Pacific Eagle.

To insure the cargo against loss and damage, Netherlands Insurance issued a Marine Open
Policy in favor of Temic, as shown by MPO-21-05081-94 and Marine Risk Note MRN-21
14022, to cover all losses/damages to the shipment.

On October 25, 1995, the M/V Piya Bhum docked in Manila. After unloading the refrigerated
container, it was plugged to the power terminal of the pier to keep its temperature constant.
Fidel Rocha (Rocha), Vice-President for Operations of Marines Adjustment Corporation,
accompanied by two surveyors, conducted a protective survey of the cargo. They found that
based on the temperature chart, the temperature reading was constant from October 18,
1995 to October 25, 1995 at 0 Celsius. However, at midnight of October 25, 1995 when
the cargo had already been unloaded from the ship the temperature fluctuated with a
reading of 33 Celsius. Rocha believed the fluctuation was caused by the burnt condenser
fan motor of the refrigerated container.

On November 9, 1995, Temic received the shipment. It found the cargo completely
damaged. Temic filed a claim for cargo loss against Netherlands Insurance, with supporting
claims documents. The Netherlands Insurance paid Temic the sum of P1,036,497.00 under
the terms of the Marine Open Policy. Temic then executed a loss and subrogation receipt in
favor of Netherlands Insurance.

Seven months from delivery of the cargo or on June 4, 1996, Netherlands Insurance filed a
complaint for subrogation of insurance settlement with the Regional Trial Court, Branch 5,
Manila, against "the unknown owner of M/V Piya Bhum" and TMS Ship Agencies (TMS), the
latter thought to be the local agent of M/V Piya Bhums unknown owner. 4 The complaint was
docketed as Civil Case No. 96-78612.

Netherlands Insurance amended the complaint on January 17, 1997 to implead EDSA
Shipping, RCL, Eagle Liner Shipping Agencies, U-Freight Singapore, and U-Ocean (Phils.),
Inc. (U-Ocean), as additional defendants. A third amended complaint was later made,
impleading Pacific Eagle in substitution of Eagle Liner Shipping Agencies.

TMS filed its answer to the original complaint. RCL and EDSA Shipping filed their answers
with cross-claim and compulsory counterclaim to the second amended complaint. U-Ocean
likewise filed an answer with compulsory counterclaim and cross-claim. During the
pendency of the case, U-Ocean, jointly with U-Freight Singapore, filed another answer with
compulsory counterclaim. Only Pacific Eagle and TMS filed their answers to the third
amended complaint.

The defendants all disclaimed liability for the damage caused to the cargo, citing several
reasons why Netherland Insurances claims must be rejected. Specifically, RCL and EDSA
Shipping denied negligence in the transport of the cargo; they attributed any negligence that
may have caused the loss of the shipment to their co-defendants. They likewise asserted
that no valid subrogation exists, as the payment made by Netherlands Insurance to the
consignee was invalid. By way of affirmative defenses, RCL and EDSA Shipping averred
that the Netherlands Insurance has no cause of action, and is not the real party-in-interest,
and that the claim is barred by laches/prescription.

After Netherlands Insurance had made its formal offer of evidence, the defendants including
RCL and EDSA Shipping sought leave of court to file their respective motions to dismiss
based on demurrer to evidence.

RCL and EDSA Shipping, in their motion, insisted that Netherlands Insurance had (1) failed
to prove any valid subrogation, and (2) failed to establish that any negligence on their part
or that the loss was sustained while the cargo was in their custody.

On May 22, 2002, the trial court handed down an Order dismissing Civil Case No. 96-78612
on demurrer to evidence. The trial court ruled that while there was valid subrogation, the
defendants could not be held liable for the loss or damage, as their respective liabilities
ended at the time of the discharge of the cargo from the ship at the Port of Manila.

Netherlands Insurance seasonably appealed the order of dismissal to the CA.

On May 26, 2004, the CA disposed of the appeal as follows:

WHEREFORE, in view of the foregoing, the dismissal of the complaint against defendants
Regional Container Lines and Its local agent, EDSA Shipping Agency, is REVERSED and
SET ASIDE. The dismissal of the complaint against the other defendants is AFFIRMED.
Pursuant to Section 1, Rule 33 of the 1997 Rules of Civil Procedure, defendants Regional
Container Lines and EDSA Shipping Agency are deemed to have waived the right to
present evidence.

As such, defendants Regional Container Lines and EDSA Shipping Agency are ordered to
reimburse plaintiff in the sum of P1,036,497.00 with interest from date hereof until fully paid.

No costs.

SO ORDERED. [Emphasis supplied.]

The CA dismissed Netherland Insurances complaint against the other defendants after
finding that the claim had already been barred by prescription.5

Having been found liable for the damage to the cargo, RCL and EDSA Shipping filed a
motion for reconsideration, but the CA maintained its original conclusions.

The sole issue for our resolution is whether the CA correctly held RCL and EDSA Shipping
liable as common carriers under the theory of presumption of negligence.

THE COURTS RULING

The present case is governed by the following provisions of the Civil Code:
ART. 1733. Common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in the vigilance over the goods and for
the safety of the passengers transported by them according to all the circumstances of each
case.

Such extraordinary diligence in the vigilance over the goods is further expressed in articles
1734, 1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of
the passengers is further set forth in articles1755 and 1756.

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

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

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

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

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

5) Order or act of competent public authority.

ART. 1735. In all cases other that those mentioned in Nos. 1, 2, 3, 4 and 5 of the preceding
article, if the goods are lost, destroyed, or deteriorated, common carriers are presumed to
have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as required by article 1733.

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

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

ART. 1742. Even if the loss, destruction, or deterioration of the goods should be caused by
the character of the goods, or the faulty nature of the packing or of the containers, the
common carrier must exercise due diligence to forestall or lessen the loss.

In Central Shipping Company, Inc. v. Insurance Company of North America, 6 we reiterated


the rules for the liability of a common carrier for lost or damaged cargo as follows:

(1) Common carriers are bound to observe extraordinary diligence over the goods
they transport, according to all the circumstances of each case;
(2) In the event of loss, destruction, or deterioration of the insured goods, common
carriers are responsible, unless they can prove that such loss, destruction, or
deterioration was brought about by, among others, "flood, storm, earthquake,
lightning, or other natural disaster or calamity"; and

(3) In all other cases not specified under Article 1734 of the Civil Code, common
carriers are presumed to have been at fault or to have acted negligently, unless they
observed extraordinary diligence.7

In the present case, RCL and EDSA Shipping disclaim any responsibility for the loss or
damage to the goods in question. They contend that the cause of the damage to the cargo
was the "fluctuation of the temperature in the reefer van," which fluctuation occurred after
the cargo had already been discharged from the vessel; no fluctuation, they point out, arose
when the cargo was still on board M/V Piya Bhum. As the cause of the damage to the cargo
occurred after the same was already discharged from the vessel and was under the custody
of the arrastre operator (International Container Terminal Services, Inc. or ICTSI), RCL and
EDSA Shipping posit that the presumption of negligence provided in Article 1735 of the Civil
Code should not apply. What applies in this case is Article 1734, particularly paragraphs 3
and 4 thereof, which exempts the carrier from liability for loss or damage to the cargo when
it is caused either by an act or omission of the shipper or by the character of the goods or
defects in the packing or in the containers. Thus, RCL and EDSA Shipping seek to lay the
blame at the feet of other parties.

We do not find the arguments of RCL and EDSA Shipping meritorious.

A common carrier is presumed to have been negligent if it fails to prove that it exercised
extraordinary vigilance over the goods it transported.8 When the goods shipped are either
lost or arrived in damaged condition, a presumption arises against the carrier of its failure to
observe that diligence, and there need not be an express finding of negligence to hold it
liable.9
1avv phi 1

To overcome the presumption of negligence, the common carrier must establish by


adequate proof that it exercised extraordinary diligence over the goods. It must do more
than merely show that some other party could be responsible for the damage. 10

In the present case, RCL and EDSA Shipping failed to prove that they did exercise that
degree of diligence required by law over the goods they transported. Indeed, there is
sufficient evidence showing that the fluctuation of the temperature in the refrigerated
container van, as recorded in the temperature chart, occurred after the cargo had been
discharged from the vessel and was already under the custody of the arrastre operator,
ICTSI. This evidence, however, does not disprove that the condenser fan which caused
the fluctuation of the temperature in the refrigerated container was not damaged while the
cargo was being unloaded from the ship. It is settled in maritime law jurisprudence that
cargoes while being unloaded generally remain under the custody of the carrier; 11 RCL and
EDSA Shipping failed to dispute this. 1avvphi1

RCL and EDSA Shipping could have offered evidence before the trial court to show that the
damage to the condenser fan did not occur: (1) while the cargo was in transit; (2) while they
were in the act of discharging it from the vessel; or (3) while they were delivering it actually
or constructively to the consignee. They could have presented proof to show that they
exercised extraordinary care and diligence in the handling of the goods, but they opted to
file a demurrer to evidence. As the order granting their demurrer was reversed on appeal,
the CA correctly ruled that they are deemed to have waived their right to present
evidence,12 and the presumption of negligence must stand.

It is for this reason as well that we find RCL and EDSA Shippings claim that the loss or
damage to the cargo was caused by a defect in the packing or in the containers. To
exculpate itself from liability for the loss/damage to the cargo under any of the causes, the
common carrier is burdened to prove any of the causes in Article 1734 of the Civil Code
claimed by it by a preponderance of evidence. If the carrier succeeds, the burden of
evidence is shifted to the shipper to prove that the carrier is negligent.13 RCL and EDSA
Shipping, however, failed to satisfy this standard of evidence and in fact offered no
evidence at all on this point; a reversal of a dismissal based on a demurrer to evidence bars
the defendant from presenting evidence supporting its allegations.

WHEREFORE, we DENY the petition for review on certiorari filed by the Regional Container
Lines of Singapore and EDSA Shipping Agency. The decision of the Court of Appeals dated
May 26, 2004 in CA-G.R. CV No. 76690 is AFFIRMED IN TOTO. Costs against the
petitioners.

SO ORDERED.

G.R. No. 122039 May 31, 2000

VICENTE CALALAS, petitioner,


vs.
COURT OF APPEALS, ELIZA JUJEURCHE SUNGA and FRANCISCO
SALVA, respondents.

MENDOZA, J.:

This is a petition for review on certiorari of the decision1 of the Court of Appeals, dated
March 31, 1991, reversing the contrary decision of the Regional Trial Court, Branch 36,
Dumaguete City, and awarding damages instead to private respondent Eliza Jujeurche
Sunga as plaintiff in an action for breach of contract of carriage.

The facts, as found by the Court of Appeals, are as follows:

At 10 o'clock in the morning of August 23, 1989, private respondent Eliza Jujeurche G.
Sunga, then a college freshman majoring in Physical Education at the Siliman University,
took a passenger jeepney owned and operated by petitioner Vicente Calalas. As the
jeepney was filled to capacity of about 24 passengers, Sunga was given by the conductor
an "extension seat," a wooden stool at the back of the door at the rear end of the vehicle.
On the way to Poblacion Sibulan, Negros Occidental, the jeepney stopped to let a
passenger off. As she was seated at the rear of the vehicle, Sunga gave way to the
outgoing passenger. Just as she was doing so, an Isuzu truck driven by Iglecerio Verena
and owned by Francisco Salva bumped the left rear portion of the jeepney. As a result,
Sunga was injured. She sustained a fracture of the "distal third of the left tibia-fibula with
severe necrosis of the underlying skin." Closed reduction of the fracture, long leg circular
casting, and case wedging were done under sedation. Her confinement in the hospital
lasted from August 23 to September 7, 1989. Her attending physician, Dr. Danilo V.
Oligario, an orthopedic surgeon, certified she would remain on a cast for a period of three
months and would have to ambulate in crutches during said period.

On October 9, 1989, Sunga filed a complaint for damages against Calalas, alleging violation
of the contract of carriage by the former in failing to exercise the diligence required of him
as a common carrier. Calalas, on the other hand, filed a third-party complaint against
Francisco Salva, the owner of the Isuzu truck.

The lower court rendered judgment against Salva as third-party defendant and absolved
Calalas of liability, holding that it was the driver of the Isuzu truck who was responsible for
the accident. It took cognizance of another case (Civil Case No. 3490), filed by Calalas
against Salva and Verena, for quasi-delict, in which Branch 37 of the same court held Salva
and his driver Verena jointly liable to Calalas for the damage to his jeepney.

On appeal to the Court of Appeals, the ruling of the lower court was reversed on the ground
that Sunga's cause of action was based on a contract of carriage, not quasi-delict, and that
the common carrier failed to exercise the diligence required under the Civil Code. The
appellate court dismissed the third-party complaint against Salva and adjudged Calalas
liable for damages to Sunga. The dispositive portion of its decision reads:

WHEREFORE, the decision appealed from is hereby REVERSED and SET


ASIDE, and another one is entered ordering defendant-appellee Vicente
Calalas to pay plaintiff-appellant:

(1) P50,000.00 as actual and compensatory damages;

(2) P50,000.00 as moral damages;

(3) P10,000.00 as attorney's fees; and

(4) P1,000.00 as expenses of litigation; and

(5) to pay the costs.

SO ORDERED.

Hence, this petition. Petitioner contends that the ruling in Civil Case No. 3490 that the
negligence of Verena was the proximate cause of the accident negates his liability and that
to rule otherwise would be to make the common carrier an insurer of the safety of its
passengers. He contends that the bumping of the jeepney by the truck owned by Salva was
a caso fortuito. Petitioner further assails the award of moral damages to Sunga on the
ground that it is not supported by evidence.

The petition has no merit.

The argument that Sunga is bound by the ruling in Civil Case No. 3490 finding the driver
and the owner of the truck liable for quasi-delict ignores the fact that she was never a party
to that case and, therefore, the principle of res judicata does not apply.

Nor are the issues in Civil Case No. 3490 and in the present case the same. The issue in
Civil Case No. 3490 was whether Salva and his driver Verena were liable for quasi-delict for
the damage caused to petitioner's jeepney. On the other hand, the issue in this case is
whether petitioner is liable on his contract of carriage. The first, quasi-delict, also known
as culpa aquiliana or culpa extra contractual, has as its source the negligence of the
tortfeasor. The second, breach of contract or culpa contractual, is premised upon the
negligence in the performance of a contractual obligation.

Consequently, in quasi-delict, the negligence or fault should be clearly established because


it is the basis of the action, whereas in breach of contract, the action can be prosecuted
merely by proving the existence of the contract and the fact that the obligor, in this case the
common carrier, failed to transport his passenger safely to his destination.2 In case of death
or injuries to passengers, Art. 1756 of the Civil Code provides that common carriers are
presumed to have been at fault or to have acted negligently unless they prove that they
observed extraordinary diligence as defined in Arts. 1733 and 1755 of the Code. This
provision necessarily shifts to the common carrier the burden of proof.

There is, thus, no basis for the contention that the ruling in Civil Case No. 3490, finding
Salva and his driver Verena liable for the damage to petitioner's jeepney, should be binding
on Sunga. It is immaterial that the proximate cause of the collision between the jeepney and
the truck was the negligence of the truck driver. The doctrine of proximate cause is
applicable only in actions for quasi-delict, not in actions involving breach of contract. The
doctrine is a device for imputing liability to a person where there is no relation between him
and another party. In such a case, the obligation is created by law itself. But, where there is
a pre-existing contractual relation between the parties, it is the parties themselves who
create the obligation, and the function of the law is merely to regulate the relation thus
created. Insofar as contracts of carriage are concerned, some aspects regulated by the Civil
Code are those respecting the diligence required of common carriers with regard to the
safety of passengers as well as the presumption of negligence in cases of death or injury to
passengers. It provides:

Art. 1733. Common carriers, from the nature of their business and for reasons
of public policy, are bound to observe extraordinary diligence in the vigilance
over the goods and for the safety of the passengers transported by them,
according to all the circumstances of each case.

Such extraordinary diligence in the vigilance over the goods is further


expressed in articles 1734, 1735, and 1746, Nos. 5, 6, and 7, while the
extraordinary diligence for the safety of the passengers is further set forth in
articles 1755 and 1756.

Art. 1755. A common carrier is bound to carry the passengers 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.

Art. 1756. In case of death of or injuries to passengers, common carriers are


presumed to have been at fault or to have acted negligently, unless they
prove that they observed extraordinary diligence as prescribed by articles
1733 and 1755.

In the case at bar, upon the happening of the accident, the presumption of negligence at
once arose, and it became the duty of petitioner to prove that he had to observe
extraordinary diligence in the care of his passengers.

Now, did the driver of jeepney carry Sunga "safely as far as human care and foresight could
provide, using the utmost diligence of very cautious persons, with due regard for all the
circumstances" as required by Art. 1755? We do not think so. Several factors militate
against petitioner's contention.

First, as found by the Court of Appeals, the jeepney was not properly parked, its rear portion
being exposed about two meters from the broad shoulders of the highway, and facing the
middle of the highway in a diagonal angle. This is a violation of the R.A. No. 4136, as
amended, or the Land Transportation and Traffic Code, which provides:

Sec. 54. Obstruction of Traffic. No person shall drive his motor vehicle in
such a manner as to obstruct or impede the passage of any vehicle, nor,
while discharging or taking on passengers or loading or unloading freight,
obstruct the free passage of other vehicles on the highway.

Second, it is undisputed that petitioner's driver took in more passengers than the allowed
seating capacity of the jeepney, a violation of 32(a) of the same law. It provides:

Exceeding registered capacity. No person operating any motor vehicle


shall allow more passengers or more freight or cargo in his vehicle than its
registered capacity.

The fact that Sunga was seated in an "extension seat" placed her in a peril greater than that
to which the other passengers were exposed. Therefore, not only was petitioner unable to
overcome the presumption of negligence imposed on him for the injury sustained by Sunga,
but also, the evidence shows he was actually negligent in transporting passengers.

We find it hard to give serious thought to petitioner's contention that Sunga's taking an
"extension seat" amounted to an implied assumption of risk. It is akin to arguing that the
injuries to the many victims of the tragedies in our seas should not be compensated merely
because those passengers assumed a greater risk of drowning by boarding an overloaded
ferry. This is also true of petitioner's contention that the jeepney being bumped while it was
improperly parked constitutes caso fortuito. A caso fortuito is an event which could not be
foreseen, or which, though foreseen, was inevitable.3 This requires that the following
requirements be present: (a) the cause of the breach is independent of the debtor's will; (b)
the event is unforeseeable or unavoidable; (c) the event is such as to render it impossible
for the debtor to fulfill his obligation in a normal manner, and (d) the debtor did not take part
in causing the injury to the
creditor.4 Petitioner should have foreseen the danger of parking his jeepney with its body
protruding two meters into the highway.

Finally, petitioner challenges the award of moral damages alleging that it is excessive and
without basis in law. We find this contention well taken.

In awarding moral damages, the Court of Appeals stated:

Plaintiff-appellant at the time of the accident was a first-year college student


in that school year 1989-1990 at the Silliman University, majoring in Physical
Education. Because of the injury, she was not able to enroll in the second
semester of that school year. She testified that she had no more intention of
continuing with her schooling, because she could not walk and decided not to
pursue her degree, major in Physical Education "because of my leg which
has a defect already."

Plaintiff-appellant likewise testified that even while she was under


confinement, she cried in pain because of her injured left foot. As a result of
her injury, the Orthopedic Surgeon also certified that she has "residual
bowing of the fracture side." She likewise decided not to further pursue
Physical Education as her major subject, because "my left leg . . . has a
defect already."

Those are her physical pains and moral sufferings, the inevitable bedfellows
of the injuries that she suffered. Under Article 2219 of the Civil Code, she is
entitled to recover moral damages in the sum of P50,000.00, which is fair, just
and reasonable.

As a general rule, moral damages are not recoverable in actions for damages predicated on
a breach of contract for it is not one of the items enumerated under Art. 2219 of the Civil
Code.5 As an exception, such damages are recoverable: (1) in cases in which the mishap
results in the death of a passenger, as provided in Art. 1764, in relation to Art. 2206(3) of
the Civil Code; and (2) in the cases in which the carrier is guilty of fraud or bad faith, as
provided in Art. 2220.6

In this case, there is no legal basis for awarding moral damages since there was no factual
finding by the appellate court that petitioner acted in bad faith in the performance of the
contract of carriage. Sunga's contention that petitioner's admission in open court that the
driver of the jeepney failed to assist her in going to a nearby hospital cannot be construed
as an admission of bad faith. The fact that it was the driver of the Isuzu truck who took her
to the hospital does not imply that petitioner was utterly indifferent to the plight of his injured
passenger. If at all, it is merely implied recognition by Verena that he was the one at fault for
the accident.

WHEREFORE, the decision of the Court of Appeals, dated March 31, 1995, and its
resolution, dated September 11, 1995, are AFFIRMED, with the MODIFICATION that the
award of moral damages is DELETED.

SO ORDERED.

G.R. No. L-8937 November 29, 1957

OLEGARIO BRITO SY, plaintiff-appellee,


vs.
MALATE TAXI CAB & GARAGE, INC., defendant-appelant;

MALATE TAXICAB & GARAGE, INC., third-party plaintiff-appellant,


vs.
JESUS DEQUITO Y DUPY, third-party defendant-appellee.

Paredes, Gaw and Acevedo for appellee.


Diaz and Baizas for appellant.

ENDENCIA, J.:

On June 26, 1952, at Dewey Boulevard in front of the Selecta Restaurant, Olegario Brito Sy
engaged a taxicab bearing plate No. Taxi-1130, owned and operated by Malate Taxicab
and Garage, Inc. and driven by Catalino Ermino, to take him to his place of business at
Dencia's Restaurant on the Escolta where he was the general manager. Upon reaching the
Rizal Monument he told the driver to turn to the right, but the latter did not heed him and
instead countered that they better pass along Katigbak Drive. At the intersection of Dewey
Bolevard and Katigbak Drive, the taxi collided with an army wagon with plate No. TPI-695
driven by Sgt. Jesus De quito, as a result of which Olegario Brito Sy was jarred, jammed
and jolted. He was taken to the Santa Isabel Hospital suffering from bruises and contusions
as well as fractured right leg. Thereafter he was transferred to the Gonzales Orthopedic
Clinic and was accordingly operated on. He spent some P2,266.45 for medical bills and
hospitalization.

On September 30, 1952, Sy filed action against the Malate Taxicab & Garage, Inc., based
upon a contract of carriage, to recover the sums of P7,200 as actual or compensatory
damages, P20,000 as moral damages, P15,000 as nominal and exemplary damages, and
P3,000 a attorney's fees. On October 2, 1952, a copy of the complaint was served on and
received by the defendant, but the latter filed its answer only on October 20, 1952, wherein
it alleged that the collision subject of the complaint was not due to the negligence of its
driver but to that of Sgt. Jesus Dequito, the driver of the army wagon; and, by way of
counterclaim, sought to recover the sum of P1,000 as damages caused by the alleged
malicious and frivolous action filed against it.
The record reveals that upon plaintiff's motion filed on October 23, 1952, the lower court
ordered on October 25, 1952 that the answer which was filed by defendant out of time be
stricken out, and declared the Malate Taxicab & Garage, Inc. in default. Thereafter, on
October 30, 1952, plaintiff presented his evidence, and on November 20, 1952 judgment
was rendered awarding plaintiff the sum of P14.000 as actual, compensatory, moral,
nominal and exemplary damages including attorney's fees and costs, with interest at the
legal rate from the filing of the action. Defendant then filed a motion on December 17, 1952,
for relief from the order of default and for new trial, which was granted. Hence, plaintiff filed
his reply to defendant's answer and counterelaim, and by leave of court, the latter filed on
February 24, 1953 a third-party complaint against Sgt. Jesus Dequito alleging that the
cause of the collision between the taxicab and the army wagon was the negligence of the
army sergeant, and praying that whatever amount the court may assess against it in the
action filed by plaintiff, be paid to said third-party plaintiff, plus an additional amount of
P1,000 representing attorney's fees. It appears, however, that the summons and copy of
the third-party complaint were never served upon third-party defendant Dequito in view of
his continued assignment from place to place in connection with his army duties, and for
this reason the main case was set for trial on May 10, 1953, obviously for the sole purpose
of disposing of the issue arising from plaintiffs complaint. On the day of the trial, defendant
failed to appear, whereupon plaintiff presented his evidence, and judgment was rendered
against the defendant in the total sum of P4,200 representing actual, compensatory and
moral damages, as well as attorney's fees, with interest at the legal rate from the filing of
the action, plus costs of suit. Aga nst said judgment defendant appealed to the Court of
Appeals and assigned in its brief two errors of the lower court, namely:

1. The trial court erred in not finding that the third-party complaint involves a
prejudicial question, and therefore, the main complaint cannot be decided until the
third-party complaint is decided.

2. The trial court erred in not deciding or making an express finding as to whether
the defendant appellant Malate Taxicab & Garage, Inc. was responsible for the
collision, and hence, civilly responsible to the plaintiff-appellee.

Finding the quoted assignment of errors as involving a purely question of law, the Court of
Appeals, by virtue of the provisions of section 17, paragraph 6 of the judiciary Act of 1948,
as amended, certified the case to this Court for adjudication, in its Resolution of February 7,
1955.

We find no merit in the first assignment of error that the third-party complaint is a pre-judicial
question. As enunciated by this Court in Berbari vs. Concepcion, 40 Phil. 837, "Pre-judicial
question in understood in law to be that which precedes the criminal action, or that which
requires a decision before final judgment is rendered in the principal action with which said
question is closely connected. Not all previous questions are pre-judicial questions are
necessarily previous", although all pre-judicial questions are necessarily previous." In the
present case, the third-party complaint is not a pre-judicial question, as the issue in the
main action is not entirely dependent upon those in the third-party complaint; on the
contrary, it is the third-party complaint that is dependent upon the main case at least in the
amount of damages which defendant appellant seeks to be reimbursed in its third-party
complaint. Furthermore, the complaint is based on a contractual obligation of transportation
of passenger which defendant-appellant failed to carry out, and the action is entirely
different and independent from that in the third-party complaint which is based an alleged
tortious act committed by the third-party defendant Sgt. Dequito. The main case, therefore,
is entirely severable and may be litigated independently. Moreover, whatever the outcome
of the third-party complaint might be would not in any way affect or alter the contractual
liability of the appellant to plaintiff. If the collision was due to the negligence of the third-
party defendant, as alleged, then defendant appellant may file a separate civil action for
damages based on tort ex-delicto or upon quasi-delict, as the case may be.

Coming to the second assignment of error that the lower court erred in not making an
express findings as to whether defendant appellant was responsible for the collision, we find
the same to be unjustified. The pertinent, provisions of the new Civil Code under the
heading Common Carriers, are the following:

ART. 1733. Common carriers, from the nature of their business and for reason of
public policy, are bound to observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported by them, according to all the
circumstances of each case.

Such extraordinary diligence in the vigilance over the goods is further expressed in
articles 1734, 1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for
the safety of the passengers is further set forth in articles 1755 and 1756.

ART. 1755. A common carrier is bound to carry the passengers to safety 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.

ART. 1756. In case of death of or injuries to passengers, common carriers are


presumed to have been at fault or to have acted negligently, unless they prove that
they observed extraordinary diligence as prescribed in articles 1733 and 1755.
(Emphasis supplied.)

Evidently, under these provisions of law, the court need not make an express finding of fault
or negligence on the part of the defendant appellant in order to hold it responsible to pay the
damages sought for by the plaintiff, for the action initiated therefor is based on a contract of
carriage and not on tort. When plaintiff rode on defendant-appellant's taxicab, the latter
assumed the express obligation to transport him to his destination safely, and to observe
extraordinary diligence with a due regard for all the circumstances, and any injury that might
be suffered by the passenger is right away attributable to the fault or negligence of the
carrier (Article 1756, supra). This is an exception to the general rule that negligence must
be proved, and it was therefore incumbent upon the carrier to prove that it has exercised
extraordinary diligence as prescribed in Articles 1733 and 1755 of the new Civil Code. It is
noteworthy, however, that at the hearing in the lower court defendant-appellant failed to
appear and has not presented any evidence at all to overcome and overwhelm the
presumption of negligence imposed upon it by law; hence, there was no need for the lower
court to make an express finding thereon in view of the provisions of the aforequoted Article
1756 of the new Civil Code.
Wherefore, the decision of the lower court is hereby affirmed with cost against the appellant.

G.R. No. L-22459 October 31, 1967

ANTONIO V. ROQUE, petitioner,


vs.
BIENVENIDO P. BUAN, ET AL., respondents.

Francisco R. Sotto and Associates for petitioner.


Angel A. Sison for respondents.

ANGELES, J.:

An appeal by certiorari from a decision of the Court of Appeals, reversing in toto the
decision of the Court of First Instance of Pampanga which sentenced the defendants "to
pay the plaintiff (Antonio V. Roque) the sums of P515.70 (hospital bill) and P840.00 (six
months salary), or a total of P1,355.70, with legal interest from February 12, 1955, plus the
sum of P500.00 as attorney's fees and an equivalent amount of P500.00 as moral
damages, and the costs."

Upon the record, it appears that on 7 June 1955, Antonio V. Roque filed this suit for
damages against Bienvenido P. Buan and Natividad Paras, co-administrators of the Estate
of the deceased spouses Florencio P. Buan and Rizalina Paras, in the Court of First
Instance of Pampanga, for alleged breach of contract of carriage, resulting from a traffic
accident which occurred at Sulipan Bridge in Apalit, Pampanga.

The circumstances surrounding the occurrence of the unfortunate accident has been
narrated in court during the trial by the plaintiff himself, whose testimony was corroborated
by a passenger of the bus. The defense did not summon any other passenger of the bus to
testify. Neither was the conductor of the bus presented in court. It relied solely on the
testimony of the driver Celestino Soliman.

The evidence of the plaintiff, substantiated by his testimony and that of a passenger in the
bus, demonstrate that Florencio P. Buan, in his lifetime was an operator of land
transportation for passengers, under the name of "Philippine Rabbit Bus Lines", with a
certificate of Public Convenience issued by the Public Service Commission. The defendants
co-administrators, sued herein in their legal capacity as such, have been duly authorize by
the court to continue the operation of the bus transportation for passengers.

On February 12, 1955, at about 2:00 o'clock in the afternoon, the plaintiff Antonio V. Roque,
was a paying passenger in bus No. 397, operated by the defendants. The bus left Manila for
Angeles City, Pampanga, driven by Celestino Soliman, an employee of the operator. All
along the way, the speed of the bus was about 60 kms. per hour. When the bus was over
the Sulipan bridge at Apalit, Pampanga, it met a cargo truck coming from the opposite
direction. To avoid colliding with the truck, the driver swerved the bus to the right, which,
however, sideswiped the railing of the bridge. So violent was the impact that the two iron
grills of a window of the bus were detached, dangling thereat, and the rear right portion of
the bus was dented inward. The plaintiff was seated by the side of the window where the
iron grills were detached with his right arm resting on the sill of the frame of the window.
The injuries suffered by him as a result of the impact are: "1. Abrasion multiple, upper
extreme right; 2. fracture simple complete; 3. Wound lacerated, exposing elbow point
right." (Exhibit A.)

For the defendants, the driver of the bus declared that the rate of speed of his bus all the
way from Manila, was between 40 to 50 kms. per hour. As the bus was approaching the
Sulipan bridge, he reduced the speed to 10 kms. per hour, which he maintained while
passing over the bridge. When the bus was over the bridge, a freight truck came along from
the opposite direction, and to avoid colliding with the truck, he swerved the bus to the right,
and as he did so, he suddenly heard the conductor of the bus shout "para" (stop). Asking
why, the conductor replied: "This arm which was protruding hit the bridge." Addressing the
passenger indicated by the conductor, who happened to be the plaintiff, the driver asked:
"Why did you put out your arm?" The passenger replied: "I fell asleep."

In avoidance of liability, the thesis of the defense is that plaintiff's arm was injured because
he extended it outside the window, and struck it against the railing of the bridge. To sustain
the contention, four witnesses were summoned to the witness-stand who declared in
substance that the bus suffered no damage at all. However, the trial court's finding shows
that the bus suffered substantial damage. Thus:

To establish that the bus was not damaged, not even a scratch, the defendants
introduced the mechanic, the carpenter and the administrative officer, all of the
Rabbit, and the police lieutenant of Apalit, who said, he saw the bus parked in front
of the San Fernando municipal building. All of these witnesses declared that they
found no dent nor a single scratch on the right rear side of the bus and that the grills
of the window, by which the plaintiff was seated, were in their places.

On the other hand, the plaintiff testified that before reaching the bridge, the bus was
running at about 60 kilometers per hour and that it did not slacken until it hit the
railing of the bridge after it had passed the cargo truck (Exhibit C-1), thereby causing
the injuries to his elbow and arm.

As to the bus, he declared that the rear right portion was dented, the top of the
window was damaged, and the grills were detached and dangling from the window.

xxx xxx xxx

From the evidence of the plaintiff and that of his witness, a co-passenger whom he
met for the first time on that fatal occasion, we have valid grounds to believe and to
hold that the driver, upon seeing the oncoming truck which he said was big and
which was occupying all the space up to the center of the line, and motivated
undoubtedly by the fear that it might collide with the left side of his bus, maneuvered
his vehicle to the right, but because he could not see the cargo truck as the windows
were closed, he went very near too close so that his bus hit the railing of the bridge
after it had passed the freight truck. In arriving at this finding and conclusion, we
have taken into consideration the fact, as admitted by Celestino Soliman that he had
driven the bus for only two weeks before the accident, and notwithstanding the
testimony of the administrative officers regarding seminars and the like, we believe
that the driver had not yet sufficiently familiarized himself with the behavior of his bus
so as to put it completely at all times under his control. In this, we believe there was
a lack of diligence in his selection to drive the Rabbit bus No. 397.

In regard to the injuries, we are inclined to believe the plaintiff that he rested his
arms on the sill, but within the frame of the window, and that, as denied in rebuttal,
he was not asleep. This fact is borne out by the circumstances that he was able to
determine the rate of speed of the bus. If, indeed, it were true that he extended out
his arm, the injuries would have certainly been more serious and fatal. That no other
passenger was harmed, this can be attributed to the fact that the impact was
concentrated at the point precisely where the victim was unfortunately seated. The
contact was localized.

Upon the foregoing facts, we are firmly convinced that the plaintiff was not at fault
and that the operator, through its driver and employee, failed to exercise that
extraordinary diligence which would have exempted it from civil liability.

On the same matter, the Court of Appeals said:

Inasmuch as plaintiff was injured, and as no scratch was found on the rear right side
of the bus, and as the only damage to the bus as found by the trial court, consisted
of the following: "The rear right portion was dented, the grills were detached and
dangling from the window, and the top of the window was damaged", the only
conclusion we can think of as to why plaintiff was injured is that he must have
extended his right elbow beyond or outside the grills of the window of the bus, as
some passengers are wont to do unconsciously, and when the bus moved towards
the right of the bridge as it passed the big freight truck going in the opposite
direction, the railing of the bridge must have caught plaintiff's elbow, and the impact
was so violent that the two grills of the window of the bus were thereby "detached
and dangling from the window" which must have been the cause of the dent on the
right portion of the bus." (Emphasis Ours.)

Analyzing the findings made by the trial court, on whether or not the bus suffered damage,
We observe that the court's findings in the affirmative are factually based on the testimony
of the plaintiff and of the corroborating witness, whose demeanor while testifying, was within
the observation of the trial court which, after appreciating their testimonies, found no reason
not to accord them credit. The decision of the Court of Appeals on the same point, does not
disagree with the findings of the trial court. It upheld the finding of the trial court that the
damage to the bus were "The rear right portion was dented, the grills were detached and
dangling from the window, and the top of the window was damaged, . . . the impact was so
violent that the two grills of the window which must have been the cause of the dent on the
right portion of the bus." Upon these established facts, the Court of Appeals concluded,
however, that the plaintiff's arm was injured because "he must have extended his right
elbow beyond or outside the grills of the window of the bus."

If the decision of the Court of Appeals on the controversial matter suffers, as it does, from
some ambiguity, the doubt should be resolved to sustain the trial court in the light of the
familiar and accepted rule that "the judge who tries a case in the court below, has vastly
superior advantage for the ascertainment of truth and the detection of falsehood over an
appellate court sitting as a court of review. The appellate court can merely follow with the
eye, the cold words of the witness as transcribed upon the record, knowing at the same
time, from actual experience, that more or less, of what the witness actually did say, is
always lost in the process of transcribing. But the main difficulty does not lie here. There is
an inherent impossibility of determining with any degree of accuracy what credit is justly due
to a witness from merely reading the words spoken by him, even if there was no doubt as to
the identity of the words." (Moran, Comments on the Rules of Court.)

We are not prepared to agree with the Court of Appeals' conclusion as to the reason why
the plaintiff's arm was injured - that "he must have extended his right elbow beyond or
outside the grills of the window of the bus." The conclusion is: firstly, contrary to the
established act; secondly, it is an inference based on mere assumption; thirdly, it is contrary
to the res ipsa loquitur rule; and fourthly, it is not in conformity with the physical law of
nature. With the undisputed fact on record that the bus was damaged to the extent
hereinabove described, and taking account of the fact that the human hand is tender and
fragile, to say that the violent contact of the hand with the railing, the bus running at a high
rate of speed, without the vehicle colliding with the railing, caused the iron grills to be
destroyed and detached from the frame of the window where they were imbedded, is to tax
one's credulity. The physical fact that the bus suffered damage to the extent as shown by
plaintiff's evidence, is demonstrative proof that that portion of the bus came into violent
contact with some protruding hard object on the railing capable of producing such damage.
We are persuaded to believe, as found by the trial court, that the violent contact of the bus
with the railing was what caused the damage to the bus.

Contrary to the testimony of the driver that the speed of the bus was only 10 kms. per hour
when it crossed the bridge, we are inclined to accord more credence to the evidence of the
plaintiff, that the bus was running at an unreasonable speed when it approached and
crossed the bridge. Judicial notice can be taken of the fact that Apalit bridge is part of the
main thorough fare for all kinds of vehicles, including big trucks and buses, cruising along
that national highway, wide enough to permit the simultaneous passage through the bridge
of two trucks or buses. If it is true that the speed of the bus was only 10 kms. per hour when
it was crossing the bridge, side-swiping the railing of the bridge at such a low speed, would
not have produced the extent of damage that the bus suffered. At most, the physical contact
would not have resulted in more than a scratch on the bus.

The testimony of the driver, regarding the exchange of questions and answers between him
and his conductor, and between him and plaintiff, is self-impeached by his statement given
before the Chief of Police of Apalit. We quote from the decision of the Court of Appeals:

However, in his (driver's) "declaration" taken in the office of the Chief of Police of
Apalit, Pampanga, on February 13, 1955, in the Pampango dialect, subscribed and
sworn to by him before the Municipal Mayor, the said bus driver declared pertinently:

". . . upon reaching the bridge of Sulipan here in Apalit, Pampanga, I slowed
down because there was a cargo truck coming from the opposite direction. At
the same time, there was a jeep following me. The speed of my truck was
more or less 10 kms. per hour because the bridge was narrow and there was
a truck coming from the opposite direction. After meeting the said truck on the
bridge, my passengers said that there was a passenger on board my truck
who was injured. In view of the advice of the other passengers to bring the
injured passenger to the nearest drug store, what I did in order to have him
treated was to bring him to Ocampo Clinic in San Fernando. . . ."

The sworn statement of the driver belie his testimony in court; firstly, that it was the
conductor who called his attention about the injured passenger; and secondly, that Roque
admitted that he had put his arm out of the window and told him that he (Roque) was
"asleep", for if, Roque really gave these replies, the driver would have so stated in his sworn
statement to the Chief of Police. Such a significant fact, still fresh in the mind of the driver
when he gave his statement to the police, could not have been forgotten by him.

Negligence on the part of the common carrier is presumed where, as in the present case,
the passenger suffers injuries.

In case of death or injuries to passengers, common carriers are presumed to have


been at fault or to have acted negligently, unless they proved that they observed
extraordinary diligence as prescribed in Articles 1733 and 1755. (Art. 1756, New
Civil Code.)

When the action is based on a contract of carriage and not of tort, the court need not
make an express finding of fault or negligence on the part of the carrier in order to
hold it responsible to any damages sought for by the plaintiff. For the carrier by
accepting the passenger assumes express obligation to transport him to his
destination safely, and to observe extraordinary diligence with due regard for all the
circumstances, and any injury that may be suffered: by the passenger is right away
attributable to the fault or negligence of the carrier. (Art. 1776, New Civil Code) This
is an exception to the general rule that negligence must be proved and it is
incumbent upon the carrier to prove that it exercised extraordinary diligence as
prescribed in Arts. 1733 and 1755 of the Civil Code. (Dy Sy vs. Malate Taxicab etc.,
L-8937, November 29, 1957.)

The negligence of the defendants in the case at bar, rests on something more solid than a
legal presumption. We are persuaded, that the accident occurred because of want of care
and prudence on the part of bus driver. As the defendants failed to prove their observance
of extraordinary diligence in discharging their obligation unto plaintiff, their liability as public
utility operator is beyond question. Hence, the decision of the Court of Appeals should be
reversed. In arriving at this conclusion, we have not lost sight of the rule that generally, the
findings of fact by the Court of Appeals are deemed accepted as the basis for review of the
appellate's decision; but, the rule is not without exception. It is settled that the findings of
fact made by the Court of Appeals may be set aside: 1) when the conclusion is a finding
grounded entirely on speculation, surmises or conjectures;1 2) When the inference made is
manifestly mistaken, absurd or impossible;2 3) where there is a grave abuse of
discretion;3 4) when the judgment is based on a misapprehension of facts;4 and 5) when the
Court of Appeals, in making its findings, went beyond the issues of the case and the same
is contrary to the admission of both appellant and appellee.5
But, while we must sustain the trial court's award of actual or compensatory damages, and
attorney's fees, the grant of moral damages cannot be upheld. The action herein is based
on a breach of contract of carriage. Unless it be proved that the common carrier, in violating
his contract to carry the passenger safely to his destination, acted fraudulently or in bad
faith, which proof is wanting, no moral damages can be awarded where the breach did not
result in death, but in mere physical injuries. (Art. 2220 in relation to Arts. 1764 and 2206 of
the Civil Code.)

WHEREFORE, the decision of the Court of Appeals is hereby set aside. With the
modification that the award of moral damages is discarded, the decision of the trial court is
hereby affirmed with costs against the defendants-respondents.

G.R. No. 52159 December 22, 1989

JOSE PILAPIL, petitioner,


vs.
HON. COURT OF APPEALS and ALATCO TRANSPORTATION COMPANY,
INC., respondents.

Martin Badong, Jr. for petitioner.

Eufronio K. Maristela for private respondent.

PADILLA, J.:

This is a petition to review on certiorari the decision* rendered by the Court of Appeals
dated 19 October 1979 in CA-G.R. No. 57354-R entitled "Jose Pilapil, plaintiff-appellee
versus Alatco Transportation Co., Inc., defendant-appellant," which reversed and set aside
the judgment of the Court of First Instance of Camarines Sur in Civil Case No. 7230
ordering respondent transportation company to pay to petitioner damages in the total sum
of sixteen thousand three hundred pesos (P 16,300.00).

The record discloses the following facts:

Petitioner-plaintiff Jose Pilapil, a paying passenger, boarded respondent-defendant's bus


bearing No. 409 at San Nicolas, Iriga City on 16 September 1971 at about 6:00 P.M. While
said bus No. 409 was in due course negotiating the distance between Iriga City and Naga
City, upon reaching the vicinity of the cemetery of the Municipality of Baao, Camarines Sur,
on the way to Naga City, an unidentified man, a bystander along said national highway,
hurled a stone at the left side of the bus, which hit petitioner above his left eye. Private
respondent's personnel lost no time in bringing the petitioner to the provincial hospital in
Naga City where he was confined and treated.

Considering that the sight of his left eye was impaired, petitioner was taken to Dr.
Malabanan of Iriga City where he was treated for another week. Since there was no
improvement in his left eye's vision, petitioner went to V. Luna Hospital, Quezon City where
he was treated by Dr. Capulong. Despite the treatment accorded to him by Dr. Capulong,
petitioner lost partially his left eye's vision and sustained a permanent scar above the left
eye.

Thereupon, petitioner instituted before the Court of First Instance of Camarines Sur, Branch
I an action for recovery of damages sustained as a result of the stone-throwing incident.
After trial, the court a quo rendered judgment with the following dispositive part:

Wherefore, judgment is hereby entered:

1. Ordering defendant transportation company to pay plaintiff


Jose Pilapil the sum of P 10,000.00, Philippine Currency,
representing actual and material damages for causing a
permanent scar on the face and injuring the eye-sight of the
plaintiff;

2. Ordering further defendant transportation company to pay


the sum of P 5,000.00, Philippine Currency, to the plaintiff as
moral and exemplary damages;

3. Ordering furthermore, defendant transportation company to


reimburse plaintiff the sum of P 300.00 for his medical
expenses and attorney's fees in the sum of P 1,000.00,
Philippine Currency; and

4. To pay the costs.

SO ORDERED 1

From the judgment, private respondent appealed to the Court of Appeals where the appeal
was docketed as CA-G.R. No. 57354R. On 19 October 1979, the Court of Appeals, in a
Special Division of Five, rendered judgment reversing and setting aside the judgment of the
court a quo.

Hence the present petition.

In seeking a reversal of the decision of the Court of Appeals, petitioner contends that said
court has decided the issue not in accord with law. Specifically, petitioner argues that the
nature of the business of a transportation company requires the assumption of certain risks,
and the stoning of the bus by a stranger resulting in injury to petitioner-passenger is one
such risk from which the common carrier may not exempt itself from liability.

We do not agree.

In consideration of the right granted to it by the public to engage in the business of


transporting passengers and goods, a common carrier does not give its consent to become
an insurer of any and all risks to passengers and goods. It merely undertakes to perform
certain duties to the public as the law imposes, and holds itself liable for any breach thereof.
Under Article 1733 of the Civil Code, common carriers are required to observe extraordinary
diligence for the safety of the passenger transported by them, according to all the
circumstances of each case. The requirement of extraordinary diligence imposed upon
common carriers is restated in Article 1755: "A common carrier is bound to carry the
passengers 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." Further, in
case of death of or injuries to passengers, the law presumes said common carriers to be at
fault or to have acted negligently. 2

While the law requires the highest degree of diligence from common carriers in the safe
transport of their passengers and creates a presumption of negligence against them, it does
not, however, make the carrier an insurer of the absolute safety of its passengers. 3

Article 1755 of the Civil Code qualifies the duty of extraordinary care, vigilance and
precaution in the carriage of passengers by common carriers to only such as human care
and foresight can provide. what constitutes compliance with said duty is adjudged with due
regard to all the circumstances.

Article 1756 of the Civil Code, in creating a presumption of fault or negligence on the part of
the common carrier when its passenger is injured, merely relieves the latter, for the time
being, from introducing evidence to fasten the negligence on the former, because the
presumption stands in the place of evidence. Being a mere presumption, however, the
same is rebuttable by proof that the common carrier had exercised extraordinary diligence
as required by law in the performance of its contractual obligation, or that the injury suffered
by the passenger was solely due to a fortuitous event. 4

In fine, we can only infer from the law the intention of the Code Commission and Congress
to curb the recklessness of drivers and operators of common carriers in the conduct of their
business.

Thus, it is clear that neither the law nor the nature of the business of a transportation
company makes it an insurer of the passenger's safety, but that its liability for personal
injuries sustained by its passenger rests upon its negligence, its failure to exercise the
degree of diligence that the law requires. 5

Petitioner contends that respondent common carrier failed to rebut the presumption of
negligence against it by proof on its part that it exercised extraordinary diligence for the
safety of its passengers.

We do not agree.

First, as stated earlier, the presumption of fault or negligence against the carrier is only a
disputable presumption. It gives in where contrary facts are established proving either that
the carrier had exercised the degree of diligence required by law or the injury suffered by
the passenger was due to a fortuitous event. Where, as in the instant case, the injury
sustained by the petitioner was in no way due to any defect in the means of transport or in
the method of transporting or to the negligent or willful acts of private respondent's
employees, and therefore involving no issue of negligence in its duty to provide safe and
suitable cars as well as competent employees, with the injury arising wholly from causes
created by strangers over which the carrier had no control or even knowledge or could not
have prevented, the presumption is rebutted and the carrier is not and ought not to be held
liable. To rule otherwise would make the common carrier the insurer of the absolute safety
of its passengers which is not the intention of the lawmakers.

Second, while as a general rule, common carriers are bound to exercise extraordinary
diligence in the safe transport of their passengers, it would seem that this is not the
standard by which its liability is to be determined when intervening acts of strangers is to be
determined directly cause the injury, while the contract of carriage Article 1763 governs:

Article 1763. A common carrier is responsible for injuries suffered by a


passenger on account of the wilful acts or negligence of other passengers or
of strangers, if the common carrier's employees through the exercise of the
diligence of a good father of a family could have prevented or stopped the act
or omission.

Clearly under the above provision, a tort committed by a stranger which causes injury to a
passenger does not accord the latter a cause of action against the carrier. The negligence
for which a common carrier is held responsible is the negligent omission by the carrier's
employees to prevent the tort from being committed when the same could have been
foreseen and prevented by them. Further, under the same provision, it is to be noted that
when the violation of the contract is due to the willful acts of strangers, as in the instant
case, the degree of care essential to be exercised by the common carrier for the protection
of its passenger is only that of a good father of a family.

Petitioner has charged respondent carrier of negligence on the ground that the injury
complained of could have been prevented by the common carrier if something like mesh-
work grills had covered the windows of its bus.

We do not agree.

Although the suggested precaution could have prevented the injury complained of, the rule
of ordinary care and prudence is not so exacting as to require one charged with its exercise
to take doubtful or unreasonable precautions to guard against unlawful acts of strangers.
The carrier is not charged with the duty of providing or maintaining vehicles as to absolutely
prevent any and all injuries to passengers. Where the carrier uses cars of the most
approved type, in general use by others engaged in the same occupation, and exercises a
high degree of care in maintaining them in suitable condition, the carrier cannot be charged
with negligence in this respect. 6

Finally, petitioner contends that it is to the greater interest of the State if a carrier were
made liable for such stone-throwing incidents rather than have the bus riding public lose
confidence in the transportation system.

Sad to say, we are not in a position to so hold; such a policy would be better left to the
consideration of Congress which is empowered to enact laws to protect the public from the
increasing risks and dangers of lawlessness in society.
WHEREFORE, the judgment appealed from is hereby AFFIRMED.

SO ORDERED.

G.R. No. 153563 February 07, 2005

NATIONAL TRUCKING AND FORWARDING CORPORATION, petitioner,


vs.
LORENZO SHIPPING CORPORATION, Respondent.

DECISION

QUISUMBING, J.:

For review on certiorari are the Decision1 dated January 16, 2002, of the Court of Appeals,
in CA-G.R. CV No. 48349, and its Resolution,2 of May 13, 2002, denying the motion for
reconsideration of herein petitioner National Trucking and Forwarding Corporation (NTFC).
The impugned decision affirmed in toto the judgment3 dated November 14, 1994 of the
Regional Trial Court (RTC) of Manila, Branch 53, in Civil Case No. 90-52102.

The undisputed facts, as summarized by the appellate court, are as follows:

On June 5, 1987, the Republic of the Philippines, through the Department of Health (DOH),
and the Cooperative for American Relief Everywhere, Inc. (CARE) signed an agreement
wherein CARE would acquire from the United States government donations of non-fat dried
milk and other food products from January 1, 1987 to December 31, 1989. In turn, the
Philippines would transport and distribute the donated commodities to the intended
beneficiaries in the country.

The government entered into a contract of carriage of goods with herein petitioner National
Trucking and Forwarding Corporation (NTFC). Thus, the latter shipped 4,868 bags of non-
fat dried milk through herein respondent Lorenzo Shipping Corporation (LSC) from
September to December 1988. The consignee named in the bills of lading issued by the
respondent was Abdurahman Jama, petitioners branch supervisor in Zamboanga City.

On reaching the port of Zamboanga City, respondents agent, Efren Ruste4 Shipping
Agency, unloaded the 4,868 bags of non-fat dried milk and delivered the goods to
petitioners warehouse. Before each delivery, Rogelio Rizada and Ismael Zamora, both
delivery checkers of Efren Ruste Shipping Agency, requested Abdurahman to surrender the
original bills of lading, but the latter merely presented certified true copies thereof. Upon
completion of each delivery, Rogelio and Ismael asked Abdurahman to sign the delivery
receipts. However, at times when Abdurahman had to attend to other business before a
delivery was completed, he instructed his subordinates to sign the delivery receipts for him.

Notwithstanding the precautions taken, the petitioner allegedly did not receive the subject
goods. Thus, in a letter dated March 11, 1989, petitioner NTFC filed a formal claim for non-
delivery of the goods shipped through respondent.
In its letter of April 26, 1989, the respondent explained that the cargo had already been
delivered to Abdurahman Jama. The petitioner then decided to investigate the loss of the
goods. But before the investigation was over, Abdurahman Jama resigned as branch
supervisor of petitioner.

Noting but disbelieving respondents insistence that the goods were delivered, the
government through the DOH, CARE, and NTFC as plaintiffs filed an action for breach of
contract of carriage, against respondent as defendant, with the RTC of Manila.

After trial, the RTC resolved the case as follows:

WHEREFORE, judgment is hereby rendered in favor of the defendant and against the
plaintiffs, dismissing the latters complaint, and ordering the plaintiffs, pursuant to the
defendants counterclaim, to pay, jointly and solidarily, to the defendant, actual damages in
the amount of P50,000.00, and attorneys fees in the amount of P70,000.00, plus the costs
of suit.

SO ORDERED.5

Dissatisfied with the foregoing ruling, herein petitioner appealed to the Court of Appeals. It
faulted the lower court for not holding that respondent failed to deliver the cargo, and that
respondent failed to exercise the extraordinary diligence required of common carriers.
Petitioner also assailed the lower court for denying its claims for actual, moral, and
exemplary damages, and for awarding actual damages and attorneys fees to the
respondent.6

The Court of Appeals found that the trial court did not commit any reversible error. It
dismissed the appeal, and affirmed the assailed decision in toto.

Undaunted, petitioner now comes to us, assigning the following errors:

THE COURT OF APPEALS GRAVELY ERRED WHEN IT FAILED TO APPRECIATE AND


APPLY THE LEGAL STANDARD OF EXTRAORDINARY DILIGENCE IN THE SHIPMENT
AND DELIVERY OF GOODS TO THE RESPONDENT AS A COMMON CARRIER, AS
WELL AS THE ACCOMPANYING LEGAL PRESUMPTION OF FAULT OR NEGLIGENCE
ON THE PART OF THE COMMON CARRIER, IF THE GOODS ARE LOST, DESTROYED
OR DETERIORATED, AS REQUIRED UNDER THE CIVIL CODE.

II

THE COURT OF APPEALS GRAVELY ERRED WHEN IT SUSTAINED THE BASELESS


AND ARBITRARY AWARD OF ACTUAL DAMAGES AND ATTORNEYS FEES
INASMUCH AS THE ORIGINAL COMPLAINT WAS FILED IN GOOD FAITH, WITHOUT
MALICE AND WITH THE BEST INTENTION OF PROTECTING THE INTEREST AND
INTEGRITY OF THE GOVERNMENT AND ITS CREDIBILITY AND RELATIONSHIP WITH
INTERNATIONAL RELIEF AGENCIES AND DONOR STATES AND ORGANIZATION. 7
The issues for our resolution are: (1) Is respondent presumed at fault or negligent as
common carrier for the loss or deterioration of the goods? and (2) Are damages and
attorneys fees due respondent?

Anent the first issue, petitioner contends that the respondent is presumed negligent and
liable for failure to abide by the terms and conditions of the bills of lading; that Abdurahman
Jamas failure to testify should not be held against petitioner; and that the testimonies of
Rogelio Rizada and Ismael Zamora, as employees of respondents agent, Efren Ruste
Shipping Agency, were biased and could not overturn the legal presumption of respondents
fault or negligence.

For its part, the respondent avers that it observed extraordinary diligence in the delivery of
the goods. Prior to releasing the goods to Abdurahman, Rogelio and Ismael required the
surrender of the original bills of lading, and in their absence, the certified true copies
showing that Abdurahman was indeed the consignee of the goods. In addition, they
required Abdurahman or his designated subordinates to sign the delivery receipts upon
completion of each delivery.

We rule for respondent.

Article 17338 of the Civil Code demands that a common carrier observe extraordinary
diligence over the goods transported by it. Extraordinary diligence is that extreme measure
of care and caution which persons of unusual prudence and circumspection use for
securing and preserving their own property or rights.9 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. Hence, in case of loss of goods in transit, the common carrier is presumed under
the law to have been at fault or negligent.10 However, the presumption of fault or
negligence, may be overturned by competent evidence showing that the common carrier
has observed extraordinary diligence over the goods.

In the instant case, we agree with the court a quo that the respondent adequately proved
that it exercised extraordinary diligence. Although the original bills of lading remained with
petitioner, respondents agents demanded from Abdurahman the certified true copies of the
bills of lading. They also asked the latter and in his absence, his designated subordinates,
to sign the cargo delivery receipts.

This practice, which respondents agents testified to be their standard operating procedure,
finds support in Article 353 of the Code of Commerce:

ART. 353. . . .

After the contract has been complied with, the bill of lading which the carrier has issued
shall be returned to him, and by virtue of the exchange of this title with the thing transported,
the respective obligations and actions shall be considered cancelled, .

In case the consignee, upon receiving the goods, cannot return the bill of lading
subscribed by the carrier, because of its loss or of any other cause, he must give the
latter a receipt for the goods delivered, this receipt producing the same effects as the
return of the bill of lading. (Emphasis supplied)

Conformably with the aforecited provision, the surrender of the original bill of lading is not a
condition precedent for a common carrier to be discharged of its contractual obligation. If
surrender of the original bill of lading is not possible, acknowledgment of the delivery by
signing the delivery receipt suffices. This is what respondent did.

We also note that some delivery receipts were signed by Abdurahmans subordinates and
not by Abdurahman himself as consignee. Further, delivery checkers Rogelio and Ismael
testified that Abdurahman was always present at the initial phase of each delivery, although
on the few occasions when Abdurahman could not stay to witness the complete delivery of
the shipment, he authorized his subordinates to sign the delivery receipts for him. This, to
our mind, is sufficient and substantial compliance with the requirements.

We further note that, strangely, petitioner made no effort to disapprove Abdurahmans


resignation until after the investigation and after he was cleared of any responsibility for the
loss of the goods. With Abdurahman outside of its reach, petitioner cannot now pass to
respondent what could be Abdurahmans negligence, if indeed he were responsible.

On the second issue, petitioner submits there is no basis for the award of actual damages
and attorneys fees. It maintains that its original complaint for sum of money with damages
for breach of contract of carriage was not fraudulent, in bad faith, nor malicious. Neither was
the institution of the action rash nor precipitate. Petitioner avers the filing of the action was
intended to protect the integrity and interest of the government and its relationship and
credibility with international relief agencies and donor states.

On the other hand, respondent maintains that petitioners suit was baseless and malicious
because instead of going after its absconding employee, petitioner wanted to recoup its
losses from respondent. The trial court and the Court of Appeals were justified in granting
actual damages and reasonable attorneys fees to respondent.

On this point, we agree with petitioner.

The right to litigate should bear no premium. An adverse decision does not ipso facto justify
an award of attorneys fees to the winning party.11 When, as in the instant case, petitioner
was compelled to sue to protect the credibility of the government with international
organizations, we are not inclined to grant attorneys fees. We find no ill motive on
petitioners part, only an erroneous belief in the righteousness of its claim.

Moreover, an award of attorneys fees, in the concept of damages under Article 2208 of the
Civil Code,12 requires factual and legal justifications. While the law allows some degree of
discretion on the part of the courts in awarding attorneys fees and expenses of litigation,
the discretion must be exercised with great care approximating as closely as possible, the
instances exemplified by the law.13 We have searched but found nothing in petitioners suit
that justifies the award of attorneys fees.
Respondent failed to show proof of actual pecuniary loss, hence, no actual damages are
due in favor of respondent.14

WHEREFORE, the petition is PARTIALLY GRANTED. The assailed decision and resolution
of the Court of Appeals in CA-G.R. CV No. 48349 dated January 16, 2002 and May 13,
2002 respectively, denying petitioners claim for actual, moral and exemplary damages are
AFFIRMED. The award of actual damages and attorneys fees to respondent pursuant to
the latters counterclaim in the trial court is DELETED.

SO ORDERED.

G.R. No. 161833. July 8, 2005

PHILIPPINE CHARTER INSURANCE CORPORATION, Petitioners,


vs.
UNKNOWN OWNER OF THE VESSEL M/V "NATIONAL HONOR," NATIONAL
SHIPPING CORPORATION OF THE PHILIPPINES and INTERNATIONAL CONTAINER
SERVICES, INC., Respondents.

DECISION

CALLEJO, SR., J.:

This is a petition for review under Rule 45 of the 1997 Revised Rules of Civil Procedure
assailing the Decision1dated January 19, 2004 of the Court of Appeals (CA) in CA-G.R. CV
No. 57357 which affirmed the Decision dated February 17, 1997 of the Regional Trial Court
(RTC) of Manila, Branch 37, in Civil Case No. 95-73338.

The Antecedent

On November 5, 1995, J. Trading Co. Ltd. of Seoul, Korea, loaded a shipment of four units
of parts and accessories in the port of Pusan, Korea, on board the vessel M/V "National
Honor," represented in the Philippines by its agent, National Shipping Corporation of the
Philippines (NSCP). The shipment was for delivery to Manila, Philippines. Freight forwarder,
Samhwa Inter-Trans Co., Ltd., issued Bill of Lading No. SH94103062 in the name of the
shipper consigned to the order of Metropolitan Bank and Trust Company with arrival notice
in Manila to ultimate consignee Blue Mono International Company, Incorporated (BMICI),
Binondo, Manila.

NSCP, for its part, issued Bill of Lading No. NSGPBSML5125653 in the name of the freight
forwarder, as shipper, consigned to the order of Stamm International Inc., Makati,
Philippines. It is provided therein that:

12. This Bill of Lading shall be prima facie evidence of the receipt of the Carrier in apparent
good order and condition except as, otherwise, noted of the total number of Containers or
other packages or units enumerated overleaf. Proof to the contrary shall be admissible
when this Bill of Lading has been transferred to a third party acting in good faith. No
representation is made by the Carrier as to the weight, contents, measure, quantity, quality,
description, condition, marks, numbers, or value of the Goods and the Carrier shall be
under no responsibility whatsoever in respect of such description or particulars.

13. The shipper, whether principal or agent, represents and warrants that the goods are
properly described, marked, secured, and packed and may be handled in ordinary course
without damage to the goods, ship, or property or persons and guarantees the correctness
of the particulars, weight or each piece or package and description of the goods and agrees
to ascertain and to disclose in writing on shipment, any condition, nature, quality, ingredient
or characteristic that may cause damage, injury or detriment to the goods, other property,
the ship or to persons, and for the failure to do so the shipper agrees to be liable for and
fully indemnify the carrier and hold it harmless in respect of any injury or death of any
person and loss or damage to cargo or property. The carrier shall be responsible as to the
correctness of any such mark, descriptions or representations.4

The shipment was contained in two wooden crates, namely, Crate No. 1 and Crate No. 2,
complete and in good order condition, covered by Commercial Invoice No. YJ-73564
DTD5 and a Packing List.6 There were no markings on the outer portion of the crates except
the name of the consignee.7 Crate No. 1 measured 24 cubic meters and weighed 3,620 kgs.
It contained the following articles: one (1) unit Lathe Machine complete with parts and
accessories; one (1) unit Surface Grinder complete with parts and accessories; and one (1)
unit Milling Machine complete with parts and accessories. On the flooring of the wooden
crates were three wooden battens placed side by side to support the weight of the cargo.
Crate No. 2, on the other hand, measured 10 cubic meters and weighed 2,060 kgs. The
Lathe Machine was stuffed in the crate. The shipment had a total invoice value of
US$90,000.00 C&F Manila.8 It was insured for P2,547,270.00 with the Philippine Charter
Insurance Corporation (PCIC) thru its general agent, Family Insurance and Investment
Corporation,9 under Marine Risk Note No. 68043 dated October 24, 1994.10

The M/V "National Honor" arrived at the Manila International Container Terminal (MICT) on
November 14, 1995. The International Container Terminal Services, Incorporated (ICTSI)
was furnished with a copy of the crate cargo list and bill of lading, and it knew the contents
of the crate.11 The following day, the vessel started discharging its cargoes using its winch
crane. The crane was operated by Olegario Balsa, a winchman from the ICTSI, 12 the
exclusive arrastre operator of MICT.

Denasto Dauz, Jr., the checker-inspector of the NSCP, along with the crew and the
surveyor of the ICTSI, conducted an inspection of the cargo.13 They inspected the hatches,
checked the cargo and found it in apparent good condition.14 Claudio Cansino, the
stevedore of the ICTSI, placed two sling cables on each end of Crate No. 1.15 No sling cable
was fastened on the mid-portion of the crate. In Dauzs experience, this was a normal
procedure.16 As the crate was being hoisted from the vessels hatch, the mid-portion of the
wooden flooring suddenly snapped in the air, about five feet high from the vessels twin
deck, sending all its contents crashing down hard,17 resulting in extensive damage to the
shipment.

BMICIs customs broker, JRM Incorporated, took delivery of the cargo in such damaged
condition.18 Upon receipt of the damaged shipment, BMICI found that the same could no
longer be used for the intended purpose. The Mariners Adjustment Corporation hired by
PCIC conducted a survey and declared that the packing of the shipment was considered
insufficient. It ruled out the possibility of taxes due to insufficiency of packing. It opined that
three to four pieces of cable or wire rope slings, held in all equal setting, never by-passing
the center of the crate, should have been used, considering that the crate contained heavy
machinery.19

BMICI subsequently filed separate claims against the NSCP,20 the ICTSI,21 and its insurer,
the PCIC,22 for US$61,500.00. When the other companies denied liability, PCIC paid the
claim and was issued a Subrogation Receipt23 for P1,740,634.50.

On March 22, 1995, PCIC, as subrogee, filed with the RTC of Manila, Branch 35, a
Complaint for Damages24against the "Unknown owner of the vessel M/V National Honor,"
NSCP and ICTSI, as defendants.

PCIC alleged that the loss was due to the fault and negligence of the defendants. It prayed,
among others

WHEREFORE, it is respectfully prayed of this Honorable Court that judgment be rendered


ordering defendants to pay plaintiff, jointly or in the alternative, the following:

1. Actual damages in the amount of P1,740,634.50 plus legal interest at the time of the filing
of this complaint until fully paid;

2. Attorneys fees in the amount of P100,000.00;

3. Cost of suit.25

ICTSI, for its part, filed its Answer with Counterclaim and Cross-claim against its co-
defendant NSCP, claiming that the loss/damage of the shipment was caused exclusively by
the defective material of the wooden battens of the shipment, insufficient packing or acts of
the shipper.

At the trial, Anthony Abarquez, the safety inspector of ICTSI, testified that the wooden
battens placed on the wooden flooring of the crate was of good material but was not strong
enough to support the weight of the machines inside the crate. He averred that most
stevedores did not know how to read and write; hence, he placed the sling cables only on
those portions of the crate where the arrow signs were placed, as in the case of fragile
cargo. He said that unless otherwise indicated by arrow signs, the ICTSI used only two
cable slings on each side of the crate and would not place a sling cable in the mid-
section.26 He declared that the crate fell from the cranes because the wooden batten in the
mid-portion was broken as it was being lifted.27 He concluded that the loss/damage was
caused by the failure of the shipper or its packer to place wooden battens of strong
materials under the flooring of the crate, and to place a sign in its mid-term section where
the sling cables would be placed.

The ICTSI adduced in evidence the report of the R.J. Del Pan & Co., Inc. that the damage
to the cargo could be attributed to insufficient packing and unbalanced weight distribution of
the cargo inside the crate as evidenced by the types and shapes of items found. 28
The trial court rendered judgment for PCIC and ordered the complaint dismissed, thus:

WHEREFORE, the complaint of the plaintiff, and the respective counterclaims of the two
defendants are dismissed, with costs against the plaintiff.

SO ORDERED.29

According to the trial court, the loss of the shipment contained in Crate No. 1 was due to the
internal defect and weakness of the materials used in the fabrication of the crates. The
middle wooden batten had a hole (bukong-bukong). The trial court rejected the
certification30 of the shipper, stating that the shipment was properly packed and secured, as
mere hearsay and devoid of any evidentiary weight, the affiant not having testified.

Not satisfied, PCIC appealed31 to the CA which rendered judgment on January 19, 2004
affirming in toto the appealed decision, with this fallo

WHEREFORE, the decision of the Regional Trial Court of Manila, Branch 35, dated
February 17, 1997, is AFFIRMED.

SO ORDERED.32

The appellate court held, inter alia, that it was bound by the finding of facts of the RTC,
especially so where the evidence in support thereof is more than substantial. It ratiocinated
that the loss of the shipment was due to an excepted cause "[t]he character of the goods
or defects in the packing or in the containers" and the failure of the shipper to indicate signs
to notify the stevedores that extra care should be employed in handling the shipment.33 It
blamed the shipper for its failure to use materials of stronger quality to support the heavy
machines and to indicate an arrow in the middle portion of the cargo where additional slings
should be attached.34 The CA concluded that common carriers are not absolute insurers
against all risks in the transport of the goods.35

Hence, this petition by the PCIC, where it alleges that:

I.

THE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW IN NOT HOLDING


THAT RESPONDENT COMMON CARRIER IS LIABLE FOR THE DAMAGE SUSTAINED
BY THE SHIPMENT IN THE POSSESSION OF THE ARRASTRE OPERATOR.

II.

THE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW IN NOT APPLYING


THE STATUTORY PRESUMPTION OF FAULT AND NEGLIGENCE IN THE CASE AT
BAR.

III.
THE COURT OF APPEALS GROSSLY MISCOMPREHENDED THE FACTS IN FINDING
THAT THE DAMAGE SUSTAINED BY THE [SHIPMENT] WAS DUE TO ITS DEFECTIVE
PACKING AND NOT TO THE FAULT AND NEGLIGENCE OF THE RESPONDENTS.36

The petitioner asserts that the mere proof of receipt of the shipment by the common carrier
(to the carrier) in good order, and their arrival at the place of destination in bad order makes
out a prima facie case against it; in such case, it is liable for the loss or damage to the cargo
absent satisfactory explanation given by the carrier as to the exercise of extraordinary
diligence. The petitioner avers that the shipment was sufficiently packed in wooden boxes,
as shown by the fact that it was accepted on board the vessel and arrived in Manila safely.
It emphasizes that the respondents did not contest the contents of the bill of lading, and that
the respondents knew that the manner and condition of the packing of the cargo was
normal and barren of defects. It maintains that it behooved the respondent ICTSI to place
three to four cables or wire slings in equal settings, including the center portion of the crate
to prevent damage to the cargo:

[A] simple look at the manifesto of the cargo and the bill of lading would have alerted
respondents of the nature of the cargo consisting of thick and heavy machinery. Extra-care
should have been made and extended in the discharge of the subject shipment. Had the
respondent only bothered to check the list of its contents, they would have been nervous
enough to place additional slings and cables to support those massive machines, which
were composed almost entirely of thick steel, clearly intended for heavy industries. As
indicated in the list, the boxes contained one lat[h]e machine, one milling machine and one
grinding machine-all coming with complete parts and accessories. Yet, not one among the
respondents were cautious enough. Here lies the utter failure of the respondents to
observed extraordinary diligence in the handling of the cargo in their custody and
possession, which the Court of Appeals should have readily observed in its appreciation of
the pertinent facts.37

The petitioner posits that the loss/damage was caused by the mishandling of the shipment
by therein respondent ICTSI, the arrastre operator, and not by its negligence.

The petitioner insists that the respondents did not observe extraordinary diligence in the
care of the goods. It argues that in the performance of its obligations, the respondent ICTSI
should observe the same degree of diligence as that required of a common carrier under
the New Civil Code of the Philippines. Citing Eastern Shipping Lines, Inc. v. Court of
Appeals,38 it posits that respondents are liable in solidum to it, inasmuch as both are
charged with the obligation to deliver the goods in good condition to its consignee, BMICI.

Respondent NSCP counters that if ever respondent ICTSI is adjudged liable, it is not
solidarily liable with it. It further avers that the "carrier cannot discharge directly to the
consignee because cargo discharging is the monopoly of the arrastre." Liability, therefore,
falls solely upon the shoulder of respondent ICTSI, inasmuch as the discharging of cargoes
from the vessel was its exclusive responsibility. Besides, the petitioner is raising questions
of facts, improper in a petition for review on certiorari.39

Respondent ICTSI avers that the issues raised are factual, hence, improper under Rule 45
of the Rules of Court. It claims that it is merely a depository and not a common carrier;
hence, it is not obliged to exercise extraordinary diligence. It reiterates that the loss/damage
was caused by the failure of the shipper or his packer to place a sign on the sides and
middle portion of the crate that extra care should be employed in handling the shipment,
and that the middle wooden batten on the flooring of the crate had a hole. The respondent
asserts that the testimony of Anthony Abarquez, who conducted his investigation at the site
of the incident, should prevail over that of Rolando Balatbat. As an alternative, it argues that
if ever adjudged liable, its liability is limited only to P3,500.00 as expressed in the liability
clause of Gate Pass CFS-BR-GP No. 319773.

The petition has no merit.

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.40

We have reviewed the records and find no justification to warrant the application of any
exception to the general rule.

We agree with the contention of the petitioner that common carriers, from the nature of their
business and for reasons of public policy, are mandated 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.41 The Court has defined extraordinary
diligence in the vigilance over the goods as follows:

The extraordinary diligence in the vigilance over the goods tendered for shipment requires
the common carrier to know and to follow the required precaution for avoiding damage to, or
destruction of the goods entrusted to it for sale, carriage and delivery. It requires common
carriers to render service with the greatest skill and foresight and "to use all reasonable
means to ascertain the nature and characteristic of goods tendered for shipment, and to
exercise due care in the handling and stowage, including such methods as their nature
requires."42

The common carriers duty to observe the requisite diligence in the shipment of goods lasts
from the time the articles are surrendered to or unconditionally placed in the possession of,
and received by, the carrier for transportation until delivered to, or until the lapse of a
reasonable time for their acceptance, by the person entitled to receive them. 43 When the
goods shipped are either lost or arrive in damaged condition, a presumption arises against
the carrier of its failure to observe that diligence, and there need not be an express finding
of negligence to hold it liable.44 To overcome the presumption of negligence in the case of
loss, destruction or deterioration of the goods, the common carrier must prove that it
exercised extraordinary diligence.45

However, under Article 1734 of the New Civil Code, the presumption of negligence does not
apply to any of the following causes:

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

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

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

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

5. Order or act of competent public authority.

It bears stressing that the enumeration in Article 1734 of the New Civil Code which exempts
the common carrier for the loss or damage to the cargo is a closed list.46 To exculpate itself
from liability for the loss/damage to the cargo under any of the causes, the common carrier
is burdened to prove any of the aforecited causes claimed by it by a preponderance of
evidence. If the carrier succeeds, the burden of evidence is shifted to the shipper to prove
that the carrier is negligent.47

"Defect" is the want or absence of something necessary for completeness or perfection; a


lack or absence of something essential to completeness; a deficiency in something
essential to the proper use for the purpose for which a thing is to be used. 48 On the other
hand, inferior means of poor quality, mediocre, or second rate.49 A thing may be of inferior
quality but not necessarily defective. In other words, "defectiveness" is not synonymous with
"inferiority."

In the present case, the trial court declared that based on the record, the loss of the
shipment was caused by the negligence of the petitioner as the shipper:

The same may be said with respect to defendant ICTSI. The breakage and collapse of
Crate No. 1 and the total destruction of its contents were not imputable to any fault or
negligence on the part of said defendant in handling the unloading of the cargoes from the
carrying vessel, but was due solely to the inherent defect and weakness of the materials
used in the fabrication of said crate.

The crate should have three solid and strong wooden batten placed side by side
underneath or on the flooring of the crate to support the weight of its contents. However, in
the case of the crate in dispute, although there were three wooden battens placed side by
side on its flooring, the middle wooden batten, which carried substantial volume of the
weight of the crates contents, had a knot hole or "bukong-bukong," which considerably
affected, reduced and weakened its strength. Because of the enormous weight of the
machineries inside this crate, the middle wooden batten gave way and collapsed. As the
combined strength of the other two wooden battens were not sufficient to hold and carry the
load, they too simultaneously with the middle wooden battens gave way and collapsed
(TSN, Sept. 26, 1996, pp. 20-24).

Crate No. 1 was provided by the shipper of the machineries in Seoul, Korea. There is
nothing in the record which would indicate that defendant ICTSI had any role in the choice
of the materials used in fabricating this crate. Said defendant, therefore, cannot be held as
blame worthy for the loss of the machineries contained in Crate No. 1. 50

The CA affirmed the ruling of the RTC, thus:

The case at bar falls under one of the exceptions mentioned in Article 1734 of the Civil
Code, particularly number (4) thereof, i.e., the character of the goods or defects in the
packing or in the containers. The trial court found that the breakage of the crate was not due
to the fault or negligence of ICTSI, but to the inherent defect and weakness of the materials
used in the fabrication of the said crate.

Upon examination of the records, We find no compelling reason to depart from the factual
findings of the trial court.

It appears that the wooden batten used as support for the flooring was not made of good
materials, which caused the middle portion thereof to give way when it was lifted. The
shipper also failed to indicate signs to notify the stevedores that extra care should be
employed in handling the shipment.

Claudio Cansino, a stevedore of ICTSI, testified before the court their duties and
responsibilities:

"Q: With regard to crates, what do you do with the crates?

A: Everyday with the crates, there is an arrow drawn where the sling is placed, Maam.

Q: When the crates have arrows drawn and where you placed the slings, what do you do
with these crates?

A: A sling is placed on it, Maam.

Q: After you placed the slings, what do you do with the crates?

A: After I have placed a sling properly, I ask the crane (sic) to haul it, Maam.

Q: Now, what, if any, were written or were marked on the crate?

A: The thing that was marked on the cargo is an arrow just like of a chain, Maam.

Q: And where did you see or what parts of the crate did you see those arrows?
A: At the corner of the crate, Maam.

Q: How many arrows did you see?

A: Four (4) on both sides, Maam.

Q: What did you do with the arrows?

A: When I saw the arrows, thats where I placed the slings, Maam.

Q: Now, did you find any other marks on the crate?

A: Nothing more, Maam.

Q: Now, Mr. Witness, if there are no arrows, would you place slings on the parts where
there are no arrows?

A: You can not place slings if there are no arrows, Maam."

Appellants allegation that since the cargo arrived safely from the port of [P]usan, Korea
without defect, the fault should be attributed to the arrastre operator who mishandled the
cargo, is without merit. The cargo fell while it was being carried only at about five (5) feet
high above the ground. It would not have so easily collapsed had the cargo been properly
packed. The shipper should have used materials of stronger quality to support the heavy
machines. Not only did the shipper fail to properly pack the cargo, it also failed to indicate
an arrow in the middle portion of the cargo where additional slings should be attached. At
any rate, the issue of negligence is factual in nature and in this regard, it is settled that
factual findings of the lower courts are entitled to great weight and respect on appeal, and,
in fact, accorded finality when supported by substantial evidence.51

We agree with the trial and appellate courts.

The petitioner failed to adduce any evidence to counter that of respondent ICTSI. The
petitioner failed to rebut the testimony of Dauz, that the crates were sealed and that the
contents thereof could not be seen from the outside.52 While it is true that the crate
contained machineries and spare parts, it cannot thereby be concluded that the
respondents knew or should have known that the middle wooden batten had a hole, or that
it was not strong enough to bear the weight of the shipment.

There is no showing in the Bill of Lading that the shipment was in good order or condition
when the carrier received the cargo, or that the three wooden battens under the flooring of
the cargo were not defective or insufficient or inadequate. On the other hand, under Bill of
Lading No. NSGPBSML512565 issued by the respondent NSCP and accepted by the
petitioner, the latter represented and warranted that the goods were properly packed, and
disclosed in writing the "condition, nature, quality or characteristic that may cause damage,
injury or detriment to the goods." Absent any signs on the shipment requiring the placement
of a sling cable in the mid-portion of the crate, the respondent ICTSI was not obliged to do
so.

The statement in the Bill of Lading, that the shipment was in apparent good condition, is
sufficient to sustain a finding of absence of defects in the merchandise. Case law has it that
such statement will create a prima facie presumption only as to the external condition and
not to that not open to inspection.53

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit.

SO ORDERED.

G.R. No. 143133 June 5, 2002

BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. and JARDINE DAVIES


TRANSPORT SERVICES, INC., petitioners,
vs.
PHILIPPINE FIRST INSURANCE CO., INC., respondents.

PANGANIBAN, J.:

Proof of the delivery of goods in good order to a common carrier and of their arrival in bad
order at their destination constitutes prima facie fault or negligence on the part of the carrier.
If no adequate explanation is given as to how the loss, the destruction or the deterioration of
the goods happened, the carrier shall be held liable therefor.

Statement of the Case

Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the July 15,
1998 Decision1 and the May 2, 2000 Resolution2 of the Court of Appeals3 (CA) in CA-GR
CV No. 53571. The decretal portion of the Decision reads as follows:

"WHEREFORE, in the light of the foregoing disquisition, the decision appealed from
is hereby REVERSED and SET ASIDE. Defendants-appellees are ORDERED to
jointly and severally pay plaintiffs-appellants the following:

'1) FOUR Hundred Fifty One Thousand Twenty-Seven Pesos and 32/100
(P451,027.32) as actual damages, representing the value of the damaged
cargo, plus interest at the legal rate from the time of filing of the complaint on
July 25, 1991, until fully paid;

'2) Attorney's fees amounting to 20% of the claim; and

'3) Costs of suit.'"4

The assailed Resolution denied petitioner's Motion for Reconsideration.


The CA reversed the Decision of the Regional Trial Court (RTC) of Makati City (Branch
134), which had disposed as follows:

"WHEREFORE, in view of the foregoing, judgment is hereby rendered, dismissing


the complaint, as well as defendant's counterclaim."5

The Facts

The factual antecedents of the case are summarized by the Court of Appeals in this wise:

"On June 13, 1990, CMC Trading A.G. shipped on board the M/V 'Anangel Sky' at
Hamburg, Germany 242 coils of various Prime Cold Rolled Steel sheets for
transportation to Manila consigned to the Philippine Steel Trading Corporation. On
July 28, 1990, M/V Anangel Sky arrived at the port of Manila and, within the
subsequent days, discharged the subject cargo. Four (4) coils were found to be in
bad order B.O. Tally sheet No. 154974. Finding the four (4) coils in their damaged
state to be unfit for the intended purpose, the consignee Philippine Steel Trading
Corporation declared the same as total loss. 1w phi 1.nt

"Despite receipt of a formal demand, defendants-appellees refused to submit to the


consignee's claim. Consequently, plaintiff-appellant paid the consignee five hundred
six thousand eighty six & 50/100 pesos (P506,086.50), and was subrogated to the
latter's rights and causes of action against defendants-appellees. Subsequently,
plaintiff-appellant instituted this complaint for recovery of the amount paid by them,
to the consignee as insured.

"Impugning the propriety of the suit against them, defendants-appellees imputed that
the damage and/or loss was due to pre-shipment damage, to the inherent nature,
vice or defect of the goods, or to perils, danger and accidents of the sea, or to
insufficiency of packing thereof, or to the act or omission of the shipper of the goods
or their representatives. In addition thereto, defendants-appellees argued that their
liability, if there be any, should not exceed the limitations of liability provided for in
the bill of lading and other pertinent laws. Finally, defendants-appellees averred that,
in any event, they exercised due diligence and foresight required by law to prevent
any damage/loss to said shipment."6

Ruling of the Trial Court

The RTC dismissed the Complaint because respondent had failed to prove its claims with
the quantum of proof required by law.7

It likewise debunked petitioners' counterclaim, because respondent's suit was not manifestly
frivolous or primarily intended to harass them.8

Ruling of the Court of Appeals


In reversing the trial court, the CA ruled that petitioners were liable for the loss or the
damage of the goods shipped, because they had failed to overcome the presumption of
negligence imposed on common carriers.

The CA further held as inadequately proven petitioners' claim that the loss or the
deterioration of the goods was due to pre-shipment damage.9 It likewise opined that the
notation "metal envelopes rust stained and slightly dented" placed on the Bill of Lading had
not been the proximate cause of the damage to the four (4) coils.10

As to the extent of petitioners' liability, the CA held that the package limitation under
COGSA was not applicable, because the words "L/C No. 90/02447" indicated that a higher
valuation of the cargo had been declared by the shipper. The CA, however, affirmed the
award of attorney's fees.

Hence, this Petition.11

Issues

In their Memorandum, petitioners raise the following issues for the Court's consideration:

"Whether or not plaintiff by presenting only one witness who has never seen the
subject shipment and whose testimony is purely hearsay is sufficient to pave the
way for the applicability of Article 1735 of the Civil Code;

II

"Whether or not the consignee/plaintiff filed the required notice of loss within the time
required by law;

III

"Whether or not a notation in the bill of lading at the time of loading is sufficient to
show pre-shipment damage and to exempt herein defendants from liability;

IV

"Whether or not the "PACKAGE LIMITATION" of liability under Section 4 (5) of


COGSA is applicable to the case at bar."12

In sum, the issues boil down to three:

1. Whether petitioners have overcome the presumption of negligence of a common


carrier

2. Whether the notice of loss was timely filed


3. Whether the package limitation of liability is applicable

This Court's Ruling

The Petition is partly meritorious.

First Issue:

Proof of Negligence

Petitioners contend that the presumption of fault imposed on common carriers should not be
applied on the basis of the lone testimony offered by private respondent. The contention is
untenable.

Well-settled is the rule that common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence and vigilance with
respect to the safety of the goods and the passengers they transport.13 Thus, common
carriers are required to render service with the greatest skill and foresight and "to use all
reason[a]ble means to ascertain the nature and characteristics of the goods tendered for
shipment, and to exercise due care in the handling and stowage, including such methods as
their nature requires."14 The extraordinary responsibility lasts from the time the goods are
unconditionally placed in the possession of and received for transportation by the carrier
until they are delivered, actually or constructively, to the consignee or to the person who has
a right to receive them.15

This strict requirement is justified by the fact that, without a hand or a voice in the
preparation of such contract, the riding public enters into a contract of transportation with
common carriers.16 Even if it wants to, it cannot submit its own stipulations for their
approval.17 Hence, it merely adheres to the agreement prepared by them.

Owing to this high degree of diligence required of them, common carriers, as a general rule,
are presumed to have been at fault or negligent if the goods they transported deteriorated
or got lost or destroyed.18 That is, unless they prove that they exercised extraordinary
diligence in transporting the goods.19 In order to avoid responsibility for any loss or damage,
therefore, they have the burden of proving that they observed such diligence. 20

However, the presumption of fault or negligence will not arise21 if the loss is due to any of
the following causes: (1) flood, storm, earthquake, lightning, or other natural disaster or
calamity; (2) an act of the public enemy in war, whether international or civil; (3) an act or
omission of the shipper or owner of the goods; (4) the character of the goods or defects in
the packing or the container; or (5) an order or act of competent public authority. 22 This is a
closed list. If the cause of destruction, loss or deterioration is other than the enumerated
circumstances, then the carrier is liable therefor.23

Corollary to the foregoing, mere proof of delivery of the goods in good order to a common
carrier and of their arrival in bad order at their destination constitutes a prima facie case of
fault or negligence against the carrier. If no adequate explanation is given as to how the
deterioration, the loss or the destruction of the goods happened, the transporter shall be
held responsible.24

That petitioners failed to rebut the prima facie presumption of negligence is revealed in the
case at bar by a review of the records and more so by the evidence adduced by
respondent.25

First, as stated in the Bill of Lading, petitioners received the subject shipment in good order
and condition in Hamburg, Germany.26

Second, prior to the unloading of the cargo, an Inspection Report 27 prepared and signed by
representatives of both parties showed the steel bands broken, the metal envelopes rust-
stained and heavily buckled, and the contents thereof exposed and rusty.

Third, Bad Order Tally Sheet No. 15497928 issued by Jardine Davies Transport Services,
Inc., stated that the four coils were in bad order and condition. Normally, a request for a bad
order survey is made in case there is an apparent or a presumed loss or damage. 29

Fourth, the Certificate of Analysis30 stated that, based on the sample submitted and tested,
the steel sheets found in bad order were wet with fresh water.

Fifth, petitioners -- in a letter31 addressed to the Philippine Steel Coating Corporation and
dated October 12, 1990 -- admitted that they were aware of the condition of the four coils
found in bad order and condition.

These facts were confirmed by Ruperto Esmerio, head checker of BM Santos Checkers
Agency. Pertinent portions of his testimony are reproduce hereunder:

"Q. Mr. Esmerio, you mentioned that you are a Head Checker. Will you inform
the Honorable Court with what company you are connected?

A. BM Santos Checkers Agency, sir.

Q. How is BM Santos checkers Agency related or connected with defendant


Jardine Davies Transport Services?

A. It is the company who contracts the checkers, sir.

Q. You mentioned that you are a Head Checker, will you inform this Honorable
Court your duties and responsibilities?

A. I am the representative of BM Santos on board the vessel, sir, to supervise


the discharge of cargoes.

xxx xxx xxx

Q. On or about August 1, 1990, were you still connected or employed with BM


Santos as a Head Checker?
A. Yes, sir.

Q. And, on or about that date, do you recall having attended the discharging and
inspection of cold steel sheets in coil on board the MV/AN ANGEL SKY?

A. Yes, sir, I was there.

xxx xxx xxx

Q. Based on your inspection since you were also present at that time, will you
inform this Honorable Court the condition or the appearance of the bad order
cargoes that were unloaded from the MV/ANANGEL SKY?

ATTY. MACAMAY:

Objection, Your Honor, I think the document itself reflects the condition of the
cold steel sheets and the best evidence is the document itself, Your Honor
that shows the condition of the steel sheets.

COURT:

Let the witness answer.

A. The scrap of the cargoes is broken already and the rope is loosen and the
cargoes are dent on the sides."32

All these conclusively prove the fact of shipment in good order and condition and the
consequent damage to the four coils while in the possession of petitioner, 33 who notably
failed to explain why.34

Further, petitioners failed to prove that they observed the extraordinary diligence and
precaution which the law requires a common carrier to know and to follow to avoid damage
to or destruction of the goods entrusted to it for safe carriage and delivery. 35

True, the words "metal envelopes rust stained and slightly dented" were noted on the Bill of
Lading; however, there is no showing that petitioners exercised due diligence to forestall or
lessen the loss.36 Having been in the service for several years, the master of the vessel
should have known at the outset that metal envelopes in the said state would eventually
deteriorate when not properly stored while in transit.37 Equipped with the proper knowledge
of the nature of steel sheets in coils and of the proper way of transporting them, the master
of the vessel and his crew should have undertaken precautionary measures to avoid
possible deterioration of the cargo. But none of these measures was taken. 38 Having failed
to discharge the burden of proving that they have exercised the extraordinary diligence
required by law, petitioners cannot escape liability for the damage to the four coils.39

In their attempt to escape liability, petitioners further contend that they are exempted from
liability under Article 1734(4) of the Civil Code. They cite the notation "metal envelopes rust
stained and slightly dented" printed on the Bill of Lading as evidence that the character of
the goods or defect in the packing or the containers was the proximate cause of the
damage. We are not convinced.

From the evidence on record, it cannot be reasonably concluded that the damage to the
four coils was due to the condition noted on the Bill of Lading. 40 The aforecited exception
refers to cases when goods are lost or damaged while in transit as a result of the natural
decay of perishable goods or the fermentation or evaporation of substances liable therefor,
the necessary and natural wear of goods in transport, defects in packages in which they are
shipped, or the natural propensities of animals.41 None of these is present in the instant
case.

Further, even if the fact of improper packing was known to the carrier or its crew or was
apparent upon ordinary observation, it is not relieved of liability for loss or injury resulting
therefrom, once it accepts the goods notwithstanding such condition. 42 Thus, petitioners
have not successfully proven the application of any of the aforecited exceptions in the
present case.43

Second Issue:

Notice of Loss

Petitioners claim that pursuant to Section 3, paragraph 6 of the Carriage of Goods by Sea
Act44 (COGSA), respondent should have filed its Notice of Loss within three days from
delivery. They assert that the cargo was discharged on July 31, 1990, but that respondent
filed its Notice of Claim only on September 18, 1990.45

We are not persuaded. First, the above-cited provision of COGSA provides that the notice
of claim need not be given if the state of the goods, at the time of their receipt, has been the
subject of a joint inspection or survey. As stated earlier, prior to unloading the cargo, an
Inspection Report46 as to the condition of the goods was prepared and signed by
representatives of both parties.47

Second, as stated in the same provision, a failure to file a notice of claim within three days
will not bar recovery if it is nonetheless filed within one year.48 This one-year prescriptive
period also applies to the shipper, the consignee, the insurer of the goods or any legal
holder of the bill of lading.49

In Loadstar Shipping Co., Inc, v. Court of Appeals,50 we ruled that a claim is not barred by
prescription as long as the one-year period has not lapsed. Thus, in the words of
the ponente, Chief Justice Hilario G. Davide Jr.:

"Inasmuch as the neither the Civil Code nor the Code of Commerce states a specific
prescriptive period on the matter, the Carriage of Goods by Sea Act (COGSA)--
which provides for a one-year period of limitation on claims for loss of, or damage to,
cargoes sustained during transit--may be applied suppletorily to the case at bar."

In the present case, the cargo was discharged on July 31, 1990, while the Complaint 51 was
filed by respondent on July 25, 1991, within the one-year prescriptive period.
Third Issue:

Package Limitation

Assuming arguendo they are liable for respondent's claims, petitioners contend that their
liability should be limited to US$500 per package as provided in the Bill of Lading and by
Section 4(5)52 of COGSA.53

On the other hand, respondent argues that Section 4(5) of COGSA is inapplicable, because
the value of the subject shipment was declared by petitioners beforehand, as evidenced by
the reference to and the insertion of the Letter of Credit or "L/C No. 90/02447" in the said
Bill of Lading.54

A bill of lading serves two functions. First, it is a receipt for the goods shipped.53 Second, it
is a contract by which three parties -- namely, the shipper, the carrier, and the consignee --
undertake specific responsibilities and assume stipulated obligations.56 In a nutshell, the
acceptance of the bill of lading by the shipper and the consignee, with full knowledge of its
contents, gives rise to the presumption that it constituted a perfected and binding contract.57

Further, a stipulation in the bill of lading limiting to a certain sum the common carrier's
liability for loss or destruction of a cargo -- unless the shipper or owner declares a greater
value58 -- is sanctioned by law.59 There are, however, two conditions to be satisfied: (1) the
contract is reasonable and just under the circumstances, and (2) it has been fairly and freely
agreed upon by the parties.60 The rationale for this rule is to bind the shippers by their
agreement to the value (maximum valuation) of their goods.61

It is to be noted, however, that the Civil Code does not limit the liability of the common
carrier to a fixed amount per package.62 In all matters not regulated by the Civil Code, the
right and the obligations of common carriers shall be governed by the Code of Commerce
and special laws.63 Thus, the COGSA, which is suppletory to the provisions of the Civil
Code, supplements the latter by establishing a statutory provision limiting the carrier's
liability in the absence of a shipper's declaration of a higher value in the bill of lading. 64 The
provisions on limited liability are as much a part of the bill of lading as though physically in it
and as though placed there by agreement of the parties.65

In the case before us, there was no stipulation in the Bill of Lading66 limiting the carrier's
liability. Neither did the shipper declare a higher valuation of the goods to be shipped. This
fact notwithstanding, the insertion of the words "L/C No. 90/02447 cannot be the basis for
petitioners' liability.

First, a notation in the Bill of Lading which indicated the amount of the Letter of Credit
obtained by the shipper for the importation of steel sheets did not effect a declaration of the
value of the goods as required by the bill.67 That notation was made only for the
convenience of the shipper and the bank processing the Letter of Credit. 68

Second, in Keng Hua Paper Products v. Court of Appeals,69 we held that a bill of lading was
separate from the Other Letter of Credit arrangements. We ruled thus:
"(T)he contract of carriage, as stipulated in the bill of lading in the present case, must
be treated independently of the contract of sale between the seller and the buyer,
and the contract of issuance of a letter of credit between the amount of goods
described in the commercial invoice in the contract of sale and the amount allowed
in the letter of credit will not affect the validity and enforceability of the contract of
carriage as embodied in the bill of lading. As the bank cannot be expected to look
beyond the documents presented to it by the seller pursuant to the letter of credit,
neither can the carrier be expected to go beyond the representations of the shipper
in the bill of lading and to verify their accuracy vis--vis the commercial invoice and
the letter of credit. Thus, the discrepancy between the amount of goods indicated in
the invoice and the amount in the bill of lading cannot negate petitioner's obligation
to private respondent arising from the contract of transportation."70

In the light of the foregoing, petitioners' liability should be computed based on US$500 per
package and not on the per metric ton price declared in the Letter of Credit. 71 In Eastern
Shipping Lines, Inc. v. Intermediate Appellate Court,72 we explained the meaning
of packages:

"When what would ordinarily be considered packages are shipped in a container


supplied by the carrier and the number of such units is disclosed in the shipping
documents, each of those units and not the container constitutes the 'package'
referred to in the liability limitation provision of Carriage of Goods by Sea Act."

Considering, therefore, the ruling in Eastern Shipping Lines and the fact that the Bill of
Lading clearly disclosed the contents of the containers, the number of units, as well as the
nature of the steel sheets, the four damaged coils should be considered as the shipping unit
subject to the US$500 limitation. 1wphi1.nt

WHEREFORE, the Petition is partly granted and the assailed Decision MODIFIED.
Petitioners' liability is reduced to US$2,000 plus interest at the legal rate of six percent from
the time of the filing of the Complaint on July 25, 1991 until the finality of this Decision, and
12 percent thereafter until fully paid. No pronouncement as to costs.

SO ORDERED.

G.R. No. 150751 September 20, 2004

CENTRAL SHIPPING COMPANY, INC., petitioner,


vs.
INSURANCE COMPANY OF NORTH AMERICA, respondent.

DECISION

PANGANIBAN, J.:

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

The Case

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

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

The CA denied petitioners Motion for Reconsideration in its November 7, 2001 Resolution. 4

The Facts

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

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

"The cargo was insured for P3,000,000.00 against total loss under [respondents]
Marine Cargo Policy No. MCPB-00170.

"On July 25, 1990, upon completion of loading of the cargo, the vessel left Palawan
and commenced the voyage to Manila.

"At about 0125 hours on July 26, 1990, while enroute to Manila, the vessel listed
about 10 degrees starboardside, due to the shifting of logs in the hold.

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

"[Respondent] alleged that the total loss of the shipment was caused by the fault and
negligence of the [petitioner] and its captain and as direct consequence thereof the
consignee suffered damage in the sum of P3,000,000.00.
"The consignee, Alaska Lumber Co. Inc., presented a claim for the value of the
shipment to the [petitioner] but the latter failed and refused to settle the claim, hence
[respondent], being the insurer, paid said claim and now seeks to be subrogated to
all the rights and actions of the consignee as against the [petitioner].

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

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

The RTC was unconvinced that the sinking of M/V Central Bohol had been caused by the
weather or any other caso fortuito. It noted that monsoons, which were common
occurrences during the months of July to December, could have been foreseen and
provided for by an ocean-going vessel. Applying the rule of presumptive fault or negligence
against the carrier, the trial court held petitioner liable for the loss of the cargo. Thus, the
RTC deducted the salvage value of the logs in the amount of P200,000 from the principal
claim of respondent and found that the latter was entitled to be subrogated to the rights of
the insured. The court a quo disposed as follows:

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


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

1) the amount of P2,800,000.00 with legal interest thereof from the filing of
this complaint up to and until the same is fully paid;

2) P80,000.00 as and for attorneys fees;

3) Plus costs of suit."6

Ruling of the Court of Appeals

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

The CA found no merit in petitioners assertion of the vessels seaworthiness. It held that
the Certificates of Inspection and Drydocking were not conclusive proofs thereof. In order to
consider a vessel to be seaworthy, it must be fit to meet the perils of the sea.
Found untenable was petitioners insistence that the trial court should have given greater
weight to the factual findings of the Board of Marine Inquiry (BMI) in the investigation of the
Marine Protest filed by the ship captain, Enriquito Cahatol. The CA further observed that
what petitioner had presented to the court a quo were mere excerpts of the testimony of
Captain Cahatol given during the course of the proceedings before the BMI, not the actual
findings and conclusions of the agency. Citing Arada v. CA,7 it said that findings of the BMI
were limited to the administrative liability of the owner/operator, officers and crew of the
vessel. However, the determination of whether the carrier observed extraordinary diligence
in protecting the cargo it was transporting was a function of the courts, not of the BMI.

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

Hence, this Petition.8

Issues

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

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

"(ii) Whether or not the investigation report prepared by Claimsmen Adjustment


Corporation is hearsay evidence under Section 36, Rule 130 of the Rules of Court.

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

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

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

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

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

The Courts Ruling

The Petition is devoid of merit.


First Issue:

Liability for Lost Cargo

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

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

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

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

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

The pieces of evidence with respect to the weather conditions encountered by the vessel
showed that there was a southwestern monsoon at the time. Normally expected on sea
voyages, however, were such monsoons, during which strong winds were not unusual.
Rosa S. Barba, weather specialist of the Philippine Atmospheric Geophysical and
Astronomical Services Administration (PAGASA), testified that a thunderstorm might occur
in the midst of a southwest monsoon. According to her, one did occur between 8:00 p.m. on
July 25, 1990, and 2 a.m. on July 26, 1990, as recorded by the PAGASA Weather Bureau. 22
Nonetheless, to our mind it would not be sufficient to categorize the weather condition at the
time as a "storm" within the absolutory causes enumerated in the law. Significantly, no
typhoon was observed within the Philippine area of responsibility during that period. 23

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


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

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

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

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

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

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

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

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

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

In its Answer, petitioner categorically admitted the allegation of respondent in paragraph 5


of the latters Complaint "[t]hat at about 0125 hours on 26 July 1990, while enroute to
Manila, the M/V Central Bohol listed about 10 degrees starboardside, due to the shifting of
logs in the hold." Further, petitioner averred that "[t]he vessel, while navigating through this
second southwestern monsoon, was under extreme stress. At about 0125 hours, 26 July
1990, a thud was heard in the cargo hold and the logs therein were felt to have shifted. The
vessel thereafter immediately listed by ten (10) degrees starboardside."32

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

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

According to the boatswains testimony, the logs were piled properly, and the entire
shipment was lashed to the vessel by cable wire.33 The ship captain testified that out of the
376 pieces of round logs, around 360 had been loaded in the lower hold of the vessel and
16 on deck. The logs stored in the lower hold were not secured by cable wire, because they
fitted exactly from floor to ceiling. However, while they were placed side by side, there were
unavoidable clearances between them owing to their round shape. Those loaded on deck
were lashed together several times across by cable wire, which had a diameter of 60
millimeters, and were secured from starboard to port.34
It is obvious, as a matter of common sense, that the manner of stowage in the lower hold
was not sufficient to secure the logs in the event the ship should roll in heavy weather.
Notably, they were of different lengths ranging from 3.7 to 12.7 meters. 35 Being clearly
prone to shifting, the round logs should not have been stowed with nothing to hold them
securely in place. Each pile of logs should have been lashed together by cable wire, and the
wire fastened to the side of the hold. Considering the strong force of the wind and the roll of
the waves, the loose arrangement of the logs did not rule out the possibility of their shifting.
By force of gravity, those on top of the pile would naturally roll towards the bottom of the
ship.

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

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

Second Issue:

Doctrine of Limited Liability

The doctrine of limited liability under Article 587 of the Code of Commerce36 is not
applicable to the present case. This rule does not apply to situations in which the loss or the
injury is due to the concurrent negligence of the shipowner and the captain. 37 It has already
been established that the sinking of M/V Central Bohol had been caused by the fault or
negligence of the ship captain and the crew, as shown by the improper stowage of the
cargo of logs. "Closer supervision on the part of the shipowner could have prevented this
fatal miscalculation."38As such, the shipowner was equally negligent. It cannot escape
liability by virtue of the limited liability rule.

WHEREFORE, the Petition is DENIED, and the assailed Decision and


Resolution AFFIRMED. Costs against petitioner.

SO ORDERED.

G.R. No. 108164 February 23, 1995

FAR EAST BANK AND TRUST COMPANY, petitioner,


vs.
THE HONORABLE COURT OF APPEALS, LUIS A. LUNA and CLARITA S.
LUNA, respondents.
VITUG, J.:

Some time in October 1986, private respondent Luis A. Luna applied for, and was
accorded, a FAREASTCARD issued by petitioner Far East Bank and Trust Company
("FEBTC") at its Pasig Branch. Upon his request, the bank also issued a supplemental card
to private respondent Clarita S. Luna.

In August 1988, Clarita lost her credit card. FEBTC was forthwith informed. In order to
replace the lost card, Clarita submitted an affidavit of loss. In cases of this nature, the
bank's internal security procedures and policy would appear to be to meanwhile so record
the lost card, along with the principal card, as a "Hot Card" or "Cancelled Card" in its master
file.

On 06 October 1988, Luis tendered a despedida lunch for a close friend, a Filipino-
American, and another guest at the Bahia Rooftop Restaurant of the Hotel Intercontinental
Manila. To pay for the lunch, Luis presented his FAREASTCARD to the attending waiter
who promptly had it verified through a telephone call to the bank's Credit Card Department.
Since the card was not honored, Luis was forced to pay in cash the bill amounting to
P588.13. Naturally, Luis felt embarrassed by this incident.

In a letter, dated 11 October 1988, private respondent Luis Luna, through counsel,
demanded from FEBTC the payment of damages. Adrian V. Festejo, a vice-president of the
bank, expressed the bank's apologies to Luis. In his letter, dated 03 November 1988,
Festejo, in part, said:

In cases when a card is reported to our office as lost, FAREASTCARD undertakes


the necessary action to avert its unauthorized use (such as tagging the card as
hotlisted), as it is always our intention to protect our cardholders.

An investigation of your case however, revealed that FAREASTCARD failed to


inform you about its security policy. Furthermore, an overzealous employee of the
Bank's Credit Card Department did not consider the possibility that it may have been
you who was presenting the card at that time (for which reason, the unfortunate
incident occurred). 1

Festejo also sent a letter to the Manager of the Bahia Rooftop Restaurant to assure the
latter that private respondents were "very valued clients" of FEBTC. William Anthony King,
Food and Beverage Manager of the Intercontinental Hotel, wrote back to say that the
credibility of private respondent had never been "in question." A copy of this reply was sent
to Luis by Festejo.

Still evidently feeling aggrieved, private respondents, on 05 December 1988, filed a


complaint for damages with the Regional Trial Court ("RTC") of Pasig against FEBTC.
On 30 March 1990, the RTC of Pasig, given the foregoing factual settings, rendered a
decision ordering FEBTC to pay private respondents (a) P300,000.00 moral damages; (b)
P50,000.00 exemplary damages; and (c) P20,000.00 attorney's fees.

On appeal to the Court of Appeals, the appellate court affirmed the decision of the trial
court.

Its motion for reconsideration having been denied by the appellate court, FEBTC has come
to this Court with this petition for review.

There is merit in this appeal.

In culpa contractual, moral damages may be recovered where the defendant is shown to
have acted in bad faith or with malice in the breach of the contract. 2 The Civil Code provides:

Art. 2220. Willful injury to property may be a legal ground for awarding moral
damages if the court should find that, under the circumstances, such damages are
justly due. The same rule applies to breaches of contract where the defendant acted
fraudulently or in bad faith. (Emphasis supplied)

Bad faith, in this context, includes gross, but not simple, negligence. 3 Exceptionally, in a
contract of carriage, moral damages are also allowed in case of death of a passenger attributable to the
fault (which is presumed 4) of the common carrier. 5

Concededly, the bank was remiss in indeed neglecting to personally inform Luis of his own
card's cancellation. Nothing in the findings of the trial court and the appellate court,
however, can sufficiently indicate any deliberate intent on the part of FEBTC to cause harm
to private respondents. Neither could FEBTC's negligence in failing to give personal notice
to Luis be considered so gross as to amount to malice or bad faith.

Malice or bad faith implies a conscious and intentional design to do a wrongful act for a
dishonest purpose or moral obliquity; it is different from the negative idea of negligence in
that malice or bad faith contemplates a state of mind affirmatively operating with furtive
design or ill will. 6

We are not unaware of the previous rulings of this Court, such as in American Express
International, Inc., vs. Intermediate Appellate Court (167 SCRA 209) and Bank of Philippine
Islands vs. Intermediate Appellate Court (206 SCRA 408), sanctioning the application of
Article 21, in relation to Article 2217 and Article 2219 7 of the Civil Code to a contractual breach
similar to the case at bench. Article 21 states:

Art. 21. Any person who wilfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter for the
damage.

Article 21 of the Code, it should be observed, contemplates a conscious act to cause harm.
Thus, even if we are to assume that the provision could properly relate to a breach of
contract, its application can be warranted only when the defendant's disregard of his
contractual obligation is so deliberate as to approximate a degree of misconduct certainly
no less worse than fraud or bad faith. Most importantly, Article 21 is a mere declaration of a
general principle in human relations that clearly must, in any case, give way to the specific
provision of Article 2220 of the Civil Code authorizing the grant of moral damages in culpa
contractual solely when the breach is due to fraud or bad faith.

Mr. Justice Jose B.L. Reyes, in his ponencia in Fores vs. Miranda 8 explained with great clarity
the predominance that we should give to Article 2220 in contractual relations; we quote:

Anent the moral damages ordered to be paid to the respondent, the same must be
discarded. We have repeatedly ruled (Cachero vs. Manila Yellow Taxicab Co. Inc.,
101 Phil. 523; 54 Off. Gaz., [26], 6599; Necesito, et al. vs. Paras, 104 Phil., 75; 56
Off. Gaz., [23] 4023), that moral damages are not recoverable in damage actions
predicated on a breach of the contract of transportation, in view of Articles 2219 and
2220 of the new Civil Code, which provide as follows:

Art. 2219. Moral damages may be recovered in the following and


analogous cases:

(1) A criminal offense resulting in physical injuries;

(2) Quasi-delicts causing physical injuries;

xxx xxx xxx

Art. 2220. Wilful injury to property may be a legal ground for awarding
moral damages if the court should find that, under the circumstances,
such damages are justly due. The same rule applies to breaches of
contract where the defendant acted fraudulently or in bad faith.

By contrasting the provisions of these two articles it immediately becomes apparent


that:

(a) In case of breach of contract (including one of transportation) proof of bad faith or
fraud (dolus), i.e., wanton or deliberately injurious conduct, is essential to justify an
award of moral damages; and

(b) That a breach of contract can not be considered included in the descriptive term
"analogous cases" used in Art. 2219; not only because Art. 2220 specifically
provides for the damages that are caused contractual breach, but because the
definition of quasi-delict in Art. 2176 of the Code expressly excludes the cases
where there is a "preexisitng contractual relations between the parties."

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.
The exception to the basic rule of damages now under consideration is a mishap
resulting in the death of a passenger, in which case Article 1764 makes the common
carrier expressly subject to the rule of Art. 2206, that entitles the spouse,
descendants and ascendants of the deceased passenger to "demand moral
damages for mental anguish by reason of the death of the deceased" (Necesito vs.
Paras, 104 Phil. 84, Resolution on motion to reconsider, September 11, 1958). But
the exceptional rule of Art. 1764 makes it all the more evident that where the injured
passenger does not die, moral damages are not recoverable unless it is proved that
the carrier was guilty of malice or bad faith. We think it is clear that the mere
carelessness of the carrier's driver does not per se constitute or justify an inference
of malice or bad faith on the part of the carrier; and in the case at bar there is no
other evidence of such malice to support the award of moral damages by the Court
of Appeals. To award moral damages for breach of contract, therefore, without proof
of bad faith or malice on the part of the defendant, as required by Art. 2220, would
be to violate the clear provisions of the law, and constitute unwarranted judicial
legislation.

xxx xxx xxx

The distinction between fraud, bad faith or malice in the sense of deliberate or
wanton wrong doing and negligence (as mere carelessness) is too fundamental in
our law to be ignored (Arts. 1170-1172); their consequences being clearly
differentiated by the Code.

Art. 2201. In contracts and quasi-contracts, the damages for which the
obligor who acted in good faith is liable shall be those that are the
natural and probable consequences of the breach of the obligation,
and which the parties have foreseen or could have reasonably
foreseen at the time the obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall
be responsible for all damages which may be reasonably attributed to
the non-performance of the obligation.

It is to be presumed, in the absence of statutory provision to the contrary, that this


difference was in the mind of the lawmakers when in Art. 2220 they limited recovery
of moral damages to breaches of contract in bad faith. It is true that negligence may
be occasionally so gross as to amount to malice; but the fact must be shown in
evidence, and a carrier's bad faith is not to be lightly inferred from a mere finding that
the contract was breached through negligence of the carrier's employees.

The Court has not in the process overlooked another rule that a quasi-delict can be the
cause for breaching a contract that might thereby permit the application of applicable
principles on tort 9 even where there is a pre-existing contract between the plaintiff and the defendant
(Phil. Airlines vs. Court of Appeals, 106 SCRA 143; Singson vs. Bank of Phil. Islands, 23 SCRA 1117;
and Air France vs. Carrascoso, 18 SCRA 155). This doctrine, unfortunately, cannot improve private
respondents' case for it can aptly govern only where the act or omission complained of would constitute
an actionable tort independently of the contract. The test (whether a quasi-delict can be deemed to
underlie the breach of a contract) can be stated thusly: Where, without a pre-existing contract between
two parties, an act or omission can nonetheless amount to an actionable tort by itself, the fact that the
parties are contractually bound is no bar to the application of quasi-delict provisions to the case. Here,
private respondents' damage claim is predicated solely on their contractual relationship; without such
agreement, the act or omission complained of cannot by itself be held to stand as a separate cause of
action or as an independent actionable tort.

The Court finds, therefore, the award of moral damages made by the court a quo, affirmed
by the appellate court, to be inordinate and substantially devoid of legal basis.

Exemplary or corrective damages, in turn, are intended to serve as an example or as


correction for the public good in addition to moral, temperate, liquidated or compensatory
damages (Art. 2229, Civil Code; see Prudenciado vs. Alliance Transport System, 148
SCRA 440; Lopez vs. Pan American World Airways, 16 SCRA 431). In criminal offenses,
exemplary damages are imposed when the crime is committed with one or more
aggravating circumstances (Art. 2230, Civil Code). In quasi-delicts, such damages are
granted if the defendant is shown to have been so guilty of gross negligence as to
approximate malice (See Art. 2231, Civil Code; CLLC E.G. Gochangco Workers Union vs.
NLRC, 161 SCRA 655; Globe Mackay Cable and Radio Corp. vs. CA, 176 SCRA 778).
In contracts and quasi-contracts, the court may award exemplary damages if the defendant
is found to have acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner
(Art. 2232, Civil Code; PNB vs. Gen. Acceptance and Finance Corp., 161 SCRA 449).

Given the above premises and the factual circumstances here obtaining, it would also be
just as arduous to sustain the exemplary damages granted by the courts below (see De
Leon vs. Court of Appeals, 165 SCRA 166).

Nevertheless, the bank's failure, even perhaps inadvertent, to honor its credit card issued to
private respondent Luis should entitle him to recover a measure of damages sanctioned
under Article 2221 of the Civil Code providing thusly:

Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff,
which has been violated or invaded by the defendant, may be vindicated or
recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered
by him.

Reasonable attorney's fees may be recovered where the court deems such recovery to be
just and equitable (Art. 2208, Civil Code). We see no issue of sound discretion on the part
of the appellate court in allowing the award thereof by the trial court.

WHEREFORE, the petition for review is given due course. The appealed decision is
MODIFIED by deleting the award of moral and exemplary damages to private respondents;
in its stead, petitioner is ordered to pay private respondent Luis A. Luna an amount of
P5,000.00 by way of nominal damages. In all other respects, the appealed decision is
AFFIRMED. No costs.

SO ORDERED.

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 Decision1 dated November 27, 2006 and
Resolution2 dated March 23, 2007 of the Court of Appeals (CA) in CA-G.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-in-interest; 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 short-landed 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

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.

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. 1wphi 1

5. Respondent has not presented any scintilla of evidence showing any


fault/negligence on the part of herein petitioner.

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 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."

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

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.

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 173422 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.

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:

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)

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, duty-bound 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.

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)

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.

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:

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?

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 above-mentioned 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 condition43 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.

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.

G.R. No. L-8095 March 31, 1915


F.C. FISHER, plaintiff,
vs.
YANGCO STEAMSHIP COMPANY, J.S. STANLEY, as Acting Collector of Customs of
the Philippine Islands, IGNACIO VILLAMOR, as Attorney-General of the Philippine
Islands, and W.H. BISHOP, as prosecuting attorney of the city of Manila, respondents.

Haussermann, Cohn and Fisher for plaintiff.


Office of the Solicitor-General Harvey for respondents.

CARSON, J.:

The real question involved in these proceedings is whether the refusal of the owners and
officers of a steam vessel, duly licensed to engage in the coastwise trade of the Philippine
Islands and engaged in that trade as a common carrier, to accept for carriage "dynamite,
powder or other explosives" from any and all shippers who may offer such explosives for
carriage can be held to be a lawful act without regard to any question as to the conditions
under which such explosives are offered to carriage, or as to the suitableness of the vessel
for the transportation of such explosives, or as to the possibility that the refusal to accept
such articles of commerce in a particular case may have the effect of subjecting any person
or locality or the traffic in such explosives to an undue, unreasonable or unnecessary
prejudice or discrimination.

Summarized briefly, the complaint alleges that plaintiff is a stockholder in the Yangco
Steamship Company, the owner of a large number of steam vessels, duly licensed to
engage in the coastwise trade of the Philippine Islands; that on or about June 10, 1912, the
directors of the company adopted a resolution which was thereafter ratified and affirmed by
the shareholders of the company, "expressly declaring and providing that the classes of
merchandise to be carried by the company in its business as a common carrier do not
include dynamite, powder or other explosives, and expressly prohibiting the officers, agents
and servants of the company from offering to carry, accepting for carriage said dynamite,
powder or other explosives;" that thereafter the respondent Acting Collector of Customs
demanded and required of the company the acceptance and carriage of such explosives;
that he has refused and suspended the issuance of the necessary clearance documents of
the vessels of the company unless and until the company consents to accept such
explosives for carriage; that plaintiff is advised and believes that should the company
decline to accept such explosives for carriage, the respondent Attorney-General of the
Philippine Islands and the respondent prosecuting attorney of the city of Manila intend to
institute proceedings under the penal provisions of sections 4, 5, and 6 of Act No. 98 of the
Philippine Commission against the company, its managers, agents and servants, to enforce
the requirements of the Acting Collector of Customs as to the acceptance of such
explosives for carriage; that notwithstanding the demands of the plaintiff stockholder, the
manager, agents and servants of the company decline and refuse to cease the carriage of
such explosives, on the ground that by reason of the severity of the penalties with which
they are threatened upon failure to carry such explosives, they cannot subject themselves
to "the ruinous consequences which would inevitably result" from failure on their part to
obey the demands and requirements of the Acting Collector of Customs as to the
acceptance for carriage of explosives; that plaintiff believes that the Acting Collector of
Customs erroneously construes the provisions of Act No. 98 in holding that they require the
company to accept such explosives for carriage notwithstanding the above mentioned
resolution of the directors and stockholders of the company, and that if the Act does in fact
require the company to carry such explosives it is to that extent unconstitutional and void;
that notwithstanding this belief of complainant as to the true meaning of the Act, the
questions involved cannot be raised by the refusal of the company or its agents to comply
with the demands of the Acting Collector of Customs, without the risk of irreparable loss and
damage resulting from his refusal to facilitate the documentation of the company's vessels,
and without assuming the company to test the questions involved by refusing to accept
such explosives for carriage.

The prayer of the complaint is as follows:

Wherefore your petitioner prays to this honorable court as follows:

First. That to the due hearing of the above entitled action be issued a writ of
prohibition perpetually restraining the respondent Yangco Steamship Company, its
appraisers, agents, servants or other representatives from accepting to carry and
from carrying, in steamers of said company dynamite, powder or other explosive
substance, in accordance with the resolution of the board of directors and of the
shareholders of said company.

Second. That a writ of prohibition be issued perpetually enjoining the respondent


J.S. Stanley as Acting Collector of Customs of the Philippine Islands, his successors,
deputies, servants or other representatives, from obligating the said Yangco
Steamship Company, by any means whatever, to carry dynamite, powder or other
explosive substance.

Third. That a writ of prohibition be issued perpetually enjoining the respondent


Ignacio Villamor as Attorney-General of the Philippine Islands, and W.H. Bishop as
prosecuting attorney of the city of Manila, their deputies representatives or
employees, from accusing the said Yangco Steamship Company, its officers, agents
or servants, of the violation of Act No. 98 by reason of the failure or omission of the
said company to accept for carriage out to carry dynamite powder or other explosive.

Fourth. That the petitioner be granted such other remedy as may be meet and
proper.

To this complaint the respondents demurred, and we are of opinion that the demurrer must
be sustained, on the ground that the complaint does not set forth facts sufficient to
constitute a cause of action.

It will readily be seen that plaintiff seeks in these proceedings to enjoin the steamship
company from accepting for carriage on any of its vessels, dynamite, powder or other
explosives, under any conditions whatsoever; to prohibit the Collector of Customs and the
prosecuting officers of the government from all attempts to compel the company to accept
such explosives for carriage on any of its vessels under any conditions whatsoever; and to
prohibit these officials from any attempt to invoke the penal provisions of Act No. 98, in any
case of a refusal by the company or its officers so to do; and this without regard to the
conditions as to safety and so forth under which such explosives are offered for carriage,
and without regard also to any question as to the suitableness for the transportation of such
explosives of the particular vessel upon which the shipper offers them for carriage; and
further without regard to any question as to whether such conduct on the part of the
steamship company and its officers involves in any instance an undue, unnecessary or
unreasonable discrimination to the prejudice of any person, locality or particular kind of
traffic.

There are no allegations in the complaint that for some special and sufficient reasons all or
indeed any of the company's vessels are unsuitable for the business of transporting
explosives; or that shippers have declined or will in future decline to comply with such
reasonable regulations and to take such reasonable precautions as may be necessary and
proper to secure the safety of the vessels of the company in transporting such explosives.
Indeed the contention of petitioner is that a common carrier in the Philippine Islands may
decline to accept for carriage any shipment of merchandise of a class which it expressly or
impliedly declines to accept from all shippers alike, because as he contends "the duty of a
common carrier to carry for all who offer arises from the public profession he has made, and
limited by it."

In support of this contention counsel cites for a number of English and American authorities,
discussing and applying the doctrine of the common law with reference to common carriers.
But it is unnecessary now to decide whether, in the absence of statute, the principles on
which the American and English cases were decided would be applicable in this jurisdiction.
The duties and liabilities of common carriers in this jurisdiction are defined and fully set forth
in Act No. 98 of the Philippine Commission, and until and unless that statute be declared
invalid or unconstitutional, we are bound by its provisions.

Sections 2, 3 and 4 of the Act are as follows:

SEC. 2. It shall be unlawful for any common carrier engaged in the transportation of
passengers or property as above set forth to make or give any unnecessary or
unreasonable preference or advantage to any particular person, company, firm,
corporation or locality, or any particular kind of traffic in any respect whatsoever, or
to subject any particular person, company, firm, corporation or locality, or any
particular kind of traffic, to undue or unreasonable prejudice or discrimination
whatsoever, and such unjust preference or discrimination is also hereby prohibited
and declared to be unlawful.

SEC. 3. No common carrier engaged in the carriage of passengers or property as


aforesaid shall, under any pretense whatsoever, fail or refuse to receive for carriage,
and as promptly as it is able to do so without discrimination, to carry any person or
property offering for carriage, and in the order in which such persons or property are
offered for carriage, nor shall any such common carrier enter into any arrangement,
contract or agreement with any other person or corporation whereby the latter is
given an exclusive or preferential or monopolize the carriage any class or kind of
property to the exclusion or partial exclusion of any other person or persons, and the
entering into any such arrangement, contract or agreement, under any form or
pretense whatsoever, is hereby prohibited and declared to be unlawful.
SEC. 4. Any willful violation of the provisions of this Act by any common carrier
engaged in the transportation of passengers or property as hereinbefore set forth is
hereby declared to be punishable by a fine not exceeding five thousand dollars
money of the United States, or by imprisonment not exceeding two years, or both,
within the discretion of the court.

The validity of this Act has been questioned on various grounds, and it is vigorously
contended that in so far as it imposes any obligation on a common carrier to accept for
carriage merchandise of a class which he makes no public profession to carry, or which he
has expressly or impliedly announced his intention to decline to accept for carriage from all
shippers alike, it is ultra vires, unconstitutional and void.

We may dismiss without extended discussion any argument or contention as to the


invalidity of the statute based on alleged absurdities inherent in its provisions or on alleged
unreasonable or impossible requirements which may be read into it by a strained
construction of its terms.

We agree with counsel for petitioner that the provision of the Act which prescribes that, "No
common carrier ... shall, under any pretense whatsoever, fail or refuse to receive for
carriage ... to carry any person or property offering for carriage," is not to be construed in its
literal sense and without regard to the context, so as to impose an imperative duty on all
common carriers to accept for carriage, and to carry all and any kind of freight which may
be offered for carriage without regard to the facilities which they may have at their disposal.
The legislator could not have intended and did not intend to prescribe that a common carrier
running passenger automobiles for hire must transport coal in his machines; nor that the
owner of a tank steamer, expressly constructed in small watertight compartments for the
carriage of crude oil must accept common carrier must accept and carry contraband
articles, such as opium, morphine, cocaine, or the like, the mere possession of which is
declared to be a criminal offense; nor that common carriers must accept eggs offered for
transportation in paper parcels or any merchandise whatever do defectively packed as to
entail upon the company unreasonable and unnecessary care or risks.

Read in connection with its context this, as well as all the other mandatory and prohibitory
provisions of the statute, was clearly intended merely to forbid failures or refusals to receive
persons or property for carriage involving any "unnecessary or unreasonable preference or
advantage to any particular person, company, firm, corporation, or locality, or any particular
kind of traffic in any respect whatsoever," or which would "subject any particular person,
company, firm, corporation or locality, or any particular kind of traffic to any undue or
unreasonable prejudice or discrimination whatsoever."

The question, then, of construing and applying the statute, in cases of alleged violations of
its provisions, always involves a consideration as to whether the acts complained of had the
effect of making or giving an "unreasonable or unnecessary preference or advantage" to
any person, locality or particular kind of traffic, or of subjecting any person, locality, or
particular kind of traffic to any undue or unreasonable prejudice or discrimination. It is very
clear therefore that the language of the statute itself refutes any contention as to its
invalidity based on the alleged unreasonableness of its mandatory or prohibitory provisions.
So also we may dismiss without much discussion the contentions as to the invalidity of the
statute, which are based on the alleged excessive severity of the penalties prescribed for
violation of its provisions. Upon general principles it is peculiarly and exclusively within the
province of the legislator to prescribe the pains and penalties which may be imposed upon
persons convicted of violations of the laws in force within his territorial jurisdiction. With the
exercise of his discretion in this regard where it is alleged that excessive fines or cruel and
unusual punishments have been prescribed, and even in such cases the courts will not
presume to interfere in the absence of the clearest and most convincing argument and proof
in support of such contentions. (Weems vs. United States, 217 U.S., 349; U.S. vs. Pico, 18
Phil. Rep., 386.) We need hardly add that there is no ground upon which to rest a
contention that the penalties prescribed in the statute under consideration are either
excessive or cruel and unusual, in the sense in which these terms are used in the organic
legislation in force in the Philippine Islands.

But it is contended that on account of the penalties prescribed the statute should be held
invalid upon the principles announced in Ex parte Young (209 U.S., 123, 147, 148);
Cotting vs. Goddard (183 U.S., 79, 102); Mercantile Trust Co. vs. Texas Co. (51 Fed., 529);
Louisville Ry. vs. McCord (103 Fed., 216); Cons. Gas Co. vs. Mayer (416 Fed., 150). We
are satisfied however that the reasoning of those cases is not applicable to the statute
under consideration. The principles announced in those decisions are fairly indicated in the
following citations found in petitioner's brief:

But when the legislature, in an effort to prevent any inquiry of the validity of a particular
statute, so burdens any challenge thereof in the courts that the party affected is necessarily
constrained to submit rather than take the chances of the penalties imposed, then it
becomes a serious question whether the party is not deprived of the equal protection of the
laws. (Cotting vs. Goddard, 183 U. S., 79, 102.)

It may therefore be said that when the penalties for disobedience are by fines so
enormous and imprisonment so severe as to intimidate the company and its officers
from resorting to the courts to test the validity of the legislation, the result is the same
as if the law in terms prohibited the company from seeking judicial construction of
laws which deeply affect its rights.

It is urged that there is no principle upon which to base the claim that a person is
entitled to disobey a statute at least once, for the purpose of testing its validity,
without subjecting himself to the penalties for disobedience provided by the statute in
case it is valid. This is not an accurate statement of the case. Ordinarily a law
creating offenses in the nature of misdemeanors or felonies relates to a subject over
which the jurisdiction of the legislature is complete in any event. In the case,
however, of the establishment of certain rates without any hearing, the validity of
such rates necessarily depends upon whether they are high enough to permit at
least some return upon the investment (how much it is not now necessary to state),
and an inquiry as to that fact is a proper subject of judicial investigation. If it turns out
that the rates are too low for that purpose, then they are illegal. Now, to impose upon
a party interested the burden of obtaining a judicial decision of such a question (no
prior hearing having been given) only upon the condition that, if unsuccessful, he
must suffer imprisonment and pay fines, as provided in these acts, is, in effect, to
close up all approaches to the courts, and thus prevent any hearing upon the
question whether the rates as provided by the acts are not too low, and therefore
invalid. The distinction is obvious between a case where the validity of the act
depends upon the existence of a fact which can be determined only after
investigation of a very complicated and technical character, and the ordinary case of
a statute upon a subject requiring no such investigation, and over which the
jurisdiction of the legislature is complete in any event.

We hold, therefore, that the provisions of the acts relating to the enforcement of the
rates, either for freight or passengers, by imposing such enormous fines and
possible imprisonment as a result of an unsuccessful effort to test the validity of the
laws themselves, are unconstitutional on their face, without regard to the question of
the insufficiency of those rates. (Ex parte Young, 209 U.S., 123 147, 148.)

An examination of the general provisions of our statute, of the circumstances under which it
was enacted, the mischief which it sought to remedy and of the nature of the penalties
prescribed for violations of its terms convinces us that, unlike the statutes under
consideration in the above cited cases, its enactment involved no attempt to prevent
common carriers "from resorting to the courts to test the validity of the legislation;" no "effort
to prevent any inquiry" as to its validity. It imposes no arbitrary obligation upon the company
to do or to refrain from doing anything. It makes no attempt to compel such carriers to do
business at a fixed or arbitrarily designated rate, at the risk of separate criminal
prosecutions for every demand of a higher or a different rate. Its penalties can be imposed
only upon proof of "unreasonable," "unnecessary" and "unjust" discriminations, and range
from a maximum which is certainly not excessive for willful, deliberate and contumacious
violations of its provisions by a great and powerful corporation, to a minimum which may be
a merely nominal fine. With so wide a range of discretion for a contention on the part of any
common carrier that it or its officers are "intimidated from resorting to the courts to test the
validity" of the provisions of the statute prohibiting such "unreasonable," "unnecessary" and
"unjust" discriminations, or to test in any particular case whether a given course of conduct
does in fact involve such discrimination. We will presume, for the purpose of declaring the
statute invalid, that there is so real a danger that the Courts of First Instance and this court
on appeal will abuse the discretion thus conferred upon us, as to intimidate any common
carrier, acting in good faith, from resorting to the courts to test the validity of the statute.
Legislative enactments, penalizing unreasonable discriminations, unreasonable restraints of
trade, and unreasonable conduct in various forms of human activity are so familiar and have
been so frequently sustained in the courts, as to render extended discussion unnecessary
to refute any contention as to the invalidity of the statute under consideration, merely it
imposes upon the carrier the obligation of adopting one of various courses of conduct open
to it, at the risk of incurring a prescribed penalty in the event that the course of conduct
actually adopted by it should be held to have involved an unreasonable, unnecessary or
unjust discrimination. Applying the test announced in Ex parte Young, supra, it will be seen
that the validity of the Act does not depend upon "the existence of a fact which can be
determined only after investigation of a very complicated and technical character," and that
"the jurisdiction of the legislature" over the subject with which the statute deals "is complete
in any event." There can be no real question as to the plenary power of the legislature to
prohibit and to penalize the making of undue, unreasonable and unjust discriminations by
common carriers to the prejudice of any person, locality or particular kind of traffic.
(See Munn vs. Illinois, 94 U.S., 113, and other cases hereinafter cited in support of this
proposition.)

Counsel for petitioner contends also that the statute, if construed so as to deny the right of
the steamship company to elect at will whether or not it will engage in a particular business,
such as that of carrying explosives, is unconstitutional "because it is a confiscation of
property, a taking of the carrier's property without due process of law," and because it
deprives him of his liberty by compelling him to engage in business against his will. The
argument continues as follows:

To require of a carrier, as a condition to his continuing in said business, that he must


carry anything and every thing is to render useless the facilities he may have for the
carriage of certain lines of freight. It would be almost as complete a confiscation of
such facilities as if the same were destroyed. Their value as a means of livelihood
would be utterly taken away. The law is a prohibition to him to continue in business;
the alternative is to get out or to go into some other business the same alternative
as was offered in the case of the Chicago & N.W. Ry. vs. Dey (35 Fed. Rep., 866,
880), and which was there commented on as follows:

"Whatever of force there may be in such arguments, as applied to mere


personal property capable of removal and use elsewhere, or in other
business, it is wholly without force as against railroad corporations, so large a
proportion of whose investment is in the soil and fixtures appertaining thereto,
which cannot be removed. For a government, whether that government be a
single sovereign or one of the majority, to say to an individual who has
invested his means in so laudable an enterprise as the construction of a
railroad, one which tends so much to the wealth and prosperity of the
community, that, if he finds that the rates imposed will cause him to do
business at a loss, he may quit business, and abandon that road, is the very
irony of despotism. Apples of Sodom were fruit of joy in comparison. Reading,
as I do, in the preamble of the Federal Constitution, that it was ordained to
"establish justice," I can never believe that it is within the property of an
individual invested in and used for a purpose in which even the Argus eyes of
the police power can see nothing injurious to public morals, public health, or
the general welfare. I read also in the first section of the bill of rights of this
state that "all men are by nature free and equal, and have certain inalienable
rights, among which are those of enjoying and defending life and liberty,
acquiring, possessing, and protecting property, and pursuing and obtaining
safety and happiness;" and I know that, while that remains as the supreme
law of the state, no legislature can directly or indirectly lay its withering or
destroying hand on a single dollar invested in the legitimate business of
transportation." (Chicago & N.W. Ry. vs. Dey, 35 Fed. Rep., 866, 880.)

It is manifest, however, that this contention is directed against a construction of the statute,
which, as we have said, is not warranted by its terms. As we have already indicated, the
statute does not "require of a carrier, as a condition to his continuing in said business, that
he must carry anything and everything," and thereby "render useless the facilities he may
have for the carriage of certain lines of freight." It merely forbids failures or refusals to
receive persons or property for carriage which have the effect of giving an "unreasonable or
unnecessary preference or advantage" to any person, locality or particular kind of traffic, or
of subjecting any person, locality or particular kind of traffic to any undue or unreasonable
prejudice or discrimination.

Counsel expressly admits that the statute, "as a prohibition against discrimination is a fair,
reasonable and valid exercise of government," and that "it is necessary and proper that
such discrimination be prohibited and prevented," but he contends that "on the other hand
there is no reasonable warrant nor valid excuse for depriving a person of his liberty by
requiring him to engage in business against his will. If he has a rolling boat, unsuitable and
unprofitable for passenger trade, he may devote it to lumber carrying. To prohibit him from
using it unless it is fitted out with doctors and stewards and staterooms to carry passengers
would be an invalid confiscation of this property. A carrier may limit his business to the
branches thereof that suit his convenience. If his wagon be old, or the route dangerous, he
may avoid liability for loss of passengers' lives and limbs by carrying freight only. If his
vehicles require expensive pneumatic tires, unsuitable for freight transportation, ha may
nevertheless carry passengers. The only limitation upon his action that it is competent for
the governing authority to impose is to require him to treat all alike. His limitations must
apply to all, and they must be established limitations. He cannot refuse to carry a case of
red jusi on the ground that he has carried for others only jusi that he was green, or blue, or
black. But he can refuse to carry red jusi, if he has publicly professed such a limitation upon
his business and held himself out as unwilling to carry the same for anyone."

To this it is sufficient answer to say that there is nothing in the statute which would deprive
any person of his liberty "by requiring him to engage in business against his will." The
prohibitions of the statute against undue, unnecessary or unreasonable regulations which
the legislator has seen fit to prescribe for the conduct of the business in which the carrier is
engaged of his own free will and accord. In so far as the self-imposed limitations by the
carrier upon the business conducted by him, in the various examples given by counsel, do
not involve an unreasonable or unnecessary discrimination the statute would not control his
action in any wise whatever. It operates only in cases involving such unreasonable or
unnecessary preferences or discriminations. Thus in the hypothetical case suggested by the
petitioner, a carrier engaged in the carriage of green, blue or black jusi, and duly equipped
therefor would manifestly be guilty of "giving an unnecessary and unreasonable preference
to a particular kind of traffic" and of subjecting to "an undue and reasonable prejudice a
particular kind of traffic," should he decline to carry red jusi, to the prejudice of a particular
shipper or of those engaged in the manufacture of that kind of jusi, basing his refusal on the
ground of "mere whim or caprice" or of mere personal convenience. So a public carrier of
passengers would not be permitted under this statute to absolve himself from liability for a
refusal to carry a Chinaman, a Spaniard, an American, a Filipino, or a mestizo by proof that
from "mere whim or caprice or personal scruple," or to suit his own convenience, or in the
hope of increasing his business and thus making larger profits, he had publicly announced
his intention not to carry one or other of these classes of passengers.

The nature of the business of a common carrier as a public employment is such that it is
clearly within the power of the state to impose such just and reasonable regulations thereon
in the interest of the public as the legislator may deem proper. Of course such regulations
must not have the effect of depriving an owner of his property without due process of law,
nor of confiscating or appropriating private property without just compensation, nor of
limiting or prescribing irrevocably vested rights or privileges lawfully acquired under a
charter or franchise. But aside from such constitutional limitations, the determination of the
nature and extent of the regulations which should be prescribed rests in the hands of the
legislator.

Common carriers exercise a sort of public office, and have duties to perform in which the
public is interested. Their business is, therefore, affected with a public interest, and is
subject of public regulation. (New Jersey Steam Nav. Co. vs. Merchants Bank, 6 How., 344,
382; Munn vs. Illinois, 94 U.S., 113, 130.) Indeed, this right of regulation is so far beyond
question that it is well settled that the power of the state to exercise legislative control over
railroad companies and other carriers "in all respects necessary to protect the public against
danger, injustice and oppression" may be exercised through boards of commissioners.
(New York etc. R. Co. vs. Bristol, 151 U.S., 556, 571; Connecticut etc. R. Co. vs. Woodruff,
153 U.S., 689.)

Regulations limiting of passengers the number of passengers that may be carried in a


particular vehicle or steam vessel, or forbidding the loading of a vessel beyond a certain
point, or prescribing the number and qualifications of the personnel in the employ of a
common carrier, or forbidding unjust discrimination as to rates, all tend to limit and restrict
his liberty and to control to some degree the free exercise of his discretion in the conduct of
his business. But since the Granger cases were decided by the Supreme Court of the
United States no one questions the power of the legislator to prescribe such reasonable
regulations upon property clothed with a public interest as he may deem expedient or
necessary to protect the public against danger, injustice or oppression. (Munn vs. Illinois, 94
U.S., 113, 130; Chicago etc. R. Co. vs. Cutts, 94 U.S., 155; Budd vs. New York, 143 U.S.,
517; Cotting vs. Goddard, 183 U.S., 79.) The right to enter the public employment as a
common carrier and to offer one's services to the public for hire does not carry with it the
right to conduct that business as one pleases, without regard to the interest of the public
and free from such reasonable and just regulations as may be prescribed for the protection
of the public from the reckless or careless indifference of the carrier as to the public welfare
and for the prevention of unjust and unreasonable discrimination of any kind whatsoever in
the performance of the carrier's duties as a servant of the public.

Business of certain kinds, including the business of a common carrier, holds such a peculiar
relation to the public interest that there is superinduced upon it the right of public regulation.
(Budd vs. New York, 143 U.S., 517, 533.) When private property is "affected with a public
interest it ceases to be juris privati only." Property becomes clothed with a public interest
when used in a manner to make it of public consequence and affect the community at large.
"When, therefore, one devotes his property to a use in which the public has an interest, he,
in effect, grants to the public an interest in that use, and must submit to be controlled by the
public for the common good, to the extent of the interest he has thus created. He may
withdraw his grant by discontinuing the use, but so long as he maintains the use he must
submit to control." (Munn vs. Illinois, 94 U.S., 113; Georgia R. & Bkg. Co. vs. Smith, 128
U.S., 174; Budd vs. New York, 143 U.S., 517; Louisville etc. Ry. Co. vs. Kentucky, 161
U.S., 677, 695.)
Of course this power to regulate is not a power to destroy, and limitation is not the
equivalent of confiscation. Under pretense of regulating fares and freight the state can not
require a railroad corporation to carry persons or property without reward. Nor can it do that
which in law amounts to a taking of private property for public use without just
compensation, or without due process of law. (Chicago etc. R. Co. vs. Minnesota, 134 U.S.,
418; Minneapolis Eastern R. Co. vs. Minnesota, 134 U.S., 467.) But the judiciary ought not
to interfere with regulations established and palpably unreasonable as to make their
enforcement equivalent to the taking of property for public use without such compensation
as under all the circumstances is just both to the owner and to the public, that is, judicial
interference should never occur unless the case presents, clearly and beyond all doubt,
such a flagrant attack upon the rights of property under the guise of regulations as to
compel the court to say that the regulation in question will have the effect to deny just
compensation for private property taken for the public use. (Chicago etc. R.
Co. vs. Wellman, 143 U.S., 339; Smyth vs. Ames, 169 U.S., 466, 524; Henderson Bridge
Co. vs. Henderson City, 173 U.S., 592, 614.)

Under the common law of England it was early recognized that common carriers owe to the
public the duty of carrying indifferently for all who may employ them, and in the order in
which application is made, and without discrimination as to terms. True, they were allowed
to restrict their business so as to exclude particular classes of goods, but as to the kinds of
property which the carrier was in the habit of carrying in the prosecution of his business he
was bound to serve all customers alike (State vs. Cincinnati etc. R. Co., 47 Ohio St., 130,
134, 138; Louisville etc. Ry. Co. vs. Quezon City Coal Co., 13 Ky. L. Rep., 832); and it is to
be observed in passing that these common law rules are themselves regulations controlling,
limiting and prescribing the conditions under which common carriers were permitted to
conduct their business. (Munn vs. Illinois, 94 U. S., 113, 133.)

It was found, in the course of time, that the correction of abuses which had grown up with
the enormously increasing business of common carriers necessitated the adoption of
statutory regulations controlling the business of common carriers, and imposing severe and
drastic penalties for violations of their terms. In England, the Railway Clauses Consolidation
Act was enacted in 1845, the Railway and Canal Traffic Act in 1854, and since the passage
of those Acts much additional legislation has been adopted tending to limit and control the
conduct of their business by common carriers. In the United States, the business of
common carriers has been subjected to a great variety of statutory regulations. Among
others Congress enacted "The Interstate Commerce Act" (1887) and its amendments, and
the Elkins Act as amended (1906); and most if not all of the States of the Union have
adopted similar legislation regulating the business of common carriers within their
respective jurisdictions. Unending litigation has arisen under these statutes and their
amendments, but nowhere has the right of the state to prescribe just and reasonable
regulations controlling and limiting the conduct of the business of common carriers in the
public interest and for the general welfare been successfully challenged, though of course
there has been wide divergence of opinion as to the reasonableness, the validity and
legality of many of the regulations actually adopted.

The power of the Philippine legislator to prohibit and to penalize all and any unnecessary or
unreasonable discriminations by common carriers may be maintained upon the same
reasoning which justified the enactment by the Parliament of England and the Congress of
the United States of the above mentioned statutes prohibiting and penalizing the granting of
certain preferences and discriminations in those countries. As we have said before, we find
nothing confiscatory or unreasonable in the conditions imposed in the Philippine statute
upon the business of common carriers. Correctly construed they do not force him to engage
in any business his will or to make use of his facilities in a manner or for a purpose for which
they are not reasonably adapted. It is only when he offers his facilities as a common carrier
to the public for hire, that the statute steps in and prescribes that he must treat all alike, that
he may not pick and choose which customer he will serve, and, specifically, that he shall not
make any undue or unreasonable preferences or discriminations whatsoever to the
prejudice not only of any person or locality but also of any particular kind of traffic.

The legislator having enacted a regulation prohibiting common carriers from giving
unnecessary or unreasonable preferences or advantages to any particular kind of traffic or
subjecting any particular kind of traffic to any undue or unreasonable prejudice or
discrimination whatsoever, it is clear that whatever may have been the rule at the common
law, common carriers in this jurisdiction cannot lawfully decline to accept a particular class
of goods for carriage, to the prejudice of the traffic in those goods, unless it appears that for
some sufficient reason the discrimination against the traffic in such goods is reasonable and
necessary. Mere whim or prejudice will not suffice. The grounds for the discrimination must
be substantial ones, such as will justify the courts in holding the discrimination to have been
reasonable and necessary under all circumstances of the case.

The prayer of the petition in the case at bar cannot be granted unless we hold that the
refusal of the defendant steamship company to accept for carriage on any of its vessels
"dynamite, gunpowder or other explosives" would in no instance involve a violation of the
provisions of this statute. There can be little doubt, however, that cases may and will arise
wherein the refusal of a vessel "engaged in the coastwise trade of the Philippine Islands as
a common carrier" to accept such explosives for carriage would subject some person,
company, firm or corporation, or locality, or particular kind of traffic to a certain prejudice or
discrimination. Indeed it cannot be doubted that the refusal of a "steamship company, the
owner of a large number of vessels" engaged in that trade to receive for carriage any such
explosives on any of its vessels would subject the traffic in such explosives to a manifest
prejudice and discrimination. The only question to be determined therefore is whether such
prejudice or discrimination might in any case prove to be undue, unnecessary or
unreasonable.

This of course is, in each case, a question of fact, and we are of the opinion that the facts
alleged in the complaint are not sufficient to sustain a finding in favor of the contentions of
the petitioner. It is not alleged in the complaint that "dynamite, gunpowder and other
explosives" can in no event be transported with reasonable safety on board steam vessels
engaged in the business of common carriers. It is not alleged that all, or indeed any of the
defendant steamship company's vessels are unsuited for the carriage of such explosives. It
is not alleged that the nature of the business in which the steamship company is engaged is
such as to preclude a finding that a refusal to accept such explosives on any of its vessels
would subject the traffic in such explosives to an undue and unreasonable prejudice and
discrimination.

Plaintiff's contention in this regard is as follows:


In the present case, the respondent company has expressly and publicly renounced
the carriage of explosives, and expressly excluded the same terms from the
business it conducts. This in itself were sufficient, even though such exclusion of
explosives were based on no other ground than the mere whim, caprice or personal
scruple of the carrier. It is unnecessary, however, to indulge in academic discussion
of a moot question, for the decision not a carry explosives rests on substantial
grounds which are self-evident.

We think however that the answer to the question whether such a refusal to carry
explosives involves an unnecessary or unreasonable preference or advantage to any
person, locality or particular kind of traffic or subjects any person, locality or particular to
traffic to an undue or unreasonable prejudice and discrimination is by no means "self-
evident," and that it is a question of fact to be determined by the particular circumstances of
each case.

The words "dynamite, powder or other explosives" are broad enough to include matches,
and other articles of like nature, and may fairly be held to include also kerosene oil, gasoline
and similar products of a highly inflammable and explosive character. Many of these articles
of merchandise are in the nature of necessities in any country open to modern progress and
advancement. We are not fully advised as to the methods of transportation by which they
are made commercially available throughout the world, but certain it is that dynamite,
gunpowder, matches, kerosene oil and gasoline are transported on many vessels sailing
the high seas. Indeed it is a matter of common knowledge that common carriers throughout
the world transport enormous quantities of these explosives, on both land and sea, and
there can be little doubt that a general refusal of the common carriers in any country to
accept such explosives for carriage would involve many persons, firms and enterprises in
utter ruin, and would disastrously affect the interests of the public and the general welfare of
the community.

It would be going to far to say that a refusal by a steam vessel engaged in the business of
transporting general merchandise as a common carrier to accept for carriage a shipment of
matches, solely on the ground of the dangers incident to the explosive quality of this class
of merchandise, would not subject the traffic in matches to an unnecessary, undue or
unreasonable prejudice and discrimination without proof that for some special reason the
particular vessel is not fitted to carry articles of that nature. There may be and doubtless are
some vessels engaged in business as common carriers of merchandise, which for lack of
suitable deck space or storage rooms might be justified in declining to carry kerosene oil,
gasoline, and similar products, even when offered for carriage securely packed in cases;
and few vessels are equipped to transport those products in bulk. But in any case of a
refusal to carry such products which would subject any person, locality or the traffic in such
products would be necessary to hear evidence before making an affirmative finding that
such prejudice or discrimination was or was not unnecessary, undue or unreasonable. The
making of such a finding would involve a consideration of the suitability of the vessel for the
transportation of such products ; the reasonable possibility of danger or disaster resulting
from their transportation in the form and under the conditions in which they are offered for
carriage; the general nature of the business done by the carrier and, in a word, all the
attendant circumstances which might affect the question of the reasonable necessity for the
refusal by the carrier to undertake the transportation of this class of merchandise.
But it is contended that whatever the rule may be as to other explosives, the exceptional
power and violence of dynamite and gunpowder in explosion will always furnish the owner
of a vessel with a reasonable excuse for his failure or refusal to accept them for carriage or
to carry them on board his boat. We think however that even as to dynamite and gunpowder
we would not be justified in making such a holding unaided by evidence sustaining the
proposition that these articles can never be carried with reasonable safety on any vessel
engaged in the business of a common carrier. It is said that dynamite is so erratic an
uncontrollable in its action that it is impossible to assert that it can be handled with safety in
any given case. On the other hand it is contended that while this may be true of some kinds
of dynamite, it is a fact that dynamite can be and is manufactured so as to eliminate any
real danger from explosion during transportation. These are of course questions of fact
upon which we are not qualified to pass judgment without the assistance of expert
witnesses who have made special studies as to the chemical composition and reactions of
the different kinds of dynamite, or attained a thorough knowledge of its properties as a
result of wide experience in its manufacture and transportation.

As we construe the Philippine statute, the mere fact that violent and destructive explosions
can be obtained by the use of dynamite under certain conditions would not be sufficient in
itself to justify the refusal of a vessel, duly licensed as a common carrier of merchandise, to
accept it for carriage, if it can be proven that in the condition in which it is offered for
carriage there is no real danger to the carrier, nor reasonable ground to fear that his vessel
or those on board his vessel will be exposed to unnecessary and unreasonable risk in
transporting it, having in mind the nature of his business as a common carrier engaged in
the coastwise trade in the Philippine Islands, and his duty as a servant of the public
engaged in a public employment. So also, if by the exercise of due diligence and the taking
of unreasonable precautions the danger of explosions can be practically eliminated, the
carrier would not be justified in subjecting the traffic in this commodity to prejudice or
discrimination by proof that there would be a possibility of danger from explosion when no
such precautions are taken.

The traffic in dynamite, gunpowder and other explosives is vitally essential to the material
and general welfare of the people of these Islands. If dynamite, gunpowder and other
explosives are to continue in general use throughout the Philippines, they must be
transported by water from port to port in the various islands which make up the Archipelago.
We are satisfied therefore that the refusal by a particular vessel, engaged as a common
carrier of merchandise in the coastwise trade of the Philippine Islands, to accept any or all
of these explosives for carriage would constitute a violation of the prohibitions against
discriminations penalized under the statute, unless it can be shown by affirmative evidence
that there is so real and substantial a danger of disaster necessarily involved in the carriage
of any or all of these articles of merchandise as to render such refusal a due or a necessary
or a reasonable exercise of prudence and discretion on the part of the shipowner.

The complaint in the case at bar lacking the necessary allegations under this ruling, the
demurrer must be sustained on the ground that the facts alleged do not constitute a cause
of action.

A number of interesting questions of procedure are raised and discussed in the briefs of
counsel. As to all of these questions we expressly reserve our opinion, believing as we do
that in sustaining the demurrer on the grounds indicated in this opinion we are able to
dispose of the real issue involved in the proceedings without entering upon the discussion
of the nice questions which it might have been necessary to pass upon had it appeared that
the facts alleged in the complaint constitute a cause of action.

We think, however, that we should not finally dispose of the case without indicating that
since the institution of these proceedings the enactment of Acts No. 2307 and No. 2362
(creating a Board of Public Utility Commissioners and for other purposes) may have
materially modified the right to institute and maintain such proceedings in this jurisdiction.
But the demurrer having been formallly submitted for judgment before the enactment of
these statutes, counsel have not been heard in this connection. We therefore refrain from
any comment upon any questions which might be raised as to whether or not there may be
another adequate and appropriate remedy for the alleged wrong set forth in the complaint.
Our disposition of the question raised by the demurrer renders that unnecessary at this
time, though it may not be improper to observe that a careful examination of those acts
confirms us in the holding upon which we base our ruling on this demurrer, that is to say
"That whatever may have been the rule at the common law, common carriers in this
jurisdiction cannot lawfully decline to accept a particular class of goods for carriage, to the
prejudice of the traffic in those goods, unless it appears that for some sufficient reason the
discrimination against the traffic in such goods is reasonable and necessary. Mere prejudice
or whim will not suffice. The grounds of the discrimination must be substantial ones, such as
will justify the courts in holding the discrimination to have been reasonable and necessary
under all the circumstances of the case."

Unless an amended complaint be filed in the meantime, let judgment be entered ten days
hereafter sustaining the demurrer and dismissing the complaint with costs against the
complainant, and twenty days thereafter let the record be filed in the archives of original
actions in this court. So ordered.

Arellano, C.J., and Trent, J., concur.