SECOND DIVISION

G.R. No. 210621, April 04, 2016

ALFREDO MANAY, JR., FIDELINO SAN LUIS, ADRIAN SAN LUIS, ANNALEE SAN LUIS, MARK
ANDREW JOSE, MELISSA JOSE, CHARLOTTE JOSE, DAN JOHN DE GUZMAN, PAUL MARK
BALUYOT, AND CARLOS S. JOSE, Petitioners, v. CEBU AIR,INC, Respondent.

DECISION

LEONEN, J.:

The Air Passenger Bill of Rights1 mandates that the airline must inform the passenger in writing of all the conditions and
restrictions in the contract of carriage.2 Purchase of the contract of carriage binds the passenger and imposes reciprocal
obligations on both the airline and the passenger. The airline must exercise extraordinary diligence in the fulfillment of the
terms and conditions of the contract of carriage. The passenger, however, has the correlative obligation to exercise ordinary
diligence in the conduct of his or her affairs.

This resolves a Petition for Review on Certiorari3 assailing the Court of Appeals Decision4 dated December 13, 2013 in CA-
G.R. SP. No. 129817. In the assailed Decision, the Court of Appeals reversed the Metropolitan Trial Court Decision5 dated
December 15, 2011 and the Regional Trial Court Decision6 dated November 6, 2012 and dismissed the Complaint for
Damages filed by petitioners Alfredo Manay, Jr., Fidelino San Luis, Adrian San Luis, Annalee San Luis, Mark Andrew Jose,
Melissa Jose, Charlotte Jose, Dan John De Guzman, Paul Mark Baluyot, and Carlos S. Jose against respondent Cebu Air,
Incorporated (Cebu Pacific).7

On June 13, 2008, Carlos S. Jose (Jose) purchased 20 Cebu Pacific round-trip tickets from Manila to Palawan for himself and
on behalf of his relatives and friends.8 He made the purchase at Cebu Pacific's branch office in Robinsons Galleria.9

Jose alleged that he specified to "Alou," the Cebu Pacific ticketing agent, that his preferred date and time of departure from
Manila to Palawan should be on July 20, 2008 at 0820 (or 8:20 a.m.) and that his preferred date and time for their flight
back to Manila should be on July 22, 2008 at 1615 (or 4:15 p.m.).10 He paid a total amount of P42,957.00 using his credit
card.11 He alleged that after paying for the tickets, Alou printed the tickets,12 which consisted of three (3) pages, and
recapped only the first page to him.13 Since the first page contained the details he specified to Alou, he no longer read the
other pages of the flight information.14

On July 20, 2008, Jose and his 19 companions boarded the 0820 Cebu Pacific flight to Palawan and had an enjoyable stay. 15

On the afternoon of July 22, 2008, the group proceeded to the airport for their flight back to Manila.16 During the processing
of their boarding passes, they were informed by Cebu Pacific personnel that nine (9)17 of them could not be admitted
because their tickets were for the 1005 (or 10:05 a.m.)18 flight earlier that day.19 Jose informed the ground personnel that
he personally purchased the tickets and specifically instructed the ticketing agent that all 20 of them should be on the 4:15
p.m. flight to Manila.20

Upon checking the tickets, they learned that only the first two (2) pages had the schedule Jose specified.21 They were left
with no other option but to rebook their tickets.22 They then learned that their return tickets had been purchased as part of
the promo sales of the airline, and the cost to rebook the flight would be P7,000.00 more expensive than the promo
tickets.23 The sum of the new tickets amounted to P65,000.00.24

They offered to pay the amount by credit card but were informed by the ground personnel that they only accepted
cash.25 They then offered to pay in dollars, since most of them were balikbayans and had the amount on hand, but the airline
personnel still refused.26

Eventually, they pooled enough cash to be able to buy tickets for five (5) of their companions.27
LIABILITY OF A CC ON THE RELEASE OF THE GOODS TO THE CONSIGNEE EVEN WITHOUT THE SURRENDER

OF THE BILL OF LADING

The Supreme Courts decision in Designer Baskets, Inc. v. Air Sea Transport, Inc. and Asia Cargo Container Lines (G.R. No.

184513, March 9, 2016) concerned a situation wherein the unpaid seller sued not only the buyer but also the carrier and its

agent for the payment of the value of the goods, and for the release of the goods without the surrender of the bill of lading.

The carriers agent issued a bill of lading to the unpaid seller who retained the bills of lading pending the payment of the goods

by the buyer. The bill of lading does not contain a provision requiring the carrier to release or deliver the shipment to the

consignee only upon the surrender of the original bill of lading. The buyer and the carrier entered into an Indemnity Agreement

wherein the former obligated the latter to deliver the shipment without the surrender of the bill of lading and in return the buyer

agreed to indemnify the carrier free from any liability as a result of the release of the shipment.

The Supreme Court ruled that the carrier has no liability for releasing the goods to the consignee without the surrender of the

bill of lading. Although the general rule is that upon receipt of the goods, the consignee surrenders the bill of lading, Article 353

of the Code of Commerce provides for two exceptions: when the bill of lading gets lost or for other cause. In either case, the

consignee must provide a recept to the carrier for the goods delivered.

The unpaid sellers retention of the bill of lading coupled with the Indemnity Agreement entered into by the buyer and the

carrier resulted in substantial compliance with Article 353 of the Code of Commerce.

The Supreme Court further held that Articles 1733, 1734 and 1735 of the New Civil Code, which speak of the carriers liability

for the loss, destruction, or deterioration of the goods and the presumption of neglience do not apply. The responsibility of the

carrier under these provisions lasts from the time the goods are unconditionally placed in the possession of, and received by the

carrier for transportation, until the goods are delivered by the carrier to the consignee. In this case, it is undisputed that the

goods were timely delivered to the proper consignee.

Finally, the Supreme Court said that the carrier cannot be held liable for the unpaid value of the goods, as it is not a party to the

contract of sale. The carriers liability if any should be pursuant to the contract of carriage of goods, and the law on the

transportation of the goods, not on the contract of sale between the unpaid seller and buyer of the goods.
 SECOND DIVISION

G.R. No. 194121, July 11, 2016

TORRES-MADRID BROKERAGE, INC., Petitioner, v. FEB MITSUI MARINE INSURANCE CO., INC. AND BENJAMIN P.
MANALASTAS, DOING BUSINESS UNDER THE NAME OF BMT TRUCKING SERVICES, Respondents.

DECISION

BRION, J.:

We resolve the petition for review on certiorari challenging the Court of Appeals' (CA) October 14, 2010 decision in CA-G.R.
CV No. 91829. 1 cha nrob leslaw

The CA affirmed the Regional Trial Court's (RTC) decision in Civil Case No. 01-1596, and found petitioner Torres-Madrid
Brokerage, Inc. (TMBI) and respondent Benjamin P. Manalastas jointly and solidarily liable to respondent FEB Mitsui Marine
Insurance Co., Inc. (Mitsui) for damages from the loss of transported cargo.

Antecedents

On October 7, 2000, a shipment of various electronic goods from Thailand and Malaysia arrived at the Port of Manila for Sony
Philippines, Inc. (Sony). Previous to the arrival, Sony had engaged the services of TMBI to facilitate, process, withdraw, and
deliver the shipment from the port to its warehouse in Binan, Laguna.2 chanrobles law

TMBI - who did not own any delivery trucks - subcontracted the services of Benjamin Manalastas' company, BMT Trucking
Services (BMT), to transport the shipment from the port to the Binan warehouse.3 Incidentally, TMBI notified Sony who had
no objections to the arrangement.4 chanrob leslaw

Four BMT trucks picked up the shipment from the port at about 11:00 a.m. of October 7, 2000. However, BMT could not
immediately undertake the delivery because of the truck ban and because the following day was a Sunday. Thus, BMT
scheduled the delivery on October 9, 2000.

In the early morning of October 9, 2000, the four trucks left BMT's garage for Laguna.5 However, only three trucks arrived at
Sony's Binan warehouse.

At around 12:00 noon, the truck driven by Rufo Reynaldo Lapesura (NSF-391) was found abandoned along the Diversion
Road in Filinvest, Alabang, Muntinlupa City.6 Both the driver and the shipment were missing.

Later that evening, BMT's Operations Manager Melchor Manalastas informed Victor Torres, TMBI's General Manager, of the
development.7 They went to Muntinlupa together to inspect the truck and to report the matter to the police.8 chan roble slaw

Victor Torres also filed a complaint with the National Bureau of Investigation (NBI) against Lapesura for "hijacking." 9 The
complaint resulted in a recommendation by the NBI to the Manila City Prosecutor's Office to prosecute Lapesura for qualified
theft.10
chanro bleslaw

TMBI notified Sony of the loss through a letter dated October 10, 2000,11 It also sent BMT a letter dated March 29, 2001,
demanding payment for the lost shipment. BMT refused to pay, insisting that the goods were "hijacked."

In the meantime, Sony filed an insurance claim with the Mitsui, the insurer of the goods. After evaluating the merits of the
claim, Mitsui paid Sony PHP7,293,386.23 corresponding to the value of the lost goods.12 chan robles law

After being subrogated to Sony's rights, Mitsui sent TMBI a demand letter dated August 30, 2001 for payment of the lost
goods. TMBI refused to pay Mitsui's claim. As a result, Mitsui filed a complaint against TMBI on November 6, 2001,

TMBI, in turn, impleaded Benjamin Manalastas, the proprietor of BMT, as a third-party defendant. TMBI alleged that BMT's
driver, Lapesura, was responsible for the theft/hijacking of the lost cargo and claimed BMT's negligence as the proximate
cause of the loss. TMBI prayed that in the event it is held liable to Mitsui for the loss, it should be reimbursed by BMT,

At the trial, it was revealed that BMT and TMBI have been doing business with each other since the early 80's. It also came
out that there had been a previous hijacking incident involving Sony's cargo in 1997, but neither Sony nor its insurer filed a
complaint against BMT or TMBI.13 chanrobles law

On August 5, 2008, the RTC found TMBI and Benjamin Manalastas jointly and solidarity liable to pay Mitsui PHP 7,293,386.23
as actual damages, attorney's fees equivalent to 25% of the amount claimed, and the costs of the suit.14 The RTC held that
TMBI and Manalastas were common carriers and had acted negligently.

Both TMBI and BMT appealed the RTC's verdict.

TMBI denied that it was a common carrier required to exercise extraordinary diligence. It maintains that it exercised the
diligence of a good father of a family and should be absolved of liability because the truck was "hijacked" and this was a
fortuitous event.

BMT claimed that it had exercised extraordinary diligence over the lost shipment, and argued as well that the loss resulted
from a fortuitous event.

On October 14, 2010, the CA affirmed the RTC's decision but reduced the award of attorney's fees to PHP 200,000.

The CA held: (1) that "hijacking" is not necessarily a fortuitous event because the term refers to the general stealing of cargo
during transit;15 (2) that TMBI is a common carrier engaged in the business of transporting goods for the general public for a
fee; 16 (3) even if the "hijacking" were a fortuitous event, TMBI's failure to observe extraordinary diligence in overseeing the
cargo and adopting security measures rendered it liable for the loss; 17 and (4) even if TMBI had not been negligent in the
handling, transport and the delivery of the shipment, TMBI still breached its contractual obligation to Sony when it failed to
deliver the shipment.18chan rob leslaw

TMBI disagreed with the CA's ruling and filed the present petition on December 3, 2010.

The Arguments

TMBI's Petition

TMBI insists that the hijacking of the truck was a fortuitous event. It contests the CA's finding that neither force nor
intimidation was used in the taking of the cargo. Considering Lapesura was never found, the Court should not discount the
possibility that he was a victim rather than a perpetrator.19 chan robles law

TMBI denies being a common carrier because it does not own a single truck to transport its shipment and it does not offer
transport services to the public for compensation.20 It emphasizes that Sony knew TMBI did not have its own vehicles and
would subcontract the delivery to a third-party.

Further, TMBI now insists that the service it offered was limited to the processing of paperwork attendant to the entry of
Sony's goods. It denies that delivery of the shipment was a part of its obligation.21 chanro bleslaw

TMBI solely blames BMT as it had full control and custody of the cargo when it was lost.22 BMT, as a common carrier, is
presumed negligent and should be responsible for the loss.

BhtT's Comment

BMT insists that it observed the required standard of care.23 Like the petitioner, BMT maintains that the hijacking was a
fortuitous event - a force majeure - that exonerates it from liability.24 It points out that Lapesura has never been seen again
and his fate remains a mystery. BMT likewise argues that the loss of the cargo necessarily showed that the taking was with
the use of force or intimidation.25 cralawre dchan rob leslaw

If there was any attendant negligence, BMT points the finger on TMBI who failed to send a representative to accompany the
shipment.26 BMT further blamed TMBI for the latter's failure to adopt security measures to protect Sony's cargo.27 chan robles law

Mitsui's Comment

Mitsui counters that neither TMBI nor BMT alleged or proved during the trial that the taking of the cargo was accompanied
with grave or irresistible threat, violence, or force.28 Hence, the incident cannot be considered "force majeure" and TMBI
remains liable for breach of contract.

Mitsui emphasizes that TMBI's theory - that force or intimidation must have been used because Lapesura was never found -
was only raised for the first time before this Court.29 It also discredits the theory as a mere conjecture for lack of supporting
evidence.

Mitsui adopts the CA's reasons to conclude that TMBI is a common carrier. It also points out Victor Torres' admission during
the trial that TMBI's brokerage service includes the eventual delivery of the cargo to the consignee.30 chan roble slaw

Mitsui invokes as well the legal presumption of negligence against TMBI, pointing out that TMBI simply entrusted the cargo to
BMT without adopting any security measures despite: (1) a previous hijacking incident, when TMBI lost Sony's cargo; and
(2) TMBI's knowledge that the cargo was worth more than 10 million pesos.31 cha nro bleslaw

Mitsui affirms that TMBI breached the contract of carriage through its negligent handling of the cargo, resulting in its loss.

The Court's Ruling

A brokerage may be considered a common

carrier if it also undertakes to deliver the
goods for its customers

Common carriers are persons, corporations, firms or associations engaged in the business of transporting passengers or
goods or both, by land, water, or air, for compensation, offering their services to the public.32 By the nature of their business
and for reasons of public policy, they are bound to observe extraordinary diligence in the vigilance over the goods and in the
safety of their passengers.33 chanroble slaw

In A.F. Sanchez Brokerage Inc. v. Court of Appeals,34we held that a customs broker - whose principal business is the
preparation of the correct customs declaration and the proper shipping documents - is still considered a common carrier if it
also undertakes to deliver the goods for its customers. The law does not distinguish between one whose principal business
activity is the carrying of goods and one who undertakes this task only as an ancillary activity.35 This ruling has been
reiterated in Schmitz Transport & Brokerage Corp. v. Transport Venture, Inc.,36 Loadmasters Customs Services, Inc. v.
Glodel Brokerage Corporation,37 and Wesrwind Shipping Corporation v.UCPB General Insurance Co., Inc.38 chanroble slaw

Despite TMBI's present denials, we find that the delivery of the goods is an integral, albeit ancillary, part of its brokerage
services. TMBI admitted that it was contracted to facilitate, process, and clear the shipments from the customs authorities,
withdraw them from the pier, then transport and deliver them to Sony's warehouse in Laguna.39 chanrobles law

Further, TMBI's General Manager Victor Torres described the nature of its services as follows:
chanRoble svirtual Lawlib ra ry

ATTY. VIRTUDAZO: Could you please tell the court what is the nature of the business of [TMBI]?

Witness MR. Victor Torres of Torres Madrid: We are engaged in customs brokerage business. We acquire the release
documents from the Bureau of Customs and eventually deliver the cargoes to the consignee's warehouse and we are
engaged in that kind of business, sir. 40

That TMBI does not own trucks and has to subcontract the delivery of its clients' goods, is immaterial. As long as an entity
holds itself to the public for the transport of goods as a business, it is considered a common carrier regardless of whether it
owns the vehicle used or has to actually hire one.41 cha nrob leslaw

Lastly, TMBI's customs brokerage services - including the transport/delivery of the cargo - are available to anyone willing to
pay its fees. Given these circumstances, we find it undeniable that TMBI is a common carrier.

Consequently, TMBI should be held responsible for the loss, destruction, or deterioration of the goods it transports unless it
results from:
chanRoble svirtual Lawlib ra ry

(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.42 chan roblesv irt uallawl ibra ry

For all other cases - such as theft or robbery - a common carrier is presumed to have been at fault or to have acted
negligently, unless it can prove that it observed extraordinary diligence.43 chan rob leslaw

Simply put, the theft or the robbery of the goods is not considered a fortuitous event or a force majeure. Nevertheless, a
common carrier may absolve itself of liability for a resulting loss: (1) if it proves that it exercised extraordinary diligence in
transporting and safekeeping the goods;44 or (2) if it stipulated with the shipper/owner of the goods to limit its liability for
the loss, destruction, or deterioration of the goods to a degree less than extraordinary diligence.45 chan roble slaw

However, a stipulation diminishing or dispensing with the common carrier's liability for acts committed by thieves or robbers
who do not act with grave or irresistible threat, violence, or force is void under Article 1745 of the Civil Code for being
contrary to public policy. 46Jurisprudence, too, has expanded Article 1734's five exemptions. De Guzman v. Court
of Appeals47 interpreted Article 1745 to mean that a robbery attended by "grave or irresistible threat, violence or force" is a
fortuitous event that absolves the common carrier from liability.

In the present case, the shipper, Sony, engaged the services of TMBI, a common carrier, to facilitate the release of its
shipment and deliver the goods to its warehouse. In turn, TMBI subcontracted a portion of its obligation - the delivery of the
cargo - to another common carrier, BMT.

Despite the subcontract, TMBI remained responsible for the cargo. Under Article 1736, a common carrier's extraordinary
responsibility over the shipper's goods lasts from the time these goods are unconditionally placed in the possession of, and
received by, the carrier for transportation, until they are delivered, actually or constructively, by the carrier to the
consignee. 48 chanrobles law
That the cargo disappeared during transit while under the custody of BMT - TMBI's subcontractor - did not diminish nor
terminate TMBFs responsibility over the cargo. Article 1735 of the Civil Code presumes that it was at fault.

Instead of showing that it had acted with extraordinary diligence, TMBI simply argued that it was not a common carrier
bound to observe extraordinary diligence. Its failure to successfully establish this premise carries with it the presumption of
fault or negligence, thus rendering it liable to Sony/Mitsui for breach of contract.

Specifically, TMBI's current theory - that the hijacking was attended by force or intimidation - is untenable.

First, TMBI alleged in its Third Party Complaint against BMT that Lapesura was responsible for hijacking the
shipment.49 Further, Victor Torres filed a criminal complaint against Lapesura with the NBI.50 These actions constitute direct
and binding admissions that Lapesura stole the cargo. Justice and fair play dictate that TMBI should not be allowed to change
its legal theory on appeal.

Second, neither TMBI nor BMT succeeded in substantiating this theory through evidence. Thus, the theory remained an
unsupported allegation no better than speculations and conjectures. The CA therefore correctly disregarded the defense
of force majeure.

TMBI and BMT are not solidarity liable

to Mitsui

We disagree with the lower courts" ruling that TMBI and BMT are solidarity liable to Mitsui for the loss as joint tortfeasors.
The ruling was based on Article 2194 of the Civil Code:
chanRoble svirtual Lawlib ra ry

Art. 2194. The responsibility of two or more persons who are liable for quasi-delictis solidary.

Notably, TMBI's liability to Mitsui does not stem from a quasi-delict (culpa aquiliana) but from its breach of contract (culpa
contractual). The tie that binds TMBI with Mitsui is contractual, albeit one that passed on to Mitsui as a result of TMBI's
contract of carriage with Sony to which Mitsui had been subrogated as an insurer who had paid Sony's insurance claim. The
legal reality that results from this contractual tie precludes the application of quasi-delict based Article 2194.

A third party may recover from a

common carrier for quasi-delict
but must prove actual n egligence

We likewise disagree with the finding that BMT is directly liable to Sony/Mitsui for the loss of the cargo. While it is undisputed
that the cargo was lost under the actual custody of BMT (whose employee is the primary suspect in the hijacking or robbery
of the shipment), no direct contractual relationship existed between Sony/Mitsui and BMT. If at all, Sony/Mitsui's cause of
action against BMT could only arise from quasi-delict, as a third party suffering damage from the action of another due to the
latter's fault or negligence, pursuant to Article 2176 of the Civil Code.51
chan roble slaw

We have repeatedly distinguished between an action for breach of contract {culpa contractual) and an action for quasi-
delict (culpa aquiliana).

In culpa contractual, the plaintiff only needs to establish the existence of the contract and the obligor's failure to perform his
obligation. It is not necessary for the plaintiff to prove or even allege that the obligor's non- compliance was due to fault or
negligence because Article 1735 already presumes that the common carrier is negligent. The common carrier can only free
itself from liability by proving that it observed extraordinary diligence. It cannot discharge this liability by shifting the blame
on its agents or servants.52 chanrobles l aw

On the other hand, the plaintiff in culpa aquiliana must clearly establish the defendant's fault or negligence because this is
the very basis of the action.53 Moreover, if the injury to the plaintiff resulted from the act or omission of the defendant's
employee or servant, the defendant may absolve himself by proving that he observed the diligence of a good father of a
family to prevent the damage,54 chan roble slaw

In the present case, Mitsui's action is solely premised on TMBl's breach of contract. Mitsui did not even sue BMT, much less
prove any negligence on its part. If BMT has entered the picture at all, it 'is because TMBI sued it for reimbursement for the
liability that TMBI might incur from its contract of carriage with Sony/Mitsui. Accordingly, there is no basis to directly hold
BMT liable to Mitsui for quasi-delict.

BMT is liable to TMBI for breach

of their contract of carriage

We do not hereby say that TMBI must absorb the loss. By subcontracting the cargo delivery to BMT, TMBI entered into its
own contract of carriage with a fellow common carrier.

The cargo was lost after its transfer to BMT's custody based on its contract of carriage with TMBI. Following Article 1735,
BMT is presumed to be at fault. Since BMT failed to prove that it observedextraordinary diligence in the performance of its
obligation to TMBI, it is liable to TMBI for breach of their contract of carriage.

In these lights, TMBI is liable to Sony (subrogated by Mitsui) for breaching the contract of carriage. In turn, TMBI is entitled
to reimbursement from BMT due to the latter's own breach of its contract of carriage with TMBI. The proverbial buck stops
with BMT who may either: (a) absorb the loss, or (b) proceed after its missing driver, the suspected culprit, pursuant to
Article 2181,55 cha nrob leslaw

WHEREFORE, the Court hereby ORDERS petitioner Torres- Madrid Brokerage, Inc. to pay the respondent FEB Mitsui Marine
Insurance Co., Inc. the following:
chanRoble svirtual Lawlib ra ry

a. Actual damages in the amount of PHP 7,293,386.23 plus legal interest from the time the complaint was filed until it
is fully paid;

b. Attorney's fees in the amount of PHP 200,000.00; and cralawlawl ibra ry

c. Costs of suit.

Respondent Benjamin P. Manalastas is in turn ORDERED to REIMBURSE Torres-Madrid Brokerage, Inc. of the above-
mentioned amounts.

SO ORDERED
De Guzman v. CA
Facts:

Respondent Ernesto Cendana was a junk dealer. He buys scrap materials and brings those that he
gathered to Manila for resale using 2 six-wheeler trucks. On the return trip to Pangasinan, respondent
would load his vehicle with cargo which various merchants wanted delivered, charging fee lower than
the commercial rates. Sometime in November 1970, petitioner Pedro de Guzman contracted with
respondent for the delivery of 750 cartons of Liberty Milk. On December 1, 1970, respondent loaded
the cargo. Only 150 boxes were delivered to petitioner because the truck carrying the boxes was
hijacked along the way. Petitioner commenced an action claiming the value of the lost merchandise.
Petitioner argues that respondent, being a common carrier, is bound to exercise extraordinary
diligence, which it failed to do. Private respondent denied that he was a common carrier, and so he
could not be held liable for force majeure. The trial court ruled against the respondent, but such was
reversed by the Court of Appeals.

Issues:

(1) Whether or not private respondent is a common carrier

(2) Whether private respondent is liable for the loss of the goods

Held:

(1) Article 1732 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. 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 backhauling 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. A certificate of public convenience is not a requisite for
the incurring of liability under the Civil Code provisions governing common carriers.

(2) 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:

a. Flood, storm, earthquake, lightning, or other natural disaster or calamity;

b. Act of the public enemy in war, whether international or civil;

c. Act or omission of the shipper or owner of the goods;

d. The character of the goods or defects in the packing or in the containers; and
e. Order or act of competent public authority."

The hijacking of the carrier's truck - does not fall within any of the five (5) categories of exempting
causes listed in Article 1734. 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. 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." 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.
First Philippine Industrial Corp. vs. CA
Facts:

Petitioner is a grantee of a pipeline concession under Republic Act No. 387. Sometime in January
1995, petitioner applied for mayors permit in Batangas. However, the Treasurer required petitioner
to pay a local tax based on gross receipts amounting to P956,076.04. In order not to hamper its
operations, petitioner paid the taxes for the first quarter of 1993 amounting to P239,019.01 under
protest. On January 20, 1994, petitioner filed a letter-protest to the City Treasurer, claiming that it is
exempt from local tax since it is engaged in transportation business. The respondent City Treasurer
denied the protest, thus, petitioner filed a complaint before the Regional Trial Court of Batangas for
tax refund. Respondents assert that pipelines are not included in the term common carrier which
refers solely to ordinary carriers or motor vehicles. The trial court dismissed the complaint, and such
was affirmed by the Court of Appeals.

Issue:

Whether a pipeline business is included in the term common carrier so as to entitle the petitioner to
the exemption

Held:

Article 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.

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.
 Transportation Case Digest: Calvo V. UCPB Gen
Insurance Co. (2002)
FACTS:
At the time material to this case, Transorient Container Terminal Services, Inc. (TCTSI) owned
by Virgines Calvo 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.
July 14, 1990: arrived in Manila on board "M/V Hayakawa Maru" and later
on unloaded from the vessel to the custody of the arrastre operator, Manila Port
Services, Inc
July 23 to July 25, 1990: Calvo withdrew the cargo from the arrastre operator and
delivered it to SMC's warehouse in Ermita, Manila
July 25, 1990: 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
SMC collected payment from UCPB the total damage of P93,112 under its insurance
contract
UCPB brought suit against Calvo as subrogee of SMC
Calvo: Art. 1734(4) The character of the goods or defects in the packing or in the
containers
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 9 days notwithstanding the fact that some of the containers were
deformed, cracked, or otherwise damaged
Trial Court: Calvo liable
CA: affirmed
ISSUE: W/N Calvo can be exempted from liability under Art. 1734(4)

HELD: NO. CA AFFIRMED.

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
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
 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.
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"
when Calvo'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
Calvo 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 exercised due care in the handling
F Sanchez Brokerage vs CA and FGU Insurance
(Dec 21, 2004)

Facts:
AF Sanchez is engaged in a broker business wherein its main job is to calculate customs duty,
fees and charges as well as storage fees for the cargoes. Part also of the services being given by
AF Sanchez is the delivery of the shipment to the consignee upon the instruction of the shipper.

Wyett engaged the services of AF Sanchez where the latter delivered the shipment to Hizon
Laboratories upon instruction of Wyett. Upon inspection, it was found out that at least 44
cartons containing contraceptives were in bad condition. Wyett claimed insurance from FGU. FGU
exercising its right of subrogation claims damages against AF Sanchez who delivered the
damaged goods. AF Sanchez contended that it is not a common carrier but a brokerage firm.

Issue:
Is AF Sanchez a common carrier?

Held:
SC held that Art 1732 of the Civil Code in defining common carrier does not distinguish whether
the activity is undertaken as a principal activity or merely as an ancillary activity. In this case,
while it is true that AF Sanchez is principally engaged as a broker, it cannot be denied from the
evidence presented that part of the services it offers to its customers is the delivery of the goods
to their respective consignees.

Addendum:
AF Sanchez claimed that the proximate cause of the damage is improper packing. Under the CC,
improper packing of the goods is an exonerating circumstance. But in this case, the SC held that
though the goods were improperly packed, since AF Sanchez knew of the condition and yet it
accepted the shipment without protest or reservation, the defense is deemed waived.

Foul Bill of Lading reservation or protest on a shipment or goods improperly packed.

Schmitz Transport & Brokerage Corporation vs. Transport Venture, Inc. (458
SCRA 557)

FACTS:
Petitioner, who was in charge of securing requisite clearances, receive the cargoes from the
shipside and deliver it to the consignee Little Giant Steel Pipe Corporation warehouse at Cainta,
Rizal, hired the services of respondent Transport Venture Incorporation (TVI)s tugboat for the
hot rolled steel sheets in coil. Coils were unloaded to the barge but there was no tugboat to pull
the barge to the pier. Due to strong waves caused by approaching storm, the barge was
abandoned. Later, the barge capsized washing 37 coils into the sea. Consignee was executed a
subrogation receipt by Industrial Insurance after the formers filing of formal claim. Industrial
Insurance filed a complaint against both petitioner and respondent herein. The trial court held
that petitioner and respondent TVI were jointly and severally liable for the subrogation.

1) Whether the loss of the cargoes was due to a fortuitous event, independent of any act of
negligence on the part of petitioner Black Sea and TVI, and
(2) If there was negligence, whether liability for the loss may attach to Black Sea, petitioner and
TVI.

NO. In order, to be considered a fortuitous event: (1) the cause of the unforeseen and
unexpected occurrence, or the failure of the debtor to comply with his obligation, must be
independent of human will; (2) it must be impossible to foresee the event which constitute
the caso fortuito, or if it can be foreseen it must be impossible to avoid; (3) the occurrence must
be such as to render it impossible for the debtor to fulfill his obligation in any manner; and (4)
the obligor must be free from any participation in the aggravation of the injury resulting to the
creditor.

RT. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and
those who in any manner contravene the tenor thereof, are liable for damages.
ART. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is
required by the nature of the obligation and corresponds with the circumstances of the persons, of the
time and of the place. When negligence shows bad faith, the provisions of articles 1171 and 2202,
paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be observed in the performance, that which
is expected of a good father of a family shall be required.
Was the reasonable care and caution which an ordinarily prudent person would have used in the same
situation exercised by TVI?[52]
This Court holds not.
TVIs failure to promptly provide a tugboat did not only increase the risk that might have been reasonably
anticipated during the shipside operation, but was the proximate cause of the loss. A man of ordinary
prudence would not leave a heavily loaded barge floating for a considerable number of hours, at such a
precarious time, and in the open sea, knowing that the barge does not have any power of its own and is
totally defenseless from the ravages of the sea. That it was nighttime and, therefore, the members of the
crew of a tugboat would be charging overtime pay did not excuse TVI from calling for one such tugboat.
As for petitioner, for it to be relieved of liability, it should, following Article 1739 [53] of the Civil Code, prove
that it exercised due diligence to prevent or minimize the loss, before, during and after the occurrence of
the storm in order that it may be exempted from liability for the loss of the goods.
While petitioner sent checkers[54] and a supervisor[55] on board the vessel to counter-check the operations
of TVI, it failed to take all available and reasonable precautions to avoid the loss. After noting that TVI
failed to arrange for the prompt towage of the barge despite the deteriorating sea conditions, it should
have summoned the same or another tugboat to extend help, but it did not.
CASE DIGEST (Transportation Law): Philippine Charter Insurance Corp. vs. Unknown
Owner
PHILIPPINE CHARTER INSURANCE CORPORATION vs. UNKNOWN OWNER OF THE VESSEL M/V
NATIONAL HONOR, NATIONAL SHIPPING CORPORATION OF THE PHILIPPINES and INTERNATIONAL
CONTAINER SERVICES, INC.
[G.R. No. 161833. July 8, 2005]

FACTS:
Petitioner Philippine Charter Insurance Corporation (PCIC) is the insurer of a shipment on board the vessel
M/V National Honor, represented in the Philippines by its agent, National Shipping Corporation of the
Philippines (NSCP).

The M/V National Honor arrived at the Manila International Container Terminal (MICT). 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. 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, 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. They inspected the hatches, checked the cargo and found it in apparent
good condition. Claudio Cansino, the stevedore of the ICTSI, placed two sling cables on each end of Crate No.
1. No sling cable was fastened on the mid-portion of the crate. In Dauzs experience, this was a normal
procedure. 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, resulting in extensive damage to the shipment.

PCIC paid the damage, and as subrogee, filed a case against M/V National Honor, NSCP and ICTSI. Both
RTC and CA dismissed the complaint.

ISSUE:
Whether or not the presumption of negligence is applicable in the instant case.

HELD:
No.
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. he
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.

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.] >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. 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.

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. 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.

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. On the other hand, inferior means of poor quality, mediocre, or second rate. A
thing may be of inferior quality but not necessarily defective. In other words, defectiveness is not synonymous
with inferiority.

xxx

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. x x
Lea mer industries v Malayan insurance

FACTS: Ilian Silica Mining entered into a contract of carriage with Lea Mer Industries, Inc., for the shipment of 900
metric tons of silica sand valued at P565,000.5 Consigned to Vulcan Industrial and Mining Corporation, the cargo
was to be transported from Palawan to Manila. On October 25, 1991, the silica sand was placed on board Judy VII,
a barge leased by Lea Mer.6 During the voyage, the vessel sank, resulting in the loss of the cargo.7

Malayan Insurance Co., Inc., as insurer, paid Vulcan the value of the lost cargo.8 To recover the amount paid and in
the exercise of its right of subrogation, Malayan demanded reimbursement from Lea Mer, which refused to comply.
Consequently, Malayan instituted a Complaint with the Regional Trial Court (RTC) of Manila on September 4, 1992,
for the collection of P565,000 representing the amount that respondent had paid Vulcan.9

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

ISSUE: whether petitioner is liable for the loss of the cargo,

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

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

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

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

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

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

The submission of the Philippine Coast Guards Certificate of Inspection of Judy VII, dated July 31, 1991, did not
conclusively prove that the barge was seaworthy.42 The regularity of the issuance of the Certificate is disputably
presumed.43 It could be contradicted by competent evidence, which respondent offered. Moreover, this evidence did
not necessarily take into account the actual condition of
the vessel at the time of the commencement of the voyage.44
 Cebu Salvage Corporation (CSC) vs Philippine Home Assurance Corp., (PHAC
G.R. No. 150403
January 25, 2007
FACTS:
On November 12, 1984, CSC & Maria Christina Chemicals Industries, Inc., (MCCII) entered into a voyage charter
wherein CSC was to load 800-1,100 metric tons of silica quartz on board the M/T Espiritu Santo at Ayungon,
Negros Occidental for transport to and discharge at Tagoloan, Misamis Oriental to consigned Ferrochrome Phils.,
Inc. Pursuant to the contract, on December 23, 1984, CSC received & loaded 1,100 metric tons of silica quartz on
board the M/T Espiritu Santo which left Ayungon for Tagoloan the next day.
However, the shipment never reached its destination because the M/T Espiritu Santo sank in the afternoon of
December 24, 1984 off the beach of Opol, Misamis Oriental, resulting in the total loss of the cargo.
MCCII filed a claim for the loss of the shipment with its insurer, PHAC. PHAC paid the claim in the amount of
P211,500 and was surrogated to MCCIIs rights. It thereafter filed a case in the RTC against CSC for reimbursement
of the amount it paid MCCII.
However, CSC claims no liability insisting that the agreement was merely a contract of hire wherein MCCII hired
the vessel from its owner, ALS Timber Enterprises. Not being the owner of the M/T Espiritu Santo, petitioner did
not have control over the vessel, its master & crew. Thus, it could not allegedly be held liable for the loss of the
shipment caused by the sinking of a ship it didnt own.
ISSUES:
1. Whether there is a contract of carriage between CSC and MCCII.
2. Whether CSC is a common carrier despite not being the owner of the vessel it used.
3. Whether the bill of lading should prevail over the voyage charter as the contract of carriage between the
parties.
4. Whether MCCII should be held liable for its own loss
5. Whether a carrier that enters into a contract of carriage is not liable to the charterer/shipper if it does
not own the vessel it chooses to use.
HELD:
1. Yes. The cargo was loaded on board the vessel; loss/non-delivery of the cargo was proven; and
petitioner failed to prove that it exercised extraordinary diligence to prevent such loss or that it was due to
some casualty or force majeure. The voyage charter here being a contract of affreightment, the carrier
was answerable for the loss of the goods received for transportation.
2. CSC was the one which contracted with MCCII for the transport of the cargo. It had control over what
vessel it would use. All throughout its dealings with MCCII, it represented itself as a common carrier. The
fact that it did not own the vessel it decided to use to consummate the contract of carriage did not negate
its character & duties as a common carrier. The MCCII could not be reasonably expected to inquire about
the ownership of the vessels which petitioner carrier offered to utilize. It is very difficult & often impossible
for the general public to enforce its rights of action under a contract of carriage if it should be required to
know who the actual owner of the vehicle is. In this case, the voyage charter itself denominated the
petitioner as the owner/operator of the vessel.
3. No. The bill of lading was merely a receipt issued by ALS to evidence the fact that the goods had been
received for transportation. It was not signed by MCCII, as in fact it was simply signed by the supercargo
of ALS. This is consistent with the fact that MCCII did not contract directly with ALS. While it is true that a
bill of lading may serve as the contract of carriage between the parties, it cannot prevail over the express
provision of the voyage charter that MCCII and petitioner executed.

4. No. It deserves scant consideration that the voyage charter stipulated that cargo insurance was for the
charterers account. This meant that the charterer would take care of having the goods insured. It could
not exculpate the carrier from liability for the breach of its contract of carriage. The law prohibits it and
condemns it as unjust & contrary to public policy.

5. The idea proposed by CSC is preposterous & dangerous. MCCII never dealt with ALS and yet
petitioner insists that MCCII should sue ALS for reimbursement for its loss. Certainly, to permit a common
carrier to escape its responsibility for the goods it agreed to transport (by expedient of alleging non-
ownership of the vessel it employed) would radically derogate from the carriers duty of extraordinary
diligence. It would also open the door to collusion between the carrier & the supposed owner and to the
possible shifting of liability from the carrier to one without any financial capability to answer for the
resulting damages.
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 2/3 x [80 - age of deceased at the time of

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

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 necessary living
Capacity 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
andP100,000 as exemplary damages.38 1avvphi1

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.