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. 3Riders to the aforesaid charterparty 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 plaintiffappellee to adduce sufficient evidence to prove the negligence of the
defendant carrier as alleged in its complaint. It is an old and well settled rule
that if the plaintiff, upon whom rests the burden of proving his cause of
action, fails to show in a satisfactory manner the facts upon which he bases
his claim, the defendant is under no obligation to prove his exception or
defense (Moran, Commentaries on the Rules of Court, Volume 6, p. 2, citing
Belen v. Belen, 13 Phil. 202).
But, the record shows that the plaintiff-appellee dismally failed to prove the
basis of its cause of action, i.e. the alleged negligence of defendant carrier.
It appears that the plaintiff was under the impression that it did not have to
establish defendant's negligence. Be that as it may, contrary to the trial
court's finding, the record of the instant case discloses ample evidence
showing that defendant carrier was not negligent in performing its obligation
. . . 18 (emphasis supplied).
Petitioner PPI appeals to us by way of a petition for review assailing the decision of the Court of
Appeals. Petitioner theorizes that the Home Insurance case has no bearing on the present
controversy because the issue raised therein is the validity of a stipulation in the charter-party
delimiting the liability of the shipowner for loss or damage to goods cause by want of due
deligence on its part or that of its manager to make the vessel seaworthy in all respects, and not
whether the presumption of negligence provided under the Civil Code applies only to common
carriers and not to private carriers. 19 Petitioner further argues that since the possession and
control of the vessel remain with the shipowner, absent any stipulation to the contrary, such
shipowner should made liable for the negligence of the captain and crew. In fine, PPI faults the
appellate court in not applying the presumption of negligence against respondent carrier, and
instead shifting the onus probandi on the shipper to show want of due deligence on the part of
the carrier, when he was not even at hand to witness what transpired during the entire voyage.
As earlier stated, the primordial issue here is whether a common carrier becomes a private
carrier by reason of a charter-party; in the negative, whether the shipowner in the instant case
was able to prove that he had exercised that degree of diligence required of him under the law.
It is said that etymology is the basis of reliable judicial decisions in commercial cases. This being
so, we find it fitting to first define important terms which are relevant to our discussion.
A "charter-party" is defined as a contract by which an entire ship, or some principal part thereof,
is let by the owner to another person for a specified time or use; 20 a contract of affreightment by
which the owner of a ship or other vessel lets the whole or a part of her to a merchant or other
person for the conveyance of goods, on a particular voyage, in consideration of the payment of
freight; 21 Charter parties are of two types: (a) contract of affreightment which involves the use of
shipping space on vessels leased by the owner in part or as a whole, to carry goods for others;
and, (b) charter by demise or bareboat charter, by the terms of which the whole vessel is let to
the charterer with a transfer to him of its entire command and possession and consequent
control over its navigation, including the master and the crew, who are his servants. Contract of
affreightment may either be time charter, wherein the vessel is leased to the charterer for a fixed

period of time, or voyage charter, wherein the ship is leased for a single voyage. 22 In both
cases, the charter-party provides for the hire of vessel only, either for a determinate period of
time or for a single or consecutive voyage, the shipowner to supply the ship's stores, pay for the
wages of the master and the crew, and defray the expenses for the maintenance of the ship.
Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the Civil
Code. 23 The definition extends to carriers either by land, air or water which hold themselves out
as ready to engage in carrying goods or transporting passengers or both for compensation as a
public employment and not as a casual occupation. The distinction between a "common or
public carrier" and a "private or special carrier" lies in the character of the business, such that if
the undertaking is a single transaction, not a part of the general business or occupation,
although involving the carriage of goods for a fee, the person or corporation offering such
service is a private carrier. 24
Article 1733 of the New Civil Code mandates that common carriers, by reason of the nature of
their business, should observe extraordinary diligence in the vigilance over the goods they
carry. 25 In the case of private carriers, however, the exercise of ordinary diligence in the carriage
of goods will suffice. Moreover, in the case of loss, destruction or deterioration of the goods,
common carriers are presumed to have been at fault or to have acted negligently, and the
burden of proving otherwise rests on them. 26 On the contrary, no such presumption applies to
private carriers, for whosoever alleges damage to or deterioration of the goods carried has the
onus of proving that the cause was the negligence of the carrier.
It is not disputed that respondent carrier, in the ordinary course of business, operates as a
common carrier, transporting goods indiscriminately for all persons. When petitioner chartered
the vessel M/V "Sun Plum", the ship captain, its officers and compliment were under the employ
of the shipowner and therefore continued to be under its direct supervision and control. Hardly
then can we charge the charterer, a stranger to the crew and to the ship, with the duty of caring
for his cargo when the charterer did not have any control of the means in doing so. This is
evident in the present case considering that the steering of the ship, the manning of the decks,
the determination of the course of the voyage and other technical incidents of maritime
navigation were all consigned to the officers and crew who were screened, chosen and hired by
the shipowner. 27
It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of
the whole or portion of a vessel by one or more persons, provided the charter is limited to the
ship only, as in the case of a time-charter or voyage-charter. It is only when the charter includes
both the vessel and its crew, as in a bareboat or demise that a common carrier becomes private,
at least insofar as the particular voyage covering the charter-party is concerned. Indubitably, a
shipowner in a time or voyage charter retains possession and control of the ship, although her
holds may, for the moment, be the property of the charterer. 28
Respondent carrier's heavy reliance on the case of Home Insurance Co. v. American Steamship
Agencies, supra, is misplaced for the reason that the meat of the controversy therein was the
validity of a stipulation in the charter-party exempting the shipowners from liability for loss due to
the negligence of its agent, and not the effects of a special charter on common carriers. At any
rate, the rule in the United States that a ship chartered by a single shipper to carry special cargo
is not a common carrier, 29 does not find application in our jurisdiction, for we have observed that
the growing concern for safety in the transportation of passengers and /or carriage of goods by
sea requires a more exacting interpretation of admiralty laws, more particularly, the rules
governing common carriers.
We quote with approval the observations of Raoul Colinvaux, the learned barrister-at-law

30

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

in which a ship is used to convey the goods of one and of several persons.
Where the ship herself is let to a charterer, so that he takes over the charge
and control of her, the case is different; the shipowner is not then a carrier.
But where her services only are let, the same grounds for imposing a strict
responsibility exist, whether he is employed by one or many. The master
and the crew are in each case his servants, the freighter in each case is
usually without any representative on board the ship; the same
opportunities for fraud or collusion occur; and the same difficulty in
discovering the truth as to what has taken place arises . . .
In an action for recovery of damages against a common carrier on the goods shipped, the
shipper or consignee should first prove the fact of shipment and its consequent loss or damage
while the same was in the possession, actual or constructive, of the carrier. Thereafter, the
burden of proof shifts to respondent to prove that he has exercised extraordinary diligence
required by law or that the loss, damage or deterioration of the cargo was due to fortuitous
event, or some other circumstances inconsistent with its liability. 31
To our mind, respondent carrier has sufficiently overcome, by clear and convincing proof,
the prima faciepresumption of negligence.
The master of the carrying vessel, Captain Lee Tae Bo, in his deposition taken on 19 April 1977
before the Philippine Consul and Legal Attache in the Philippine Embassy in Tokyo, Japan,
testified that before the fertilizer was loaded, the four (4) hatches of the vessel were cleaned,
dried and fumigated. After completing the loading of the cargo in bulk in the ship's holds, the
steel pontoon hatches were closed and sealed with iron lids, then covered with three (3) layers
of serviceable tarpaulins which were tied with steel bonds. The hatches remained close and
tightly sealed while the ship was in transit as the weight of the steel covers made it impossible
for a person to open without the use of the ship's boom. 32
It was also shown during the trial that the hull of the vessel was in good condition, foreclosing
the possibility of spillage of the cargo into the sea or seepage of water inside the hull of the
vessel. 33 When M/V "Sun Plum" docked at its berthing place, representatives of the consignee
boarded, and in the presence of a representative of the shipowner, the foreman, the stevedores,
and a cargo surveyor representing CSCI, opened the hatches and inspected the condition of the
hull of the vessel. The stevedores unloaded the cargo under the watchful eyes of the shipmates
who were overseeing the whole operation on rotation basis. 34
Verily, the presumption of negligence on the part of the respondent carrier has been efficaciously
overcome by the showing of extraordinary zeal and assiduity exercised by the carrier in the care
of the cargo. This was confirmed by respondent appellate court thus
. . . Be that as it may, contrary to the trial court's finding, the record of the
instant case discloses ample evidence showing that defendant carrier was
not negligent in performing its obligations. Particularly, the following
testimonies of plaintiff-appellee's own witnesses clearly show absence of
negligence by the defendant carrier; that the hull of the vessel at the time of
the discharge of the cargo was sealed and nobody could open the same
except in the presence of the owner of the cargo and the representatives of
the vessel (TSN, 20 July 1977, p. 14); that the cover of the hatches was
made of steel and it was overlaid with tarpaulins, three layers of tarpaulins
and therefore their contents were protected from the weather (TSN, 5 April
1978, p. 24); and, that to open these hatches, the seals would have to be
broken, all the seals were found to be intact (TSN, 20 July 1977, pp. 15-16)
(emphasis supplied).

The period during which private respondent was to observe the degree of diligence required of it
as a public carrier began from the time the cargo was unconditionally placed in its charge after
the vessel's holds were duly inspected and passed scrutiny by the shipper, up to and until the
vessel reached its destination and its hull was reexamined by the consignee, but prior to
unloading. This is clear from the limitation clause agreed upon by the parties in the Addendum to
the standard "GENCON" time charter-party which provided for an F.I.O.S., meaning, that the
loading, stowing, trimming and discharge of the cargo was to be done by the charterer, free from
all risk and expense to the carrier. 35 Moreover, a shipowner is liable for damage to the cargo
resulting from improper stowage only when the stowing is done by stevedores employed by him,
and therefore under his control and supervision, not when the same is done by the consignee or
stevedores under the employ of the latter. 36
Article 1734 of the New Civil Code provides that common carriers are not responsible for the
loss, destruction or deterioration of the goods if caused by the charterer of the goods or defects
in the packaging or in the containers. The Code of Commerce also provides that all losses and
deterioration which the goods may suffer during the transportation by reason of fortuitous
event, force majeure, or the inherent defect of the goods, shall be for the account and risk of the
shipper, and that proof of these accidents is incumbent upon the carrier. 37 The carrier,
nonetheless, shall be liable for the loss and damage resulting from the preceding causes if it is
proved, as against him, that they arose through his negligence or by reason of his having failed
to take the precautions which usage has established among careful persons. 38
Respondent carrier presented a witness who testified on the characteristics of the fertilizer
shipped and the expected risks of bulk shipping. Mr. Estanislao Chupungco, a chemical
engineer working with Atlas Fertilizer, described Urea as a chemical compound consisting mostly
of ammonia and carbon monoxide compounds which are used as fertilizer. Urea also contains
46% nitrogen and is highly soluble in water. However, during storage, nitrogen and ammonia do
not normally evaporate even on a long voyage, provided that the temperature inside the hull
does not exceed eighty (80) degrees centigrade. Mr. Chupungco further added that in unloading
fertilizer in bulk with the use of a clamped shell, losses due to spillage during such operation
amounting to one percent (1%) against the bill of lading is deemed "normal" or "tolerable." The
primary cause of these spillages is the clamped shell which does not seal very tightly. Also, the
wind tends to blow away some of the materials during the unloading process.
The dissipation of quantities of fertilizer, or its daterioration in value, is caused either by an
extremely high temperature in its place of storage, or when it comes in contact with water. When
Urea is drenched in water, either fresh or saline, some of its particles dissolve. But the salvaged
portion which is in liquid form still remains potent and usable although no longer saleable in its
original market value.
The probability of the cargo being damaged or getting mixed or contaminated with foreign
particles was made greater by the fact that the fertilizer was transported in "bulk," thereby
exposing it to the inimical effects of the elements and the grimy condition of the various pieces of
equipment used in transporting and hauling it.
The evidence of respondent carrier also showed that it was highly improbable for sea water to
seep into the vessel's holds during the voyage since the hull of the vessel was in good condition
and her hatches were tightly closed and firmly sealed, making the M/V "Sun Plum" in all respects
seaworthy to carry the cargo she was chartered for. If there was loss or contamination of the
cargo, it was more likely to have occurred while the same was being transported from the ship to
the dump trucks and finally to the consignee's warehouse. This may be gleaned from the
testimony of the marine and cargo surveyor of CSCI who supervised the unloading. He
explained that the 18 M/T of alleged "bar order cargo" as contained in their report to PPI was just
an approximation or estimate made by them after the fertilizer was discharged from the vessel
and segregated from the rest of the cargo.

The Court notes that it was in the month of July when the vessel arrived port and unloaded her
cargo. It rained from time to time at the harbor area while the cargo was being discharged
according to the supply officer of PPI, who also testified that it was windy at the waterfront and
along the shoreline where the dump trucks passed enroute to the consignee's warehouse.
Indeed, we agree with respondent carrier that bulk shipment of highly soluble goods like fertilizer
carries with it the risk of loss or damage. More so, with a variable weather condition prevalent
during its unloading, as was the case at bar. This is a risk the shipper or the owner of the goods
has to face. Clearly, respondent carrier has sufficiently proved the inherent character of the
goods which makes it highly vulnerable to deterioration; as well as the inadequacy of its
packaging which further contributed to the loss. On the other hand, no proof was adduced by the
petitioner showing that the carrier was remise in the exercise of due diligence in order to
minimize the loss or damage to the goods it carried.
WHEREFORE, the petition is DISMISSED. The assailed decision of the Court of Appeals, which
reversed the trial court, is AFFIRMED. Consequently, Civil Case No. 98623 of the then Court of
the First Instance, now Regional Trial Court, of Manila should be, as it is hereby DISMISSED.
Costs against petitioner.
SO ORDERED.

G.R. No. 114167 July 12, 1995

COASTWISE
vs.
COURT
OF
APPEALS
COMPANY, respondents.

LIGHTERAGE
and

the

CORPORATION, petitioner,
PHILIPPINE

GENERAL

INSURANCE

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 ofHome 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.

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:

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. . . . .

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. . . .

. . . . 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. . . .

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.

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.

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:

G.R. No. 102316 June 30, 1997

VALENZUELA
HARDWOOD
AND
INDUSTRIAL
SUPPLY
INC., petitioner,
vs.
COURT OF APPEALS AND SEVEN BROTHERS SHIPPING CORPORATION, respondents.

PANGANIBAN, J.:
Is a stipulation in a charter party that the "(o)wners shall not be responsible for loss, split, shortlanding, breakages and any kind of damages to the cargo" 1 valid? This is the main question
raised in this petition for review assailing the Decision of Respondent Court of Appeals 2 in CAG.R. No. CV-20156 promulgated on October 15, 1991. The Court of Appeals modified the
judgment of the Regional Trial Court of Valenzuela, Metro Manila, Branch 171, the dispositive
portion of which reads:

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.

WHEREFORE, Judgment is hereby rendered ordering South Sea Surety

and Insurance Co., Inc. to pay plaintiff the sum of TWO MILLION PESOS
(P2,000,000.00) representing the value of the policy of the lost logs with
legal interest thereon from the date of demand on February 2, 1984 until the
amount is fully paid or in the alternative, defendant Seven Brothers Shipping
Corporation to pay plaintiff the amount of TWO MILLION PESOS
(2,000,000.00) representing the value of lost logs plus legal interest from
the date of demand on April 24, 1984 until full payment thereof; the
reasonable attorney's fees in the amount equivalent to five (5) percent of the
amount of the claim and the costs of the suit.
Plaintiff is hereby ordered to pay defendant Seven Brothers Shipping
Corporation the sum of TWO HUNDRED THIRTY THOUSAND PESOS
(P230,000.00) representing the balance of the stipulated freight charges.

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.

Defendant South Sea Surety and Insurance Company's counterclaim is

hereby dismissed.
In its assailed Decision, Respondent Court of Appeals held:
WHEREFORE, the appealed judgment is hereby AFFIRMED except in so
far (sic) as the liability of the Seven Brothers Shipping Corporation to the
plaintiff is concerned which is hereby REVERSED and SET ASIDE. 3
The Facts
The factual antecedents of this case as narrated in the Court of Appeals Decision are as follows:
It appears that on 16 January 1984, plaintiff (Valenzuela Hardwood and
Industrial Supply, Inc.) entered into an agreement with the defendant Seven
Brothers (Shipping Corporation) whereby the latter undertook to load on
board its vessel M/V Seven Ambassador the former's lauan round logs
numbering 940 at the port of Maconacon, Isabela for shipment to Manila.

On 20 January 1984, plaintiff insured the logs against loss and/or damage
with defendant South Sea Surety and Insurance Co., Inc. for P2,000,000.00
and the latter issued its Marine Cargo Insurance Policy No. 84/24229 for
P2,000,000.00 on said date.
On 24 January 1984, the plaintiff gave the check in payment of the premium
on the insurance policy to Mr. Victorio Chua.
In the meantime, the said vessel M/V Seven Ambassador sank on 25
January 1984 resulting in the loss of the plaintiff's insured logs.
On 30 January 1984, a check for P5,625.00 (Exh. "E") to cover payment of
the premium and documentary stamps due on the policy was tendered due
to the insurer but was not accepted. Instead, the South Sea Surety and
Insurance Co., Inc. cancelled the insurance policy it issued as of the date of
the inception for non-payment of the premium due in accordance with
Section 77 of the Insurance Code.
On 2 February 1984, plaintiff demanded from defendant South Sea Surety
and Insurance Co., Inc. the payment of the proceeds of the policy but the
latter denied liability under the policy. Plaintiff likewise filed a formal claim
with defendant Seven Brothers Shipping Corporation for the value of the lost
logs but the latter denied the claim.

E. The lower court erred in not awarding defendant-appellant Seven

Brothers Corporation its counter-claim for attorney's fees.
F. The lower court erred in not dismissing the complaint against Seven
Brothers Shipping Corporation.
Defendant-appellant South Sea Surety and Insurance Co., Inc. assigns the following errors:
A. The trial court erred in holding that Victorio Chua was an agent of
defendant-appellant South Sea Surety and Insurance Company, Inc. and
likewise erred in not holding that he was the representative of the insurance
broker Columbia Insurance Brokers, Ltd.
B. The trial court erred in holding that Victorio Chua received
compensation/commission on the premiums paid on the policies issued by
the defendant-appellant South Sea Surety and Insurance Company, Inc.
C. The trial court erred in not applying Section 77 of the Insurance Code.
D. The trial court erred in disregarding the "receipt of payment clause"
attached to and forming part of the Marine Cargo Insurance Policy No.
84/24229.

After due hearing and trial, the court a quo rendered judgment in favor of
plaintiff and against defendants. Both defendants shipping corporation and
the surety company appealed.

E. The trial court in disregarding the statement of account or bill stating the
amount of premium and documentary stamps to be paid on the policy by the
plaintiff-appellee.

Defendant-appellant Seven Brothers Shipping Corporation impute (sic) to

the court a quo the following assignment of errors, to wit:

F. The trial court erred in disregarding the endorsement of cancellation of

the policy due to non-payment of premium and documentary stamps.

A. The lower court erred in holding that the proximate cause of the sinking
of the vessel Seven Ambassadors, was not due to fortuitous event but to the
negligence of the captain in stowing and securing the logs on board,
causing the iron chains to snap and the logs to roll to the portside.

G. The trial court erred in ordering defendant-appellant South Sea Surety

and Insurance Company, Inc. to pay plaintiff-appellee P2,000,000.00
representing value of the policy with legal interest from 2 February 1984
until the amount is fully paid,

B. The lower court erred in declaring that the non-liability clause of the
Seven Brothers Shipping Corporation from logs (sic) of the cargo stipulated
in the charter party is void for being contrary to public policy invoking article
1745 of the New Civil Code.

H. The trial court erred in not awarding to the defendant-appellant the

attorney's fees alleged and proven in its counterclaim.

C. The lower court erred in holding defendant-appellant Seven Brothers

Shipping Corporation liable in the alternative and ordering/directing it to pay
plaintiff-appellee the amount of two million (2,000,000.00) pesos
representing the value of the logs plus legal interest from date of demand
until fully paid.
D. The lower court erred in ordering defendant-appellant Seven Brothers
Shipping Corporation to pay appellee reasonable attorney's fees in the
amount equivalent to 5% of the amount of the claim and the costs of the
suit.

The primary issue to be resolved before us is whether defendants shipping

corporation and the surety company are liable to the plaintiff for the latter's
lost logs. 4
The Court of Appeals affirmed in part the RTC judgment by sustaining the liability of South Sea
Surety and Insurance Company ("South Sea"), but modified it by holding that Seven Brothers
Shipping Corporation ("Seven Brothers") was not liable for the lost cargo. 5 In modifying the RTC
judgment, the respondent appellate court ratiocinated thus:
It appears that there is a stipulation in the charter party that the ship owner
would be exempted from liability in case of loss.

The court a quo erred in applying the provisions of the Civil Code on
common carriers to establish the liability of the shipping corporation. The
provisions on common carriers should not be applied where the carrier is
not acting as such but as a private carrier.
Under American jurisprudence, a common carrier undertaking to carry a
special cargo or chartered to a special person only, becomes a private
carrier.
As a private carrier, a stipulation exempting the owner from liability even for
the negligence of its agent is valid (Home Insurance Company, Inc. vs.
American Steamship Agencies, Inc., 23 SCRA 24).
The shipping corporation should not therefore be held liable for the loss of
the logs. 6
South Sea and herein Petitioner Valenzuela Hardwood and Industrial Supply, Inc. ("Valenzuela")
filed separate petitions for review before this Court. In a Resolution dated June 2, 1995, this
Court
denied
the
petition
of
South
Sea. 7 There the Court found no reason to reverse the factual findings of the trial court and the
Court of Appeals that Chua was indeed an authorized agent of South Sea when he received
Valenzuela's premium payment for the marine cargo insurance policy which was thus binding on
the insurer. 8
The Court is now called upon to resolve the petition for review filed by Valenzuela assailing the
CA Decision which exempted Seven Brothers from any liability for the lost cargo.
The Issue
Petitioner Valenzuela's arguments resolve around a single issue: "whether or not respondent
Court (of Appeals) committed a reversible error in upholding the validity of the stipulation in the
charter party executed between the petitioner and the private respondent exempting the latter
from liability for the loss of petitioner's logs arising from the negligence of its (Seven Brothers')
captain." 9

The trial court deemed the charter party stipulation void for being contrary to public
policy, 13 citing Article 1745 of the Civil Code which provides:
Art. 1745. Any of the following or similar stipulations shall be considered
unreasonable, unjust and contrary to public policy:
(1) That the goods are transported at the risk of the owner or shipper;
(2) That the common carrier will not be liable for any loss, destruction, or
deterioration of the goods;
(3) That the common carrier need not observe any diligence in the custody
of the goods;
(4) That the common carrier shall exercise a degree of diligence less than
that of a good father of a family, or of a man of ordinary prudence in the
vigilance over the movables transported;
(5) That the common carrier shall not be responsible for the acts or
omissions of his or its employees;
(6) That the common 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;
(7) That the common carrier is not responsible for the loss, destruction, or
deterioration of goods on account of the defective condition of the car,
vehicle, ship, airplane or other equipment used in the contract of carriage.
Petitioner Valenzuela adds that the stipulation is void for being contrary to Articles 586 and 587
of the Code of Commerce 14 and Articles 1170 and 1173 of the Civil Code. Citing Article 1306
and paragraph 1, Article 1409 of the Civil Code, 15 petitioner further contends that said stipulation
"gives no duty or obligation to the private respondent to observe the diligence of a good father of
a family in the custody and transportation of the cargo."

The Court's Ruling

The petition is not meritorious.

The Court is not persuaded. As adverted to earlier, it is undisputed that private respondent had
acted as a private carrier in transporting petitioner's lauan logs. Thus, Article 1745 and other
Civil Code provisions on common carriers which were cited by petitioner may not be applied
unless expressly stipulated by the parties in their charter party. 16

Validity of Stipulation is Lis Mota

The charter party between the petitioner and private respondent stipulated that the "(o)wners
shall not be responsible for loss, split, short-landing, breakages and any kind of damages to the
cargo." 10 The validity of this stipulation is the lis mota of this case.
It should be noted at the outset that there is no dispute between the parties that the proximate
cause of the sinking of M/V Seven Ambassadors resulting in the loss of its cargo was the
"snapping of the iron chains and the subsequent rolling of the logs to the portside due to the
negligence of the captain in stowing and securing the logs on board the vessel and not due to
fortuitous event." 11 Likewise undisputed is the status of Private Respondent Seven Brothers as
a private carrier when it contracted to transport the cargo of Petitioner Valenzuela. Even the
latter admits this in its petition. 12

In a contract of private carriage, the parties may validly stipulate that responsibility for the cargo
rests solely on the charterer, exempting the shipowner from liability for loss of or damage to the
cargo caused even by the negligence of the ship captain. Pursuant to Article 1306 17 of the Civil
Code, such stipulation is valid because it is freely entered into by the parties and the same is not
contrary to law, morals, good customs, public order, or public policy. Indeed, their contract of
private carriage is not even a contract of adhesion. We stress that in a contract of private
carriage, the parties may freely stipulate their duties and obligations which perforce would be
binding on them. Unlike in a contract involving a common carrier, private carriage does not
involve the general public. Hence, the stringent provisions of the Civil Code on common carriers
protecting the general public cannot justifiably be applied to a ship transporting commercial
goods as a private carrier. Consequently, the public policy embodied therein is not contravened

by stipulations in a charter party that lessen or remove the protection given by law in contracts
involving common carriers.
The issue posed in this case and the arguments raised by petitioner are not novel; they were
resolved long ago by this Court in Home Insurance Co. vs. American Steamship Agencies,
Inc. 18 In that case, the trial court similarly nullified a stipulation identical to that involved in the
present case for being contrary to public policy based on Article 1744 of the Civil Code and
Article 587 of the Code of Commerce. Consequently, the trial court held the shipowner liable for
damages resulting for the partial loss of the cargo. This Court reversed the trial court and laid
down, through Mr. Justice Jose P. Bengzon, the following well-settled observation and doctrine:

that said rule was "reasonable" and proceeded to apply it in the resolution of that case.
Petitioner miserably failed to show such circumstances or arguments which would necessitate a
departure from a well-settled rule. Consequently, our ruling in said case remains a binding
judicial precedent based on the doctrine of stare decisis and Article 8 of the Civil Code which
provides that "(j)udicial decisions applying or interpreting the laws or the Constitution shall form
part of the legal system of the Philippines."
In fine, the respondent appellate court aptly stated that "[in the case of] a private carrier, a
stipulation exempting the owner from liability even for the negligence of its agents is valid." 24
Other Arguments

The provisions of our Civil Code on common carriers were taken from
Anglo-American law. Under American jurisprudence, a common carrier
undertaking to carry a special cargo or chartered to a special person only,
becomes a private carrier. As a private carrier, a stipulation exempting the
owner from liability for the negligence of its agent is not against public
policy, and is deemed valid.

On the basis of the foregoing alone, the present petition may already be denied; the Court,
however, will discuss the other arguments of petitioner for the benefit and satisfaction of all
concerned.
Articles 586 and 587, Code of Commerce

Such doctrine We find reasonable. The Civil Code provisions on common

carriers should not be applied where the carrier is not acting as such but as
a private carrier. The stipulation in the charter party absolving the owner
from liability for loss due to the negligence of its agent would be void if the
strict public policy governing common carriers is applied. Such policy has
no force where the public at large is not involved, as in this case of a ship
totally chartered for the used of a single party. 19(Emphasis supplied.)
Indeed, where the reason for the rule ceases, the rule itself does not apply. The general public
enters into a contract of transportation with common carriers without a hand or a voice in the
preparation thereof. The riding public merely adheres to the contract; even if the public wants to,
it cannot submit its own stipulations for the approval of the common carrier. Thus, the law on
common carriers extends its protective mantle against one-sided stipulations inserted in tickets,
invoices or other documents over which the riding public has no understanding or, worse, no
choice. Compared to the general public, a charterer in a contract of private carriage is not
similarly situated. It can and in fact it usually does enter into a free and voluntary
agreement. In practice, the parties in a contract of private carriage can stipulate the carrier's
obligations and liabilities over the shipment which, in turn, determine the price or consideration
of the charter. Thus, a charterer, in exchange for convenience and economy, may opt to set
aside the protection of the law on common carriers. When the charterer decides to exercise this
option, he takes a normal business risk.
Petitioner contends that the rule in Home Insurance is not applicable to the present case
because it "covers only a stipulation exempting a private carrier from liability for the negligence
of his agent, but it does not apply to a stipulation exempting a private carrier like private
respondent from the negligence of his employee or servant which is the situation in this
case." 20 This contention of petitioner is bereft of merit, for it raises a distinction without any
substantive difference. The case Home Insurance specifically dealt with "the liability of the
shipowner for acts or negligence of its captain and crew" 21 and a charter party stipulation which
"exempts the owner of the vessel from any loss or damage or delay arising from any other
source, even from the neglect or fault of the captain or crew or some other person employed by
the
owner
on
board, for whose acts the owner would ordinarily be liable except for said
paragraph." 22 Undoubtedly, Home Insurance is applicable to the case at bar.
The naked assertion of petitioner that the American rule enunciated in Home Insurance is not
the rule in the Philippines 23 deserves scant consideration. The Court there categorically held

Petitioner Valenzuela insists that the charter party stipulation is contrary to Articles 586 and 587
of the Code of Commerce which confer on petitioner the right to recover damages from the
shipowner and ship agent for the acts or conduct of the captain. 25 We are not persuaded.
Whatever rights petitioner may have under the aforementioned statutory provisions were waived
when it entered into the charter party.
Article 6 of the Civil Code provides that "(r)ights may be waived, unless the waiver is contrary to
law, public order, public policy, morals, or good customs, or prejudicial to a person with a right
recognized by law." As a general rule, patrimonial rights may be waived as opposed to rights to
personality and family rights which may not be made the subject of waiver. 26 Being patently and
undoubtedly patrimonial, petitioner's right conferred under said articles may be waived. This, the
petitioner did by acceding to the contractual stipulation that it is solely responsible or any
damage to the cargo, thereby exempting the private carrier from any responsibility for loss or
damage thereto. Furthermore, as discussed above, the contract of private carriage binds
petitioner and private respondent alone; it is not imbued with public policy considerations for the
general public or third persons are not affected thereby.
Articles 1170 and 1173, Civil Code
Petitioner likewise argues that the stipulation subject of this controversy is void for being
contrary to Articles 1170 and 1173 of the Civil Code 27 which read:
Art. 1170. Those who in the performance of their obligations are guilty of
fraud, negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages
Art. 1173. The fault or negligence of the obligor consists in the omission of
that diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time and of the
place. When negligence shows bad faith, the provisions of articles 1171 and
2201, shall apply.

If the law does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be
required.
The Court notes that the foregoing articles are applicable only to the obligor or the one with an
obligation to perform. In the instant case, Private Respondent Seven Brothers is not an obligor in
respect of the cargo, for this obligation to bear the loss was shifted to petitioner by virtue of the
charter party. This shifting of responsibility, as earlier observed, is not void. The provisions cited
by petitioner are, therefore, inapplicable to the present case.

petitioner. Private respondent submits that petitioner is not legally entitled to collect twice for a
single loss. 41 In view of the above disquisition upholding the validity of the questioned charter
party stipulation and holding that petitioner may not recover from private respondent, the present
issue is moot and academic. It suffices to state that the Resolution of this Court dated June 2,
1995 42 affirming the liability of South Sea does not, by itself, necessarily preclude the petitioner
from proceeding against private respondent. An aggrieved party may still recover the deficiency
for the person causing the loss in the event the amount paid by the insurance company does not
fully cover the loss. Article 2207 of the Civil Code provides:
Art. 2207. If the plaintiff's property has been insured, and he has received
indemnity for the insurance company for the injury or loss arising out of the
wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person
who has violated the contract. If the amount paid by the insurance company
does not fully cover the injury or loss, the aggrieved party shall be entitled to
recover the deficiency form the person causing the loss or injury.

Moreover, the factual milieu of this case does not justify the application of the second paragraph
of Article 1173 of the Civil Code which prescribes the standard of diligence to be observed in the
event the law or the contract is silent. In the instant case, Article 362 of the Code of
Commerce 28 provides the standard of ordinary diligence for the carriage of goods by a carrier.
The standard of diligence under this statutory provision may, however, be modified in a contract
of private carriage as the petitioner and private respondent had done in their charter party.
Cases Cited by Petitioner Inapplicable
Petitioner cites Shewaram vs. Philippine Airlines, Inc. 29 which, in turn, quoted Juan Ysmael &
Co. vs. Gabino Barreto & Co. 30 and argues that the public policy considerations stated there visa-vis contractual stipulations limiting the carrier's liability be applied "with equal force" to this
case. 31 It also cites Manila Railroad Co. vs. Compaia Transatlantica 32 and contends that
stipulations exempting a party from liability for damages due to negligence "should not be
countenanced" and should be "strictly construed" against the party claiming its benefit. 33 We
disagree.
The cases of Shewaram and Ysmael both involve a common carrier; thus, they necessarily
justify the application of such policy considerations and concomitantly stricter rules. As already
discussed above, the public policy considerations behind the rigorous treatment of common
carriers are absent in the case of private carriers. Hence, the stringent laws applicable to
common carriers are not applied to private carries. The case of Manila Railroad is also
inapplicable because the action for damages there does not involve a contract for transportation.
Furthermore, the defendant therein made a "promise to use due care in the lifting operations"
and, consequently, it was "bound by its undertaking"'; besides, the exemption was intended to
cover accidents due to hidden defects in the apparatus or other unforseeable occurrences" not
caused by its "personal negligence." This promise was thus constructed to make sense together
with the stipulation against liability for damages. 34 In the present case, we stress that the private
respondent made no such promise. The agreement of the parties to exempt the shipowner from
responsibility for any damage to the cargo and place responsibility over the same to petitioner is
the lone stipulation considered now by this Court.
Finally, petitioner points to Standard Oil Co. of New York vs. Lopez Costelo, 35 Walter A. Smith &
Co. vs.Cadwallader Gibson Lumber Co., 36 N. T . Hashim and Co. vs. Rocha and Co., 37 Ohta
Development Co. vs. Steamship "Pompey" 38 and Limpangco Sons vs. Yangco Steamship
Co. 39 in support of its contention that the shipowner be held liable for damages. 40 These
however are not on all fours with the present case because they do not involve a similar factual
milieu or an identical stipulation in the charter party expressly exempting the shipowner form
responsibility for any damage to the cargo.
Effect of the South Sea Resolution
In its memorandum, Seven Brothers argues that petitioner has no cause of action against it
because this Court has earlier affirmed the liability of South Sea for the loss suffered by

WHEREFORE, premises considered, the petition is hereby DENIED for its utter failure to show
any reversible error on the part of Respondent Court. The assailed Decision is AFFIRMED.
SO ORDERED.

G.R. No. 131166 September 30, 1999

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

On March 22, 1988, the board of marine inquiry in BMI Case No. 659-87 after investigation
found that the MT Vector, its registered operator Francisco Soriano, and its owner and actual
operator Vector Shipping Corporation, were at fault and responsible for its collision with MV
Doa Paz. 6

PARDO, J.:

On February 13, 1989, Teresita Caezal and Sotera E. Caezal, Sebastian Caezal's wife and
mother respectively, filed with the Regional Trial Court, Branch 8, Manila, a complaint for
"Damages Arising from Breach of Contract of Carriage" against Sulpicio Lines, Inc. (hereafter
Sulpicio). Sulpicio, in turn, filed a third party complaint against Francisco Soriano, Vector
Shipping Corporation and Caltex (Philippines), Inc. Sulpicio alleged that Caltex chartered MT
Vector with gross and evident bad faith knowing fully well that MT Vector was improperly
manned, ill-equipped, unseaworthy and a hazard to safe navigation; as a result, it rammed
against MV Doa Paz in the open sea setting MT Vector's highly flammable cargo ablaze.

Is the charterer of a sea vessel liable for damages resulting from a collision between the
chartered vessel and a passenger ship?

On September 15, 1992, the trial court rendered decision dismissing, the third party complaint
against petitioner. The dispositive portion reads:

When MT Vector left the port of Limay, Bataan, on December 19, 1987 carrying petroleum
products of Caltex (Philippines), Inc. (hereinafter Caltex) no one could have guessed that it
would collide with MV Doa Paz, killing almost all the passengers and crew members of both
ships, and thus resulting in one of the country's worst maritime disasters.

WHEREFORE, judgment is hereby rendered in favor of plaintiffs and

against defendant-3rd party plaintiff Sulpicio Lines, Inc., to wit:

The petition before us seeks to reverse the Court of Appeals decision 1 holding petitioner jointly
liable with the operator of MT Vector for damages when the latter collided with Sulpicio Lines,
Inc.'s passenger ship MV Doa Paz.

1. For the death of Sebastian E. Caezal and his 11-year old daughter
Corazon G. Caezal, including loss of future earnings of said Sebastian,
moral and exemplary damages, attorney's fees, in the total amount of P
1,241,287.44 and finally;
2. The statutory costs of the proceedings.

The facts are as follows:

On December 19, 1987, motor tanker MT Vector left Limay, Bataan, at about 8:00 p.m., enroute
to Masbate, loaded with 8,800 barrels of petroleum products shipped by petitioner Caltex. 2 MT
Vector is a tramping motor tanker owned and operated by Vector Shipping Corporation, engaged
in the business of transporting fuel products such as gasoline, kerosene, diesel and crude oil.
During that particular voyage, the MT Vector carried on board gasoline and other oil products
owned
by
Caltex
by
virtue
of
a
charter
contract
between
them. 3

Likewise, the 3rd party complaint is hereby DISMISSED for want of

substantiation and with costs against the 3rd party plaintiff.
IT IS SO ORDERED.
DONE IN MANILA, this 15th day of September 1992.
ARSENIO

On December 20, 1987, at about 6:30 a.m., the passenger ship MV Doa Paz left the port of
Tacloban headed for Manila with a complement of 59 crew members including the master and
his officers, and passengers totaling 1,493 as indicated in the Coast Guard Clearance. 4 The MV
Doa Paz is a passenger and cargo vessel owned and operated by Sulpicio Lines, Inc. plying
the route of Manila/ Tacloban/ Catbalogan/ Manila/ Catbalogan/ Tacloban/ Manila, making trips
twice a week.
At about 10:30 p.m. of December 20, 1987, the two vessels collided in the open sea within the
vicinity of Dumali Point between Marinduque and Oriental Mindoro. All the crewmembers of MV
Doa Paz died, while the two survivors from MT Vector claimed that they were sleeping at the
time of the incident.1wphi1.nt
The MV Doa Paz carried an estimated 4,000 passengers; many indeed, were not in the
passenger manifest. Only 24 survived the tragedy after having been rescued from the burning
waters by vessels that responded to distress calls. 5 Among those who perished were public
school teacher Sebastian Caezal (47 years old) and his daughter Corazon Caezal (11 years
old), both unmanifested passengers but proved to be on board the vessel.

On appeal to the Court of Appeals interposed by Sulpicio Lines, Inc., on April 15, 1997, the Court
of Appeal modified the trial court's ruling and included petitioner Caltex as one of the those liable
for damages. Thus:
WHEREFORE, in view of all the foregoing, the judgment rendered by the
Regional Trial Court is hereby MODIFIED as follows:
WHEREFORE, defendant Sulpicio Lines, Inc., is ordered to pay the heirs of
Sebastian E. Caezal and Corazon Caezal:
1. Compensatory damages for the death of Sebastian E. Caezal and
Corazon Caezal the total amount of ONE HUNDRED THOUSAND PESOS
(P100,000);

2. Compensatory damages representing the unearned income of Sebastian

E. Caezal, in the total amount of THREE HUNDRED SIX THOUSAND
FOUR HUNDRED EIGHTY (P306,480.00) PESOS;
3. Moral damages in the amount of THREE HUNDRED THOUSAND
PESOS (P300,000.00);
4. Attorney's fees in the concept of actual damages in the amount of FIFTY
THOUSAND PESOS (P50,000.00);
5. Costs of the suit.
Third party defendants Vector Shipping Co. and Caltex (Phils.), Inc. are held
equally liable under the third party complaint to reimburse/indemnify
defendant Sulpicio Lines, Inc. of the above-mentioned damages, attorney's
fees and costs which the latter is adjudged to pay plaintiffs, the same to be
shared half by Vector Shipping Co. (being the vessel at fault for the
collision) and the other half by Caltex (Phils.), Inc. (being the charterer that
negligently caused the shipping of combustible cargo aboard an
unseaworthy vessel).
SO ORDERED.

A contract of affreightment may be either time charter, wherein the leased vessel is leased to the
charterer for a fixed period of time, or voyage charter, wherein the ship is leased for a single
voyage. In both cases, the charter-party provides for the hire of the vessel only, either for a
determinate period of time or for a single or consecutive voyage, the ship owner to supply the
ship's store, pay for the wages of the master of the crew, and defray the expenses for the
maintenance of the ship. 12
Under a demise or bareboat charter on the other hand, the charterer mans the vessel with his
own people and becomes, in effect, the owner for the voyage or service stipulated, subject to
liability for damages caused by negligence.
If the charter is a contract of affreightment, which leaves the general owner in possession of the
ship as owner for the voyage, the rights and the responsibilities of ownership rest on the owner.
The charterer is free from liability to third persons in respect of the ship. 13
Second: MT Vector is a common carrier
Charter parties fall into three main categories: (1) Demise or bareboat, (2) time charter, (3)
voyage charter. Does a charter party agreement turn the common carrier into a private one? We
need to answer this question in order to shed light on the responsibilities of the parties.

In this case, the charter party agreement did not convert the common carrier into a private
carrier. The parties entered into a voyage charter, which retains the character of the vessel as a
common carrier.
JORGE S. IMPERIAL
In Planters Products, Inc. vs. Court of Appeals, 14 we said:
Associate Justice

WE CONCUR:
RAMON U. MABUTAS, JR. PORTIA ALIO HERMACHUELOS
Associate Justice Associate Justice. 8
Hence, this petition.

It is therefore imperative that a public carrier shall remain as such,

notwithstanding the charter of the whole portion of a vessel of one or more
persons, provided the charter is limited to the ship only, as in the case of a
time-charter or the 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 ship-owner in a time or voyage
charter retains possession and control of the ship, although her holds may,
for the moment, be the property of the charterer.
Later, we ruled in Coastwise Lighterage Corporation vs. Court of Appeals: 15

We find the petition meritorious.

First: The charterer has no liability for
damages under Philippine Maritime laws.

Although a charter party may transform a common carrier into a private one,
the same however is not true in a contract of affreightment . . .

The respective rights and duties of a shipper and the carrier depends not on whether the carrier
is public or private, but on whether the contract of carriage is a bill of lading or equivalent
shipping documents on the one hand, or a charter party or similar contract on the other. 9

A common carrier is a person or corporation whose regular business is to carry passengers or

property for all persons who may choose to employ and to remunerate him. 16 MT Vector fits the
definition of a common carrier under Article 1732 of the Civil Code. In Guzman vs. Court of
Appeals, 17 we ruled:

Petitioner and Vector entered into a contract of affreightment, also known as a voyage charter. 10
A charter party is a contract by which an entire ship, or some principal part thereof, is let by the
owner to another person for a specified time or use; a contract of affreightment is one by which
the owner of a ship or other vessel lets the whole or part of her to a merchant or other person for
the conveyance of goods, on a particular voyage, in consideration of the payment of freight. 11

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

Art. 1732. Common carriers are persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers for

passengers or goods or both, by land, water, or air for compensation,

offering their services to the public.
The
above
article
makes
no
distinction
between
one
whose principal business activity is the carrying of persons or goods or
both, and one who does such carrying only as an ancillary activity (in local
idiom, as "a sideline"). Article 1732 also carefully avoids making any
distinction between a person or enterprise offering transportation service on
a regular or scheduled basis and one offering such services on
an occasional, episodic or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the "general public," i.e.,
the general community or population, and one who offers services or solicits
business only from a narrow segment of the general population. We think
that Article 1733 deliberately refrained from making such distinctions.
It appears to the Court that private respondent is properly characterized as
a common carrier even though he merely "back-hauled" goods for other
merchants from Manila to Pangasinan, although such backhauling was
done on a periodic, occasional rather than regular or scheduled manner,
and even though 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 the fee frequently fell below
commercial freight rates is not relevant here.
Under the Carriage of Goods by Sea Act :
Sec. 3. (1) The carrier shall be bound before and at the beginning of the
voyage to exercise due diligence to
(a) Make the ship seaworthy;
(b) Properly man, equip, and supply the ship;
xxx xxx xxx
Thus, the carriers are deemed to warrant impliedly the seaworthiness of the ship. For a vessel to
be seaworthy, it must be adequately equipped for the voyage and manned with a sufficient
number of competent officers and crew. The failure of a common carrier to maintain in
seaworthy condition the vessel involved in its contract of carriage is a clear breach of its duty
prescribed in Article 1755 of the Civil Code. 18
The provisions owed their conception to the nature of the business of common carriers. This
business is impressed with a special public duty. The public must of necessity rely on the care
and skill of common carriers in the vigilance over the goods and safety of the passengers,
especially because with the modern development of science and invention, transportation has
become more rapid, more complicated and somehow more hazardous. 19 For these reasons, a
passenger or a shipper of goods is under no obligation to conduct an inspection of the ship and
its crew, the carrier being obliged by law to impliedly warrant its seaworthiness.
This aside, we now rule on whether Caltex is liable for damages under the Civil Code.
Third: Is Caltex liable for damages under the Civil Code?

We rule that it is not.

Sulpicio argues that Caltex negligently shipped its highly combustible fuel cargo aboard an
unseaworthy vessel such as the MT Vector when Caltex:
1. Did not take steps to have M/T Vector's certificate of inspection and coastwise license
renewed;
2. Proceeded to ship its cargo despite defects found by Mr. Carlos Tan of Bataan Refinery
Corporation;
3. Witnessed M/T Vector submitting fake documents and certificates to the Philippine Coast
Guard.
Sulpicio further argues that Caltex chose MT Vector transport its cargo despite these
deficiencies.
1. The master of M/T Vector did not posses the required Chief Mate license to command and
navigate the vessel;
2. The second mate, Ronaldo Tarife, had the license of a Minor Patron, authorized to navigate
only in bays and rivers when the subject collision occurred in the open sea;
3. The Chief Engineer, Filoteo Aguas, had no license to operate the engine of the vessel;
4. The vessel did not have a Third Mate, a radio operator and lookout; and
5. The vessel had a defective main engine. 20
As basis for the liability of Caltex, the Court of Appeals relied on Articles 20 and 2176 of the Civil
Code, which provide:
Art. 20. Every person who contrary to law, willfully or negligently causes
damage to another, shall indemnify the latter for the same.
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.
And what is negligence?
The Civil Code provides:
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 Article 1171 and
2201 paragraph 2, shall apply.

If the law does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be
required.
In Southeastern College, Inc. vs. Court of Appeals, 21 we said that negligence, as commonly
understood, is conduct which naturally or reasonably creates undue risk or harm to others. It
may be the failure to observe that degree of care, precaution, and vigilance, which the
circumstances justly demand, or the omission to do something which ordinarily regulate the
conduct of human affairs, would do.
The charterer of a vessel has no obligation before transporting its cargo to ensure that the
vessel it chartered complied with all legal requirements. The duty rests upon the common carrier
simply for being engaged in "public service." 22 The Civil Code demands diligence which is
required by the nature of the obligation and that which corresponds with the circumstances of
the persons, the time and the place. Hence, considering the nature of the obligation between
Caltex and MT Vector, liability as found by the Court of Appeals is without basis.1wphi1.nt

A: On the first week of December, I again made a

follow-up from Mr. Abalos, and said they were going to
send me a copy as soon as possible, sir. 24
xxx xxx xxx
Q: What did you do with the C.I.?
A: We did not insist on getting a copy of the C.I. from
Mr. Abalos on the first place, because of our long
business relation, we trust Mr. Abalos and the fact that
the vessel was able to sail indicates that the documents
are in order. . . . 25
On cross examination

The relationship between the parties in this case is governed by special laws. Because of the
implied warranty of seaworthiness, 23 shippers of goods, when transacting with common carriers,
are not expected to inquire into the vessel's seaworthiness, genuineness of its licenses and
compliance with all maritime laws. To demand more from shippers and hold them liable in case
of failure exhibits nothing but the futility of our maritime laws insofar as the protection of the
public in general is concerned. By the same token, we cannot expect passengers to inquire
every time they board a common carrier, whether the carrier possesses the necessary papers or
that all the carrier's employees are qualified. Such a practice would be an absurdity in a
business where time is always of the essence. Considering the nature of transportation
business, passengers and shippers alike customarily presume that common carriers possess all
the legal requisites in its operation.
Thus, the nature of the obligation of Caltex demands ordinary diligence like any other shipper in
shipping his cargoes.
A cursory reading of the records convinces us that Caltex had reasons to believe that MT Vector
could legally transport cargo that time of the year.
Atty. Poblador: Mr. Witness, I direct your attention to this portion here
containing the entries here under "VESSEL'S DOCUMENTS
1. Certificate of Inspection No. 1290-85, issued
December 21, 1986, and Expires December 7, 1987",
Mr. Witness, what steps did you take regarding the
impending expiry of the C.I. or the Certificate of
Inspection No. 1290-85 during the hiring of MT Vector?
Apolinario Ng: At the time when I extended the
Contract, I did nothing because the tanker has a valid
C.I. which will expire on December 7, 1987 but on the
last week of November, I called the attention of Mr.
Abalos to ensure that the C.I. be renewed and Mr.
Abalos, in turn, assured me they will renew the same.
Q: What happened after that?

Atty. Sarenas: This being the case, and this being an

admission by you, this Certificate of Inspection has
expired on December 7. Did it occur to you not to let the
vessel sail on that day because of the very approaching
date of expiration?
Apolinar Ng: No sir, because as I said before, the
operation Manager assured us that they were able to
secure a renewal of the Certificate of Inspection and
that
they
will
in
time
submit
us
a
copy. 26
Finally, on Mr. Ng's redirect examination:
Atty. Poblador: Mr. Witness, were you aware of the
pending expiry of the Certificate of Inspection in the
coastwise license on December 7, 1987. What was
your assurance for the record that this document was
renewed by the MT Vector?
Atty. Sarenas: . . .
Atty. Poblador: The certificate of Inspection?
A: As I said, firstly, we trusted Mr. Abalos as he is a long
time business partner; secondly, those three years; they
were allowed to sail by the Coast Guard. That are some
that make me believe that they in fact were able to
secure the necessary renewal.
Q: If the Coast Guard clears a vessel to sail, what
would that mean?
Atty. Sarenas: Objection.

Court: He already answered that in the cross

examination to the effect that if it was allowed, referring
to MV Vector, to sail, where it is loaded and that it was
scheduled for a destination by the Coast Guard, it
means that it has Certificate of Inspection extended as
assured to this witness by Restituto Abalos. That in no
case MV Vector will be allowed to sail if the Certificate
of inspection is, indeed, not to be extended. That was
his repeated explanation to the cross-examination. So,
there is no need to clarify the same in the re-direct
examination. 27
Caltex and Vector Shipping Corporation had been doing business since 1985, or for about two
years before the tragic incident occurred in 1987. Past services rendered showed no reason for
Caltex to observe a higher degree of diligence.
Clearly, as a mere voyage charterer, Caltex had the right to presume that the ship was
seaworthy as even the Philippine Coast Guard itself was convinced of its seaworthiness. All
things considered, we find no legal basis to hold petitioner liable for damages.
As Vector Shipping Corporation did not appeal from the Court of Appeals' decision, we limit our
ruling to the liability of Caltex alone. However, we maintain the Court of Appeals' ruling insofar as
Vector is concerned.
WHEREFORE, the Court hereby GRANTS the petition and SETS ASIDE the decision of the
Court of Appeals in CA-G.R. CV No. 39626, promulgated on April 15, 1997, insofar as it held
Caltex liable under the third party complaint to reimburse/indemnify defendant Sulpicio Lines,
Inc. the damages the latter is adjudged to pay plaintiffs-appellees. The Court AFFIRMS the
decision of the Court of Appeals insofar as it orders Sulpicio Lines, Inc. to pay the heirs of
Sebastian E. Caezal and Corazon Caezal damages as set forth therein. Third-party
defendant-appellee Vector Shipping Corporation and Francisco Soriano are held liable to
reimburse/indemnify defendant Sulpicio Lines, Inc. whatever damages, attorneys' fees and costs
the latter is adjudged to pay plaintiffs-appellees in the case.1wphi1.nt
No costs in this instance.
SO ORDERED.