G.R. No.

146018

THIRD DIVISION

G.R. No. 146018               June 25, 2003

EDGAR COKALIONG SHIPPING LINES, INC., Petitioner,

vs.
UCPB GENERAL INSURANCE COMPANY, INC., Respondent.

DECISION

PANGANIBAN, J.:

The liability of a common carrier for the loss of goods may, by stipulation in the
bill of lading, be limited to the value declared by the shipper. On the other hand,
the liability of the insurer is determined by the actual value covered by the
insurance policy and the insurance premiums paid therefor, and not necessarily
by the value declared in the bill of lading.

The Case

Before the Court is a Petition for Review1 under Rule 45 of the Rules of Court,
seeking to set aside the August 31, 2000 Decision2 and the November 17, 2000
Resolution3 of the Court of Appeals4 (CA) in CA-GR SP No. 62751. The
dispositive part of the Decision reads:

"IN THE LIGHT OF THE FOREGOING, the appeal is GRANTED. The Decision
appealed from is REVERSED. [Petitioner] is hereby condemned to pay to
[respondent] the total amount of ₱148,500.00, with interest thereon, at the rate of
6% per annum, from date of this Decision of the Court. [Respondent’s] claim for
attorney’s fees [is] DISMISSED. [Petitioner’s] counterclaims are DISMISSED."5

The assailed Resolution denied petitioner’s Motion for Reconsideration.

On the other hand, the disposition of the Regional Trial

Court’s6 Decision,7 which was later reversed by the CA, states:

"WHEREFORE, premises considered, the case is hereby DISMISSED for lack of

merit.

"No cost."8
The Facts

The facts of the case are summarized by the appellate court in this wise:

"Sometime on December 11, 1991, Nestor Angelia delivered to the Edgar

Cokaliong Shipping Lines, Inc. (now Cokaliong Shipping Lines), [petitioner] for
brevity, cargo consisting of one (1) carton of Christmas décor and two (2) sacks
of plastic toys, to be transported on board the M/V Tandag on its Voyage No. T-
189 scheduled to depart from Cebu City, on December 12, 1991, for Tandag,
Surigao del Sur. [Petitioner] issued Bill of Lading No. 58, freight prepaid,
covering the cargo. Nestor Angelia was both the shipper and consignee of the
cargo valued, on the face thereof, in the amount of ₱6,500.00. Zosimo Mercado
likewise delivered cargo to [petitioner], consisting of two (2) cartons of plastic
toys and Christmas decor, one (1) roll of floor mat and one (1) bundle of various
or assorted goods for transportation thereof from Cebu City to Tandag, Surigao
del Sur, on board the said vessel, and said voyage. [Petitioner] issued Bill of
Lading No. 59 covering the cargo which, on the face thereof, was valued in the
amount of ₱14,000.00. Under the Bill of Lading, Zosimo Mercado was both the
shipper and consignee of the cargo.

"On December 12, 1991, Feliciana Legaspi insured the cargo, covered by Bill of
Lading No. 59, with the UCPB General Insurance Co., Inc., [respondent] for
brevity, for the amount of ₱100,000.00 ‘against all risks’ under Open Policy No.
002/9 1/254 for which she was issued, by [respondent], Marine Risk Note No.
18409 on said date. She also insured the cargo covered by Bill of Lading No.
58, with [respondent], for the amount of ₱50,000.00, under Open Policy No.
002/9 1/254 on the basis of which [respondent] issued Marine Risk Note No.
18410 on said date.

"When the vessel left port, it had thirty-four (34) passengers and assorted cargo
on board, including the goods of Legaspi. After the vessel had passed by the
Mandaue-Mactan Bridge, fire ensued in the engine room, and, despite earnest
efforts of the officers and crew of the vessel, the fire engulfed and destroyed the
entire vessel resulting in the loss of the vessel and the cargoes therein. The
Captain filed the required Marine Protest.

"Shortly thereafter, Feliciana Legaspi filed a claim, with [respondent], for the
value of the cargo insured under Marine Risk Note No. 18409 and covered
by Bill of Lading No. 59. She submitted, in support of her claim, a Receipt,
dated December 11, 1991, purportedly signed by Zosimo Mercado, and Order
Slips purportedly signed by him for the goods he received from Feliciana
Legaspi valued in the amount of ₱110,056.00. [Respondent] approved the claim
of Feliciana Legaspi and drew and issued UCPB Check No. 612939, dated
March 9, 1992, in the net amount of ₱99,000.00, in settlement of her claim after
which she executed a Subrogation Receipt/Deed, for said amount, in favor of
[respondent]. She also filed a claim for the value of the cargo covered by Bill of
Lading No. 58. She submitted to [respondent] a Receipt, dated December 11,
1991 and Order Slips, purportedly signed by Nestor Angelia for the goods he
received from Feliciana Legaspi valued at ₱60,338.00. [Respondent] approved
her claim and remitted to Feliciana Legaspi the net amount of ₱49,500.00, after
which she signed a Subrogation Receipt/Deed, dated March 9, 1992, in favor of
[respondent].

"On July 14, 1992, [respondent], as subrogee of Feliciana Legaspi, filed a

complaint anchored on torts against [petitioner], with the Regional Trial Court of
Makati City, for the collection of the total principal amount of ₱148,500.00, which
it paid to Feliciana Legaspi for the loss of the cargo, praying that judgment be
rendered in its favor and against the [petitioner] as follows:

‘WHEREFORE, it is respectfully prayed of this Honorable Court that after due

hearing, judgment be rendered ordering [petitioner] to pay [respondent] the
following.

1. Actual damages in the amount of ₱148,500.00 plus interest thereon at the

legal rate from the time of filing of this complaint until fully paid;

2. Attorney’s fees in the amount of ₱10,000.00; and

3. Cost of suit.

‘[Respondent] further prays for such other reliefs and remedies as this Honorable
Court may deem just and equitable under the premises.’

"[Respondent] alleged, inter alia, in its complaint, that the cargo subject of its
complaint was delivered to, and received by, [petitioner] for transportation to
Tandag, Surigao del Sur under ‘Bill of Ladings,’ Annexes ‘A’ and ‘B’ of the
complaint; that the loss of the cargo was due to the negligence of the [petitioner];
and that Feliciana Legaspi had executed Subrogation Receipts/Deeds in favor
of [respondent] after paying to her the value of the cargo on account of
the Marine Risk Notes it issued in her favor covering the cargo.

"In its Answer to the complaint, [petitioner] alleged that: (a) [petitioner] was
cleared by the Board of Marine Inquiry of any negligence in the burning of the
vessel; (b) the complaint stated no cause of action against [petitioner]; and (c)
the shippers/consignee had already been paid the value of the goods as stated in
the Bill of Lading and, hence, [petitioner] cannot be held liable for the loss of the
cargo beyond the value thereof declared in the Bill of Lading.

"After [respondent] rested its case, [petitioner] prayed for and was allowed, by the
Court a quo, to take the depositions of Chester Cokaliong, the Vice-President
and Chief Operating Officer of [petitioner], and a resident of Cebu City, and of
Noel Tanyu, an officer of the Equitable Banking Corporation, in Cebu City, and a
resident of Cebu City, to be given before the Presiding Judge of Branch 106 of
the Regional Trial Court of Cebu City. Chester Cokaliong and Noel Tanyu did
testify, by way of deposition, before the Court and declared inter alia, that:
[petitioner] is a family corporation like the Chester Marketing, Inc.; Nestor
Angelia had been doing business with [petitioner] and Chester Marketing, Inc.,
for years, and incurred an account with Chester Marketing, Inc. for his purchases
from said corporation; [petitioner] did issue Bills of Lading Nos. 58 and 59 for
the cargo described therein with Zosimo Mercado and Nestor Angelia as
shippers/consignees, respectively; the engine room of the M/V Tandag caught
fire after it passed the Mandaue/Mactan Bridge resulting in the total loss of the
vessel and its cargo; an investigation was conducted by the Board of Marine
Inquiry of the Philippine Coast Guard which rendered a Report, dated February
13, 1992 absolving [petitioner] of any responsibility on account of the fire, which
Report of the Board was approved by the District Commander of the Philippine
Coast Guard; a few days after the sinking of the vessel, a representative of the
Legaspi Marketing filed claims for the values of the goods under Bills of Lading
Nos. 58 and 59 in behalf of the shippers/consignees, Nestor Angelia and Zosimo
Mercado; [petitioner] was able to ascertain, from the shippers/consignees and
the representative of the Legaspi Marketing that the cargo covered by Bill of
Lading No. 59 was owned by Legaspi Marketing and consigned to Zosimo
Mercado while that covered by Bill of Lading No. 58 was purchased by Nestor
Angelia from the Legaspi Marketing; that [petitioner] approved the claim of
Legaspi Marketing for the value of the cargo under Bill of Lading No. 59 and
remitted to Legaspi Marketing the said amount under Equitable Banking
Corporation Check No. 20230486 dated August 12, 1992, in the amount of
₱14,000.00 for which the representative of the Legaspi Marketing signed
Voucher No. 4379, dated August 12, 1992, for the said amount of ₱14,000.00 in
full payment of claims under Bill of Lading No. 59; that [petitioner] approved the
claim of Nestor Angelia in the amount of ₱6,500.00 but that since the latter owed
Chester Marketing, Inc., for some purchases, [petitioner] merely set off the
amount due to Nestor Angelia under Bill of Lading No. 58 against his account
with Chester Marketing, Inc.; [petitioner] lost/[misplaced] the original of the check
after it was received by Legaspi Marketing, hence, the production of the microfilm
copy by Noel Tanyu of the Equitable Banking Corporation; [petitioner] never
knew, before settling with Legaspi Marketing and Nestor Angelia that the cargo
under both Bills of Lading were insured with [respondent], or that Feliciana
Legaspi filed claims for the value of the cargo with [respondent] and that the
latter approved the claims of Feliciana Legaspi and paid the total amount of
₱148,500.00 to her; [petitioner] came to know, for the first time, of the payments
by [respondent] of the claims of Feliciana Legaspi when it was served with the
summons and complaint, on October 8, 1992; after settling his claim, Nestor
Angelia x x x executed the Release and Quitclaim, dated July 2, 1993,
and Affidavit, dated July 2, 1993 in favor of [respondent]; hence, [petitioner] was
absolved of any liability for the loss of the cargo covered by Bills of Lading Nos.
58 and 59; and even if it was, its liability should not exceed the value of the cargo
as stated in the Bills of Lading.

"[Petitioner] did not anymore present any other witnesses on its evidence-in-
chief. x x x"9 (Citations omitted)

Ruling of the Court of Appeals

The CA held that petitioner had failed "to prove that the fire which consumed the
vessel and its cargo was caused by something other than its negligence in the
upkeep, maintenance and operation of the vessel."10

Petitioner had paid ₱14,000 to Legaspi Marketing for the cargo covered by Bill of
Lading No. 59. The CA, however, held that the payment did not extinguish
petitioner’s obligation to respondent, because there was no evidence that
Feliciana Legaspi (the insured) was the owner/proprietor of Legaspi Marketing.
The CA also pointed out the impropriety of treating the claim under Bill of Lading
No. 58 -- covering cargo valued therein at ₱6,500 -- as a setoff against Nestor
Angelia’s account with Chester Enterprises, Inc.

Finally, it ruled that respondent "is not bound by the valuation of the cargo under
the Bills of Lading, x x x nor is the value of the cargo under said Bills of Lading
conclusive on the [respondent]. This is so because, in the first place, the goods
were insured with the [respondent] for the total amount of ₱150,000.00, which
amount may be considered as the face value of the goods."11

Hence this Petition.12

Issues

Petitioner raises for our consideration the following alleged errors of the CA:

"I
"The Honorable Court of Appeals erred, granting arguendo that petitioner is
liable, in holding that petitioner’s liability should be based on the ‘actual insured
value’ of the goods and not from actual valuation declared by the
shipper/consignee in the bill of lading.

"II

"The Court of Appeals erred in not affirming the findings of the Philippine Coast
Guard, as sustained by the trial court a quo, holding that the cause of loss of the
aforesaid cargoes under Bill of Lading Nos. 58 and 59 was due to force majeure
and due diligence was [exercised] by petitioner prior to, during and immediately
after the fire on [petitioner’s] vessel.

"III

"The Court of Appeals erred in not holding that respondent UCPB General
Insurance has no cause of action against the petitioner."13

In sum, the issues are: (1) Is petitioner liable for the loss of the goods? (2) If it is
liable, what is the extent of its liability?

This Court’s Ruling

The Petition is partly meritorious.

First Issue:Liability for Loss

Petitioner argues that the cause of the loss of the goods, subject of this case,
was force majeure. It adds that its exercise of due diligence was adequately
proven by the findings of the Philippine Coast Guard.

We are not convinced. The uncontroverted findings of the Philippine Coast Guard
show that the M/V Tandag sank due to a fire, which resulted from a crack in the
auxiliary engine fuel oil service tank. Fuel spurted out of the crack and dripped to
the heating exhaust manifold, causing the ship to burst into flames. The crack
was located on the side of the fuel oil tank, which had a mere two-inch gap from
the engine room walling, thus precluding constant inspection and care by the
crew.

Having originated from an unchecked crack in the fuel oil service tank, the fire
could not have been caused by force majeure. Broadly speaking, force majeure
generally applies to a natural accident, such as that caused by a lightning, an
earthquake, a tempest or a public enemy.14 Hence, fire is not considered a
natural disaster or calamity. In Eastern Shipping Lines, Inc. v. Intermediate
Appellate Court,15 we explained:

"x x x. This must be so as it arises almost invariably from some act of man or by
human means. It does not fall within the category of an act of God unless caused
by lighting or by other natural disaster or calamity. It may even be caused by the
actual fault or privity of the carrier.

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

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

Where loss of cargo results from the failure of the officers of a vessel to inspect
their ship frequently so as to discover the existence of cracked parts, that loss
cannot be attributed to force majeure, but to the negligence of those officials.16

The law provides that a common carrier is presumed to have been negligent if it
fails to prove that it exercised extraordinary vigilance over the goods it
transported. Ensuring the seaworthiness of the vessel is the first step in
exercising the required vigilance. Petitioner did not present sufficient evidence
showing what measures or acts it had undertaken to ensure the seaworthiness of
the vessel. It failed to show when the last inspection and care of the auxiliary
engine fuel oil service tank was made, what the normal practice was for its
maintenance, or some other evidence to establish that it had exercised
extraordinary diligence. It merely stated that constant inspection and care were
not possible, and that the last time the vessel was dry-docked was in November
1990. Necessarily, in accordance with Article 173517 of the Civil Code, we hold
petitioner responsible for the loss of the goods covered by Bills of Lading Nos. 58
and 59.

Second Issue:Extent of Liability

Respondent contends that petitioner’s liability should be based on the actual

insured value of the goods, subject of this case. On the other hand, petitioner
claims that its liability should be limited to the value declared by the
shipper/consignee in the Bill of Lading.
The records18 show that the Bills of Lading covering the lost goods contain the
stipulation that in case of claim for loss or for damage to the shipped
merchandise or property, "[t]he liability of the common carrier x x x shall not
exceed the value of the goods as appearing in the bill of lading."19 The attempt
by respondent to make light of this stipulation is unconvincing. As it had the
consignees’ copies of the Bills of Lading,20 it could have easily produced those
copies, instead of relying on mere allegations and suppositions. However, it
presented mere photocopies thereof to disprove petitioner’s evidence showing
the existence of the above stipulation.

A stipulation that limits liability is valid21 as long as it is not against public policy.
In Everett Steamship Corporation v. Court of Appeals,22 the Court stated:

"A stipulation in the bill of lading limiting the common carrier’s liability for loss or
destruction of a cargo to a certain sum, unless the shipper or owner declares a
greater value, is sanctioned by law, particularly Articles 1749 and 1750 of the
Civil Code which provides:

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

‘Art. 1750. A contract fixing the sum that may be recovered by the owner or
shipper for the loss, destruction, or deterioration of the goods is valid, if it is
reasonable and just under the circumstances, and has been freely and fairly
agreed upon.’

"Such limited-liability clause has also been consistently upheld by this Court in a
number of cases. Thus, in Sea-Land Service, Inc. vs. Intermediate Appellate
Court, we ruled:

‘It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea Act
did not exist, the validity and binding effect of the liability limitation clause in the
bill of lading here are nevertheless fully sustainable on the basis alone of the
cited Civil Code Provisions. That said stipulation is just and reasonable is
arguable from the fact that it echoes Art. 1750 itself in providing a limit to liability
only if a greater value is not declared for the shipment in the bill of lading. To hold
otherwise would amount to questioning the justness and fairness of the law itself,
and this the private respondent does not pretend to do. But over and above that
consideration, the just and reasonable character of such stipulation is implicit in it
giving the shipper or owner the option of avoiding accrual of liability limitation by
the simple and surely far from onerous expedient of declaring the nature and
value of the shipment in the bill of lading.’
"Pursuant to the afore-quoted provisions of law, it is required that the stipulation
limiting the common carrier’s liability for loss must be ‘reasonable and just under
the circumstances, and has been freely and fairly agreed upon.

"The bill of lading subject of the present controversy specifically provides, among
others:

’18. All claims for which the carrier may be liable shall be adjusted and settled on
the basis of the shipper’s net invoice cost plus freight and insurance premiums, if
paid, and in no event shall the carrier be liable for any loss of possible profits or
any consequential loss.

‘The carrier shall not be liable for any loss of or any damage to or in any
connection with, goods in an amount exceeding One Hundred Thousand Yen in
Japanese Currency (¥100,000.00) or its equivalent in any other currency per
package or customary freight unit (whichever is least) unless the value of the
goods higher than this amount is declared in writing by the shipper before receipt
of the goods by the carrier and inserted in the Bill of Lading and extra freight is
paid as required.’

"The above stipulations are, to our mind, reasonable and just.1avvphi1 In the bill
of lading, the carrier made it clear that its liability would only be up to One
Hundred Thousand (Y100,000.00) Yen. However, the shipper, Maruman
Trading, had the option to declare a higher valuation if the value of its cargo was
higher than the limited liability of the carrier. Considering that the shipper did not
declare a higher valuation, it had itself to blame for not complying with the
stipulations." (Italics supplied)

In the present case, the stipulation limiting petitioner’s liability is not contrary to
public policy. In fact, its just and reasonable character is evident. The
shippers/consignees may recover the full value of the goods by the simple
expedient of declaring the true value of the shipment in the Bill of Lading. Other
than the payment of a higher freight, there was nothing to stop them from placing
the actual value of the goods therein. In fact, they committed fraud against the
common carrier by deliberately undervaluing the goods in their Bill of Lading,
thus depriving the carrier of its proper and just transport fare.

Concededly, the purpose of the limiting stipulation in the Bill of Lading is to

protect the common carrier. Such stipulation obliges the shipper/consignee to
notify the common carrier of the amount that the latter may be liable for in case of
loss of the goods. The common carrier can then take appropriate measures --
getting insurance, if needed, to cover or protect itself. This precaution on the part
of the carrier is reasonable and prudent. Hence, a shipper/consignee that
undervalues the real worth of the goods it seeks to transport does not only violate
a valid contractual stipulation, but commits a fraudulent act when it seeks to
make the common carrier liable for more than the amount it declared in the bill of
lading.

Indeed, Zosimo Mercado and Nestor Angelia misled petitioner by undervaluing

the goods in their respective Bills of Lading. Hence, petitioner was exposed to a
risk that was deliberately hidden from it, and from which it could not protect itself.

It is well to point out that, for assuming a higher risk (the alleged actual value of
the goods) the insurance company was paid the correct higher premium by
Feliciana Legaspi; while petitioner was paid a fee lower than what it was entitled
to for transporting the goods that had been deliberately undervalued by the
shippers in the Bill of Lading. Between the two of them, the insurer should bear
the loss in excess of the value declared in the Bills of Lading. This is the just and
equitable solution.

In Aboitiz Shipping Corporation v. Court of Appeals,23 the description of the

nature and the value of the goods shipped were declared and reflected in the bill
of lading, like in the present case. The Court therein considered this declaration
as the basis of the carrier’s liability and ordered payment based on such amount.
Following this ruling, petitioner should not be held liable for more than what was
declared by the shippers/consignees as the value of the goods in the bills of
lading.

We find no cogent reason to disturb the CA’s finding that Feliciana Legaspi was
the owner of the goods covered by Bills of Lading Nos. 58 and 59. Undoubtedly,
the goods were merely consigned to Nestor Angelia and Zosimo Mercado,
respectively; thus, Feliciana Legaspi or her subrogee (respondent) was entitled
to the goods or, in case of loss, to compensation therefor. There is no evidence
showing that petitioner paid her for the loss of those goods. It does not even
claim to have paid her.

On the other hand, Legaspi Marketing filed with petitioner a claim for the lost
goods under Bill of Lading No. 59, for which the latter subsequently paid
₱14,000. But nothing in the records convincingly shows that the former was the
owner of the goods. Respondent was, however, able to prove that it was
Feliciana Legaspi who owned those goods, and who was thus entitled to
payment for their loss. Hence, the claim for the goods under Bill of Lading No. 59
cannot be deemed to have been extinguished, because payment was made to a
person who was not entitled thereto.
With regard to the claim for the goods that were covered by Bill of Lading No. 58
and valued at ₱6,500, the parties have not convinced us to disturb the findings of
the CA that compensation could not validly take place. Thus, we uphold the
appellate court’s ruling on this point.

WHEREFORE, the Petition is hereby PARTIALLY GRANTED. The assailed

Decision is MODIFIED in the sense that petitioner is ORDERED to pay
respondent the sums of ₱14,000 and ₱6,500, which represent the value of the
goods stated in Bills of Lading Nos. 59 and 58, respectively. No costs.

SO ORDERED.

Puno, (Chairman), Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.

Footnotes

1 Rollo, pp. 10-34.

2 Id., pp. 36-60.

3 Id., p. 62.

4 First Division. Penned by Justice Romeo J. Callejo Sr. (now a member of this
Court) and concurred in by Justices Salome A. Montoya (Division chair) and
Martin S. Villarama (member).

5 Assailed Decision, p. 7; rollo, p. 36.

6 Branch 146, Makati City.

7 Penned by Judge Salvador S. Tensuan.

8 RTC Decision, p. 4; rollo, p. 66.

9 Assailed Decision, pp. 1-5; rollo, pp. 36-40; emphases in original.

10 Id., pp. 12 & 47.

11 Id., pp. 23 & 58.

12 The case was deemed submitted for decision on September 24, 2001, upon
receipt by this Court of respondent’s Memorandum, which was signed by Atty.
Bernard D. Sy. Petitioner’s Memorandum, signed by Atty. Melvyn S. Florencio,
was received by this Court on August 31, 2001.
13 Petitioner’s Memorandum, pp. 12-13; rollo, pp. 134-135. Original in upper
case.

14 Pons y Compañia v. La Compañia Maritima, 9 Phil. 125, October 26, 1907.

15 Eastern Shipping Lines, Inc. v. Intermediate Appellate Court, 150 SCRA 463,
May 29, 1987, per Melencio-Herrera, J.

16 Ibid.

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

18 See the Deposition dated September 30, 1996 of Chester C. Cokaliong,

petitioner’s vice president and chief operating officer. Deposition, p. 16; records,
p. 276.

19 Exhibit 7-A-2; id., p. 233.

20 TSN, August 8, 1996, p. 4.

21 Article 1749 of the Civil Code. See also St. Paul Fire & Marine Insurance
Co. v. Macondray & Co., Inc., 70 SCRA 122, March 25, 1976.

22 358 SCRA 129, 135-136, October 8, 1998, per Martinez, J.

23 188 SCRA 387, August 6, 1990.

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G.R. No. 116940

Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 116940 June 11, 1997

THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY,

INC., petitioner,
vs.
COURT OF APPEALS and FELMAN SHIPPING LINES, respondents.

BELLOSILLO, J.:

This case deals with the liability, if any, of a shipowner for loss of cargo due to its
failure to observe the extraordinary diligence required by Art. 1733 of the Civil
Code as well as the right of the insurer to be subrogated to the rights of the
insured upon payment of the insurance claim.

On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on board "MV

Asilda," a vessel owned and operated by respondent Felman Shipping Lines
(FELMAN for brevity), 7,500 cases of 1-liter Coca-Cola softdrink bottles to be
transported from Zamboanga City to Cebu City for consignee Coca-Cola Bottlers
Philippines, Inc., Cebu.1 The shipment was insured with petitioner Philippine
American General Insurance Co., Inc. (PHILAMGEN for brevity), under Marine
Open Policy No. 100367-PAG.

"MV Asilda" left the port of Zamboanga in fine weather at eight o'clock in the
evening of the same day. At around eight forty-five the following morning, 7 July
1983, the vessel sank in the waters of Zamboanga del Norte bringing down her
entire cargo with her including the subject 7,500 cases of 1-liter Coca-Cola
softdrink bottles.
On 15 July 1983 the consignee Coca-Cola Bottlers Philippines, Inc., Cebu plant,
filed a claim with respondent FELMAN for recovery of damages it sustained as a
result of the loss of its softdrink bottles that sank with "MV Asilda." Respondent
denied the claim thus prompting the consignee to file an insurance claim with
PHILAMGEN which paid its claim of P755,250.00.

Claiming its right of subrogation PHILAMGEN sought recourse against

respondent FELMAN which disclaimed any liability for the loss. Consequently, on
29 November 1983 PHILAMGEN sued the shipowner for sum of money and
damages.

In its complaint PHILAMGEN alleged that the sinking and total loss of "MV
Asilda" and its cargo were due to the vessel's unseaworthiness as she was put to
sea in an unstable condition. It further alleged that the vessel was improperly
manned and that its officers were grossly negligent in failing to take appropriate
measures to proceed to a nearby port or beach after the vessel started to list.

On 15 February 1985 FELMAN filed a motion to dismiss based on the affirmative

defense that no right of subrogation in favor of PHILAMGEN was transmitted by
the shipper, and that, in any event, FELMAN had abandoned all its rights,
interests and ownership over "MV Asilda" together with her freight and
appurtenances for the purpose of limiting and extinguishing its liability under Art.
587 of the Code of Commerce.2

On 17 February 1986 the trial court dismissed the complaint of PHILAMGEN. On

appeal the Court of Appeals set aside the dismissal and remanded the case to
the lower court for trial on the merits. FELMAN filed a petition for certiorari with
this Court but it was subsequently denied on 13 February 1989.

On 28 February 1992 the trial court rendered judgment in favor of FELMAN.3 It

ruled that "MV Asilda" was seaworthy when it left the port of Zamboanga as
confirmed by certificates issued by the Philippine Coast Guard and the
shipowner's surveyor attesting to its seaworthiness. Thus the loss of the vessel
and its entire shipment could only be attributed to either a fortuitous event, in
which case, no liability should attach unless there was a stipulation to the
contrary, or to the negligence of the captain and his crew, in which case, Art. 587
of the Code of Commerce should apply.

The lower court further ruled that assuming "MV Asilda" was unseaworthy, still
PHILAMGEN could not recover from FELMAN since the assured (Coca-Cola
Bottlers Philippines, Inc.) had breached its implied warranty on the vessel's
seaworthiness. Resultantly, the payment made by PHILAMGEN to the assured
was an undue, wrong and mistaken payment. Since it was not legally owing, it
did not give PHILAMGEN the right of subrogation so as to permit it to bring an
action in court as a subrogee.

On 18 March 1992 PHILAMGEN appealed the decision to the Court of Appeals.

On 29 August 1994 respondent appellate court rendered judgment finding "MV
Asilda" unseaworthy for being top-heavy as 2,500 cases of Coca-Cola softdrink
bottles were improperly stowed on deck. In other words, while the vessel
possessed the necessary Coast Guard certification indicating its seaworthiness
with respect to the structure of the ship itself, it was not seaworthy with respect to
the cargo. Nonetheless, the appellate court denied the claim of PHILAMGEN on
the ground that the assured's implied warranty of seaworthiness was not
complied with. Perfunctorily, PHILAMGEN was not properly subrogated to the
rights and interests of the shipper. Furthermore, respondent court held that the
filing of notice of abandonment had absolved the shipowner/agent from liability
under the limited liability rule.

The issues for resolution in this petition are: (a) whether "MV Asilda" was
seaworthy when it left the port of Zamboanga; (b) whether the limited liability
under Art. 587 of the Code of Commerce should apply; and, (c) whether
PHILAMGEN was properly subrogated to the rights and legal actions which the
shipper had against FELMAN, the shipowner.

"MV Asilda" was unseaworthy when it left the port of Zamboanga. In a joint
statement, the captain as well as the chief mate of the vessel confirmed that the
weather was fine when they left the port of Zamboanga. According to them, the
vessel was carrying 7,500 cases of 1-liter Coca-Cola softdrink bottles, 300 sacks
of seaweeds, 200 empty CO2 cylinders and an undetermined quantity of empty
boxes for fresh eggs. They loaded the empty boxes for eggs and about 500
cases of Coca-Cola bottles on deck.4 The ship captain stated that around four
o'clock in the morning of 7 July 1983 he was awakened by the officer on duty to
inform him that the vessel had hit a floating log. At that time he noticed that the
weather had deteriorated with strong southeast winds inducing big waves. After
thirty minutes he observed that the vessel was listing slightly to starboard and
would not correct itself despite the heavy rolling and pitching. He then ordered
his crew to shift the cargo from starboard to portside until the vessel was
balanced. At about seven o'clock in the morning, the master of the vessel
stopped the engine because the vessel was listing dangerously to portside. He
ordered his crew to shift the cargo back to starboard. The shifting of cargo took
about an hour afterwhich he rang the engine room to resume full speed.

At around eight forty-five, the vessel suddenly listed to portside and before the
captain could decide on his next move, some of the cargo on deck were thrown
overboard and seawater entered the engine room and cargo holds of the vessel.
At that instance, the master of the vessel ordered his crew to abandon ship.
Shortly thereafter, "MV Asilda" capsized and sank. He ascribed the sinking to the
entry of seawater through a hole in the hull caused by the vessel's collision with a
partially submerged log.5

The Elite Adjusters, Inc., submitted a report regarding the sinking of "MV Asilda."
The report, which was adopted by the Court of Appeals, reads —

We found in the course of our investigation that a reasonable explanation for the
series of lists experienced by the vessel that eventually led to her capsizing and
sinking, was that the vessel was top-heavy which is to say that while the vessel
may not have been overloaded, yet the distribution or stowage of the cargo on
board was done in such a manner that the vessel was in top-heavy condition at
the time of her departure and which condition rendered her unstable and
unseaworthy for that particular voyage.

In this connection, we wish to call attention to the fact that this vessel was
designed as a fishing vessel . . . and it was not designed to carry a substantial
amount or quantity of cargo on deck. Therefore, we believe strongly that had her
cargo been confined to those that could have been accommodated under deck,
her stability would not have been affected and the vessel would not have been in
any danger of capsizing, even given the prevailing weather conditions at that
time of sinking.

But from the moment that the vessel was utilized to load heavy cargo on its deck,
the vessel was rendered unseaworthy for the purpose of carrying the type of
cargo because the weight of the deck cargo so decreased the vessel's
metacentric height as to cause it to become unstable.

Finally, with regard to the allegation that the vessel encountered big waves, it
must be pointed out that ships are precisely designed to be able to navigate
safely even during heavy weather and frequently we hear of ships safely and
successfully weathering encounters with typhoons and although they may
sustain some amount of damage, the sinking of ship during heavy weather is not
a frequent occurrence and is not likely to occur unless they are inherently
unstable and unseaworthy . . . .

We believe, therefore, and so hold that the proximate cause of the sinking of the
M/V "Asilda" was her condition of unseaworthiness arising from her having been
top-heavy when she departed from the Port of Zamboanga. Her having capsized
and eventually sunk was bound to happen and was therefore in the category of
an inevitable occurrence (emphasis supplied).6
We subscribe to the findings of the Elite Adjusters, Inc., and the Court of Appeals
that the proximate cause of the sinking of "MV Asilda" was its being top-heavy.
Contrary to the ship captain's allegations, evidence shows that approximately
2,500 cases of softdrink bottles were stowed on deck. Several days after "MV
Asilda" sank, an estimated 2,500 empty Coca-Cola plastic cases were recovered
near the vicinity of the sinking. Considering that the ship's hatches were properly
secured, the empty Coca-Cola cases recovered could have come only from the
vessel's deck cargo. It is settled that carrying a deck cargo raises the
presumption of unseaworthiness unless it can be shown that the deck cargo will
not interfere with the proper management of the ship. However, in this case it
was established that "MV Asilda" was not designed to carry substantial amount
of cargo on deck. The inordinate loading of cargo deck resulted in the decrease
of the vessel's metacentric height 7 thus making it unstable. The strong winds
and waves encountered by the vessel are but the ordinary vicissitudes of a sea
voyage and as such merely contributed to its already unstable and unseaworthy
condition.

On the second issue, Art. 587 of the Code of Commerce is not applicable to the
case at bar.8 Simply put, the ship agent is liable for the negligent acts of the
captain in the care of goods loaded on the vessel. This liability however can be
limited through abandonment of the vessel, its equipment and freightage as
provided in Art. 587. Nonetheless, there are exceptional circumstances wherein
the ship agent could still be held answerable despite the abandonment, as where
the loss or injury was due to the fault of the shipowner and the captain.9 The
international rule is to the effect that the right of abandonment of vessels, as a
legal limitation of a shipowner's liability, does not apply to cases where the injury
or average was occasioned by the shipowner's own fault. 10 It must be stressed
at this point that Art. 587 speaks only of situations where the fault or negligence
is committed solely by the captain. Where the shipowner is likewise to be
blamed, Art. 587 will not apply, and such situation will be covered by the
provisions of the Civil Code on common carrier. 11

It was already established at the outset that the sinking of "MV Asilda" was due
to its unseaworthiness even at the time of its departure from the port of
Zamboanga. It was top-heavy as an excessive amount of cargo was loaded on
deck. Closer supervision on the part of the shipowner could have prevented this
fatal miscalculation. As such, FELMAN was equally negligent. It cannot therefore
escape liability through the expedient of filing a notice of abandonment of the
vessel by virtue of Art. 587 of the Code of Commerce.

Under Art 1733 of the Civil Code, "(c)ommon carriers, from the nature of their
business and for reasons of public policy, are bound to observe extraordinary
diligence in the vigilance over the goods and for the safety of the passengers
transported by them, according to all the circumstances of each case . . ." In the
event of loss of goods, common carriers are presumed to have acted negligently.
FELMAN, the shipowner, was not able to rebut this presumption.

In relation to the question of subrogation, respondent appellate court found "MV

Asilda" unseaworthy with reference to the cargo and therefore ruled that there
was breach of warranty of seaworthiness that rendered the assured not entitled
to the payment of is claim under the policy. Hence, when PHILAMGEN paid the
claim of the bottling firm there was in effect a "voluntary payment" and no right of
subrogation accrued in its favor. In other words, when PHILAMGEN paid it did so
at its own risk.

It is generally held that in every marine insurance policy the assured impliedly
warrants to the assurer that the vessel is seaworthy and such warranty is as
much a term of the contract as if expressly written on the face of the
policy. 12 Thus Sec. 113 of the Insurance Code provides that "(i)n every marine
insurance upon a ship or freight, or freightage, or upon anything which is the
subject of marine insurance, a warranty is implied that the ship is seaworthy."
Under Sec. 114, a ship is "seaworthy when reasonably fit to perform the service,
and to encounter the ordinary perils of the voyage, contemplated by the parties to
the policy." Thus it becomes the obligation of the cargo owner to look for a
reliable common carrier which keeps its vessels in seaworthy condition. He may
have no control over the vessel but he has full control in the selection of the
common carrier that will transport his goods. He also has full discretion in the
choice of assurer that will underwrite a particular venture.

We need not belabor the alleged breach of warranty of seaworthiness by the

assured as painstakingly pointed out by FELMAN to stress that subrogation will
not work in this case. In policies where the law will generally imply a warranty of
seaworthiness, it can only be excluded by terms in writing in the policy in the
clearest language. 13 And where the policy stipulates that the seaworthiness of
the vessel as between the assured and the assurer is admitted, the question of
seaworthiness cannot be raised by the assurer without showing concealment or
misrepresentation by the assured. 14

The marine policy issued by PHILAMGEN to the Coca-Cola bottling firm in at

least two (2) instances has dispensed with the usual warranty of worthiness.
Paragraph 15 of the Marine Open Policy No. 100367-PAG reads "(t)he liberties
as per Contract of Affreightment the presence of the Negligence Clause and/or
Latent Defect Clause in the Bill of Lading and/or Charter Party and/or Contract of
Affreightment as between the Assured and the Company shall not prejudice the
insurance. The seaworthiness of the vessel as between the Assured and the
Assurers is hereby admitted."15
The same clause is present in par. 8 of the Institute Cargo Clauses (F.P.A.) of
the policy which states "(t)he seaworthiness of the vessel as between the
Assured and Underwriters in hereby admitted . . . ." 16

The result of the admission of seaworthiness by the assurer PHILAMGEN may

mean one or two things: (a) that the warranty of the seaworthiness is to be taken
as fulfilled; or, (b) that the risk of unseaworthiness is assumed by the insurance
company. 17 The insertion of such waiver clauses in cargo policies is in
recognition of the realistic fact that cargo owners cannot control the state of the
vessel. Thus it can be said that with such categorical waiver, PHILAMGEN has
accepted the risk of unseaworthiness so that if the ship should sink by
unseaworthiness, as what occurred in this case, PHILAMGEN is liable.

Having disposed of this matter, we move on to the legal basis for subrogation.
PHILAMGEN's action against FELMAN is squarely sanctioned by Art. 2207 of the
Civil Code which provides:

Art. 2207. If the plaintiff's property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of the
wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person who
has violated the contract. If the amount paid by the insurance company does not
fully cover the injury or loss, the aggrieved party shall be entitled to recover the
deficiency from the person causing the loss or injury.

In Pan Malayan Insurance Corporation v. Court of Appeals, 18 we said that

payment by the assurer to the assured operates as an equitable assignment to
the assurer of all the remedies which the assured 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
payment by the insurance company of the insurance claim. It accrues simply
upon payment by the insurance company of the insurance claim.

The doctrine of subrogation has its roots in equity. It is designed to promote and
to accomplish justice and is the mode which equity adopts to compel the ultimate
payment of a debt by one who in justice, equity and good conscience ought to
pay. 19 Therefore, the payment made by PHILAMGEN to Coca-Cola Bottlers
Philippines, Inc., gave the former the right to bring an action as subrogee against
FELMAN. Having failed to rebut the presumption of fault, the liability of FELMAN
for the loss of the 7,500 cases of 1-liter Coca-Cola softdrink bottles is inevitable.

WHEREFORE, the petition is GRANTED. Respondent FELMAN SHIPPING

LINES is ordered to pay petitioner PHILIPPINE AMERICAN GENERAL
INSURANCE CO., INC., Seven Hundred Fifty-five Thousand Two Hundred and
Fifty Pesos (P755,250.00) plus legal interest thereon counted from 29 November
1983, the date of judicial demand, pursuant to Arts. 2212 and 2213 of the Civil
Code. 20

SO ORDERED.

Vitug, Kapunan and Hermosisima, Jr., JJ., concur.

Padilla, J., is on leave.

Footnotes

1 Bill of Lading No. CCBPI-1 dated 7 July 1983, Exh. "B," Plaintiff's Formal Offer
of Exhibits.

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

3 Civil Case No. 5812; Decision penned by Judge Salvador S. Abad Santos,
RTC-Br. 65, Makati; Records, pp. 239-241.

4 Exhs. "A-6" to "A-17," Plaintiff's Formal Offer of Exhibits.

5 Ibid.

6 Exh. "M," Plaintiff's Formal Offer of Exhibits.

7 Metacentric height refers to the distance of the metacenter above the center of
gravity of a floating body. See Webster's Third New International Dictionary, 1986
Ed., p. 1419.

8 See Note 2.

9 Chua Yek Hong v. Intermediate Appellate Court, G.R. No. 74811, 30

September 1988, 166 SCRA 189.

10 Manila Steamship Co., Inc. v. Insa Abdulhanan and Lim Hong To, 100 Phil.
38, 39 (1956).
11 Heirs of Amparo de los Santos v. Court of Appeals, G.R. No. 51165, 21 June
1990, 186 SCRA 658.

12 Vance, Handbook on the Law of Insurance, 3rd Ed., 1930, pp. 920-921.

13 New Orleans Ry. Co. v. Union Marine Ins. Co., 286 F. 32, cited in
Vance, op. cit., p. 920.

14 Clinchfield Fuel Co. v. Aetna Ins. Co., 114 S. E. 543, 548.

15 Exh. "C-1," Plaintiff's Formal Offer of Exhibits.

16 Ibid.

17 See Note 15.

18 G.R. No. 81026, 3 April 1990, 184 SCRA 54, citing Compania Maritima v.

Insurance Company of North America, No. L-18965, 30 October 1964, 12 SCRA
213; Fireman's Fund Insurance Company v. Jamila and Company, Inc., No. L-
27427, 7 April 1976, 70 SCRA 323.

19 Boney, Insurance Commissioner v. Central Mutual Ins. Co. of Chicago, 197

S.E. 122.

20 Art. 2212. Interest due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent upon this point.

Art. 2213. Interest cannot be recovered upon unliquidated claims or damages,

except when the demand can be established with reasonable certainty.
(See Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 94712, 12 July
1994, 234 SCRA 78, 95).

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G.R. No. 108897

Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 108897 October 2, 1997

SARKIES TOURS PHILIPPINES, INC., petitioner,

vs.
HONORABLE COURT OF APPEALS (TENTH DIVISION), DR. ELINO G.
FORTADES, MARISOL A. FORTADES and FATIMA MINERVA A.
FORTADES, respondents.

ROMERO, J.:

This petition for review is seeking the reversal of the decision of the Court of
Appeals in CA-G.R. CV No. 18979 promulgated on January 13, 1993, as well as
its resolution of February 19, 1993, denying petitioner's motion for
reconsideration for being a mere rehash of the arguments raised in the
appellant's brief.

The case arose from a damage suit filed by private respondents Elino, Marisol,
and Fatima Minerva, all surnamed Fortades, against petitioner for breach of
contract of carriage allegedly attended by bad faith.

On August 31, 1984, Fatima boarded petitioner's De Luxe Bus No. 5 in Manila on
her way to Legazpi City. Her brother Raul helped her load three pieces of
luggage containing all of her optometry review books, materials and equipment,
trial lenses, trial contact lenses, passport and visa, as well as her mother
Marisol's U.S. immigration (green) card, among other important documents and
personal belongings. Her belongings were kept in the baggage compartment of
the bus, but during a stopover at Daet, it was discovered that only one bag
remained in the open compartment. The others, including Fatima's things, were
missing and might have dropped along the way. Some of the passengers
suggested retracing the route of the bus to try to recover the lost items, but the
driver ignored them and proceeded to Legazpi City.

Fatima immediately reported the loss to her mother who, in turn, went to
petitioner's office in Legazpi City and later at its head office in Manila. Petitioner,
however, merely offered her P1,000.00 for each piece of luggage lost, which she
turned down. After returning to Bicol, disappointed but not defeated, mother and
daughter asked assistance from the radio stations and even from Philtranco bus
drivers who plied the same route on August 31st. The effort paid off when one of
Fatima's bags was recovered. Marisol further reported the incident to the
National Bureau of Investigation's field office in Legazpi City and to the local
police.

On September 20, 1984, respondents, through counsel, formally demanded

satisfaction of their complaint from petitioner. In a letter dated October 1, 1984,
the latter apologized for the delay and said that "(a) team has been sent out to
Bicol for the purpose of recovering or at least getting the full detail"1 of the
incident.

After more than nine months of fruitless waiting, respondents decided to file the
case below to recover the value of the remaining lost items, as well as moral and
exemplary damages, attorney's fees and expenses of litigation. They claimed
that the loss was due to petitioner's failure to observe extraordinary diligence in
the care of Fatima's luggage and that petitioner dealt with them in bad faith from
the start. Petitioner, on the other hand, disowned any liability for the loss on the
ground that Fatima allegedly did not declare any excess baggage upon boarding
its bus.

On June 15, 1988, after trial on the merits, the court a quo adjudged the case in
favor of respondents, viz.:

PREMISES CONSIDERED, judgment is hereby rendered in favor of the plaintiffs

(herein respondents) and against the herein defendant Sarkies Tours Philippines,
Inc., ordering the latter to pay to the former the following sums of money, to wit:

1. The sum of P30,000.00 equivalent to the value of the personal belongings of

plaintiff Fatima Minerva Fortades, etc. less the value of one luggage recovered;

2. The sum of P90,000.00 for the transportation expenses, as well as moral

damages;

3. The sum of P10,000.00 by way of exemplary damages;

4. The sum of P5,000.00 as attorney's fees; and

5. The sum of P5,000.00 as litigation expenses or a total of One Hundred Forty

Thousand (P140,000.00) Pesos.

to be paid by herein defendant Sarkies Tours Philippines, Inc. to the herein

plaintiffs within 30 days from receipt of this Decision.

SO ORDERED.

On appeal, the appellate court affirmed the trial court's judgment, but deleted the
award of moral and exemplary damages. Thus,

WHEREFORE, premises considered, except as above modified, fixing the award

for transportation expenses at P30,000.00 and the deletion of the award for
moral and exemplary damages, the decision appealed from is AFFIRMED, with
costs against defendant-appellant.

SO ORDERED.

Its motion for reconsideration was likewise rejected by the Court of Appeals, so
petitioner elevated its case to this Court for a review.

After a careful scrutiny of the records of this case, we are convinced that the trial
and appellate courts resolved the issues judiciously based on the evidence at
hand.

Petitioner claims that Fatima did not bring any piece of luggage with her, and
even if she did, none was declared at the start of the trip. The documentary and
testimonial evidence presented at the trial, however, established that Fatima
indeed boarded petitioner's De Luxe Bus No. 5 in the evening of August 31,
1984, and she brought three pieces of luggage with her, as testified by her
brother Raul,2 who helped her pack her things and load them on said bus. One
of the bags was even recovered by a Philtranco bus driver. In its letter dated
October 1, 1984, petitioner tacitly admitted its liability by apologizing to
respondents and assuring them that efforts were being made to recover the lost
items.

The records also reveal that respondents went to great lengths just to salvage
their loss. The incident was reported to the police, the NBI, and the regional and
head offices of petitioner. Marisol even sought the assistance of Philtranco bus
drivers and the radio stations. To expedite the replacement of her mother's lost
U.S. immigration documents, Fatima also had to execute an affidavit of
loss.3 Clearly, they would not have gone through all that trouble in pursuit of a
fancied loss.

Fatima was not the only one who lost her luggage. Apparently, other passengers
had suffered a similar fate: Dr. Lita Samarista testified that petitioner offered her
P1,000.00 for her lost baggage and she accepted it;4 Carleen Carullo-Magno lost
her chemical engineering review materials, while her brother lost abaca products
he was transporting to Bicol.5

Petitioner's receipt of Fatima's personal luggage having been thus established, it

must now be determined if, as a common carrier, it is responsible for their loss.
Under the Civil Code, "(c)ommon carriers, from the nature of their business and
for reasons of public policy, are bound to observe extraordinary diligence in the
vigilance over the goods . . . transported by them,"6 and this liability "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 person who has a right to receive
them,"7 unless the loss is due to any of the excepted causes under Article 1734
thereof.8

The cause of the loss in the case at bar was petitioner's negligence in not
ensuring that the doors of the baggage compartment of its bus were securely
fastened. As a result of this lack of care, almost all of the luggage was lost, to the
prejudice of the paying passengers. As the Court of Appeals correctly observed:

. . . . Where the common carrier accepted its passenger's baggage for

transportation and even had it placed in the vehicle by its own employee, its
failure to collect the freight charge is the common carrier's own lookout. It is
responsible for the consequent loss of the baggage. In the instant case,
defendant appellant's employee even helped Fatima Minerva Fortades and her
brother load the luggages/baggages in the bus' baggage compartment, without
asking that they be weighed, declared, receipted or paid for (TSN, August 4,
1986, pp. 29, 34, 54, 57, 70; December 23, 1987, p. 35). Neither was this
required of the other passengers (TSN, August 4, 1986, p. 104; February 5,
1988; p. 13).

Finally, petitioner questions the award of actual damages to respondents. On this

point, we likewise agree with the trial and appellate courts' conclusions. There is
no dispute that of the three pieces of luggage of Fatima, only one was recovered.
The other two contained optometry books, materials, equipment, as well as vital
documents and personal belongings. Respondents had to shuttle between Bicol
and Manila in their efforts to be compensated for the loss. During the trial, Fatima
and Marisol had to travel from the United States just to be able to testify.
Expenses were also incurred in reconstituting their lost documents. Under these
circumstances, the Court agrees with the Court of Appeals in awarding
P30,000.00 for the lost items and P30,000.00 for the transportation expenses,
but disagrees with the deletion of the award of moral and exemplary damages
which, in view of the foregoing proven facts, with negligence and bad faith on the
fault of petitioner having been duly established, should be granted to
respondents in the amount of P20,000.00 and P5,000.00, respectively.

WHEREFORE, the assailed decision of the Court of Appeals dated January 13,
1993, and its resolution dated February 19, 1993, are hereby AFFIRMED with
the MODIFICATION that petitioner is ordered to pay respondents an additional
P20,000.00 as moral damages and P5,000.00 as exemplary damages. Costs
against petitioner.

SO ORDERED.

Narvasa, C.J., Melo, Francisco and Panganiban, JJ., concur.

Footnotes

1 Rollo, p. 63.

2 TSN, August 4, 1986, pp. 29, 34, 40-41, 54, 57, 70.

3 Exhibit "E."

4 TSN, August 4, 1986, p. 83.

5 TSN, February 5, 1988, pp. 8, 14-16.

6 Article 1733.

7 Article 1736.

8 Such as "(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.

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G.R. No. 114167

Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

COASTWISE LIGHTERAGE CORPORATION, petitioner,

vs.
COURT OF APPEALS and the PHILIPPINE GENERAL INSURANCE
COMPANY, respondents.

RESOLUTION

FRANCISCO, R., J.:

This is a petition for review of a Decision rendered by the Court of Appeals, dated
December 17, 1993, affirming Branch 35 of the Regional Trial Court, Manila in
holding that herein petitioner is liable to pay herein private respondent the
amount of P700,000.00, plus legal interest thereon, another sum of P100,000.00
as attorney's fees and the cost of the suit.

The factual background of this case is as follows:

Pag-asa Sales, Inc. entered into a contract to transport molasses from the
province of Negros to Manila with Coastwise Lighterage Corporation (Coastwise
for brevity), using the latter's dumb barges. The barges were towed in tandem by
the tugboat MT Marica, which is likewise owned by Coastwise.

Upon reaching Manila Bay, while approaching Pier 18, one of the barges,
"Coastwise 9", struck an unknown sunken object. The forward buoyancy
compartment was damaged, and water gushed in through a hole "two inches
wide and twenty-two inches long"1 As a consequence, the molasses at the cargo
tanks were contaminated and rendered unfit for the use it was intended. This
prompted the consignee, Pag-asa Sales, Inc. to reject the shipment of molasses
as a total loss. Thereafter, Pag-asa Sales, Inc. filed a formal claim with the
insurer of its lost cargo, herein private respondent, Philippine General Insurance
Company (PhilGen, for short) and against the carrier, herein petitioner,
Coastwise Lighterage. Coastwise Lighterage denied the claim and it was PhilGen
which paid the consignee, Pag-asa Sales, Inc., the amount of P700,000.00,
representing the value of the damaged cargo of molasses.

In turn, PhilGen then filed an action against Coastwise Lighterage before the
Regional Trial Court of Manila, seeking to recover the amount of P700,000.00
which it paid to Pag-asa Sales, Inc. for the latter's lost cargo. PhilGen now claims
to be subrogated to all the contractual rights and claims which the consignee
may have against the carrier, which is presumed to have violated the contract of
carriage.

The RTC awarded the amount prayed for by PhilGen. On Coastwise Lighterage's
appeal to the Court of Appeals, the award was affirmed.

Hence, this petition.

There are two main issues to be resolved herein. First, whether or not petitioner
Coastwise Lighterage was transformed into a private carrier, by virtue of the
contract of affreightment which it entered into with the consignee, Pag-asa Sales,
Inc. Corollarily, if it were in fact transformed into a private carrier, did it exercise
the ordinary diligence to which a private carrier is in turn bound? Second,
whether or not the insurer was subrogated into the rights of the consignee
against the carrier, upon payment by the insurer of the value of the consignee's
goods lost while on board one of the carrier's vessels.

On the first issue, petitioner contends that the RTC and the Court of Appeals
erred in finding that it was a common carrier. It stresses the fact that it contracted
with Pag-asa Sales, Inc. to transport the shipment of molasses from Negros
Oriental to Manila and refers to this contract as a "charter agreement". It then
proceeds to cite the case of Home Insurance Company vs. American Steamship
Agencies, Inc.2 wherein this Court held: ". . . a common carrier undertaking to
carry a special cargo or chartered to a special person only becomes a private
carrier."

Petitioner's reliance on the aforementioned case is misplaced. In its entirety, the

conclusions of the court are as follows:

Accordingly, the charter party contract is one of affreightment over the whole
vessel, rather than a demise. As such, the liability of the shipowner for acts or
negligence of its captain and crew, would remain in the absence of stipulation.3

The distinction between the two kinds of charter parties (i.e. bareboat or demise
and contract of affreightment) is more clearly set out in the case of Puromines,
Inc. vs. Court of Appeals,4 wherein we ruled:

Under the demise or bareboat charter of the vessel, the charterer will generally
be regarded as the owner for the voyage or service stipulated. The charterer
mans the vessel with his own people and becomes the owner pro hac vice,
subject to liability to others for damages caused by negligence. To create a
demise, the owner of a vessel must completely and exclusively relinquish
possession, command and navigation thereof to the charterer, anything short of
such a complete transfer is a contract of affreightment (time or voyage charter
party) or not a charter party at all.

On the other hand a contract of affreightment is one in which the owner of the
vessel leases part or all of its space to haul goods for others. It is a contract for
special service to be rendered by the owner of the vessel and under such
contract the general owner retains the possession, command and navigation of
the ship, the charterer or freighter merely having use of the space in the vessel in
return for his payment of the charter hire. . . . .

. . . . An owner who retains possession of the ship though the hold is the property
of the charterer, remains liable as carrier and must answer for any breach of duty
as to the care, loading and unloading of the cargo. . . .

Although a charter party may transform a common carrier into a private one, the
same however is not true in a contract of affreightment on account of the
aforementioned distinctions between the two.

Petitioner admits that the contract it entered into with the consignee was one of
affreightment.5 We agree. Pag-asa Sales, Inc. only leased three of petitioner's
vessels, in order to carry cargo from one point to another, but the possession,
command and navigation of the vessels remained with petitioner Coastwise
Lighterage.
Pursuant therefore to the ruling in the aforecited Puromines case, Coastwise
Lighterage, by the contract of affreightment, was not converted into a private
carrier, but remained a common carrier and was still liable as such.

The law and jurisprudence on common carriers both hold that the mere proof of
delivery of goods in good order to a carrier and the subsequent arrival of the
same goods at the place of destination in bad order makes for a prima facie case
against the carrier.

It follows then that the presumption of negligence that attaches to common

carriers, once the goods it transports are lost, destroyed or deteriorated, applies
to the petitioner. This presumption, which is overcome only by proof of the
exercise of extraordinary diligence, remained unrebutted in this case.

The records show that the damage to the barge which carried the cargo of
molasses was caused by its hitting an unknown sunken object as it was heading
for Pier 18. The object turned out to be a submerged derelict vessel. Petitioner
contends that this navigational hazard was the efficient cause of the accident.
Further it asserts that the fact that the Philippine Coastguard "has not exerted
any effort to prepare a chart to indicate the location of sunken derelicts within
Manila North Harbor to avoid navigational accidents"6 effectively contributed to
the happening of this mishap. Thus, being unaware of the hidden danger that lies
in its path, it became impossible for the petitioner to avoid the same. Nothing
could have prevented the event, making it beyond the pale of even the exercise
of extraordinary diligence.

However, petitioner's assertion is belied by the evidence on record where it

appeared that far from having rendered service with the greatest skill and utmost
foresight, and being free from fault, the carrier was culpably remiss in the
observance of its duties.

Jesus R. Constantino, the patron of the vessel "Coastwise 9" admitted that he
was not licensed. The Code of Commerce, which subsidiarily governs common
carriers (which are primarily governed by the provisions of the Civil Code)
provides:

Art. 609. — Captains, masters, or patrons of vessels must be Filipinos, have

legal capacity to contract in accordance with this code, and prove the skill
capacity and qualifications necessary to command and direct the vessel, as
established by marine and navigation laws, ordinances or regulations, and must
not be disqualified according to the same for the discharge of the duties of the
position. . . .
Clearly, petitioner Coastwise Lighterage's embarking on a voyage with an
unlicensed patron violates this rule. It cannot safely claim to have exercised
extraordinary diligence, by placing a person whose navigational skills are
questionable, at the helm of the vessel which eventually met the fateful accident.
It may also logically, follow that a person without license to navigate, lacks not
just the skill to do so, but also the utmost familiarity with the usual and safe
routes taken by seasoned and legally authorized ones. Had the patron been
licensed, he could be presumed to have both the skill and the knowledge that
would have prevented the vessel's hitting the sunken derelict ship that lay on
their way to Pier 18.

As a common carrier, petitioner is liable for breach of the contract of carriage,

having failed to overcome the presumption of negligence with the loss and
destruction of goods it transported, by proof of its exercise of extraordinary
diligence.

On the issue of subrogation, which petitioner contends as inapplicable in this

case, we once more rule against the petitioner. We have already found petitioner
liable for breach of the contract of carriage it entered into with Pag-asa Sales,
Inc. However, for the damage sustained by the loss of the cargo which petitioner-
carrier was transporting, it was not the carrier which paid the value thereof to
Pag-asa Sales, Inc. but the latter's insurer, herein private respondent PhilGen.

Article 2207 of the Civil Code is explicit on this point:

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

This legal provision containing the equitable principle of subrogation has been
applied in a long line of cases including Compania Maritima v. Insurance
Company of North America;7 Fireman's Fund Insurance Company v. Jamilla &
Company, Inc.,8 and Pan Malayan Insurance Corporation v. Court of
Appeals,9 wherein this Court explained:

Article 2207 of the Civil Code is founded on the well-settled principle of

subrogation. If the insured property is destroyed or damaged through the fault or
negligence of a party other than the assured, then the insurer, upon payment to
the assured will be subrogated to the rights of the assured to recover from the
wrongdoer to the extent that the insurer has been obligated to pay. Payment by
the insurer to the assured operated as an equitable assignment to the former of
all remedies which the latter may have against the third party whose negligence
or wrongful act caused the loss. The right of subrogation is not dependent upon,
nor does it grow out of, any privity of contract or upon written assignment of
claim. It accrues simply upon payment of the insurance claim by the insurer.

Undoubtedly, upon payment by respondent insurer PhilGen of the amount of

P700,000.00 to Pag-asa Sales, Inc., the consignee of the cargo of molasses
totally damaged while being transported by petitioner Coastwise Lighterage, the
former was subrogated into all the rights which Pag-asa Sales, Inc. may have
had against the carrier, herein petitioner Coastwise Lighterage.

WHEREFORE, premises considered, this petition is DENIED and the appealed

decision affirming the order of Branch 35 of the Regional Trial Court of Manila for
petitioner Coastwise Lighterage to pay respondent Philippine General Insurance
Company the "principal amount of P700,000.00 plus interest thereon at the legal
rate computed from March 29, 1989, the date the complaint was filed until fully
paid and another sum of P100,000.00 as attorney's fees and costs"10 is likewise
hereby AFFIRMED

SO ORDERED.

Feliciano, Romero, Melo and Vitug, JJ., concur.

Footnotes

1 Rollo, p. 25, Decision, Court of Appeals.

2 23 SCRA 24.

3 Ibid, p. 27.

4 220 SCRA 281.

5 Rollo, p. 11, Petition, p. 5.

6 Rollo, p. 85.

7 12 SCRA 213.

8 70 SCRA 323.

9 184 SCRA 54.

10 Rollo, p. 24.
 G.R. No. 125524
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 125524           August 25, 1999

BENITO MACAM doing business under the name and style BEN-MAC
ENTERPRISES, petitioner,
vs.
COURT OF APPEALS, CHINA OCEAN SHIPPING CO., and/or WALLEM
PHILIPPINES SHIPPING, INC., respondents.

BELLOSILLO, J.:

On 4 April 1989 petitioner Benito Macam, doing business under the name and
style Ben-Mac Enterprises, shipped on board the vessel Nen Jiang, owned and
operated by respondent China Ocean Shipping Co., through local agent
respondent Wallem Philippines Shipping, Inc. (hereinafter WALLEM), 3,500
boxes of watermelons valued at US$5,950.00 covered by Bill of Lading No. HKG
99012 and exported through Letter of Credit No. HK 1031/30 issued by National
Bank of Pakistan, Hongkong (hereinafter PAKISTAN BANK) and 1,611 boxes of
fresh mangoes with a value of US$14,273.46 covered by Bill of Lading No. HKG
99013 and exported through Letter of Credit No. HK 1032/30 also issued by
PAKISTAN BANK. The Bills of Lading contained the following pertinent provision:
"One of the Bills of Lading must be surrendered duly endorsed in exchange for
the goods or delivery order.1 The shipment was bound for Hongkong with
PAKISTAN BANK as consignee and Great Prospect Company of Kowloon,
Hongkong (hereinafter GPC) as notify party.

On 6 April 1989, per letter of credit requirement, copies of the bills of lading and
commercial invoices were submitted to petitioner's depository bank, Consolidated
Banking Corporation (hereinafter SOLIDBANK), which paid petitioner in advance
the total value of the shipment of US$20,223.46.1âwphi1.nêt

Upon arrival in Hongkong, the shipment was delivered by respondent WALLEM

directly to GPC, not to PAKISTAN BANK, and without the required bill of lading
having been surrendered. Subsequently, GPC failed to pay PAKISTAN BANK
such that the latter, still in possession of the original bills of lading, refused to pay
petitioner through SOLIDBANK. Since SOLIDBANK already pre-paid petitioner
the value of the shipment, it demanded payment from respondent WALLEM
through five (5) letters but was refused. Petitioner was thus allegedly constrained
to return the amount involved to SOLIDBANK, then demanded payment from
respondent WALLEM in writing but to no avail.

On 25 September 1991 petitioner sought collection of the value of the shipment

of US$20,223.46 or its equivalent of P546,033.42 from respondents before the
Regional Trial Court of Manila, based on delivery of the shipment to GPC without
presentation of the bills of lading and bank guarantee.

Respondents contended that the shipment was delivered to GPC without

presentation of the bills of lading and bank guarantee per request of petitioner
himself because the shipment consisted of perishable goods. The telex dated 5
April 1989 conveying such request read —

AS PER SHPR'S REQUEST KINDLY ARRANGE DELIVERY OF A/M SHIPT TO

RESPECTIVE CNEES WITHOUT PRESENTATION OF OB/L2 and bank
guarantee since for prepaid shipt ofrt charges already fully paid our end . . . .3

Respondents explained that it is a standard maritime practice, when immediate

delivery is of the essence, for the shipper to request or instruct the carrier to
deliver the goods to the buyer upon arrival at the port of destination without
requiring presentation of the bill of lading as that usually takes time. As proof
thereof, respondents apprised the trial court that for the duration of their two-year
business relationship with petitioner concerning similar shipments to GPC
deliveries were effected without presentation of the bills of lading.4 Respondents
advanced next that the refusal of PAKISTAN BANK to pay the letters of credit to
SOLIDBANK was due to the latter's failure to submit a Certificate of Quantity and
Quality. Respondents counterclaimed for attorney's fees and costs of suit.

On 14 May 1993 the trial court ordered respondents to pay, jointly and severally,
the following amounts: (1) P546,033.42 plus legal interest from 6 April 1989 until
full payment; (2) P10,000.00 as attorney's fees; and, (3) the costs. The
counterclaims were dismissed for lack of merit.5 The trial court opined that
respondents breached the provision in the bill of lading requiring that "one of the
Bills of Lading must be surrendered duly endorsed in exchange for the goods or
delivery order," when they released the shipment to GPC without presentation of
the bills of lading and the bank guarantee that should have been issued by
PAKISTAN BANK in lieu of the bills of lading. The trial court added that the
shipment should not have been released to GPC at all since the instruction
contained in the telex was to arrange delivery to the respective consignees and
not to any party. The trial court observed that the only role of GPC in the
transaction as notify party was precisely to be notified of the arrival of the
cargoes in Hongkong so it could in turn duly advise the consignee.

Respondent Court of Appeals appreciated the evidence in a different manner.

According to it, as established by previous similar transactions between the
parties, shipped cargoes were sometimes actually delivered not to the consignee
but to notify party GPC without need of the bills of lading or bank
guarantee.6 Moreover, the bills of lading were viewed by respondent court to
have been properly superseded by the telex instruction and to implement the
instruction, the delivery of the shipment must be to GPC, the real importer/buyer
of the goods as shown by the export invoices,7 and not to PAKISTAN BANK
since the latter could very well present the bills of lading in its possession;
likewise, if it were the PAKISTAN BANK to which the cargoes were to be strictly
delivered it would no longer be proper to require a bank guarantee. Respondent
court noted that besides, GPC was listed as a consignee in the telex. It observed
further that the demand letter of petitioner to respondents never complained of
misdelivery of goods. Lastly, respondent court found that petitioner's claim of
having reimbursed the amount involved to SOLIDBANK was unsubstantiated.
Thus, on 13 March 1996 respondent court set aside the decision of the trial court
and dismissed the complaint together with the counterclaims.8 On 5 July 1996
reconsideration was denied.9

Petitioner submits that the fact that the shipment was not delivered to the
consignee as stated in the bill of lading or to a party designated or named by the
consignee constitutes a misdelivery thereof. Moreover, petitioner argues that
from the text of the telex, assuming there was such an instruction, the delivery of
the shipment without the required bill of lading or bank guarantee should be
made only to the designated consignee, referring to PAKISTAN BANK.

We are not persuaded. The submission of petitioner that "the fact that the
shipment was not delivered to the consignee as stated in the Bill of Lading or to a
party designated or named by the consignee constitutes a misdelivery thereof" is
a deviation from his cause of action before the trial court. It is clear from the
allegation in his complaint that it does not deal with misdelivery of the cargoes
but of delivery to GPC without the required bills of lading and bank guarantee —

6. The goods arrived in Hongkong and were released by the defendant Wallem
directly to the buyer/notify party, Great Prospect Company and not to the
consignee, the National Bank of Pakistan, Hongkong, without the required bills of
lading and bank guarantee for the release of the shipment issued by the
consignee of the goods . . . .10
Even going back to an event that transpired prior to the filing of the present case
or when petitioner wrote respondent WALLEM demanding payment of the value
of the cargoes, misdelivery of the cargoes did not come into the picture —

We are writing you on behalf of our client, Ben-Mac Enterprises who informed us
that Bills of Lading No. 99012 and 99013 with a total value of US$20,223.46
were released to Great Prospect, Hongkong without the necessary bank
guarantee. We were further informed that the consignee of the goods, National
Bank of Pakistan, Hongkong, did not release or endorse the original bills of
lading. As a result thereof, neither the consignee, National Bank of Pakistan,
Hongkong, nor the importer, Great Prospect Company, Hongkong, paid our client
for the goods . . . .11

At any rate, we shall dwell on petitioner's submission only as a prelude to our

discussion on the imputed liability of respondents concerning the shipped goods.
Article 1736 of the Civil Code provides —

Art. 1736. The extraordinary responsibility of the common carriers lasts from the
time the goods are unconditionally placed in the possession of, and received by
the carrier for transportation until the same are delivered, actually or
constructively, by the carrier to the consignee, or to the person who has a right to
receive them, without prejudice to the provisions of article 1738.12

We emphasize that the extraordinary responsibility of the common carriers lasts

until actual or constructive delivery of the cargoes to the consignee or to the
person who has a right to receive them. PAKISTAN BANK was indicated in the
bills of lading as consignee whereas GPC was the notify party. However, in the
export invoices GPC was clearly named as buyer/importer. Petitioner also
referred to GPC as such in his demand letter to respondent WALLEM and in his
complaint before the trial court. This premise draws us to conclude that the
delivery of the cargoes to GPC as buyer/importer which, conformably with Art.
1736 had, other than the consignee, the right to receive them14 was proper.

The real issue is whether respondents are liable to petitioner for releasing the
goods to GPC without the bills of lading or bank guarantee.

Respondents submitted in evidence a telex dated 5 April 1989 as basis for

delivering the cargoes to GPC without the bills of lading and bank guarantee. The
telex instructed delivery of various shipments to the respective consignees
without need of presenting the bill of lading and bank guarantee per the
respective shipper's request since "for prepaid shipt ofrt charges already fully
paid." Petitioner was named therein as shipper and GPC as consignee with
respect to Bill of Lading Nos. HKG 99012 and HKG 99013. Petitioner disputes
the existence of such instruction and claims that this evidence is self-serving.

From the testimony of petitioner, we gather that he has been transacting with
GPC as buyer/importer for around two (2) or three (3) years already. When
mangoes and watermelons are in season, his shipment to GPC using the
facilities of respondents is twice or thrice a week. The goods are released to
GPC. It has been the practice of petitioner to request the shipping lines to
immediately release perishable cargoes such as watermelons and fresh
mangoes through telephone calls by himself or his "people." In transactions
covered by a letter of credit, bank guarantee is normally required by the shipping
lines prior to releasing the goods. But for buyers using telegraphic transfers,
petitioner dispenses with the bank guarantee because the goods are already fully
paid. In his several years of business relationship with GPC and respondents,
there was not a single instance when the bill of lading was first presented before
the release of the cargoes. He admitted the existence of the telex of 3 July 1989
containing his request to deliver the shipment to the consignee without
presentation of the bill of lading15 but not the telex of 5 April 1989 because he
could not remember having made such request.

Consider pertinent portions of petitioner's testimony —

Q: Are you aware of any document which would indicate or show that your
request to the defendant Wallem for the immediate release of your fresh fruits,
perishable goods, to Great Prospect without the presentation of the original Bill of
Lading?

A: Yes, by telegraphic transfer, which means that it is fully paid. And I requested
immediate release of the cargo because there was immediate payment.

Q: And you are referring, therefore, to this copy Telex release that you mentioned
where your Company's name appears Ben-Mac?

Atty. Hernandez: Just for the record, Your Honor, the witness is showing a Bill of
Lading referring to SKG (sic) 93023 and 93026 with Great Prospect Company.

Atty. Ventura:

Q: Is that the telegraphic transfer?

A: Yes, actually, all the shippers partially request for the immediate release of the
goods when they are perishable. I thought Wallem Shipping Lines is not
neophyte in the business. As far as LC is concerned, Bank guarantee is needed
for the immediate release of the goods . . . .15

Q: Mr. Witness, you testified that if is the practice of the shipper of the perishable
goods to ask the shipping lines to release immediately the shipment. Is that
correct?

A: Yes, sir.

Q: Now, it is also the practice of the shipper to allow the shipping lines to release
the perishable goods to the importer of goods without a Bill of Lading or Bank
guarantee?

A: No, it cannot be without the Bank Guarantee.

Atty. Hernandez:

Q: Can you tell us an instance when you will allow the release of the perishable
goods by the shipping lines to the importer without the Bank guarantee and
without the Bill of Lading?

A: As far as telegraphic transfer is concerned.

Q: Can you explain (to) this Honorable Court what telegraphic transfer is?

A: Telegraphic transfer, it means advance payment that I am already fully

paid . . . .

Q: Mr. Macam, with regard to Wallem and to Great Prospect, would you know
and can you recall that any of your shipment was released to Great Prospect by
Wallem through telegraphic transfer?

A: I could not recall but there were so many instances sir.

Q: Mr. Witness, do you confirm before this Court that in previous shipments of
your goods through Wallem, you requested Wallem to release immediately your
perishable goods to the buyer?

A: Yes, that is the request of the shippers of the perishable goods . . . .16

Q: Now, Mr. Macam, if you request the Shipping Lines for the release of your
goods immediately even without the presentation of OBL, how do you course it?
A: Usually, I call up the Shipping Lines, sir . . . .17

Q: You also testified you made this request through phone calls. Who of you
talked whenever you made such phone call?

A: Mostly I let my people to call, sir. (sic)

Q: So everytime you made a shipment on perishable goods you let your people
to call? (sic)

A: Not everytime, sir.

Q: You did not make this request in writing?

A: No, sir. I think I have no written request with Wallem . . . .18

Against petitioner's claim of "not remembering" having made a request for

delivery of subject cargoes to GPC without presentation of the bills of lading and
bank guarantee as reflected in the telex of 5 April 1989 are damaging disclosures
in his testimony. He declared that it was his practice to ask the shipping lines to
immediately release shipment of perishable goods through telephone calls by
himself or his "people." He no longer required presentation of a bill of lading nor
of a bank guarantee as a condition to releasing the goods in case he was already
fully paid. Thus, taking into account that subject shipment consisted of perishable
goods and SOLIDBANK pre-paid the full amount of the value thereof, it is not
hard to believe the claim of respondent WALLEM that petitioner indeed
requested the release of the goods to GPC without presentation of the bills of
lading and bank guarantee.

The instruction in the telex of 5 April 1989 was "to deliver the shipment to
respective consignees." And so petitioner argues that, assuming there was such
an instruction, the consignee referred to was PAKISTAN BANK. We find the
argument too simplistic. Respondent court analyzed the telex in its entirety and
correctly arrived at the conclusion that the consignee referred to was not
PAKISTAN BANK but GPC —

There is no mistake that the originals of the two (2) subject Bills of Lading are still
in the possession of the Pakistani Bank. The appealed decision affirms this fact.
Conformably, to implement the said telex instruction, the delivery of the shipment
must be to GPC, the notify party or real importer/buyer of the goods and not the
Pakistani Bank since the latter can very well present the original Bills of Lading in
its possession. Likewise, if it were the Pakistani Bank to whom the cargoes were
to be strictly delivered, it will no longer be proper to require a bank guarantee as
a substitute for the Bill of Lading. To construe otherwise will render meaningless
the telex instruction. After all, the cargoes consist of perishable fresh fruits and
immediate delivery thereof to the buyer/importer is essentially a factor to reckon
with. Besides, GPC is listed as one among the several consignees in the telex
(Exhibit 5-B) and the instruction in the telex was to arrange delivery of A/M
shipment (not any party) to respective consignees without presentation of OB/L
and bank guarantee . . . .20

Apart from the foregoing obstacles to the success of petitioner's cause, petitioner
failed to substantiate his claim that he returned to SOLIDBANK the full amount of
the value of the cargoes. It is not far-fetched to entertain the notion, as did
respondent court, that he merely accommodated SOLIDBANK in order to recover
the cost of the shipped cargoes from respondents. We note that it was
SOLIDBANK which initially demanded payment from respondents through five
(5) letters. SOLIDBANK must have realized the absence of privity of contract
between itself and respondents. That is why petitioner conveniently took the
cudgels for the bank.

In view of petitioner's utter failure to establish the liability of respondents over the
cargoes, no reversible error was committed by respondent court in ruling against
him.

WHEREFORE, the petition is DENIED. The decision of respondent Court of

Appeals of 13 March 1996 dismissing the complaint of petitioner Benito Macam
and the counterclaims of respondents China Ocean Shipping Co. and/or Wallem
Philippines Shipping, Inc., as well as its resolution of 5 July 1996 denying
reconsideration, is AFFIRMED.1âwphi1.nêt

SO ORDERED.

Mendoza, Quisumbing and Buena, JJ., concur.

Footnotes
1
 Exhs. "A" and "B;" Records, pp. 84-85.
2
 Original Bill of Lading.
3
 Exh. "5-A;" Records, p. 146.
4
 Exh. "6;" id., p. 147.
5
 Decision penned by Judge Napoleon R. Flojo, RTC-Br. 2, Manila; Rollo, p. 61.
6
 See Note 3.
7
 Exhs. "N-2" and "O-2;" Records, pp. 108 and 711.
8
 Decision penned by Justice Conrado M. Vasquez Jr. with the concurrence of
Justices Gloria C. Paras and Angelina Sandoval Gutierrez; Rollo, p. 45.
9
 Rollo, p. 48.
10
 Records, p. 3.
11
 Exh. "K;" Records, p. 100.
12
 Art. 1738. The extraordinary liability of the common carrier continues to be
operative even during the time the goods are stored in warehouse of the carrier
at the place of destination, until the consignee has been advised of the arrival of
the goods and has had reasonable opportunity thereafter to remove them or
otherwise dispose of them.
14
 Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 80936, 17 October
1990, 190 SCRA 512; Samar Mining Company, Inc. v. Nordeutscher Lloyd, No.
L-28673, 23 October 1984, 132 SCRA 529.
15
 See Note 3.
15
 TSN, 6 November 1992, pp. 24-25.
16
 Id., pp. 27-28.
17
 Id., p. 31.
18
 TSN, 18 November 1992, pp. 8-9.
19
 Footnote not available per copy of SC decision.
20
 Rollo, pp. 42-43.
 G.R. No. 156330
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 156330               November 19, 2014

NEDLLOYD LIJNEN B.V. ROTTERDAM and THE EAST ASIATIC CO.,

LTD., Petitioners,
vs.
GLOW LAKS ENTERPRISES, LTD., Respondent.

DECISION

PEREZ, J.:

This is a Petition for Review on Certiorari1 filed pursuant to Ruic 45 of the

Revised Rules of Comi, primarily assailing the 11 December 2002 Resolution
rendered by the Special Former Sixteenth Division of the Court of Appeals in CA-
G.R. CV No. 48277,2 the decretal portion of which states:

WHEREFORE, the appeal is GRANTED and the April 29. 1994 Decision of the
Regional Trial Court of Manila, Branch 52 thereof' in Civil Case No. 88-45595,
SET ASIDE. Nedlloyd Lijncn B.V. Rotterdam and The East Asiatic Co., Ltd arc
ordered to pay Glow l ,aks Enterprises, I ,td. the following:

1. The invoice value of the goodslost worth $53,640.00, or its equivalent in

Philippine currency;

2. Attorney’s fees of ₱50,000.00; and

3. Costs.3

The Facts

Petitioner Nedlloyd Lijnen B.V. Rotterdam (Nedlloyd) is a foreign corporation

engaged in the business of carrying goods by sea, whose vessels regularly call
at the port of Manila. It is doing business in the Philippines thru its local ship
agent, co-petitioner East Asiatic Co., Ltd. (East Asiatic).
Respondent Glow Laks Enterprises,Ltd., is likewise a foreign corporation
organized and existing under the laws of Hong Kong. It is not licensed to do, and
it is not doing business in, the Philippines.

On or about 14 September 1987, respondent loaded on board M/S Scandutch at

the Port of Manila a total 343 cartoons of garments, complete and in good order
for pre-carriage tothe Port of Hong Kong. The goods covered by Bills of Lading
Nos. MHONX-2 and MHONX-34 arrived in good condition in Hong Kong and
were transferred to M/S Amethyst for final carriage to Colon, Free Zone,
Panama. Both vessels, M/S Scandutch and M/S Amethyst, are owned by
Nedlloyd represented in the Phlippines by its agent, East Asiatic. The goods
which were valued at US$53,640.00 was agreed to be released to the consignee,
Pierre Kasem, International, S.A., upon presentation of the original copies of the
covering bills of lading.5 Upon arrival of the vessel at the Port of Colon on 23
October 1987, petitioners purportedly notified the consignee of the arrival of the
shipments, and its custody was turned over tothe National Ports Authority in
accordance with the laws, customs regulations and practice of trade in Panama.
By an unfortunate turn ofevents, however, unauthorized persons managed to
forge the covering bills of lading and on the basis of the falsified documents, the
ports authority released the goods.

On 16 July 1988, respondent filed a formal claim with Nedlloyd for the recovery
of the amount of US$53,640.00 representing the invoice value of the shipment
but to no avail.6 Claiming that petitioners are liable for the misdelivery of the
goods, respondent initiated Civil Case No. 88-45595 before the Regional Trial
Court (RTC) of Manila, Branch 52, seeking for the recovery of the amount of
US$53,640.00, including the legal interest from the date of the first demand.7

In disclaiming liability for the misdelivery of the shipments, petitioners asserted in

their Answer8 that they were never remiss in their obligation as a common carrier
and the goods were discharged in good order and condition into the custody of
the National Ports Authority of Panama in accordance with the Panamanian law.
They averred that they cannot be faulted for the release of the goods to
unauthorized persons, their extraordinary responsibility as a common carrier
having ceased at the time the possession of the goods were turned over to the
possession of the port authorities.

After the Pre-Trial Conference, trial on the merits ensued. Both parties offered
testimonial and documentary evidence to support their respective causes. On 29
April 2004, the RTC rendered a Decision9 ordering the dismissal of the complaint
but granted petitioners’ counterclaims. In effect, respondent was directed to pay
petitioners the amount of ₱120,000.00 as indemnification for the litigation
expenses incurred by the latter. In releasing the common carrier from liability for
the misdelivery of the goods, the RTC ruled that Panama law was duly proven
during the trial and pursuant to the said statute, carriers of goods destined to any
Panama port of entry have to discharge their loads into the custody of Panama
Ports Authority to make effective government collection of port dues, customs
duties and taxes. The subsequent withdrawal effected by unauthorized persons
on the strength of falsified bills of lading does not constitute misdelivery arising
from the fault of the common carrier. The decretal part of the RTC Decision
reads: WHEREFORE, judgment is renderedfor [petitioners] and against
[Respondent], ordering the dismissal of the complaint and ordering the latter to
pay [petitioners] the amount of ONE HUNDRED TWENTY THOUSAND PESOS
(₱120,000.00) on their counterclaims.

Cost against [Respondent].10

On appeal, the Court of Appeals reversed the findings of the RTC and held that
foreign laws were not proven in the manner provided by Section 24, Rule 132 of
the Revised Rules of Court, and therefore, it cannot be given full faith and
credit.11 For failure to prove the foreign law and custom, it is presumed that
foreign laws are the sameas our local or domestic or internal law under the
doctrine of processual presumption. Under the New Civil Code, the discharge of
the goods intothe custody of the ports authority therefore does not relieve the
commoncarrier from liability because the extraordinary responsibility of the
common carriers lasts until actual or constructive delivery of the cargoes tothe
consignee or to the person who has the right to receive them. Absent any proof
that the notify party or the consignee was informed of the arrival of the goods, the
appellate court held that the extraordinary responsibility of common carriers
remains. Accordingly, the Court of Appeals directed petitioners to pay respondent
the value of the misdelivered goods in the amount of US$53,640.00.

The Issues

Dissatisfied with the foregoing disquisition, petitioners impugned the adverse

Court of Appeals Decision before the Court on the following grounds:

I.

THERE IS ABSOLUTELY NO NEED TO PROVE PANAMANIAN LAWS

BECAUSE THEYHAD BEEN JUDICIALLY ADMITTED. AN ADMISSION BY A
PARTY IN THE COURSE OF THE PROCEEDINGS DOES NOT REQUIRE
PROOF.

II.
BY PRESENTING AS EVIDENCE THE [GACETA] OFFICIAL OF REPUBLICA
DE PANAMA NO. 17.596 WHERE THE APPLICABLE PANAMANIAN LAWS
WERE OFFICIALLY PUBLISHED, AND THE TESTIMONY OF EXPERT
WITNESSES, PETITIONERS WERE ABLE TO PROVE THE LAWS OF
PANAMA.

III.

IF WE HAVE TO CONCEDE TO THE COURT OF APPEALS’ FINDING THAT

THERE WAS FAILURE OF PROOF, THE LEGAL QUESTION PRESENTED TO
THE HONORABLE COURT SHOULD BE RESOLVED FAVORABLY BECAUSE
THE CARRIER DISCHARGED ITS DUTY WHETHER UNDER THE
PANAMANIAN LAW OR UNDER PHILIPPINE LAW.12

The Court’s Ruling

We find the petition bereft of merit.

It is well settled that foreign laws do not prove themselves in our jurisdiction and
our courts are not authorized to take judicial notice of them. Like any other fact,
they must be alleged and proved.13 To prove a foreign law, the party invoking it
must present a copy thereof and comply with Sections 24 and 25 of Rule 132 of
the Revised Rules of Court14 which read: SEC. 24. Proof of official record. —
The record of public documents referred to in paragraph (a) of Section 19, when
admissible for any purpose, may be evidenced by an official publication thereof
or by a copy attested by the officer having the legal custody of the record, or by
his deputy, and accompanied, if the record is not kept in the Philippines, with a
certificate that such officer has the custody. If the office in which the record is
kept is in a foreigncountry, the certificate may be made by a secretary of the
embassy or legation, consul general, consul, vice- consul, or consular agent or
by any officer in the foreign service of the Philippines stationed in the foreign
country in which the record is kept, and authenticated by the seal of his office.

SEC. 25. What attestation of copy must state. — Whenever a copy of a

document or record is attested for the purpose of the evidence, the attestation
must state,in substance, that the copy is a correct copy of the original, or a
specific part thereof, as the case may be. The attestation must be under the
official seal of the attesting officer, if there be any, or if he be the clerk of a court
having a seal, under the seal of such court.

For a copy of a foreign public document to be admissible, the following requisites

are mandatory: (1) itmust be attested by the officer having legal custody of the
records or by his deputy; and (2) it must be accompanied by a certificate by a
secretary of the embassy or legation, consul general, consul, vice-consular or
consular agent or foreign service officer, and with the seal of his office.15 Such
official publication or copy must be accompanied, if the record is not kept in the
Philippines, with a certificate that the attesting officer has the legal custody
thereof.16 The certificate may be issued by any of the authorized Philippine
embassy or consular officials stationed in the foreign country in which the record
is kept, and authenticated by the seal of his office.17 The attestation must state,
in substance, that the copy is a correct copy of the original, or a specific part
thereof, as the case may be, and mustbe under the official seal of the attesting
officer.18

Contrary to the contention of the petitioners, the Panamanian laws, particularly

Law 42 and its Implementing Order No. 7, were not duly proven in accordance
with Rules of Evidence and as such, it cannot govern the rights and obligations of
the parties in the case at bar. While a photocopy of the Gaceta Official of the
Republica de Panama No. 17.596, the Spanish text of Law 42 which is theforeign
statute relied upon by the court a quoto relieve the common carrier from liability,
was presented as evidence during the trial of the case below, the same however
was not accompanied by the required attestation and certification.

It is explicitly required by Section 24, Rule 132 of the Revised Rules of Court that
a copy of the statute must be accompanied by a certificate of the officer who has
legal custody of the records and a certificate made by the secretary of the
embassy or legation, consul general, consul, vice-consular or by any officer in
the foreign service of the Philippines stationed in the foreign country, and
authenticated by the seal of his office. The latter requirement is not merely a
technicality but is intended to justify the giving of full faith and credit to the
genuineness of the document in a foreign country.19 Certainly, the deposition of
Mr. Enrique Cajigas, a maritime law practitioner in the Republic of Panama,
before the Philippine Consulate in Panama, is not the certificate contemplated by
law. At best, the deposition can be considered as an opinion of an expert witness
who possess the required special knowledge on the Panamanian laws but could
not be recognized as proof of a foreign law, the deponent not being the custodian
of the statute who can guarantee the genuineness of the document from a
foreign country. To admit the deposition as proof of a foreign law is, likewise, a
disavowal of the rationaleof Section 24, Rule 132 of the Revised Rules of Court,
which isto ensure authenticity of a foreign law and its existence so as to justify its
import and legal consequence on the event or transaction in issue. The above
rule, however, admits exceptions, and the Court in certain cases recognized that
Section 25, Rule132 of the Revised Rules of Court does not exclude the
presentation of other competent evidence to prove the existence of foreign law.
In Willamete Iron and Steel Works v. Muzzal20 for instance, we allowed the
foreign law tobe established on the basis of the testimony in open court during
the trial in the Philippines of an attorney-atlaw in San Francisco, California, who
quoted the particular foreign law sought to be established.21 The ruling is
peculiar to the facts. Petitioners cannot invoke the Willamete ruling to secure
affirmative relief since their so called expert witness never appeared during the
trial below and his deposition, that was supposed to establish the existence of
the foreign law, was obtained ex-parte.

It is worth reiterating at this point that under the rules of private international law,
a foreign law must be properly pleaded and proved as a fact. In the absence of
pleading and proof, the laws of the foreign country or state will be presumed to
be the same as our local or domestic law. This is known as processual
presumption.22 While the foreign law was properly pleaded in the case at bar, it
was,however, proven not in the manner provided by Section 24, Rule 132 of the
Revised Rules of Court. The decision of the RTC, which proceeds from a
disregard of specific rules cannot be recognized.

Having settled the issue on the applicable Rule, we now resolve the issue of
whether or not petitioners are liable for the misdelivery of goods under Philippine
laws.

Under the New Civil Code, common carriers, from the nature of their business
and for reasons of public policy, are bound to observe extraordinary diligencein
the vigilance over goods, according to the circumstances of each
case.23 Common carriers are responsible for loss, destruction or deterioration of
the goods unless the same is due to flood, storm, earthquake or other natural
disaster or calamity.24 Extraordinary diligence is that extreme care and caution
which persons of unusual prudence and circumspection use for securing or
preserving their own property or rights.25 This expecting standardimposed on
common carriers in contract of carrier of goods is intended to tilt the scales in
favor of the shipper who is at the mercy of the common carrier once the goods
have been lodged for the shipment.26 Hence, in case of loss of goods in transit,
the common carrier is presumed under the law to have been in fault or
negligent.27

While petitioners concede that, as a common carrier, they are bound to observe
extraordinary diligence in the care and custody of the goods in their possession,
they insist that they cannot be held liable for the loss of the shipments, their
extraordinary responsibility having ceased at the time the goods were discharged
into the custody of the customs arrastreoperator, who in turn took complete
responsibility over the care, storage and delivery of the cargoes.28

In contrast, respondent, submits that the fact that the shipments were not
delivered to the consignee as statedin the bill of lading or to the party designated
or named by the consignee, constitutes misdelivery thereof, and under the law it
is presumed that the common carrier is at fault or negligent if the goods they
transported, as in this case, fell into the hands of persons who have no right to
receive them.

We sustain the position of the respondent.

Article 1736 and Article 1738 are the provisions in the New Civil Code which
define the period when the common carrier is required to exercise diligence lasts,
viz:

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

Article 1738. The extraordinary liability of the common carrier continues to be

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

Explicit is the rule under Article 1736 of the Civil Code that the extraordinary
responsibility of the common carrier begins from the time the goods are delivered
to the carrier.29 This responsibility remains in full force and effect even when
they are temporarily unloaded or stored in transit, unless the shipper or owner
exercises the right of stop page in transitu, and terminates only after the lapse of
a reasonable time for the acceptance, of the goods by the consignee or such
other person entitled to receive them.30

It was further provided in the samestatute that the carrier may be relieved from
the responsibility for loss or damage to the goods upon actual or constructive
delivery of the same by the carrier to the consignee or to the person who has the
right to receive them.31 In sales, actual delivery has been defined as the ceding
of the corporeal possession by the seller, and the actual apprehension of the
corporeal possession by the buyer or by some person authorized by him to
receive the goods as his representative for the purpose of custody or
disposal.32 By the same token, there is actual delivery in contracts for the
transport of goods when possession has been turned over to the consignee or to
his duly authorized agent and a reasonable time is given him to remove the
goods.33
In this case, there is no dispute that the custody of the goods was never turned
over to the consignee or his agents but was lost into the hands of unauthorized
persons who secured possession thereof on the strength of falsified documents.
The loss or the misdelivery of the goods in the instant case gave rise to the
presumption that the common carrier is at fault or negligent.

A common carrier is presumed to have been negligent if it fails to prove that it

exercised extraordinary vigilance over the goods it transported.34 When the
goods shipped are either lost or arrived in damaged condition, a presumption
arises against the carrier of its failure to observe that diligence, and there need
not be an express finding of negligence to hold it liable.35 To overcome the
presumption of negligence, the common carrier must establish by adequateproof
that it exercised extraordinary diligence over the goods.36 It must do more than
merely show that some other party could be responsible for the damage.37

In the present case, petitioners failed to prove that they did exercise the degree
of diligence required by law over the goods they transported. Indeed, aside from
their persistent disavowal of liability by conveniently posing an excuse that their
extraordinary responsibility isterminated upon release of the goods to the
Panamanian Ports Authority, petitioners failed to adduce sufficient evidence they
exercised extraordinary care to prevent unauthorized withdrawal of the
shipments. Nothing in the New Civil Code, however, suggests, even remotely,
that the common carriers’ responsibility over the goods ceased upon delivery
thereof to the custom authorities. To the mind of this Court, the contract of
carriage remains in full force and effect even after the delivery of the goods to the
port authorities; the only delivery that releases it from their obligation to observe
extraordinary care is the delivery to the consignee or his agents. Even more
telling of petitioners’ continuing liability for the goods transported to the fact that
the original bills of lading up to this time, remains in the possession of the notify
party or consignee. Explicit on this point is the provision of Article 353 of the
Code of Commerce which provides:

Article 353. The legal evidence of the contract between the shipper and the
carrier shall be the bills of lading, by the contents of which the disputes which
may arise regarding their execution and performance shall be decided, no
exceptions being admissible other than those of falsity and material error in the
drafting.

After the contract has been complied with, the bill of lading which the carrier has
issued shall be returned to him, and by virtue of the exchange of this title with the
thing transported, the respective obligations and actions shall be considered
cancelled, unless in the same act the claim which the parties may wish to reserve
be reduced to writing, with the exception of that provided for in Article 366.
In case the consignee, upon receiving the goods, cannot return the bill of lading
subscribed by the carrier, because of its loss or of any other cause, he must give
the latter a receiptfor the goods delivered, this receipt producing the same effects
as the return of the bill of lading.

While surrender of the original bill of lading is not a condition precedent for the
common carrier to bedischarged from its contractual obligation, there must be, at
the very least, an acknowledgement of the delivery by signing the delivery
receipt, if surrender of the original of the bill of lading is not possible.38 There
was neither surrender of the original copies of the bills of lading nor was there
acknowledgment of the delivery in the present case. This leads to the conclusion
that the contract of carriage still subsists and petitioners could be held liable for
the breach thereof.

Petitioners could have offered evidence before the trial court to show that they
exercised the highest degree of care and caution even after the goods was
turned over to the custom authorities, by promptly notifying the consignee of its
arrival at the P01i of Cristobal in order to afford them ample opportunity to
remove the cargoes from the port of discharge. We have scoured the records
and found that neither the consignee nor the notify paiiy was informed by the
petitioners of the arrival of the goods, a crucial fact indicative of petitioners' failure
to observe extraordinary diligence in handling the goods entrusted to their
custody for transport. They could have presented proof to show that they
exercised extraordinary care but they chose in vain, full reliance to their cause on
applicability of Panamanian law to local jurisdiction. It is for this reason that we
find petitioners liable for the misdelivery of the goods. It is evident from the
review of the records and by the evidence adduced by the respondent that
petitioners failed to rebut the prima facie presumption of negligence. We find no
compelling reason to depa1i from the ruling of the Court of Appeals that under
the contract of carriage, petitioners are liable for the value of the misdelivcred
goods.

WHEREFORE, premises considered, the petition is hereby DENIED. The

assailed Resolution of the Court of Appeals is hereby AFFIRMED.

SO ORDERED.

JOSE PORTUGAL PEREZ

Associate Justice

WE CONCUR:
 MARIA LOURDES P.A. SERENO
Chief Justice
Chairperson

PRESBITERO J. VELASCO, JR.*

Associate JusticeTERSITA J. LEONARDO-DE CASTRO
Associate Justice

ESTELA M. PERLAS-BERNABE
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that
the conclusions in the above Decision were reached in consultation before the
case was assigned to the writer of the opinion of the Court's Division.

MARIA LOURDES P.A. SERENO

Chief Justice

Footnotes

* Per Special Order No. 1870 dated 4 November 2014.

1 Rollo, pp. 23-58.

2 Penned by Associate .Justice Mariano C. Del Castillo (now a member of this

Court) with Associate Justices Oswaldo D. Agcaoili and Bernardo P. Abesamis,
concurring. Id. at 1 18-119.

3 Id. at 119.

4 Folder of Exhibits, pp. 104-105.

5 Id. at 108.

6 Id. at 119-121.

7 Complaint. Records, Vol. I, pp. 1-4.

8 Answer. Id. at 10-15.

9 RTC Decision. Records, Vol. II, pp. 528-536.

10 Id. at 536.

11 CA Decision. Rollo, pp. 10-17.

12 Id. at 32-46.

13 Wildvalley Shipping Co., Ltd. v. Court of Appeals, 396 Phil. 383, 392 (2000).

14 ATCI Overseas Corporation v. Echin, G.R. No. 178551, 11 October 2010, 632
SCRA 528, 535.

15 Wildvalley Shipping Co., Ltd., v. Court of Appeals, supra note 13 at 395.

16 Manufacturers Hanover Trust Co. v. Guerrero, 445 Phil. 770, 778 (2003).

17 Id.

18 Id.

19 Wildvalley Shipping Co., Ltd., v. Court of Appeals, supra note 13 at 395.

20 61 Phil. 471 (1935).

21 Manufacturer Hanover Trust Co. v. Guerrero, supra note 16 at 779 citing

Willamete Iron and Steel Works v. Muzzal, id.

22 Wildvalley Shipping Co., Ltd., v. Court of Appeals, supra note 13 at 396.

23 New Civil Code, Article 1733.

24 New Civil Code, Article 1734.

25 National Trucking and Forwarding Corp. v. Lorenzo Shipping Corporation, 491

Phil. 151, 156 (2005).

26 Id.

27 Id.

28 Petition for Review on Certiorari. Rollo, pp. 54-56.

29 Saludo, Jr., v. Court of Appeals, G.R. No, 95536, 23 March 1992, 207 SCRA
498, 511.
30 Id.

31 Samar Mining Company, Inc. v. Nordeutscher Lloyd and C.F. Sharp and
Company, Inc., 217 Phil. 497, 506 (1984).

32 Id.

33 Id.

34 Regional Container Lines (RCL) of Singapore v. The Netherlands Insurance

Co., (Philippines), Inc., G. R. No. 168151, 4 September 2009, 598 SCRA 304,
313.

35 Id.

36 Id.

37 Id.

38 National Trucking and Forwarding Corp. v. Lorenzo Shipping Corporation,

supra note 25 at 157.

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 G.R. No. L-36481-2
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-36481-2 October 23, 1982

AMPARO C. SERVANDO, CLARA UY BICO, plaintiffs-appellees,

vs.
PHILIPPINE STEAM NAVIGATION CO., defendant-appellant.

Zoilo de la Cruz, Jr. & Associate for plaintiff-appellee Amparo Servando.

Benedicto, Sumbingco & Associate for appellee Clara Uy Bico.

Ross, Salcedo, del Rosario, Bito & Misa for defendant-appellant.

ESCOLIN, J.:

This appeal, originally brought to the Court of Appeals, seeks to set aside the
decision of the Court of First Instance of Negros Occidental in Civil Cases Nos.
7354 and 7428, declaring appellant Philippine Steam Navigation liable for
damages for the loss of the appellees' cargoes as a result of a fire which gutted
the Bureau of Customs' warehouse in Pulupandan, Negros Occidental.

The Court of Appeals certified the case to Us because only pure questions of law
are raised therein.

The facts culled from the pleadings and the stipulations submitted by the parties
are as follows:

On November 6, 1963, appellees Clara Uy Bico and Amparo Servando loaded

on board the appellant's vessel, FS-176, for carriage from Manila to Pulupandan,
Negros Occidental, the following cargoes, to wit:

Clara Uy Bico —

1,528 cavans of rice valued

at P40,907.50;
Amparo Servando —

44 cartons of colored paper,

toys and general merchandise valued at P1,070.50;

as evidenced by the corresponding bills of lading issued by the appellant. 1

Upon arrival of the vessel at Pulupandan, in the morning of November 18, 1963, the cargoes were
discharged, complete and in good order, unto the warehouse of the Bureau of Customs. At about 2:00 in
the afternoon of the same day, said warehouse was razed by a fire of unknown origin, destroying
appellees' cargoes. Before the fire, however, appellee Uy Bico was able to take delivery of 907 cavans of
rice 2 Appellees' claims for the value of said goods were rejected by the appellant.

On the bases of the foregoing facts, the lower court rendered a decision, the
decretal portion of which reads as follows:

WHEREFORE, judgment is rendered as follows:

1. In case No. 7354, the defendant is hereby ordered to pay the plaintiff Amparo
C. Servando the aggregate sum of P1,070.50 with legal interest thereon from the
date of the filing of the complaint until fully paid, and to pay the costs.

2. In case No. 7428, the defendant is hereby ordered to pay to plaintiff Clara Uy
Bico the aggregate sum of P16,625.00 with legal interest thereon from the date
of the filing of the complaint until fully paid, and to pay the costs.

Article 1736 of the Civil Code imposes upon common carriers the duty to observe
extraordinary diligence from the moment the goods are unconditionally placed in
their possession "until the same are delivered, actually or constructively, by the
carrier to the consignee or to the person who has a right to receive them, without
prejudice to the provisions of Article 1738. "

The court a quo held that the delivery of the shipment in question to the
warehouse of the Bureau of Customs is not the delivery contemplated by Article
1736; and since the burning of the warehouse occurred before actual or
constructive delivery of the goods to the appellees, the loss is chargeable against
the appellant.

It should be pointed out, however, that in the bills of lading issued for the cargoes
in question, the parties agreed to limit the responsibility of the carrier for the loss
or damage that may be caused to the shipment by inserting therein the following
stipulation:
Clause 14. Carrier shall not be responsible for loss or damage to shipments
billed 'owner's risk' unless such loss or damage is due to negligence of carrier.
Nor shall carrier be responsible for loss or damage caused by force majeure,
dangers or accidents of the sea or other waters; war; public enemies; . . . fire . ...

We sustain the validity of the above stipulation; there is nothing therein that is
contrary to law, morals or public policy.

Appellees would contend that the above stipulation does not bind them because
it was printed in fine letters on the back-of the bills of lading; and that they did not
sign the same. This argument overlooks the pronouncement of this Court in Ong
Yiu vs. Court of Appeals, promulgated June 29, 1979, 3 where the same issue was
resolved in this wise:

While it may be true that petitioner had not signed the plane ticket (Exh. '12'), he
is nevertheless bound by the provisions thereof. 'Such provisions have been held
to be a part of the contract of carriage, and valid and binding upon the passenger
regardless of the latter's lack of knowledge or assent to the regulation'. It is what
is known as a contract of 'adhesion', in regards which it has been said that
contracts of adhesion wherein one party imposes a ready made form of contract
on the other, as the plane ticket in the case at bar, are contracts not entirely
prohibited. The one who adheres to the contract is in reality free to reject it
entirely; if he adheres, he gives his consent." (Tolentino, Civil Code, Vol. IV, 1962
Ed., p. 462, citing Mr. Justice J.B.L. Reyes, Lawyer's Journal, Jan. 31, 1951, p.
49).

Besides, the agreement contained in the above quoted Clause 14 is a mere

iteration of the basic principle of law written in Article 1 1 7 4 of the Civil Code:

Article 1174. Except in cases expressly specified by the law, or when it is

otherwise declared by stipulation, or when the nature of the obligation requires
the assumption of risk, no person shall be responsible for those events which
could not be foreseen, or which, though foreseen, were inevitable.

Thus, where fortuitous event or force majeure is the immediate and proximate
cause of the loss, the obligor is exempt from liability for non-performance. The
Partidas, 4 the antecedent of Article 1174 of the Civil Code, defines 'caso fortuito' as 'an event that
takes place by accident and could not have been foreseen. Examples of this are destruction of houses,
unexpected fire, shipwreck, violence of robbers.'

In its dissertation of the phrase 'caso fortuito' the Enciclopedia Juridicada

Espanola 5 says: "In a legal sense and, consequently, also in relation to contracts, a 'caso fortuito'
presents the following essential characteristics: (1) the cause of the unforeseen and unexpected
occurrence, or of the failure of the debtor to comply with his obligation, must be independent of the human
will; (2) it must be impossible to foresee the event which constitutes 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 a normal manner; and (4) the obligor must be free from any
participation in the aggravation of the injury resulting to the creditor." In the case at bar, the burning of the
customs warehouse was an extraordinary event which happened independently of the will of the
appellant. The latter could not have foreseen the event.

There is nothing in the record to show that appellant carrier ,incurred in delay in
the performance of its obligation. It appears that appellant had not only notified
appellees of the arrival of their shipment, but had demanded that the same be
withdrawn. In fact, pursuant to such demand, appellee Uy Bico had taken
delivery of 907 cavans of rice before the burning of the warehouse.

Nor can the appellant or its employees be charged with negligence. The storage
of the goods in the Customs warehouse pending withdrawal thereof by the
appellees was undoubtedly made with their knowledge and consent. Since the
warehouse belonged to and was maintained by the government, it would be
unfair to impute negligence to the appellant, the latter having no control
whatsoever over the same.

The lower court in its decision relied on the ruling laid down in Yu Biao Sontua
vs. Ossorio 6, where this Court held the defendant liable for damages arising from a fire caused by the
negligence of the defendant's employees while loading cases of gasoline and petroleon products. But
unlike in the said case, there is not a shred of proof in the present case that the cause of the fire that
broke out in the Custom's warehouse was in any way attributable to the negligence of the appellant or its
employees. Under the circumstances, the appellant is plainly not responsible.

WHEREFORE, the judgment appealed from is hereby set aside. No costs.

SO ORDERED.

Makasiar (Chairman), Concepcion, Jr., Guerrero, Abad Santos and De Castro,

JJ., concur.

Separate Opinions

AQUINO, J., concurring:

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

From the time the goods in question were deposited in the Bureau of Customs'
warehouse in the morning of their arrival up to two o' clock in the afternoon of the
same day, when the warehouse was burned, Amparo C. Servando and Clara Uy
Bico, the consignees, had reasonable opportunity to remove the goods. Clara
had removed more than one-half of the rice consigned to her.

Moreover, the shipping company had no more control and responsibility over the
goods after they were deposited in the customs warehouse by the arrastre and
stevedoring operator.

No amount of extraordinary diligence on the part of the carrier could have

prevented the loss of the goods by fire which was of accidental origin.

Under those circumstances, it would not be legal and just to hold the carrier liable
to the consignees for the loss of the goods. The consignees should bear the loss
which was due to a fortuitous event.

Separate Opinions

AQUINO, J., concurring:

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

From the time the goods in question were deposited in the Bureau of Customs'
warehouse in the morning of their arrival up to two o' clock in the afternoon of the
same day, when the warehouse was burned, Amparo C. Servando and Clara Uy
Bico, the consignees, had reasonable opportunity to remove the goods. Clara
had removed more than one-half of the rice consigned to her.

Moreover, the shipping company had no more control and responsibility over the
goods after they were deposited in the customs warehouse by the arrastre and
stevedoring operator.

No amount of extraordinary diligence on the part of the carrier could have

prevented the loss of the goods by fire which was of accidental origin.

Under those circumstances, it would not be legal and just to hold the carrier liable
to the consignees for the loss of the goods. The consignees should bear the loss
which was due to a fortuitous event.

Footnotes
1 Exhibits A, B, C, D, E, F, G and H.

2 Par. IV, Complaint; p. 23, Record on Appeal.

Page 836

3 91 SCRA 224.

4 Law 11, Title 33, Partida 7.

5 Enciclopedia Juridicada Espanola.

6 43 Phil. 511.

G.R. No. 94761

Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 94761 May 17, 1993

MAERSK LINE, petitioner,
vs.
COURT OF APPEALS AND EFREN V. CASTILLO, doing business under the
name and style of Ethegal Laboratories, respondents.

Bito, Lozada, Ortega & Castillo for petitioner.

Humberto A. Jambora for private respondent.

BIDIN, J.:

Petitioner Maersk Line is engaged in the transportation of goods by sea, doing

business in the Philippines through its general agent Compania General de
Tabacos de Filipinas.

Private respondent Efren Castillo, on the other hand, is the proprietor of Ethegal
Laboratories, a firm engaged in the manutacture of pharmaceutical products.

On November 12, 1976, private respondent ordered from Eli Lilly. Inc. of Puerto
Rico through its (Eli Lilly, Inc.'s) agent in the Philippines, Elanco Products,
600,000 empty gelatin capsules for the manufacture of his pharmaceutical
products. The capsules were placed in six (6) drums of 100,000 capsules each
valued at US $1,668.71.

Through a Memorandum of Shipment (Exh. "B"; AC GR CV No.10340, Folder of

Exhibits, pp. 5-6), the shipper Eli Lilly, Inc. of Puerto Rico advised private
respondent as consignee that the 600,000 empty gelatin capsules in six (6)
drums of 100,000 capsules each, were already shipped on board MV "Anders
Maerskline" under Voyage No. 7703 for shipment to the Philippines via Oakland,
California. In said Memorandum, shipper Eli Lilly, Inc. specified the date of arrival
to be April 3, 1977.

For reasons unknown, said cargo of capsules were mishipped and diverted to
Richmond, Virginia, USA and then transported back Oakland, Califorilia. The
goods finally arrived in the Philippines on June 10, 1977 or after two (2) months
from the date specified in the memorandum. As a consequence, private
respondent as consignee refused to take delivery of the goods on account of its
failure to arrive on time.

Private respondent alleging gross negligence and undue delay in the delivery of
the goods, filed an action before the court a quo for rescission of contract with
damages against petitioner and Eli Lilly, Inc. as defendants.

Denying that it committed breach of contract, petitioner alleged in its that answer
that the subject shipment was transported in accordance with the provisions of
the covering bill of lading and that its liability under the law on transportation of
good attaches only in case of loss, destruction or deterioration of the goods as
provided for in Article 1734 of Civil Code (Rollo, p. 16).

Defendant Eli Lilly, Inc., on the other hand, filed its answer with compulsory and
cross-claim. In its cross-claim, it alleged that the delay in the arrival of the the
subject merchandise was due solely to the gross negligence of petitioner Maersk
Line.

The issues having been joined, private respondent moved for the dismissal of the
complaint against Eli Lilly, Inc.on the ground that the evidence on record shows
that the delay in the delivery of the shipment was attributable solely to petitioner.

Acting on private respondent's motion, the trial court dismissed the complaint
against Eli Lilly, Inc. Correspondingly, the latter withdraw its cross-claim against
petitioner in a joint motion dated December 3, 1979.
After trial held between respondent and petitioner, the court a quo rendered
judgment dated January 8, 1982 in favor of respondent Castillo, the dispositive
portion of which reads:

IN VIEW OF THE FOREGOING, this Court believe (sic) and so hold (sic) that
there was a breach in the performance of their obligation by the defendant
Maersk Line consisting of their negligence to ship the 6 drums of empty Gelatin
Capsules which under their own memorandum shipment would arrive in the
Philippines on April 3, 1977 which under Art. 1170 of the New Civil Code, they
stood liable for damages.

Considering that the only evidence presented by the defendant Maersk line thru
its agent the Compania de Tabacos de Filipinas is the testimony of Rolando
Ramirez who testified on Exhs. "1" to "5" which this Court believe (sic) did not
change the findings of this Court in its decision rendered on September 4, 1980,
this Court hereby renders judgment in favor of the plaintiff Efren Castillo as
against the defendant Maersk Line thru its agent, the COMPANIA GENERAL DE
TABACOS DE FILIPINAS and ordering:

(a) Defendant to pay the plaintiff Efren V. Castillo the amount of THREE
HUNDRED SIXTY NINE THOUSAND PESOS, (P369,000.00) as unrealized
profit;.

(b) Defendant to pay plaintiff the sum of TWO HUNDRED THOUSAND PESOS
(P200,000.00), as moral damages;

(c) Defendant to pay plaintiff the sum of TEN THOUSAND PESOS (P10,000.00)
as exemplary damages;

(d) Defendant to pay plaintiff the sum of ELEVEN THOUSAND SIX HUNDRED
EIGHTY PESOS AND NINETY SEVEN CENTAVOS (P11,680.97) as cost of
credit line; and

(e) Defendant to pay plaintiff the sum of FIFTY THOUSAND PESOS

(P50,000.00), as attorney's fees and to pay the costs of suit.

That the above sums due to the plaintiff will bear the legal rate of interest until
they are fully paid from the time the case was filed.

SO ORDERED. (AC-GR CV No. 10340, Rollo, p. 15).

On appeal, respondent court rendered its decision dated August 1, 1990

affirming with modifications the lower court's decision as follows:
WHEREFORE, the decision appealed from is affirmed with a modification, and,
as modified, the judgment in this case should read as follows:

Judgment is hereby rendered ordering defendant-appellant Maersk Line to pay

plaintiff-appellee (1) compensatory damages of P11,680.97 at 6% annual interest
from filing of the complaint until fully paid, (2) moral damages of P50,000.00, (3)
exemplary damages of P20,000,00, (3) attorney's fees, per appearance fees, and
litigation expenses of P30,000.00, (4) 30% of the total damages awarded except
item (3) above, and the costs of suit.

SO ORDERED. (Rollo, p. 50)

In its Memorandum, petitioner submits the following "issues" for resolution of the
court :

Whether or not the respondent Court of Appeals committed an error when it ruled
that a defendant's cross-claim against a co-defendant survives or subsists even
after the dismissal of the complaint against defendant-cross claimant.

II

Whether or not respondent Castillo is entitled to damages resulting from delay in

the delivery of the shipment in the absence in the bill of lading of a stipulation on
the period of delivery.

III

Whether or not the respondent appellate court erred in awarding actual, moral
and exemplary damages and attorney's fees despite the absence of factual
findings and/or legal bases in the text of the decision as support for such awards.

IV

Whether or not the respondent Court of Appeals committed an error when it

rendered an ambiguous and unexplained award in the dispositive portion of the
decision which is not supported by the body or the text of the decision. (Rollo,
pp.94-95).

With regard to the first issue raised by petitioner on whether or not a defendant's
cross-claim against co-defendant (petitioner herein) survives or subsists even
after the dismissal of the complaint against defendant-cross-claimant (petitioner
herein), we rule in the negative.
Apparently this issue was raised by reason of the declaration made by
respondent court in its questioned decision, as follows:

Re the first assigned error: What should be rescinded in this case is not the
"Memorandum of Shipment" but the contract between appellee and defendant Eli
Lilly (embodied in three documents, namely: Exhs. A, A-1 and A-2) whereby the
former agreed to buy and the latter to sell those six drums of gelatin capsules. It
is by virtue of the cross-claim by appellant Eli Lilly against defendant Maersk
Line for the latter's gross negligence in diverting the shipment thus causing the
delay and damage to appellee that the trial court found appellant Maersk Line
liable. . . .

xxx xxx xxx

Re the fourth assigned error: Appellant Maersk Line's insistence that appellee
has no cause of action against it and appellant Eli Lilly because the shipment
was delivered in good order and condition, and the bill of lading in question
contains "stipulations, exceptions and conditions" Maersk Line's liability only to
the "loss, destruction or deterioration," indeed, this issue of lack of cause of
action has already been considered in our foregoing discussion on the second
assigned error, and our resolution here is still that appellee has a cause of action
against appellant Eli Lilly. Since the latter had filed a cross-claim against
appellant Maersk Line, the trial court committed no error, therefore, in holding the
latter appellant ultimately liable to appellee. (Rollo, pp. 47-50; Emphasis
supplied)

Reacting to the foregoing declaration, petitioner submits that its liability is

predicated on the cross-claim filed its co-defendant Eli Lilly, Inc. which cross-
claim has been dismissed, the original complaint against it should likewise be
dismissed. We disagree. It should be recalled that the complaint was filed
originally against Eli Lilly, Inc. as shipper-supplier and petitioner as carrier.
Petitioner being an original party defendant upon whom the delayed shipment is
imputed cannot claim that the dismissal of the complaint against Eli Lilly, Inc.
inured to its benefit.

Respondent court, erred in declaring that the trial court based petitioner's liability
on the cross-claim of Eli Lilly, Inc. As borne out by the record, the trial court
anchored its decision on petitioner's delay or negligence to deliver the six (6)
drums of gelatin capsules within a reasonable time on the basis of which
petitioner was held liable for damages under Article 1170 of the New Civil Code
which provides that 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.
Nonetheless, petitioner maintains that it cannot be held for damages for the
alleged delay in the delivery of the 600,000 empty gelatin capsules since it acted
in good faith and there was no special contract under which the carrier undertook
to deliver the shipment on or before a specific date (Rollo, p. 103).

On the other hand, private respondent claims that during the period before the
specified date of arrival of the goods, he had made several commitments and
contract of adhesion. Therefore, petitioner can be held liable for the damages
suffered by private respondent for the cancellation of the contracts he entered
into.

We have carefully reviewed the decisions of respondent court and the trial court
and both of them show that, in finding petitioner liable for damages for the delay
in the delivery of goods, reliance was made on the rule that contracts of adhesion
are void. Added to this, the lower court stated that the exemption against liability
for delay is against public policy and is thus, void. Besides, private respondent's
action is anchored on Article 1170 of the New Civil Code and not under the law
on Admiralty (AC-GR CV No. 10340, Rollo, p. 14).

The bill of lading covering the subject shipment among others, reads:

6. GENERAL

(1) The Carrier does not undertake that the goods shall arive at the port of
discharge or the place of delivery at any particular time or to meet any particular
market or use and save as is provided in clause 4 the Carrier shall in no
circumstances be liable for any direct, indirect or consequential loss or damage
caused by delay. If the Carrier should nevertheless be held legally liable for any
such direct or indirect or consequential loss or damage caused by delay, such
liability shall in no event exceed the freight paid for the transport covered by this
Bill of Lading. (Exh. "1-A"; AC-G.R. CV No. 10340, Folder of Exhibits, p. 41)

It is not disputed that the aforequoted provision at the back of the bill of lading, in
fine print, is a contract of adhesion. Generally, contracts of adhesion are
considered void since almost all the provisions of these types of contracts are
prepared and drafted only by one party, usually the carrier (Sweet Lines v.
Teves, 83 SCRA 361 [1978]). The only participation left of the other party in such
a contract is the affixing of his signature thereto, hence the term "Adhesion" (BPI
Credit Corporation v. Court of Appeals, 204 SCRA 601 [1991]; Angeles v.
Calasanz, 135 SCRA 323 [1985]).

Nonetheless, settled is the rule that bills of lading are contracts not entirely
prohibited (Ong Yiu v. Court of Appeals, et al., 91 SCRA 223 [1979]; Servando,
et al. v. Philippine Steam Navigation Co., 117 SCRA 832 [1982]). One who
adheres to the contract is in reality free to reject it in its entirety; if he adheres, he
gives his consent (Magellan Manufacturing Marketing Corporation v. Court of
Appeals, et al., 201 SCRA 102 [1991]).

In Magellan, (supra), we ruled:

It is a long standing jurisprudential rule that a bill of lading operates both as a

receipt and as contract to transport and deliver the same a therein stipulated. As
a contract, it names the parties, which includes the consignee, fixes the route,
destination, and freight rates or charges, and stipulates the rights and obligations
assumed by the parties. Being a contract, it is the law between the parties who
are bound by its terms and conditions provided that these are not contrary to law,
morals, good customs, public order and public policy. A bill of lading usually
becomes effective upon its delivery to and acceptance by the shipper. It is
presumed that the stipulations of the bill were, in the absence of fraud,
concealment or improper conduct, known to the shipper, and he is generally
bound by his acceptance whether he reads the bill or not. (Emphasis supplied)

However, the aforequoted ruling applies only if such contracts will not create an
absurd situation as in the case at bar. The questioned provision in the subject bill
of lading has the effect of practically leaving the date of arrival of the subject
shipment on the sole determination and will of the carrier.

While it is true that common carriers are not obligated by law to carry and to
deliver merchandise, and persons are not vested with the right to prompt
delivery, unless such common carriers previously assume the obligation to
deliver at a given date or time (Mendoza v. Philippine Air Lines, Inc., 90 Phil. 836
[1952]), delivery of shipment or cargo should at least be made within a
reasonable time.

In Saludo, Jr. v. Court of Appeals (207 SCRA 498 [1992]) this Court held:

The oft-repeated rule regarding a carrier's liability for delay is that in the absence
of a special contract, a carrier is not an insurer against delay in transportation of
goods. When a common carrier undertakes to convey goods, the law implies a
contract that they shall be delivered at destination within a reasonable time, in
the absence, of any agreement as to the time of delivery. But where a carrier has
made an express contract to transport and deliver properly within a specified
time, it is bound to fulfill its contract and is liable for any delay, no matter from
what cause it may have arisen. This result logically follows from the well-settled
rule that where the law creates a duty or charge, and the default in himself, and
has no remedy over, then his own contract creates a duty or charge upon
himself, he is bound to make it good notwithstanding any accident or delay by
inevitable necessity because he might have provided against it by contract.
Whether or not there has been such an undertaking on the part of the carrier is to
be determined from the circumstances surrounding the case and by application
of the ordinary rules for the interpretation of contracts.

An examination of the subject bill of lading (Exh. "1"; AC GR CV No. 10340,

Folder of Exhibits, p. 41) shows that the subject shipment was estimated to arrive
in Manila on April 3, 1977. While there was no special contract entered into by
the parties indicating the date of arrival of the subject shipment, petitioner
nevertheless, was very well aware of the specific date when the goods were
expected to arrive as indicated in the bill of lading itself. In this regard, there
arises no need to execute another contract for the purpose as it would be a mere
superfluity.

In the case before us, we find that a delay in the delivery of the goods spanning a
period of two (2) months and seven (7) days falls was beyond the realm of
reasonableness. Described as gelatin capsules for use in pharmaceutical
products, subject shipment was delivered to, and left in, the possession and
custody of petitioner-carrier for transport to Manila via Oakland, California. But
through petitioner's negligence was mishipped to Richmond, Virginia. Petitioner's
insitence that it cannot be held liable for the delay finds no merit.

Petition maintains that the award of actual, moral and exemplary dames and
attorney's fees are not valid since there are no factual findings or legal bases
stated in the text of the trial court's decision to support the award thereof.

Indeed, it is settled that actual and compensataory damages requires substantial

proof (Capco v. Macasaet. 189 SCRA 561 [1990]). In the case at bar, private
respondent was able to sufficiently prove through an invoice (Exh. 'A-1'),
certification from the issuer of the letter of credit (Exh.'A-2') and the
Memorandum of Shipment (Exh. "B"), the amount he paid as costs of the credit
line for the subject goods. Therefore, respondent court acted correctly in
affirming the award of eleven thousand six hundred eighty pesos and ninety
seven centavos (P11,680.97) as costs of said credit line.

As to the propriety of the award of moral damages, Article 2220 of the Civil Code
provides that moral damages may be awarded in "breaches of contract where the
defendant acted fraudulently or in bad faith" (Pan American World Airways v.
Intermediate Appellate Court, 186 SCRA 687 [1990]).

In the case before us, we that the only evidence presented by petitioner was the
testimony of Mr. Rolando Ramirez, a claims manager of its agent Compania
General de Tabacos de Filipinas, who merely testified on Exhs. '1' to '5' (AC-GR
CV No. 10340, p. 2) and nothing else. Petitioner never even bothered to explain
the course for the delay, i.e. more than two (2) months, in the delivery of subject
shipment. Under the circumstances of the case, we hold that petitioner is liable
for breach of contract of carriage through gross negligence amounting to bad
faith. Thus, the award of moral damages if therefore proper in this case.

In line with this pronouncement, we hold that exemplary damages may be

awarded to the private respondent. In contracts, exemplary damages may be
awarded if the defendant acted in a wanton, fraudulent, reckless, oppresive or
malevolent manner. There was gross negligence on the part of the petitioner in
mishiping the subject goods destined for Manila but was inexplicably shipped to
Richmond, Virginia, U.S.A. Gross carelessness or negligence contitutes wanton
misconduct, hence, exemplary damages may be awarded to the aggrieved party
(Radio Communication of the Phils., Inc. v. Court of Appeals, 195 SCRA 147
[1991]).

Although attorney's fees are generally not recoverable, a party can be held lible
for such if exemplary damages are awarded (Artice 2208, New Civil Code). In the
case at bar, we hold that private respondent is entitled to reasonable attorney`s
fees since petitioner acte with gross negligence amounting to bad faith.

However, we find item 4 in the dispositive portion of respondent court`s decision

which awarded thirty (30) percent of the total damages awarded except item 3
regarding attorney`s fees and litigation expenses in favor of private respondent,
to be unconsionable, the same should be deleted.

WHEREFORE, with the modification regarding the deletion of item 4 of

respondent court`s decision, the appealed decision is is hereby AFFIRMED in all
respects.

SO ORDERED.

Feliciano, Davide, Jr., Romero and Melo, JJ., concur.

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G.R. No. 119197

Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 119197 May 16, 1997

TABACALERA INSURANCE CO., PRUDENTIAL GUARANTEE &

ASSURANCE, INC., and NEW ZEALAND INSURANCE CO., LTD., petitioners,
vs.
NORTH FRONT SHIPPING SERVICES, INC., and COURT OF
APPEALS, respondents.

BELLOSILLO, J.:

TABACALERA INSURANCE CO., Prudential Guarantee & Assurance, Inc., and

New Zealand Insurance Co., Ltd., in this petition for review on certiorari, assail
the 22 December 1994 decision of the Court of Appeals and its Resolution of 16
February 1995 which affirmed the 1 June 1993 decision of the Regional Trial
Court dismissing their complaint for damages against North Front Shipping
Services, Inc.

On 2 August 1990, 20,234 sacks of corn grains valued at P3,500,640.00 were

shipped on board North Front 777, a vessel owned by North Front Shipping
Services, Inc. The cargo was consigned to Republic Flour Mills Corporation in
Manila under Bill of Lading No. 001 1 and insured with the herein mentioned
insurance companies. The vessel was inspected prior to actual loading by
representatives of the shipper and was found fit to carry the merchandise. The
cargo was covered with tarpaulins and wooden boards. The hatches were sealed
and could only be opened by representatives of Republic Flour Mills Corporation.
The vessel left Cagayan de Oro City on 2 August 1990 and arrived Manila on 16
August 1990. Republic Flour Mills Corporation was advised of its arrival but it did
not immediately commence the unloading operations. There were days when
unloading had to be stopped due to variable weather conditions and sometimes
for no apparent reason at all. When the cargo was eventually unloaded there was
a shortage of 26.333 metric tons. The remaining merchandise was already
moldy, rancid and deteriorating. The unloading operations were completed on 5
September 1990 or twenty (20) days after the arrival of the barge at the wharf of
Republic Flour Mills Corporation in Pasig City.

Precision Analytical Services, Inc., was hired to examine the corn grains and
determine the cause of deterioration. A Certificate of Analysis was issued
indicating that the corn grains had 18.56% moisture content and the wetting was
due to contact with salt water. The mold growth was only incipient and not
sufficient to make the corn grains toxic and unfit for consumption. In fact the mold
growth could still be arrested by drying.

Republic Flour Mills Corporation rejected the entire cargo and formally
demanded from North Front Shipping Services, Inc., payment for the damages
suffered by it. The demands however were unheeded. The insurance companies
were perforce obliged to pay Republic Flour Mills Corporation P2,189,433.40.

By virtue of the payment made by the insurance companies they were

subrogated to the rights of Republic Flour Mills Corporation. Thusly, they lodged
a complaint for damages against North Front Shipping Services, Inc., claiming
that the loss was exclusively attributable to the fault and negligence of the carrier.
The Marine Cargo Adjusters hired by the insurance companies conducted a
survey and found cracks in the bodega of the barge and heavy concentration of
molds on the tarpaulins and wooden boards. They did not notice any seals in the
hatches. The tarpaulins were not brand new as there were patches on them,
contrary to the claim of North Front Shipping Services, Inc., thus making it
possible for water to seep in. They also discovered that the bulkhead of the
barge was rusty.

North Front Shipping Services, Inc., averred in refutation that it could not be
made culpable for the loss and deterioration of the cargo as it was never
negligent. Captain Solomon Villanueva, master of the vessel, reiterated that the
barge was inspected prior to the actual loading and was found adequate and
seaworthy. In addition, they were issued a permit to sail by the Coast Guard. The
tarpaulins were doubled and brand new and the hatches were properly sealed.
They did not encounter big waves hence it was not possible for water to seep in.
He further averred that the corn grains were farm wet and not properly dried
when loaded.
The court below dismissed the complaint and ruled that the contract entered into
between North Front Shipping Services, Inc., and Republic Flour Mills
Corporation was a charter-party agreement. As such, only ordinary diligence in
the care of goods was required of North Front Shipping Services, Inc. The
inspection of the barge by the shipper and the representatives of the shipping
company before actual loading, coupled with the Permit to Sail issued by the
Coast Guard, sufficed to meet the degree of diligence required of the carrier.

On the other hand, the Court of Appeals ruled that as a common carrier required
to observe a higher degree of diligence North Front 777 satisfactorily complied
with all the requirements hence was issued a Permit to Sail after proper
inspection. Consequently, the complaint was dismissed and the motion for
reconsideration rejected.

The charter-party agreement between North Front Shipping Services, Inc., and
Republic Flour Mills Corporation did not in any way convert the common carrier
into a private carrier. We have already resolved this issue with finality in Planters
Products, Inc. v. Court of Appeals 2 thus —

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; 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 . . .
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. 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.

Upon the other hand, the term "common or public carrier" is defined in Art. 1732
of the Civil Code. 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 . . .

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 shin only, as in the case of a time-
charter or voyage-charter (emphasis supplied).
North Front Shipping Services, Inc., is a corporation engaged in the business of
transporting cargo and offers its services indiscriminately to the public. It is
without doubt a common carrier. As such it is required to observe extraordinary
diligence in its vigilance over the goods it transports. 3 When goods placed in its
care are lost or damaged, the carrier is presumed to have been at fault or to have
acted negligently. 4 North Front Shipping Services, Inc., therefore has the burden
of proving that it observed extraordinary diligence in order to avoid responsibility
for the lost cargo.

North Front Shipping Services, Inc., proved that the vessel was inspected prior to
actual loading by representatives of the shipper and was found fit to take a load
of corn grains. They were also issued Permit to Sail by the Coast Guard. The
master of the vessel testified that the corn grains were farm wet when loaded.
However, this testimony was disproved by the clean bill of lading issued by North
Front Shipping Services, Inc., which did not contain a notation that the corn
grains were wet and improperly dried. Having been in the service since 1968, the
master of the vessel would have known at the outset that corn grains that were
farm wet and not properly dried would eventually deteriorate when stored in
sealed and hot compartments as in hatches of a ship. Equipped with this
knowledge, the master of the vessel and his crew should have undertaken
precautionary measures to avoid or lessen the cargo's possible deterioration as
they were presumed knowledgeable about the nature of such cargo. But none of
such measures was taken.

In Compania Maritima v. Court of Appeals 5 we ruled —

. . . Mere proof of delivery of the goods in good order to a common carrier, and of
their arrival at the place of destination in bad order, makes out prima facie case
against the common carrier, so that if no explanation is given as to how the loss,
deterioration or destruction of the goods occurred, the common carrier must be
held responsible. Otherwise stated, it is incumbent upon the common carrier to
prove that the loss, deterioration or destruction was due to accident or some
other circumstances inconsistent with its liability . . .

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 safe 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
characteristics of goods tendered for shipment, and to exercise due care in the
handling and stowage, including such methods as their nature requires"
(emphasis supplied).
In fine, we find that the carrier failed to observe the required extraordinary
diligence in the vigilance over the goods placed in its care. The proofs presented
by North Front Shipping Services, Inc., were insufficient to rebut the prima
facie presumption of private respondent's negligence, more so if we consider the
evidence adduced by petitioners.

It is not denied by the insurance companies that the vessel was indeed inspected
before actual loading and that North Front 777 was issued a Permit to Sail. They
proved the fact of shipment and its consequent loss or damage while in the
actual possession of the carrier. Notably, the carrier failed to volunteer any
explanation why there was spoilage and how it occurred. On the other hand, it
was shown during the trial that the vessel had rusty bulkheads and the wooden
boards and tarpaulins bore heavy concentration of molds. The tarpaulins used
were not new, contrary to the claim of North Front Shipping Services, Inc., as
there were already several patches on them, hence, making it highly probable for
water to enter.

Laboratory analysis revealed that the corn grains were contaminated with salt
water. North Front Shipping Services, Inc., failed to rebut all these arguments. It
did not even endeavor to establish that the loss, destruction or deterioration of
the goods was due to the following: (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; (e) order
or act of competent public authority. 6 This is a closed list. If the cause of
destruction, loss or deterioration is other than the enumerated circumstances,
then the carrier is rightly liable therefor.

However, we cannot attribute the destruction, loss or deterioration of the cargo

solely to the carrier. We find the consignee Republic Flour Mills Corporation
guilty of contributory negligence. It was seasonably notified of the arrival of the
barge but did not immediately start the unloading operations. No explanation was
proffered by the consignee as to why there was a delay of six (6) days. Had the
unloading been commenced immediately the loss could have been completely
avoided or at least minimized. As testified to by the chemist who analyzed the
corn samples, the mold growth was only at its incipient stage and could still be
arrested by drying. The corn grains were not yet toxic or unfit for consumption.
For its contributory negligence, Republic Flour Mills Corporation should share at
least 40% of the loss. 7

WHEREFORE, the Decision of the Court of Appeals of 22 December 1994 and

its Resolution of 16 February 1995 are REVERSED and SET ASIDE.
Respondent North Front Shipping Services, Inc., is ordered to pay petitioners
Tabacalera Insurance Co., Prudential Guarantee & Assurance, Inc., and New
Zealand Insurance Co. Ltd., P1,313,660.00 which is 60% of the amount paid by
the insurance companies to Republic Flour Mills Corporation, plus interest at the
rate of 12% per annum from the time this judgment becomes final until full
payment.

SO ORDERED.

Vitug, Kapunan and Hermosisima, Jr., JJ., concur.

Padilla, J., is on leave.

Footnotes

1 Annex "A," Original Records, p. 6.

2 G.R. No. 101503, 15 September 1993, 226 SCRA 476, 483-484, 486.

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

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

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

5 No. L-31379, 29 August 1988, 164 SCRA 685, 691-692.

6 Art. 1734, New Civil Code.

7 See Food Terminal, Inc., v. Court of Appeals and Tao Development, Inc., G.R.
No. 120097, 23 September 1996.

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G.R. No. L-48757

Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-48757 May 30, 1988

MAURO GANZON, petitioner,
vs.
COURT OF APPEALS and GELACIO E. TUMAMBING, respondents.

Antonio B. Abinoja for petitioner.

Quijano, Arroyo & Padilla Law Office for respondents.

SARMIENTO, J.:
The private respondent instituted in the Court of First Instance of Manila 1 an action against the petitioner for damages based on culpa
contractual. The antecedent facts, as found by the respondent Court, 2 are undisputed:

On November 28, 1956, Gelacio Tumambing contracted the services of Mauro B.

Ganzon to haul 305 tons of scrap iron from Mariveles, Bataan, to the port of
Manila on board the lighter LCT "Batman" (Exhibit 1, Stipulation of Facts,
Amended Record on Appeal, p. 38). Pursuant to that agreement, Mauro B.
Ganzon sent his lighter "Batman" to Mariveles where it docked in three feet of
water (t.s.n., September 28, 1972, p. 31). On December 1, 1956, Gelacio
Tumambing delivered the scrap iron to defendant Filomeno Niza, captain of the
lighter, for loading which was actually begun on the same date by the crew of the
lighter under the captain's supervision. When about half of the scrap iron was
already loaded (t.s.n., December 14, 1972, p. 20), Mayor Jose Advincula of
Mariveles, Bataan, arrived and demanded P5,000.00 from Gelacio Tumambing.
The latter resisted the shakedown and after a heated argument between them,
Mayor Jose Advincula drew his gun and fired at Gelacio Tumambing (t.s.n.,
March 19, 1971, p. 9; September 28, 1972, pp. 6-7).<äre||anº•1àw> The gunshot
was not fatal but Tumambing had to be taken to a hospital in Balanga, Bataan,
for treatment (t.s.n., March 19, 1971, p. 13; September 28, 1972, p. 15).

After sometime, the loading of the scrap iron was resumed. But on December 4,
1956, Acting Mayor Basilio Rub, accompanied by three policemen, ordered
captain Filomeno Niza and his crew to dump the scrap iron (t.s.n., June 16, 1972,
pp. 8-9) where the lighter was docked (t.s.n., September 28, 1972, p. 31). The
rest was brought to the compound of NASSCO (Record on Appeal, pp. 20-22).
Later on Acting Mayor Rub issued a receipt stating that the Municipality of
Mariveles had taken custody of the scrap iron (Stipulation of Facts, Record on
Appeal, p. 40; t.s.n., September 28, 1972, p. 10.)

On the basis of the above findings, the respondent Court rendered a decision,
the dispositive portion of which states:

WHEREFORE, the decision appealed from is hereby reversed and set aside and
a new one entered ordering defendant-appellee Mauro Ganzon to pay plaintiff-
appellant Gelacio E. Tumambimg the sum of P5,895.00 as actual damages, the
sum of P5,000.00 as exemplary damages, and the amount of P2,000.00 as
attorney's fees. Costs against defendant-appellee Ganzon. 3

In this petition for review on certiorari, the alleged errors in the decision of the
Court of Appeals are:

THE COURT OF APPEALS FINDING THE HEREIN PETITIONER GUILTY OF

BREACH OF THE CONTRACT OF TRANSPORTATION AND IN IMPOSING A
LIABILITY AGAINST HIM COMMENCING FROM THE TIME THE SCRAP WAS
PLACED IN HIS CUSTODY AND CONTROL HAVE NO BASIS IN FACT AND IN
LAW.

II
THE APPELLATE COURT ERRED IN CONDEMNING THE PETITIONER FOR
THE ACTS OF HIS EMPLOYEES IN DUMPING THE SCRAP INTO THE SEA
DESPITE THAT IT WAS ORDERED BY THE LOCAL GOVERNMENT OFFICIAL
WITHOUT HIS PARTICIPATION.

III

THE APPELLATE COURT FAILED TO CONSIDER THAT THE LOSS OF THE

SCRAP WAS DUE TO A FORTUITOUS EVENT AND THE PETITIONER IS
THEREFORE NOT LIABLE FOR LOSSES AS A CONSEQUENCE THEREOF. 4

The petitioner, in his first assignment of error, insists that the scrap iron had not
been unconditionally placed under his custody and control to make him liable.
However, he completely agrees with the respondent Court's finding that on
December 1, 1956, the private respondent delivered the scraps to Captain
Filomeno Niza for loading in the lighter "Batman," That the petitioner, thru his
employees, actually received the scraps is freely admitted. Significantly, there is
not the slightest allegation or showing of any condition, qualification, or restriction
accompanying the delivery by the private respondent-shipper of the scraps, or
the receipt of the same by the petitioner. On the contrary, soon after the scraps
were delivered to, and received by the petitioner-common carrier, loading was
commenced.

By the said act of delivery, the scraps were unconditionally placed in the
possession and control of the common carrier, and upon their receipt by the
carrier for transportation, the contract of carriage was deemed perfected.
Consequently, the petitioner-carrier's extraordinary responsibility for the loss,
destruction or deterioration of the goods commenced. Pursuant to Art. 1736,
such extraordinary responsibility would cease only upon the delivery, actual or
constructive, by the carrier to the consignee, or to the person who has a right to
receive them. 5 The fact that part of the shipment had not been loaded on board
the lighter did not impair the said contract of transportation as the goods
remained in the custody and control of the carrier, albeit still unloaded.

The petitioner has failed to show that the loss of the scraps was due to any of the
following causes enumerated in Article 1734 of the Civil Code, namely:

(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.

Hence, the petitioner is presumed to have been at fault or to have acted

negligently. 6 By reason of this presumption, the court is not even required to
make an express finding of fault or negligence before it could hold the petitioner
answerable for the breach of the contract of carriage. Still, the petitioner could
have been exempted from any liability had he been able to prove that he
observed extraordinary diligence in the vigilance over the goods in his custody,
according to all the circumstances of the case, or that the loss was due to an
unforeseen event or to force majeure. As it was, there was hardly any attempt on
the part of the petitioner to prove that he exercised such extraordinary diligence.

It is in the second and third assignments of error where the petitioner maintains
that he is exempt from any liability because the loss of the scraps was due
mainly to the intervention of the municipal officials of Mariveles which constitutes
a caso fortuito as defined in Article 1174 of the Civil Code. 7

We cannot sustain the theory of caso fortuito. In the courts below, the petitioner's
defense was that the loss of the scraps was due to an "order or act of competent
public authority," and this contention was correctly passed upon by the Court of
Appeals which ruled that:

... In the second place, before the appellee Ganzon could be absolved from
responsibility on the ground that he was ordered by competent public authority to
unload the scrap iron, it must be shown that Acting Mayor Basilio Rub had the
power to issue the disputed order, or that it was lawful, or that it was issued
under legal process of authority. The appellee failed to establish this. Indeed, no
authority or power of the acting mayor to issue such an order was given in
evidence. Neither has it been shown that the cargo of scrap iron belonged to the
Municipality of Mariveles. What we have in the record is the stipulation of the
parties that the cargo of scrap iron was accilmillated by the appellant through
separate purchases here and there from private individuals (Record on Appeal,
pp. 38-39). The fact remains that the order given by the acting mayor to dump
the scrap iron into the sea was part of the pressure applied by Mayor Jose
Advincula to shakedown the appellant for P5,000.00. The order of the acting
mayor did not constitute valid authority for appellee Mauro Ganzon and his
representatives to carry out.

Now the petitioner is changing his theory to caso fortuito. Such a change of
theory on appeal we cannot, however, allow. In any case, the intervention of the
municipal officials was not In any case, of a character that would render
impossible the fulfillment by the carrier of its obligation. The petitioner was not
duty bound to obey the illegal order to dump into the sea the scrap iron.
Moreover, there is absence of sufficient proof that the issuance of the same order
was attended with such force or intimidation as to completely overpower the will
of the petitioner's employees. The mere difficulty in the fullfilment of the obligation
is not considered force majeure. We agree with the private respondent that the
scraps could have been properly unloaded at the shore or at the NASSCO
compound, so that after the dispute with the local officials concerned was settled,
the scraps could then be delivered in accordance with the contract of carriage.

There is no incompatibility between the Civil Code provisions on common

carriers and Articles 361 8 and 362 9 of the Code of Commerce which were the
basis for this Court's ruling in Government of the Philippine Islands vs. Ynchausti
& Co.10 and which the petitioner invokes in tills petition. For Art. 1735 of the Civil
Code, conversely stated, means that the shipper will suffer the losses and
deterioration arising from the causes enumerated in Art. 1734; and in these
instances, the burden of proving that damages were caused by the fault or
negligence of the carrier rests upon him. However, the carrier must first establish
that the loss or deterioration was occasioned by one of the excepted causes or
was due to an unforeseen event or to force majeure. Be that as it may, insofar as
Art. 362 appears to require of the carrier only ordinary diligence, the same is
.deemed to have been modified by Art. 1733 of the Civil Code.

Finding the award of actual and exemplary damages to be proper, the same will
not be disturbed by us. Besides, these were not sufficiently controverted by the
petitioner.

WHEREFORE, the petition is DENIED; the assailed decision of the Court of

Appeals is hereby AFFIRMED. Costs against the petitioner.

This decision is IMMEDIATELY EXECUTORY.

Yap, C.J., Paras and Padilla, JJ., concur.

Separate Opinions

MELENCIO-HERRERA, J., dissenting:

I am constrained to dissent.

It is my view that petitioner can not be held liable in damages for the loss and
destruction of the scrap iron. The loss of said cargo was due to an excepted
cause an 'order or act of competent public authority" (Article 1734[5], Civil Code).
The loading of the scrap iron on the lighter had to be suspended because of
Municipal Mayor Jose Advincula's intervention, who was a "competent public
authority." Petitioner had no control over the situation as, in fact, Tumambing
himself, the owner of the cargo, was impotent to stop the "act' of said official and
even suffered a gunshot wound on the occasion.

When loading was resumed, this time it was Acting Mayor Basilio Rub,
accompanied by three policemen, who ordered the dumping of the scrap iron into
the sea right where the lighter was docked in three feet of water. Again, could the
captain of the lighter and his crew have defied said order?

Through the "order" or "act" of "competent public authority," therefore, the

performance of a contractual obligation was rendered impossible. The scrap iron
that was dumped into the sea was "destroyed" while the rest of the cargo was
"seized." The seizure is evidenced by the receipt issues by Acting Mayor Rub
stating that the Municipality of Mariveles had taken custody of the scrap iron.
Apparently, therefore, the seizure and destruction of the goods was done under
legal process or authority so that petitioner should be freed from responsibility.

Art. 1743. If through order of public authority the goods are seized or destroyed,
the common carrier is not responsible, provided said public authority had power
to issue the order.

Separate Opinions

MELENCIO-HERRERA, J., dissenting:

I am constrained to dissent.

It is my view that petitioner can not be held liable in damages for the loss and
destruction of the scrap iron. The loss of said cargo was due to an excepted
cause an 'order or act of competent public authority" (Article 1734[5], Civil Code).

The loading of the scrap iron on the lighter had to be suspended because of
Municipal Mayor Jose Advincula's intervention, who was a "competent public
authority." Petitioner had no control over the situation as, in fact, Tumambing
himself, the owner of the cargo, was impotent to stop the "act' of said official and
even suffered a gunshot wound on the occasion.

When loading was resumed, this time it was Acting Mayor Basilio Rub,
accompanied by three policemen, who ordered the dumping of the scrap iron into
the sea right where the lighter was docked in three feet of water. Again, could the
captain of the lighter and his crew have defied said order?
Through the "order" or "act" of "competent public authority," therefore, the
performance of a contractual obligation was rendered impossible. The scrap iron
that was dumped into the sea was "destroyed" while the rest of the cargo was
"seized." The seizure is evidenced by the receipt issues by Acting Mayor Rub
stating that the Municipality of Mariveles had taken custody of the scrap iron.
Apparently, therefore, the seizure and destruction of the goods was done under
legal process or authority so that petitioner should be freed from responsibility.

Art. 1743. If through order of public authority the goods are seized or destroyed,
the common carrier is not responsible, provided said public authority had power
to issue the order.

Footnotes

1 Presided by Judge Jesus P. Morfe

2 Pascual, Chairman, ponente; Agrava and Climaco, JJ., concurring.

3 Decision, 9; Rollo 19.

4 Petitioner's Brief, 3, 7, 9; Rollo, 41.

5 Article 1736, Civil Code of the Philippines:

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

6 Article 1735, supra.

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

7 Art. 11 74, supra:

Art. 1174. Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the
assumption of risk, no person shall be responsible for those events which could
not be foreseen, or which though for foreseen were inevitable.
8 Article 361, Code of Commerce:

Art. 361. The merchandise shall be transported at the risk and venture of the
shipper, if the contrary has not been expressly stipulated.

As a consequence, all the losses and deterioration which the goods may suffer
during the transportation by reason of fortuitous event, force majeure, or the
inherent nature and defect of the goods, shall be for the account and risk of the
shipper.

Proof of these accidents is incumbent upon the carrier.

9 Article 362, Code of Commerce:

Art. 362. Nevertheless, the carrier shall be liable for the losses and damages
resulting from the causes mentioned in the preceding article 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, unless the shipper has committed fraud in the bill of lading, representing
the goods to be of a kind or quality different from what they really were.

If, notwithstanding the precautions referred to in to article, the goods transported

run the risk of being lost, on account of their nature or by reason of unavoidable
accident, there being no time for their owners to dispose of them, the carrier may
proceed to sell them, placing them for this purpose at the disposal of the judicial
authority or of the officials designated by special provisions.

10 No. 14191, September 29, 1919, 40 Phil. 219.

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G.R. No. L-47822

Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

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

PEDRO DE GUZMAN, petitioner,
vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.

Vicente D. Millora for petitioner.

Jacinto Callanta for private respondent.

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

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

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

Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600
boxes never reached petitioner, since the truck which carried these boxes was
hijacked somewhere along the MacArthur Highway in Paniqui, Tarlac, by armed
men who took with them the truck, its driver, his helper and the cargo.
On 6 January 1971, petitioner commenced action against private respondent in
the Court of First Instance of Pangasinan, demanding payment of P 22,150.00,
the claimed value of the lost merchandise, plus damages and attorney's fees.
Petitioner argued that private respondent, being a common carrier, and having
failed to exercise the extraordinary diligence required of him by the law, should
be held liable for the value of the undelivered goods.

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

On 10 December 1975, the trial court rendered a Decision 1 finding private

respondent to be a common carrier and holding him liable for the value of the
undelivered goods (P 22,150.00) as well as for P 4,000.00 as damages and P
2,000.00 as attorney's fees.

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

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

1. that private respondent was not a common carrier;

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

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

We consider first the issue of whether or not private respondent Ernesto

Cendana may, under the facts earlier set forth, be properly characterized as a
common carrier.

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

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

The above article makes no distinction between one whose principal business

activity is the carrying of persons or goods or both, and one who does such
carrying only as an ancillary activity (in local Idiom as "a sideline"). Article 1732
also carefully avoids making any distinction between a person or enterprise
offering transportation service on a regular or scheduled basis and one offering
such service on an occasional, episodic or unscheduled basis. Neither does
Article 1732 distinguish between a carrier offering its services to the "general
public," i.e., the general community or population, and one who offers services or
solicits business only from a narrow segment of the general population. We think
that Article 1733 deliberaom making such distinctions.

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

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

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

common carrier even though he merely "back-hauled" goods for other merchants
from Manila to Pangasinan, although such back-hauling was done on a periodic
or occasional rather than regular or scheduled manner, and even though private
respondent's principal occupation was not the carriage of goods for others. There
is no dispute that private respondent charged his customers a fee for hauling
their goods; that fee frequently fell below commercial freight rates is not relevant
here.
The Court of Appeals referred to the fact that private respondent held no
certificate of public convenience, and concluded he was not a common carrier.
This is palpable error. A certificate of public convenience is not a requisite for the
incurring of liability under the Civil Code provisions governing common carriers.
That liability arises the moment a person or firm acts as a common carrier,
without regard to whether or not such carrier has also complied with the
requirements of the applicable regulatory statute and implementing regulations
and has been granted a certificate of public convenience or other franchise. To
exempt private respondent from the liabilities of a common carrier because he
has not secured the necessary certificate of public convenience, would be
offensive to sound public policy; that would be to reward private respondent
precisely for failing to comply with applicable statutory requirements. The
business of a common carrier impinges directly and intimately upon the safety
and well being and property of those members of the general community who
happen to deal with such carrier. The law imposes duties and liabilities upon
common carriers for the safety and protection of those who utilize their services
and the law cannot allow a common carrier to render such duties and liabilities
merely facultative by simply failing to obtain the necessary permits and
authorizations.

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

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

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

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

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

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

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

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

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

Petitioner insists that private respondent had not observed extraordinary

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

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

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

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

unjust and contrary to public policy:

xxx xxx xxx

(5) that the common carrier shall not be responsible for the acts or omissions of
his or its employees;
(6) that the common carrier's liability for acts committed by thieves, or of
robbers who do not act with grave or irresistible threat, violence or force, is
dispensed with or diminished; and

(7) that the common carrier shall not responsible for the loss, destruction or
deterioration of goods on account of the defective condition of the car vehicle,
ship, airplane or other equipment used in the contract of carriage. (Emphasis
supplied)

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

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

In these circumstances, we hold that the occurrence of the loss must reasonably
be regarded as quite beyond the control of the common carrier and properly
regarded as a fortuitous event. It is necessary to recall that even common
carriers are not made absolute insurers against all risks of travel and of transport
of goods, and are not held liable for acts or events which cannot be foreseen or
are inevitable, provided that they shall have complied with the rigorous standard
of extraordinary diligence.
We, therefore, agree with the result reached by the Court of Appeals that private
respondent Cendana is not liable for the value of the undelivered merchandise
which was lost because of an event entirely beyond private respondent's control.

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

SO ORDERED.

Fernan, C.J., Gutierrez, Jr., Bidin and Cortes, JJ., concur.

Footnotes

1 Rollo, p. 14.

2 Article 1733, Civil Code.

3 Rollo, p. 22.

4 The evidence of the prosecution did not show that more than three (3) of the
five (5) hold-uppers were armed. Thus, the existence of a "band" within the
technical meaning of Article 306 of the Revised Penal Code, was not affirmatively
proved by the prosecution.

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 G.R. No. 101089
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 101089. April 7, 1993.

ESTRELLITA M. BASCOS, petitioners,

vs.
COURT OF APPEALS and RODOLFO A. CIPRIANO, respondents.

Modesto S. Bascos for petitioner.

Pelaez, Adriano & Gregorio for private respondent.

SYLLABUS

1. CIVIL LAW; COMMON CARRIERS; DEFINED; TEST TO DETERMINE

COMMON CARRIER. — Article 1732 of the Civil Code defines a common carrier
as "(a) person, corporation or 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 to determine a
common carrier is "whether the given undertaking is a part of the business
engaged in by the carrier which he has held out to the general public as his
occupation rather than the quantity or extent of the business transacted." . . . The
holding of the Court in De Guzman vs. Court of Appeals is instructive. In referring
to Article 1732 of the Civil Code, it held thus: "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 distinguished between
a carrier offering its services to the "general public," i.e., the general community
or population, and one who offers services or solicits business only from a
narrow segment of the general population. We think that Article 1732 deliberately
refrained from making such distinctions."

2. ID.; ID.; DILIGENCE REQUIRED IN VIGILANCE OVER GOODS

TRANSPORTED; WHEN PRESUMPTION OF NEGLIGENCE ARISES; HOW
PRESUMPTION OVERCAME; WHEN PRESUMPTION MADE ABSOLUTE. —
Common carriers are obliged to observe extraordinary diligence in the vigilance
over the goods transported by them. Accordingly, they are presumed to have
been at fault or to have acted negligently if the goods are lost, destroyed or
deteriorated. There are very few instances when the presumption of negligence
does not attach and these instances are enumerated in Article 1734. In those
cases where the presumption is applied, the common carrier must prove that it
exercised extraordinary diligence in order to overcome the presumption . . . The
presumption of negligence was raised against petitioner. It was petitioner's
burden to overcome it. Thus, contrary to her assertion, private respondent need
not introduce any evidence to prove her negligence. Her own failure to adduce
sufficient proof of extraordinary diligence made the presumption conclusive
against her.

3. ID.; ID.; HIJACKING OF GOODS; CARRIER PRESUMED NEGLIGENT; HOW

CARRIER ABSOLVED FROM LIABILITY. — In De Guzman vs. Court of
Appeals, the Court held that hijacking, not being included in the provisions of
Article 1734, must be dealt with under the provisions of Article 1735 and thus, the
common carrier is presumed to have been at fault or negligent. To exculpate the
carrier from liability arising from hijacking, he must prove that the robbers or the
hijackers acted with grave or irresistible threat, violence, or force. This is in
accordance with 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 . . . (6) That the common carrier's liability for acts
committed by thieves, or of robbers who do not act with grave or irresistible
threat, violences or force, is dispensed with or diminished"; In the same case, the
Supreme Court also held that: "Under Article 1745 (6) above, a common carrier
is held responsible — and will not be allowed to divest or to diminish such
responsibility — even for acts of strangers like thieves or robbers, except where
such thieves or robbers in fact acted "with grave of irresistible threat, violence of
force," We believe and so hold that the limits of the duty of extraordinary
diligence in the vigilance over the goods carried are reached where the goods
are lost as a result of a robbery which is attended by "grave or irresistible threat,
violence or force."

4. REMEDIAL LAW; EVIDENCE; JUDICIAL ADMISSIONS CONCLUSIVE. — In

this case, petitioner herself has made the admission that she was in the trucking
business, offering her trucks to those with cargo to move. Judicial admissions are
conclusive and no evidence is required to prove the same.

5. ID.; ID.; BURDEN OF PROOF RESTS WITH PARTY WHO ALLEGES A

FACT. — Petitioner presented no other proof of the existence of the contract of
lease. He who alleges a fact has the burden of proving it.
6. ID.; ID.; AFFIDAVITS NOT CONSIDERED BEST EVIDENCE IF AFFIANTS
AVAILABLE AS WITNESSES. — While the affidavit of Juanito Morden, the truck
helper in the hijacked truck, was presented as evidence in court, he himself was
a witness as could be gleaned from the contents of the petition. Affidavits are not
considered the best evidence if the affiants are available as witnesses.

7. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT IS WHAT LAW

DEFINES IT TO BE. — Granting that the said evidence were not self-serving, the
same were not sufficient to prove that the contract was one of lease. It must be
understood that a contract is what the law defines it to be and not what it is called
by the contracting parties.

DECISION

CAMPOS, JR., J p:

This is a petition for review on certiorari of the decision ** of the Court of Appeals
in "RODOLFO A. CIPRIANO, doing business under the name CIPRIANO
TRADING ENTERPRISES plaintiff-appellee, vs. ESTRELLITA M. BASCOS,
doing business under the name of BASCOS TRUCKING, defendant-appellant,"
C.A.-G.R. CV No. 25216, the dispositive portion of which is quoted hereunder:

"PREMISES considered, We find no reversible error in the decision appealed

from, which is hereby affirmed in toto. Costs against appellant." 1

The facts, as gathered by this Court, are as follows:

Rodolfo A. Cipriano representing Cipriano Trading Enterprise (CIPTRADE for

short) entered into a hauling contract 2 with Jibfair Shipping Agency Corporation
whereby the former bound itself to haul the latter's 2,000 m/tons of soya bean
meal from Magallanes Drive, Del Pan, Manila to the warehouse of Purefoods
Corporation in Calamba, Laguna. To carry out its obligation, CIPTRADE, through
Rodolfo Cipriano, subcontracted with Estrellita Bascos (petitioner) to transport
and to deliver 400 sacks of soya bean meal worth P156,404.00 from the Manila
Port Area to Calamba, Laguna at the rate of P50.00 per metric ton. Petitioner
failed to deliver the said cargo. As a consequence of that failure, Cipriano paid
Jibfair Shipping Agency the amount of the lost goods in accordance with the
contract which stated that:

"1. CIPTRADE shall be held liable and answerable for any loss in bags due to
theft, hijacking and non-delivery or damages to the cargo during transport at
market value, . . ." 3
Cipriano demanded reimbursement from petitioner but the latter refused to pay.
Eventually, Cipriano filed a complaint for a sum of money and damages with writ
of preliminary attachment 4 for breach of a contract of carriage. The prayer for a
Writ of Preliminary Attachment was supported by an affidavit 5 which contained
the following allegations:

"4. That this action is one of those specifically mentioned in Sec. 1, Rule 57 the
Rules of Court, whereby a writ of preliminary attachment may lawfully issue,
namely:

"(e) in an action against a party who has removed or disposed of his property, or
is about to do so, with intent to defraud his creditors;"

5. That there is no sufficient security for the claim sought to be enforced by the
present action;

6. That the amount due to the plaintiff in the above-entitled case is above all legal
counterclaims;"

The trial court granted the writ of preliminary attachment on February 17, 1987.

In her answer, petitioner interposed the following defenses: that there was no
contract of carriage since CIPTRADE leased her cargo truck to load the cargo
from Manila Port Area to Laguna; that CIPTRADE was liable to petitioner in the
amount of P11,000.00 for loading the cargo; that the truck carrying the cargo was
hijacked along Canonigo St., Paco, Manila on the night of October 21, 1988; that
the hijacking was immediately reported to CIPTRADE and that petitioner and the
police exerted all efforts to locate the hijacked properties; that after preliminary
investigation, an information for robbery and carnapping were filed against Jose
Opriano, et al.; and that hijacking, being a force majeure, exculpated petitioner
from any liability to CIPTRADE.

After trial, the trial court rendered a decision *** the dispositive portion of which
reads as follows:

"WHEREFORE, judgment is hereby rendered in favor of plaintiff and against

defendant ordering the latter to pay the former:

1. The amount of ONE HUNDRED FIFTY-SIX THOUSAND FOUR HUNDRED

FOUR PESOS (P156,404.00) as an (sic) for actual damages with legal interest of
12% per cent per annum to be counted from December 4, 1986 until fully paid;
2. The amount of FIVE THOUSAND PESOS (P5,000.00) as and for attorney's
fees; and

3. The costs of the suit.

The "Urgent Motion To Dissolve/Lift preliminary Attachment" dated March 10,

1987 filed by defendant is DENIED for being moot and academic.

SO ORDERED." 6

Petitioner appealed to the Court of Appeals but respondent Court affirmed the
trial court's judgment.

Consequently, petitioner filed this petition where she makes the following
assignment of errors; to wit:

"I. THE RESPONDENT COURT ERRED IN HOLDING THAT THE

CONTRACTUAL RELATIONSHIP BETWEEN PETITIONER AND PRIVATE
RESPONDENT WAS CARRIAGE OF GOODS AND NOT LEASE OF CARGO
TRUCK.

II. GRANTING, EX GRATIA ARGUMENTI, THAT THE FINDING OF THE

RESPONDENT COURT THAT THE CONTRACTUAL RELATIONSHIP
BETWEEN PETITIONER AND PRIVATE RESPONDENT WAS CARRIAGE OF
GOODS IS CORRECT, NEVERTHELESS, IT ERRED IN FINDING PETITIONER
LIABLE THEREUNDER BECAUSE THE LOSS OF THE CARGO WAS DUE TO
FORCE MAJEURE, NAMELY, HIJACKING.

III. THE RESPONDENT COURT ERRED IN AFFIRMING THE FINDING OF THE

TRIAL COURT THAT PETITIONER'S MOTION TO DISSOLVE/LIFT THE WRIT
OF PRELIMINARY ATTACHMENT HAS BEEN RENDERED MOOT AND
ACADEMIC BY THE DECISION OF THE MERITS OF THE CASE." 7

The petition presents the following issues for resolution: (1) was petitioner a
common carrier?; and (2) was the hijacking referred to a force majeure?

The Court of Appeals, in holding that petitioner was a common carrier, found that
she admitted in her answer that she did business under the name A.M. Bascos
Trucking and that said admission dispensed with the presentation by private
respondent, Rodolfo Cipriano, of proofs that petitioner was a common carrier.
The respondent Court also adopted in toto the trial court's decision that petitioner
was a common carrier, Moreover, both courts appreciated the following pieces of
evidence as indicators that petitioner was a common carrier: the fact that the
truck driver of petitioner, Maximo Sanglay, received the cargo consisting of 400
bags of soya bean meal as evidenced by a cargo receipt signed by Maximo
Sanglay; the fact that the truck helper, Juanito Morden, was also an employee of
petitioner; and the fact that control of the cargo was placed in petitioner's care.

In disputing the conclusion of the trial and appellate courts that petitioner was a
common carrier, she alleged in this petition that the contract between her and
Rodolfo A. Cipriano, representing CIPTRADE, was lease of the truck. She cited
as evidence certain affidavits which referred to the contract as "lease". These
affidavits were made by Jesus Bascos 8 and by petitioner herself. 9 She further
averred that Jesus Bascos confirmed in his testimony his statement that the
contract was a lease contract. 10 She also stated that: she was not catering to
the general public. Thus, in her answer to the amended complaint, she said that
she does business under the same style of A.M. Bascos Trucking, offering her
trucks for lease to those who have cargo to move, not to the general public but to
a few customers only in view of the fact that it is only a small business. 11

We agree with the respondent Court in its finding that petitioner is a common
carrier.

Article 1732 of the Civil Code defines a common carrier as "(a) person,
corporation or 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 to determine a
common carrier is "whether the given undertaking is a part of the business
engaged in by the carrier which he has held out to the general public as his
occupation rather than the quantity or extent of the business transacted." 12 In
this case, petitioner herself has made the admission that she was in the trucking
business, offering her trucks to those with cargo to move. Judicial admissions are
conclusive and no evidence is required to prove the same. 13

But petitioner argues that there was only a contract of lease because they offer
their services only to a select group of people and because the private
respondents, plaintiffs in the lower court, did not object to the presentation of
affidavits by petitioner where the transaction was referred to as a lease contract.

Regarding the first contention, the holding of the Court in De Guzman vs. Court
of Appeals 14 is instructive. In referring to Article 1732 of the Civil Code, it held
thus:

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

Regarding the affidavits presented by petitioner to the court, both the trial and
appellate courts have dismissed them as self-serving and petitioner contests the
conclusion. We are bound by the appellate court's factual conclusions. Yet,
granting that the said evidence were not self-serving, the same were not
sufficient to prove that the contract was one of lease. It must be understood that
a contract is what the law defines it to be and not what it is called by the
contracting parties. 15 Furthermore, petitioner presented no other proof of the
existence of the contract of lease. He who alleges a fact has the burden of
proving it. 16

Likewise, We affirm the holding of the respondent court that the loss of the goods
was not due to force majeure.

Common carriers are obliged to observe extraordinary diligence in the vigilance

over the goods transported by them. 17 Accordingly, they are presumed to have
been at fault or to have acted negligently if the goods are lost, destroyed or
deteriorated. 18 There are very few instances when the presumption of
negligence does not attach and these instances are enumerated in Article 1734.
19 In those cases where the presumption is applied, the common carrier must
prove that it exercised extraordinary diligence in order to overcome the
presumption.

In this case, petitioner alleged that hijacking constituted force majeure which
exculpated her from liability for the loss of the cargo. In De Guzman vs. Court of
Appeals, 20 the Court held that hijacking, not being included in the provisions of
Article 1734, must be dealt with under the provisions of Article 1735 and thus, the
common carrier is presumed to have been at fault or negligent. To exculpate the
carrier from liability arising from hijacking, he must prove that the robbers or the
hijackers acted with grave or irresistible threat, violence, or force. This is in
accordance with 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;

xxx xxx xxx

(6) That the common carrier's liability for acts committed by thieves, or of robbers
who do not act with grave or irresistible threat, violences or force, is dispensed
with or diminished;"

In the same case, 21 the Supreme Court also held that:

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

To establish grave and irresistible force, petitioner presented her accusatory

affidavit, 22 Jesus Bascos' affidavit, 23 and Juanito Morden's 24 "Salaysay".
However, both the trial court and the Court of Appeals have concluded that these
affidavits were not enough to overcome the presumption. Petitioner's affidavit
about the hijacking was based on what had been told her by Juanito Morden. It
was not a first-hand account. While it had been admitted in court for lack of
objection on the part of private respondent, the respondent Court had discretion
in assigning weight to such evidence. We are bound by the conclusion of the
appellate court. In a petition for review on certiorari, We are not to determine the
probative value of evidence but to resolve questions of law. Secondly, the
affidavit of Jesus Bascos did not dwell on how the hijacking took place. Thirdly,
while the affidavit of Juanito Morden, the truck helper in the hijacked truck, was
presented as evidence in court, he himself was a witness as could be gleaned
from the contents of the petition. Affidavits are not considered the best evidence
if the affiants are available as witnesses. 25 The subsequent filing of the
information for carnapping and robbery against the accused named in said
affidavits did not necessarily mean that the contents of the affidavits were true
because they were yet to be determined in the trial of the criminal cases.

The presumption of negligence was raised against petitioner. It was petitioner's

burden to overcome it. Thus, contrary to her assertion, private respondent need
not introduce any evidence to prove her negligence. Her own failure to adduce
sufficient proof of extraordinary diligence made the presumption conclusive
against her.

Having affirmed the findings of the respondent Court on the substantial issues
involved, We find no reason to disturb the conclusion that the motion to
lift/dissolve the writ of preliminary attachment has been rendered moot and
academic by the decision on the merits.
In the light of the foregoing analysis, it is Our opinion that the petitioner's claim
cannot be sustained. The petition is DISMISSED and the decision of the Court of
Appeals is hereby AFFIRMED.

SO ORDERED.

Narvasa, C .J ., Padilla, Regalado and Nocon, JJ ., concur.

Footnotes

** July 17, 1991; penned by Associate Justice Nicolas P. Lapeña, Jr., and
concurred in by Associate Justices Ricardo L. Pronove, Jr., and Consuelo V.
Santiago.

1. Rollo, p. 59.

2. Annex "K" of Memorandum for Petitioner; Rollo, p. 229.

3. Ibid.

4. Civil Case No. 49965; Regional Trial Court, Quezon City, Branch 83.

5. Annex "L" of Memorandum for Petitioner; Rollo, p. 230.

*** Civil Case No. 49965, October 12, 1989. Penned by Judge Reynaldo Roura.

6. Rollo, p. 217.

7. Rollo, p. 16.

8. Petition, pp. 12-13; Rollo, pp. 20-21; Annex "G" of Memorandum for Petitioner;
rollo, p. 225.

9. Petition, pp. 13-14; Rollo, pp. 21-22.

10. Ibid.; Rollo, p. 21; Annex "E" of Memorandum for Petitioner; Rollo, p. 222.

11. Court of Appeals Decision, p. 51; Rollo, p. 55.

12. 4 AGBAYANI, COMMENTARIES AND JURISPRUDENCE ON THE

COMMERCIAL LAWS OF THE PHILIPPINES, 5 (1987).

13. Solivio vs. Court of Appeals, 182 SCRA 119 (1990).

14. 168 SCRA 612 (1988).

15. Schmid and Oberly, Inc. vs. RJL Martinez Fishing Corp., 166 SCRA 493
(1988).

16. Imperial Victory Shipping Agency vs. NLRC, 200 SCRA 178 (1991).

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

Such extraordinary diligence in vigilance over the goods is further expressed in

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

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

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

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

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

(3) Act 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."

20. Supra, note 14.

21. Ibid., p. 621.

22. Annex "G" of Memorandum for Petitioner; Rollo, p. 225; and Juanito
Morden's affidavit Annex "H" of Memorandum for Petitioner; Rollo, p. 226.

23. Annex "E" of Memorandum for Petitioner; Rollo, p. 222.

24. Annex "H" of Memorandum for Petitioner; Rollo, p. 226.

25. Ayco vs. Fernandez, 195 SCRA 328 (1991).

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